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recent events on august 22 , 2016 , the company , icicle acquisition corp. , a delaware corporation and our direct wholly-owned subsidiary , and biocardia lifesciences , inc. ( at the time , named biocardia , inc. ) entered into an agreement and plan of merger , or the merger agreement . on october 24 , 2016 , pursuant to the merger agreement , icicle acquisition corp. merged with and into biocardia lifesciences , with biocardia lifesciences continuing as the surviving company . biocardia lifesciences was determined to be the accounting acquirer , and following the completion of the merger , we assumed the business and operations of biocardia lifesciences and changed our name to biocardia , inc. 64 pursuant to the merger agreement , each of the shares of biocardia lifesciences common stock issued and outstanding prior to the merger , including shares of common stock underlying outstanding preferred stock , convertible notes ( which converted into common stock immediately prior to the merger ) , and stock options were converted into the right to receive 19.3678009 shares of our common stock . for financial reporting purposes , the merger is accounted for as an asset acquisition rather than a business combination because the company did not meet the definition of a business as defined by us gaap in advance of the merger . the fair value of the purchase consideration , consisting of tiger x common stock , was determined based on the fair value of the cash acquired by biocardia lifesciences in the merger of $ 19 million , which is considered the best indicator for the fair value of the purchase consideration . no other assets or liabilities were acquired by biocardia lifesciences . transaction costs of $ 96,000 were recorded as a debit to additional paid in capital . the merger is considered a tax free reverse triangular merger for tax purposes pursuant to internal revenue code sections 368 ( a ) and 368 ( a ) ( 2 ) ( e ) in which the company continues as the parent and biocardia lifesciences as the wholly owned subsidiary , and is therefore treated as an acquisition of stock of biocardia lifesciences by the company . despite the stock acquisition treatment , none of our pre-merger tax attributes remain available after the merger as a result of limitations under internal revenue code section 382 due to lack of business continuity . financial overview revenue we currently have a portfolio of enabling and delivery products , from which we have generated modest revenue . cost of goods sold cost of goods sold includes the costs of raw materials and components , manufacturing personnel and facility costs and other indirect and overhead costs associated with manufacturing our enabling and delivery products . research and development expenses our research and development expenses consist primarily of : salaries and related overhead expenses , which include share-based compensation and benefits for personnel in research and development functions ; fees paid to consultants and contract research organizations , or cros , including in connection with our preclinical studies and clinical trials and other related clinical trial fees , such as for investigator grants , patient screening , laboratory work , clinical trial material management and statistical compilation and analysis ; costs related to acquiring and manufacturing clinical trial materials ; costs related to compliance with regulatory requirements ; and payments related to licensed products and technologies . we expense all research and development costs in the periods in which they are incurred . costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and clinical sites . nonrefundable advance payments for goods or services to be received in future periods for use in research and development activities are deferred and capitalized . the capitalized amounts are then expensed as the related goods are delivered and the services are performed . we plan to increase our research and development expenses for the foreseeable future as we continue to develop cardiamp , and subject to the availability of additional funding , further advance the development of cardiallo and any other therapeutic candidates for additional indications . we typically use our employee and infrastructure resources across multiple research and development programs , and accordingly we have not historically allocated resources specifically to our individual programs . the process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming , and the successful development of our therapeutic candidates is highly uncertain . as a result , 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 any of our therapeutic candidates . 65 selling , general and administrative expenses selling , general and administrative expenses consist primarily of salaries and related costs for employees in executive , finance and administration , sales , corporate development and administrative support functions , including share-based compensation expenses and benefits . other significant selling , general and administrative expenses include sales commissions , rent , accounting and legal services , obtaining and maintaining patents , the cost of consultants , occupancy costs , insurance premiums and information systems costs . we expect that our selling , general and administrative expenses will increase as we operate as a public company , conduct our phase iii pivotal trial for cardiamp , and subject to the availability of additional funding , conduct our phase ii trial for cardiallo and prepare for commercialization . we believe that these increases will likely include increased costs for director and officer liability insurance , costs related to the hiring of additional personnel to support product commercialization efforts and operations as a public company and increased fees for outside consultants , attorneys and accountants . story_separator_special_tag we also expect to incur increased costs to comply with corporate governance , internal controls , investor relations and disclosures , and similar requirements applicable to public companies . other income ( expense ) other income and expense consists primarily of interest charges we incur in periods when we have convertible debt outstanding , interest income we earn on our cash and cash equivalents and changes in the fair value of our warrant and convertible shareholder note derivative liabilities . subsequent to the merger we have no interest charges related to the convertible debt and changes in the fair value of our warrant and convertible shareholder note derivative liabilities as such instruments were converted , cancelled or exchanged as part of the merger . we expect our interest income to increase following the completion of the merger as we invest our cash on hand pending its use in our operations . critical accounting policies and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our financial statements , which we have prepared in accordance with generally accepted accounting principles in the united states , or gaap . the preparation of our 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 expenses during the periods presented . we evaluate these estimates and judgments on an ongoing basis . we base our estimates on historical experience and on 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 may differ from these estimates under different assumptions or conditions . we define our critical accounting policies as those 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 . the following discussion addresses what we believe to be the critical accounting policies used in the preparation of our financial statements that require significant estimates and judgments . revenue recognition we recognize revenue when persuasive evidence of an arrangement exists , delivery has occurred , the price to the buyer is fixed or determinable and collection from the customer is reasonably assured . net product revenue . we recognize revenues from product sales when title and risk of loss have passed to the customer , which typically occurs upon delivery . product sale transactions are evidenced by customer purchase orders , customer contracts , invoices , and or the related shipping documents . revenue is recognized net of provisions made for discounts , expected sales returns and allowances . estimated returns and allowances are based on historical experience and other relevant factors . we accept returns for unused , unopened and resellable product in its original packaging , subject to a 20 % restocking fee . 66 collaboration agreement revenue . collaboration agreement revenue is income from agreements under which we provide biotherapeutic delivery systems and customer training and support for their use in clinical trials and studies . we evaluate activities under these agreements to determine if they represent a multiple element arrangement by identifying the deliverables included within the agreement . we account for these deliverables as separate units of accounting if the following two criteria are met : ° the delivered items have value to the customer on a stand-alone basis ; and ° 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 our control . factors considered in this determination include , among other things , whether any other vendors sell the items separately and if the customer could use the delivered item for its intended purpose without receipt of the remaining deliverables . a change in these assumptions could impact our reported revenue , which could have a material impact to our financial statements . if multiple deliverables included in an arrangement are separable into different units of accounting , we allocate the arrangement consideration to those units of accounting based on their relative selling prices and recognize the associated revenue when the appropriate recognition criteria are met for those deliverables . the amount of allocable arrangement consideration is limited to the amounts that are fixed and determinable . research and development—clinical trial accruals as part of the process of preparing our financial statements , we are required to estimate our expenses resulting from our obligations under contracts with vendors and consultants and clinical site agreements in connection with conducting clinical trials . the financial terms of these contracts are subject to negotiations which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided to us under such contracts . our clinical trial accrual is dependent upon the timely and accurate reporting of expenses of our cros and other third-party vendors . our objective is to reflect the appropriate clinical trial expenses in our financial statements by matching those expenses with the period in which services and efforts are expended . we account for these expenses according to the progress of the trial as measured by patient progression and the timing of various aspects of the trial . we determine accrual estimates through discussion with applicable personnel and outside service providers as to the progress or state of completion of clinical trials , or the services completed . during the course of a clinical trial , we adjust the rate of clinical trial expense recognition if actual results differ from the estimates .
| interest expense for the year ended december 31 , 2016 and 2015 consisted primarily of interest expense related to convertible notes . the increase is attributable to longer period of principle outstanding in 2016 . 69 other income ( expense ) . other income ( expense ) for the year ended december 31 , 2016 and 2015 consisted primarily of the changes in value of the convertible preferred stock warrant liabilities and the change in value of the convertible shareholder note derivative liability . liquidity and capital resources we have incurred net losses each year since our inception and as of december 31 , 2016 , we had an accumulated deficit of approximately $ 60.1 million . we anticipate that we will continue to incur net losses for at least the next several years . on october 24 , 2016 , we issued convertible notes with net proceeds of $ 4.4 million . the convertible notes converted to common stock immediately prior to the merger close . also , we acquired $ 18.9 million in cash as a result of the merger . prior to that time , we have funded our operations principally through the sales of equity and convertible debt securities . as of december 31 , 2016 , we had cash and cash equivalents of approximately $ 21.4 million . the following table shows a summary of our cash flows for the periods indicated ( in thousands ) : replace_table_token_4_th cash flows from operating activities . the decrease in overall spending for operating activities of approximately $ 1.5 million in 2016 compared to 2015 relates primarily to the spending for the anticipated ipo in 2015 coupled with reductions in operating costs attributable to the reduction in workforce that occurred in august 2015. cash flows from investing activities . net cash provided by investing activities of $ 18.9 million during the year ended december 31 , 2016 primarily consists of $ 19.0 million acquired from an accounting perspective as part of the
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we believe that record u.s. oil production is a catalyst for lower oil prices during the near term . customer activities directed towards natural gas drilling and production have been weak for several years , with the u.s. domestic natural gas rig count during the first quarter of 2017 falling to the lowest level ever recorded . the u.s. domestic natural gas rig count has increased from this historic low but is still low by historical standards . we believe that customer activities directed towards drilling for natural gas has been weak because of the high production of shale-directed natural gas wells , the high amount of natural gas production associated with oil-directed shale wells in the u.s. domestic market , and relatively constant consumption of natural gas in the united states . we believe that these factors will continue to depress natural gas-directed drilling during the near term . from a low of $ 1.72 per mcf during the second quarter of 2017 , the price of natural gas had risen to $ 2.65 per mcf early in the first quarter of 2019. we believe that the price of natural gas remains too low to encourage our customers to conduct exploration and production activities directed exclusively towards natural gas . in 2018 , the company 's strategy of utilizing equipment in unconventional basins has continued . during 2018 , we made capital expenditures totaling $ 242.6 million primarily for new revenue-producing equipment and capitalized maintenance of our existing equipment . revenues during 2018 totaled $ 1.7 billion , an increase of 7.9 percent compared to 2017 primarily as a result of higher activity levels and improved pricing for certain service lines . cost of revenues increased $ 132.2 million in 2018 compared to the prior year due to higher employment costs , maintenance and repairs expenses and other costs , all of which were driven by higher activity levels . as a percentage of revenues , cost of revenues increased to 68.7 percent in 2018 compared to 65.9 percent in 2017. selling , general and administrative expenses as a percentage of revenues decreased slightly to 9.8 percent in 2018 compared to 10.0 percent in 2017 due to the leverage of higher revenues over primarily fixed expenses . income before income taxes was $ 221.3 million for 2018 compared to $ 232.8 million in 2017. net income for 2018 was $ 175.4 million , or $ 0.82 earnings per share compared to $ 162.5 million , or $ 0.75 earnings per share in 2017. net income in 2018 and 2017 reflect the lower income rates as a result of the tax cuts and jobs act . additionally , net income in 2017 includes a discrete tax benefit of $ 19.3 million , or $ 0.09 per share , related to the implementation of the tax cuts and jobs act enacted in 2017. cash flows from operating activities increased to $ 389.0 million in 2018 compared to $ 133.7 million in 2017 primarily due to higher earnings coupled with favorable changes in working capital . as of december 31 , 2018 , there were no outstanding borrowings under our credit facility . outlook drilling activity in the u.s. domestic oilfields , as measured by the rotary drilling rig count , reached a cyclical peak of 1,931 during the third quarter of 2014. between the third quarter of 2014 and the second quarter of 2016 , the drilling rig count fell by 79 percent . during the second quarter of 2016 , the u.s. domestic drilling rig count reached the lowest level ever recorded . the principal catalyst for this steep rig count decline was the decrease in the price of oil in the world markets , which began in the second quarter of 2014. the price of oil began to fall at that time due to the perceived oversupply of oil , weak global demand growth , and the strength of the u.s. dollar on world currency markets . during the second quarter of 2016 , the price of oil and the u.s. domestic rig count began to increase , and increased steadily throughout the remainder of 2016 , throughout 2017 and 2018. early in 2019 , the u.s. domestic rig count had fallen by approximately three percent compared with the end of 2018. rpc monitors rig count efficiencies and well completion trends because the majority of our services are directed toward well completions . improvements in drilling rig efficiencies have increased the number of potential well completions for a given drilling rig count ; therefore , the statistics regarding well completions are more meaningful indicators of the outlook for rpc 's activity levels and revenues . annual well completions in the u.s. domestic market fell from 21,355 in 2014 to 8,060 in 2016. annual well completions increased by approximately 40 percent to 11,277 in 2017 , and by approximately 31 percent to 14,756 during 2018. rpc believes that u.s. oilfield well completion activity will remain at its current level or decline during the near term . 19 the current and projected prices of oil , natural gas and natural gas liquids are important catalysts for u.s. domestic drilling activity . during the first two quarters of 2016 , the prices of oil and natural gas remained at low levels that discouraged our customers from undertaking most of their potential exploration and production activities . the prices of oil and natural gas increased during the third and fourth quarters of 2016 , throughout 2017 and continued during the first three quarters of 2018. the price of natural gas continued to rise during the fourth quarter of 2018 and into the first quarter of 2019 , due to low natural gas storage levels , cold weather and increasing demand for natural gas exports . in spite of the recent increase in the price of natural gas , we do not believe that it has risen to a level that encourages our customers to increase their natural gas directed drilling and production activities . story_separator_special_tag by contrast , the price of oil began to fall significantly during the fourth quarter of 2018 , and at the end of the quarter , was approximately 38 percent lower than at the end of the third quarter of 2018. early in the first quarter of 2019 , the price of oil had risen by approximately 19 percent when compared with the end of the fourth quarter of 2018. the average price of natural gas liquids in 2018 increased by 14.7 percent compared to the average price for the full year 2017. the price of oil early in the first quarter of 2019 carries negative implications for rpc 's near-term activity levels . the majority of the u.s. domestic rig count remains directed towards oil . at the beginning of the first quarter of 2019 , approximately 81 percent of the u.s. domestic rig count was directed towards oil , consistent with the prior year . we believe that oil-directed drilling will remain the majority of domestic drilling , and that natural gas-directed drilling will remain a low percentage of u.s. domestic drilling in the near term . we believe that this relationship will continue due to relatively low prices for natural gas , high production from existing natural gas wells , and industry projections of limited increases in domestic natural gas demand during the near term . we continue to monitor the market for our services and the competitive environment . the u.s. domestic rig count has increased sharply since the historical low recorded during the second quarter of 2016 , though there are indications early in 2019 that the rig count will decline during the near term . the fact that drilling and completion activities continue to be highly service-intensive and require a large amount of equipment and raw materials carries favorable implications for our activity levels . furthermore , we note that some wells in the u.s. domestic market have been drilled but not completed . at the end of 2018 , the number of wells in this category had increased by approximately 15 percent since the beginning of the year . we believe that operators will complete many of these wells in the near term , and that they may provide potential revenue for rpc 's completion-directed services . during 2018 , we noted that oilfield completion crews and equipment were providing services with increasing efficiency , and we believe that this higher efficiency has caused the market for several oilfield completion services , including pressure pumping , to become oversupplied . we believe that this development carries negative consequences for pricing of our services , utilization of our equipment and our financial results during the near term . activity levels and pricing for oilfield services reached a level during 2018 that allowed the industry to maintain its equipment and encouraged oilfield service providers to expand their fleets of revenue-producing equipment and hire additional personnel . the prospect of improved financial returns also provided access to the capital markets and allowed previously insolvent service companies to resume operations and add equipment . as a result , competition increased during 2018. increased competition and improved service efficiency , coupled with the significant decline in oil prices during the fourth quarter of 2018 , have become catalysts for lower pricing and activity levels early in 2019. rpc expanded the size of its fleet of revenue-producing equipment modestly during 2018 and has placed orders for a small amount of new equipment to be delivered in 2019. the equipment we placed in service in 2018 and the new equipment we have ordered in 2019 is more powerful and efficient than earlier generations of oilfield service equipment , and we believe that it will produce acceptable financial returns when placed in service . our consistent response to the near-term potential of lower activity levels and pricing is to undertake moderate fleet expansions which will allow us to maintain a strong balance sheet , even if near-term pricing and activity levels generated by such new equipment are modest . the negative implications for rpc 's near-term activity levels from low oil prices and increased competition are partially offset by improved availability and lower cost for some of the critical raw materials used in providing rpc 's services . in addition , lower activity levels reduce the cost , and increase the availability of , skilled labor . these factors may reduce the cost of providing rpc 's services and reduce logistical constraints . 20 story_separator_special_tag seven percent of consolidated revenues in 2016. international revenues increased primarily due to higher customer activity levels in canada and argentina in 2017 , partially offset by lower activity in gabon and bolivia compared to the prior year . our international revenues are impacted by the timing of project initiation and their ultimate duration . cost of revenues . cost of revenues in 2017 was $ 1.1 billion compared to $ 607.9 million in 2016 , an increase of $ 442.9 million or 72.9 percent due to higher materials and supplies expenses , employment costs , maintenance and repairs expenses and fuel costs , all of which were driven by higher activity levels . as a percentage of revenues , cost of revenues decreased due to leverage of higher revenues over direct employment costs and improved pricing for our services . 22 selling , general and administrative expenses . selling , general and administrative expenses increased 5.6 percent to $ 159.2 million in 2017 compared to $ 150.7 million in 2016. these expenses increased due to higher compensation costs , primarily incentive compensation , as well as other expenses consistent with higher activity levels and improved profitability . selling , general and administrative expenses as a percentage of revenues decreased to 10.0 percent of revenues in 2017 compared to 20.7 percent of revenues in 2016 due to the leverage of higher revenues over primarily fixed expenses . depreciation and amortization . depreciation and amortization were $ 163.5 million in 2017 , a decrease of $ 53.7 million , compared to $ 217.3
| the average domestic rig count during 2018 was 17.7 percent higher than 2017. international revenues , which increased from $ 55.9 million in 2017 to $ 90.4 million in 2018 , were five percent of consolidated revenues in 2018 compared to four percent of consolidated revenues in 2017. international revenues increased primarily due to higher customer activity levels in argentina and to a lesser extent , mexico and pakistan in 2018 , partially offset by lower activity in gabon compared to the prior year . our international revenues are impacted by the timing of project initiation and their ultimate duration . cost of revenues . cost of revenues in 2018 was $ 1.2 billion compared to $ 1.1 billion in 2017 , an increase of $ 132.2 million or 12.6 percent due to higher employment costs , maintenance and repair expenses and other costs , all of which were driven by higher activity levels . as a percentage of revenues , cost of revenues increased to 68.7 percent in 2018 compared to 65.9 percent in 2017 . 21 selling , general and administrative expenses . selling , general and administrative expenses increased 5.6 percent to $ 168.2 million in 2018 compared to $ 159.2 million in 2017. these expenses increased due to higher salaries and wages expense consistent with higher activity levels as well as an increase in information technology costs . selling , general and administrative expenses as a percentage of revenues decreased slightly to 9.8 percent of revenues in 2018 compared to 10.0 percent of revenues in 2017 due to the leverage of higher revenues over primarily fixed expenses . depreciation and amortization . depreciation and amortization were $ 163.1 million in 2018 , a decrease of $ 0.4 million , compared to $ 163.5 million in 2017 due to lower capital expenditures in the prior year . as a percentage of revenues , depreciation and amortization decreased in 2018 compared to 2017 primarily due to higher revenues . gain on disposition of assets , net . gain on disposition of assets , net was $ 3.3 million in 2018 compared to $ 4.5 million in 2017. the decrease is due to the sale of operating equipment related to its oilfield pipe inspection service line during the second quarter of 2017 that did not recur in the current period . the gain on disposition of assets , net is generally
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overview the company is a leading provider of employment law compliance solutions for employers and workers in an environment in which shift or other part-time/temporary positions , commonly called “ gigs , ” are performed . in what is now being called the gig economy , businesses such as those in our current target market in the restaurant and hospitality industries contract with independent workers for less than full-time engagements primarily in the form of shift work . the trend toward a gig economy has begun , and we are endeavoring to participate through an employment related service offering . a study by ardent partners confirms that the gig economy trend is significant , noting that “ [ n ] early 38 % of the world 's total workforce is now considered ‘ non-employee , ' which includes contingent/contract workers , temporary staff , gig workers , freelancers , professional services , and independent contractors. ” ardent partners ltd. “ the state of contingent workforce management 2016-2017 : adapting to a new world of work. ” october 2016. a significant problem for employers in the gig economy involves compliance with employment related regulations imposed by federal , state and local governments , including requirements associated with workers ' compensation insurance , and other traditional employment compliance issues , including the employer mandate provisions of the patient protection and affordable care act ( “ aca ” ) . the compliance challenges are often complicated by the actions of many employers in reducing workers ' hours as a means to avoid characterizing employees as “ full-time. ” congress is considering amendments to or replacement of the aca . as of the date of this filing , the aca has not been formally amended or repealed . employers still face regulatory issues and overhead costs , including those associated with the employer mandate provisions of the aca for which we believe our services are a cost-effective solution . 32 for gig/shift workers , whom we also call “ shifters , ” the significant problem is difficulty in finding other jobs/gigs to replace hours lost when their employers reduce their hours and make them less than full-time employees or otherwise to fill workweek employment voids . we believe shiftpixy has the ideal solution for both of these groups and each of their problems via a service offering that entails two principal elements ( that we refer to collectively as our “ ecosystem ” ) as follows : · shiftpixy employer solution : shiftpixy absorbs the employer 's shifters as shiftpixy employees and makes those employees available to the former employer to work the same jobs , as employees of shiftpixy , shouldering a substantial portion of the employment-related compliance responsibilities . in addition , when the shiftpixy mobile app is released , businesses will be able to access via that technology additional qualified workers , who are already part of the shiftpixy ecosystem , to fill workforce voids on short notice , having assurance that such employees have work experience , will be paid , will be covered by applicable workers ' compensation coverage , will have applicable employment related taxes calculated and processed . · shiftpixy shifter solution : shifters placed with one of shiftpixy 's clients can now access other shift work with other shiftpixy clients , ultimately through the new shiftpixy mobile app , a prototype of which was released in september 2016. when released to the general public , anticipated to be in the fourth quarter of 2017 , the shiftpixy mobile app will enable not only shiftpixy shift employees but also ultimately shift employees outside the shiftpixy ecosystem , many of them millennials who connect to the outside world solely through mobile devices , to access available shift jobs at all of shiftpixy 's participating clients . in addition to the benefits of working not as independent contractors but as employees , enjoying the protections of workers ' compensation coverage and employment laws , as well as the calculation and remittance of applicable employment taxes , among other benefits , shifters are also enabled to participate in shiftpixy 's benefit plan offerings , including minimum essential health insurance coverage plans and a 401 ( k ) plan . shiftpixy 's headquarters is currently situated in irvine , california , from which it can reach the southern california market , and the company has a modest staff in phoenix . shiftpixy recently opened an office in new york city where it plans to position two experienced sales/service representatives , and it plans to open additional physical offices in the following locales : · first , orlando ; · next , after the above offices are operational , and upon securing additional financing , if necessary , we plan to proceed to dallas and then chicago ; · finally , after all the above offices are operational , and upon securing additional financing , if necessary , we plan to proceed to las vegas and then atlanta . 33 through these office locations , we plan to engage more actively with clients through sales , marketing , employee onboarding , training and payroll processing , in each instance as necessary and appropriate to the applicable market . these markets collectively account for or allow us to cover approximately 53 % of our target market in the restaurant/hospitality sectors . ( u.s. department of labor . bureau of labor statistics . may 2015. occupational employment and wages . ) shiftpixy and its subsidiary collectively serve , as of august 31 , 2017 , an aggregate of approximately 141 clients with an aggregate of approximately 5,074 employees , including 4,048 employees of shiftpixy and shiftablehr that we provide to our clients and 1,026 employees of our clients for whom we provide only payroll administration services . story_separator_special_tag none of these clients represents more than 10 % of our revenues for fiscal year 2017. shiftpixy 's anticipated business and revenue growth will result from the following factors : · large potential market . · the burdens placed on employers with over 50 full-time employees under the aca . · marketing advantages from strategic insurance provider relationships . · new shiftpixy mobile app that is designed to provide additional benefits to employers and shift workers . · ultimate development of a shiftpixy ecosystem . · mitigation of employment law compliance risks . the problem : employment law compliance requirements present a multi-obstacle ridden employment related compliance landscape for our target market of businesses that rely significantly on part-time and temporary workers . challenges facing such businesses include the need to secure applicable workers ' compensation insurance coverage , to effect employment related tax withholdings and filings , and to navigate laws related to hiring and release of employees , including discrimination ( race , color , national origin , sex , age , religion , disability , pregnancy and sexual orientation ) , sexual harassment , sick pay and time off , hours of work , minimum wage and overtime , gender pay differentials , immigration , safety , child labor , military leave , garnishment and other wage imposition processing , family and medical leave , cobra , and unemployment claims . aca compliance currently adds another significant burden to businesses with more than 50 full-time workers , as they try to manage the additional burdens associated with mandated health insurance benefits . a business can secure assistance in mitigating and even eliminating these challenges by retaining shiftpixy . 34 the shiftpixy solution : shiftpixy is developing an ecosystem comprised of a closed proprietary operating and processing system that helps restaurant or hospitality businesses ( and in the future , businesses in additional industries wherein we plan to market our services ) as well as shift workers by matching available shifts with available shift workers . the shiftpixy ecosystem provides the following benefits : · compliance · cost containment · cost savings shift human capital management inc. : we formed shift human capital management inc. , a wholly-owned subsidiary , in december 2015. we formed this subsidiary in response to the need to have workers ' compensation policies written in the names of the clients ( as may be required by some states ) and otherwise in response to client needs for only administrative and processing services rather than the full-service , staffing program offered by shiftpixy . as of august 31 , 2017 , shiftablehr had 101 clients with 3,703 worksite employees , including 1,026 employees for whom we provide only payroll administration services . consolidated results of our operations for the year ended august 31 , 2017 , vs. year ended august 31 , 2016 the following table summarizes the consolidated results of operations for the years ended august 31 , 2017 and 2016 : shiftpixy inc. consolidated statements of operations replace_table_token_1_th 35 year-ended august 31 , 2017 story_separator_special_tag consulting firms dedicated to product development . we expect our product development costs to continue to increase for the foreseeable future as we increase investments in shiftpixy 's mobile applications and the technology platform necessary to support our ecosystem . over time , we expect our product development costs to remain relatively consistent as a percentage of our total revenues on an annual basis . 38 product development expenses to build the mobile app and platform totaled $ 2.7 million in fiscal year ended august 31 , 2017 , compared to $ 317 thousand in fiscal year august 31 , 2016. this represents an increase of $ 2.4 million or 751 % . customer support . customer support costs consists primarily of costs incurred by us associated with direct client support , such as payroll and benefits processing , hr consultants , costs associated with assisting clients in managing , processing and responding to employment-related legal claims , benefits and risk management , postage and shipping expenses . while we expect our cost of providing services to continue to increase on an annual basis for the foreseeable future due to expected growth in worksite employees , we do expect improvements in our systems and processes which should result in improved efficiencies and as a result we expect our cost of providing services as a percentage of total revenues to decline . customer support costs totaled $ 1.5 million for the year ended august 31 , 2017 , compared to $ 557 thousand for the year ended august 31 , 2016. this represents an increase of $ 899 thousand or 161 % . the primary cause of the increase was due to the addition of 11 customer support employees over the prior year representing $ 840 thousand or 93 % of the increase in customer support costs year over year . general and administrative . general and administrative expenses consist primarily of payroll-related expenses , legal , accounting and other professional services fees and other general corporate expenses . we expect our general and administrative expenses to continue to increase for the foreseeable future due to increases in our legal and financial compliance costs in connection with being a newly public company and to expanded operations in new states . as we improve our systems , processes and internal controls we expect to gain efficiencies and expect our general and administrative costs as a percentage of total revenues to decline . general and administrative expenses totaled $ 4.3 million for the year ended august 31 , 2017 , compared to $ 1.5 million for the year ended august 31 , 2016 , representing an increase of $ 2.8 million or 193 % .
| the increase was primarily the result of accrued payroll expenses from the hiring of 1,627 new worksite employees and the related payroll tax liabilities . gross billings . shiftpixy provides contingent staffing and workforce management solutions , principally to businesses that make significant use of part-time employees ; we are currently focusing on the restaurant and hospitality industries . the company currently targets clients in southern california but has begun to expand our geographic coverage . our gross billings are primarily based on ( i ) the payroll cost of our worksite employees ; ( ii ) the employer portion of payroll-related taxes ; ( iii ) employee benefit programs ; ( iv ) workers ' compensation insurance coverage and ( v ) admin fees and delivery fees , which are the fees charged to clients for providing payroll processing and temporary and other staffing services . gross billings for the year ending august 31 , 2017 , were earned from billings to clients to whom we provide staff or workforce management support . our mobile workforce management solution remains under continuing development . gross billings for the year ended august 31 , 2017 , versus the year ended august 2016 totaled $ 126.4 million compared to $ 50.7 million . as a result , gross billings increased by $ 75.7 million or 149 % . the increase in gross billings is directly attributed to the increase in worksite employees from 3,463 fiscal year end 2016 to 5,074 fiscal year end 2017 . 36 net revenues . net revenues exclude the payroll cost component of gross billings . with respect to employer payroll taxes , employee benefit programs , workers ' compensation insurance , we believe that we are the primary obligor , have latitude in establishing price , selecting suppliers , and determining the service specifications and , as such , the gross billings for those components are included as net revenues . net revenues are recognized ratably over the payroll period as worksite employees perform their service at the client worksite . net revenue for the year ended august 31 , 2017 , was earned from gross
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license and collaboration agreement with takeda pharmaceutical company limited in january 2017 , we entered into a license and collaboration agreement with takeda or the takeda collaboration . all activities of the collaboration regarding ov935 will be guided by the takeda/ovid “ one team ” concept , an integrated and interdisciplinary team from both companies devoted to the successful advancement of ov935 across rare epilepsy syndromes . under the agreement , we will take the lead in clinical development activities and commercialization of the compound ov935 and products containing this compound for the treatment of certain rare neurological disorders in the united states , canada , the european union and israel . takeda will take the lead in commercialization of ov935 in japan and has the option to lead in asia and other selected geographies . we and takeda will initially share equally all development and commercialization costs and expenses prior to launch of a product and all revenues and commercialization costs and expenses after launch . financial operations overview revenue we have not generated any revenue from commercial drug sales and do not expect to generate any revenue unless or until we obtain regulatory approval of and commercialize one or more of our current or future drug candidates . in the future , we may also seek to generate revenue from a combination of research and development payments , license fees and other upfront or milestone payments . research and development expenses research and development expenses consist primarily of costs incurred for our research activities , including our product discovery efforts and the development of our product candidates , which include , among other things : fees related to the acquisition of the rights to ov101 and ov935 ; employee-related expenses , including salaries , benefits and stock-based compensation expense ; fees paid to consultants for services directly related to our drug development and regulatory effort ; expenses incurred under agreements with contract research organizations , as well as contract manufacturing organizations and consultants that conduct preclinical studies and clinical trials ; costs associated with preclinical activities and development activities ; costs associated with technology and intellectual property licenses ; milestone payments and other costs under licensing agreements ; and depreciation expense for assets used in research and development activities . costs incurred in connection with research and development activities are expensed as incurred . costs for certain development activities , such as clinical trials , are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment , clinical site activations or other information provided to us by our vendors . research and development activities are and will continue to be central to our business model . we expect our research and development expenses to increase for the foreseeable future as we advance our current and future drug candidates through preclinical studies and clinical trials . the process of conducting preclinical studies and clinical trials necessary to obtain regulatory approval is costly and time-consuming . it is difficult to determine with certainty the duration and costs of any preclinical study or clinical trial that we may conduct . the duration , costs and timing of clinical trial programs and development of our current and future drug candidates will depend on a variety of factors that include , but are not limited to , the following : number of clinical trials required for approval and any requirement for extension trials ; per patient trial costs ; number of patients who participate in the clinical trials ; number of sites included in the clinical trials ; countries in which the clinical trial is conducted ; length of time required to enroll eligible patients ; 64 number of doses that patients receive ; drop-out or discontinuation rates of patients ; potential additional safety monitoring or other studies requested by regulatory agencies ; duration of patient follow-up ; and efficacy and safety profile of the drug candidate . in addition , the probability of success for any of our current or future drug candidates will depend on numerous factors , including competition , manufacturing capability and commercial viability . we will determine which programs to pursue and how much to fund each program in response to the scientific and clinical success of each drug candidate , as well as an assessment of each drug candidate 's commercial potential . general and administrative expenses general and administrative expenses consist primarily of employee-related expenses , including salaries , benefits and stock-based compensation expense , related to our executive , finance , business development and support functions . other general and administrative expenses include costs associated with operating as a public company described below , travel expenses , conferences , professional fees for auditing , tax and legal services and facility-related costs . we expect that general and administrative expenses will increase in the future as we expand our operating activities and incur additional costs associated with being a publicly traded company . these increases will include legal and accounting fees , costs associated with maintaining compliance with the nasdaq global select market llc and the securities and exchange commission , or the sec , directors ' and officers ' liability insurance premiums and fees associated with investor relations . in addition , if our current or future drug candidates are approved for sale , we expect that we would incur expenses associated with building our commercial and distribution infrastructure . interest income interest income consists of interest income earned on our cash and cash equivalents maintained in money market funds . story_separator_special_tag if at all . if we are unable to raise additional capital in sufficient amounts or on terms acceptable to us we may have to significantly delay , scale back or discontinue our research and development programs or future commercialization efforts . story_separator_special_tag if we raise additional funds through collaborations , strategic alliances or marketing , distribution or licensing arrangements with third parties for one or more of our current or future drug candidates , we may be required to relinquish valuable rights to our technologies , future revenue streams , research programs or drug candidates or to grant licenses on terms that may not be favorable to us . our failure to raise capital as and when needed would have a material adverse effect on our financial condition and our ability to pursue our business strategy . cash flows the following table summarizes our cash flows for the periods indicated : replace_table_token_11_th net cash used in operating activities net cash used in operating activities was $ 31.5 million for the year ended december 31 , 2017 , which consisted of net losses of $ 64.8 million offset by $ 32.3 million of non-cash charges , of which $ 25.9 million related to the issuance of series b-1 preferred stock associated with the collaboration rights to ov935 . net cash used in operating activities was $ 17.8 million for the year ended december 31 , 2016 , which consisted of net losses of $ 22.4 million offset by $ 3.6 million of non-cash charges . the increase of $ 13.7 million in net cash used in operating activities was primarily due to an increase in our costs related to our research and development programs and an increase in our payroll and payroll-related expenses as the result of increased headcount as we continue to build our management team and expand our operations . net cash used in operating activities was $ 17.8 million for the year ended december 31 , 2016 compared to $ 5.5 million for the year ended december 31 , 2015. the increase of $ 12.3 million in net cash used in operating activities was primarily due to an increase in our research and development programs and in our payroll and payroll-related expenses as the result of increased headcount as we continue to build our management team and expand our operations and the payment of the 2015 accrued bonus of $ 1.6 million . net cash used in investing activities net cash used in investing activities was de minimis for each of the periods presented . the company used $ 47 thousand for the year ended december 31 , 2017 compared to $ 0.2 million for the year months ended december 31 , 2016. the decrease in cash used was primarily due to a decrease in external software development costs . net cash provided by financing activities net cash provided by financing activities of $ 66.7 million for the year ended december 31 , 2017 was primarily due to the receipt of $ 66.7 million of net proceeds from the completion of our ipo , after deducting underwriting discounts and commissions and other offering expenses payable by us . net cash provided by financing activities of $ 70.6 million for the year ended december 31 , 2015 was due to $ 70.6 million of net proceeds received from the sales of our series b convertible preferred stock . 68 contractual obligations and commitments as of december 31 , 2017 , we had no contractual obligations or commitments . we had no long-term debt or capital leases and no material non-cancelable purchase commitments with service providers , as we have generally contracted on a cancelable , purchase order basis . we excluded any potential contingent payments upon the achievement by us of clinical , regulatory and commercial events , as applicable , or royalty payments that we may be required to make under license agreements we have entered into with various entities pursuant to which we have in-licensed certain intellectual property as contractual obligations or commitments , including our license agreement with h. lundbeck a/s , northwestern , and our takeda license agreement . pursuant to these license agreements , we have agreed to make milestone payments up to an aggregate of $ 271.3 million upon the achievement of certain development , regulatory and sales milestones . we excluded these contingent payments given that the timing and amount , if any , of such payments can not be reasonably estimated at this time . see the section titled “ business—license and collaboration agreements—license agreement with h. lundbeck a/s ” , business—license and collaboration agreements—northwestern license , ” and “ business—license and collaboration agreements—license and collaboration agreement with takeda ” for additional information . off-balance sheet arrangements we did not have during the periods presented , and we do not currently have , any off-balance sheet arrangements , as defined in the rules and regulations of the sec . emerging growth company status we are an “ emerging growth company , ” as defined in the jumpstart our business startups act of 2012 , or the jobs act , and may remain an emerging growth company for up to five years . for so long as we remain an emerging growth company , we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies . these exemptions include : reduced disclosure about our executive compensation arrangements ; no non-binding stockholder advisory votes on executive compensation or golden parachute arrangements ; and exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting . we have taken advantage of reduced reporting requirements in this annual report on form 10-k. in particular , in this annual report on form 10-k , we have not included all of the executive compensation related information that would be required if we were not an emerging growth company . we may take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company .
| general and administrative expenses replace_table_token_7_th general and administrative expenses were $ 15.0 million for the year ended december 31 , 2017 compared to $ 13.0 million for the year ended december 31 , 2016. the increase of $ 2.0 million was primarily due to the increase in payroll and payroll-related expenses of $ 2.3 million resulting from an increase in headcount . during the year ended december 31 , 2017 , total payroll and payroll-related expenses consisted of $ 4.0 million related to stock-based compensation compared to $ 2.1 million for the year ended december 31 , 2016. interest income interest income increased to $ 0.2 million for the year ended december 31 , 2017 from $ 0.1 million for the year ended december 31 , 2016. the increase is attributable to increased interest on our cash and cash equivalents due to the proceeds received from our ipo . income taxes there was no provision for income taxes for the years ended december 31 , 2017 and 2016 because we have historically incurred operating losses and we maintain a full valuation allowance against our net deferred tax assets . the valuation allowance was approximately $ 35.3 million and $ 16.3 million at december 31 , 2017 and 2016 , respectively . comparison of the years ended december 31 , 2016 and 2015 the following table summarizes the results of our operations for the periods indicated : replace_table_token_8_th 66 research and development expenses replace_table_token_9_th research and development expenses were $ 9.6 million for the year ended december 31 , 2016 compared to $ 6.6 million for the year ended december 31 , 2015. the increase of $ 3.0 million was primarily due to an increase in preclinical and development expenses for the clinical studies of ov101 and an increase in headcount . during the year ended december 31 , 2016 , total research and development expenses consisted of $ 4.8 million in preclinical and development expenses , which included $ 0.5 million in consulting expenses , $ 4.2 million in payroll and payroll-related expenses , of which $ 1.5 million related to stock-based compensation , and $ 0.6 million in other expenses . during the year ended december 31 , 2015 ,
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we increased the clinical collaboration rate between our hospitals and our home health agencies . within our inpatient rehabilitation segment , we initiated development of a predictive model to identify patients at risk for acute care transfer . we implemented a multidisciplinary medication reconciliation process using ace-it . our hospitals and agencies also participated in bundling and aco alternative payment models in various markets , and we developed a form of collaborator agreement to facilitate entering into arrangements with acute care hospitals participating in bundled payment projects . many of our quality and outcome measures remained above both inpatient rehabilitation and home health industry averages , as reported through the uniform data system for medical rehabilitation ( the “ uds ” ) , the united states centers for medicare and medicaid services ( “ cms ” ) , and avalere health and the alliance for home health quality and innovation . not only did we treat more patients and enhance outcomes , we did so in a cost-effective manner . likewise , our growth efforts continued to yield positive results in 2016. in our inpatient rehabilitation hospital segment , we : began operating the 27-bed inpatient rehabilitation hospital at chi st. vincent hot springs , a catholic health initiatives ' hospital , in hot springs , arkansas with our joint venture partner , st. vincent community health services , inc , in february 2016. the joint venture completed construction of a 40-bed hospital and transferred its operations on july 1 , 2016 ; entered into an agreement , in july 2016 , with novant health , inc. to file a certificate of need ( “ con ” ) application to build a new 68-bed inpatient rehabilitation hospital in winston-salem , north carolina . we were awarded a con in november 2016 and expect construction of the new hospital to commence in the summer of 2017. the rehabilitation unit currently located at the novant health rehabilitation center in winston-salem will be relocated to the newly constructed hospital that is expected to be completed in the fourth quarter of 2018 ; entered into an agreement , in july 2016 , with bjc healthcare to file a con application to build a 35-bed inpatient rehabilitation hospital on the third floor of bjc 's barnes-jewish st. peters hospital located in st. peters , missouri . we were awarded a con in september 2016 and construction of the new hospital commenced in october 2016. construction is expected to be completed in the summer of 2017. the hospital will serve as a satellite location of the rehabilitation institute of st. louis , an existing inpatient rehabilitation hospital we operate jointly with bjc healthcare ; began operating the 22-bed inpatient rehabilitation hospital at the bernsen rehabilitation center at st. john , in broken arrow , oklahoma with our joint venture partner , st. john health system , in august 2016. the joint 42 venture began construction of a 40-bed hospital in august 2016. we expect construction to be completed and operations to be transferred in the third quarter of 2017 ; began operating the new 49-bed inpatient rehabilitation hospital at chi st. joseph health rehabilitation hospital in bryan , texas with our joint venture partner , st. joseph 's health system , in august 2016 ; entered into an agreement , in august 2016 , with tidelands health to jointly own and operate the existing 29-bed inpatient rehabilitation hospital currently located on the campus of tidelands waccamaw community hospital in murrells inlet , south carolina . the joint venture 's operation of this hospital is expected to begin in 2018 and is subject to customary closing conditions , including regulatory approvals . in addition , the joint venture will build , own , and operate a second , 46-bed inpatient rehabilitation hospital in little river , south carolina . construction of the new hospital is expected to begin in 2017 , subject to con approval ; began accepting patients at our new , 50-bed inpatient rehabilitation hospital in modesto , california in october 2016 ; formed a joint venture , in december 2016 , with memorial hospital at gulfport to own and operate a 33-bed inpatient rehabilitation hospital in gulfport , mississippi . the joint venture 's operation of the hospital is expected to begin in the second quarter of 2017 , and is subject to customary closing conditions , including regulatory approvals ; continued construction of our 60-bed joint venture hospital with mount carmel health system in westerville , ohio . the joint venture 's operation of the hospital is expected to begin in the second quarter of 2017 ; continued construction of our 48-bed joint venture hospital with west tennessee healthcare in jackson , tennessee . the joint venture 's operation of the hospital is expected to begin in the third quarter of 2017 ; continued our capacity expansions by adding 83 new beds to existing hospitals ; and continued development of the following de novo hospitals : replace_table_token_11_th ( 1 ) in march 2016 , we secured land and began the design and permitting process . ( 2 ) in june 2016 , we were awarded a con , acquired land , and began the design and permitting process . ( 3 ) in august 2016 , we were awarded a con , acquired land , and began the zoning , design , and permitting process . ( 4 ) in august 2014 , we acquired land and began the design and permitting process . we also continued our growth efforts in our home health and hospice segment . during 2016 , we : acquired , in may 2016 , home health agency of georgia , llc. story_separator_special_tag , a home health and hospice provider with two home health locations and two hospice locations in the greater atlanta area ; began accepting patients at our new home health locations in lee 's summit , missouri in february 2016 and new port richey , florida in may 2016 ; acquired , in july 2016 , advantage health inc. , a home health provider with one location in yuma , arizona ; acquired , in september 2016 , three hospice agencies from sotto international , inc. located in texarkana , arkansas , magnolia , arkansas , and texarkana , texas ; 43 began accepting patients at our new hospice location in lee 's summit , missouri in july 2016 ; acquired , in october 2016 , two home health agencies from summit home health care , inc. located in cheyenne , wyoming and laramie , wyoming ; acquired , in october 2016 , lighthouse health care , inc. , a home health provider with one location in springfield , virginia ; acquired , in november 2016 , gulf city home care , inc. , a home health provider with one location in sarasota , florida ; acquired , in november 2016 , honor hospice , llc , a hospice provider with one location in wheat ridge , colorado ; and began accepting patients at our new home health location in georgetown , texas and our new hospice location in nashville , tennessee in november 2016. to support our growth efforts , we continued taking steps to further increase the strength and flexibility of our balance sheet . specifically , we redeemed the outstanding principal balance of $ 176 million of the 7.75 % senior notes due 2022 in march , may , and september of 2016. for additional information regarding these actions , see note 9 , long-term debt , to the accompanying consolidated financial statements and the “ liquidity and capital resources ” section of this item . we also continued our shareholder distributions by repurchasing 1.7 million shares of our common stock in the open market for approximately $ 64 million during 2016. in addition , we continued paying a quarterly cash dividend of $ 0.23 per share on our common stock in the first three quarters of 2016. on july 21 , 2016 , our board of directors approved an increase in our quarterly dividend and declared a cash dividend of $ 0.24 per share that was paid on october 17 , 2016 , and we paid the same per share quarterly dividend on january 17 , 2017. see the “ liquidity and capital resources ” section of this item . business outlook we believe our business outlook remains positive for two primary reasons . first , demographic trends , such as population aging , should increase long-term demand for facility-based and home-based post-acute services . while we treat patients of all ages , most of our patients are 65 and older , and the number of medicare enrollees is expected to grow approximately 3 % per year for the foreseeable future . we believe the demand for facility-based and home-based post-acute services will continue to increase as the u.s. population ages and life expectancies increase . second , we are an industry leader in the growing post-acute sector . as the nation 's largest owner and operator of inpatient rehabilitation hospitals in terms of patients treated and discharged , revenues , and number of hospitals , we believe we differentiate ourselves from our competitors based on our broad platform of clinical expertise , the quality of our clinical outcomes , the sustainability of best practices , and the application of rehabilitative technology . as the fourth largest provider of medicare-certified skilled home health services in terms of revenues , we believe we differentiate ourselves from our competitors by virtue of our scale and density in the markets we serve , the application of a highly integrated technology platform , our ability to manage a variety of care pathways , and a proven track record of consummating and integrating acquisitions . we have invested considerable resources into clinical and management systems and protocols that have allowed us to consistently produce high-quality outcomes for our patients while continuing to contain cost growth . our proprietary hospital management reporting system aggregates data from each of our key business systems into a comprehensive reporting package used by the management teams in our hospitals , as well as executive management , and allows them to analyze data and trends and create custom reports on a timely basis . our commitment to technology also includes the on-going implementation of ace-it . as of december 31 , 2016 , we had installed this system in 101 of our 123 hospitals , and we expect to complete installation in substantially all of our existing hospitals by the end of 2017. we believe this system will improve patient care and safety , enhance staff recruitment and retention , and set the stage for connectivity with other providers and health information exchanges . our home health and hospice segment also uses information technology to enhance patient care and manage the business by utilizing homecare homebase sm , a comprehensive information platform that allows home health providers to process clinical , compliance , and marketing information as well as analyze data and trends for management purposes using custom reports on a timely basis . this allows our home health segment to manage the entire patient work flow and provide valuable data for health systems , payors , and aco partners . we are currently the home health provider to one aco serving approximately 22,000 patients and are exploring several other participation opportunities . 44 we believe these factors align with our strengths in , and focus on , post-acute services . in addition , we believe we can address the demand for facility-based and home-based post-acute services in markets where we currently do not have a presence by constructing or acquiring new hospitals and by acquiring home health and hospice agencies in that highly fragmented industry .
| salaries and benefits increased in 2016 compared to 2015 primarily due to increased patient volumes , including an increase in the number of full-time equivalents as a result of our 2015 development activities , the acquisitions of reliant and caresouth , a salary increase given to all eligible nonmanagement hospital employees effective in october of each year , and an increase in benefit costs . salaries and benefits as a percent of net operating revenues increased during 2016 compared to 2015 primarily as a result of salary and benefit cost increases , medicare home health reimbursement rate cuts , and the ramping up of new hospitals in franklin , tennessee , hot springs , arkansas , bryan , texas , broken arrow , oklahoma , and modesto , california . we provided a 2.75 % salary increase to our nonmanagement hospital employees effective october 1 , 2016 . 52 other operating expenses other operating expenses include costs associated with managing and maintaining our hospitals and home health and hospice agencies . these expenses include such items as contract services , utilities , non-income related taxes , insurance , professional fees , and repairs and maintenance . other operating expenses increased during 2016 compared to 2015 primarily due to the acquisitions of reliant and caresouth and increased patient volumes at our hospitals offset by a $ 3.3 million gain from the divestiture of our home health pediatric services in november 2016. see note 18 , segment reporting , to the accompanying consolidated financial statements . other operating expenses during 2015 included the settlement of an employee sexual harassment matter that was not covered by insurance . as a percent of net operating revenues , other operating expenses decreased during 2016 compared to 2015 due to our increasing revenues , primarily as a result of the acquisitions of reliant and caresouth , and to the aforementioned divestiture and settlement . occupancy costs occupancy costs include amounts paid for rent associated with leased hospitals , outpatient rehabilitation satellite clinics , and home health and hospice agencies , including common area maintenance and similar
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the pro forma information is based on management 's assumptions and is presented 37 for illustrative purposes and does not purport to represent what the results of operations would actually have been if the business combination and merger-related divestitures had occurred as of the dates indicated or what the results would be for any future periods . also , the pro forma information does not include the impact of any revenue , cost or other operation synergies in the periods prior to the acquisition that may result from the business combination or any related restructuring costs . consolidated results of operations from continuing operations year ended december 31 , 2020 compared to the year ended december 31 , 2019 replace_table_token_5_th _ ( 1 ) the pro forma amounts have been prepared on a basis consistent with article 11 of regulation s-x . see `` supplemental pro forma information '' section of this md & a for further detail . ( 2 ) ebitda and adjusted ebitda are non-u.s. gaap financials measures . please refer to the “ non-u.s. gaap financial measures ” section of this management 's discussion and analysis of financial condition and results of operations for a discussion of these measures and a reconciliation of these measures to net income ( loss ) from continuing operations . reported net sales of $ 2,758 million for the year ended december 31 , 2020 increased by 4 % compared to $ 2,642 million for the same period in 2019. the year ended december 31 , 2020 includes approximately $ 352 million of revenue from cristal operations for the first quarter of 2020 and the first nine days of april 2020 for which there were no comparable amounts in the prior year period given the acquisition closed on april 10 , 2019. excluding this cristal revenue , revenue decreased 9 % primarily due to lower tio 2 sales volumes as a result of the covid-19 pandemic as well as lower zircon average selling prices . on a pro forma basis , net sales for the year ended december 31 , 2020 decreased $ 250 million in comparison to the same period in 2019 primarily due to the decreases in sales volumes of tio2 and pig iron as well as lower average selling prices of zircon . net sales by type of product for the years ended december 31 , 2020 and 2019 were as follows : the table below presents reported revenue by product : 38 replace_table_token_6_th the table below presents pro forma revenue by product : replace_table_token_7_th on a reported basis , for the year ended december 31 , 2020 , tio 2 revenue increased $ 127 million , or 6 % , compared to the prior year . given the acquisition of cristal on april 10 , 2019 , there is approximately $ 306 million of revenue in the first quarter of 2020 and first nine days of april 2020 for which there were no comparable amounts in the same period of the prior year . excluding this revenue generated from the cristal operations , tio 2 revenue decreased by $ 179 million due to a $ 152 million decrease in sales volumes as a result of the covid-19 pandemic and a decrease of $ 42 million in average selling prices . foreign currency positively impacted tio 2 revenue by $ 15 million due primarily to the strengthening of the euro . zircon revenues for the cristal operation in the first quarter of 2020 and first nine days of april 2020 were approximately $ 17 million . excluding this cristal related revenue , zircon revenue decreased $ 24 million primarily due to a $ 34 million reduction in average selling prices partially offset by an $ 11 million increase in sales volumes . feedstock and other products revenues for the cristal operations in the first quarter of 2020 and first nine days of april 2020 were approximately $ 29 million . excluding this cristal related revenue , feedstock and other products revenue decreased $ 32 million primarily due to lower sales volumes of cp slag , ilmenite , and rutile prime . on a pro forma basis , for the year ended december 31 , 2020 , tio 2 revenue was lower by $ 198 million or 8 % compared to the prior year driven by a 7 % or $ 160 million decrease in sales volumes , a 2 % decrease in average selling prices impacting revenue by $ 47 million and a $ 1 million decrease in product mix . foreign currency increased tio 2 revenue by $ 10 million due to the strengthening of the euro . zircon revenue declined $ 27 million , or 9 % , due to a 13 % decrease in average selling prices partially offset by a 4 % increase in sales volumes . feedstock and other product revenue was lower by $ 25 million , or 8 % , compared to the prior year due to decreases in ilmenite sales and decreases in cp slag sales volumes . on a reported basis , our gross margin of $ 621 million for the year ended december 31 , 2020 was 23 % of net sales compared to 18 % of net sales for the same period in 2019. the increase in gross margin is primarily due to : the favorable impact of 4 points due to the value of the inventory of cristal being stepped up to fair value on the acquisition date in the prior year period , which resulted in the recognition of higher expense the prior year period ; the favorable impact of 4 points due to the synergies realized from the cristal transaction ; the net favorable impact of 3 points due to changes in foreign exchange rates , primarily due to the south african rand , euro and brazilian real ; the favorable impact of 1 point due to the recognition of a $ 19 million charge for contract losses expected to be incurred on the 8120 supply agreement with venator in the prior year period ; the unfavorable impact story_separator_special_tag of 3 points primarily due to a decrease in average selling prices of tio 2 and zircon ; the unfavorable impact of 2 points due to inflationary cost pressures and unfavorable fixed overhead absorption , including idle facility charges and lower of cost or market charges , on lower volumes as we reduced production to match demand ; 39 the unfavorable impact of 1 point due to sales volumes and product mix ; and the unfavorable impact of 1 point due to deferred margin recognized in the year-ago period which did not recur during the current period . on a pro forma basis , our gross margin of $ 621 million for the year ended december 31 , 2020 was 23 % of net sales compared to 21 % of net sales for the same period in 2019. the increase in gross margin is primarily due to : the favorable impact of 4 points due to the synergies realized from the cristal transaction ; the net favorable impact of 3 points due to changes in foreign exchange rates , primarily due to the south african rand , euro and brazilian real ; the favorable impact of 1 point due to sales volumes and product mix ; the unfavorable impact of 3 points primarily due to a decrease in average selling prices of tio 2 and zircon ; the unfavorable impact of 2 points due to inflationary cost pressures and unfavorable fixed overhead absorption , including idle facility charges and lower of cost or market charges , on lower volumes as we reduced production to match demand ; and the unfavorable impact of 1 point due to deferred margin recognized in the year-ago period which did not recur during the current period . on a reported basis , selling , general and administrative ( `` sg & a '' ) expenses remained consistent for the year ended december 31 , 2020 compared to the prior year . given the acquisition of cristal on april 10 , 2019 , there are approximately $ 23 million of expenses in the first quarter of 2020 and the first nine days of april 2020 for which there were no comparable amounts in the same period of the prior year . excluding the effect of cristal , sg & a expenses decreased $ 23 million primarily driven by $ 13 million of lower professional fees , a decrease of $ 12 million in travel and entertainment expenses as a result of the covid-19 pandemic , a $ 6 million decrease in research and development expenses , lower integration costs of $ 5 million and lower agent commissions of $ 3 million partially offset by $ 12 million increase in employee costs primarily driven by higher incentive compensation , higher costs of $ 2 million for it and communication expenses , and higher costs of $ 3 million related to the transitional service agreement associated with the cristal acquisition . on a pro forma basis , selling , general and administrative expenses decreased primarily due to $ 21 million of synergies , lower travel and entertainment expenses of $ 13 million partially offset by transaction costs of $ 14 million included in 2020 related to the tti acquisition of which all transaction costs in 2019 related to the cristal transaction were excluded for proforma purposes , $ 9 million increase in incentive compensation and $ 6 million due to merit increases . on both a reported and pro forma basis , we recorded restructuring expenses of $ 3 million for employee-related costs associated with headcount reductions during the year ended december 31 , 2020. see note 4 of notes to consolidated financial statements . on a reported basis , income from operations for the year ended december 31 , 2020 of $ 271 million , increased by $ 176 million or 185 % compared to the same period in 2019 which is primarily attributable to the higher gross margin and lower restructuring charges . on a pro forma basis , income from operations for the year ended december 31 , 2020 was $ 271 million , an increase of $ 3 million compared to $ 268 million in the prior year due to lower sg & a expenses and lower restructuring costs partially offset by the lower gross margin in the current year . on both a reported basis and a proforma basis , adjusted ebitda as a percentage of net sales was 24 % for the year ended december 31 , 2020 , an increase of 1 point from 23 % in the prior year . on a reported basis , the higher gross profit , as a result of the reflection of synergies related to the cristal transaction , were the primary drivers of the year-over-year increase in adjusted ebitda percentage . on a proforma basis , the lower sg & a expenses as a result of the reflection of synergies related to the cristal transaction , offset by the lower gross profit was the primary driver of the increase in adjusted ebitda percentage . on a reported basis and a pro forma basis , interest expense for the year ended december 31 , 2020 decreased by $ 12 million and $ 18 million , respectively , compared to the same period in 2019 primarily due to lower average debt outstanding balances and lower average interest rates mainly on the term loan facility and standard bank term loan facility . on a reported and pro forma basis , interest income for the year ended december 31 , 2020 decreased by $ 10 million and $ 4 million , respectively , compared to the prior year primarily due to lower cash balances from the use of cash and previously restricted cash in the second quarter of 2019 for the acquisition of the cristal transaction as well as the overall decrease in interest rates on our cash investments period over period .
| in order to obtain 36 regulatory approval for the cristal transaction , we were required to divest cristal 's north american tio 2 business , which was sold in may 2019. see note 3 for further details on the cristal transaction . business environment the following discussion includes trends and factors that may affect future operating results : throughout the current covid-19 pandemic , our operations have been designated as essential to support the continued manufacturing of products such as food and medical packaging , medical equipment , pharmaceuticals , and personal protective gear . the covid-19 pandemic has impacted our industry and business and the company has taken , and will continue to take , measures , to minimize the impact to our operations and maintain liquidity . in response to the initial pandemic , some of these measures have included delaying capital expenditures , delaying merit increases , increased working capital management cost reductions and incremental borrowings to maintain incremental liquidity . we will continue to monitor the pandemic , related impact to our business and will take additional precautions as deemed necessary . during the second and third quarters of 2020 , the company experienced a significant reduction in tio 2 and zircon sales volumes which was in line with expectations as a result of the decline in global gdp . sales in the fourth quarter of 2020 increased 13 % compared to the prior year period . sequentially , revenues increased 16 % in the fourth quarter compared to the third quarter of 2020 driven by a continued demand recovery as well as delivery on our synergy targets from the cristal transaction . in the fourth quarter of 2020 , tio 2 sales volumes increased in the asia , europe , middle east and africa regions with slight decrease in north america . average tio 2 selling prices were stable in the north american market and were slightly up in the asia , europe , middle east , africa and south and central american regions . based upon current conditions we believe our
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audit committee investigation during the fourth quarter of fiscal year 2014 , we discovered violations of our policies and procedures relating to finished goods held in our warehouse on behalf of our customers ( we refer to finished goods held in our warehouse on behalf of our customers as consignment goods or consignment inventory and , when the finished goods are sold , we refer to the related revenue as consignment revenue ) . specifically , we identified violations related to certain employees in one business unit colluding to cause the improper recognition of revenues for certain goods by recording consignment revenues on goods before such goods were finished . in connection with the above , the audit committee of our board of directors initiated an investigation concerning various accounting cut-off issues in fiscal year 2014 , specifically the transfer of unfinished goods to consignment inventory and other inventory cut-off issues . the investigation found certain process deficiencies concerning the potential to invoice unfinished goods held under consignment arrangements and the need for certain remedial measures . the investigation did not find executive officer involvement in the identified violations . 37 we developed remedial steps to address these significant deficiencies and improve our internal control over our financial reporting . specifically , throughout fiscal year 2015 , we implemented the following remedial measures for the deficiencies identified in the investigation : 1. dismissed an employee involved in the violations . 2. provided training to staff from all departments at the manager level and above on : a. our code of business conduct , which provided guidance and further clarity to our employees on our policies and procedures related to the conduct of business ; and b. our revenue recognition policies , using the services of a third party advisor . this training focused on the scope and application of the company 's policies concerning revenue recognition and related cut-off procedures . 3. evaluated existing inventory procedures and enhanced such procedures , or where necessary , designed and implemented new procedures , including : a. the segregation and storage of consignment inventory in a secure designated warehouse ; and b. physical check of finished goods when our production division delivers products to the designated warehouse . impact of the findings of the investigation on the financial statements and internal controls based on an analysis prepared by the company , it was determined that the potential exposure relating to the control deficiencies identified during the investigation were not material to our consolidated financial statements . further , the company assessed these control deficiencies to be significant deficiencies rather than material weaknesses on the basis that there was no executive officer involvement in the violations , the potential misstatements were not material to the financial statements and the audit committee was actively involved in the investigation . as of june 26 , 2015 , based on an assessment performed by management and taking into account the above mentioned remediation measures , the company determined that these significant deficiencies had been remediated . consignment revenue recognition subsequent to completion of the audit committee 's investigation , the company evaluated its accounting practices surrounding consignment inventory and consignment revenue . based on that evaluation , the company determined that for certain volume supply agreements with our customers , not all of the revenue recognition criteria prescribed by u.s. gaap and staff accounting bulletin no . 104 had been met at the time revenue was recorded . specifically , the company misapplied the guidance when assessing the terms of these agreements with respect to when title and risk of loss transfers to our customers . as a result , the company determined that certain sales previously recognized did not qualify for revenue recognition in the periods in which they were recognized . the company evaluated the impact of the errors on both a quantitative and qualitative basis under the guidance of financial accounting standard board 's accounting standard codification ( asc ) 250 , accounting changes and error corrections and determined that the errors did not have a material impact to the previously issued consolidated financial statements . accordingly , previously issued financial statements for fiscal years 2013 and 2012 have not been revised or restated . the company assessed the control implications and concluded that the deficiency constituted a material weakness in internal control over financial reporting for the fiscal year 2014 . 38 throughout fiscal year 2015 , the company undertook the following actions to remedy this material weakness . we conducted mandatory revenue recognition training for our management staff using third-party accounting experts . management staff also attended follow-up training held by technical accounting specialists from large accounting firms and other professional organizations to maintain up-to-date knowledge on u.s. gaap accounting principles with respect to the application of our policies concerning revenue recognition . we implemented procedures to ensure that significant customer contracts , both contracts in effect at the commencement of the fiscal year and those entered into during the year , are subject to a comprehensive review by appropriate management staff to ensure that the financial accounting for such contracts is in compliance with u.s. gaap and that the contracts properly reflected our current business practices . in addition , we engaged an external technical accounting consultant with extensive u.s. gaap experience to conduct a comprehensive review of all contracts discussed above to ensure the correct application of u.s. gaap standards and principles related to relevant technical accounting topics , especially for the revenue recognition and the cut-off criteria . management evaluated the operating effectiveness of the remediation procedures throughout the fiscal year 2015. as of june 26 , 2015 , the controls and procedures implemented have been tested , and management has determined that such internal controls and procedures are operating effectively to allow management to conclude that the material weakness has been remediated ( refer item 9a for additional information ) . story_separator_special_tag typhoon soudelor storm damage during the week of august 10 , 2015 , we temporarily suspended production in the manufacturing facility of our subsidiary in china due to storm damage caused by typhoon soudelor . we expect to resume production at the facility in august 2015. while we are currently estimating our liabilities and expenses for the quarter ending september 25 , 2015 in relation to this matter , our financial statements for the year ended june 26 , 2015 were not affected . thailand flooding we suspended production at all of our manufacturing facilities in thailand from october 17 , 2011 through november 14 , 2011 due to severe flooding in thailand . we never resumed , and have permanently ceased , production at our chokchai facility . we submitted claims for losses to our insurance companies , all of which were settled as of the end of fiscal year 2014. in fiscal year 2014 , we received from our insurers a final payment of $ 45.2 million against our claims for owned and customer-owned equipment and inventory , which we recognized as income related to flooding . this income was offset by $ 0.5 million of other expenses from write-offs of advance payments to a customer due to flood-related losses . during fiscal year 2014 , we fulfilled our obligations to a customer in accordance with a settlement agreement entered into during the third quarter of fiscal year 2013 by making a final cash payment of $ 5.3 million and transferring equipment with an aggregate value of $ 2.3 million to such customer . in addition , we fulfilled our obligations to a customer 's insurers in accordance with a settlement agreement entered into during the fourth quarter of fiscal 2013 by making a payment of $ 2.3 million . revenues our total revenues increased by $ 95.7 million , or 14.1 % , to $ 773.6 million for fiscal year 2015 , compared with $ 677.9 million for fiscal year 2014. this increase was primarily due to i ) an increase in our customers ' 39 demand for both optical and non-optical communications manufacturing service during the year ended june 26 , 2015 and ii ) the consignment revenues recognition during the fiscal year 2015 of $ 16.5 million . we believe our ability to expand our relationships with existing customers and attract new customers is due to a number of factors , including our broad range of complex engineering and manufacturing service offerings , flexible low-cost manufacturing platform , process optimization capabilities , advanced supply chain management , excellent customer service and experienced management team . although we expect the prices we charge for our manufactured products to decrease over time ( partly as a result of competitive market forces ) , we still believe we will be able to maintain favorable pricing for our services because of our ability to reduce cycle time , adjust our product mix by focusing on more complicated products , improve product quality and yields , and reduce material costs for the products we manufacture . we believe these capabilities will enable us to help our oem customers reduce their manufacturing costs while maintaining or improving the design , quality , reliability , and delivery times of their products . revenues , by percentage , from individual customers representing 10 % or more of our total revenues in the respective periods were as follows : replace_table_token_7_th during fiscal year 2015 , fiscal year 2014 and fiscal year 2013 , we had two customers that each contributed 10 % or more of our total revenues , and such customers together accounted for 30 % , 46 % , and 47 % , respectively , of our total revenues during the respective periods . because we depend upon a small number of customers for a significant percentage of our total revenues , a reduction in orders from , a loss of , or any other adverse actions by , any one of these customers would reduce our revenues and could have a material adverse effect on our business , operating results and share price . moreover , our customer concentration increases the concentration of our accounts receivable and payment default by any of our key customers will negatively impact our exposure . many of our existing and potential customers have substantial debt burdens , have experienced financial distress or have static or declining revenues , all of which may be exacerbated by the continued uncertainty in the global economies . certain customers have gone out of business or have been acquired or announced their withdrawal from segments of the optics market . we generate significant accounts payable and inventory for the services that we provide to our customers , which could expose us to substantial and potentially unrecoverable costs if we do not receive payment from our customers . therefore , any financial difficulties that our key customers experience could materially and adversely affect our operating results and financial condition by generating charges for inventory write-offs , provisions for doubtful accounts , and increases in working capital requirements due to increased days inventory and in accounts receivable . furthermore , reliance on a small number of customers gives those customers substantial purchasing power and leverage in negotiating contracts with us . in addition , although we enter into master supply agreements with our customers , the level of business to be transacted under those agreements is not guaranteed . instead , we are awarded business under those agreements on a project-by-project basis . some of our customers have at times significantly reduced or delayed the volume of manufacturing services that they order from us . if we are unable to maintain our relationships with our existing significant customers , our business , financial condition and operating results could be harmed . revenues by geography we generate revenues from three geographic regions : north america , asia-pacific , and europe .
| cost of revenues also included non-cash share-based compensation expense of $ 1.5 million for fiscal year 2015 , compared with $ 1.2 million for fiscal year 2014 . 49 gross profit . our gross profit increased by $ 13.5 million , or 18.2 % , to $ 87.8 million , or 11.4 % of total revenues , for fiscal year 2015 , compared with $ 74.2 million , or 11.0 % of total revenues , for fiscal year 2014. the slight increase in gross profit margin during fiscal year 2015 , compared with fiscal year 2014 , was primarily related to an increase in revenues resulting from increases in both optical and non-optical products sales volume , as well as a favorable product mix . sg & a expenses . our sg & a expenses increased by $ 11.8 million , or 42.6 % , to $ 39.5 million , or 5.1 % of total revenues , for fiscal year 2015 , compared with $ 27.7 million , or 4.1 % of total revenues , for fiscal year 2014. our sg & a expenses increased both in absolute dollars and as a percentage of revenue during fiscal year 2015 , compared with fiscal year 2014 , mainly due to ; ( i ) an increase of $ 2.8 million in costs related to the audit committee 's internal investigation ; ( ii ) an increase of $ 1.3 million in accrued executive salaries and other benefits ; ( iii ) an increase of $ 2.2 million in share-based compensation ; ( iv ) an increase of $ 2.9 million in pre-operating expenses of our subsidiary 's new facility in the united states ; ( v ) an increase of $ 0.7 million in post-retirement benefit in fiscal year 2015 due to an increase in the number of employees ; and ( vi ) an increase of $ 0.9 million in expenses related to business development . income related to flooding . in fiscal year 2014 , we recognized income related to flooding of $ 45.2 million , which consisted of a payment from our insurers against our claim for owned and customer-owned equipment and inventory , offset by $ 0.5 million of
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the plan involved ( i ) a restructuring of its sales and administrative operations in the united kingdom , ( ii ) a reduction of approximately 200 employees , primarily in the europe and asia-pacific geographic regions , and ( iii ) the write-down of certain underutilized and impaired assets that included information technology assets and obsolete manufacturing equipment . as a result of this plan , the company recorded a pre-tax restructuring and asset impairment charge in the fourth quarter of 2018 of approximately $ 20.5 million . the charge was comprised of severance expenses ( approximately $ 10.8 million ) , impairment of assets ( approximately $ 8.6 million ) and other items ( approximately $ 1.1 million ) . the charge was expected to result in future cash expenditures of $ 12 million , primarily for severance payments ( approximately $ 10.8 million ) . the restructuring plan was substantially complete at the end of fiscal 2019. the company redeployed the savings toward the funding of sales and strategic growth initiatives in 2019 , yielding negligible net savings on the company 's income statement . in connection with the 2018 restructuring plan , the company recorded $ 0.7 million of additional lease exit costs in the third quarter of 2019 , and in the fourth quarter of 2019 the company adjusted its expected severance expenses and recognized a decrease in restructuring costs of $ 1.7 million . in the first quarter of 2017 , the company recorded a restructuring charge of $ 7.3 million , which was related to a previous restructuring plan announced in 2016 , primarily related to exit costs associated with the closure of various flor retail stores . the 2017 charge was comprised of lease exit costs of $ 3.4 million , asset impairment charges of $ 3.3 million and severance charges of $ 0.6 million . the restructuring plan was substantially completed in 2017 . 28 story_separator_special_tag of sales increased $ 62.4 million ( 8.3 % ) compared to 2018 . included in 2019 are costs of sales for the acquired nora business for the full year , which includes purchase accounting amortization of $ 5.9 million related to acquired intangible assets . fluctuations in currency exchange rates had a 1.8 % positive impact on the year-over-year comparison . in absolute dollars , the increase in costs of sales was a result of higher sales for 2019 as compared to 2018 , as well as the full year impact of the acquired nora business . as a percentage of sales , our costs of sales decreased to 60.9 % in 2019 versus 64.0 % in 2018 . this decrease was primarily due to productivity initiatives and the nora non-recurring inventory step-up amortization which occurred in 2018 , but did not recur in 2019. for 2018 , our costs of sales increased $ 144.8 million ( 23.7 % ) compared with 2017 . included in the 2018 period are cost of sales of $ 96.6 million for the acquired nora business , which includes amortization related to acquired inventory and intangible assets of $ 32.1 million . fluctuations in currency exchange rates did not have a significant impact ( less than 1 % ) on the year-over-year comparison . in absolute dollars , the increase in costs of sales was a result of higher sales for 2018 as compared to 2017 . as a percentage of sales , our costs of sales increased to 64.0 % in 2018 versus 61.3 % in 2017 . this increase was a result of ( 1 ) higher costs of sales related to the acquired nora business , including purchase accounting amortization of $ 32.1 million for acquired inventory and intangible assets , ( 2 ) delayed productivity initiatives due to increased sales and production volumes , as well as ( 3 ) a change in the sales mix weighted more heavily toward the interface services business , which typically generates a lower gross margin compared to the rest of our operations . for 2019 , our sg & a expenses increased $ 54.2 million ( 16.5 % ) versus 2018 . included in the 2019 period were a full year of sg & a expenses for the acquired nora business versus only a stub period of approximately five months in 2018. fluctuations in currency rates had a 1.5 % favorable impact on sg & a expenses . the increase in sg & a expenses during the year was primarily due to ( 1 ) higher selling expenses for the full year impact in 2019 of the acquired nora business , ( 2 ) higher year-over-year legal expenses of $ 3.5 million related to the sec matter discussed in note 17 – “ commitments and contingencies ” , and ( 3 ) higher selling expenses related to bringing the company 's global sales organization together for a meeting to accelerate the nora integration , advance our selling system transformation , and engage the sales force in the company 's sustainability mission . these increases were partially offset by lower stock compensation expense of $ 5.8 million compared to prior year . as a percentage of sales , sg & a expenses increased to 28.4 % in 2019 versus 27.8 % in 2018 . for 2018 , our sg & a expenses increased $ 60.3 million ( 22.6 % ) versus 2017 . sg & a expenses for the acquired nora business were $ 34.9 million from august 7 through the end of the 2018 year . currency fluctuations had only a slight ( less than 1 % ) unfavorable impact on sg & a expenses . story_separator_special_tag the increase in sg & a expenses during the year was due to ( 1 ) transaction costs in connection with the nora acquisition of $ 5.3 million , ( 2 ) higher performance-based stock compensation of approximately $ 7.0 million as performance targets were met to a higher degree in 2018 as compared to 2017 , ( 3 ) higher selling expenses of $ 24.0 million related to the acquired nora business , ( 4 ) higher selling expense of $ 7.5 million due to higher sales volumes in the legacy interface business , and ( 5 ) higher administrative expenses of $ 15.8 million primarily due to the acquired nora business as noted above . as a percentage of sales , sg & a expenses increased to 27.8 % in 2018 versus 26.8 % in 2017 . interest expense for 2019 , our interest expense increased $ 10.2 million to $ 25.6 million , versus $ 15.4 million in 2018 . this increase was a result of higher outstanding borrowings incurred in august 2018 to complete the nora acquisition offset slightly by lower average interest rates on our borrowings ( our average borrowing rate for 2019 was 3.27 % as compared to 3.50 % for 2018 ) . our interest rate swaps , entered into in 2017 and 2019 , had approximately $ 0.2 million impact on interest expense for 2019 . 31 for 2018 , our interest expense increased $ 8.3 million to $ 15.4 million , versus $ 7.1 million in 2017 . this increase was a result of ( 1 ) additional debt incurred to complete the nora acquisition and ( 2 ) higher average interest rates on our borrowings ( our average borrowing rate for 2018 was 3.5 % as compared to 2.9 % for 2017 ) . our interest rate swap entered into in 2017 did not have any significant impact on interest expense for 2018. tax on december 22 , 2017 , the u.s. tax cuts and jobs act ( the “ tax act ” ) was enacted into law . among the significant changes resulting from the law , the tax act reduced the u.s. federal income tax rate from 35 % to 21 % effective january 1 , 2018 and created a modified territorial tax system with a one-time mandatory “ transition toll tax ” on previously unrepatriated foreign earnings . as of december 31 , 2017 , the company recorded a provisional tax expense of $ 3.5 million related to the remeasurement of its net deferred tax asset and a provisional tax expense of $ 11.7 million related to the one-time transition toll tax . as of december 30 , 2018 , the company completed the accounting of remeasuring its net deferred tax asset which resulted in a $ 1.7 million decrease to the previously recorded provisional amount and completed its assessment of the one-time transition toll tax which resulted in a $ 5.0 million decrease to the previously recorded provisional amount . see note 16 – “ income taxes ” to the consolidated financial statements in item 8 for further information on the financial statement impact of the tax act . our effective tax rate in 2019 was 22.2 % , compared with an effective tax rate of 8.6 % in 2018 . the increase in our effective tax rate in 2019 compared to 2018 was primarily due to the nonrecurring $ 6.7 million tax benefit realized in 2018 related to the impacts of the tax act as discussed above . in addition , there was a net increase in our effective tax rate in 2019 due to less u.s. federal and foreign tax credits which was partially offset by a reduction in non-deductible expenses , favorable change in unrecognized tax benefits and a higher portion of income earned in foreign jurisdictions not subject to u.s. state income taxes . our effective tax rate in 2018 was 8.6 % , compared with an effective tax rate of 47.0 % in 2017 . the decrease in our effective tax rate in 2018 compared to 2017 was primarily due to a $ 6.7 million tax benefit related to the impacts of the tax act as discussed above , the reduction in the u.s. federal income tax rate from 35 % to 21 % , and an increase in u.s. federal and foreign tax credits . 32 liquidity and capital resources general in our business , we require cash and other liquid assets primarily to purchase raw materials and to pay other manufacturing costs , in addition to funding normal course sg & a expenses , anticipated capital expenditures , interest expense and potential special projects . we generate our cash and other liquidity requirements primarily from our operations and from borrowings or letters of credit under our syndicated credit facility discussed below . historically , we use more cash in the first half of the fiscal year , as we pay insurance premiums , taxes and incentive compensation and build up inventory in preparation for the holiday/vacation season of our international operations . on august 7 , 2018 , our syndicated credit facility was amended and restated in connection with our acquisition of nora . please see note 9 – “ long-term debt ” and note 19 – “ acquisition of nora ” in item 8 for additional information . at december 29 , 2019 , we had $ 81.3 million in cash . approximately $ 2.9 million of this cash was located in the u.s. , and the remaining $ 78.4 million was located outside of the u.s. the cash located outside of the u.s. is indefinitely reinvested in the respective jurisdictions ( except as identified below ) . we believe that our strategic plans and business needs , particularly for working capital needs and capital expenditure requirements in europe , asia , and australia , support our assertion that a portion of our cash in foreign locations will be reinvested and remittance will be postponed indefinitely .
| the 2018 period included nora revenue only from the acquisition date on august 7 , 2018 to the end of the 2018 fiscal year of $ 112.6 million during that stub period . the increase in net sales was primarily volume related and not materially impacted by changing prices . fluctuations in currency exchange rates had a negative impact on our year-over-year sales comparison of approximately $ 26.2 million , meaning that if currency levels had remained constant year over year our 2019 sales would have been higher by this amount . on a geographic basis , including the impact of the nora acquisition , we experienced sales growth across all our regions . sales in the americas were up 11.0 % , sales in europe were up 23.0 % as reported in u.s. dollars , and sales in asia-pacific were up 8.5 % . the sales increase of 11.0 % in the americas in 2019 was due primarily to the impact of the nora acquisition and growth from our luxury vinyl tile ( “ lvt ” ) products . the legacy americas carpet and lvt business grew approximately 3.6 % for the year . this increase in the legacy business was due to increased sales in the corporate office market segment ( up 8.6 % ) as well as increases in the healthcare ( up 18.2 % ) and education ( up 7.6 % ) market segments . these legacy sales increases were partially offset by a decline in the retail market segment ( down 24.6 % ) . in europe , sales in the region were up in both u.s. dollars ( 23.0 % ) and local currency ( 29.1 % ) . this increase was due primarily to the impact of the nora acquisition and growth from our lvt products offset by weakening of the euro and british pound against the u.s. dollar . the legacy european carpet and lvt business declined 2.7 % on a u.s. dollar basis , but grew 2.6 % in local currency . the sales growth in local currency in the legacy european business was most
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buying , distribution and occupancy costs increased approximately $ 8.0 million during fiscal 2012 as compared to fiscal 2011 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 fiscal 2011 , in the operation of new stores and our e-commerce initiative . this increase was net of expense reductions for stores that closed during fiscal 2011 and fiscal 2012. incentive compensation , inclusive of stock-based compensation , increased $ 5.2 million in fiscal 2012 as compared to fiscal 2011 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 a year-over-year increase in self-insured health care costs of $ 1.8 million in fiscal 2012 as compared to fiscal 2011. costs related to our self-insured health care programs are subject to a significant degree of volatility , especially as it relates to the frequency of catastrophic claims . consequently , we are subject to a risk of material variances between reporting periods . in fiscal 2012 , pre-opening costs included in selling , general and administrative expenses were $ 2.7 million , or 0.3 % as a percentage of sales , as compared to $ 1.2 million , or 0.2 % as a percentage of sales , for fiscal 2011. we opened 31 stores during fiscal 2012 as compared to 17 stores in fiscal 2011. pre-opening costs , such as advertising , payroll and supplies , incurred prior to the opening of a new store are charged to expense in the period in which 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 2012 was $ 646,000 , or 0.1 % 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 . in fiscal 2011 we incurred store closing costs and non-cash asset impairment charges of $ 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 . 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 . 26 income taxes the effective income tax rate for fiscal 2012 was 39.2 % as compared to 37.1 % for fiscal 2011. our provision for income tax expense is based on the current estimate of our annual effective tax rate and is adjusted as necessary for quarterly events . approximately 1.3 % of the increase in our effective tax rate between comparative periods was due to the non-deductible portion of compensation attributable to the retirement of our former president and chief executive officer . our fiscal 2011 effective tax rate included benefits related to the favorable resolution of certain tax positions , which lowered the effective 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 needs , potential dividend payments , potential share repurchases , and various other commitments and obligations , as they arise , for at least the next 12 months . cash flow - operating activities our net cash provided by operating activities was $ 38.6 million in fiscal 2013 as compared to $ 25.9 million in fiscal 2012. these amounts reflect our income from operations adjusted for non-cash items and working capital changes . working capital increased to $ 264.9 million at february 1 , 2014 from $ 246.0 million at february 2 , 2013. the current ratio was 4.4 at february 1 , 2014 and 4.0 at february 2 , 2013. cash flow - investing activities our cash outflows for investing activities were primarily for capital expenditures . during fiscal 2013 , we expended $ 31.0 million for the purchase of property and equipment , of which $ 26.3 million was for construction of new stores , remodeling and relocations . during fiscal 2012 , we expended $ 26.0 million for the purchase of property and equipment , of which $ 21.5 million was for construction of new stores , remodeling and relocations . the remaining capital expenditures in both periods were for continued investments in technology and normal asset replacement activities . cash flow - financing activities cash outflows for financing activities have represented cash dividend payments and share repurchases . shares of our common stock can be either acquired as story_separator_special_tag buying , distribution and occupancy costs increased approximately $ 8.0 million during fiscal 2012 as compared to fiscal 2011 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 fiscal 2011 , in the operation of new stores and our e-commerce initiative . this increase was net of expense reductions for stores that closed during fiscal 2011 and fiscal 2012. incentive compensation , inclusive of stock-based compensation , increased $ 5.2 million in fiscal 2012 as compared to fiscal 2011 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 a year-over-year increase in self-insured health care costs of $ 1.8 million in fiscal 2012 as compared to fiscal 2011. costs related to our self-insured health care programs are subject to a significant degree of volatility , especially as it relates to the frequency of catastrophic claims . consequently , we are subject to a risk of material variances between reporting periods . in fiscal 2012 , pre-opening costs included in selling , general and administrative expenses were $ 2.7 million , or 0.3 % as a percentage of sales , as compared to $ 1.2 million , or 0.2 % as a percentage of sales , for fiscal 2011. we opened 31 stores during fiscal 2012 as compared to 17 stores in fiscal 2011. pre-opening costs , such as advertising , payroll and supplies , incurred prior to the opening of a new store are charged to expense in the period in which 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 2012 was $ 646,000 , or 0.1 % 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 . in fiscal 2011 we incurred store closing costs and non-cash asset impairment charges of $ 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 . 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 . 26 income taxes the effective income tax rate for fiscal 2012 was 39.2 % as compared to 37.1 % for fiscal 2011. our provision for income tax expense is based on the current estimate of our annual effective tax rate and is adjusted as necessary for quarterly events . approximately 1.3 % of the increase in our effective tax rate between comparative periods was due to the non-deductible portion of compensation attributable to the retirement of our former president and chief executive officer . our fiscal 2011 effective tax rate included benefits related to the favorable resolution of certain tax positions , which lowered the effective 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 needs , potential dividend payments , potential share repurchases , and various other commitments and obligations , as they arise , for at least the next 12 months . cash flow - operating activities our net cash provided by operating activities was $ 38.6 million in fiscal 2013 as compared to $ 25.9 million in fiscal 2012. these amounts reflect our income from operations adjusted for non-cash items and working capital changes . working capital increased to $ 264.9 million at february 1 , 2014 from $ 246.0 million at february 2 , 2013. the current ratio was 4.4 at february 1 , 2014 and 4.0 at february 2 , 2013. cash flow - investing activities our cash outflows for investing activities were primarily for capital expenditures . during fiscal 2013 , we expended $ 31.0 million for the purchase of property and equipment , of which $ 26.3 million was for construction of new stores , remodeling and relocations . during fiscal 2012 , we expended $ 26.0 million for the purchase of property and equipment , of which $ 21.5 million was for construction of new stores , remodeling and relocations . the remaining capital expenditures in both periods were for continued investments in technology and normal asset replacement activities . cash flow - financing activities cash outflows for financing activities have represented cash dividend payments and share repurchases . shares of our common stock can be either acquired as
| the loss of this one week of sales in fiscal 2013 negatively affected our net sales comparison , as approximately $ 10.7 million in net sales were recorded for this extra week in fiscal 2012. comparable store sales for the 52-week period ended february 1 , 2014 remained flat as compared to the 52-week period ended february 2 , 2013. gross profit gross profit increased $ 1.8 million to $ 259.3 million in fiscal 2013. the gross profit margin in fiscal 2013 decreased to 29.3 % from 30.1 % in the prior fiscal year . our merchandise margin decreased 0.4 % while buying , distribution and occupancy costs , as a percentage of sales , increased 0.4 % . buying , distribution and occupancy costs increased approximately $ 6.3 million during fiscal 2013 as compared to the prior fiscal year primarily as a result of the operation of additional store locations . 24 selling , general and administrative expenses selling , general and administrative expenses increased $ 6.7 million in fiscal 2013 to $ 215.7 million . significant changes in expense between the comparative periods included the following : we incurred an additional $ 10.6 million of expense during fiscal 2013 , as compared to the prior fiscal year , in the operation of new stores . this increase was net of expense reductions for stores that have closed since the beginning of fiscal 2012. incentive compensation , inclusive of stock-based compensation , decreased $ 4.5 million in fiscal 2013 as compared to fiscal 2012 when our financial performance drove material increases in performance-based compensation . 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 . in fiscal 2013 , pre-opening costs included in selling , general and administrative expenses were $ 2.1 million , or 0.2 % as a percentage of sales , as compared to $ 2.7 million ,
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upon completion of the merger , puma merged with and into us , leaving us as the surviving corporation , and we adopted puma 's business plan and changed our name to puma biotechnology , inc. the merger was accounted for as a reverse acquisition whereby puma was deemed to be the acquirer for accounting and financial reporting purposes and we were deemed to be the acquired party . consequently , our financial statements prior to the merger reflect the assets and liabilities and the historical operations of puma from its inception on september 15 , 2010 through the closing of the merger on october 4 , 2011. our financial statements after completion of the merger include the assets and liabilities of us and puma , the historical operations of puma , and the operations of us following the closing date of the merger . the merger of a private operating company into a non-operating public shell corporation with nominal net assets is considered to be a capital transaction , in substance , rather than a business combination , for accounting purposes . accordingly , we treated this transaction as a capital transaction without recording goodwill or adjusting any of our other assets or liabilities . 35 story_separator_special_tag exchange for 3,000,000 shares of our common stock pursuant to the redemption agreement and we paid their counsel $ 40,000 for legal fees incurred in connection with the merger . liquidity and capital resources operating activities we reported a net loss of approximately $ 10.2 million and negative cash flow from operating activities of approximately $ 1.8 million for the year ended december 31 , 2011. our net loss from puma 's date of inception , september 15 , 2010 , to december 31 , 2011 , amounted to approximately $ 10.2 million , while negative cash flow from operating activities amounted to approximately $ 1.8 million . net cash used in operating activities through december 31 , 2011 includes a net loss of $ 10.2 million adjusted for non-cash items of approximately $ 7.6 million for the issuance of an anti-dilutive warrant , $ 0.4 million resulting from an allowance received from the landlord , an increase in accounts payable and accrued expenses of approximately $ 0.6 million , stock option expense of $ 0.1 million , and an increase in prepaid expenses and other assets of approximately $ 0.3 million . the increase in accounts payable and accrued expenses is a direct result of the company commencing operations in the fourth quarter of 2011. we anticipate that our cash on hand , including our cash equivalents as of december 31 , 2011 , will be sufficient to enable us to meet our anticipated expenditures for at least the next 18 months . we expect to continue incurring significant losses for the foreseeable future . our continued operations will depend on whether we are able to raise additional funds through either strategic alliance with a third party concerning one or more of our product candidates or through additional equity or debt financing . through december 31 , 2011 , a significant portion of our financing has primarily been through private placements of our equity securities . we will continue to fund operations from cash on hand and through the similar sources of capital previously described . we can give no assurances that any additional capital raised will be sufficient to meet our needs . further , in light of current economic conditions , including the lack of access to the capital markets being experienced by small companies , particularly in our industry , there can be no assurance that such capital will be available to us on favorable terms or at all . if we are unable to raise additional funds in the future , we may be forced to delay or discontinue the development of one or more of our product candidates and forego attractive business opportunities . any additional sources of financing will likely involve the sale of our equity securities , which will have a dilutive effect on our stockholders . investing activities net cash used in investing activities was approximately $ 1.7 million for the year ended december 31 , 2011. the major portion , $ 1.1 million , represents a high yield savings account which was opened to secure a stand-by letter of credit issued to our landlord as collateral for our office lease . the company invested approximately $ 0.2 million in computer equipment and systems and approximately $ 0.4 million in leasehold improvements . 37 financing activities october 2011 common stock offering . immediately prior to the merger , pursuant to the securities purchase agreement , puma sold 14,666,733 shares of its common stock to certain institutional and accredited investors at a price per share of $ 3.75 , for aggregate gross proceeds of approximately $ 55 million . puma also issued a warrant to each investor that provided such investor with anti-dilution protection in regard to certain issuances of securities . we assumed these warrants in the merger and they are exercisable only if we sell securities at a price below $ 3.75 per share on or prior to the date on which shares of our common stock are first quoted in an over-the-counter market or listed for quotation on a national securities exchange or trading system if we have not previously sold securities for less than $ 3.75 per share . otherwise , the warrants have a ten-year term and an exercise price of $ 0.01 per share . we reimbursed the lead investor in this private placement $ 125,000 for all of its reasonable fees and expenses , including legal fees , associated with the private placement . story_separator_special_tag in addition , in connection with leerink swann llc , or leerink , acting as puma 's placement agent in this private placement , we paid leerink $ 2,338,215 as compensation for its services and $ 75,000 for reimbursable expenses . november 2011 common stock offering . on november 18 , 2011 , we entered into subscription agreements with 139 accredited investors , pursuant to which we sold in a private placement an aggregate of 1,333,267 shares of common stock at a price per share of $ 3.75 per share , for aggregate gross proceeds of approximately $ 5.0 million . leerink swann llc acted as lead placement agent and national securities corporation acted as co-placement agent in connection with this private placement and received compensation of approximately $ 84,000 and $ 150,000 , respectively . in addition to the costs noted above , we incurred legal fees and other costs totaling approximately $ 487,000 associated with the equity raises . current and future financing needs we have incurred negative cash flows from operations since we started our business . we have spent , and expect to continue to spend , substantial amounts in connection with implementing our business strategy , including our planned product development efforts , our clinical trials , and our research and development efforts . given the current and desired pace of clinical development of our three product candidates , over the next 12 months we estimate that our research and development spending will be approximately $ 20 million to $ 25 million . we will need approximately $ 5 million to $ 6 million for general and administrative expenses over the next 12 months . the actual amount of funds we will need to operate is subject to many factors , some of which are beyond our control . in addition , we have based our estimate on assumptions that may prove to be wrong . we may need to obtain additional funds sooner than planned or in greater amounts than we currently anticipate . potential sources of financing include strategic relationships , public or private sales of equity or debt and other sources of funds . we may seek to access the public or private equity markets when conditions are favorable due to our long-term capital requirements . we do not have any committed sources of financing at this time , and it is uncertain whether additional funding will be available when we need it on terms that will be acceptable to us , or at all . if we raise funds by selling additional shares of common stock or other securities convertible into common stock , the ownership interests of our existing stockholders will be diluted . if we are not able to obtain financing when needed , we may be unable to carry out our business plan . as a result , we may have to significantly limit our operations , and our business , financial condition and results of operations would be materially harmed . in such an event , we will be required to undertake a thorough review of our programs , and the opportunities presented by such programs , and allocate our resources in the manner most prudent . contractual obligations as a smaller reporting company , we are not required to disclose information under this section . 38 off-balance sheet arrangements we do not have any off-balance sheet agreements , as defined by sec regulations . critical accounting policies research and development research and development expenses are charged to operations as incurred . research and development expenses consist of salaries , benefits and other personnel related costs , clinical trial and related clinical manufacturing costs , contract and outside service fees , cost of contract research organizations that manage our clinical trials , and cost of contract organizations for pre-clinical development . we account for our clinical trial costs by estimating the total cost to treat a patient in each clinical trial and recognize that cost based on a variety of factors , beginning with preparation for the clinical trial and patient accrual into the clinical trial . the estimated cost includes payments for clinical trial sites and patient-related costs , including laboratory costs related to the conduct of the trial and other costs . we accrue for costs incurred as services are provided for monitoring of the trial and as invoices are received from external service providers . we adjust our accruals in the period when actual costs become known . cost related to the acquisition of technology rights and patents for which development work is still in process are charged to operations as incurred and considered a component of research and development costs . investment securities investment securities consist of high-grade marketable debt securities of financial institutions and other corporations . the company classifies all investment securities ( short-term and long-term ) as available-for-sale , as the sale of such securities may be required prior to maturity to implement management 's strategies . these securities are carried at fair value , with the unrealized gains and losses , if material , reported as a component of accumulated other comprehensive income ( loss ) in stockholders ' equity until realized . realized gains and losses from the sale of available-for-sale securities , if any , are determined on a specific identification basis . a decline in the market value of any available-for-sale security below cost that is determined to be other than temporary results in a revaluation of its carrying amount to fair value . the impairment is charged to earnings and a new cost basis for the security is established . no such impairment charges were recorded for any period presented . premiums and discounts are amortized or accreted over the life of the related security as an adjustment to yield using the straight-line method . interest income is recognized when earned .
| the remaining expenses of approximately $ 128,400 are associated with the commencement of operations and include such items as business insurance , office supplies , telecommunication cost and banking fees . we expect our g & a expenses , excluding stock-based compensation , to increase significantly for fiscal year 2012 as our cost for 2011 reflects only four months of activity . research and development expenses : for the year ended december 31 , 2011 , research and development , or r & d , expenses were approximately $ 826,400 compared to $ 0 for the prior year . approximately $ 696,000 of the total expenses incurred were related to payroll associated with the hiring of 14 employees . our payroll cost will continue to grow , as the current plan is to hire an additional 30 employees in 2012. we also incurred approximately $ 38,000 in recruiting expense during 2011 and expect this cost to increase as we hire additional employees . we also incurred approximately $ 43,000 in consulting expense during 2011. during 2011 , approximately $ 37,500 of stock-based compensation was included in r & d expenses . the remaining expenses of approximately $ 11,900 were related to travel expenses and office supplies . during 2012 , we expect to spend approximately $ 20 million to $ 25 million in r & d expenses as we begin to actively manage the existing clinical trials and potentially commence additional clinical trials . while expenditures on current and future clinical development programs , particularly our pb272 program , are expected to be substantial and to increase , they are subject to many uncertainties , including the results of 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 research and development projects or whether , when and to what extent we will generate revenues from the commercialization and sale of any
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losses and loss adjustment expenses decreased $ 2.9 billion ( 10.1 % ) in 2020 compared to 2019. geico 's ratio of losses and loss adjustment expenses to premiums earned ( the “ loss ratio ” ) was 74.1 % , a decrease of 7.2 percentage points compared to 2019. the decrease in the loss ratio reflected declines in claims frequencies , partly offset by increases in claims severities and the impact of lower premiums earned attributable to the geico giveback program . claims frequencies in 2020 were lower for property damage , bodily injury and personal injury protection coverages ( twenty-eight to thirty percent range ) and collision coverage ( twenty-three to twenty-four percent range ) compared to 2019. average claims severities in 2020 were higher for property damage and collision coverages ( eight to ten percent range ) and bodily injury coverage ( twelve to thirteen percent range ) . losses and loss adjustment expenses included net reductions of $ 253 million in 2020 for decreases in the ultimate loss estimates for prior years ' loss events compared to net increases of $ 42 million in 2019. losses incurred included $ 81 million in 2020 from hurricanes laura and sally and u.s. wildfires . there were no losses from significant catastrophe events in 2019. underwriting expenses in 2020 increased $ 518 million ( 10.1 % ) compared to 2019 , reflecting higher employee-related , advertising and technology costs partly offset by lower premium taxes . geico 's expense ratio in 2020 ( underwriting expenses to premiums earned ) was 16.1 % , an increase of 1.6 percentage points compared to 2019. the expense ratio increase was primarily attributable to the decline in earned premiums from the geico giveback program . 2019 versus 2018 premiums written and earned in 2019 increased 5.5 % and 6.6 % , respectively , compared to 2018. these increases were primarily attributable to voluntary auto policies-in-force growth of 6.4 % , partially offset by a decrease in average premiums per auto policy . the increase in voluntary auto policies-in-force primarily resulted from an increase in new business sales and a decrease in policies cancelled or not renewed . voluntary auto policies-in-force increased approximately 1,068,000 during 2019. losses and loss adjustment expenses in 2019 increased 10.1 % compared to 2018. the loss ratio in 2019 was 81.3 % , an increase of 2.5 percentage points over 2018 , primarily due to increases in average claims severities . average claims severities in 2019 were higher versus 2018 for property damage and collision coverages ( four to six percent range ) and bodily injury coverage ( seven to nine percent range ) . claims frequencies in 2019 declined compared to 2018 for property damage and collision coverages ( two to four percent range ) and personal injury protection coverage ( one to two percent range ) and were relatively unchanged for bodily injury coverage . losses and loss adjustment expenses included net increases of $ 42 million in 2019 and net of decreases $ 222 million in 2018 for changes in the ultimate loss estimates for prior years ' loss events . underwriting expenses in 2019 increased $ 493 million ( 10.6 % ) over 2018. geico 's underwriting expense ratio in 2019 was 14.5 % , an increase of 0.6 percentage points compared to 2018. the underwriting expense increase was primarily attributable to increases in advertising expenses and employee-related costs , which reflected wage and staffing increases . k-36 management 's discussion and analysis ( continued ) insurance—underwriting ( continued ) berkshire hathaway primary group the berkshire hathaway primary group ( “ bh primary ” ) provides a variety of commercial insurance solutions , including healthcare malpractice , workers ' compensation , automobile , general liability , property and various specialty coverages for small , medium and large clients . the largest of these insurers are berkshire hathaway specialty insurance ( “ bh specialty ” ) , berkshire hathaway homestate companies ( “ bhhc ” ) , medpro group , berkshire hathaway guard insurance companies ( “ guard ” ) and national indemnity company ( “ nico primary ” ) . other bh primary insurers include u.s. liability insurance company , central states indemnity company and mlmic insurance company ( “ mlmic ” ) , acquired october 1 , 2018. a summary of bh primary underwriting results follows ( dollars in millions ) . replace_table_token_6_th premiums written increased $ 369 million ( 3.7 % ) in 2020 compared to 2019 , reflecting increased premiums written from bh specialty ( 34 % ) and medpro group ( 9 % ) , partially offset by a 13 % decrease in premiums written by our other primary insurers . the increase at bh specialty was driven by increased casualty business globally and the increase at medpro group reflected increases across several product categories . the decline in volume by our other primary insurers was primarily due to lower workers ' compensation and commercial automobile volumes and the effect of the divestiture of applied underwriters in october 2019. the declines in workers ' compensation and commercial auto business written reflected the effects of reduced exposures and premium refunds related to the covid-19 pandemic and volume reductions attributable to increased price competition in the market . premiums written increased $ 1.3 billion ( 15.0 % ) in 2019 compared to 2018. the increase was attributable to higher volumes from bh specialty , medpro group and guard , as well as from the effects of the mlmic acquisition . these increases were partly offset by lower volume at bhhc and the effect of the applied underwriters divestiture . bh primary 's combined loss ratios were 74.1 % in 2020 , 69.1 % in 2019 and 64.9 % in 2018 , which reflected the effects of significant catastrophe events during the year and changes in estimated losses for prior years ' loss events . story_separator_special_tag losses and loss adjustment expenses attributable to significant catastrophe events were $ 207 million in 2020 ( hurricanes laura and sally and u.s. wildfires ) and $ 190 million in 2018 ( hurricanes florence and michael and the wildfires in california ) . we incurred no losses from significant catastrophe events in 2019. losses in 2020 also included $ 167 million attributable to the pandemic . finally , losses and loss adjustment expenses were reduced $ 265 million in 2020 , $ 499 million in 2019 and $ 715 million in 2018 for net reductions in estimated ultimate liabilities for prior years ' loss events . bh primary insurers write significant levels of commercial and professional liability and workers ' compensation insurance and the related claim costs may be subject to high severity and long claim-tails . accordingly , we could experience significant increases in claims liabilities in the future attributable to higher-than-expected claim settlements , adverse litigation outcomes or judicial rulings and other factors not currently anticipated . berkshire hathaway reinsurance group we offer excess-of-loss and quota-share reinsurance coverages on property and casualty risks and life and health reinsurance to insurers and reinsurers worldwide through several subsidiaries , led by national indemnity company ( “ nico ” ) , berkshire hathaway life insurance company of nebraska ( “ bhln ” ) and general reinsurance corporation , general reinsurance ag and general re life corporation ( collectively , “ general re ” ) . we also periodically assume property and casualty risks under retroactive reinsurance contracts written through nico . in addition , we write periodic payment annuity contracts predominantly through bhln . k-37 management 's discussion and analysis ( continued ) insurance—underwriting ( continued ) berkshire hathaway reinsurance group ( continued ) generally , we strive to generate underwriting profits . however , time-value-of-money concepts are important elements in establishing prices for retroactive reinsurance and periodic payment annuity businesses due to the expected long durations of the liabilities . we expect to incur pre-tax underwriting losses from such businesses , primarily through deferred charge amortization and discount accretion charges . we receive premiums at the inception of these contracts , which are then available for investment . a summary of bhrg 's premiums and pre-tax underwriting results follows ( dollars in millions ) . replace_table_token_7_th property/casualty a summary of property/casualty reinsurance underwriting results follows ( dollars in millions ) . replace_table_token_8_th premiums written in 2020 increased $ 2.9 billion ( 27.5 % ) compared to 2019. the increase was primarily attributable to new business , including a small number of contracts with very large premiums , and increased participations on renewals . premiums written in 2019 increased $ 1.0 billion ( 10.8 % ) compared to 2018. the increase was primarily attributable to new business , net of non-renewals , and increased participations on renewal business , partly offset by the unfavorable foreign currency translation effects of a stronger u.s. dollar . underwriting earnings in 2020 were negatively affected by an increase in losses and loss adjustment expenses of $ 2.6 billion ( 35.3 % ) . the loss ratio in 2020 was 81.0 % , an increase of 7.2 percentage points over 2019. losses and loss adjustment expenses in 2020 included estimated losses of $ 964 million attributable to the covid-19 pandemic and estimated losses from significant catastrophe events of $ 667 million from hurricanes laura and sally and u.s. wildfires . losses and loss adjustment expenses also reflected net increases in estimated ultimate liabilities for prior years ' loss events of $ 162 million in 2020 primarily attributable to legacy environmental , asbestos and other latent injury claims . such amount as a percentage of the related net unpaid claim liabilities as of the beginning of 2020 was 0.5 % . bhrg 's loss ratio was 73.8 % in 2019 and 77.6 % in 2018. losses in 2019 included approximately $ 1.0 billion from typhoons faxia and hagibis and various u.s. and non-u.s. wildfires , while losses in 2018 included approximately $ 1.3 billion from hurricanes florence and michael , typhoon jebi and wildfires in california . losses and loss adjustment expenses also included net decreases of $ 295 million in 2019 and $ 469 million in 2018 for prior years ' loss events . such amounts as percentages of the related net unpaid claim liabilities as of the beginning of the applicable year were 1.0 % in 2019 and 1.7 % in 2018. underwriting expenses are primarily commissions and brokerage costs . underwriting expenses in 2020 increased $ 533 million ( 20.6 % ) over 2019 , and underwriting expenses in 2019 increased $ 376 million ( 17.0 % ) over 2018. the increases reflected the increases in premium volumes and changes in business mix . k-38 management 's discussion and analysis ( continued ) insurance—underwriting ( continued ) life/health a summary of our life/health reinsurance underwriting results follows ( dollars in millions ) . replace_table_token_9_th life/health premiums written increased $ 885 million ( 17.8 % ) in 2020 compared to 2019. approximately $ 480 million of the increase was attributable to a reinsurance contract covering u.s. health insurance risks that incepted in the fourth quarter of 2019 , which was not renewed for 2021. the remainder of the increase was primarily from volume growth in the asian and european life reinsurance markets . underwriting earnings in 2020 were negatively affected by increased life benefits from covid-19-related claims ( approximately $ 275 million ) and continuing losses from increased liabilities from changes in underlying assumptions with respect to disability benefit liabilities in australia , which were mostly offset by lower other life claims and reduced losses from u.s. long-term care business that is in run-off . the ratio of life and health insurance benefits to premiums earned was 83.3 % in 2020 and 81.5 % in 2019 , which is before the effects of the bhln contract amendment referred to below .
| our businesses that were deemed essential continued to operate through the pandemic , including our railroad , utilities and energy , insurance and certain of our manufacturing , wholesale distribution and service businesses . in response to the effects of the pandemic , our businesses implemented various business continuity plans to protect our employees and customers . such plans include a variety of actions , such as temporarily closing certain retail stores , manufacturing facilities and service centers of businesses that were not subject to government mandated closure . our businesses also implemented practices to protect employees while at work . such practices included work-from-home , staggered or reduced work schedules , increased cleaning and sanitation of workspaces , providing employee health screenings , eliminating non-essential travel and face-to-face meetings and providing general health reminders intended to lower the risk of spreading covid-19 . we also took actions in response to the economic losses from reductions in consumer demand for products and services we offer and our temporary inability to produce goods and provide services at certain of our businesses . these actions included employee furloughs , wage and salary reductions , capital spending reductions and other actions intended to help mitigate the economic losses and preserve capital and liquidity . certain of our businesses undertook and may continue to undertake restructuring activities to resize their operations to better fit expected customer demand . we can not reliably predict future economic effects of the pandemic or when business activities at all of our numerous and diverse operations will normalize . nor can we predict how these events will alter the future consumption patterns of consumers and businesses we serve . our insurance businesses generated after-tax earnings from underwriting of $ 657 million in 2020 , $ 325 million in 2019 and $ 1.6 billion in 2018. in each year , we generated underwriting earnings from primary insurance and underwriting losses from reinsurance . insurance underwriting results included after-tax losses from significant catastrophe events of approximately $ 750 million in 2020 , $ 800 million in 2019 and $ 1.3 billion in 2018. underwriting results in 2020 also reflected the
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debiopharm has assumed all future development responsibility for debio 0932 and debiopharm or a debiopharm licensee will incur all future costs related to the development , registration and commercialization of products under the agreement . in april 2010 , debiopharm initiated a phase 1 clinical trial to evaluate the safety of debio 0932 given orally to patients with advanced solid tumors . in 2011 , debiopharm successfully advanced debio 0932 through the dose escalation portion of this phase 1 study and determined 1000 mg daily to be the recommended dose for further development . in the beginning of 2012 , debiopharm advanced debio 0932 into the phase 1b expansion portion of the study at this 1000 mg daily dose level . the primary objectives of this study were to further assess the safety profile , pharmacokinetics and pharmacodynamics of debio 0932 at the oral 1000 mg daily dose and to make a preliminary assessment of its anti-tumor activity . debiopharm completed the phase 1b expansion portion of the study , enrolling approximately 30 patients with advanced solid tumors , including patients with nsclc . in august 2012 , debiopharm initiated the halo phase 1/2 clinical trial of debio 0932 in combination with various chemotherapy regimens in patients with stage iiib or iv nsclc without known egfr mutations . in the phase 1 portion of this study , various doses of debio 0932 are being investigated in combination with either cisplatin/pemetrexed or cisplatin/gemcitabine in treatment-naïve patients , and with docetaxel in previously treated patients . once a recommended phase 2 dose of debio 0932 in combination with the chemotherapy regimen ( s ) has been identified , debiopharm expects to initiate the randomized , double-blind , placebo-controlled phase 2 portion of the study . the phase 2 portion of the halo trial is expected to enroll eligible patients with nsclc , who will be randomized to receive standard of care chemotherapy treatment in combination with either debio 0932 or placebo . the primary objective of this study is to compare the effect of adding debio 0932 to combination chemotherapy with cisplatin/pemetrexed and cisplatin/gemcitabine on the rate of progression-free survival at 6 months in first-line therapy of patients in this study population . under our agreement with debiopharm , we are eligible for our next milestone payment when debiopharm treats its fifth patient in a phase 2 clinical trial , which we expect could occur in 2014. we have received $ 13,000,000 in milestone payments to-date from debiopharm under this collaboration . in october 2013 , debiopharm initiated an open-label , multicenter phase 1 dose-finding study of debio 0932 , in combination with everolimus , an inhibitor of mtor , in patients with advanced or metastatic renal cell carcinoma , or rcc , who have been previously treated with a vegf-directed tyrosine kinase inhibitor . this dose escalation study is designed to determine the safety and maximum tolerated dose of debio 0932. liquidity since our inception , we have funded our operations primarily through license fees , contingent cash payments , research and development funding from our corporate collaborators , private and public placement of our equity securities , debt financings and the monetization of certain royalty rights . we have never been profitable on an annual basis and have an accumulated deficit of $ 760,827,000 as of december 31 , 2013. we will need to generate significant revenues to achieve profitability and do not expect to achieve profitability in the foreseeable future , if at all . we anticipate that existing capital resources as of december 31 , 2013 should enable us to maintain current and planned operations into 2016. our ability to continue funding our planned operations into and beyond this point is dependent on future contingent payments that we may receive from genentech , debiopharm , or lls upon the achievement of development and regulatory approval objectives , our ability to manage our expenses and our ability to raise additional funds through additional corporate collaborations , equity or debt financings , or from other sources of financing . 59 key drivers we believe that near term key drivers to our success will include : genentech 's ability to successfully commercialize erivedge in advanced bcc ; genentech 's effective use of results from the ongoing phase 2 clinical trial of erivedge in patients with operable bcc , and positive results from the erivedge clinical trial in aml and mds patients ; our ability to successfully plan , finance and complete current and planned clinical trials for cudc-907 and cudc-427 , subject to the fda removing the partial clinical hold ; and debiopharm 's ability to advance debio 0932 into later stages of clinical development . in the longer term , a key driver to our success will be our ability , and the ability of any current or future collaborator or licensee , to successfully develop and commercialize additional product candidates . our current collaboration and license agreements are summarized as follows : genentech hedgehog pathway inhibitor collaboration . under the terms of our collaboration agreement with genentech , we granted genentech an exclusive , global , royalty-bearing license , with the right to sublicense , to make , use , sell and import small molecule and antibody hedgehog pathway inhibitors . the lead drug candidate being developed under this program is erivedge . genentech subsequently granted a sublicense to roche for non-u.s. rights to gdc-0449 , other than in japan where such rights are held by chugai . genentech and roche have primary responsibility for worldwide clinical development , regulatory affairs , manufacturing and supply , formulation and sales and marketing . we are eligible to receive cash payments for regulatory filing and approval objectives achieved and future royalties on products developed outside of the u.s. , if any . story_separator_special_tag we are eligible to receive up to $ 115,000,000 in contingent cash payments for the development of erivedge or another small molecule , assuming the successful achievement by genentech and roche of specified clinical development and regulatory objectives , of which we have received $ 56,000,000 as of december 31 , 2013. we are also eligible to receive royalties on sales of any hedgehog pathway inhibitor products that are successfully commercialized by genentech and roche , for which we recognized $ 3,942,000 and $ 1,530,000 in such revenue for sales of erivedge during the years ended december 31 , 2013 and 2012 , respectively . future royalty payments related to erivedge will service the outstanding debt and accrued interest to biopharma-ii , up to the quarterly caps for 2014 and 2015 , and until the debt is fully repaid thereafter . genentech iap inhibitor license agreement . in november 2012 , we licensed from genentech the exclusive , worldwide rights for the development and commercialization of cudc-427 , a small molecule that is designed to promote cancer cell death by antagonizing iap proteins . under the terms of the license agreement , we have the sole right and responsibility for all research , development , manufacturing and commercialization activities related to cudc-427 . during the fourth quarter of 2012 , we incurred expenses of $ 9,500,000 representing an up-front license payment and technology transfer costs payable to genentech . in addition , genentech is entitled to receive milestone payments upon the first commercial sale of cudc-427 in certain territories and tiered single-digit royalties on net sales of cudc-427 . the leukemia & lymphoma society agreement . in november 2011 , we entered into an agreement with lls , under which lls will provide approximately 50 % of the direct costs of the development of cudc-907 , up to $ 4,000,000 , through milestone payments upon our achievement of specified development objectives , in patients with relapsed or refractory lymphomas and multiple myeloma . during the years ended december 31 , 2013 and 2012 , we earned milestone payments of $ 650,000 and $ 1,000,000 , respectively , under the terms of the agreement with lls . we will be obligated to make future contingent payments , including potential royalty payments under our agreement with lls upon our successful entry into a partnering agreement for cudc-907 or upon the achievement of regulatory and commercial objectives , with such future payments capped at 2.5 times the milestone payments that we receive from lls under this agreement . 60 debiopharm hsp90 collaboration . in august 2009 , we granted a worldwide , exclusive royalty-bearing license to our hsp90 inhibitor technology to debiopharm . the lead molecule under this license collaboration was designated debio 0932 by debiopharm . debiopharm has assumed all future development responsibility and costs related to the development , registration and commercialization of products under the agreement . as part of the consideration under the agreement , debiopharm paid us an up-front license fee of $ 2,000,000 , and we received $ 11,000,000 during 2010 in payments upon debiopharm 's successful achievement of clinical and regulatory objectives , including the approval from french regulatory authorities of debiopharm 's clinical trial application to begin phase 1 clinical trials and the treatment of the fifth patient in these trials . we are eligible to receive up to an additional $ 77,000,000 if specified clinical development and regulatory approval objectives are met . we are also eligible to receive royalties if any products under the license agreement are successfully developed and commercialized . subject to specified exceptions , we are entitled to a high single-digit to low double-digit royalty for net sales of debio 0932 that are made directly by debiopharm , escalating within this range with increasing product sales . we are entitled to a share of royalties that debiopharm receives from a sublicensee . financial operations overview general . our future operating results will largely depend on the magnitude of payments from our current and potential future corporate collaborators and the progress of drug candidates currently in our research and development pipeline . the results of our operations will vary significantly from year to year and quarter to quarter and depend on , among other factors , the timing of our entry into new collaborations , if any , the timing of the receipt of payments , if any , from new or existing collaborators and the cost and outcome of any preclinical development or clinical trials then being conducted . we anticipate that existing capital resources as of december 31 , 2013 should enable us to maintain current and planned operations into 2016. debt . in december 2012 , our wholly-owned subsidiary , curis royalty , entered into a $ 30,000,000 debt transaction with biopharma-ii at an annual interest rate of 12.25 % collateralized with certain future erivedge royalty and royalty-related payment streams . in connection with the loan , we transferred to curis royalty our right to receive certain future royalty and royalty-related payments on the commercial sales of erivedge that we may receive from genentech . the loan and accrued interest will be repaid by curis royalty using such royalty and royalty-related payments . to secure repayment of the loan , curis royalty granted a first priority lien and security interest ( subject only to permitted liens ) to biopharma-ii in all of its assets and all real , intangible and personal property , including all of its right , title and interest in and to the royalty and royalty-related payments . the loan constitutes an obligation of curis royalty , and is intended to be non-recourse to us .
| in july 2013 , we amended the protocol of the ongoing phase 1 study to include two additional dosing regimens , wherein oral cudc-907 will be administered either two times per week or three times per week . additionally , exploratory biomarkers will be assessed for the activity of cudc-907 . we expect to complete the dose-escalation phase of this phase 1 study in the middle of 2014 and initiate enrollment in the expansion cohort ( s ) in patients with select malignancies in the second half of 2014. in addition to our ongoing phase 1 clinical study in advanced lymphomas and multiple myeloma patients , we are conducting preclinical studies with cudc-907 in solid tumor models and expect that we will initiate additional studies using cudc-907 in in patients with solid tumors later in 2014. in november 2011 , we entered into an agreement with the leukemia and lymphoma society , or lls , relating to the development of cudc-907 . cudc-427 . in 2012 , we licensed from genentech the exclusive , worldwide rights for the manufacture , development and commercialization of a small molecule smac mimetic drug candidate , cudc-427 , that is designed to promote cancer cell death by antagonizing iap proteins . under the terms of the license agreement , we have the sole right and responsibility for all research , development , manufacturing and commercialization activities related to cudc-427 . genentech will be entitled to milestone payments upon the first commercial sale of cudc-427 in certain territories and a tiered low-to-mid single-digit royalty on net sales of cudc-427 , if any . 56 iap proteins are a family of functionally and structurally related proteins that promote cancer cell survival by inhibiting programmed cell death , a process also referred to as apoptosis . using iap proteins and other anti-apoptotic factors , cancer cells evade cell death in response to a variety of signals , including those provided by anti-cancer agents such as chemotherapy , or naturally occurring inflammatory and immune signals transmitted
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longer-term treasuries generated modest returns . municipal securities were flat for the year , as they surrendered earlier gains during the fourth quarter amid rising interest rates and cash outflows . high yield bonds strongly outperformed , helped by their lower interest rate sensitivity , investors ' demand for securities with attractive yields , and a rebound in oil prices . bonds in developed non-u.s. markets produced modest positive returns in dollar terms , as significant first-half gains driven by u.s. currency weakness and falling sovereign debt yields were largely offset by a reversal of these trends in the latter half of the year . bonds in emerging markets produced solid gains , as first-half returns driven by dollar weakness and investors ' search for attractive yields were only partially eroded by a stronger u.s. dollar in the second half . results of several major bond market indexes for 2016 are as follows : bloomberg barclays u.s. aggregate bond index 2.7 % jpmorgan global high yield index 18.3 % bloomberg barclays municipal bond index .3 % bloomberg barclays global aggregate ex-u.s. dollar bond index 1.5 % jpmorgan emerging markets bond index plus 9.6 % page 24 assets under management . our assets under management ended 2016 at $ 810.8 billion , an increase of $ 47.7 billion from the end of 2015 . during 2016 , market appreciation and income , net of distributions not reinvested , of $ 50.5 billion was offset in part by net cash outflows of $ 2.8 billion . investment advisory clients outside the u.s. account for about 5 % of our assets under management at december 31 , 2016 . replace_table_token_8_th replace_table_token_9_th our target date retirement portfolios , which invest in a broadly diversified portfolio of other t. rowe price funds or t. rowe price collective investment trusts and automatically rebalance to maintain their specific asset allocation weightings , continue to be a significant part of our assets under management . assets under management at december 31 , 2016 , in these target date portfolios totaled $ 189.2 billion , including $ 150.9 billion in target date retirement funds and $ 38.3 billion in target date retirement trusts . the following table presents the component changes in assets under management for 2014 , 2015 , and 2016. replace_table_token_10_th page 25 replace_table_token_11_th in 2014 , the majority of the assets transferred by clients from our sponsored mutual funds to our other investment portfolios disclosed in the table above were moved from our target date retirement funds to our collective investment trusts and target date retirement trusts . in 2015 and 2016 , assets were transferred from both target date retirement funds and other mutual funds to our collective investment trusts , target date retirement trusts , and separate accounts . the net cash flows after client transfers ( in billions ) , by investment vehicle and asset class , over the last three years , are as follows : replace_table_token_12_th the net cash inflows in our sponsored u.s. mutual funds over the last three years were sourced primarily from third-party financial intermediaries across various mandates as detailed below . in 2014 , the net outflows from our other investment portfolios were primarily from a few institutional and subadvisory clients who redeemed significant amounts from a small number of equity and fixed income strategies . in 2015 , the net inflows in our other investment portfolios resulted primarily from the client transfers received from the mutual funds . the net outflows prior to the transfers into these portfolios were largely concentrated among a small number of institutional clients who redeemed primarily from large-cap u.s. equity strategies . in 2016 , our net cash outflows are largely attributable to institutional and intermediary clients reallocating to passive investments and the impact of our closed investment strategies . the general trend to passive also impacted the net cash flows originating in our target date retirement portfolios . this trend has been persistent and has accelerated in recent years . however , over the long term we expect well-executed active management to play an important role for investors , and we are reinvesting in our company with the objective of delivering strong investment performance and excellent client service like we have historically achieved . page 26 investment performance . strong investment performance and brand awareness is a key driver to attracting and retaining assets—and to our long-term success . although investment performance relative to our peers has weakened in 2016 , it has been strong over the longer term . the percentage of our price funds across their share classes that outperformed their comparable lipper averages on a total return basis and percentage in top lipper quartile for the 1- , 3- , 5- and 10-years ended december 31 , 2016 , were : replace_table_token_13_th in addition , nearly 86 % of our price funds ' assets under management ended december 31 , 2016 , with an overall rating of four or five stars from morningstar . the performance of our institutional strategies against their benchmarks weakened in 2016 but remains very competitive over longer time periods . results of operations . the table below presents financial results on a u.s. gaap basis , as well as a non-gaap basis to adjust for the non-recurring charge related to the dell appraisal rights matter , the impact of the consolidated sponsored investment portfolios , and other non-operating income . we believe the non-gaap financial measures below provide relevant and meaningful information to investors about our core operating results . replace_table_token_14_th ( 1 ) non-operating income varies from year to year due to a number of factors ; accordingly the percentage change in non-operating income is not believed to be meaningful . ( 2 ) see the reconciliation to the comparable u.s. gaap measures at the end of the results of operations sections of part ii , item 7 - management 's discussion and analysis of financial condition and results of operations . story_separator_special_tag page 27 as detailed in the table above , the percentage increase in investment advisory revenues in 2016 was in line with the increase in our average assets under management . we waived $ 10.5 million in money market-related fees ( including advisory fees and fund expenses ) in 2016 , a decrease of $ 37.1 million from the $ 47.6 million waived in the 2015 period . the fee waivers in 2016 represent less than .5 % of total investment advisory revenues earned during the same period . these fees were waived from certain of our money market mutual funds and trusts , which have combined net assets of $ 15.7 billion at december 31 , 2016 . we expect money market fee waivers , if any , will be insignificant in 2017. the annual fee rate earned on our assets under management was 47.9 basis points in 2016 , virtually unchanged from the 48.0 basis points earned in 2015. the impact on our effective fee rate from the reduction in money market waivers in 2016 was offset by effective fee rate reductions in certain of our sponsored u.s. mutual funds . our operating expenses include a non-recurring charge , net of insurance recovery , of $ 66.2 million , or $ .15 per share after tax related to the dell appraisal rights matter . in 2016 , we paid our clients $ 166.2 million to compensate them for the denial of their appraisal rights in connection with the 2013 leveraged buyout of dell . we made claims with our insurance carriers and , on december 30 , 2016 , entered into an agreement with our primary insurance carrier to recover $ 100 million from the claim . the insurance proceeds were recognized as an offset to the related $ 166.2 million charge recognized in the second quarter of 2016. remaining insurance claims filed with respect to this matter that could result in an additional recovery of up to $ 50 million are still pending . our operating margin in 2016 was 41.0 % compared to 45.2 % in the 2015 period . without the impact of the non-recurring charge relating to the dell appraisal rights matter , our operating margin in 2016 would have been 42.6 % . the additional decline in our 2016 operating margin results primarily from the investments we have been making to broaden and deepen our investment management , distribution , and service capabilities around the world . our 2016 results were significantly impacted by the adoption of new accounting guidance related to consolidation and stock-based compensation . the impacts of implementing this new guidance is discussed in more detail in the summary of significant accounting policies section of our consolidated financial statements contained in item 8 of this filing . the impact ( in millions ) the consolidated sponsored investment portfolios have on the individual lines of our 2016 consolidated statement of income is as follows : replace_table_token_15_th net revenues investment advisory revenues earned from the t. rowe price mutual funds distributed in the u.s. increased 1.4 % , or $ 37.5 million , to $ 2.7 billion . average mutual fund assets in 2016 were $ 495.5 billion , an increase of .4 % from the average for the comparable 2015 period . the increase in advisory revenues was due in part to the reduction in money market fee waivers realized in 2016 compared with 2015 . investment advisory revenues earned on the other investment portfolios for 2016 were $ 1,023.3 million , an increase of $ 3.9 million , or .4 % , from the $ 1,019.4 million earned in 2015 . average assets in these portfolios were $ 282.7 billion during 2016 , up 3.1 % from the comparable 2015 period . in 2016 , our advisory revenues are presented net of $ 7.0 million related to the elimination of management fees earned on the net assets of certain of our consolidated sponsored investment portfolios . we eliminated these advisory fees in preparing our consolidated financial statements . administrative fee revenues decrease d $ 9.3 million to $ 352.5 million in 2016 . the decrease is primarily attributable to transfer agent servicing activities provided to the mutual funds and their investors , as well as the shift of fund accounting and portfolio recordkeeping operations to bny mellon that , prior to august 2015 , we provided to our sponsored u.s. mutual funds . changes in administrative fee revenues are generally offset by similar changes in related operating expenses that are incurred to provide services to the funds and their investors . page 28 distribution and servicing fee revenues earned from 12b-1 plans of the advisor , r , and variable annuity ii class shares of our sponsored portfolios were $ 141.7 million in 2016 , a decrease of $ 9.8 million from the comparable 2015 period on lower average assets under management in these share classes . the 12b-1 fees earned are offset entirely by the costs paid to third- party intermediaries who source these assets . these costs are reported as distribution and servicing costs in the consolidated income statements . operating expenses compensation and related costs was $ 1,494.0 million in 2016 , an increase of $ 50.4 million , or 3.5 % , compared to the 2015 period . the largest part of the increase is attributable to a $ 56.7 million increase in salaries and related benefits , which resulted from a modest increase in salaries at the beginning of 2016 combined with a 3.2 % increase in average headcount from 2015 . noncash stock-based compensation expense and annual variable compensation were up $ 12.6 million and $ 4.9 million , respectively . these increases were offset by a higher level of technology labor capitalized in 2016 compared with 2015 and a reduction in temporary labor cost as the 2016 projects used more professional service resources .
| fees were waived from all our money market mutual funds and trusts , which have combined net assets of $ 15.7 billion at december 31 , 2015. our operating margin in 2015 was 45.2 % compared to 47.5 % in the 2014 period . the decline is a result of the investments we have been making to broaden and deepen our investment management , distribution , and service capabilities around the world despite the impact of market volatility on our net revenues . net revenues investment advisory revenues earned from the t. rowe price mutual funds distributed in the u.s. increased 7.3 % , or $ 182.1 million , to nearly $ 2.7 billion , on higher average mutual fund assets . average mutual fund assets in 2015 were $ 493.6 billion , an increase of 7.1 % from the average for the comparable 2014 period . investment advisory revenues earned on the other investment portfolios in 2015 were $ 1.0 billion , an increase of $ 40.7 million , or 4.2 % , from the $ 978.7 million earned in the comparable 2014 period . average assets in these portfolios were $ 274.3 billion in 2015 , up 4.0 % from the comparable 2014 period . page 30 administrative fee revenues decreased $ 12.2 million to $ 361.8 million in 2015. the decrease includes the reduction in certain administrative service fee rates paid by certain fund shareholders at the beginning of 2015. additionally , fees earned from the mutual funds for fund accounting has declined in 2015 compared to 2014 , as such services began to be performed by bny mellon in august 2015. the mutual funds have contracted directly with bny mellon to provide such services . changes in administrative fee revenues are generally offset by similar changes in related operating expenses that are incurred to provide services to the funds and their investors . distribution and servicing fee revenues earned from 12b-1 plans of the advisor class , r class , and variable annuity ii class shares of our sponsored portfolios were $ 151.5 million in
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on june 28 , 2011 , we entered into the standby equity distribution agreement ( the “ seda ” ) with ya global master spv ltd. ( “ ya global ” ) , a fund managed by yorkville advisors , llc . concurrent with the signing of the seda , we agreed to sell shares to ya global and received gross proceeds of $ 1.1 million on june 29 , 2011. the number of shares for the initial drawdown of $ 1.1 million was determined in accordance with the seda and settled in shares in equal amounts over the five weeks ending august 5 , 2011. the total number of shares issued to ya global related to the initial drawdown of $ 1.1 million , net of issuance costs of $ 155,000 , was 600,412 shares . we terminated the seda agreement on january 31 , 2012 , in connection with the closing of the strategic financing . we completed four private placements of our common stock in 2010. on january 11 , 2010 , we sold 284,092 shares of our common stock to an institutional investor for an aggregate purchase price of $ 2,500,000 , or $ 8.80 per share . on february 3 , 2010 , we sold 349,650 shares of our common stock to the same institutional investor for an aggregate purchase price of $ 2,500,000 , or $ 7.15 per share . on april 16 , 2010 , we sold 526,500 shares of common stock to the same institutional investor for an aggregate purchase price of $ 3,000,000 or $ 5.70 per share . on september 7 , 2010 , we sold 1,886,662 shares of common stock to a group of strategic investors for an aggregate purchase price of $ 5,094,000 , or $ 2.70 per share . our net proceeds from these four offerings were approximately $ 12.1 million . additional funds raised by issuing equity securities , may result in dilution to existing shareholders . critical accounting policies and the use of estimates the preparation of our financial statements in conformity with accounting principles generally accepted in the united states requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes . actual results could differ materially from those estimates . our critical accounting policies , including the items in our financial statements requiring significant estimates and judgments , are as follows : 23 - going concern - a fundamental principle of the preparation of financial statements in accordance with gaap is the assumption that an entity will continue in existence as a going concern , which contemplates continuity of operations and the realization of assets and settlement of liabilities occurring in the ordinary course of business . this principle is applicable to all entities except for entities in liquidation or entities for which liquidation appears imminent . in accordance with this requirement , our policy is to prepare our consolidated financial statements on a going concern basis unless we intend to liquidate or have no other alternative but to liquidate . as a result of our operational losses and the potential that we may be unable to meet our cash requirements for the next twelve months , there is substantial doubt about our ability to continue as a going concern . while we have prepared our consolidated financial statements on a going concern basis , if the strategic financing is not approved by the shareholders or we do not receive additional funding , our ability to continue as a going concern may be impacted . our consolidated financial statements included in this annual report on form 10-k do not reflect any adjustments that might specifically result from the outcome of this uncertainty . - revenue recognition - we recognize revenue in accordance with the provisions of authoritative guidance issued , whereby revenue is not recognized until it is realized or realizable and earned . revenue is recognized when all of the following criteria are met : persuasive evidence of an arrangement exists , delivery has occurred or services have been rendered , the price to the buyer is fixed and determinable and collectibility is reasonably assured . - royalty revenue – royalties from licenses are based on third-party sales and recorded as earned in accordance with contract terms , when third-party results are reliably measured and collectibility is reasonably assured . our 2011 and 2010 revenues were primarily from royalties on the sale of thalomid ® . in 2004 , certain provisions of a purchase agreement dated june 14 , 2001 by and between bioventure investments kft ( “ bioventure ” ) and the company were satisfied and , as a result , beginning in 2005 we became entitled to share in the royalty payments received by royalty pharma finance trust , successor to bioventure , on annual thalomid ® sales above a certain threshold . based on the licensing agreement royalty formula , annual royalty sharing commences when net royalties received by royalty pharma exceeds $ 15,375,000 . - we are also eligible to receive royalties from oxford biomedica , plc based on a portion of the net sales of products developed for the treatment of ophthalmic ( eye ) diseases based in part on the endostatin gene . we did not receive any payment from oxford biomedica , plc in 2011 or 2010. we do not expect to receive additional payments from oxford biomedica , plc in 2012 . - royalty payments , if any , are recorded as revenue when received and or when collectibility is reasonably assured . - research and development - research and development expenses consist primarily of compensation and other expenses related to research and development personnel , research collaborations , costs associated with preclinical testing and clinical trials of our product candidates , including the costs of manufacturing drug substance and drug product , regulatory maintenance costs , and facilities expenses . research and development costs are expensed as incurred . story_separator_special_tag - expenses for clinical trials – expenses for clinical trials are incurred from planning through patient enrollment to reporting of the data . we estimate expenses incurred for clinical trials that are in process based on patient enrollment and based on clinical data collection and management . costs that are associated with patient enrollment are recognized as each patient in the clinical trial completes the enrollment process . estimated clinical trial costs related to enrollment can vary based on numerous factors , including expected number of patients in trials , the number of patients that do not complete participation in a trial , and when a patient drops out of a trial . costs that are based on clinical data collection and management are recognized in the reporting period in which services are provided . in the event of early termination of a clinical trial , we would accrue an amount based on estimates of the remaining non-cancelable obligations associated with winding down the clinical trial . - stock-based compensation – all share-based payment transactions are recognized in the financial statements at their fair values . using the straight-line expense attribution method over the requisite service period , which is generally the option vesting term of three years , share-based compensation expense recognized in the years ended december 31 , 2011 and 2010 totaled $ 610,000 and $ 272,000 , respectively . 24 the determination of fair value of stock-based payment awards on the date of grant using the black-scholes model is affected by our stock price , as well as the input of other subjective assumptions . these assumptions include , but are not limited to , the expected forfeiture rate and expected term of stock options and our expected stock price volatility over the term of the awards . changes in the assumptions can materially affect the fair value estimates . any future changes to our share-based compensation strategy or programs would likely affect the amount of compensation expense recognized . story_separator_special_tag product candidates . we may conduct multiple clinical trials to cover a variety of indications for each product candidate . as we obtain results from trials , we may elect to discontinue clinical trials for certain indications in order to focus our resources on more promising indications . our proprietary product candidates have also not yet achieved regulatory approval , which is required before we can market them as therapeutic products . in order to proceed to subsequent clinical trial stages and to ultimately achieve regulatory approval , regulatory agencies must conclude that our clinical data establish safety and efficacy . historically , the results from preclinical testing and early clinical trials have often not been predictive of results obtained in later clinical trials . a number of new drugs and biologics have shown promising results in clinical trials , but subsequently failed to establish sufficient safety and efficacy data to obtain necessary regulatory approvals . our business strategy includes being opportunistic with collaborative arrangements with third parties to complete the development and commercialization of our product candidates . in the event that third parties take over the clinical trial process for one of our product candidates , the estimated completion date would largely be under the control of that third party rather than us . we can not forecast with any degree of certainty which proprietary products or indications , if any , will be subject to future collaborative arrangements , in whole or in part , and how such arrangements would affect our capital requirements . as a result of the uncertainties discussed above , among others , we are unable to estimate the duration and completion costs of our research and development projects . our inability to complete our research and development projects in a timely manner or our failure to enter into collaborative agreements , when appropriate , could significantly increase our capital requirements and could adversely impact our liquidity . these uncertainties could force us to seek additional , external sources of financing from time to time in order to continue with our business strategy . there can be no assurance that we will be able to successfully access external sources of financing in the future . our inability to raise additional capital , or to do so on terms reasonably acceptable to us , would jeopardize the future success of our business . research and development expenses consist primarily of compensation and other expenses related to research and development personnel , research collaborations , costs associated with internal and contract preclinical testing and clinical trials of our product candidates , including the costs of manufacturing drug substance and drug product , regulatory maintenance costs , and facilities expenses . overall research and development expenses decreased to $ 3,457,000 in 2011 from $ 4,830,000 in 2010 . 26 the fluctuations in research and development expenses were specifically impacted by the following : - outside services – we utilize outsourcing to conduct our product development activities . we spent $ 54,000 in 2011 and $ 186,000 in 2010 on these activities . the decrease in 2011 as compared to 2010 primarily reflects a reduction in new trials for the development of the enmd-2076 . - clinical trial costs – clinical trial costs decreased to $ 908,000 in 2011 , from $ 1,784,000 in 2010. this decrease relates to fewer patients on clinical trials during 2011 and increased costs during 2010 due to new patient enrollment in the phase 2 trials in 2010. additionally our cro costs were less for 2011 due to the use of advanced funds against certain 2011 expenditures . costs of such trials include the clinical site fees , monitoring costs and data management costs . costs of such trials include the clinical site fess , monitoring costs and data management costs . - contract manufacturing costs – the costs of manufacturing the material used in clinical trials for our product candidates is reflected in contract manufacturing . these costs include bulk manufacturing , encapsulation and fill and finish services , and product release costs .
| the significant decrease in 2011 research and development spending relates to fewer patients enrolling in and remaining on clinical trials during 2011 and increased costs during 2010 due to the start of the phase 2 trials , in addition to the mkc-1 cost write off of $ 268,000 during 2010. at december 31 , 2011 , accumulated direct project expenses for panzem ® oncology were $ 54,422,000 ; direct enmd-1198 project expenses totaled $ 13,248,000 ; and , since acquired , accumulated direct project expenses for enmd-2076 totaled $ 20,655,000 and for mkc-1 , accumulated project expenses totaled $ 10,191,000. our research and development expenses also include non-cash stock-based compensation totaling $ 142,000 and $ 42,000 , respectively , for 2011 and 2010. the increase in stock-based compensation expense is related to higher fair values and more stock options granted in 2011. the balance of our research and development expenditures includes facility costs and other departmental overhead , and expenditures related to the non-clinical support of our programs . we expect our research and development expenses in 2012 to be primarily for the enmd-2076 program . we expect our enmd-2076 expenses in 2012 to remain consistent or increase depending on the availability of additional financial resources and our clinical development plan . additional financial resources would enable us to accelerate and expand the breadth of our enmd-2076 phase 2 program . we will continue to conduct research on enmd-2076 in order to comply with stipulations made by the fda , as well as to increase understanding of the mechanism of action and toxicity parameters of enmd-2076 and its metabolites . completion of clinical development may take several years or more , but the length of time generally varies substantially according to the type , complexity , novelty and intended use of a product candidate . 25 we estimate that clinical trials of the type we generally conduct are typically completed over the following timelines : estimated completion clinical phase period phase 1 1-2 years phase 2 2-3 years phase 3 2-4 years the duration and the cost of clinical trials may vary significantly over the life of a project as
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the 407 trial is closed to enrollment and results were reported at the annual meeting of the american society of hematology or ash in december 2013. in march 2012 , we initiated a phase 1/2 open label clinical trial of th-302 to determine the maximum tolerated dose , dose limiting toxicity , safety , tolerability , clinical activity , and pharmacokinetics of th-302 in patients with relapsed/refractory multiple myeloma ( which we refer to as the 408 trial ) . initial results from the dose escalation portion of the 408 trial were reported at the annual meeting of the american society of clinical oncology or asco in june 2013 , and updated results were reported at the december 2013 ash annual meeting showing initial signs of clinical activity of the combination of th-302 and dexamethasone in heavily pretreated relapsed/refractory multiple myeloma patients . the maximum tolerated dose was established at 340 mg/m 2 th-302 and enrollment of additional patients at the maximum tolerated dose is ongoing . th-302 is the subject of four clinical trials investigating the combination of th-302 with antiangiogenic therapies in a variety of tumor types . threshold is the sponsor of a phase 1 dose-escalation study of th-302 in combination with sunitinib in patients with advanced renal cell carcinoma or rcc , gastrointestinal stromal tumors or gist , and pancreatic neuroendocrine tumors or pnet ( which we refer to as the 410 trial ) . in october 2013 , interim results were reported at the aacr-nci-eortc 2013 molecular targets and cancer therapeutics meeting on the first twelve patients demonstrating that one of four patients with gist achieved a confirmed pr , and three of eight patients with rcc achieved prs ; enrollment continues . investigator sponsored trials of th-302 administered in combination with antiangiogenics include : a phase 1/2 randomized study of th-302 in combination with bevacizumab in recurrent glioblastoma following bevacizumab failure ; a phase 1 dose-escalation study of th-302 in combination with pazopanib in advanced solid tumors ; and a phase 1/2 study of th-302 in combination with sorafenib in advanced rcc and advanced hepatocellular carcinoma . initial results from a small number of patients with glioblastoma were reported at the european society for medical oncology ( esmo ) 2012 congress , and an update was given at the world federation of neuro-oncology meeting in november 2013 demonstrating initial signs of clinical activity of th-302 plus bevacizumab in some patients . the study continues to enroll patients . results in patients with advanced solid tumors were reported at aacr-nci-eortc showing that patients treated with the combination of pazopanib and th-302 ( n=30 ) achieved a clinical benefit rate of 76 % ( partial response rate of 12 % plus stable disease rate of 64 % ) . the study has completed enrollment and treatment is ongoing . we are working to broaden the potential applicability of th-302 to other cancers and in combination with other approved anti-cancer drugs as well as to discover additional hypoxia-targeted therapeutics that will selectively target cancer cells . we also seek to improve our capability of identifying patients who may be most likely to respond to our hypoxia-targeted therapeutics . in march 2013 , we announced the acquisition of [ 18f ] -hx4 [ flortanidazole ( 18f ) ] from siemens healthcare . [ 18f ] -hx4 is an investigational radiolabeled hypoxia positron emission tomography ( pet ) tracer developed by siemens healthcare molecular imaging to potentially identify and quantify the degree of hypoxia in tumors in vivo . we initially intend to develop [ 18f ] -hx4 to determine a patient 's tumor hypoxia profile , which may identify patients who will best respond to our hypoxia-targeted therapeutics . we do not expect the acquisition of , or development activities related to , [ 18f ] -hx4 to have a material impact on our results of operations in 2014. we were incorporated in october 2001. we have devoted substantially all of our resources to research and development of our product candidates . we have not generated any revenue from the commercial sales of our product candidates , and since inception we have funded our operations through the private placement and public offering of equity securities and through payments received under our license and co-development agreement with merck kgaa . as of december 31 , 2013 and december 31 , 2012 , we had cash , cash equivalents and marketable securities of $ 82.0 million and $ 70.8 million , respectively . we expect to continue to devote substantial resources to research and development in future periods as we complete our current clinical trials , start additional clinical trials under our collaboration with merck kgaa or on 54 our own and continue our discovery efforts . research and development expenses net of reimbursements of merck kgaa 's 70 % share of total th-302 development expenses are expected to increase in 2014 compared to 2013 due to the continued execution of existing clinical trials and beginning of new clinical trials . we believe that our cash , cash equivalents and marketable securities will be sufficient to fund our projected operating requirements for at least the next twelve months based upon current operating plans , milestone payment forecasts and spending assumptions . although 70 % of the collaboration expenditures related to the development of th-302 are expected to be funded by merck kgaa , we expect that we will need to raise additional capital to complete the clinical development of th-302 and to support new in-house development programs or to in-license or otherwise acquire and develop additional products or programs . research and development expenses may fluctuate significantly from period to period as a result of the progress and results of our clinical trials . revenue we have not generated any revenue from the commercial sales of our product candidates since our inception and do not expect to generate any revenue from the commercial sales of our product candidates in the near term . story_separator_special_tag we recognized revenue of $ 12.5 million during the year ended december 31 , 2013 , from the amortization of the $ 110 million in upfront and milestone payments earned in 2012 and 2013 from our collaboration with merck kgaa . we recognized revenue of $ 5.9 million during the year ended december 31 , 2012 , from the amortization of the $ 67.5 million in upfront and milestone payments earned in 2012 from our collaboration with merck kgaa . we are amortizing the upfront and milestone payments over the period of performance ( product development period ) . we will periodically review and , if necessary , revise the estimated periods of performance of our collaboration . research and development expenses research and development expenses consist primarily of costs of conducting clinical trials , salaries and related costs for personnel including non-cash stock-based compensation , costs of clinical materials , costs for research projects and preclinical studies , costs related to regulatory filings , and facility costs . contracting and consulting expenses are a significant component of our research and development expenses as we rely on consultants and contractors in many of these areas . we recognize expenses as they are incurred . our accruals for expenses associated with preclinical and clinical studies and contracts associated with clinical materials are based upon the terms of the service contracts , the amount of services provided and the status of the activities . story_separator_special_tag clinical product candidates may be impacted by a variety of factors , including , among others , the quality of the product candidate , early clinical data , investment in the program and the availability of adequate funding , competition , manufacturing capability and commercial viability . furthermore , our strategy may include entering into collaborations with third parties , such as our th-302 collaboration with merck kgaa , to participate in the development and commercialization of our product candidates . in these situations , the preclinical development or clinical trial process for a product candidate and the estimated completion date may largely be under the control of that third party and not under our control . we can not forecast with any degree of certainty which of our future clinical product candidates will be subject to future collaborations or how such arrangements would affect our development plans or capital requirements . in addition , the length of time required for clinical development of a particular product candidate and our development costs for that product candidate may be impacted by the scope and timing of enrollment in clinical trials for the product candidate , unanticipated additional clinical trials that may be required , future decisions to develop a product candidate for subsequent indications , and whether in the future we decide to pursue development of the product candidate with a collaborator or independently . for example , th-302 may have the potential to be approved for multiple indications , and we do not yet know how many of those indications we and merck kgaa will pursue . in this regard , the decision to pursue regulatory approval for subsequent indications will depend on several variables outside of our control , including the strength of the data generated in our and merck kgaa 's prior and ongoing clinical studies and the willingness of merck kgaa to jointly fund such additional work . furthermore , the scope and number of clinical studies required to obtain regulatory approval for each pursued indication is subject to the input of the applicable regulatory authorities , and we have not yet sought such input for all potential indications that we and merck kgaa may elect to pursue , and even after having given such input applicable regulatory authorities may subsequently require additional clinical studies prior to granting regulatory approval based on new data generated by us or other companies , or for other reasons outside of our control . the risks and uncertainties associated with our research and development projects are discussed more fully in item 1arisk factors . as a result of the risks and uncertainties discussed in item 1arisk factors and above , we are unable to determine with any degree of certainty the duration and completion costs of our research and development projects , anticipated completion dates or when and to what extent we will receive cash inflows from the commercialization and sale of a product candidate , including th-302 . to date , we have not commercialized any of our product candidates and in fact may never do so . 57 general and administrative general and administrative expenses were $ 9.2 million for 2013 , compared to $ 7.1 million for 2012 and $ 5.7 million for 2011. the $ 2.1 million increase in 2013 compared to 2012 was primarily due to a $ 1.8 million increase in employee-related expenses , including a $ 0.9 million increase in non-cash stock-based compensation expense and a $ 0.3 million increase in consulting expenses . the $ 1.4 million increase in 2012 compared to 2011 reflects a $ 0.9 million increase in non-cash stock compensation expense , $ 0.7 million in higher consulting expenses and $ 0.3 million in higher staffing and facilities expenses , partially offset by a $ 0.5 million reimbursement of merck kgaa 's 70 % share of patent expenses and employee expenses related to th-302 in 2012. we currently expect our general and administrative expenses to increase in 2014 compared to 2013 due to increased staffing and consulting expenses to support activities related to our collaboration with merck kgaa and the ongoing development of th-302 . interest income ( expense ) , net interest income ( expense ) net for 2013 was $ 0.1 million of interest income compared to $ 80,000 of net interest income for 2012 and $ 25,000 of net interest income for 2011. the increase in net interest income in both periods was primarily due to higher invested balances than the prior year . other income ( expense ) other income ( expense ) for 2013 was non-cash expense of $ 2.3
| we expect revenue to increase in 2014 compared to 2013 due to the full year amortization of milestone payments earned in 2013. research and development research and development expenses were $ 29.3 million for the year ended december 31 , 2013 , compared to $ 18.8 million for the year ended december 31 , 2012 and $ 24.4 million for the year ended december 31 , 2011. the $ 10.5 million increase in 2013 compared to 2012 , net of reimbursement for merck kgaa 's 70 % share of total development expenses for th-302 , was due primarily to a $ 6.4 million increase in th-302 clinical development expenses , a $ 3.2 million increase in employee related expenses , including a $ 1.0 million increase in non-cash stock based compensation expense and a $ 0.9 million increase in consulting expenses . the $ 5.6 million decrease in 2012 compared to 2011 was due primarily to a $ 12.6 million reimbursement for merck kgaa 's 70 % share of total development expenses for th-302 and a $ 0.6 million decrease in consulting expenses , partially offset by a $ 4.1 million increase in clinical development expenses , a $ 2.4 million increase in employee-related expenses and a $ 1.1 million increase in non-cash stock based compensation . during the years ended december 31 , 2013 , 2012 and 2011 , we were engaged in two primary research and development programs : the development of th-302 , which is the subject of two ongoing pivotal phase 3 clinical trials and multiple phase 2 and phase 1 clinical trials ; and our discovery research program aimed at identifying new drug candidates . research and development expenses consist primarily of costs of conducting clinical trials , salaries and related costs for personnel including non-cash stock-based compensation , costs of clinical materials , costs for research projects and preclinical studies , costs related to regulatory filings , and facility costs . contracting and consulting expenses are a significant component of our research and development expenses as we rely on consultants and contractors in many of these areas . the
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our consolidated financial statements and discussion and analysis of financial condition and results of operations reflect estimates and assumptions made by us as of december 31 , 2020. events and changes in circumstances arising after december 31 , 2020 , including those resulting from the impacts of covid-19 , will be reflected in our estimates for future periods . refer to the liquidity section of management 's discussion and analysis for the impact of the global pandemic on our liquidity . railroad and utility products and services we provide our customers with treated and untreated wood products , rail joint bars and services primarily for the railroad markets in the united states and canada . we also operate a railroad services business that conducts engineering , design , repair and inspection services primarily for railroad bridges in the u.s. and canada . in addition , we supply treated utility poles for the utility sector in the united states and australia . the primary end-markets for rups is the north american railroad industry , which has an installed base of approximately 450 million wood crossties , and the utility industry which utilizes wooden distribution and transmission poles . both crossties and utility poles require periodic replacement . historically , north american demand for crossties had been in the range of 22 million to 25 million crossties annually . however , the crosstie replacement market has been significantly lower in recent years . according to the railway tie association ( “ rta ” ) , the reported total crosstie installations in 2020 were approximately 18 million , of which 14 million were for class i railroads . t hroughout 2020 , freight-rail traffic continued to decline , and passenger railroads and transit systems suspended or canceled operations due to lower ridership from stay-at-home restrictions . the reduced activity prompted larger track maintenance windows to be available and , as a result , the railroad industry is managing to offset lower volumes with increased productivity as certain railroads are taking advantage of reduced track time to increase maintenance on their infrastructure . given the continuing uncertainties related to covid-19 , the rta is forecasting modest increases of 2.7 percent in 2021 and 3.6 percent in 2022 , primarily from the commercial market while class i volumes are expected to remain at relatively similar demand levels . for distribution poles , nearly half of the installed base is over 40 years old and demand has historically been in the range of two million to three million poles annually . on an overall basis , we believe that the rate at which utilities purchase utility poles will grow as they continue replacement programs within their service territories . as a whole , the key factors that drive growth in the utility poles market include growing global energy consumption as well as expansion of the global telecommunication industry . now more than ever , utilities need to maintain their infrastructure to avoid interruptions in service as large sections of the population continue to work remotely due to the covid-19 pandemic . as such , we anticipate that 2021 demand will be relatively stable to slightly higher , as the overall industry is trending toward expanded and upgraded transmission networks . longer term , we are evaluating opportunities to potentially expand our market presence in the u.s. as well as certain overseas markets . for the past several years , the major companies in the rail industry substantially reduced both operating and capital spending from peak spending levels , which had a negative impact on sales of various products and services that we provide to that industry . we currently supply all seven of the north american class i railroads and have long-standing relationships with these customers . approximately 70 percent of our north american sales are under long-term contracts and we believe that we are positioned to maintain or grow our current market position . according to the american association of railroads ( “ aar ” ) , railroads began 2020 with uncertainty due to weakness in the manufacturing sector and lower port activity caused by trade disputes . in the early months of 2020 , railroad traffic reported near-record declines , but ultimately rebounded to close to pre-pandemic levels by the end of the year , sparked by sharply higher grain and intermodal shipments along with the reopening of auto assembly plants . in 2020 , total u.s. carload traffic decreased 12.9 percent from the prior year , while intermodal units declined by 1.8 percent . the combined u.s. traffic for carloads and intermodal units was lower by 7.2 percent than the prior year . looking ahead to 2021 , the aar stated that a significant amount of ongoing network investments has made the industry more adaptable and better able to adjust to the demands of a wide range of operational and market conditions . from a long-term perspective , we believe there remains an overall need for sustained investment in infrastructure and capacity expansion . we believe that with our vertical integration capabilities in wood treatment and strong customer relationships , we will ultimately benefit from increased demand . 29 in terms of raw material s , we expect the availability of pole supply to remain consistent even with lumber in high demand . for untreated crossties , the supply can vary at times based upon weather conditions in addition to other factors . we have a nationwide wood procurement team that maintains close working relationships with a network of sawmills . we procure untreated crossties , either on behalf of our customers , or for our own inventory for future treating . we also procure switch ties and various other types of lumber used for railroad bridges and crossings . untreated crossties go through a six- to nine-month air seasoning process before they are ready to be pressure treated . after the air seasoning process is complete , the crossties are pressure treated using creosote-only treatment or a combined creosote and borate treatment . story_separator_special_tag during any given year , there is a seasonal effect in the winter and spring months on our crosstie business depending on weather conditions for harvesting lumber and crosstie installation . w hile forestry has generally been deemed essential during the covid-19 outbreak and tie demand has remained consistent , sawmills are being hampered by low demand in other key markets such as wood fibers used in palettes or shipping containers or mats for the oil and gas industry . so far to date , we have not experienced a noticeable impact as sawmills are continuing to produce poles and crossties to maintain their operations and cash flow . consistent with typical seasonality , the rta reports that the current availability of logs is slightly below the ideal rate , as is the outlook for log availability over the next six to 12 months . strategic initiatives and integration synergies as part of optimizing our business , we continue to evaluate a number of opportunities to improve efficiencies in our operational processes , people and facilities . with 16 north american rups treating facilities operating at less than full utilization , our goal is to either capture more volume through the existing facilities or consolidate our operating footprint . in june 2020 , we announced the closure of our denver , colorado facility and , as such , in the second quarter of 2020 we recorded charges of $ 5.8 million for asset retirement obligations , fixed asset write-offs and severance . concurrent with the decision to close the denver facility , we announced our plan to modernize and upgrade parts of our treating network , specifically at our facility in north little rock , arkansas , which will be primarily funded through proceeds from the sale of non-core assets , which includes the denver facility . performance chemicals the largest geographic market for wood treating chemicals sold by our pc business is in north america , and the largest application for our products is the residential remodeling market . we also have a market presence in europe , south america , australia , new zealand and africa . we believe that pc is the largest global manufacturer and supplier of water-based wood preservatives and wood specialty additives to treaters that supply pressure treated wood products to large retailers and independent lumber dealers . these retailers and dealers , in turn , serve the residential , agricultural and industrial pressure-treated wood market . our primary products are copper-based wood preservatives and fire-retardant chemicals ( “ flamepro® ” ) . our copper-based wood preservatives include micronized copper azole ( “ micropro® ” ) and micronized pigments ( “ microshades® ” ) . applications for these products include decking , fencing , utility poles , construction lumber and other outdoor structures . in north america , we are vertically integrated due to our manufacturing capabilities for copper compounds for our copper-based wood preservatives . we believe our vertical integration is part of our proprietary processes and reflects an important competitive advantage . as most of the products sold by pc are copper-based products , changes in the price and availability of copper can have a significant impact on product pricing and margins . we attempt to moderate the variability in copper pricing over time by entering into hedging transactions for the majority of our copper needs , which primarily range from six months up to 36 months . these hedges typically match expected customer purchases and receive hedge accounting treatment . from time to time , we enter into forward transactions based upon long-term forecasted needs of copper . these forward positions are typically marked to market . product demand for our pc business has historically been closely associated with consumer spending on home repair and remodeling projects , and therefore , trends in existing home sales serve as a leading indicator . overall , the market for existing homes are showing strong demand . according to the national association of realtors® ( “ nar ” ) , total existing-home sales grew in december for the fourth consecutive month . according to the nar , total existing home sales increased 0.7 percent from november , and up 5.6 percent from a year ago . the increased buying activity is attributed to record-low interest rates and higher demand for existing homes , which includes buyers of vacation homes given the flexibility to work remotely . for 2020 as a whole , total home sales performed at their highest levels since 2006 and the momentum is expected to carry into 2021 , with more buyers expected to enter the market . 30 koppers holdings inc. 2020 annual report according to the leading indicator of remodeling activity ( “ lira ” ) reported by the joint center for housing studies of harvard university , there was 3.5 percent year-over-year growth in 2020 home renovation and repair expenditures . the lira projects annual growth in renovation and repair spending of 3.8 percent by year-end 2021 . the remodeling market continues to benefit from a strong housing market – including accelerating growth in homebuilding , sales and home equity . in addition to routine replacement and repair projects , homeowners are likely to pursue more and larger discretionary home improvements this year as the broader economy recovers . the conference board consumer confidence index® improved moderately in january , after decreasing in december . the index now stands at 89.3 , up from 87.1 in december . in addition , consumers ' expectations regarding the economy and jobs showed improvement and the percent of consumers who said they intend to purchase a home in the next six months increased , suggesting that the pace of home sales should remain robust in early 2021. d uring the pandemic , there has been a shift with more individuals spending more time in their homes , and as a result , big-box retailers are continuing to report strong demand for home improvement projects .
| operating profit for the year ended december 31 , 2019 was negatively affected primarily by lower sales prices for carbon pitch and naphthalene in europe , along with lower sales volumes of carbon pitch in australia and carbon black feedstock globally and an unfavorable impact from foreign currency translation . additionally , we recognized restructuring and related charges to earnings of approximately $ 3 million in the current year resulting from our cessation of remaining production activities at our follansbee , west virginia facility in the third quarter of 2019. these unfavorable drivers were partially offset by increased volumes for carbon pitch in north america coupled with a more streamlined and efficient cost structure across the entire segment . cash flow net cash provided by operating activities was $ 127.1 million for the year ended december 31 , 2020 as compared to net cash provided by operating activities of $ 115.3 million for the year ended december 31 , 2019. the net increase of $ 11.8 million in cash provided by operations was due primarily to an increase in net income and certain other operating activities of $ 42.4 million from the prior year period , which includes the gain on the sale of kjcc of $ 35.6 million in the current year period . these drivers were partly offset by higher working capital usage of $ 30.6 million compared to the prior year period , mainly due to an increase in accounts receivable and a reduction in accounts payable in the current year period . net cash provided by operating activities was $ 115.3 million for the year ended december 31 , 2019 as compared to net cash provided by operating activities of $ 78.3 million for the year ended december 31 , 2018. the net increase of $ 37.0 million in cash provided by operations was due primarily to lower working capital usage of $ 30.7 million compared to the prior year period , mainly due to favorable timing of accounts receivable collections in 2019. in addition , the change in income and certain operating activities of $ 6.3 million from the prior year period had
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we also received gross proceeds of $ 12.0 million from concurrent private placements of common stock at the ipo price of $ 10.00 per share . in addition , the outstanding principal amount of $ 10.0 million and accrued interest under a convertible note we had issued to techne corporation , or techne , one of our principal stockholders , automatically converted into shares of our common stock in connection with our ipo at a conversion price equal to the ipo price . as of december 31 , 2012 , we had an accumulated deficit of $ 134.2 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 food and drug administration , or 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 . jobs act in april 2012 , the jobs act was enacted . section 107 of the jobs act provides that an emerging growth company can utilize the extended transition period provided in section 7 ( a ) ( 2 ) ( b ) of the securities act for implementing new or revised accounting standards . in other words , an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies . we have elected to delay such adoption of new or revised accounting standards , and as a result , we may not implement new or revised accounting standards on the relevant dates on which adoption of such standards is required for other companies . subject to certain conditions set forth in the jobs act , as an emerging growth company , we intend to rely on certain of these exemptions , including without limitation , providing an auditor 's attestation report on our system of internal controls over financial reporting pursuant to section 404 and implementing any requirement that may be adopted regarding mandatory audit firm rotation or a supplement to the auditor 's report providing additional information about the audit and the financial statements ( auditor discussion and analysis ) . these exemptions will apply for a period of five years following the completion of our initial public offering although if the market value of our common stock that is held by nonaffiliates exceeds $ 700 million as of any june 30 before that time , we would cease to be an emerging growth company as of the following december 31 . 71 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 at the end of this annual report on form 10-k , we believe that the following critical accounting policies relating to revenue recognition , clinical trial expenses , stock-based compensation and our tax net operating loss carryfowards are most important to understanding and evaluating our reported financial results . revenue recognition we generate revenue principally from collaborative research and development agreements with pharmaceutical companies . we recognize revenue in accordance with the criteria outlined in the securities and exchange commission 's topic 13 and accounting standards codification , or asc , 605-25 and by the financial accounting standards board , or fasb . following these accounting pronouncements , revenue is recognized when the following criteria have been met : persuasive evidence of an arrangement exists ; delivery has occurred and risk of loss has passed ; the seller 's price to the buyer is fixed or determinable ; and collectability is reasonably assured . any amounts received in advance of performance are recorded as deferred revenue until earned . under collaboration agreements , we may receive payments for non-refundable up-front fees , reimbursement for research and development services , milestone payments and royalties . in assessing the appropriate revenue recognition related to a collaboration agreement , we first determine whether an arrangement includes multiple elements , such as the delivery of intellectual property rights and research and development services . intellectual property rights granted under our existing arrangements were not considered to be separable from the activity of providing research and development services because the intellectual property right does not have stand-alone value separate from the research and development services provided or evidence of fair value does not exist for the undelivered research and development services . accordingly , we account for our collaboration agreements as a combined unit of accounting . the revenue from up-front payments is recognized on a straight-line basis over the estimated term of the research and development obligations covered under the research and development collaboration agreement . we periodically review the basis for our estimates , and we may change the estimates if circumstances change . these changes can significantly increase or decrease the amount of revenue recognized . as we applied our policy to our collaboration arrangements we made judgments which affected the pattern of revenue recognition . story_separator_special_tag for instance , in our arrangement with gsk , we are obligated to provide research and development services . we are recognizing revenue over the estimated period of our performance of the research and development services , which was estimated to end in march 2014 , the expected completion date of the phase ii clinical trial for the last of the drug candidates to be developed under the gsk alliance . in 2010 we increased our estimate for the remaining estimated research and development period under our arrangement with gsk by approximately 1.25 years . this change in estimate was accounted for prospectively and reduced the annualized revenue recognition by approximately $ 2.0 million per year . in february 2012 , we and gsk determined not to further advance the development of ccx832 or its two designated back-up compounds and we revised the estimated period of performance prospectively in 2012 to end by october 2013. this change in estimate was also accounted for prospectively and increased the annualized revenue recognition by approximately $ 0.9 million per year . 72 in addition to up-front payments and research and development funding , we may also be entitled to milestone payments that are contingent upon our achieving a predefined objective . we follow the milestone method of recognizing revenue from milestones and milestone payments and milestone payments are recorded as revenue in full upon achievement of the milestone if there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved and the achievement of the milestone is based on our performance . clinical trial accruals and related expenses we accrue and expense costs for clinical trial activities performed by third parties , including clinical research organizations , or cros , and clinical investigators , based upon estimates made as of the reporting date of the work completed over the life of the individual study in accordance with agreements established with cros and clinical trial sites . some cros invoice us on a monthly basis , while others invoice upon milestones achieved and the expense is recorded as services are rendered . we determine the estimates of clinical activities incurred at the end of each reporting period through discussion with internal personnel and outside service providers as to the progress or stage of completion of trials or services , as of the end of each reporting period , pursuant to contracts with numerous clinical trial centers and cros and the agreed upon fee to be paid for such services . the significant factors considered in estimating accruals include the number of patients enrolled and the percentage of work completed to date . costs of setting up clinical trial sites for participation in the trials that are paid for in advance are expensed over the estimated set-up period . while the set-up periods vary from one arrangement to another , such set-up periods generally take from two to six months . such set-up activities include clinical site identification , local ethics committee submissions , regulatory submissions , clinical investigator kick-off meetings and pre-study site visits . clinical trial site costs related to patient enrollments are accrued as patients are entered into the trial . to date , we have not experienced significant changes in our estimates of clinical trial accruals after a reporting period . however , due to the nature of estimates , we can not assure you that we will not make changes to our estimates in the future as we become aware of additional information about the status or conduct of our clinical trials . stock-based compensation stock-based compensation cost is measured at the grant date , based on the fair value of the award , and is recognized as an expense over the employee 's requisite service period on a straight line basis . the fair value of the stock options is estimated using the black-scholes valuation model . we recorded non-cash stock-based compensation expense of $ 5.0 million , $ 2.6 million and $ 2.3 million for the years ended december 31 , 2012 , 2011 and 2010 , respectively . at december 31 , 2012 and 2011 , we had $ 12.5 million and $ 4.4 million , respectively , of total unrecognized stock-based compensation expense , net of estimated forfeitures , related to stock option plans that will be recognized over a weighted-average period of 2.76 years and 2.36 years , respectively . we expect to continue to grant stock options in the future , and to the extent that we do , our actual stock-based compensation expense recognized in future periods will likely increase . prior to our ipo , our board of directors , with the assistance of management and independent consultants , performed fair value analyses for the valuation of our common stock . for grants made on dates for which there was no contemporaneous valuation to utilize in setting the exercise price of our common stock , and given the absence of an active market for our common stock prior to our ipo in february 2012 , our board of directors determined the fair value of our common stock on the date of grant based on several factors , including : important developments in our operations , most significantly related to the clinical development of our lead drug candidates , vercirnon and ccx140 ; equity market conditions affecting comparable public companies ; the likelihood of achieving a liquidity event for the shares of common stock , such as an initial public offering or an acquisition of us , given prevailing market conditions ; and that the grants involved illiquid securities in a private company . 73 for the options granted subsequent to our february 2012 ipo , the exercise price of stock options is equal to the closing market price of the underlying common stock on the grant date . net operating loss carryforwards as of december 31 , 2012 , we had net operating loss and research and development tax credit carryforwards for federal income tax purposes of approximately $ 113.1 million and $ 5.3
| total research and development expenses , as compared to the prior year , were as follows ( in thousands ) : replace_table_token_6_th the increase in expense from 2011 to 2012 was primarily due to investing in our lead independent program targeting the chemokine receptor known as ccr2 , including the advancement of ccx140 in phase ii studies in patients with diabetic nephropathy and ccx872 , our second generation ccr2 inhibitor , into phase i clinical development . in addition , ccx507 , our de novo ccr9 drug candidate , entered phase i clinical development . these increases were partially offset by lower expenses for ccx354 following gsk 's option exercise to obtain a license to the program , for which they are now solely responsible for further clinical development , along with lower expenses for ccx832 following the completion of phase i clinical development in february 2012. the decrease in expense from 2010 to 2011 was primarily due to lower research and drug discovery expenses following the advancement of two additional drug candidates into the clinical pipeline as well as the completion of our phase ii clinical trial of ccx354 in rheumatoid arthritis in 2011. we track specific project expenses that are directly attributable to our clinical development candidates and preclinical candidates that have been nominated and selected for further development . such project specific expenses include third-party contract costs relating to formulation , manufacturing , preclinical studies and clinical trial activities . unlike our early stage research and drug discovery programs , we allocate research and development salaries , benefits or indirect costs to our development candidates and we have included such costs in the project specific expenses . all remaining research and development expenses are reflected in research and drug discovery which represents early stage drug discovery programs . such expenses include allocated employee salaries and related benefits , stock-based compensation , consulting and contracted services to supplement our in-house laboratory activities , laboratory consumables and allocated facility costs associated with these earlier stage programs . at any given time , we typically have several active early stage research and drug discovery projects . our internal resources , employees and infrastructure are not directly tied to any individual research or drug discovery project and are typically deployed across multiple projects .
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our marketing efforts during the first half of 2020 included refocused direct-to-consumer marketing strategies , which initially included a shift from radio and tv in our larger markets that were affected by covid-19 towards more digital and tv in smaller markets . during the second quarter of 2020 , and continuing in the third quarter of 2020 , we resumed radio and tv initiatives in our larger markets as the impact of covid-19 lessened in those areas . we continue to monitor the impacts of covid-19 in each advertising market and may again change our advertising strategy on a market-by-market basis if needed . further , our team has leveraged virtual tools , such as the new inspire sleep app released during the second quarter of 2020 , to continue physician training and patient education . we rely on third-party suppliers to manufacture our inspire system and its components . many of these suppliers are currently single source suppliers . we seek to maintain higher levels of inventory to protect ourselves from supply interruptions , and , as a result , we are subject to the risk of inventory obsolescence and expiration , which could lead to inventory impairment charges . in the u.s. , our products are shipped directly to our customers on a purchase order basis , primarily by a third-party vendor with a facility in tennessee , although we do ship some products from our facility in minnesota . warehousing and shipping operations for our european customers are handled by a third-party vendor with a facility located in the netherlands . customers do not have the right to return non-defective product , nor do we place product on consignment . our sales representatives do not maintain trunk stock . since our inception in 2007 , we have financed our operations primarily through sales of our inspire system , private placements of our convertible preferred securities , amounts borrowed under our credit facility and equity offerings of our common stock . in april 2020 , we sold 2,300,000 shares of common stock at a public offering price of $ 58.00 per share and received net proceeds of approximately $ 124.7 million after deducting underwriting discounts , commissions , and offering expenses . we have devoted significant resources to research and development activities related to our inspire system , including clinical and regulatory initiatives to obtain marketing approval , and sales and marketing activities . for the year ended december 31 , 2020 , we generated revenue of $ 115.4 million with a gross margin of 84.7 % and a net loss of $ 57.2 million , compared to revenue of $ 82.1 million with a gross margin of 83.4 % and a net loss of $ 33.2 million for the year ended december 31 , 2019 , and revenue of $ 50.6 million with a gross margin of 80.1 % and a net loss of $ 21.8 million for the year ended december 31 , 2018. our accumulated deficit as of december 31 , 2020 was $ 237.3 million . we have invested heavily in product development . our research and development activities have been centered on driving continuous improvements to our inspire therapy . we have also made significant investments in clinical studies to demonstrate the safety and efficacy of our inspire therapy and to support regulatory submissions . we also continue to make significant investments building our sales and marketing organization by increasing the number of u.s. sales representatives and continuing our direct-to-consumer marketing efforts in existing and new markets throughout the u.s. and in europe . during 2020 , we activated 141 centers bringing the total to 425 u.s. medical centers implanting inspire therapy as of december 31 , 2020. driven by the more favorable reimbursement environment , we have increased our focus on adding ascs . at the end of 2020 , ascs made up just over 15 % of our total u.s. implanting centers , up from nearly 10 % at the end of 2019. additionally , we created 82 34 new territories during 2020 , bringing the total to 107 u.s. territories as of december 31 , 2020. we continue to make investments in research and development efforts to develop our next generation inspire systems and support our future regulatory submissions for expanded indications and for new markets such as europe , japan , and australia . for example , in april 2020 , we received fda approval for an expanded age-range for inspire therapy to include 18 to 21 year old patients , and in august 2020 , the australian therapeutic goods administration approved inspire therapy to treat moderate to severe osa . because of these and other factors , we expect to continue to incur net losses for the next several years , and we expect to require substantial additional funding , which may include future equity and debt financings . outlook we expect the covid-19 pandemic to continue to adversely impact our revenue due to decreases and delays in the number of inspire therapy procedures performed and patients screened for eligibility for inspire therapy . beginning in the second week of march 2020 , substantially all of the scheduled inspire therapy procedures were postponed and numerous other authorized cases were unable to be scheduled . during april 2020 , the widespread shutdown in elective surgical procedures continued . beginning in may 2020 , surgical volumes began increasing steadily , with most implanting centers performing procedures by october 2020. a portion of the remaining 2020 procedures performed were those rescheduled from the first half of 2020 , and , as a result of which , the initial backlog of postponed cases has largely been eliminated . the resurgence of covid-19 in various u.s. regions has , and will likely continue to , adversely impact our procedure volumes . in response to the spread of covid-19 and in line with recommendations from federal and local government and healthcare agencies , we transitioned employees , except for those deemed essential to key aspects of our business , to a remote work environment . story_separator_special_tag beginning in may 2020 , our corporate office re-opened with strict sanitation and physical distancing protocols , although many corporate employees continue to work remotely as a heightened precautionary measure . additionally , our field staff continues to primarily work remotely and must adhere to applicable covid-19 protocols when visiting hospitals and ascs . during the period which surgical procedures were significantly limited , we identified and implemented innovative solutions to support patients who have inspire therapy , as well as continued to educate patients who may be struggling with their sleep apnea . patients continue to reach out to learn more about the therapy and get connected to a healthcare provider , and we are supporting this interaction through the use of several virtual tools , including the new inspire sleep app , and other online tools . we are also continuing with our planned expansion in recruiting territory managers and sales support roles . to date , we have not experienced disruptions to our supply chain network as a result of the covid-19 pandemic . we have also not reduced our capital expenditures and are continuing to invest in research and development , however , we may determine to allocate resources differently due to impacts of the covid-19 pandemic . we believe that our existing cash resources will be sufficient to meet our capital requirements and fund our operations for at least the next 12 months . for additional information , see “ liquidity and capital resources. ” components of our results of operations revenue we derive primarily all of our revenue from the sale of our inspire system to hospitals and ascs in the u.s. and select countries in europe . we recognize revenues from sales of our inspire system when the customer obtains control of the product , which occurs at a point in time , either upon shipment of the product or receipt of the product , depending on shipment terms . our revenue has fluctuated , and may continue to fluctuate , from quarter to quarter due to a variety of factors . for example , we have historically experienced seasonality in our first and fourth quarters and have experienced adverse impacts on our revenue due to the covid-19 pandemic . revenue for the year ended december 31 , 2020 was negatively impacted due to the global pandemic associated with covid-19 . specifically , in march 2020 , healthcare facilities and clinics began restricting access to their 83 clinicians , reducing patient consultations and treatments or temporarily closing their facilities . as a result , beginning in the second week of march 2020 , substantially all of our then-scheduled inspire therapy procedures were postponed , and numerous other cases with prior authorization could not be scheduled and were , therefore , also postponed . during april 2020 , the widespread shutdown in elective surgical procedures continued , but surgical volumes began increasing in may and even further in june , though still remaining below pre-covid-19 levels . by the end of the third quarter of 2020 , most implanting centers had resumed procedures . a portion of the second , third and fourth quarter 2020 procedures performed were rescheduled from the first half of 2020 , and , as a result of which , the backlog of postponed cases has largely been eliminated . cost of goods sold and gross margin cost of goods sold consists primarily of acquisition costs for the components of the inspire system , overhead costs , scrap , and inventory obsolescence , warranty replacement costs , as well as distribution-related expenses such as logistics and shipping costs , net of shipping costs charged to customers . the overhead costs include the cost of material procurement , depreciation expense for production equipment , and operations supervision and management personnel , including employee compensation , stock-based compensation , supplies , and travel . we expect cost of goods sold to increase or decrease in absolute dollars primarily as , and to the extent , our revenue grows or declines , respectively . we calculate gross margin as gross profit divided by revenue . our gross margin has been and we expect it will continue to be affected by a variety of factors , including manufacturing costs , the average selling price of our inspire system , the implementation of cost-reduction strategies , inventory obsolescence costs , which generally occur when new generations of our inspire system are introduced , and to a lesser extent the sales mix between the u.s. and europe as our average selling price in the u.s. tends to be higher than in europe . our gross margin may increase over the long term to the extent our production volumes increase and we receive discounts on the costs charged by our contract manufacturers , thereby reducing our per unit costs . however , our gross margin may fluctuate from quarter to quarter due to seasonality . research and development expenses research and development expenses consist primarily of product development , engineering , clinical studies to develop and support our products , regulatory expenses , quality assurance , testing , consulting services and other costs associated with the next generation versions of the inspire system . these expenses include employee compensation , including stock-based compensation , supplies , materials , consulting , and travel expenses related to research and development programs . additionally , these expenses include clinical trial management , payments to clinical investigators , data management and travel expenses for our various clinical trials . we expect research and development expenses to increase in the future as we develop next generation versions of our inspire system and continue to expand our clinical studies to secure positive coverage policies from private commercial payors in the u.s. and enter into new markets including additional european countries , japan , and australia . we expect research and development expenses as a percentage of revenue to vary over time depending on the level and timing of initiating new product development efforts and new clinical development activities .
| 85 revenue information by region is summarized as follows : replace_table_token_6_th revenue generated in the u.s. was $ 106.1 million for the year ended december 31 , 2020 , an increase of $ 32.4 million , or 44.1 % , over the year ended december 31 , 2019. revenue growth in the u.s. was due to increased market penetration in existing territories , the expansion into new territories , increased physician and patient awareness of our inspire system , a greater number of prior authorization approvals , additional positive coverage policies and , to a lesser extent , an increase in our average selling price as a result of the introduction of the new sensing lead on the inspire system to the u.s. market in february 2019. as noted above , u.s. revenue for the year ended december 31 , 2020 was negatively impacted by the covid-19 pandemic . revenue generated in europe was $ 9.3 million in the year ended december 31 , 2020 , an increase of $ 0.9 million , or 10.5 % , over the year ended december 31 , 2019. revenue growth in europe was primarily due to increased market penetration in existing territories , the expansion of our european sales representatives into new territories , and increased physician and patient awareness of our inspire system . the remainder of our revenue from europe increase was due to favorable exchange rates . the overall growth was partially offset by impacts from the covid-19 pandemic . cost of goods sold and gross margin cost of goods sold increased $ 4.0 million , or 29.2 % , to $ 17.6 million for the year ended december 31 , 2020 compared to $ 13.6 million for the year ended december 31 , 2019. the increase was primarily due to product costs associated with higher sales volume of our inspire system . gross margin was 84.7 % for the year ended december 31 , 2020 compared to 83.4 % for the year ended december 31 , 2019. gross margin for the year ended december 31 , 2020 was higher primarily due to manufacturing efficiencies and higher sales volume . research and development expenses research and development expenses increased $ 13.3 million , or 103.2 % , to $ 26.1 million for the year ended december 31 , 2020 compared to $ 12.8 million for the year ended december 31 , 2019. this change was primarily due to an increase of $
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please see “ item 1a-risk factors ” of this annual report for a further discussion of these and other risks and uncertainties which could affect our future results . we undertake no obligation to publicly revise any forward-looking statements to reflect events or circumstances after the date of those statements or to reflect the occurrence of anticipated or unanticipated events , except to the extent we are legally required to disclose certain matters in sec filings or otherwise . 26 outlook we believe that the housing market is in a solid recovery mode as we enter fiscal 2014 although we have seen the rate of improvement in the overall housing market moderate due to the tapering of federal stimulus and the recent upward movement in mortgage rates from their historically low levels . the overriding driver in the recovery of the housing market is the production deficit of both single and multifamily housing that took place throughout the economic downturn and up to and including this current year . we believe that such production deficit will result in steady improvement in the housing market over an extended period of time , as builders of both single and multifamily housing will need to increase production to make up for such shortfall in an environment where inventories are likely to continue to remain low due to a shortage of entitled and developed land to build on in desirable locations and as pent-up demand continues to make its way into the market . in the last few months of 2013 , we have seen a pause in the rate of improvement in the recovery of the housing market in response to political turmoil and interest rate increases . while we recognize the potential headwinds from this and recent moves to lower loan limits on government-sponsored mortgages , we feel that the short supply of available homes and pent-up demand , along with a generally improving economy , will continue to drive the housing recovery forward . currently , we are seeing traffic patterns in our communities that indicate that buyers are coming to the market and finding short supplies and we are anticipating a strong spring selling season for fiscal 2014. looking back , fiscal 2013 was an excellent year for lennar , with revenues and pretax earnings attributable to lennar increasing 45 % and 170 % , respectively , from 2012. in fiscal 2013 , our gross margin increased 220 basis points to 24.9 % . this gross margin , combined with our selling , general and administrative expenses of 10.6 % , increased our operating margin 410 basis points to 14.3 % during fiscal 2013. in addition , we ended the year with a strong sales backlog , up 19 % in homes and 40 % in dollar value , which gives us a great start for fiscal 2014. during fiscal 2013 , we also had strong performances from our other business segments . our financial services segment produced $ 85.8 million of pretax earnings , notwithstanding a significant slowdown in the refinance business during the second half of the year . rialto generated $ 19.9 million of operating earnings net of earnings attributable to noncontrolling interests , benefiting from the successful launch of our new mortgage conduit business rialto mortgage finance ( `` rmf '' ) and a transition from a capital-intensive business model to an asset light , fund model . our multifamily rental business continued to grow during fiscal 2013 , and we ended the year with 11 multifamily communities under construction and one completed , fully-leased community . finally , our fivepoint communities is well positioned , managing the entitlement and development of some of the most desirable real estate assets in southern and northern california . in fiscal 2014 , our principal focus in our homebuilding operations will continue to be on generating strong operating margins on the homes we sell by increasing sales prices and reducing sales incentives , to offset increasing material , labor and land costs , as well as taking advantage of the steps we have taken over the past several years to reduce costs and right-size our overhead structure . in addition , we will continue to invest in carefully underwritten strategic land acquisitions in well-positioned markets that we expect will continue to support our homebuilding operations going forward and help us increase operating leverage as our deliveries increase . during fiscal 2014 , we expect our financial services segment 's earnings to decrease due to the lower volume of refinance transactions and an overall more competitive environment , however , the segment will continue to benefit as our homebuilding business expands and the number of non-lennar purchasers using our mortgage company continues to grow in various markets . in addition , as rialto continues to grow as a blue chip capital investment management company and commercial real estate capital provider , we expect the prospects for future earnings for our rialto segment to continue to improve throughout 2014 and we expect contributions from rialto 's rmf buisness will begin to generate a more predictable and recurring component of earnings for rialto . our multifamily segment anticipates that the construction of its development pipeline will be completed over the next four years , and as a merchant builder of apartments , we plan to sell our apartments once rents and occupancies have stabilized . our multifamily segment is still in start-up mode and we do n't expect a meaningful contribution from this segment until beyond fiscal 2014. in addition , we expect fivepoint communities to continue to mature as a long-term strategy as it develops land in premium california locations to fill the growing demand for well-located approved and developed homesites . in conclusion , we are aware of the concerns that are being reflected in the current market volatility . our company 's strategy continues to be driven by our belief that the real estate markets remain positioned to continue to recover and that our company remains well positioned to benefit from such recovery . story_separator_special_tag we expect that our company 's main driver of earnings will continue to be our homebuilding and financial services operations , as we are currently well positioned to deliver between 21,000 and 22,000 homes with gross margins expected to average about 25 % during fiscal 2014. we are also focused on our multiple platforms including rialto , multifamily , and fivepoint , as such ancillary business continue to mature and expand their franchises providing longer-term opportunities that we expect will enhance shareholder value . overall , we are on track to achieve another year of substantial profitability in fiscal 2014 , as the housing market recovery continues and we will continue to benefit from our strategic land acquisitions and new community openings . 27 results of operations overview our net earnings attributable to lennar in 2013 were $ 479.7 million , or $ 2.15 per diluted share ( $ 2.48 per basic share ) , compared to $ 679.1 million , or $ 3.11 per diluted share ( $ 3.58 per basic share ) , in 2012 . our net earnings includes a $ 177.0 million tax provision in 2013 , compared to a tax benefit of $ 435.2 million in 2012 , which included the reversal of our deferred tax asset valuation allowance of $ 491.5 million , or $ 2.25 per diluted share . our 2013 earnings before taxes were $ 681.9 million , compared to $ 222.1 million in 2012 . the following table sets forth financial and operational information for the years indicated related to our operations . replace_table_token_9_th 28 2013 versus 2012 revenues from home sales increased 52 % in the year ended november 30 , 2013 to $ 5.3 billion from $ 3.5 billion in 2012 . revenues were higher primarily due to a 33 % increase in the number of home deliveries , excluding unconsolidated entities , and a 14 % increase in the average sales price of homes delivered . new home deliveries , excluding unconsolidated entities , increased to 18,234 homes in the year ended november 30 , 2013 from 13,707 homes last year . there was an increase in home deliveries in all of our homebuilding segments and homebuilding other . the average sales price of homes delivered increased to $ 290,000 in the year ended november 30 , 2013 from $ 255,000 in the same period last year , driven primarily by an increase in the average sales price of home deliveries in all of our homebuilding segments , primarily due to increased pricing in many of our markets as the market recovery continues . sales incentives offered to homebuyers were $ 20,500 per home delivered in the year ended november 30 , 2013 , or 6.6 % as a percentage of home sales revenue , compared to $ 28,300 per home delivered in the same period last year , or 10.0 % as a percentage of home sales revenue . currently , our biggest competition is from the sales of existing and foreclosed homes . we differentiate our new homes from those homes by issuing new home warranties , updated floor plans , our everything 's included marketing program , community amenities and in certain markets by emphasizing energy efficiency and new technologies . gross margins on home sales were $ 1,318.3 million , or 24.9 % , in the year ended november 30 , 2013 , compared to gross margins on home sales of $ 793.3 million , or 22.7 % , in the year ended november 30 , 2012 . gross margin percentage on home sales improved compared to last year , primarily due to a decrease in sales incentives offered to homebuyers as a percentage of revenue from home sales , an increase in the average sales price of homes delivered and a greater percentage of deliveries from our new higher margin communities ( communities where land was acquired subsequent to november 30 , 2008 ) which made up 61 % of our 2013 deliveries , partially offset by an increase in materials , labor and land costs . gross profits on land sales totaled $ 17.0 million in the year ended november 30 , 2013 , compared to gross profits on land sales of $ 10.2 million in the year ended november 30 , 2012 . selling , general and administrative expenses were $ 559.5 million in the year ended november 30 , 2013 , compared to selling , general and administrative expenses of $ 438.7 million last year . selling , general and administrative expenses as a percentage of revenues from home sales improved to 10.6 % in the year ended november 30 , 2013 , from 12.6 % in 2012 , due to improved operating leverage as a result of increased absorption per community and more active communities . lennar homebuilding equity in earnings ( loss ) from unconsolidated entities was $ 23.8 million in the year ended november 30 , 2013 , related to our share of operating earnings of lennar homebuilding unconsolidated entities , primarily as a result of sales of approximately 500 homesites to third parties by one unconsolidated entity for approximately $ 204 million , resulting in a gross profit of approximately $ 67 million . our share of equity in earnings for the year ended november 30 , 2013 related to the sales of those homesites was $ 19.8 million . this compared to lennar homebuilding equity in earnings ( loss ) of ( $ 26.7 ) million in the year ended november 30 , 2012 , primarily related to our share of operating losses of lennar homebuilding unconsolidated entities , which included $ 12.1 million of valuation adjustments related to asset sales at lennar homebuilding 's unconsolidated entities .
| backlog : replace_table_token_18_th of the total homes in backlog above , 4 , 5 and 2 represent homes in backlog from unconsolidated entities at november 30 , 2013 , 2012 and 2011 , respectively . replace_table_token_19_th of the total dollar value of homes in backlog above , $ 2.5 million , $ 3.5 million and $ 1.0 million represent the dollar value of homes in backlog from unconsolidated entities at november 30 , 2013 , 2012 and 2011 , respectively . the homes in backlog from unconsolidated entities had an average sales price of $ 624,000 , $ 704,000 and $ 506,000 at november 30 , 2013 , 2012 and 2011 , respectively . backlog represents the number of homes under sales contracts . homes are sold using sales contracts , which are generally accompanied by sales deposits . in some instances , purchasers are permitted to cancel sales if they fail to qualify for financing or under certain other circumstances . we experienced cancellation rates in our homebuilding segments and homebuilding other as follows : replace_table_token_20_th our cancellation rate during 2013 was within a range that is consistent with historical cancellation rates , but substantially below those we experienced from 2007 through 2010. we do not recognize revenue on homes under sales contracts until the sales are closed and title passes to the new homeowners . 39 active communities : replace_table_token_21_th of the total active communities listed above , 2 communities represent active communities being developed by unconsolidated entities during the periods ended november 30 , 2013 , 2012 and 2011 . deliveries from new higher margin communities ( 3 ) : replace_table_token_22_th replace_table_token_23_th ( 3 ) deliveries from new higher margin communities represent deliveries from communities where land was acquired subsequent to november 30 , 2008 , and is a subset of the deliveries included in the preceding deliveries table . 40 the following table details our gross margins on home sales for the years ended november 30 , 2013 , 2012 and 2011 for each of our reportable homebuilding segments and homebuilding other : replace_table_token_24_th 2013 versus 2012 east : homebuilding revenues increased in 2013 , compared
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so far this work has outlined a strong lithium brine anomaly that covers an area of over twenty ( 20 ) square miles , with lithium values up to 100 ppm , all at shallow depths . westwater has commenced the permitting process with the u.s. bureau of land management ( “ blm ” ) , and the state of utah , to field an exploration program that optimizes project access and limits environmental disturbance , minimizes cost , and maximizes overall data quality . option agreement for lithium brine claims on march 24 , 2017 , the company 's wholly owned subsidiary lithium holdings nevada llc entered into an option agreement to purchase a block of unpatented placer mining claims covering an area of approximately 3,000 acres within the columbus salt marsh area of esmeralda county , nevada . the claims adjoin a portion of the company 's current property holdings at its columbus basin project , expanding the project area within the basin to approximately 14,200 acres . the company has the right to conduct exploration activities on the claims during the one-year option period . under the option agreement , the company may acquire the mineral property claims on or before march 24 , 2018 in exchange for 200,000 shares of wwr common stock and a 1 % net smelter return royalty on the claims . equity financings confidentially marketed public offering on january 19 , 2017 , the company completed a registered public offering for net proceeds of $ 8.9 million . the company sold 1,399,140 shares of common stock at a price of $ 2.01 per share and 3,426,731 pre-funded warrants at a price of $ 2.00 per warrant . the warrants had an exercise price of $ 0.01. all of the pre-funded warrants have been exercised . registered direct offering on february 16 , 2017 , the company completed a registered direct offering for net proceeds of $ 4.5 million with aspire capital whereby aspire capital purchased 2,100,000 shares of common stock at a price of $ 1.58 and 748,101 pre-funded common stock purchase warrants at a price of $ 1.57. the warrants had an exercise price of $ 0.01 per share and a term of three years . all of the pre-funded warrants have been exercised . controlled equity offering sales agreement with cantor fitzgerald ( “ cantor ” ) on april 14 , 2017 , the company entered into an at-the-market offer ( the “ atm offering ” ) with cantor acting as sales agent . under the atm offering , the company may from time to time sell shares of its common stock having an aggregate offering amount up to $ 30.0 million in “ at-the-market ” offerings , which shares are registered under a registration statement on form s-3 , which was declared effective on march 9 , 2017. the company pays cantor a commission equal to 2.5 % of the gross proceeds from the sale of any shares pursuant to the atm offering . as of march 1 , 2018 , the company had sold 812,723 shares of common stock for net proceeds of $ 1.2 million under the atm offering . as a result , the company had approximately $ 28.8 million remaining available for future sales under the atm offering . the company 's previous atm offering with btig llc was fully utilized as of december 31 , 2016. common stock purchase agreement ( “ cspa ” ) with aspire capital on september 25 , 2017 , the company entered into the cspa with aspire capital to place up to $ 22.0 million in the aggregate of the company 's common stock on an ongoing basis when required by the company over a term of 30 months . the company will control the timing and amount of sales to aspire capital , and at a price based on market prices at that time . as consideration for aspire capital entering into the purchase agreement , the company issued 880,000 shares of its common stock to aspire capital . the shares of common stock subject to the cspa were registered pursuant to the company 's effective shelf registration statement on form s-3 . the parties terminated the april 8 , 2016 cspa with aspire capital upon entering into the september 25 , 2017 cspa . on september 27 , 2017 , pursuant to the cspa and after satisfaction of certain commencement conditions , aspire capital made an initial purchase of 1,428,571 shares of common stock for which the company received net proceeds of $ 2.0 million . additionally , on december 14 , 2017 , aspire capital purchased 150,000 shares of common stock for which the company received net proceeds of $ 0.2 million . there were no other sales of common stock pursuant to the cspa and as of march 1 , 2018 , $ 19.8 million of the aggregate $ 22.0 million remained available for future sales under the cspa . 60 laramide asset sale on january 5 , 2017 , laramide resources ltd. ( “ laramide ” ) and the company closed the sale of the company 's wholly-owned subsidiary hydro resources , inc. , which held the churchrock and crownpoint projects , pursuant to a share purchase agreement ( the “ laramide spa ” ) . under the terms of the laramide spa , as amended on december 5 , 2016 , the company received the following consideration : ● $ 2.5 million in cash , of which $ 250,000 was paid in advance on october 21 , 2016 ; ● $ 500,000 of laramide common stock and warrants ; and ● a $ 5.0 million promissory note , secured by a mortgage over the churchrock and crownpoint projects . the note has a three-year term and carries an initial interest rate of 5 % which then increases to 10 % upon laramide 's decision regarding commercial production at the churchrock project . principal payments of approximately $ 1.5 million are due and payable on january 5 in each of 2018 , 2019 and $ 2.0 story_separator_special_tag million on january 5 , 2020. interest is payable on a quarterly basis , provided however that no interest will be payable prior to the first principal payment in 2018. laramide will have the right to satisfy up to half of each of these payments by delivering shares of its common stock to the company , which shares will be valued by reference to the vwap for laramide 's common stock for the 20 trading days before the respective anniversary of january 5 , on which each payment is due . laramide made the first required principal payment on the promissory note in january 2018 , consisting of $ 750,000 in cash and the issuance of 1,982,483 of laramide 's common shares . rcf loan retirement on february 9 , 2017 , the company repaid $ 5.5 million of principal plus accrued unpaid interest in cash to retire all of the obligations remaining under that certain loan agreement dated november 13 , 2013 by and among the company , certain of its subsidiaries and resource capital fund v l.p. ( “ rcf ” ) . in addition , on july 31 , 2017 , the company and rcf terminated the stockholders ' agreement dated march 1 , 2012 , pursuant to which rcf had certain participation and board rights . story_separator_special_tag times , serif ; font-size : 10pt '' > disposal of hydro resources , inc. on january 5 , 2017 , laramide and the company closed the sale of the company 's wholly-owned subsidiary hri , which holds the churchrock and crownpoint projects , pursuant to a share purchase agreement ( the “ laramide spa ” ) . under the terms of the laramide spa , executed on april 7 , 2016 and amended on december 5 , 2016 , the company received the following consideration : ● $ 2.5 million in cash , of which $ 0.25 million was paid on october 21 , 2016 ; ● 2,218,333 shares of laramide common stock and 2,218,333 laramide common stock purchase warrants . each common stock purchase warrant entitles the company to purchase one share of common stock of laramide at a price of cdn $ 0.45 for a period of 60 months from the date of closing ; 63 ● a $ 5.0 million promissory note , secured by a mortgage over the projects . the note has a three-year term and carries an initial interest rate of 5 % which then increases to 10 % upon laramide 's decision regarding commercial production at the churchrock project . principal payments of approximately $ 1.5 million are due and payable on january 5 in each of 2018 and 2019 , with the balance of $ 2.0 million due and payable on january 5 , 2020. interest is payable on a quarterly basis , provided however that no interest will be payable until march 31 , 2018. laramide will have the right to satisfy up to half of each of these principal payments by delivering shares of its common stock to the company , which shares will be valued by reference to the volume weighted average price ( “ vwap ” ) for laramide 's common stock for the 20 trading days before the respective anniversary of january 5 , on which each payment is due ; ● a retained 4.0 % net smelter return royalty ( “ nsr royalty ” ) on the churchrock project ; and ● an option to purchase laramide 's la sal project and la jara mesa projects which expired on january 5 , 2018. the divestiture of hri was accounted for as an asset disposal and the non-cash consideration received from laramide was recorded at fair value . the fair value of the shares of laramide common stock received was determined using the closing share price of laramide 's stock on january 5 , 2017. the fair value of the common stock purchase warrants was determined using the black-scholes method on april 27 , 2017 , which was the date that laramide 's stockholders approved the issuance of the warrants . the fair value of the notes receivable was determined using the present value of the future cash receipts discounted at a market rate of 9.5 % . the company did not record a separate fair value for the options as the exercise of the options would reduce the amount outstanding under the notes receivable . due to the high degree of uncertainties surrounding future mine development and minerals prices , as well as limited marketability , the company determined the fair value of the nsr royalty to be nil . the following gain was included in our statement of operations and was determined using the fair value amounts of the purchase consideration less the carrying value of the churchrock project : ( thousands of dollars ) total consideration received $ 6,525 carrying value of churchrock project ( 2,123 ) carrying value of other plant and equipment ( 31 ) accounts payable 1 asset retirement obligation 105 royalty payable on churchrock project 450 gain on disposal of hri $ 4,927 interest income/ ( expense ) interest income of $ 0.6 million for the year ended december 31 , 2017 consisted of accrued interest receivable of $ 0.2 on the laramide note and amortization of $ 0.5 million on the discount on the laramide note . these amounts were partially offset by interest expense of $ 0.1 million for the amortization of the debt discount and establishment fee . interest expense of $ 2.6 million for the year ended december 31 , 2016 consisted of interest of $ 0.7 million payable to rcf , amortization of the debt discount of $ 1.8 million and amortization of the establishment fee of $ 0.1 million . loss on extinguishment of convertible debt on december 5 , 2016 the company entered into the esousa mea with esousa whereby esousa purchased $ 2.5 million of the company 's convertible debt and exchanged such debt into shares of common stock of the company .
| for decreased permitting and license costs for the temrezli project in turkey . 62 general and administrative expenses significant expenditures for general and administrative expenses for the years ended december 31 , 2017 and 2016 were : replace_table_token_5_th general and administrative expenses decreased by approximately $ 1.0 million as compared with the corresponding period in 2016. this decrease was mostly due to the following : ● a decrease in the company 's salaries and payroll burden of $ 0.6 million , which was primarily the result of a lower head count in 2017 versus 2016 ; ● a decrease in legal , accounting , public company expenses of $ 0.3 million , which was primarily due to lower public company costs in 2017 because of one less shareholders ' meeting and one less director during the year ; and ● a decrease in stock-based compensation expense of $ 0.1 million as there were fewer awards outstanding during most of 2017. acquisition related expenses during 2017 , we incurred acquisition related legal and accounting costs of $ 1.0 million associated with the alabama graphite corp. acquisition . we also advanced $ 0.8 million to alabama graphite pursuant to the arrangement agreement and loan agreement as of december 31 , 2017. impairment of uranium properties during 2017 and 2016 , we recorded impairments of $ 11.4 million and $ 1.7 million , respectively , to reduce the carrying value of certain uranium properties . due to continued declining uranium prices in 2017 , substantially all of the 2017 impairment charges related to the company 's cebolleta/juan tafoya project as the carrying value exceeded the project 's cash flows on an undiscounted and discounted basis . the net carrying value of the cebolleta/juan tafoya project after impairment was $ 7.8 million at december 31 , 2017. the 2016 impairment charges consisted of $ 0.9 million relating to the termination of the sejita dome , nell and
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our significant accounting policies are set forth in note 2 , “ significant accounting policies ” , in the notes to consolidated financial statements in item 8 of this annual report on form 10-k. of those policies , we believe that the policies discussed below may involve the highest degree of judgment and may be the most critical to an accurate reflection of our financial condition and results of operations . stock‑based compensation our stock options are granted with an exercise price set at the fair market value of our common stock on the date of grant . our stock options generally expire ten years from the date of grant and vest upon terms determined by our board of directors . we recognize compensation costs resulting from the issuance of stock‑based awards to employees , non‑employees and directors as an expense in our statement of operations over the service period based on a measure of fair value for each stock‑based award . the fair value of each option grant is estimated as of the date of grant using the black‑scholes option pricing model . the fair value is amortized as a compensation cost on a straight‑line basis over the requisite service period of the award , which is generally the vesting period . we use historical data , as well as subsequent events occurring prior to the preparation of our consolidated financial statements , to estimate option exercises and employee departures within the valuation model . the expected term of any options granted under our stock plans is based on the average of the contractual term ( generally , 10 years ) and the vesting period ( generally , 48 months ) . the risk‑free rate is based on the yield of a u.s. treasury security with a term consistent with the expected term of the option . see note 13 , “ stock options , ” in the notes to consolidated financial statements in item 8 of this annual report on form 10‑k for more information about the assumptions underlying these estimates . derivative instruments certain of our issued and outstanding warrants to purchase common stock contain anti‑dilution provisions . these warrants do not meet the requirements for classification as equity and are recorded as derivative warrant liabilities . we use valuation methods and assumptions that consider , among other factors , the fair value of the underlying stock , risk‑free interest rate , volatility , expected life and dividend rates consistent with those discussed in note 12 , “ derivative instruments ” , in the notes to consolidated financial statements in item 8 of this annual report on form 10‑k , in estimating the fair value for these warrants . such derivative warrant liabilities are initially recorded at fair value , with subsequent changes in fair value charged ( credited ) to operations in each reporting period . the fair value of such derivative warrant liabilities is most sensitive to changes in the fair value of the underlying common stock and the estimated volatility of our common stock . research and development expense our research and development expenses consist primarily of costs incurred for the development of our product candidates , which include : · employee related expenses , including salaries , benefits , travel , and stock based compensation expense ; 48 · expenses incurred under agreements with contract research organization ( “ cros ” ) , and clinical sites that conduct our clinical studies ; · facilities , depreciation , and other expenses , which include direct and allocated expenses for rent and maintenance of facilities , insurance , and other supplies ; · costs associated with our research platform and preclinical activities ; · costs associated with our regulatory , quality assurance , and quality control operations ; and · amortization of intangible assets . our research and development costs are expensed as incurred . we are required to estimate our accrued research and development expenses . this process involves reviewing open contracts and purchase orders , communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated costs incurred for the services when we have not yet been invoiced or otherwise notified of the actual costs . we make estimates of our accrued expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to us at that time . if the actual timing of the performance of services or the level of effort varies from our estimate , we adjust the accrued expense accordingly . although we do not expect our estimates to be materially different from amounts actually incurred , our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in us reporting amounts that are too high or too low in any particular period . to date , we have not made any material adjustments to our prior estimates of accrued research and development expenses . general and administrative expense general and administrative expenses consist primarily of salaries and related costs for personnel , including stock-based compensation and travel expenses for our employees in executive , operational , finance , legal , business development , commercial , and human resource functions . other general and administrative expenses include facility-related costs , professional fees for accounting , tax and legal and consulting services , directors ' fees and expenses associated with obtaining and maintaining patents . we anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research and development and potential commercialization of our product candidates . additionally , if and when we believe a regulatory approval of the first product candidate appears likely , we anticipate an increase in payroll and related expenses as a result of our preparation for commercial operations , especially as it relates to the sales and marketing of our product candidates . story_separator_special_tag recent accounting pronouncements in august 2014 , the financial accounting standards board ( “ fasb ” ) issued accounting standards update ( “ asu ” ) 2014-15 , presentation of financial statements—going concern , on disclosure of uncertainties about an entity 's ability to continue as a going concern . this guidance addresses management 's responsibility in evaluating whether there is substantial doubt about a company 's ability to continue as a going concern and to provide related footnote disclosures . the guidance is effective for fiscal years ending after december 15 , 2016 including interim reporting periods within each annual reporting period , with early adoption permitted . we adopted this guidance as of december 31 , 2016. the adoption of asu 2014-15 impacted our presentation and disclosure only and did not have any impact on financial position or results of operations . in may 2014 , the fasb issued asu no . 2014-09 , revenue from contracts with customers ( “ asu 2014-09 ” ) to provide updated guidance on revenue recognition . asu 2014-09 requires a company to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled to in exchange for those goods or services . in doing so , companies may need to use more judgment and make more estimates than under today 's guidance . these may include identifying performance obligations in the contract , estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation . in august 2015 , the fasb issued asu no . 2015-14 , revenue from 49 contracts with customers ( topic 606 ) : deferral of the effective date , which deferred the effective date of asu 2014-09 by one year . accordingly , asu 2014-09 is effective for public business entities for annual reporting periods beginning after december 15 , 2017 , including interim reporting periods within each annual reporting period . in march 2016 , the fasb issued asu no . 2016-08 , revenue from contracts with customers ( topic 606 ) : principal versus agent considerations ( reporting revenue gross versus net ) , which clarifies the implementation guidance on principal versus agent considerations . in april 2016 , the fasb issued asu no . 2016-10 , revenue from contracts with customers ( topic 606 ) : identifying performance obligations and licensing , which clarifies certain aspects of identifying performance obligations and licensing implementation guidance . in may 2016 , the fasb issued asu no . 2016-12 , revenue from contracts with customers ( topic 606 ) : narrow-scope improvements and practical expedients , which relates to disclosures of remaining performance obligations , as well as other amendments to guidance on collectability , non-cash consideration and the presentation of sales and other similar taxes collected from customers . these standards have the same effective date and transition date of december 15 , 2017. currently , this guidance is not applicable to us as we are still in the research and development stage . however , we will continue to evaluate the impact of adopting asu 2014-09 on our consolidated financial statements when we begin to generate revenue . in february 2016 , the fasb issued asu no . 2016-02 , leases ( topic 842 ) . the guidance in this asu supersedes the leasing guidance in topic 840 , leases . under the new guidance , lessees are required to recognize lease assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months . leases will be classified as either finance leases or operating leases , with classification affecting the pattern of expense recognition in the statement of operations . the new standard is effective for annual reporting periods beginning after december 15 , 201 8 , including interim reporting periods within each annual reporting period . we are currently evaluating the impact of the adoption of this asu on our financial statements . in march 2016 , the fasb issued asu no . 2016-09 , compensation – stock compensation ( topic 718 ) : improvements to employee share-based payment accounting ( “ asu 2016-09 ” ) to require changes to several areas of employee share-based payment accounting in an effort to simplify share-based reporting . the update revises requirements in the following areas : minimum statutory withholding , accounting for income taxes , forfeitures , and intrinsic value accounting for private entities . asu 2016-09 is effective for annual reporting periods beginning after december 15 , 201 6 , including interim reporting periods within each annual reporting period . we will adopt this standard on january 1 , 2017 , and the adoption is not expected to have a material impact on our consolidated financial statements . in august 2016 , the fasb issued asu no . 2016-15 , classification of certain cash receipts and cash payments ( “ asu 2016-15 ” ) , to address how certain cash receipts and cash payments are presented and classified in the statement of cash flows in an effort to reduce existing diversity in practice . the update includes eight specific cash flow issues and provides guidance on the appropriate cash flow presentation for each . asu 2016-15 is effective for annual reporting periods beginning after december 15 , 2017 , including interim reporting periods within each annual reporting period . we do not expect the adoption of this guidance to have a material impact on our financial statements . in november 2016 , the fasb issued asu no . 2016-18 , statement of cash flows ( topic 230 ) : restricted cash to clarify how entities should present restricted cash and restricted cash equivalents in their statements of cash flows . under this new update , entities are required to show the changes in the total of cash , cash equivalents , restricted cash and restricted cash equivalents in their statements of cash flows .
| interest expense interest expense decreased by $ 17 to $ 155 for the year ended december 31 , 2016 from $ 172 for the year ended december 31 , 2015. this decrease in interest expense is primarily due to lower average borrowings . derivatives gain ( loss ) the derivatives gain for the year ended december 31 , 2016 is $ 593 compared to a loss of $ 10,804 for the year ended december 31 , 2015. the gain of $ 593 for the year ended december 31 , 2016 reflects the decrease in the fair value of our derivative warrant liability due primarily to the decrease in the fair value of the underlying common stock , as well as the decreasing term to expiration of the warrants . in 2015 , the loss was driven primarily by an increase in the value of our common stock . comparison of the years ended december 31 , 2015 and 2014 ( in thousands , except share and per share amounts ) research and development expenses research and development expenses decreased by $ 215 to $ 10,058 for the year ended december 31 , 2015 from $ 10,273 for the year ended december 31 , 2014. after adjusting for the $ 621 insurance settlement related to business interruption , research and development expenses were $ 10,894 for 2014. the decrease in adjusted research and development expenses for 2015 of $ 836 was primarily attributable to decreases in consulting costs of $ 612 , testing costs of $ 375 , packaging and lab supplies of $ 359 , compensation-related expense attributable to the 2014 reduction in force of $ 564 , and other various expenses of $ 338. these reductions were partly offset by higher clinical trial costs of $ 729 , stock compensation expense of $ 147 , and bonus expense of $ 536. bonus expense was higher in 2015 compared to 2014 due to the fact that in 2014 the accrual , which related
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revenue for our leu segment accounted for approximately 88 % of our total revenue in 2016. the majority of our customers are domestic and international utilities that operate nuclear power plants , with international sales constituting 25 % of revenue from our leu segment in 2016 and 41 % in 2015. our agreements with electric utilities are primarily long-term , fixed-commitment contracts under which our customers are obligated to purchase a specified quantity of the swu component of leu ( or the swu and uranium components of leu ) from us . our agreements for natural uranium sales are generally shorter-term , fixed-commitment contracts . our revenues , operating results and cash flows can fluctuate significantly from quarter to quarter and year to year . revenue is recognized at the time leu or uranium is delivered under the terms of our contracts . customer demand is affected by , among other things , electricity markets , reactor operations , maintenance and the timing of refueling outages . utilities typically schedule the shutdown of their reactors for refueling to coincide with the low electricity demand periods of spring and fall . thus , some reactors are scheduled for annual or two-year refuelings in the spring or fall , or for 18-month cycles alternating between both seasons . customer payments for the swu component of leu average roughly $ 15 million per order . as a result , a relatively small change in the timing of customer orders for leu due to a change in a customer 's refueling schedule may cause operating results to be substantially above or below expectations . 33 our financial performance over time can be significantly affected by changes in prices for swu and uranium . since 2011 , market prices for swu and uranium have significantly declined . since our sales order book includes contracts awarded to us in previous years , the average swu price billed to customers typically lags behind published price indicators by several years , which means that average prices under contract today exceed current market prices . the long-term swu price indicator , as published by tradetech , llc in nuclear market review , is an indication of base-year prices under new long-term enrichment contracts in our primary markets . the following chart summarizes tradetech 's long-term and spot swu price indicators , the long-term price for uranium hexafluoride ( “ uf6 ” ) , as calculated by centrus using indicators published in nuclear market review , and tradetech 's spot price indicator for uf6 : swu and uranium market price indicators in a limited number of sales transactions , title to uranium or leu is transferred to the customer without centrus physically delivering the uranium or leu to the customer . in such cases , risk of loss remains with centrus until physical delivery occurs . at the time transfer of title occurs , a performance obligation for centrus is created and a receivable is recorded . cash is collected for the receivable under normal credit terms . the recognition of revenue and related cost of sales occurs at the time physical delivery occurs and risk of loss transfers to the customer . our contracts with customers and suppliers are denominated in u.s. dollars , and although revenue has not been directly affected by changes in the foreign exchange rate of the u.s. dollar , we may have a competitive price advantage or disadvantage obtaining new contracts in a competitive bidding process depending upon the weakness or strength of the u.s. dollar . costs of our primary competitors are denominated in other currencies . on occasion , centrus will accept payment in the form of uranium . revenue from the sale of swu under such contracts is recognized at the time leu is delivered and is based on the fair value of the uranium received in exchange for the swu . 34 cost of sales for swu and uranium cost of sales for swu and uranium is based on the amount of swu and uranium sold and delivered during the period and unit inventory costs . unit inventory costs are determined using the monthly moving average cost method . changes in purchase costs have an effect on inventory costs and cost of sales over current and future periods . cost of sales includes costs for inventory management at off-site licensed locations . cost of sales also includes legacy costs related to former employees of the portsmouth and paducah gaseous diffusion plants . actuarial gains and losses related to the retiree benefit plans are recognized immediately in the statement of operations when plan obligations are remeasured at year-end or when lump-sum payments reach certain levels . contract services segment the contract services segment includes revenue and cost of sales for american centrifuge work we perform as a contractor to ut-battelle . spending levels to perform the contract work are consistent with the funding levels . centrus records an unbilled receivable and revenue based on the progress towards the achievement of monthly deliverables . monthly reports and invoices affirming the achievement of monthly deliverables are submitted shortly following each month . the achievement of monthly deliverables has resulted in revenue consistent with the funding levels . the contract services segment also includes limited services provided by centrus to the u.s. department of energy ( “ doe ” ) and its contractors at the piketon facility . american centrifuge the company has a long record as a global leader in advanced technology , manufacturing and engineering . our manufacturing , engineering and testing facilities and our highly-trained workforce are deeply engaged in advancing the next generation of uranium enrichment technology . we are exploring a number of options for returning to domestic production in the future . in september 2015 , centrus completed a successful three-year demonstration of the existing american centrifuge technology at its facility in piketon , ohio , with 120 machines linked together in a cascade to simulate industrial operating conditions . story_separator_special_tag since then our government contracts with ut-battelle have provided for continued engineering and testing work on the american centrifuge technology at the company 's facilities in oak ridge , tennessee . we entered into a new contract with ut-battelle on september 19 , 2016 , valued at approximately $ 25 million for the period from october 1 , 2016 , through september 30 , 2017 ( the “ 2017 ornl contract ” ) . the 2017 ornl contract provides for payments for monthly reports of approximately $ 2.0 million per month and additional aggregate payments of $ 1.0 million based on completion of certain milestones . the 2017 ornl contract is currently being funded incrementally . funding for the program is provided to ut-battelle by the federal government which is currently operating under a continuing resolution . the contract with ut-battelle that ended september 30 , 2016 ( the “ 2016 ornl contract ” ) , was a firm , fixed-price contract that provided for payments for monthly reports of approximately $ 2.7 million per month . the amount of funding under the 2016 ornl contract decreased from approximately $ 6.9 million per month received under contract for the government fiscal year that ended september 30 , 2015 ( the “ 2015 ornl contract ” ) . although the 2015 ornl contract expired september 30 , 2015 , centrus continued to perform work at the expected reduced scope as the parties worked toward a successor agreement . the 2016 ornl contract , which was signed in march 2016 , provided for payment for reports related to work performed since october 1 , 2015. revenue in 2016 includes $ 8.1 million for march 2016 reports on work performed in the three months ended december 31 , 2015 , and $ 30.4 million for reports on work performed in 2016. expenses for contract work performed in year ended december 31 , 2016 , are included in cost of sales . expenses for work performed in the three months ended december 31 , 2015 , before there was a contract were included in advanced technology license and decommissioning costs in 2015 . 35 american centrifuge expenses that are outside of our contracts with ut-battelle are included in advanced technology license and decommissioning costs , including ongoing costs to maintain the demobilized piketon facility and our nrc licenses at that location . in the second quarter of 2016 , the company commenced with the decontamination and decommissioning ( “ d & d ” ) of the piketon facility in accordance with the requirements of the nrc and doe . for additional details on costs , schedule and accrued liabilities related to the d & d of the piketon facility , refer to results of operations below and american centrifuge - piketon facility costs and d & d obligations in note 16 , commitments and contingencies , of the consolidated financial statements . site services work and related receivables we formerly performed work under contracts with doe and its contractors to maintain and prepare the former portsmouth gaseous diffusion plant ( the “ portsmouth gdp ” ) for d & d . in september 2011 , our contracts for maintaining the portsmouth facilities and performing services for doe at portsmouth expired and we completed the transition of facilities to doe 's d & d contractor for the portsmouth site . additionally , we provided limited services to doe and its contractors at the paducah gaseous diffusion plant ( the “ paducah gdp ” ) until the leased portions of the paducah gdp were returned to doe on october 21 , 2014. there is the potential for additional revenue to be recognized , based on the outcome of doe reviews and audits , as the result of the release of previously established receivable related reserves . however , uncertainty exists because contract billing periods since june 2002 have not been finalized with doe , and we have not yet recognized this additional revenue . certain receivables from doe are included in other long-term assets based on the extended timeframe expected to resolve claims for payment . additional details are provided in note 4 , receivables to the consolidated financial statements . 2017 outlook we anticipate swu and uranium revenue in 2017 in a range of $ 175 million to $ 200 million , reflecting an expected decline in swu volume delivered compared to 2016. we anticipate total revenue in a range of $ 200 million to $ 225 million . more than two-thirds of our annual revenue is expected in the fourth quarter of 2017. we expect to end 2017 with a cash and cash equivalents balance in a range of $ 150 million to $ 175 million . our financial guidance is subject to a number of assumptions and uncertainties that could affect results either positively or negatively . variations from our expectations could cause differences between our guidance and our ultimate results . among the factors that could affect our results are : additional short-term purchases or sales of swu and uranium ; timing of customer orders , related deliveries , and purchases of leu or components ; the outcome of legal proceedings and other contingencies ; execution and funding of a new agreement with ut-battelle , the operator of ornl , for the continuation of american centrifuge development and testing activities in oak ridge following the expiration of the agreement on september 30 , 2017 ; potential use of cash for strategic initiatives ; and additional costs for decontamination and decommissioning of the company 's facility in ohio . 36 critical accounting estimates our significant accounting policies are summarized in note 1 to our consolidated financial statements , which were prepared in accordance with generally accepted accounting principles . generally accepted accounting principles and related accounting pronouncements , implementation guidelines and interpretations with regard to a wide range of matters that are relevant to our business are complex and involve many subjective assumptions , estimates and judgments that are , by their nature , subject to substantial risks and uncertainties .
| as a result of the contract signed with ut-battelle in march 2016 , revenue in 2016 included $ 30.4 million for reports on work performed in 2016 as well as $ 8.1 million for march 2016 reports for work performed in the fourth quarter of 2015 . 41 cost of sales cost of sales for the leu segment declined $ 51.0 million ( or 18 % ) in 2016 compared to 2015. cost of sales is affected by sales volumes , unit costs of inventory , and direct charges to cost of sales such as inventory valuation adjustments and legacy costs related to former gdp employees and other residual costs related to the paducah gdp . our inventories are valued at the lower of cost or net realizable value . valuation adjustments for our uranium inventory to reflect declines in uranium market price indicators totaled $ 3.0 million in 2016. paducah and portsmouth retiree benefit costs resulted in a charge to cost of sales of $ 4.2 million in 2016 compared to a credit to cost of sales of $ 24.7 million in 2015. these results included the impacts of periodic remeasurements of pension and postretirement benefit obligations . we recognized $ 0.2 million of net actuarial gains in cost of sales in 2016 compared to $ 27.2 million in 2015. in 2016 , the net gain reflects declines in market interest rates and was largely offset by favorable investment returns , changes in mortality and healthcare claim assumptions , and favorable claims experience . in 2015 , the net gain reflects increases in market interest rates and changes in mortality and healthcare claim assumptions , partially offset by unfavorable investment returns relative to the expected return assumption . excluding direct charges for the retiree benefit costs , the average cost of sales per swu declined 14 % reflecting declines in our purchase costs per swu in recent periods . refer to impact of legacy costs below for a summary of costs related to benefits for former gdp employees and other residual costs related to the paducah gdp . cost of sales for the contract services segment declined $ 32.1 million
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through this agreement , we are able to access the established and complementary imprimisrx commercial operations in cataract surgery to include dexycu as a prioritized product in its existing portfolio of product offerings . in august 2020 , we received $ 9.5 million from ocumension therapeutics under the memorandum of understanding ( “ 2020 mou ” ) . this expanded agreement grants ocumension the rights to commercialize both yutiq and dexycu under their own brand names in south korea and other jurisdictions across southeast asia and acts as the full and final prepayment of all remaining development , regulatory , and commercial sale milestone payments under the original license agreements . we remain entitled to receive royalties on future sales of these products by ocumension . in october 2020 , w e announced an amendment to our existing debt facility with crg servicing llc ( crg ) . under the terms of the amendment , crg waived the covenant associated with our net product revenue of yutiq and dexycu for the twelve-month period ending on december 31 , 2020. the parties also agreed to a reduction of the december 31 , 2021 net product revenue covenant to $ 45 million from $ 80 million based on the promising recovery and return in customer demand for both products at that time following covid-19-related closures . there were no additional costs incurred by us for the waiver . in december 2020 , we announced a 1-for-10 reverse stock split which enabled us to regain compliance with the $ 1.00 minimum closing bid price required for continued listing on the nasdaq global market . in december 2020 , we announced a $ 16.5 million monetization of our iluvien royalty ( alimera ) with swk holdings corporation . $ 15 million of the net proceeds was applied against existing debt obligations with crg servicing llc . in december 2020 , we announced a $ 15.7 million equity investment by ocumension therapeutics , our partner in asia . recent developments recent developments and ongoing activities regarding the commercialization of yutiq include : customer demand in q4 , represented as units purchased by physicians from our distributors , was up 10 % over q3 , driven by underlying growth . recent developments and ongoing activities regarding the commercialization of dexycu include : customer demand in q4 , represented as units purchased by ambulatory surgical centers , was up 30 % over q3 , driven by increases in cataract surgeries and some re-opening of asc 's . dexycu co-promotion partner , imprimisrx® , began driving volume through its experienced cataract surgery field force , materially adding to q4 customer demand . in february 2021 , we sold 10,465,000 shares of common stock in an underwritten public offering at a price of $ 11.00 per share , including the exercise in full by the underwriters of their option to purchase up to 1,365,000 additional shares of our common stock . the gross proceeds of the offering are approximately $ 115.1 million . underwriter discounts and commissions and other share issue costs totaled approximately $ 7.1 million . r & d highlights in february 2020 , we signed an exclusive license agreement with equinox science , llc , to develop vorolanib , a tyrosine kinase inhibitor , for the treatment of wet age-related macular degeneration , retinal vein occlusion and diabetic retinopathy . vorolanib is being developed as eyp-1901 utilizing a bioerodible formulation of our durasert technology . in march 2020 , we announced positive topline 36-month follow-up data from the second phase 3 trial of yutiq for the treatment of chronic non-infectious uveitis affecting the posterior segment of the eye . this second double-masked , randomized phase 3 trial of yutiq enrolled 153 patients in 15 clinical centers in india , with 101 eyes treated with yutiq and 52 eyes receiving sham injections . at 36-months , the recurrence rate in yutiq randomized eyes was significantly lower than in sham treated eyes ( 46.5 % vs. 75.0 % , respectively ; p=0.001 ) . visual acuity gains or losses of 3-lines or more were both similar between treatment groups . safety data showed no unanticipated side effects at each follow-up timepoint at 12 , 24 and 36-months . these positive results were consistent with the findings from the first phase 3 study of yutiq and provide further validation of its long-term ability to reduce uveitic flares . positive retrospective case study data supporting dexycu was highlighted in an oral presentation at the 2020 caribbean eye meeting in an oral session entitled , “ drug delivery : real-world experience with dexamethasone intraocular 65 suspension ” . the ongoing retrospective study is designed to provide large-scale , real-world data on early experiences with dexycu from surgeons . interim results presented are from 154 patients administered dexycu with each time point of data based on patient chart data and frequency of measurement by participating physicians . the proportion of patients with complete anterior chamber cell clearing ( cell score=0 ) was 47.5 % , 50.0 % , 84.1 % and 87.5 % at postoperative day 1 , 8 , 14 and 30 , respectively . the proportion of patients with no anterior chamber flares ( flare score=0 ) , another measurement of inflammation , was 77.7 % , 98.5 % , 98.8 % and 99.1 % at postoperative day 1 , 8 , 14 and 30 , respectively . mean intraocular pressure at postoperative day 1 was 17.6mmhg , with levels decreasing through to postoperative day 30. in july 2020 , we announced the appointment of dr. jay duker as our chief strategic scientific officer . dr. duker brings more than thirty years of ophthalmology experience with roles held in the clinical , research , business , and academic settings . dr. duker is also the director of the new england eye center . story_separator_special_tag he is also professor and chair of ophthalmology at tufts medical center and tufts university school of medicine , as well as the chairman of the board of sesen bio , inc. , a publicly traded clinical stage biopharmaceutical company . in december 2020 , we reported positive results from our glp toxicology study of eyp-1901 , a potential twice-yearly sustained-delivery intravitreal anti-vegf treatment targeting wet age-related macular degeneration , or wet amd . in december 2020 , we filed an ind application with the fda for a phase 1 trial for eyp-1901 , and subsequently dosed the first patient in the phase 1 clinical trial in january 2021. summary of 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 u.s. generally accepted accounting principles , ( “ u.s . gaap ” ) . the preparation of these financial statements requires that we make certain estimates , judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods . we base our estimates on historical experience , anticipated results and trends and various other factors 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 available from other sources . by their nature , these estimates , judgments and assumptions are subject to an inherent degree of uncertainty , and management evaluates them on an ongoing basis for changes in facts and circumstances . changes in estimates are recorded in the period in which they become known . actual results may differ from our estimates under different assumptions or conditions . while our significant accounting policies are more fully described in note 2 in the accompanying notes to the consolidated financial statements contained in this annual report on form 10-k , we believe that the following accounting policies are critical to understanding the judgments and estimates used in the preparation of our financial statements . it is important that the discussion of our operating results that follows be read in conjunction with the critical accounting policies discussed below . revenue recognition revenue is recognized when a customer obtains control of promised goods or services , in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services . to determine revenue recognition for arrangements that an entity determines are within the scope of asc 606 , revenue from contracts with customers ( “ 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 ) the entity satisfies a performance obligation . we only apply the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers 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 , determines those that are performance obligations and assesses 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 . sales , value add , and other taxes collected on behalf of third parties are excluded from revenue . product sales , net — we sell yutiq and dexycu to a limited number of specialty distributors and specialty pharmacies ( collectively the “ distributors ” ) in the u.s. , with whom we have entered into formal agreements , for delivery to physician practices for yutiq and to hospital outpatient departments and ambulatory surgical centers for dexycu . we recognize revenue on sales of our products when distributors obtain control of the products , which occurs at a point in time , typically upon delivery . in addition to agreements with distributors , we also enter into arrangements with healthcare providers , ambulatory surgical centers , and payors that provide for government mandated and or privately negotiated rebates , chargebacks , and discounts with respect to their purchase of our products from distributors . 66 reserves for variable consideration — product sales are recorded at the wholesale acquisition costs , net of applicable reserves for variable consideration . components of variable consideration include trade discounts and allowances , provider chargebacks and discounts , payor rebates , product returns , and other allowances that are offered within contracts between us and our distributors , payors , and other contracted purchasers relating to our product sales . these reserves , as detailed below , are based on the amounts earned , or to be claimed on the related sales , and are classified either as reductions of product revenue and accounts receivable or a current liability , depending on how the amount is to be settled . overall , these reserves reflect our best estimates of the amount of consideration to which it is entitled based on the terms of the respective underlying contracts . actual amounts of consideration ultimately received may differ from our estimates . if actual results in the future vary from the estimates , we adjust these estimates , which would affect product revenue and earnings in the period such variances become known .
| due to the accounting treatment for this agreement ( see revenue recognition section ) , we did not record any accrued royalty revenue under the amended alimera agreement in q4-2020 and we will 69 recognize a non-cash portion of deferred revenue as alimera pays royalties to swk beginning in q1 2021 ( see note 3 ) . accordingly , revenue recognized for alimera royalty income is expected to be lower in future periods based on this methodology . separately , the quarter ended march 31 , 2019 was the last period we recognized the retisert royalty as the licensee , bausch and lomb informed us in early 2019 that they consider this agreement to have ended due to the expiration of certain patents . cost of sales , excluding amortization of acquired intangible assets cost of sales , excluding amortization of acquired intangible assets , increased by $ 3.1 million to $ 5.84 million for fiscal 2020 from $ 2.7 million in the prior year . this increase was primarily attributable to ( i ) approximately $ 1.3 million of royalty expense associated with the $ 9.5 million received from ocumension under the 2020 mou as well as $ 2 million received from the ocumension dexycu signing payment received , ( ii ) $ 897,000 from a one-time write-down of out of specification dexycu production batches from our third-party manufacturer and ( iii ) increased costs associated with higher product sales , primarily product cost and distribution fees . research and development research and development expenses increased by $ 2.1 million to $ 17.4 million for 2020 from $ 15.4 million in the prior year . this increase was attributable primarily to ( i ) approximately $ 1.4 million of expense for eyp-1901 related studies , ( ii ) a $ 1.0 million payment for the licensing of vorolanib ( eyp-1901 ) , ( iii ) approximately $ 650,000 in lab and non-clinical expenses primarily for support of the eyp-1901 initiatives and ( iv ) approximately $ 422,000 of expense for dexycu related studies , partially offset by approximate comparative decreases of ( i ) $ 1.1 million
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the purchase consideration , paid via cash , for the acquisition of the company 's 51 % interest was $ 5,000,000. the allocated cost of the exclusive professional service agreement which was acquired as part of this acquisition was $ 9,886,156. lwa is the company 's first monitored anesthesia care ( mac ) program to be completed . the mac program was announced on march 15 , 2017 with puget sound gastroenterology ( psg ) . crh assisted psg in the development of psg 's mac program under lwa . crh retained an option to acquire a 51 % interest in lwa , which has since been exercised . lake erie sedation associates , llc ( lesa ) september 2018 on september 4 , 2018 , a subsidiary of the company entered into an asset purchase agreement to acquire 100 % of certain assets of an anesthesia services provider in ohio . the purchase consideration , paid via cash , for the acquisition was $ 4,180,000. the allocated cost of the exclusive professional service agreement which was acquired as part of this acquisition was $ 4,233,115. triad sedation associates llc ( tsa ) october 2018 in october 2018 , the company entered into an agreement with digestive health specialists ( dhs ) , located in north carolina , to assist dhs in the development and management of a monitored anesthesia care program . under the terms of the agreement , crh is a 15 % equity owner in the anesthesia business , triad sedation 51 associates llc , and receives compensation for its billing and collection services . under the terms of the limited liability company agreement , crh has the right , at crh 's option , to acquire an additional 36 % interest in the anesthesia business at a future date . the company will not recognize any material revenue or expense from this transaction unless crh elects to exercise its option . normal course issuer bid renewal november 2018 on november 5 , 2018 , the company received approval from the toronto stock exchange ( tsx ) of its intention to renew its existing normal course issuer bid . pursuant to the bid , the company may purchase for cancellation up to 7,044,410 of its common shares , or approximately 9.74 % of the common shares outstanding as of november 5 , 2018. purchases under the bid are subject to a daily restriction of 46,958 shares . as of december 31 , 2018 , the company has repurchased 2,604,700 common shares under both its previous and current normal course issuer bids for a total of $ 6,657,446 ( cad $ 8,614,275 ) , including transaction fees . tennessee valley anesthesia associates llc ( tvaa ) december 2018 on december 1 , 2018 , the company entered into an asset contribution and exchange agreement to acquire 51 % of the ownership interest in an anesthesia services provider in tennessee . the purchase consideration , paid via cash , for the acquisition was $ 2,200,000. the allocated cost of the exclusive professional services agreement which was acquired as part of the transaction was $ 4,423,284. anesthesia care associates llc ( aca ) january 2019 on january 1 , 2019 , a subsidiary of the company entered into a membership interest purchase agreement to acquire a 100 % interest in anesthesia care associates , llc ( aca ) , a gastroenterology anesthesia services provider in indiana . the purchase consideration , paid via cash , for the acquisition of the company 's 100 % interest was $ 5,239,003. the allocated cost of the exclusive professional service agreement which was acquired as part of this acquisition was $ 5,355,028. story_separator_special_tag style= '' white-space : nowrap '' > non-gaap financial measures below for definitions of non-gaap-based measures and reconciliations of gaap-based measures to non-gaap-based measures . 2 non-controlling interest reflects the ownership interest of persons holding non-controlling interests in non-wholly owned subsidiaries of the company . 54 summary of quarterly results ( unaudited ) the following table sets forth certain unaudited consolidated statements of operations data for each of the eight most recent quarters that , in management 's opinion , have been prepared on a basis consistent with the audited consolidated financial statements for the year ended december 31 , 2018. seasonality impacts quarterly anesthesia and product revenues . with our expenses primarily fixed , adjusted operating ebitda margins will fluctuate quarterly with operating ebitda margins being greater during the fourth quarter of each year and operating ebitda margins being less during the first quarter of each year . seasonality also impacts net income as net income will fluctuate with fluctuations in adjusted operating ebitda . 1 replace_table_token_8_th 1 see use of non-gaap financial measures below for definitions of non-gaap-based measures and reconciliations of gaap-based measures to non-gaap-based measures . 2 non-controlling interest reflects the ownership interest of persons holding non-controlling interests in non-wholly owned subsidiaries of the company . 55 results of operations for the years ended december 31 , 2018 and 2017 revenues for the year ended december 31 , 2018 were $ 112,749,380 compared to $ 95,006,145 for the year ended december 31 , 2017. the 19 % increase is mainly attributable to revenue contributions from the anesthesia businesses acquired by the company in 2018 , along with acquisitions completed mid-year in fiscal 2017. revenues for the three months ended december 31 , 2018 reflect the revenue contributions from anesthesia businesses acquired during 2018 and were $ 32,021,768 , an increase of 5 % or $ 1,471,023 when compared to the three months ended december 31 , 2017. revenues from anesthesia services for the year ended december 31 , 2018 were $ 101,790,165 compared to $ 83,505,140 for the year ended december 31 , 2017. as above , the increase was primarily due to the company 's anesthesia acquisitions throughout 2018 and 2017 ; however , there were additional factors which impacted the change in revenue between fiscal 2018 and fiscal 2017. the $ 18.3 million increase in revenue from story_separator_special_tag the prior period is reflective of the following : growth through acquisitions completed in 2017 and 2018 contributed $ 28.2 million of the increase when comparing the two periods . this is comprised of growth from acquisitions completed in 2017 ( $ 16.3 million ) and growth from acquisitions completed in 2018 ( $ 11.9 million ) ; the impact of the cms final fee schedule , effective january 1 , 2018 , resulted in a decrease in revenue of approximately $ 7.5 million or 9 % when compared to the full year 2017 ; executing contracts with non-contracted payors and changes in payor mix , primarily related to entities acquired prior to 2018 , decreased 2018 revenue by $ 3.0 million or approximately 4 % when compared to 2017 ; revenues relating to our monitored anesthesia care program decreased by $ 0.1 million as a result of the acquisition of lwa ; and the company incurred a positive adjustment as a result of a non-recurring change in estimate of $ 0.7 million . anesthesia revenues for the three months ended december 31 , 2018 were $ 28,931,460 compared to $ 27,478,475 for the three months ended december 31 , 2017. the $ 1.4 million increase in revenue from the prior period is reflective of the following : growth through acquisitions completed in 2018 contributed $ 5.5 million of the increase when comparing the two periods ; the impact of the cms final fee schedule , effective january 1 , 2018 , resulted in a decrease in revenue of approximately $ 2.4 million or 9 % when compared to the fourth quarter of 2017 ; executing contracts with non-contracted payors and changes in payor mix , primarily related to entities acquired prior to 2018 , decreased revenue in the fourth quarter of 2018 by $ 1.5 million or approximately 5 % when compared to the fourth quarter of 2017 ; revenues relating to our monitored anesthesia care program decreased by $ 0.2 million as a result of the acquisition of lwa ; and the company incurred a positive adjustment as a result of a non-recurring change in estimate of $ 0.1 million . as adjusted operating expenses are largely fixed in nature , changes in revenue primary drive changes in operating income and adjusted operating ebitda 1 . 1 see use of non-gaap financial measures below for definitions of non-gaap-based measures and reconciliations of gaap-based measures to non-gaap-based measures . 56 in the year ended december 31 , 2018 , the anesthesia services segment serviced 276,766 patient cases compared to 201,578 patient cases during the year ended december 31 , 2017. patient cases serviced in the fourth quarter of 2018 were 81,528 compared to 64,684 patient cases in the fourth quarter of 2017. the tables below summarize our approximate payor mix as a percentage of all patient cases for the years ended december 31 , 2018 and 2017 and for the fourth quarters of 2018 and 2017. replace_table_token_9_th 1 restated to conform with presentation adopted in 2018. the payor mix for the three months and year ended december 31 , 2018 includes acquisitions completed during 2017 and 2018 and as a result is not directly comparable to the three months and year ended december 31 , 2017. as we acquire anesthesia providers , these providers may have different payor mix profiles and impact our overall payor mix above . the table below summarizes our approximate payor mix as a percentage of all patient cases for the three months and year ended december 31 , 2018 and 2017 , but exclude patient cases related to acquisitions completed in 2017 and 2018 as inclusion of these acquisitions would reduce comparability of the data presented . replace_table_token_10_th the table below summarizes our approximate payor mix as a percentage of all patient cases for the year ended december 31 , 2018 , by quarter , and excludes patient cases related to acquisitions completed in 2018 as inclusion of these acquisitions would reduce the comparability of the date presented . replace_table_token_11_th seasonality is driven by both patient cases and seasonal payor mix . as a result , revenue per patient will fluctuate quarterly . the seasonality of patient cases for fiscal 2018 is provided below for organic patient cases ; it excludes patient cases relating to acquisitions completed in 2018. replace_table_token_12_th revenues from product sales for the year ended december 31 , 2018 were $ 10,959,215 compared to $ 11,501,005 for 2017. the decrease in product sales is the result of decreased sales of the crh o'regan system at previously trained practices due to changes in practice emphasis and to a lesser extent the introduction of competitive products . in the last quarter of the year we have initiated additional practice support initiatives , including a greater emphasis on re-training physicians in practices where usage has decreased . we have seen traction with 57 these initiatives with revenues from product sales for the three months ended december 31 , 2018 increasing by 1 % , when compared to the three months ended december 31 , 2017. as of december 31 , 2018 , the company has trained 2,944 physicians to use the o'regan system , representing 1,124 clinical practices . this compares to 2,686 physicians trained , representing 1,034 clinical practices , as of december 31 , 2017. total operating expenses total operating expense for the year ended december 31 , 2018 was $ 92,454,250 compared to $ 74,186,860 for the year ended december 31 , 2017. total operating expense for the three months ended december 31 , 2018 was $ 25,093,657 compared to $ 21,634,236. the increase in operating expenses is largely driven by increases seen in total adjusted operating expense ( refer to the total adjusted operating expenses non-gaap section below ) as well as increases in amortization expense related to acquisitions completed in 2018 and throughout 2017 , offset by a decrease in stock-based compensation expense .
| a summary of the impact of conversion from ifrs to us gaap on the company 's statement of operations and balance sheet for the year ended december 31 , 2017 is presented below : replace_table_token_5_th 1 the ifrs numbers are non-gaap amounts as ifrs is no longer the company 's primary gaap . however , these numbers are presented in order to provide context to the company 's previously issued 2017 financial statements under ifrs . the primary driver of the ifrs to us gaap adjustments was the elimination of the company 's impairment charge in relation to its gaa professional services intangible asset and related tax impact . this increase in income was offset by an incremental increase in stock based compensation expense related to the company 's performance based share units , and related tax impact , and additional amortization relating to the capitalization of acquisition costs on the company 's acquisitions completed during the year ended december 31 , 2017. previously , under ifrs , the company accounted for its acquisitions as business combinations . under us gaap , these transactions are accounted for as asset acquisitions . the conversion from ifrs to us gaap had no impact on the company 's adjusted operating ebitda 2 . the following tables provide a detailed analysis of our results of operations and financial condition . for each of the periods indicated below , we present our revenues by business segment , as well as present key metrics , such as operating expenses , operating income and net and comprehensive income attributable to shareholders of the company and non-controlling interest , from our statements of operations . the selected financial information provided below has been prepared in accordance with united states generally accepted accounting principles ( us gaap ) beginning december 31 , 2018 on a retrospective basis . 2 see use of non-gaap financial measures below for definitions of non-gaap-based measures and reconciliations of gaap-based measures to non-gaap-based measures 53 selected us gaap financial information replace_table_token_6_th 1 non-controlling interest reflects the ownership interest of persons holding non-controlling interests in non-wholly owned subsidiaries of the company . non-gaap financial measures in addition to results reported in accordance with us
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our success depends on our ability to make our products available to meet a wide range of consumer segments and occasions . 38 in 2018 , we continued to focus on building our brand strength and transforming our portfolio toward the above premium , flavored malt beverage , craft and cider segments . further , we continued to focus on generating higher returns on our invested capital , managing our working capital and delivering a greater return on investment for our shareholders . adoption of revenue recognition guidance on january 1 , 2018 , we adopted the fasb 's new accounting pronouncement related to revenue recognition . this guidance was adopted using the modified retrospective approach , and therefore , prior period results have not been restated . the following table highlights the impact of this new guidance on summarized components of our consolidated statement of operations for the year ended december 31 , 2018 , when comparing our current period results of operations under the new guidance , versus our results of operations if historical guidance had continued to be applied . replace_table_token_10_th these impacts are primarily driven by the reclassification of certain cash payments to customers from marketing , general and administrative expenses to a reduction of revenue , as well as a change in the timing of recognition of certain promotional discounts and cash payments to customers . see part i—item 1. financial statements , note 1 , `` basis of presentation and summary of significant accounting policies '' and note 2 , `` new accounting pronouncements '' for further discussion on the adoption of this guidance . adoption of pension and other postretirement benefit guidance on january 1 , 2018 , we adopted the fasb 's new accounting pronouncement related to the classification of pension and other postretirement benefit costs . specifically , the new guidance requires us to report only the service cost component in the same line item as other compensation costs arising from services rendered by the pertinent employees during the period ; while the other components of net benefit cost are now presented in the consolidated statements of operations separately from the service cost component and outside of operating income . the amendments in this update also allow only the service cost component to be eligible for capitalization when applicable . we have also determined that only service cost will be reported within each operating segment and all other components will be reported within the corporate segment . the guidance related to the income statement presentation of service costs and other pension and postretirement benefit costs is applied retrospectively , while the capitalization of service costs component is applied prospectively . this adjustment is classification only and had no impact to our consolidated net income . see note 2 , `` new accounting pronouncements `` for further details including updated historical financial information . summary of consolidated results of operations the following table highlights summarized components of our consolidated statements of operations for the years ended december 31 , 2018 , december 31 , 2017 , and december 31 , 2016 , and unaudited pro forma financial information for the year ended december 31 , 2016 . see part ii-item 8 financial statements and supplementary data , “ consolidated statements of operations ” for additional details of our u.s. gaap results . we have presented unaudited pro forma financial information to enhance comparability of financial information between periods . the unaudited pro forma financial information is based on the historical consolidated financial statements of mcbc and millercoors , both prepared in accordance with u.s. gaap , and gives effect to the acquisition and the completed financing as if they were completed on january 1 , 2016. pro forma adjustments are based on items that are factually supportable , are directly attributable to the acquisition or the related financing , and are expected to have a continuing impact on mcbc 's results of operations . any non-recurring items directly attributable to the acquisition or the related financing are excluded in the unaudited pro forma statements of operations . the unaudited pro forma financial information does not include adjustments for costs related to integration activities following the completion of the acquisition , cost savings or synergies that have been or 39 may be achieved by the combined businesses . the unaudited pro forma financial information is presented for illustrative purposes only and does not necessarily reflect the results of operations of mcbc that actually would have resulted had the acquisition and related financing occurred at the date indicated , or project the results of operations of mcbc for any future dates or periods . see `` unaudited pro forma financial information '' below for details of pro forma adjustments . net income attributable to mcbc and the related diluted per share amounts for 2017 and 2016 have been restated due to the correction of errors related to income tax accounting . see details at part ii—item 8 financial statements and supplementary data , note 1 , `` basis of presentation and accounting policies . '' replace_table_token_11_th n/m = not meaningful ( 1 ) financial volumes for the year ended december 31 , 2016 , were recast to reflect the impacts of aligning policies on reporting financial volumes as a result of the acquisition . 2018 financial highlights in 2018 , net income attributable to mcbc decreased 28.7 % compared to the prior year primarily driven by the one-time income tax benefit recognized in the prior year due to the reduction to the u.s. federal corporate income tax rate as a result of the 2017 tax act . this decline was also driven by unrealized mark-to-market changes on commodity positions and lower volume and cost inflation in the u.s. and canada , partially offset by the gain of $ 328.0 million related to the adjustment amount as previously discussed , positive global net pricing , global marketing optimization , general and administrative spend reductions and cost savings , as well as lower interest expense . story_separator_special_tag during 2018 , we repaid our cad 400 million 2.25 % notes with cash on hand as part of our deleveraging commitment . we also repaid $ 379 million of commercial paper which was outstanding at december , 31 , 2017. we generated cash flow from operating activities of approximately $ 2.3 billion , representing a 24.9 % increase from approximately $ 1.9 billion in 2017 . the increase in operating cash flow in 2018 compared to 2017 is primarily related to the proceeds received during the first quarter of 2018 of $ 328.0 million related to the adjustment amount as previously discussed , as well as lower pension contributions and lower interest paid , partially offset by unfavorable changes in working capital and lower cash tax receipts . regional financial highlights : in the u.s. segment , we reported income before income taxes of $ 1,320.7 million in 2018 , versus income of $ 1,394.2 million in 2017 , primarily driven by lower volume , cost of goods sold inflation , higher special charges and negative sales mix , partially offset by lower marketing , general and administrative expenses and higher net pricing . during the year we grew our share of the premium light segment with miller lite , which completed its seventeenth consecutive quarter of increased segment share , according to nielsen . coors light remained the number two beer in industry share . in above premium , we established a foundation for growth by successfully introducing arnold palmer spiked , establishing peroni as the fastest growing european import , and relaunching the sol brand . additionally , peroni grew volume for the seventeenth consecutive quarter . blue moon remained the number one national craft brand in the u.s. in our canada segment , we drove positive pricing primarily in ontario and west . however , volume declined in the west and ontario , partially offset by growth in quebec . we reported income before income taxes of $ 157.0 million in 2018 , versus income of $ 210.2 million in 2017 , primarily due to higher other expense related to unrealized mark-to-market losses on warrants issued in connection with the formation of the truss lp ( `` truss '' ) joint venture , negative sales mix and lower volumes , partially offset by higher net pricing . 40 in our europe segment , our continued portfolio premiumization while defending share of national champion brands positively impacted our performance as we grew volumes in our above premium and core brands . in 2018 , we reported income before income taxes of $ 186.4 million , versus income of $ 234.9 million in 2017 , primarily due to cycling the impact of the indirect tax provision release of approximately $ 50 million during the first quarter of 2017 , adopting recently revised excise-tax guidelines in one of our european markets , investments in our first choice agenda , as well as unfavorable foreign currency movements . this was partially offset by favorable sales mix shift from our premiumization efforts , more efficient marketing investments , the addition of aspall cider business , as well as a positive impact from cycling a bad debt provision recognized in 2017. our international segment reported a loss before income taxes of $ 2.7 million in 2018 , compared to a loss of $ 19.7 million in the prior year , primarily driven by lower marketing and integration expenses , shifting to a more profitable business model in mexico , higher net pricing , along with volume growth in our focus markets , partially offset by negative foreign currency movements and increased special charges as a result of formally exiting our china business . brand highlights : global priority brand volume decreased 3.1 % in 2018 versus 2017 , due to declines across canada , the u.s. and international , partially offset by growth in europe . blue moon belgian white global brand volume decreased 0.2 % in 2018 versus 2017 , due to decline in the u.s. , offset by growth in canada , europe and international . carling brand volume in europe decreased by 2.5 % versus 2017 , due to lower volumes in the u.k. , the brand 's primary market . coors global brand volume - coors light global brand volume declined 5.0 % in 2018 versus 2017 . the overall volume decrease was due to lower brand volume in the u.s. , canada and international , partially offset by growth in europe . volumes in the u.s. were lower than prior year reflective of the u.s. industry premium and premium light segment performance . the declines in canada are the result of ongoing competitive pressures in quebec and ontario and a continued shift in consumer preference to value brands in the west . coors banquet global brand volume decreased 4.9 % in 2018 versus 2017 , driven by the u.s. and canada . miller global brand volume - miller lite global brand volumes decreased 1.3 % in 2018 versus 2017 , primarily driven by declines in the u.s. , partially offset by growth in international . however , miller lite gained share of the u.s. premium light segment for the seventeenth consecutive quarter . miller genuine draft global brand volume decreased 3.9 % in 2018 versus 2017 , due to decreases in the u.s. , international and canada , partially offset by growth in europe . molson canadian brand volume in canada decreased 8.1 % during 2018 versus the prior year , primarily driven by competitive pressures in the west . staropramen global brand volume increased 3.7 % during 2018 versus 2017 , driven by growth outside of the brand 's primary market . worldwide brand volume worldwide brand volume ( or `` brand volume '' when discussed by segment ) reflects owned brands sold to unrelated external customers within our geographic markets , net of returns and allowances , royalty volume , an adjustment from stws to strs and our proportionate share of equity investment brand volume calculated consistently with mcbc owned volume .
| the increase in cash and cash equivalents as of december 31 , 2018 , from december 31 , 2017 , was primarily driven by the net proceeds from operating activities including the proceeds received during the first quarter of $ 328.0 million related to the adjustment amount as defined and further discussed in part ii—item 8 financial statements and supplementary data , note 4 , `` acquisition and investments '' of the notes , partially offset by repayments of borrowings , 55 capital expenditures and dividend payments . the majority of our cash and cash equivalents are invested in a variety of highly liquid investments with original maturities of 90 days or less . these investments are viewed by management as low-risk investments on which there are little to no restrictions regarding our ability to access the underlying cash to fund our operations as necessary . while we have some investments in prime money market funds , these are classified as cash and cash equivalents ; however , we continually monitor the need for reclassification under the updated sec requirements for money market funds , and the potential that the shares of such funds could have a net asset value of less than one dollar . we also utilize cash pooling arrangements to facilitate the access to cash across our geographies . working capital the company actively manages working capital through inventory management as well as management of accounts payable and accounts receivable to ensure we are able to meet short-term obligations and we are effectively using assets to increase profitability . borrowings during the third quarter of 2018 , we repaid our cad 400 million 2.25 % notes which matured in september 2018. notional amounts are presented in usd based on the applicable exchange rate as of december 31 , 2018 . refer to part ii—item 8 financial statements and supplementary data , note 11 , `` debt '' for details regarding the cross currency swaps on our $ 500 million 2.25 % senior notes due 2020 which economically converted these notes to eur denominated . 56 based
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sales returns , sales allowances and doubtful accounts the company records reserves and allowances ( “ reserves ” ) for sales returns , sales allowances and discounts , cooperative advertising , and accounts receivable balances that it believes will ultimately not be collected . the reserves are based on such factors as specific customer situations , historical experience , a review of the current aging status of customer receivables and current and expected economic conditions . the reserve for doubtful accounts includes a specific reserve for accounts identified as potentially uncollectible , plus an additional reserve for the balance of accounts , determined based on historical trends . the company evaluates the reserves and the estimation process and makes adjustments when appropriate . historically , actual write-offs against the reserves have been within the company 's expectations . changes in these reserves may be required if actual returns , discounts and bad debt activity varies from the original estimates . these changes could impact the company 's results of operations , financial position and cash flows . 12 pension plan accounting the company 's net periodic pension cost and corresponding obligation are determined on an actuarial basis and require certain actuarial assumptions . management believes the two most critical of these assumptions are the discount rate and the expected rate of return on plan assets . the company evaluates its actuarial assumptions annually on the measurement date ( december 31 ) and makes modifications based on such factors as market interest rates and historical asset performance . changes in these assumptions can result in different expense and liability amounts , and future actual experience can differ from these assumptions . discount rate – net periodic pension cost and projected benefit obligation both increase as the discount rate is reduced . see note 11 of the notes to consolidated financial statements for discount rates used in determining the net periodic pension cost for the years ended december 31 , 2018 and 2017 and the funded status of the plans at december 31 , 2018 and 2017. the company uses the spot-rate approach to determine the service and interest cost components of net periodic pension cost . under the spot-rate approach , the service and interest costs were calculated by applying specific spot rates along the yield curve to the relevant projected cash flows , to provide a better estimate of future service and interest costs . a 0.5 % decrease in the discount rate would have a nominal impact on annual net periodic pension cost , and would increase the projected benefit obligation by approximately $ 3.8 million . expected rate of return – pension expense increases as the expected rate of return on pension plan assets decreases . in estimating the expected return on plan assets , the company considers the historical returns on plan assets and future expectations of asset returns . the company utilized an expected rate of return on plan assets of 7.00 % in 2018 and 2017. this rate was based on the company 's long-term investment policy of equity securities : 20 % - 80 % ; fixed income securities : 20 % - 80 % ; and other , principally cash : 0 % - 20 % . a 0.5 % decrease in the expected return on plan assets would increase annual net periodic pension cost by approximately $ 180,000. the company 's unfunded benefit obligation was $ 23.5 million and $ 28.2 million at december 31 , 2018 and december 31 , 2017 , respectively . goodwill and trademarks the company 's $ 11.1 million of goodwill resulted from the 2011 acquisition of the bogs and rafters brands . goodwill is not amortized , but is reviewed for impairment on an annual basis and between annual tests if indicators of impairment are present . the applicable reporting unit for goodwill impairment testing is the wholesale segment . the company has the option to assess goodwill for impairment by performing either a qualitative assessment or quantitative test . the qualitative assessment is the first step and determines whether it is more likely than not that the fair value of the reporting unit is less than its carrying value . if the assessment indicates the fair value exceeds the carrying value , then there is no impairment and the quantitative test is not required . however , if the assessment indicates the fair value is less than the carrying value , then the quantitative test is required . the quantitative test compares the fair value of the reporting unit to its book value including goodwill , and if the fair value is less than the book value , an impairment loss is recognized for the difference , limited to the value of the goodwill . in the quantitative test , the fair value of the wholesale segment would be determined based on a discounted cash flow methodology . the rate used to determine discounted cash flows would be a rate that corresponds with the company 's weighted average cost of capital , adjusted for risk where appropriate . in determining the estimated future cash flows , current and future levels of income would be considered as well as trends and market conditions . the company performed the qualitative assessment in 2018 , as the quantitative test was performed in previous years , and the resulting estimated fair value substantially exceeded the carrying value of goodwill in each of those years . the company found no impairment of goodwill in 2018 or 2017. there has never been an impairment recorded on this goodwill . trademarks are not amortized , but are reviewed for impairment on an annual basis and between annual tests when an event occurs or circumstances change that indicates the carrying value may not be recoverable . the company uses a discounted cash flow methodology to determine the fair value of its trademarks , and a loss would be recognized if the carrying values story_separator_special_tag sales returns , sales allowances and doubtful accounts the company records reserves and allowances ( “ reserves ” ) for sales returns , sales allowances and discounts , cooperative advertising , and accounts receivable balances that it believes will ultimately not be collected . the reserves are based on such factors as specific customer situations , historical experience , a review of the current aging status of customer receivables and current and expected economic conditions . the reserve for doubtful accounts includes a specific reserve for accounts identified as potentially uncollectible , plus an additional reserve for the balance of accounts , determined based on historical trends . the company evaluates the reserves and the estimation process and makes adjustments when appropriate . historically , actual write-offs against the reserves have been within the company 's expectations . changes in these reserves may be required if actual returns , discounts and bad debt activity varies from the original estimates . these changes could impact the company 's results of operations , financial position and cash flows . 12 pension plan accounting the company 's net periodic pension cost and corresponding obligation are determined on an actuarial basis and require certain actuarial assumptions . management believes the two most critical of these assumptions are the discount rate and the expected rate of return on plan assets . the company evaluates its actuarial assumptions annually on the measurement date ( december 31 ) and makes modifications based on such factors as market interest rates and historical asset performance . changes in these assumptions can result in different expense and liability amounts , and future actual experience can differ from these assumptions . discount rate – net periodic pension cost and projected benefit obligation both increase as the discount rate is reduced . see note 11 of the notes to consolidated financial statements for discount rates used in determining the net periodic pension cost for the years ended december 31 , 2018 and 2017 and the funded status of the plans at december 31 , 2018 and 2017. the company uses the spot-rate approach to determine the service and interest cost components of net periodic pension cost . under the spot-rate approach , the service and interest costs were calculated by applying specific spot rates along the yield curve to the relevant projected cash flows , to provide a better estimate of future service and interest costs . a 0.5 % decrease in the discount rate would have a nominal impact on annual net periodic pension cost , and would increase the projected benefit obligation by approximately $ 3.8 million . expected rate of return – pension expense increases as the expected rate of return on pension plan assets decreases . in estimating the expected return on plan assets , the company considers the historical returns on plan assets and future expectations of asset returns . the company utilized an expected rate of return on plan assets of 7.00 % in 2018 and 2017. this rate was based on the company 's long-term investment policy of equity securities : 20 % - 80 % ; fixed income securities : 20 % - 80 % ; and other , principally cash : 0 % - 20 % . a 0.5 % decrease in the expected return on plan assets would increase annual net periodic pension cost by approximately $ 180,000. the company 's unfunded benefit obligation was $ 23.5 million and $ 28.2 million at december 31 , 2018 and december 31 , 2017 , respectively . goodwill and trademarks the company 's $ 11.1 million of goodwill resulted from the 2011 acquisition of the bogs and rafters brands . goodwill is not amortized , but is reviewed for impairment on an annual basis and between annual tests if indicators of impairment are present . the applicable reporting unit for goodwill impairment testing is the wholesale segment . the company has the option to assess goodwill for impairment by performing either a qualitative assessment or quantitative test . the qualitative assessment is the first step and determines whether it is more likely than not that the fair value of the reporting unit is less than its carrying value . if the assessment indicates the fair value exceeds the carrying value , then there is no impairment and the quantitative test is not required . however , if the assessment indicates the fair value is less than the carrying value , then the quantitative test is required . the quantitative test compares the fair value of the reporting unit to its book value including goodwill , and if the fair value is less than the book value , an impairment loss is recognized for the difference , limited to the value of the goodwill . in the quantitative test , the fair value of the wholesale segment would be determined based on a discounted cash flow methodology . the rate used to determine discounted cash flows would be a rate that corresponds with the company 's weighted average cost of capital , adjusted for risk where appropriate . in determining the estimated future cash flows , current and future levels of income would be considered as well as trends and market conditions . the company performed the qualitative assessment in 2018 , as the quantitative test was performed in previous years , and the resulting estimated fair value substantially exceeded the carrying value of goodwill in each of those years . the company found no impairment of goodwill in 2018 or 2017. there has never been an impairment recorded on this goodwill . trademarks are not amortized , but are reviewed for impairment on an annual basis and between annual tests when an event occurs or circumstances change that indicates the carrying value may not be recoverable . the company uses a discounted cash flow methodology to determine the fair value of its trademarks , and a loss would be recognized if the carrying values
| effective january 1 , 2018 , the tax cuts and jobs act ( “ tcja ” ) lowered the u.s. federal tax rate from 35 % to 21 % , which reduced the company 's 2018 income tax provision by $ 3.2 million and increased diluted earnings per share by $ 0.31. in 2017 , the company remeasured its deferred tax balances to reflect the new lower tax rate , which reduced its 2017 income tax provision by $ 1.5 million and increased its 2017 diluted earnings per share by $ 0.15. net earnings attributable to weyco group , inc. rose 24 % to $ 20.5 million in 2018 , from $ 16.5 million in 2017. diluted earnings per share were $ 1.97 per share in 2018 , compared to $ 1.60 per share in 2017. the increases in net earnings and diluted earnings per share were primarily due to higher earnings from operations in the company 's wholesale and retail segments this year ; the lower tax rate also contributed to the increases , as described above . financial position highlights at december 31 , 2018 , cash and marketable securities totaled $ 43.2 million and there was $ 5.8 million outstanding on the company 's $ 60 million revolving line of credit . during 2018 , the company generated $ 13.1 million of cash from operations , drew $ 5.8 million on the line of credit , collected $ 4.4 million in proceeds from stock option exercises , and received a net of $ 3.4 million in maturities from marketable securities . the company used funds to repurchase $ 11.4 million of its common stock , paid $ 9.3 million in dividends , and paid $ 3.7 million to acquire the minority interest in florsheim australia . in addition , the company spent $ 1.4 million on capital expenditures . 9 segment analysis net sales and earnings from operations for the company 's segments , as well as its “ other ” operations , in the years ended december 31 , 2018 and 2017 , were as follows : replace_table_token_3_th north american wholesale segment net sales net sales in the company 's north american wholesale segment for the years ended december 31 , 2018 and 2017 , were as follows : replace_table_token_4_th stacy adams net sales were up in 2018 due primarily to higher sales to department stores and national shoe chains . net sales of the nunn bush brand were down , due mainly to lower sales to national shoe chains and department stores , partially offset by higher sales to online retailers . within the department store category , nunn bush 's sales were down primarily due to two major customers filing for bankruptcy . net sales of
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see note 1 of notes to consolidated financial statements for additional disclosures about the adoption of the new revenue standard . on august 29 , 2016 , a fire occurred in one of the buildings at a company-owned distribution center campus in fishkill , new york ( `` the fishkill fire '' ) . in january 2018 , we agreed upon a final settlement with our insurers and all insurance proceeds were received as of february 3 , 2018. fiscal 2018 and 2016 consisted of 52 weeks versus 53 weeks in fiscal 2017. net sales and operating results , as well as other metrics derived from the consolidated statement of income , include the impact of the additional week ; however , the comparable sales calculation excludes the 53rd week . financial results for fiscal 2018 are as follows : net sales for fiscal 2018 increased 5 percent to $ 16.6 billion compared with $ 15.9 billion for fiscal 2017 . comparable sales for fiscal 2018 were flat . gross profit for fiscal 2018 was $ 6.3 billion compared with $ 6.1 billion for fiscal 2017 . gross margin for fiscal 2018 was 38.1 percent compared with 38.3 percent for fiscal 2017 . operating margin for fiscal 2018 was 8.2 percent compared with 9.3 percent for fiscal 2017 . effective tax rate for fiscal 2018 was 24.1 percent compared with 40.4 percent for fiscal 2017 . net income for fiscal 2018 was $ 1,003 million compared with $ 848 million for fiscal 2017 , and diluted earnings per share was $ 2.59 for fiscal 2018 compared with $ 2.14 for fiscal 2017 . diluted earnings per share for fiscal 2017 included about a $ 0.10 benefit from the gain from insurance proceeds related to the fishkill fire and an unfavorable net provisional tax impact of federal tax reform of about $ 0.09. during fiscal 2018 , we paid dividends of $ 373 million compared with $ 361 million during fiscal 2017 . during fiscal 2018 , share repurchases were $ 398 million compared with $ 315 million for fiscal 2017 . our business priorities in fiscal 2019 are as follows : offering product that is consistently brand-appropriate and on-trend with high customer acceptance , with a focus on expanding our advantage in core businesses and loyalty categories ; and leading customer-focused product innovation ; preparing for successful separation ; restructuring the gap brand specialty fleet globally to create a healthier , more profitable base from which to grow ; investing in digital and customer capabilities as well as store experience to create a unique and differentiated converged retail experience that attracts new customers , retains existing customers , and builds loyalty ; increasing productivity by leveraging our scale and streamlining operations and processes throughout the organization ; attracting and retaining strong talent in our businesses and functions ; and 22 continuing to integrate social and environmental sustainability into business practices to support long term growth . in fiscal 2019 , while we work through the plan for separation , we are focused on investing strategically in the business while maintaining operating expense discipline and driving efficiency through our productivity initiative . one of our primary objectives is to continue transforming our product to market process , with the development of a more efficient operating model . furthermore , we expect to continue our investment in customer experience , both in stores and online , to drive higher customer engagement and loyalty across all of our brands and channels , resulting in market share gains . finally , we will continue to invest in strengthening brand awareness , customer acquisition , and digital capabilities . underpinning these strategies is a focus on utilizing data , analytics , and technology to respond faster while making decisions that will fuel market share gains and lead to a more nimble organization . story_separator_special_tag style= '' font-family : arial ; font-size:10pt ; '' > fiscal 2017 increased $ 339 million , or 2 percent , compared with fiscal 2016 primarily due to an increase in net sales at old navy global and athleta , partially offset by a decrease in net sales at gap global and banana republic global . the translation of net sales in foreign currencies to u.s. dollars had an unfavorable impact of about $ 11 million for fiscal 2017 and is calculated by translating net sales for fiscal 2016 at exchange rates applicable during fiscal 2017 . fiscal 2017 includes incremental sales attributable to the 53rd week . cost of goods sold and occupancy expenses replace_table_token_8_th cost of goods sold and occupancy expenses increased 0.2 percentage points as a percentage of net sales in fiscal 2018 compared with fiscal 2017 , which includes $ 176 million of presentation changes resulting from the adoption of the new revenue recognition standard . cost of goods sold increased 0.7 percentage points as a percentage of net sales in fiscal 2018 compared with fiscal 2017 , primarily driven by lower product margin at gap global and higher online shipping costs . this was partially offset by a favorable impact from presentation changes resulting from the adoption of the new revenue recognition standard . occupancy expenses decreased 0.5 percentage points as a percentage of net sales in fiscal 2018 compared with fiscal 2017 , primarily driven by presentation changes resulting from the adoption of the new revenue recognition standard . cost of goods sold and occupancy expenses decreased 2.0 percentage points as a percentage of net sales in fiscal 2017 compared with fiscal 2016 . cost of goods sold decreased 1.3 percentage points as a percentage of net sales in fiscal 2017 compared with fiscal 2016 , primarily driven by higher margins achieved as a result of improved average selling price per unit at all global brands ; partially offset by higher average unit cost at all global brands . this was offset by a negative foreign exchange impact for our foreign subsidiaries as our merchandise purchases are primarily in u.s. dollars . story_separator_special_tag occupancy expenses decreased 0.7 percentage points as a percentage of net sales in fiscal 2017 compared with fiscal 2016 , primarily driven by an increase in online sales , international store closures , and higher sales from the impact of the 53rd week ; partially offset by real estate expenses for the times square new york location for gap and old navy . in fiscal 2019 , we do not expect significant year-over-year impacts on gross margins due to fluctuations in foreign currencies . 25 operating expenses and operating margin replace_table_token_9_th operating expenses increased $ 373 million or 1.0 percentage points as a percentage of net sales in fiscal 2018 compared with fiscal 2017 primarily due to the following : an increase of $ 443 million related to the presentation changes resulting from the adoption of new revenue recognition standard ; and a gain from insurance proceeds of $ 64 million during fiscal 2017 related to the fire that occurred at the fishkill , new york company-owned distribution center ; partially offset by a decrease in expenses related to payroll and benefits , primarily driven by a decrease in bonus expense . operating expenses increased $ 138 million or 0.2 percentage points as a percentage of net sales in fiscal 2017 compared with fiscal 2016 primarily due to the following : an increase in variable costs , such as payroll-related costs , due to the growth in old navy global and athleta brands , increase in bonus expense , and the 53rd week impact ; an increase in advertising ; and an increase in overhead costs related to productivity work including investments in customer and digital initiatives as well as severance expenses and the impacts of store closures ; partially offset by a gain from insurance proceeds of $ 64 million related to the fishkill fire recorded in the second quarter of fiscal year 2017 ; a decrease of $ 197 million of restructuring costs incurred in fiscal year 2016 ; and a decrease of $ 71 million related to a goodwill impairment charges for intermix in fiscal year 2016. interest expense replace_table_token_10_th interest expense for fiscal 2018 , 2017 and 2016 is primarily comprised of interest on our $ 1.25 billion long-term debt . income taxes replace_table_token_11_th the decrease in the effective tax rate for fiscal 2018 compared with fiscal 2017 was primarily due to the reduction in the u.s. federal statutory tax rate from 35 % to 21 % , enacted as part of the tax cuts and jobs act of 2017 ( the “ tcja ” ) , and measurement period adjustments to reduce our fiscal 2017 estimated net charge for the effects of the tcja , offset by increases in unrecognized tax benefits recorded in connection with examinations by taxing authorities . 26 during fiscal 2017 , we calculated and recorded a $ 57 million net charge for our best estimate of the impact of the tcja one-time transition tax on the deemed repatriation of foreign income and the impact of tcja on deferred tax assets and liabilities . during fiscal 2018 , we recorded a $ 33 million measurement period adjustment to reduce our fiscal 2017 provisional estimated net charge related to the transition tax and recorded certain other immaterial measurement period adjustments to reduce our fiscal 2017 provisional estimated impact of the remeasurement of our deferred tax assets and liabilities to reflect the tcja rate reduction . we have evaluated the tcja and interpreted additional guidance issued by the u.s. treasury department and internal revenue service ( “ irs ” ) during fiscal 2018 and our accounting for the impact of the tcja is complete as of february 2 , 2019 . the increase in the effective tax rate for fiscal 2017 compared with fiscal 2016 was primarily due to the impact of the tcja , partially offset by the recognition of certain tax benefits associated with legal structure changes . liquidity and capital resources our largest source of cash flows is cash collections from the sale of our merchandise . our primary uses of cash include merchandise inventory purchases , occupancy costs , personnel-related expenses , purchases of property and equipment , and payment of taxes . in addition , we may have dividend payments , debt repayments , and share repurchases . we consider the following to be measures of our liquidity and capital resources : replace_table_token_12_th as of february 2 , 2019 , the majority of our cash , cash equivalents , and short-term investments were held in the united states and is generally accessible without any limitations . in addition , as of february 2 , 2019 , there was restricted cash of $ 320 million held by a third party in connection with the purchase of a building recorded in other long-term assets on the consolidated balance sheet . in april 2011 , the company entered into a $ 1.25 billion aggregate principal amount of 5.95 percent notes ( the `` notes '' ) , which are due april 2021. in october 2015 , the company entered into a $ 400 million unsecured term loan ( the `` term loan '' ) , which was fully repaid in january 2017. in january 2014 , the company entered into a 15 billion japanese yen , four -year , unsecured term loan ( `` japan term loan '' ) , which was fully repaid in june 2017. we believe that current cash balances and cash flows from our operations will be sufficient to support our business operations , including the purchase of a building and expansion costs related to the buildout of our ohio distribution center , for the next 12 months and beyond . we are also able to supplement near-term liquidity , if necessary , with our $ 500 million revolving credit facility or other available market instruments .
| a store is considered “ closed ” if it is temporarily closed for three or more full consecutive days or it is permanently closed . when a temporarily closed store reopens , the store will be placed in the comp/non-comp status it was in prior to its closure . if a store was in closed status for three or more days in the prior year , the store will be in non-comp status for the same days the following year . current year foreign exchange rates are applied to both current year and prior year comp sales to achieve a consistent basis for comparison . 23 store count and square footage information net sales per average square foot is as follows : replace_table_token_6_th ( 1 ) excludes net sales associated with our online and franchise businesses . online sales includes both sales through our online channels as well as ship-from-store sales . ( 2 ) reflects the adoption of asc 606. prior period amounts have not been restated and continue to be reported under accounting standards in effect for those periods . ( 3 ) fiscal 2017 includes incremental sales attributable to the 53rd week . store count , openings , closings , and square footage for our stores are as follows : replace_table_token_7_th gap and banana republic outlet and factory stores are reflected respectively within each brand . 24 in fiscal 2019 , we expect to open about 140 and close about 190 company-operated store locations . openings will be primarily focused on old navy and athleta . closures are primarily driven by the specialty fleet restructuring . net sales discussion our net sales for fiscal 2018 increased $ 725 million , or 5 percent , compared with fiscal 2017 , primarily driven by the impact of significant presentation changes of $ 619 million resulting from the adoption of the new revenue recognition standard , and an increase in net sales for old navy global and athleta ; partially offset by a decrease in net sales for gap global . the translation of
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the notes issued have maturity dates of september 20 , 2013 as to the 850 units and november 13 , 2013 as to the 474 units . we paid the placement agent for the private placement a total of $ 109,900 in fees and issued it warrants to purchase an aggregate of 331,000 shares . the placement agent warrants have the same terms as those issued to the investors . ( see notes to the financial statements – note 6 . ) in march 2010 , we completed our ipo , whereby we sold 1,925,000 units , each unit consisting of two shares of our common stock and a warrant to purchase one share of common stock , at $ 6.50 per unit resulting in gross proceeds of $ 12,512,500 and net proceeds to us of $ 10,457,270 after deducting underwriting discounts and commissions and offering expenses payable by us . all of our convertible notes and accrued interest thereon and all of our outstanding shares of non-voting subordinated class a common stock automatically converted into units or common stock upon the completion of the ipo . we effected a 1 for 7.836 reverse stock split of our common stock on february 24 , 2010 in connection with the ipo . all shares and per share amounts , except as noted , have been retroactively adjusted to give effect to the reverse stock split . 30 we believe that as a result of our decision in late 2011 to focus the majority of our resources , including our research and development efforts primarily on ce mark approval and the commercialization of neutrolin ® ( crmd003 ) in europe , the net proceeds from the ipo , the net proceeds from our 2012 convertible note private placement financing and the gross proceeds from the private placement of our series a non-voting convertible preferred stock in february 2013 , our existing cash will be sufficient to fund our projected operating requirements into the second quarter of 2013. we intend to raise additional funds through various potential sources , such as equity and or debt financings , strategic relationships , or out-licensing of our products , however , we can provide no assurances that such financing will be available on acceptable terms , or at all . financial operations overview revenue we have not generated any revenue since our inception . as of december 31 , 2012 , we have funded our operations primarily through debt financings and the ipo , and our receipt of a total of approximately $ 490,000 from federal grants under the qualifying therapeutic discovery project program , a total of approximately $ 775,000 from the sale of our unused net operating losses through the state of new jersey 's economic development authority technology business tax certificate transfer program and approximately $ 35,000 from the state of new york 's research and development tax credit program . research and development expense research and development , or r & d , expense consists of : ( i ) internal costs associated with our development activities ; ( ii ) payments we make to third party contract research organizations , contract manufacturers , investigative sites , and consultants ; ( iii ) technology and intellectual property license costs ; ( iv ) manufacturing development costs ; ( v ) personnel related expenses , including salaries , stock-based compensation , benefits , travel and related costs for the personnel involved in drug development ; ( vi ) activities relating to regulatory filings and the advancement of our product candidates through preclinical studies and clinical trials ; and ( vii ) facilities and other allocated expenses , which include direct and allocated expenses for rent , facility maintenance , as well as laboratory and other supplies . all r & d is expensed as incurred . conducting a significant amount of development is central to our business model . through december 31 , 2012 , we incurred $ 23,343,305 in r & d expenses since our inception in july 2006. product candidates in later-stage clinical development generally have higher development costs than those in earlier stages of development , primarily due to the significantly increased size and duration of the clinical trials . we plan to increase our r & d expenses for the foreseeable future in order to complete development of crmd003 and our earlier-stage r & d projects . the following table summarizes the percentages of our r & d payments related to our two most advanced product candidates and other projects . the percentages summarized in the following table reflect payments directly attributable to each development candidate , which are tracked on a project basis . a portion of our internal costs , including indirect costs relating to our product candidates , are not tracked on a project basis and are allocated based on management 's estimate . replace_table_token_2_th the process of conducting pre-clinical studies and clinical trials necessary to obtain regulatory approval is costly and time consuming . the probability of success for each product candidate and clinical trial may be affected by a variety of factors , including , among others , the quality of the product candidate 's early clinical data , investment in the program , competition , manufacturing capabilities and commercial viability . as a result of the uncertainties discussed above , the uncertainty associated with clinical trial enrollments and the risks inherent in the development process , we are unable to determine the duration and completion costs of current or future clinical stages of our product candidates or when , or to what extent , we will generate revenues from the commercialization and sale of any of our product candidates . 31 development timelines , probability of success and development costs vary widely . story_separator_special_tag during the third quarter of 2011 , we received a notice from the u.s. food and drug administration , or fda , that our product candidate , neutrolin ® , had been assigned to the center for drug evaluation and research , or cder . as a result of this , and given our limited resources , we decided to change our business strategy and focus the majority of our resources on the research and development of neutrolin ® rather than crmd004 and to seek regulatory and commercialization approval for neutrolin ® in europe through a ce mark application rather than pursue fda approval at this time . during the first half of 2011 , we submitted our design dossier to tüv süd the european notified body managing our ce mark application . in the fourth quarter of 2011 , we successfully completed our stage 1 audit with tüv süd . we also have successfully completed our stage 2 audit with tüv süd which resulted in our receipt of the iso 13485:2003 certification from tüv süd on october 10 , 2012. this certification , which is a stand-alone standard developed by the international organization for standardization , is the globally recognized standard that outlines consistent international processes for the design and manufacturing of medical devices , including many supply chain functions such as assembly , packaging , warehousing and distribution . compliance with iso 13485 is often seen as a step towards achieving compliance with european regulatory requirements . the conformity of medical devices and in-vitro diagnostic medical devices according to applicable eu standards must be assessed before sale is permitted . the preferred method to prove conformity is the certification by a notified body of the quality management system according to iso 9001 and or iso 13485 and iso 14971. the result of a positive assessment is the issuance of a certificate of conformity allowing the ce mark and the permission to sell the medical device in the european union . we anticipate receiving a ce mark approval by the end of the second quarter of 2013 . if we obtain ce mark approval in europe , we intend to launch neutrolin ® for the prevention of catheter related bloodstream infections , or crbi and maintenance of catheter patency in hemodialysis patients in europe during 2013. however , we can not be assured of ce mark approval of neutrolin ® or the planned commercialization timeline . we are currently exploring the various methods of launching neutrolin ® in europe , whether through a distributorship or partnership arrangement , or otherwise , and plan to initially launch in germany . assuming the receipt of a ce mark and the launch of neutrolin ® , we intend to meet with the fda to determine the pathway for u.s. approval of neutrolin ® , which we expect to entail a phase 3 trial . general and administrative expense general and administrative , or g & a , expense consists primarily of salaries and other related costs , including stock-based compensation expense , for persons serving in our executive , finance and accounting functions . other g & a expense includes facility-related costs not otherwise included in r & d expense , promotional expenses , costs associated with industry and trade shows , and professional fees for legal services and accounting services . we expect that our g & a expenses will increase if we add personnel and as a result of the reporting obligations applicable to public companies . from our inception on july 28 , 2006 through december 31 , 2012 , we incurred $ 12,776,034 of g & a expense . other income other income consists mainly of federal research grants awarded and research and development tax refunds , net of application fees . from our inception on july 28 , 2006 through december 31 , 2012 , we received $ 420,987 of other income , net of application fees and related filing costs . interest income and interest expense interest income consists of interest earned on our cash and cash equivalents . interest expense consists of interest incurred on our pre-ipo convertible notes ( up to their automatic conversion into units or common stock upon the completion of the ipo on march 30 , 2010 ) , and on our convertible notes issued in september and november 2012 , as well as the amortization and write-off of deferred financing costs and debt discounts and a charge for the beneficial conversion relating to certain of our convertible notes . from our inception on july 28 , 2006 through december 31 , 2012 , we received $ 126,307 of interest income through interest bearing savings accounts and incurred $ 11,575,964 of interest expense , which consists of interest incurred in debt issued to note holders , amortization and write-off of deferred financing costs and debt discounts and a beneficial conversion feature charge related to the conversion of certain of our convertible notes . 32 story_separator_special_tag organization costs , clinical site costs , manufacturing costs , patent fees and accrued legal fees . net cash used in investing activities net cash used in investing activities was $ 0 for the year ended december 31 , 2012 a decrease of $ 1,625 for the same period last year due to a purchase of office equipment during the year ended december 31 , 2011. net cash provided by financing activities net cash provided by financing activities was $ 1,126,397 for the year ended december 31 , 2012 as compared to $ 0 for the same period last year .
| interest income was $ 1,965 for the year ended december 31 , 2012 , a decrease of $ 10,072 , from $ 12,037 for the year ended december 31 , 2011. the decrease was attributable to having lower interest-bearing cash balances during the year ended december 31 , 2012 compared to the year ended december 31 , 2011. interest expense . interest expense was $ 382,936 for the year ended december 31 , 2012. no interest expense was recognized for the year ended december 31 , 2011. the interest expense charges consisted primarily of a beneficial conversion feature charge of $ 279,052 related to the senior convertible notes and warrants we issued in september and november 2012 in the aggregate principal amount of $ 1,324,000 , amortization of deferred financing fees of $ 76,632 and accrued interest of $ 26,938 related to the one-year 9 % senior convertible notes . liquidity and capital resources sources of liquidity as a result of our significant r & d expenditures and the lack of any approved products to generate product sales revenue , we have not been profitable and have generated operating losses since we were incorporated in july 2006. prior to the ipo , we had funded our operations principally with $ 14,364,973 in convertible notes sold in private placements and $ 625,464 in related party notes , which were also convertible . all of our convertible notes were automatically converted into 1,237,293 shares of common stock and 2,338,576 units ( comprised of 4,677,152 shares of common stock and 2,841,603 warrants at an exercise price of $ 3.4375 ) . we received net proceeds of $ 10,457,270 from the ipo , after deducting underwriting discounts , commissions and offering expenses payable by us upon the closing of the ipo on march 30 , 2010. additionally , we received a total of approximately $ 490,000 from federal grants under the qualifying therapeutic discovery project program and a total of approximately $ 775,000 from the sale of our unused net operating losses through the state of new jersey 's economic development authority
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the company 's goal is to deliver returns to shareholders by increasing higher-yielding assets ( in particular , commercial real estate and commercial business loans ) , increasing core deposit balances , managing problem assets , reducing expenses , hiring experienced employees with a commercial lending focus and exploring expansion opportunities . the company seeks to achieve these results by focusing on the following objectives : execution of our business plan . the company is focused on increasing its loan portfolio , especially higher yielding commercial and construction loans , and its core deposits by expanding its customer base throughout its primary market areas . by emphasizing total relationship banking , the company intends to deepen the relationships with its customers and increase individual customer profitability through cross-marketing programs , which allows the company to better identify lending opportunities and services for customers . to build its core deposit base , the company will continue to utilize additional product offerings , technology and a focus on customer service in working toward this goal . the company will also continue to seek to expand its franchise through de novo branches , the selective acquisition of individual branches , loan purchases and whole bank transactions that meet its investment and market objectives . in this regard , the company previously announced plans for three new branches located in clark county , washington , to complement its existing branch network . a new branch in downtown camas is scheduled to open this summer while our new location in the cascade park neighborhood of vancouver is scheduled to open later this fall . a construction delay due to covid-19 has pushed the opening of the new branch location in ridgefield to early 2021. maintaining strong asset quality . the company believes that strong asset quality is a key to long-term financial success . the company has actively managed delinquent loans and nonperforming assets by aggressively pursuing the collection of consumer debts , marketing saleable properties upon foreclosure or repossession , and through work-outs of classified assets and loan charge-offs . the company 's approach to credit management uses well defined policies and procedures and disciplined underwriting criteria resulting in our strong asset quality and credit metrics in fiscal year 2020. although the company intends to prudently increase the percentage of its assets consisting of higher-yielding commercial real estate , real estate construction and commercial business loans , which offer higher risk-adjusted returns , shorter maturities and more sensitivity to interest rate fluctuations , the company intends to manage credit exposure through the use of experienced bankers in these areas and a conservative approach to its lending . implementation of a profit improvement plan ( “ pip ” ) . the company 's pip committee is comprised of several members of management and the board of directors to undertake several initiatives to reduce non-interest expense and continue its on-going efforts to identify cost saving opportunities throughout all aspects of the company 's operations . the pip committee 's mission is not only to find additional cost saving opportunities but also to search for and implement revenue enhancements and additional areas for improvement . as a result , the company has improved its efficiency ratio over the last several years from 98.0 % at march 31 , 2014 to 62.42 % at march 31 , 2020. introduction of new products and services . the company continuously reviews new products and services to provide its customers more financial options . all new technology and services are generally reviewed for business development and cost saving purposes . the company continues to experience growth in customer use of its online banking services , where the bank provides a full array of traditional cash management products as well as online banking products including mobile banking , mobile deposit , bill pay , e-statements , and text banking . the products are tailored to meet the needs of small to medium size businesses and households in the markets we serve . the company launched a new online mortgage origination platform in june 2019. the company intends to selectively add other products to further diversify revenue sources and to capture more of each customer 's banking relationship by cross selling loan and deposit products and additional services , including services provided through the trust company to increase its fee income . assets under management by the trust company totaled $ 1.2 billion and $ 646.0 million at march 31 , 2020 and march 31 , 2019 , respectively . the company also offers a third-party identity theft product to its customers . the identity theft product assists our customers in monitoring their credit and includes an identity theft restoration service . 52 attracting core deposits and other deposit products . the company offers personal checking , savings and money-market accounts , which generally are lower-cost sources of funds than certificates of deposit and are less likely to be withdrawn when interest rates fluctuate . to build its core deposit base , the company has sought to reduce its dependence on traditional higher cost deposits in favor of stable lower cost core deposits to fund loan growth and decrease its reliance on other wholesale funding sources , including fhlb and frb advances . the company believes that its continued focus on building customer relationships will help to increase the level of core deposits and locally-based retail certificates of deposit . in addition , the company intends to increase demand deposits by growing business banking relationships through expanded product lines tailored to meet its target business customers ' needs . the company maintains technology-based products to encourage the growth of lower cost deposits , such as personal financial management , business cash management , and business remote deposit products , that enable it to meet its customers ' cash management needs and compete effectively with banks of all sizes . core branch deposits increased $ 58.7 million at march 31 , 2020 compared to march 31 , 2019 reflecting the company 's commitment to increasing core deposits versus relying on wholesale funding . story_separator_special_tag however , the company continues to experience increased competition and pricing pressure for deposits . recruiting and retaining highly competent personnel with a focus on commercial lending . the company 's ability to continue to attract and retain banking professionals with strong community relationships and significant knowledge of its markets will be a key to its success . the company believes that it enhances its market position and adds profitable growth opportunities by focusing on hiring and retaining experienced bankers focused on owner occupied commercial real estate and commercial lending , and the deposit balances that accompany these relationships . the company emphasizes to its employees the importance of delivering exemplary customer service and seeking opportunities to build further relationships with its customers . the goal is to compete with other financial service providers by relying on the strength of the company 's customer service and relationship banking approach . the company believes that one of its strengths is that its employees are also shareholders through the company 's employee stock ownership ( “ esop ” ) and 401 ( k ) plans . 53 comparison of financial condition at march 31 , 2020 and 2019 cash and cash equivalents , including interest-earning accounts , totaled $ 42.0 million at march 31 , 2020 compared to $ 23.0 million at march 31 , 2019. the increase in cash balances was primarily the result of the increase in deposits . the company 's cash balances fluctuate based upon funding needs , and the company will deploy a portion of excess cash balances to purchase investment securities to earn higher yields than the nominal yield earned on cash held in interest-earning accounts , based on the company 's asset/liability management program and liquidity objectives in order to maximize earnings . as a part of this strategy , the company has the ability to invest a portion of its excess cash in short-term certificates of deposit held for investment . all of the certificates of deposit held for investment are fully insured by the fdic . at march 31 , 2020 , certificates of deposits held for investment totaled $ 249,000 compared to $ 747,000 at march 31 , 2019. investment securities totaled $ 148.3 million and $ 178.3 million at march 31 , 2020 and 2019 , respectively . the decrease was due to the utilization of the cash proceeds from regular scheduled investment securities repayments , pay downs , calls and maturities which were used to fund loan growth . during the fiscal year ended march 31 , 2020 , purchases of investment securities totaled $ 18.1 million which was partially offset by investment sales totaling $ 17.8 million . the company primarily purchases a combination of securities backed by government agencies ( fhlmc , fnma , sba or gnma ) . at march 31 , 2020 , the company determined that none of its investment securities required an otti charge . for additional information on the company 's investment securities , see note 3 of the notes to the consolidated financial statements contained in item 8 of this form 10-k. loans receivable , net , totaled $ 898.9 million at march 31 , 2020 , compared to $ 864.7 million at march 31 , 2019 , an increase of $ 34.2 million . the company has had steady loan demand in its market areas and anticipates continued organic loan growth , in particular through government sponsored lending programs initiated in response to the covid-19 pandemic . the increase was mainly concentrated in commercial real estate loans which increased $ 46.4 million or 10.1 % . in addition , commercial business loans increased $ 16.2 million , or 10.0 % , and multi-family loans increased $ 6.8 million , or 13.2 % . partially offsetting these increases were decreases in real estate construction loans of $ 26.0 million , or 28.7 % , consumer loans of $ 5.0 million , or 5.5 % , and land loans of $ 3.0 million , or 17.6 % . due to the timing of the completion of these real estate construction projects , balances may fluctuate in these categories . once these projects are completed , these loans will roll to permanent financing and be classified within a category under other real estate mortgage . the company also purchases the guaranteed portion of sba loans as a way to supplement loan originations , further diversify its loan portfolio and earn a higher yield than earned on its cash or short-term investments . these sba loans are originated through another financial institution located outside the company 's primary market area . these loans are purchased with servicing retained by the seller . at march 31 , 2020 , the company 's purchased sba loan portfolio was $ 74.8 million compared to $ 67.9 million at march 31 , 2019. during the year ended march 31 , 2020 , the bank purchased $ 17.3 million of sba loans , including premiums . goodwill was $ 27.1 million at march 31 , 2020 and 2019. for additional information on our goodwill impairment testing , see `` goodwill valuation '' included in this item 7. deposits increased $ 65.4 million to $ 990.4 million at march 31 , 2020 compared to $ 925.1 million at march 31 , 2019. the increase was due a concentrated effort by the company to increase deposits . the company increased interest rates on certain deposit products to be more competitive in its market area . the company had no wholesale-brokered deposits at march 31 , 2020 and 2019. core branch deposits accounted for 97.6 % of total deposits at march 31 , 2020 compared to 98.2 % at march 31 , 2019. the company plans to continue its focus on core deposits and on building customer relationships as opposed to obtaining deposits through the wholesale markets .
| the goal of the ppp is to avoid as many layoffs as possible and to encourage small businesses to maintain payrolls . as a qualified sba lender , the company was automatically authorized to originate ppp loans upon commencement of the program in april 2020. under terms of the ppp , all ppp loans have : ( a ) an interest rate of 1.0 % , ( b ) a two-year loan term to maturity ; and ( c ) principal and interest payments deferred for six months from the date of loan funding . the sba guarantees 100 % of the ppp loans made to eligible borrowers . the entire principal amount of the borrower 's ppp loan , including any accrued interest , is eligible to be forgiven and repaid by the sba so long as employee and compensation levels of the borrower 's business are maintained and 75 % of the loan proceeds are used for payroll expenses , with the remaining 25 % of the loan proceeds used for other qualifying expenses . the company has accepted more than 700 applications for ppp loans , consisting primarily of existing customers who are small to midsize businesses as well as independent contractors , sole proprietors and partnerships and non-for-profits as allowed under the ppp guidance . as of may 31 , 2020 , we have funded 781 ppp loans for a total of $ 116.2 million , with an average loan amount of $ 150,000. another $ 12,000 in ppp loans have been approved and are in the application pipeline process as of may 31 , 2020. in addition to the 1 % interest earned on these loans , the sba pays us fees for processing ppp loans in the following amounts : ( i ) five percent for loans of not more than $ 350,000 ; ( ii ) three percent for loans of more than $ 350,000 and less than $ 2,000,000 ; and one percent for loans of at least $ 2,000,000. we may not collect any fees from the loan applicants . we
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phase 1b results with dnl201 in patients with parkinson 's disease demonstrated high levels of target and pathway engagement and improvement of lysosomal biomarkers . phase 1 results with dnl151 in more than 150 healthy volunteers also met all safety and biomarker goals . we plan to select one of these two molecules for phase 2/3 studies in patients with and without the lrrk2 mutation in mid-2020 . in january 2020 , we sold 9.0 million shares of common stock ( inclusive of shares sold pursuant to an overallotment option granted to the underwriters in connection with the offering ) through an underwritten public offering at a price of $ 23.00 per share for aggregate net proceeds of approximately $ 194.1 million . in february 2020 , we initiated a phase 1 clinical trial for dnl343 in healthy volunteers . we do not have any products approved for sale and have not generated any product revenue since our inception . we have funded our operations primarily from the issuance and sale of convertible preferred stock , the proceeds from our ipo and our follow on offering , and payments received from our collaboration agreements with takeda and sanofi . we have incurred significant operating losses to date and expect to continue to incur operating losses for the foreseeable future . our ability to generate product revenue will depend on the successful development and eventual commercialization of one or more of our product candidates . our net losses were $ 197.6 million , $ 36.2 million and $ 88.2 million for the years ended december 31 , 2019 , 2018 and 2017 , respectively . as of december 31 , 2019 , we had an accumulated deficit of $ 425.6 million . we expect to continue to incur significant expenses and operating losses as we advance our current clinical stage programs through healthy volunteer and patient trials ; broaden and improve our bbb platform technology ; acquire , discover , validate and develop additional product candidates ; obtain , maintain , protect and enforce our intellectual property portfolio ; and hire additional personnel . 109 license and collaboration agreements takeda in january 2018 , we entered into the collaboration agreement with takeda ( “ takeda collaboration agreement ” ) pursuant to which we granted takeda an option with respect to three of our programs to develop and commercialize , jointly with us , certain biologic products that are enabled by our bbb delivery technology and intended for the treatment of neurodegenerative disorders . the three programs were denali 's atv : bace1/tau , atv : trem2 and ptv : pgrn programs . the takeda collaboration agreement became effective in february 2018 when the requirements of the hart-scott-rodino antitrust improvements act of 1976 ( `` hsr '' ) were satisfied . in february 2019 , we amended the takeda collaboration agreement to replace the atv : bace1/tau program with the atv : tau program . under the terms of the takeda collaboration agreement , takeda paid us a $ 40.0 million upfront payment , and is obligated to pay us up to an aggregate of $ 25.0 million with respect to each program under the takeda collaboration agreement directed to a target and based upon the achievement of certain preclinical milestone events , up to $ 75.0 million in total , of which we have earned and received $ 15.0 million to date . takeda is also obligated to pay us a $ 5.0 million option fee for each target for which takeda exercises its option , up to $ 15.0 million in total . pursuant to the terms of the takeda collaboration agreement , we entered into the purchase agreement with takeda in january 2018 , pursuant to which we agreed to issue and sell , and takeda agreed to purchase , 4,214,559 shares of our common stock for an aggregate purchase price of $ 110.0 million . we closed the sale of the 4,214,559 shares of our common stock to takeda on february 23 , 2018. after takeda exercises its option for a particular target , we and takeda will share equally the development and commercialization costs , and , if applicable , the profits , for each collaboration program . however , for each collaboration program , we may elect not to continue sharing development and commercialization costs , or takeda may elect to terminate our cost-profit sharing rights and obligations if , following notice from takeda and a cure period , we fail to satisfy our cost sharing obligations with respect to the relevant collaboration program . after such an election by us or termination by takeda becomes effective , we will no longer be obligated to share in the development and commercialization costs for the relevant collaboration program , and we will not share in any profits from that collaboration program . instead we will be entitled to receive tiered royalties . the royalty rates will be in the low- to mid-teen percentages on net sales , or low- to high-teen percentages on net sales if we have met a certain co-funding threshold at the time of our election to opt out of co-development or takeda 's termination of our cost-profit sharing rights and obligations , and , in each case , these royalty rates will be subject to certain reductions specified in the takeda collaboration agreement . takeda will pay these royalties to us for each biologic product included in the relevant collaboration program , on a country-by-country basis , until the latest of ( i ) the expiration of certain patents covering the relevant biologic product , ( ii ) the expiration of all regulatory exclusivity for that biologic product , and ( iii ) an agreed period of time after the first commercial sale of that biologic product in the applicable country , unless biosimilar competition in excess of a significant level specified in the takeda collaboration agreement occurs earlier , in which case takeda 's royalty obligations in the applicable country would terminate . story_separator_special_tag in addition , if takeda exercises its option for all three collaboration programs , takeda may be obligated to pay us up to an aggregate of $ 407.5 million upon achievement of certain clinical milestone events and up to an aggregate of $ 300.0 million in regulatory milestone events relating to receipt of regulatory approval in the united states , certain european countries and japan . takeda may also be obligated to pay us up to $ 75.0 million per biologic product upon achievement of a certain sales-based milestone , or an aggregate of $ 225.0 million if one biologic product from each program achieves this milestone . 110 we have recognized collaboration revenue of $ 5.9 million and $ 5.7 million associated with the takeda collaboration agreement in the years ended december 31 , 2019 and 2018 , respectively , and recorded a receivable from takeda of $ 5.0 million on the consolidated balance sheet as of december 31 , 2018. we did not have a receivable from takeda as of december 31 , 2019. through december 31 , 2019 , we have received $ 15.0 million in preclinical milestone payments from takeda and have not recorded any product sales under the takeda collaboration agreement . sanofi in october 2018 , we entered into the sanofi collaboration agreement with sanofi pursuant to which certain small molecule cns and peripheral ripk1 inhibitors contributed by sanofi and by denali will be developed and commercialized . the sanofi collaboration agreement became effective in november 2018 when the hsr requirements were satisfied . under the terms of the collaboration agreement , sanofi paid us a $ 125.0 million upfront payment . under the sanofi collaboration agreement , sanofi is required to make milestone payments up to approximately $ 1.1 billion upon achievement of certain clinical , regulatory and sales milestone events . such milestone payments include $ 215.0 million in clinical milestone payments and $ 385.0 million in regulatory milestone payments for cns products , as defined , that are developed and approved in the united states , by the european medicines agency ( `` ema '' ) and in japan for three indications , including alzheimer 's disease . these milestones also include $ 120.0 million in clinical milestone payments , $ 175.0 million in regulatory milestone payments and $ 200.0 million in commercial milestone payments for peripheral products , as defined , that are developed and approved in the united states , by the ema and in japan for three indications . through december 31 , 2019 , we have received milestone payments of $ 10.0 million under the sanofi collaboration agreement . denali will share profits and losses equally with sanofi for cns products sold in the united states and china , and receive royalties on net sales for cns products outside of the united states and china and for peripheral products sold worldwide , each as further described below . ripk1 inhibitors contributed by sanofi and developed and commercialized under the sanofi collaboration agreement will be subject to lower milestone and royalty payments to us compared to ripk1 inhibitors contributed by us . we will also retain responsibility for certain payment obligations under our agreement with an academic institution which licensed certain intellectual property to us that we are sublicensing to sanofi under the sanofi collaboration agreement . denali and sanofi will jointly develop cns products pursuant to a global development plan . we will be responsible , at our cost , for the conduct of phase 1 and phase 2 trials for cns products for alzheimer 's disease and any activities required to support such clinical trials and specific for alzheimer 's disease . we will also conduct , at sanofi 's cost , a phase 1b trial for dnl747 for als . sanofi will be responsible , at its cost , for all other phase 1 and phase 2 trials for cns products , including for multiple sclerosis . sanofi will lead the conduct of all phase 3 and later stage development trials for cns products , with sanofi funding 70 % of such costs and denali funding 30 % of such costs . we have the ability to opt out of the cost-profit sharing provisions of the sanofi collaboration agreement , as further described below . 111 sanofi will lead commercialization activities globally for cns products . we may elect to conduct certain co-commercialization activities outside of ms with respect to each cns product in the united states and or china , provided that the cost-profit sharing provisions of the sanofi collaboration agreement for the relevant cns product are still in effect , as further described below . we may opt out of the cost-profit sharing provisions of the sanofi collaboration agreement for cns products in the united states and china on a cns product-by-cns product and country-by-country basis . sanofi may also terminate our cost-profit sharing provisions of the sanofi collaboration agreement in its entirety if , following notice from sanofi and a cure period , we fail to satisfy our cost-sharing obligations . after such an opt out by us or termination by sanofi , we will no longer be obligated to share in the development and commercialization costs for the applicable cns products and we will not share in the applicable profits from such cns products . instead , we will be entitled to receive tiered royalties on net sales of the applicable cns products in the relevant country ( or countries ) . the royalty rates will be a percentage in the low double digits to mid-teens , but may increase to the mid-teens to low-twenties percentages for all countries in which sanofi is paying royalties on the applicable cns products , if we have met certain co-funding thresholds at the time of our election or sanofi 's termination of our cost-profit sharing rights and obligations . sanofi will be responsible , at its cost , for conducting activities relating to the development and commercialization of all peripheral products . sanofi will lead commercialization activities globally for peripheral products .
| further , there was a $ 20.6 million increase in personnel-related expenses , consisting of a $ 11.4 million increase in salaries and related expenses attributable to an increase in our research and development headcount , and a $ 9.2 million increase in stock-based compensation expense primarily attributable to additional equity award grants and certain performance and market-based awards . there was also a $ 9.1 million increase in other unallocated research and development expenses , which was primarily due to an increase in facilities-related expenses of $ 5.4 million resulting from increased rent expense associated with the new headquarters lease , a $ 2.5 million increase in lab consumable expenses , and a $ 1.2 million increase in other general costs , such as travel and it related expenses attributable to our research and development departments . these increases were partially offset by a $ 28.0 million decrease in bbb platform external expense , the majority of which related to expenses incurred in 2018 associated with the acquisition of f-star gamma limited , and the nomination of two additional fcab targets under the f-star collaboration agreement , both of which occurred in may 2018. general and administrative expenses . general and administrative expenses were $ 46.5 million for the year ended december 31 , 2019 compared to $ 32.3 million for the year ended december 31 , 2018. the increase of $ 14.1 million was primarily attributable to the $ 12.3 million increase in personnel-related expenses , driven by higher general and administrative headcount and stock-based compensation expense associated with additional equity award grants and certain performance and market-based awards . additionally , there was a $ 1.0 million increase in facilities related expenses , including increased rent expense associated with the new headquarters lease and a $ 1.3 million increase in other general costs , such as travel , insurance , taxes and it related expenses attributable to our general and administrative departments . these increases were partially offset by a $ 0.5 million decrease
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the following summarizes significant developments and operational measures taken by the company in response to the covid-19 pandemic : we continue to invest heavily in technology aimed at enhancing our e-commerce solutions with our pos partners . to protect the health of our employees and their families , we have transitioned most of our employees to work-from-home status and have implemented significant steps to reduce the risk of exposure to employees who are not able to work-from-home . the coronavirus aid , relief , and economic security act ( `` cares act '' ) in response to the global impacts of covid-19 on u.s. companies and citizens , the government enacted the cares act on march 27 , 2020. we believe a significant portion of our progressive leasing and vive customers received stimulus payments and or federally supplemented unemployment payments during 2020 , which enabled them to continue making payments to us under their lease-to-own or credit card agreements , despite the economically challenging times resulting from the covid-19 pandemic . the cares act also included several tax relief options for companies , which resulted in the following provisions available to the company : the company elected to carryback its 2018 net operating losses of $ 242.2 million to 2013 , thus generating a refund of $ 84.4 million , which was received in july 2020 , and an income tax benefit of $ 34.2 million recognized in 2020. vive filed a separate federal return from the company and has also elected to carryback its 2018 and 2019 net operating losses of $ 5.4 million and $ 5.2 million , respectively , to 2013 and 2014 , thus generating a refund of $ 1.8 million in 2020 , and an estimated refund of $ 1.8 million in 2021 and an income tax benefit of $ 1.4 million recognized in 2020. the discrete tax benefits are the result of the federal income tax rate differential between the current statutory rate of 21 % and the 35 % rate applicable to 2013 and 2014. the company will defer all payroll taxes that it is permitted to defer under the cares act , which generally applies to social security taxes otherwise due , with 50 % of the tax payable on december 31 , 2021 and the remaining 50 % payable on december 31 , 2022. certain wages and benefits that were paid to furloughed employees may be eligible for an employee retention credit of up to 50 % of wages paid to eligible employees . the federal government 's supplement to unemployment payments lapsed on july 31 , 2020 but was temporarily extended on a prospective basis beginning december 26 , 2020. the current nature and or extent of future stimulus measures , if any , remains unknown . we can not be certain that our customers will continue making their payments to us if the federal government does not continue supplemental unemployment benefits or enact additional stimulus measures . the government 's failure to do so could result in a significant reduction in the portion of our customers who continue making payments owed to us under their lease-to-own or credit card agreements . additionally , any further stimulus measures that may be enacted in the future may result in our customers receiving such benefits , but we can not be certain that our customers will use such benefits to continue making payments to us under their lease-to-own or credit card agreements . additionally , any future stimulus payments and or federally supplemented unemployment payments may result in changing consumer spending behaviors resulting in fewer consumers executing lease-to-own or credit card agreements with us and or more active customers electing early lease buyouts options , which have lower margins . 40 strategy we are executing a strategic plan that focuses on the following items and that we believe positions us for success over the long-term : grow gross merchandise volume ( `` gmv '' ) with existing and new pos partners ; invest in technology that simplifies and improves the customer experience ; leverage our large database to drive repeat business ; broaden our product ecosystem through research and development efforts and strategic acquisitions ; and employ direct-to-consumer marketing to drive shoppers in-store and online . highlights the following summarizes significant highlights from the year ended december 31 , 2020 : on november 30 , 2020 , we completed the spin-off of our aaron 's business segment through a distribution of all outstanding shares of common stock of the aaron 's company to the prog holdings shareholders . we reported record revenues from continuing operations of $ 2.5 billion in 2020 , an increase of 14.9 % compared to 2019 , despite our pos partners being unfavorably impacted by the covid-19 pandemic and significant changes to consumer spending and payment behaviors . our growth in revenues was driven by strong customer payment activity and higher average merchandise price per lease . the covid-19 pandemic challenges contributed to the decline in active customer count of 7.5 % and a slow in the rate of growth of consolidated gross merchandise volume , which increased by 4.5 % year over year . earnings from continuing operations before income taxes increased to $ 271.6 million compared to $ 27.6 million in 2019. the increase in earnings from continuing operations before income taxes is primarily due to overall revenue growth and a decreased provision for lease merchandise write-offs , as well as the $ 179.3 million legal and regulatory expenses incurred in 2019 related to the progressive leasing settlement with the ftc , further discussed in note 10 in the accompanying consolidated financial statements . key operating metrics gross merchandise volume . we believe gross merchandise volume is a key performance indicator of our progressive leasing and vive segments , as it provides the total value of new lease and loan originations written into our portfolio over a specified time period . story_separator_special_tag gross merchandise volume does not represent revenues earned by the company , but rather is a leading indicator we use in forecasting revenues the company may earn in the short-term . progressive leasing gross merchandise volume is defined as the retail price of merchandise acquired by progressive leasing , which we then lease to our customers . vive gross merchandise volume is defined as gross loan originations . the following table presents our gross merchandise volume for the company for the years presented : replace_table_token_4_th the increase in gross merchandise volume was driven by an increase in the average merchandise price per lease in 2020 compared to 2019 and growth in vive 's loan originations in the second half of 2020 , partially offset by challenges the covid-19 pandemic caused our pos partners , which included store closures and or disruptions and unavailability of certain merchandise for periods of time in 2020 . 41 active customer count . our active customer count represents the total number of customers that have an active lease agreement with our progressive leasing segment or an active loan with our vive segment . the following table presents our consolidated active customer count , which includes an immaterial number of customers that have both an active lease agreement and loan agreement , for the company for the years presented : replace_table_token_5_th the decline in active customer count is due primarily to challenges our pos partners experienced in 2020 from the covid-19 pandemic , which resulted in store closures and or disruptions for periods of time in 2020 , and also due to customers of our pos partners purchasing products , instead of leasing them , due to the government stimulus . the decline in progressive leasing customers was also impacted by an increase in customers electing to exercise early lease buyouts in 2020. key components of earnings from continuing operations before income taxes in this md & a section , we review our consolidated results . for the year ended december 31 , 2020 and the comparable prior year periods , some of the key revenue and cost and expense items that affected earnings before income taxes were as follows : revenues . we separate our total revenues into two components : ( i ) lease revenues and fees and ( ii ) interest and fees on loans receivable . lease revenues and fees include all revenues derived from lease agreements from our progressive leasing segment . interest and fees on loans receivable represents merchant fees , finance charges and annual and other fees earned on loans originated by vive . depreciation of lease merchandise . depreciation of lease merchandise primarily reflects the expense associated with depreciating merchandise leased to customers by progressive leasing . provision for lease merchandise write-offs . the provision for lease merchandise write-offs represents the estimated merchandise losses incurred but not yet identified by management . operating expenses . operating expenses include personnel costs , the provision for loan losses , professional services expense , intangible asset amortization expense , occupancy costs , advertising and marketing , among other expenses . operating expenses include certain corporate overhead costs that are allocated to progressive leasing and vive segments for periods prior to the separation and distribution date of november 30 , 2020. operating expenses also include unallocated corporate expenses , which is primarily personnel costs , that have previously been reported as expenses of the aaron 's business segment that did not qualify for classification within discontinued operations . legal and regulatory ( income ) expense , net of insurance recoveries . legal and regulatory expense includes regulatory charges and legal expenses incurred , net of insurance recoveries for certain third-party legal costs , related to progressive leasing 's 2019 settlement of the ftc matter discussed in note 10 in the accompanying consolidated financial statements . separation related charges . separation related charges primarily relate to stock-based compensation expense associated with the modification of outstanding equity awards and executive retirement charges related to the spin-off of the aaron 's business segment . interest expense . interest expense consists of interest incurred on the company 's senior unsecured revolving credit facility that was entered into on november 24 , 2020 in conjunction with the separation and distribution transaction . all interest expense incurred on the company 's previous debt agreements has been classified within discontinued operations , as the repayment of the debt was required under the terms of the loan agreements in the event of a fundamental change to the company , and the legal obligor of these agreements was a legal entity within the aaron 's company . 42 story_separator_special_tag span style= '' color : # 000000 ; font-family : 'times new roman ' , sans-serif ; font-size:10pt ; font-style : italic ; font-weight:700 ; line-height:120 % '' > earnings from continuing operations before income taxes the company incurred various corporate overhead expenses for certain executive management , finance , treasury , tax , audit , legal , risk management , and other overhead functions during the years ended december 31 , 2020 and 2019. the company has allocated a portion of these corporate overhead costs to the progressive leasing and vive segments , which are reflected as expenses of these segments in calculating the earnings before income taxes for all periods presented . the remaining unallocated corporate expenses represent corporate overhead costs that were previously assigned to the aaron 's business segment and are in addition to the overhead costs allocated to the progressive leasing and vive segments for these periods . these unallocated corporate overhead expenses have been classified as continuing operations for all periods through november 30 , 2020 since the costs were not directly attributable to the discontinued operations of the aaron 's company . these costs are reflected below as unallocated corporate expenses , which is consistent with how the chief operating decision maker analyzed performance and allocated resources among the business units of the company .
| the increased provision for loan losses was due to growth in vive 's gross merchandise volume in the second half of 2020 and an incremental allowance of $ 8.9 million for the forecasted adverse macroeconomic conditions stemming primarily from the covid-19 pandemic , including higher unemployment rates and market volatility , which were used in estimating our allowance for loan losses as of december 31 , 2020. the company adopted asu 2016-13 , measurement of credit losses on financial instruments ( `` cecl '' ) during the first quarter of 2020 , which is an `` expected loss '' model that generally will result in the recognition of allowances for losses earlier than under accounting guidance in place in 2019. the increase from these factors was partially offset by lower charge-offs as compared to 2019 , driven by stronger customer payment activity in 2020 resulting from government stimulus and expanded unemployment benefits being provided to many of our customers . the decrease in professional services relate to $ 3.5 million of expenses related to previous corporate strategic initiatives incurred in 2019 that are classified within unallocated corporate expenses for segment purposes . other costs and expenses depreciation of lease merchandise . as a percentage of total lease revenues and fees , depreciation of lease merchandise increased to 69.2 % in 2020 from 67.9 % in the prior year , primarily due to a higher percentage of our customers exercising 90-day buyouts and other early buyout elections in 2020 . 44 provision for lease merchandise write-offs . the provision for lease merchandise write-offs as a percentage of lease revenues decreased to 5.4 % in 2020 from 7.2 % in 2019. this decrease was due to improved customer payment activity in 2020 , which resulted in a $ 14.0 million decrease in gross write-offs when compared to 2019. legal and regulatory ( income ) expense . legal and regulatory income for the year ended december 31 , 2020 relates to $ 0.8 million of insurance recoveries associated with the legal expenses incurred in 2019 related to progressive leasing 's settlement of the ftc matter discussed in note 10 in the accompanying consolidated financial statements . separation related charges . separation related charges classified as continuing operations expense were $ 18.0 million in 2020 , of which
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we expect that more of our revenue will be generated from sales of solution sets in the next few years . 35 prior to fiscal 2018 , an insignificant amount of our revenue was sold under subscription , or term based , license arrangements . any of our licensing models ( capacity , solution set , etc . ) can be sold via a subscription arrangement . in these arrangements the customer has the right to use the software over a designated period of time . the capacity of the license is fixed and the customer has made an unconditional commitment to pay . software revenue in these arrangements is recognized when the software is delivered . in fiscal 2018 we started to introduce more subscription arrangements into the market . we expect revenue from these types of arrangements as a percentage of our total revenue to increase in the next few years . we also sell to some customers , primarily managed service providers , via utility , or pay-as-you-go models . in these arrangements actual usage is regularly measured and billed . revenue in these utility arrangements is recognized as the software is used . the industry in which we currently operate continues to go through accelerating changes as the result of compounding data growth and the introduction of new technologies . we are continuing to pursue an aggressive product development program in both data and information management solutions . our data management solutions include not only traditional backup , but also new innovations in de-duplication , data movement , virtualization , snap-based backups and enterprise reporting . our information management innovations are primarily in the areas of archiving , ediscovery , records management , governance , operational reporting and compliance . we remain focused on both the data and information management trends in the marketplace and , in fact , a material portion of our existing research and development expenses are utilized toward the development of such new technologies discussed above . while we are confident in our ability to meet these changing industry demands with our commvault suite and potential future releases , the development , release and timing of any features or functionality remain at our sole discretion and our solutions or other technologies may not be widely adopted . given the nature of the industry in which we operate , our software applications are subject to obsolescence . we continually develop and introduce updates to our existing software applications in order to keep pace with evolving industry technologies . in addition , we must address evolving industry standards , changing customer requirements and competitive software applications that may render our existing software applications obsolete . in fiscal 2018 we also started selling a backup appliance which integrates our software with hardware . if our forecast exceeds our actual requirements , a supply chain partner may assess additional charges or we may incur costs related to excess inventory , each of which could negatively affect our gross margins . for each of our software applications , we provide full support for the current generally available release and one prior release . when we declare a product release obsolete , a customer notice is delivered twelve months prior to the effective date of obsolescence announcing continuation of full product support for the first six months . we provide an additional six months of extended assistance support in which we only provide existing workarounds or fixes that do not require additional development activity . we do not have existing plans to make any of our software products permanently obsolete . sources of revenues we derive a significant portion of our total revenues from sales of licenses of our software applications . we do not customize our software for a specific end-user customer . we sell our software applications and products to end-user customers both directly through our sales force and indirectly through our global network of value-added reseller partners , systems integrators , corporate resellers and original equipment manufacturers . our software and products revenue was 45 % of our total revenues for fiscal 2018 , 45 % for fiscal 2017 and 43 % for fiscal 2016 . in recent fiscal years , we generated approximately three-quarters of our software and products revenue from our existing customer base and approximately one-quarter of our software and products revenue from new customers . in addition , our total software and products revenue in any particular period is , to a certain extent , dependent upon our ability to generate revenues from large customer software and products deals , which we refer to as enterprise transactions . enterprise transactions ( transactions greater than $ 0.1 million ) represented approximately 59 % of our software and products revenue in fiscal 2018 , 56 % for fiscal 2017 and 54 % for fiscal 2016 . 36 software and products revenue generated through indirect distribution channels was 86 % of total software and products revenue in fiscal 2018 , 87 % in fiscal 2017 and 86 % in fiscal 2016 . software and products revenue generated through direct distribution channels was 14 % of total software and products revenue in fiscal 2018 , 13 % in fiscal 2017 and 14 % in fiscal 2016 . the dollar value of software and products revenue generated through indirect distribution channels increased approximately $ 16.1 million , or 6 % , in fiscal 2018 compared to fiscal 2017 . the dollar value of software and products revenue generated through direct distribution increased $ 5.0 million , or 13 % , in fiscal 2018 compared to fiscal 2017 . deals initiated by our direct sales force are sometimes transacted through indirect channels based on end-user customer requirements , which are not always in our control and can cause this overall percentage split to vary from fiscal year to fiscal year . as such , there may be fluctuations in the dollars and percentage of software and products revenue generated through our direct distribution channels from time to time . story_separator_special_tag we believe that the growth of our software and products revenue , derived from both our indirect channel partners and direct sales force , are key attributes to our long-term growth strategy . we will continue to invest in both our channel relationships and direct sales force in the future , but we continue to expect more revenue to be generated through indirect distribution channels over the long term . the failure of our indirect distribution channels or our direct sales force to effectively sell our software applications could have a material adverse effect on our revenues and results of operations . our primary original equipment manufacturer agreement is with hitachi vantara ( hitachi ) and allows them to market , sell and support our software applications and services on a stand-alone basis and or incorporate our software applications into their own hardware products . our oem partners , including hitachi , have no obligation to recommend or offer our software applications exclusively or at all , and they have no minimum sales requirements and can terminate our relationship at any time . sales through our original equipment manufacturer agreements accounted for 12 % of our total revenues for fiscal 2018 and 15 % of our total revenues for fiscal 2017 . we also have non-exclusive distribution agreements covering our north american commercial markets and our u.s. federal government market with arrow enterprise computing solutions , inc. ( arrow ) , a subsidiary of arrow electronics , inc. pursuant to these distribution agreements , these distributors ' primary role is to enable a more efficient and effective distribution channel for our products and services by managing our reseller partners and leveraging their own industry experience . we generated approximately 36 % of our total revenues through arrow in fiscal 2018 , approximately 36 % of our total revenues in fiscal 2017 and approximately 38 % of our total revenues in fiscal 2016 . if arrow was to discontinue or reduce the sales of our products or if our agreement with arrow was terminated , and if we were unable to take back the management of our reseller channel or find another north american distributor to replace arrow , then it could have a material adverse effect on our future business . our services revenue was 55 % of our total revenues for fiscal 2018 , 55 % for fiscal 2017 and 57 % for fiscal 2016 . our services revenue is made up of fees from the delivery of customer support and other professional services , which are typically sold in connection with the sale of our software applications . customer support agreements provide technical support and unspecified software updates on a when-and-if-available basis for an annual fee based on licenses purchased and the level of service subscribed . other professional services include consulting , assessment and design services , implementation and post-deployment services and training , all of which to date have predominantly been sold in connection with the sale of software applications . most of our customer support agreements are for a one-year term . as the end of the annual period approaches , we pursue the renewal of the agreement with the customer . historically , maintenance renewals have represented a significant portion of our total revenue . because of this characteristic of our business , if our customers choose not to renew their maintenance and support agreements with us on beneficial terms , or at all , our business , operating results and financial condition could be harmed . the gross margin of our services revenue was 77 % for fiscal 2018 , and 77 % for fiscal 2017 and 76 % for fiscal 2016 . overall , our services revenue has lower gross margins than our software and products revenue . the gross margin of our software and products revenue was 98 % for fiscal 2018 , and 99 % for fiscal 2017 and fiscal 2016 . an increase in the percentage of total revenues represented by services revenue may adversely affect our overall gross margin percentage . additionally , we expect sales of our integrated appliances will increase , resulting in a decline of software and products gross margin percentage . related party transactions during the first quarter of fiscal 2018 , one of our directors , joseph f. eazor , was hired as the ceo of rackspace , inc ( rackspace ) . rackspace has been a customer of the company since 2006. total recognized revenue related to rackspace in fiscal 2018 was $ 10.0 million . this total includes the renewal of a subscription software license in march 2018 for $ 4.8 million . the outstanding accounts receivable from this customer as of march 31 , 2018 is $ 5.7 million . 37 description of costs and expenses our cost of revenues is as follows : cost of software and products revenue , consists primarily of the cost of appliance hardware , third-party royalties and other costs such as media , manuals , translation and distribution costs ; and cost of services revenue , consists primarily of salary and employee benefit costs in providing customer support and other professional services . our operating expenses are as follows sales and marketing , consists primarily of salaries , commissions , employee benefits , stock-based compensation and other direct and indirect business expenses , including travel and related expenses , sales promotion expenses , public relations expenses and costs for marketing materials and other marketing events ( such as trade shows and advertising ) ; research and development , which is primarily the expense of developing new software applications and modifying existing software applications , consists principally of salaries , stock-based compensation and benefits for research and development personnel and related expenses ; contract labor expense and consulting fees as well as other expenses associated with the design , certification and testing of our software applications ; and legal costs associated with the patent registration of such software applications ; general and administrative , consists primarily of salaries , stock-based compensation and benefits for
| americas , emea and apac represented 54 % , 32 % and 14 % of total software and products revenue , respectively , for the fiscal year ended march 31 , 2018 . the year over year increase of software and products revenue in the americas , emea and apac was flat , 22 % and 9 % , respectively . the number of enterprise revenue transactions increased in the americas year over year , resulting in a slight increase in total enterprise transaction revenue . this increase was offset by a decline in non-enterprise transaction revenue . the increase in emea software and products revenue was primarily the result of an increase in the number of enterprise transactions . this increase was also caused by the impact of changes in foreign exchange rates as the u.s. dollar weakened against the euro and british pound sterling . using average foreign exchange rates from fiscal 2017 , fiscal 2018 emea software and products revenue would have increased 15 % compared to an actual reported emea software and products revenue increase of 22 % . the increase in apac software and products revenue was the result of an increase in revenue from non-enterprise transactions . our software and products revenue in emea and apac is subject to changes in foreign exchange rates as more fully discussed above in the “ foreign currency exchange rates ' impact on results of operations ” section . software and products revenue derived from our indirect distribution channel ( resellers and original equipment manufacturers ) increased $ 16.1 million , or 6 % in fiscal 2018 compared to fiscal 2017 , and software and products revenue through our direct sales force increased $ 5.0 million , or 13 % in fiscal 2018 compared to fiscal 2017 . for additional discussion on software and products revenue derived from our direct sales force see the “ sources of revenue ” section . services revenue . services revenue increased $ 33.3 million , or 9 % , from $ 354.3 million in fiscal 2017 to $ 387.6 million in fiscal 2018 . services revenue represented 55 % of our total revenues in
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the agreement provides that sandoz will pay to us 50 % of the net profit from net sales , as each such term is defined in the agreement , of the product in the territory to third parties , determined on a quarterly basis . we will be the supplier of the product to sandoz , and sandoz will order and pay us a supply price for quantities of products ordered . we will be responsible for all manufacturing and , prior to sandoz paying us the supply price , the component and supply costs related to manufacturing and supplying the product to sandoz . we are responsible for component sourcing and regulatory compliance in the supply chain and for testing of lots of product . sandoz has agreed to use commercially reasonable efforts to commercialize the product , subject to various conditions and to the other provisions of the agreement . the agreement does not include minimum payments to us by sandoz , minimum requirements for sales of product by sandoz or , with certain exceptions , minimum purchase commitments by sandoz . under the agreement , sandoz has sole discretion in determining pricing , terms of sale , marketing , and selling decisions relating to the product . on january 16 , 2019 , we announced that sandoz had launched symjepi ( epinephrine ) 0.3 mg injection in the u.s. market . symjepi will be rolled out via a phased launch and will initially be available in the institutional setting , an established channel where sandoz has a significant experience and knowledge , followed by anticipated introduction into the retail market . we also anticipate that sandoz will launch the lower dose symjepi 0.15 mg injection product in the u.s. markets . 43 going concern and management plan our independent registered public accounting firm has included a “ going concern ” explanatory paragraph in its report on our financial statements for the years ended december 31 , 2018 and 2017 indicating that we have incurred recurring losses from operations and are dependent on additional financing to fund operations , and that these conditions raise substantial doubt about our ability to continue as a going concern . as of december 31 , 2018 , we had cash and cash equivalents of approximately $ 19.3 million , an accumulated deficit of approximately $ 153.0 million , and liabilities of approximately $ 11.7 million . we anticipate that we may need additional funding during 2019 to continue operations , satisfy our obligations , fund the future expenditures that we believe will be required to support commercialization of our products and conduct the clinical and regulatory work to develop our product candidates . such additional funding may not be available , may not be available on reasonable terms , and could result in significant additional dilution to our stockholders . if we do not obtain required additional equity or debt funding , our cash resources will be depleted and we could be required to materially reduce or suspend operations , which would likely have a material adverse effect on our business , stock price and our relationships with third parties with whom we have business relationships , at least until additional funding is obtained . the above conditions raise substantial doubt about our ability to continue as a going concern . the financial statements included elsewhere herein for the year ended december 31 , 2018 , were prepared under the assumption that we would continue our operations as a going concern , which contemplates the realization of assets and the satisfaction of liabilities during the normal course of business . in preparing these consolidated financial statements , consideration was given to our future business as described elsewhere herein , which may preclude us from realizing the value of certain assets . our financial statements do not include any adjustments that may result from the outcome of this uncertainty . this basis of accounting contemplates the recovery of our assets and the satisfaction of liabilities in the normal course of business . without additional required funds in 2019 , from debt or equity financing , sales of assets , sales or out-licenses of intellectual property or technologies , or from a business combination or a similar transaction , we could exhaust our resources and be unable to continue operations at anticipated levels or at all . our management intends to attempt to secure additional required funding through equity or debt financing , sales or out-licensing of product candidates or intellectual property assets , seeking partnerships with other pharmaceutical companies or third parties to co-develop and fund research and development efforts , or similar transactions , and through revenues from sales of compounded sterile formulations . however , there can be no assurance that we will be able to obtain any sources of funding . if we are unsuccessful in securing funding from any of these sources , we will defer , reduce or eliminate certain planned expenditures and delay development or commercialization of some or all of our products . if we do not have sufficient funds to continue operations , we could be required to seek bankruptcy protection or other alternatives that could result in our stockholders losing some or all of their investment in us . funding that we may receive during fiscal 2019 is expected to be used to satisfy existing obligations and liabilities and working capital needs , to support commercialization of our products and conduct the clinical and regulatory work to develop our product candidates , to begin building working capital reserves and to fund a number of projects , which may include , without limitation , some or all of the following : ● continue development and commercialization of our naloxone and tadalafil product candidates ; ● continue development of our allergy and respiratory product candidates ; ● continue development of the dpi product candidates ; ● pursue the development of other product candidates that we may develop or acquire ; ● fund clinical trials and seek regulatory approvals ; ● expand research and development activities ; ● access manufacturing , commercialization story_separator_special_tag and sales capabilities ; ● implement additional internal systems and infrastructure ; ● maintain , defend and expand the scope of our intellectual property portfolio ; ● acquire products , technologies , intellectual property or companies and support continued development and funding thereof ; ● hire additional management , sales , research , development and clinical personnel ; and ● help fund the operations and capital expenditures of usc . 44 story_separator_special_tag style= '' font-family : times new roman , times , serif ; font-size : 10pt ; '' > other income ( expense ) consists primarily of expense on inducement to exercise warrants , interest expense and loss on asset disposal . other income ( expense ) for the years ended december 31 , 2018 and 2017 was approximately $ 88,000 and ( $ 1,089,000 ) , respectively . the increase in other income and decrease in other expenses in 2018 , compared to 2017 , was primarily due to decreases of approximately $ 960,000 in warrant exercise inducement expenses and approximately $ 74,000 in interest expenses . these amounts were partially supplemented by the increase of approximately $ 143,000 in interest income during the 2018 period compared to the comparable period of 2017. the decrease in expenses relating to inducement to exercise warrants was in connection with the transactions entered into by the company in the third quarter of 2017 with certain warrant holders to exercise certain warrants at a reduced exercise price . the decrease in debt related expenses for the year ended december 31 , 2018 , compared to the comparable period in 2017 was due to the working capital loan in the principal amount of $ 2.0 million and other bank loan obligations assumed in connection with the acquisition of usc in april 2016 being fully paid off . income tax benefit the income tax benefit for the years ended december 31 , 2018 and 2017 was approximately $ 369,000 and $ 339,000 respectively . the income tax benefit for 2017 reflected the remeasurement of the net deferred tax liability as part of the tax cuts and jobs act , enacted on december 22 , 2017. the income tax benefit for 2018 reflected the reassessment of the company 's valuation allowance related to the portion of the deferred tax asset that the company determined to be more-likely-than-not to be recognized . the reassessment resulted from the fact that the company 's indefinite lived taxable temporary differences are now available as a source of future taxable income to offset nols generated in the current year which , under the tax cuts and jobs act , do not expire . this reassessment resulted in a provision benefit of $ 369,000. liquidity and capital resources we have incurred net losses of approximately $ 39.0 million and $ 25.5 million for years ended december 31 , 2018 and 2017 , respectively . since our inception , june 6 , 2006 , and through december 31 , 2018 , we have an accumulated deficit of approximately $ 153.0 million . since inception and through december 31 , 2018 , we have financed our operations principally through debt financing and through public and private issuances of common stock and preferred stock . since inception , we have raised a total of approximately $ 175.1 million in debt and equity financing transactions , consisting of approximately $ 23.5 million in debt financing and approximately $ 151.6 million in equity financing transactions . we may need significant additional funding during 2019 to satisfy our obligations and fund the future expenditures that we believe will be required to support commercialization of our products and conduct the clinical and regulatory work to develop our product candidates . we may finance future cash needs primarily through proceeds from equity or debt financings , loans , share of profits anticipated to be received from sandoz relating to sales in the u.s. of our symjepi product , sales of assets , out-licensing transactions , and or collaborative agreements with corporate partners , and from revenues from our sale of compounded pharmacy formulations . we have used the net proceeds from debt and equity financings for general corporate purposes , which have included funding for research and development , selling , general and administrative expenses , working capital , reducing indebtedness , pursuing and completing acquisitions or investments in other businesses , products or technologies , and for capital expenditures . assuming adequate funding , we anticipate that we may make capital expenditures during 2019 of at least approximately $ 1.9 million to $ 2.5 million including , without limitation , expenditures relating to a new usc facility and the construction of manufacturing assembly lines for our symjepi ( epinephrine ) injection 0.3mg and 0.15mg products and naloxone ( apc-6000 ) product candidate . net cash used in operating activities from continuing operations for the years ended december 31 , 2018 and 2017 were approximately $ 32.7 million and $ 15.1 million , respectively . net cash used in operating activities increased primarily due to the increase in operating expenses , accounts receivable , inventories and prepayments as compared to 2017. net cash used in investing activities was approximately $ 3,535,000 and $ 2,088,000 for years ended december 31 , 2018 and 2017 , respectively . the net cash used in investing activities increased primarily due to the purchase of additional equipment . net cash provided by financing activities was approximately $ 37.1 million and $ 30.5 million for the years ended december 31 , 2018 and 2017 , respectively . net cash flows provided by financing activities increased for the period ended december 31 , 2018 due to the issuance of common stock generating net proceeds of approximately $ 37.6 million , partially offset by the payment of loans of approximately $ 0.5 million ; in 2017 , capital raised from issuance of common stock and warrant exercises totaled approximately $ 32.8 million and payment of bank loans amounted to approximately $ 2.3 million .
| selling , general and administrative expenses selling , general and administrative expenses ( “ sg & a ” ) consist primarily of depreciation and amortization , legal fees , accounting and audit fees , professional/consulting fees and employee compensation . sg & a expenses for the years ending december 31 , 2018 and 2017 were approximately $ 25,948,000 and $ 22,819,000 , respectively . compensation expense for sg & a employees increased by approximately $ 2,001,000 for the 2018 year compared to 2017 , primarily due to new hires , increases in salary expenses and bonus accruals , and expenses associated with equity compensation and other employee benefits . approximately $ 495,000 of the increase for the 2018 year compared to 2017 was due to pdufa fees , marketing , selling , insurance , consulting , outside services and travel expenses . approximately $ 267,000 of the increase for the 2018 year compared to 2017 was due to increases in patent fees . approximately $ 366,000 of the increase for the 2018 year compared to the same period of 2017 was due to increases in occupancy costs , supplies , taxes , and other related expenses . research and development expenses our research and development costs are expensed as incurred . non-refundable advance payments for goods and services to be used in future research and development activities are recorded as an asset and are expensed when the research and development activities are performed . research and development expenses were approximately $ 18,794,000 and $ 7,527,000 for the years ended december 31 , 2018 and 2017 , respectively . the increase in research and development expenses for the year ended december 31 , 2018 , compared to the 2017 year was primarily due to an increase of approximately $ 8,747,000 in development costs of our product candidates , including apc-1000 , apc-4000 , apc-6000 , and apc-8000 product candidates , including approximately $ 2,600,000 in combined filing fees for submitting ndas for apc-6000 and apc-8000 . this amount was partially offset by a decrease of approximately $ 355,000 in development costs attributed to the
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the following tables set forth information regarding our average balance sheet , yields on interest earning assets , interest expense on interest-bearing liabilities , the interest rate spread and the interest rate margin for the years ended december 31 , 2018 , 2017 and 2016 . average balances are calculated based on average daily balances . replace_table_token_8_th 32 ( 1 ) short-term investments consist of federal funds sold and interest bearing deposits that we maintain at other financial institutions . ( 2 ) stock consists of fhlb stock and federal reserve bank stock . ( 3 ) loans include the average balance of nonaccrual loans and loan fees . the allowance for loan and lease losses is included within the `` all other assets '' line item . the following table sets forth changes in interest income , including loan fees , and interest paid in each of the years ended december 31 , 2018 , 2017 and 2016 and the extent to which those changes were attributable to changes in ( i ) the volumes of or in the rates of interest earned on interest-earning assets and ( ii ) the volumes of or the rates of interest paid on our interest-bearing liabilities . replace_table_token_9_th ( 1 ) short-term investments consist of federal funds sold and interest bearing deposits that we maintain at financial institutions . ( 2 ) stock consists of fhlb stock and federal reserve bank stock . provision for loan and lease losses we maintain reserves to provide for loan losses that occur in the ordinary course of the banking business . when it is determined that the payment in full of a loan has become unlikely , the carrying value of the loan is reduced ( “ written down ” ) to what management believes is its realizable value or , if it is determined that a loan no longer has any realizable value , the carrying value of the loan is written off in its entirety ( a loan “ charge-off ” ) . loan charge-offs and write-downs are charged against our allowance for loan and lease losses ( “ alll ” ) . the amount of the alll is increased periodically to replenish the alll after it has been reduced due to loan write-downs or charge-offs . the alll also is increased or decreased periodically to reflect increases or decreases in the volume of outstanding loans and to take account of changes in the risk of probable loan losses due to financial performance of borrowers , the value of collateral securing non-performing loans or changing economic conditions . increases in the alll are made through a “ provision for loan and lease losses ” that is recorded as an expense in the statement of operations . increases in the alll are also recognized through the recovery of charged-off loans which are added back to the alll . as such , recoveries are a direct offset for a provision for loan and lease losses that would otherwise be needed to replenish or increase the alll . we employ economic models and data that conform to bank regulatory guidelines and reflect sound industry practices as well as our own historical loan loss experience to determine the sufficiency of the alll and any provisions needed to increase or replenish the alll . those determinations involve judgments and assumptions about current economic conditions and external events that can impact the ability of borrowers to meet their loan obligations . however , the duration and impact of these factors can not be determined with any certainty . as such , unanticipated changes in economic or market conditions , bank regulatory guidelines or the sound practices that are used to determine the sufficiency of the alll , could require us to record additional , and possibly significant , provisions to increase the alll . this would have the effect of reducing reportable income or , in the most extreme circumstance , creating a reportable loss . in addition , the federal reserve bank and the california department of business oversight ( “ cdbo ” ) , as an integral part of their regulatory oversight , periodically review the adequacy of our alll . these agencies may require us to make additional provisions for perceived potential loan losses , over and above the provisions that we have already made , the effect of which would be to reduce our income or increase any losses we might incur . 33 we recorded no provision for loan and lease losses during either the year ended december 31 , 2018 or december 31 , 2017 primarily as a result of reserves for new loan growth being offset by a decline in the level of classified assets . we recorded a $ 19.9 million provision for loan and lease losses for the year ended december 31 , 2016 primarily as a result of new loan growth and downgrades and charge offs on loans that exceeded recoveries . approximately 60 % , or $ 12.0 million , of the $ 19.9 million provision for loan and lease losses was attributable to the full charge-off of one large shared national credit . see `` — financial condition—nonperforming loans and the allowance for loan and lease losses `` below in this item 7 for additional information regarding the alll . noninterest income the following table identifies the components of and the percentage changes in noninterest income in the years ended december 31 , 2018 , 2017 and 2016 : replace_table_token_10_th 2018 vs. 2017 . story_separator_special_tag noninterest income increased $ 261 thousand , or 6.0 % , for the year ended december 31 , 2018 as compared to the year ended december 31 , 2017 , primarily as a result of : an increase in loan servicing and referral fees during the year ended december 31 , 2018 as compared to the same period in 2017 ; and an increase of $ 52 thousand in gain on the sale of securities available-for-sale during the year ended december 31 , 2018 as compared to the same period in 2017 ; partially offset by a decrease in other noninterest income attributable to recoveries of fees on previously charged off loans during the second quarter of 2017 for which a similar level of recoveries did not occur during the year ended december 31 , 2018 . 2017 vs. 2016 . during the year ended december 31 , 2017 , noninterest income increased by $ 1.4 million , or 48.9 % , to $ 4.4 million from $ 2.9 million for the year ended december 31 , 2016 , primarily as a result of : an increase in loan servicing and referral fees during the year ended december 31 , 2017 as compared to the same period in 2016 ; and a loss of $ 37 thousand on the sale of other assets during the year ended december 31 , 2017 as compared to a loss of $ 527 thousand during the same period in 2016 ; partially offset by a decrease of $ 40 thousand in net on sale of small business administration ( “ sba ” ) loans for the year ended december 31 , 2017 as compared to the same period in 2017. noninterest expense the following table sets forth the principal components and the amounts of , and the percentage changes in , noninterest expense in the years ended december 31 , 2018 , 2017 and 2016 . 34 replace_table_token_11_th ( 1 ) other operating expenses primarily consist of telephone , investor relations , promotional , regulatory expenses , and correspondent bank fees . 2018 vs. 2017 . noninterest expense decreased $ 788 thousand , or 2.1 % , for the year ended december 31 , 2018 as compared to the year ended december 31 , 2017 , primarily as a result of : a decrease of $ 1.7 million in our professional fees primarily related to lower legal fees in the first quarter of 2018 , the recovery of legal fees attributable to the payoff of a loan relationship in the second quarter of 2018 that was previously on nonaccrual status and the recovery of legal fees in the third quarter of 2018 related to a loan relationship that was fully charged off in previous years ; partially offset by an increase of $ 772 thousand in salaries and employee benefits primarily related to an increase in employee compensation expense ; an increase of $ 123 thousand in other real estate owned expense during the year ended december 31 , 2018 as compared to the same period in 2017 ; and an increase in various expense accounts related to the normal course of operating , including expenses related to loan production and business development during the year ended december 31 , 2018 as compared to the year ended december 31 , 2017 . 2017 vs. 2016 . during the year ended december 31 , 2017 , noninterest expense increased by $ 1.4 million , or 3.7 % , to $ 37.8 million from $ 36.4 million for the year ended december 31 , 2016 , primarily as a result of : an increase of $ 1.2 million in salaries and employee benefits primarily related to our incentive compensation accrual for the year ended december 31 , 2017 and the reversal of our incentive compensation accrual during the fourth quarter of 2016 due to the losses experienced in 2016 ; and an increase of $ 169 thousand in our professional fees attributable to an increase in accounting and legal fees during the year ended december 31 , 2017. provision for ( benefit from ) income tax during the year ended december 31 , 2018 , we had an income tax benefit of $ 10.8 million . the income tax benefit during the year ended december 31 , 2018 is as a result of our net income during the year and the release of our full valuation allowance of $ 11.1 million on our net deferred tax asset during the second quarter of 2018 , discussed further below . accounting rules specify that management must evaluate the deferred tax asset on a recurring basis to determine whether enough positive evidence exists to determine whether it is more-likely-than-not that the deferred tax asset will be available to offset or reduce future taxes . the tax code allows net operating losses incurred prior to december 31 , 2017 to be carried forward for 20 years from the date of the loss , and based on its evaluation , management believes that the company will be able to realize the deferred tax asset within the period that our net operating losses may be carried forward . due to the hierarchy of evidence that the accounting rules specify , management determined that there continued to be enough positive evidence to support no valuation allowance on our deferred tax asset at december 31 , 2018 . significant positive evidence included our three-year cumulative income position , continued improvement in asset quality , and the expectation that we will continue to have positive earnings based on nine trailing quarters 35 of positive income and our forecast . negative evidence included our accumulated deficit . due to the hierarchy of evidence that the accounting rules specify , management determined that there continued to be enough positive evidence to support no valuation allowance on our deferred tax asset at december 31 , 2018 . during the year ended december 31 , 2017 , we had an income tax benefit of $ 91 thousand .
| 30 during the year s ended december 31 , 2018 and 2017 , interest income from our securities available-for-sale and stock , was $ 1.2 million and $ 1.2 million , yielding 2.92 % and 2.49 % on average balances of $ 39.7 million and $ 49.7 million , respectively . the average securities balances decreased as a result of sales and maturities of , and payments on , securities throughout the year ended december 31 , 2018 , which was partially offset by purchases during the second half of the year . the increase in the average yield is attributable to the rising interest rate environment and the result of a federal home loan bank ( “ fhlb ” ) special dividend of $ 83 thousand received during december 2018. interest income from our short-term investments , including our federal funds sold and interest-bearing deposits , was $ 3.8 million and $ 1.4 million for the year ended december 31 , 2018 and 2017 , respectively , yielding 1.92 % and 1.11 % on average balances of $ 195.7 million and $ 123.8 million , respectively . the increase in the average yield is a result of the rising interest rate environment . as a result , total interest income on investments increased for the year ended december 31 , 2018 . 2017 vs. 2016 . total interest income increased 25.8 % to $ 51.6 million for the year ended december 31 , 2017 from $ 41.0 million for the year ended december 31 , 2016 . this increase is primarily due to an increase in interest income on loans during the year ended december 31 , 2017 compared to the prior year due to an increase in average loan balances , as well as an increase in the average yield on loans and the recovery of $ 1.1 million in interest income on a single loan relationship that had been on nonaccrual status but was paid in full during the third quarter of 2017. during the years ended december 31 , 2017 and 2016 , interest income
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we expect to drive continued growth in global markets through a consistent approach to all market activities including sales , marketing , branding , channel relationships and customer service . both acquisitions provide us with more direct control over the go-to-market execution in these key regions . as of december 30 , 2017 , we had 920 full-time employees . we have developed expertise in the disciplines necessary to build durable , high-performance and cost-effective robots through the close integration of software , electronics and hardware . our core technologies serve as reusable building blocks that we adapt and expand to develop next generation and new products , reducing the time , cost and risk of product development . our significant expertise in robot design and engineering positions us to capitalize on the growth we expect in the market for robot-based consumer products . our continued success depends upon our ability to respond to a number of future challenges . we believe the most significant of these include increasing competition , and our ability to successfully develop and introduce products and product enhancements into both new and existing markets . we also achieved a number of significant milestones over the past two years that we believe will assist us in continuing to generate profitable growth and enhance value for our shareholders . in particular , in 2016 , we successfully launched roomba 960 , our second 900 series roomba , that extends mapping , visual navigation and cloud connectivity to a wider range of customers . we also launched the braava jet mopping robot , with precision jet spray and vibrating cleaning head , focused on expanding our wet floor care business . both the roomba 900 series and braava jet are significantly more complex products , delivering enhanced performance enabled by software . the irobot home app , compatible with both the roomba 900 series and braava jet , helps users get the most out of their experience by allowing them to choose the appropriate cleaning options for their unique home . we also announced a relationship with amazon web services , or aws , that we believe will enable irobot to address significant opportunities within our consumer business and the connected home . aws cloud is a managed cloud solution that enables connected devices to interact easily and securely with cloud applications and other devices . the aws cloud will enable irobot to scale the number of connected robots it supports globally and allow for increased capabilities in the smart home . additionally , we implemented new roomba marketing programs in the united states that resulted in a significant return on our investment and which we plan to leverage as part of our strategy to accelerate growth in international markets . in 2017 , we launched roomba 690 and 890 , extending wi-fi connectivity to the entire roomba line . in addition , we launched several connected product features , including push notifications , clean map reports and integrations with amazon alexa , google assistant and ifttt platform technology . our total revenue for 2017 was $ 883.9 million , which represents a 33.8 % increase from 2016 revenue of $ 660.6 million . domestic consumer robots revenue grew $ 133.2 million primarily due to increased sales as a result of significant investments in advertising media and national promotions as well as the strength of the roomba 900 series and roomba 600 series . 22 international consumer robots revenue grew by $ 94.6 million in 2017 with increases in most markets , offset by a decline in china . fiscal periods we operate and report using a 52-53 week fiscal year ending on the saturday closest to december 31. accordingly , our fiscal quarters will end on the saturday that falls closest to the last day of the third month of each quarter . critical accounting policies and estimates the preparation of financial statements in conformity with generally accepted accounting principles in the united states requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities , revenue and expenses and the disclosure of contingent assets and liabilities in the consolidated financial statements . these estimates and judgments , include but are not limited to , revenue recognition ( specifically sales returns and other allowances ) ; valuation of goodwill and acquired intangible assets ; accounting for business combinations ; evaluating loss contingencies ; and accounting for income taxes and related valuation allowances . we base these estimates and judgments on historical experience , market participant fair value considerations , projected future cash flows and various other factors that we believe are reasonable under the circumstances . actual results may differ from our estimates . we believe that of our significant accounting policies , which are described in the notes to our consolidated financial statements , the following accounting policies involve a greater degree of judgment and complexity . accordingly , we believe that the following accounting policies are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations . revenue recognition we primarily derive our revenue from product sales . until the divestiture of the defense and security business unit in april 2016 ( see note 4 ) , we also generated minimal revenue from government and commercial research and development contracts . we sell products directly to customers and indirectly through resellers and distributors . we recognize revenue from sales of robots under the terms of the customer agreement upon transfer of title and risk of loss to the customer , net of estimated returns and allowances , provided that collection is determined to be reasonably assured and no significant obligations remain . beginning in the third quarter of 2015 , we introduced our first connected robot . each sale of a connected robot represents a multiple-element arrangement containing the robot , an app and potential future unspecified software upgrades . story_separator_special_tag revenue is allocated to the deliverables based on their relative selling prices which have been determined using best estimate of selling price ( besp ) , as we have not been able to establish vendor specific objective evidence ( vsoe ) or obtain relevant third party evidence ( tpe ) . revenue allocated to the app and unspecified software upgrades is then deferred and recognized on a straight-line basis over the period in which we expect to provide the upgrades , which is the estimated life of the robot . sales to retailers of consumer robots are typically subject to agreements allowing for limited rights of return , rebates and price protection . we also provide limited rights of returns for direct-to-consumer sales generated through our on-line stores and certain international distributors . accordingly , we reduce revenue for our estimates of liabilities for these rights of return , rebates and price protection , as well as discounts and promotions , at the time the related sale is recorded . the estimates for rights of return are directly based on specific terms and conditions included in the customer agreements , historical returns experience and various other assumptions that we believe are reasonable under the circumstances . in the case of new product introductions , the estimates for returns applied to the new products are based upon the estimates for the most similar predecessor products until such time that we have enough actual returns experience for the new products , which is typically two holiday return cycles . at that time , we incorporate that data into the development of returns estimates for the new products . we update our analysis of returns on a quarterly basis . if actual returns differ significantly from our estimates , or if modifications to individual customer agreements are entered into that impact their rights of returns , such differences could result in an adjustment to previously established reserves and could have a material impact , either favorably or unfavorably , on our results of operations for the period in which the actual returns become known or the agreement is modified . in 2016 , we began selling to one domestic distributor under an agreement that provides product return privileges . as a result , we recognize revenue from sales to this distributor when the product is resold by the distributor . the estimates and adjustments for rebates and price protection are based on specific programs , expected usage and historical experience . actual results could differ from these estimates . as of december 30 , 2017 , we have reserves for product returns of $ 42.7 million , discounts and promotions of $ 58.2 million and price protection of $ 3.1 million . as of december 31 , 2016 , we had reserves for product returns of $ 27.7 million , discounts and promotions of $ 22.1 million and price protection of $ 1.5 million . prior to our divestiture of the defense and security business unit in april 2016 ( see note 4 ) , we generated minimal revenue from government contracts . under cost-plus-fixed-fee ( cpff ) type contracts , we recognized revenue based on costs incurred plus a pro rata portion of the total fixed fee . costs incurred included labor and material that were directly associated with individual cpff contracts plus indirect overhead and general and administrative type costs based upon billing rates we 23 submitted to the defense contract management agency ( dcma ) . annually , we submitted final indirect billing rates to dcma based upon actual costs incurred throughout the year . in the situation where our final actual billing rates are greater than the estimated rates used , we record a cumulative revenue adjustment in the period in which the rate differential is collected from the customer . these final billing rates are subject to audit by the defense contract audit agency ( dcaa ) , which can occur several years after the final billing rates are submitted and may result in material adjustments to revenue recognized based on estimated final billing rates . as of december 30 , 2017 , fiscal year 2016 is open for audit by dcaa . in the situation where our anticipated actual billing rates will be lower than the provisional rates used , we record a cumulative revenue adjustment in the period in which the rate differential is identified . revenue on firm fixed price ( ffp ) contracts was recognized using the percentage-of-completion method . for government product ffp contracts , revenue was recognized as the product was shipped or in accordance with the contract terms . costs and estimated gross margins on contracts were recorded as revenue as work was performed based on the percentage that incurred costs compared to estimated total costs utilizing the most recent estimates of costs and funding . revenue earned in excess of billings , if any , was recorded as unbilled revenue . billings in excess of revenue earned , if any , were recorded as deferred revenue . business combinations we account for transactions that represent business combinations under the acquisition method of accounting . we allocate the total consideration paid for each acquisition to the assets we acquire and liabilities we assume based on their fair values as of the date of acquisition , including identifiable intangible assets . we base the fair value of identifiable intangible assets acquired in a business combination on valuations that use information and assumptions determined by us and which consider our best estimates of inputs and assumptions that a market participant would use . while we use our best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the business combination date , our estimates and assumptions are inherently uncertain and subject to refinement .
| we recognize revenue from sales of robots under the terms of the customer agreement upon transfer of title and risk of loss to the customer , net of estimated returns , provided that collection is determined to be reasonably assured and no significant obligations remain . the following table shows total revenue for fiscal years 2017 , 2016 and 2015 ( dollars in thousands ) : replace_table_token_6_th year ended december 30 , 2017 as compared to the year ended december 31 , 2016 revenue increased 33.8 % to $ 883.9 million in fiscal 2017 from $ 660.6 million in fiscal 2016. revenue increased approximately $ 227.8 million , or 34.7 % , in our consumer business while revenue decreased $ 3.1 million in our defense and security business as a result of its sale in april 2016. the $ 227.8 million increase in revenue from our consumer business was driven by a 25.7 % increase in units shipped and a 10.8 % increase in average selling price . in fiscal 2017 , domestic consumer revenue increased $ 133.2 million , or 41.8 % , and international consumer revenue increased $ 94.6 million , or 28.1 % , compared to fiscal 2016. total consumer robots shipped in fiscal 2017 were approximately 3,698,000 units compared to approximately 27 2,943,000 units in fiscal 2016. the increase in domestic consumer robot revenue was primarily attributable to increased sales as a result of investments in advertising media and national promotions and further adoption of our robots , particularly our roomba 900 and roomba 600 series robots . during 2017 , we recorded a net benefit to revenue and income before income taxes of $ 2.2 million related to adjustments to our product returns reserves compared to a net benefit to revenue and income before income taxes of $ 3.5 million during fiscal 2016. the net adjustments recorded in each period resulted from lower product returns experience as compared to estimates used to establish reserves in prior periods . year ended december 31 , 2016 as compared to the year ended january 2 , 2016 revenue increased 7.1 % to $ 660.6 million in fiscal 2016 from $ 616.8 million in fiscal 2015. revenue increased approximately $ 96.2 million , or 17.2 % ,
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because of these and other factors , our operating results have fluctuated in the past and are likely to do so in the future , and we do not believe that period-to-period comparisons of our operating results are a good indication of our future performance . since our inception , we have incurred significant losses and , as of december 31 , 2015 , we had an accumulated deficit of $ 1.1 billion . our losses have resulted principally from costs incurred in research and development , general and administrative costs associated with our operations , and non-cash stock-based compensation expenses associated with stock options and restricted stock granted to employees and consultants . research and development expenses consist primarily of salaries and related personnel costs , external research costs related to our nonclinical and clinical efforts , material costs , facility costs , depreciation on property and equipment , and other expenses related to our drug discovery and development programs . general and administrative expenses consist primarily of salaries and related expenses for executive and administrative personnel , professional fees and other corporate expenses , including information technology , facilities costs and general legal activities . we expect to continue to incur significant research and development costs in connection with the continuing development of our drug candidates . 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 : 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 . 33 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 , an orally-delivered small molecule drug candidate that we are developing as a treatment for carcinoid syndrome ; and sotagliflozin , 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 have 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 . story_separator_special_tag 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 later stage clinical trials for telotristat etiprate and sotagliflozin continue to enroll 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 . 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 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 and third-party and other services . in addition , a significant portion of 34 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 $ 6.8 million for the year ended december 31 , 2015 , or $ 0.07 per share . as of december 31 , 2015 , stock-based compensation cost for all outstanding unvested options and restricted stock units was $ 10.5 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 , 2015 , 2014 and 2013 , 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 . 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 .
| impairment loss on buildings in 2014 , lexicon reclassified its buildings and land to assets held for sale on its consolidated balance sheets , as it intended to sell these assets . in the fourth quarter of 2015 , lexicon made a change to its plan of sale and reclassified these assets as assets held and used in accordance with the accounting guidance regarding selling assets with a leaseback requirement . the company recognized impairment losses on its buildings of $ 3.6 million and $ 13.1 million for the years ended december 31 , 2015 and 2014 , respectively , as a result of writing down the buildings to the estimated net selling price ( see note 6 , buildings and land 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 198 % in 2015 to $ 6.7 million from $ 2.3 million in 2014 and increased 14 % in 2014 from $ 2.0 million in 2013 . the increase in 2015 was primarily due to the convertible senior notes issued by the company in november 2014 ( see note 10 , debt obligations , of the notes to consolidated financial statements , for more information ) . interest and other income ( expense ) , net . interest and other income , net was $ 0.6 million , $ 2.3 million , and $ 0.2 million in the years ended december 31 , 2015 , 2014 , and 2013 , 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 , 2015 , 2014 , and 2013 was $ 0 , $ 70,000 and $ 0 , respectively . consolidated net loss and consolidated net loss per common share consolidated net loss decreased to $ 4.7 million in 2015 from $ 100.3 million in 2014 and $ 104.1 million in 2013 . net loss per
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due to increased profitability , revenue growth , and new customer programs , we utilized all remaining domestic net operating loss carryforwards ( nols ) during fiscal year 2012. furthermore , all previous nol carryforwards in china have been fully utilized as well . as a result , there is no remaining deferred tax asset as of june 30 , 2012 related to nols . in addition , we reviewed our requirements for liquidity domestically to fund our revenue growth and to look for potential future acquisitions . we continue to anticipate repatriating a portion of our unremitted foreign earnings . the associated taxes and potential foreign tax credits were first included in the income tax benefit that was realized during fiscal year 2010 and certain changes in the estimates of foreign earnings and profits and tax pools resulted in the recognition of additional tax benefits during fiscal years 2011 and 2012. for further information on taxes please review footnote 5 of the notes to consolidated financial statements . 20 international subsidiaries we offer customers a complete global manufacturing solution . our facilities provide our customers the opportunity to have their products manufactured in the facility that best serves specific cost , product manufacturing , and distribution needs . the locations of active foreign subsidiaries are as follows : key tronic juarez , sa de cv owns an smt , assembly and molding facility , and five assembly and storage facilities in juarez , mexico . this subsidiary is primarily used to support our u.s. operations . key tronic computer peripherals ( shanghai ) co. , ltd. leases two facilities with smt , assembly and warehouse capabilities in shanghai , china , which began operations in 1999. its primary function is to provide ems services for export ; however , it is also currently manufacturing certain electronic keyboards . foreign sales ( based on shipping instructions ) from our worldwide operations , including domestic exports , were $ 140.8 million and $ 81.1 million in fiscal years 2012 , and 2011 , respectively . products and manufacturing services provided by our subsidiary operations are primarily sold to customers directly by the parent company . key tronic computer peripherals ( shanghai ) co. , ltd. , our subsidiary in shanghai , china , had only minimal direct sales to customers in china during the past two fiscal years . comparison of the fiscal year ended july 2 , 2011 with the fiscal year ended july 3 , 2010 the following table sets forth for the periods indicated certain items of the consolidated statements of income expressed as a percentage of net sales . the financial information and discussion below should be read in conjunction with the consolidated financial statements and notes contained in this annual report . replace_table_token_7_th net sales net sales were $ 253.8 million , and $ 199.6 million in fiscal years 2011 and 2010 , respectively . net sales increased $ 54.2 million during fiscal year 2011 as compared with fiscal year 2010. this increase in net sales was primarily driven by an approximate $ 77.9 million increase in revenues related to new programs for both new and longstanding customers . this was partially offset by a $ 18.5 million decline related to decreased demand from certain current customer programs . in addition , during fiscal year 2011 we experienced an approximately $ 5.2 million decline related to the negative impact of end-of-life customer programs and to a lesser extent customer program losses . the negative impact resulting from industry-wide shortages in the global supply chain that occurred throughout most of the year and the uncertain macroeconomic environment are reflected in the analysis of our new and longstanding customers programs as discussed above . 21 the following table shows the revenue by industry sectors as a percentage of revenue for fiscal years 2011 and 2010 : replace_table_token_8_th we provide services to customers in a number of industries and produce a variety of products for our customers in each industry . as we continue to diversify our customer base and win new customers we may continue to see a change in the industry concentrations of our revenue . sales to foreign locations represented 31.9 percent , and 17.9 percent of our total net sales in fiscal years 2011 , and 2010 , respectively . cost of sales total cost of sales as a percentage of net sales was 91.9 percent , and 90.4 percent in fiscal years 2011 , and 2010 , respectively . total cost of materials as a percentage of net sales was approximately 68.6 percent , and 62.2 percent in fiscal years 2011 , and 2010 , respectively . the change from year-to-year is primarily the result of higher material content in certain new customer programs and changes in product mix . production and support costs as a percentage of net sales were 23.3 percent , and 28.2 percent in fiscal years 2011 , and 2010 , respectively . the decrease in fiscal year 2011 is primarily related to the leveraging of our fixed costs as a percentage of sales during the fiscal year . we provide for obsolete and non-saleable inventories based on specific identification of inventory against current demand and recent usage . the amounts charged to expense for these inventories were approximately $ 0.3 million , and $ 2.2 million in fiscal years 2011 , and 2010 , respectively . the large provision in fiscal year 2010 was primarily due to a discontinuance of manufacturing for certain customers that became no longer viable . we provide warranties on certain products we sell and estimate warranty costs based on historical experience and anticipated product returns . warranty expense is related to workmanship claims on keyboards and ems products . the amounts charged to expense are determined based on an estimate of warranty exposure . the net warranty expense was approximately $ 158,000 and $ 45,000 in fiscal years 2011 , and 2010 , respectively . story_separator_special_tag gross profit gross profit as a percentage of net sales was 8.1 percent , and 9.6 percent in fiscal years 2011 , and 2010 , respectively . the 1.5 percentage point decrease in gross profit as a percentage of net sales during fiscal year 2011 as compared to fiscal year 2010 is primarily related to a 6.4 percentage point increase in material costs , as a percent of sales , resulting from higher material content in certain new customer programs , partially offset by a 4.9 percentage point improvement in leveraging of certain overhead costs . 22 we took early pay discounts to suppliers that totaled approximately $ 678,000 , and $ 364,000 , in fiscal years 2011 , and 2010 , respectively . early pay discounts will fluctuate based on our liquidity and changes in the discounts and terms offered by our suppliers . changes in gross profit margins reflect the impact of a number of factors that can vary from period to period , including product mix , start-up costs and efficiencies associated with new programs , product life cycles , sales volumes , capacity utilization of our resources , management of inventories , component pricing and shortages , end market demand for customers ' products , fluctuations in and timing of customer orders , and competition within the ems industry . these and other factors can cause variations in operating results . there can be no assurance that gross margins will not decrease in future periods . research , development and engineering research , development and engineering expenses ( rd & e ) consists principally of employee related costs , third party development costs , program materials , depreciation and allocated information technology and facilities costs . total rd & e was $ 3.8 million , and $ 2.8 million in fiscal years 2011 , and 2010 , respectively . as a percentage of net sales , rd & e was 1.5 percent and 1.4 percent in fiscal years 2011 , and 2010 , respectively . the increase in rd & e in fiscal year 2011 is primarily the result of increased headcount and to a lesser extent higher incentive compensation . selling , general and administrative selling , general and administrative expenses ( sg & a ) consist principally of salaries and benefits , advertising and marketing programs , sales commissions , travel expenses , provision for doubtful accounts , facilities costs , and professional services . total sg & a expenses were $ 9.9 million , and $ 9.1 million in fiscal years 2011 , and 2010 , respectively . as a percentage of net sales sg & a was 3.9 percent , and 4.5 percent in fiscal years 2011 , and 2010 , respectively . approximately half of our sg & a expenses relates to salary costs of our employees . the $ 0.8 million increase in sg & a expenses in fiscal year 2011 as compared to fiscal year 2010 is primarily due to a $ 0.5 million increase in outside services and professional fees , a $ 0.4 million increase in salary related costs , and a $ 0.3 million increase related to other overhead costs . this was partially offset by an approximate $ 0.4 million decrease in incentive compensation expense . interest expense we had net interest expense of $ 0.5 million , and $ 0.1 million in fiscal years 2011 , and 2010 , respectively . interest expense increased in fiscal year 2011 when compared to fiscal year 2010 as the average balance of the revolving line of credit was higher in addition to interest expense incurred as a result of our capital lease obligations . we often utilize short-term fixed libor rates on portions of our revolving line of credit to limit the affect of interest rate volatilities . income tax provision we had an income tax expense of $ 746,000 during fiscal year 2011 as compared to an income tax benefit of $ 1.4 million in fiscal year 2010. the income tax expense recognized during fiscal 2011 was primarily a function of u.s. and foreign taxes recognized at the statutory rates offset by the net benefit associated with federal research and development tax credits , the release of the valuation allowance in china , and changes in potential foreign tax credits . the income tax benefit of fiscal year 2010 is primarily related to the release of the valuation allowance on our deferred tax assets related to domestic nols and foreign tax credits , partially offset by the recognition of domestic deferred tax liabilities for an unremitted portion of foreign earnings and the change of applicable tax regimes in mexico . due to increased profitability , revenue growth , and new customer programs , we determined that a valuation allowance against our domestic nols is not required . we anticipated that we would fully utilize our domestic nols prior to their expiration . in addition , we reviewed our requirements for liquidity domestically to fund our revenue growth and to look for potential future acquisitions . we have changed our previous assessments of being permanently reinvested and now anticipate repatriating a portion of our unremitted foreign earnings . the associated taxes and potential foreign tax credits were first included in the income tax benefit that was realized during fiscal year 2010 and certain changes in the estimates of foreign earnings and profits and tax pools resulted in the recognition of additional tax benefits during fiscal year 2011. for further information on taxes please review footnote 5 of the notes to consolidated financial statements . 23 international subsidiaries foreign sales ( based on shipping instructions ) from our worldwide operations , including domestic exports , were $ 81.1 million , and $ 35.7 million in fiscal years 2011 , and 2010 , respectively . products and manufacturing services provided by our subsidiary operations are primarily sold to customers directly by the parent company .
| at the end of fiscal year 2012 , we were generating revenue from 165 separate programs and 48 distinct customers as compared to 119 programs and 33 customers at the end of fiscal year 2011. these new customers have programs that represent small annual sales while others have multi-million-dollar potential . gross profit as a percent of sales was 8.6 percent in fiscal year 2012 compared to 8.1 percent for the prior fiscal year . this 0.5 percentage point increase in gross profit as a percentage of net sales during fiscal year 2012 as compared to fiscal year 2011 is primarily related to a 2.3 percentage point improvement in leveraging of certain overhead costs , as a percent of sales , partially offset by a 1.8 percentage point increase in material costs , as a percent of sales , resulting from higher material content in certain new customer programs . the level of gross margin is impacted by product mix , timing of the start up of new programs , facility utilization , pricing within the electronics industry and material costs , which can fluctuate significantly from quarter to quarter . operating income as a percentage of sales for fiscal year 2012 was 4.1 percent compared to 2.7 percent for fiscal year 2011. the increase in operating income as a percentage of sales was due to an increase in gross margin , leveraging of certain operating expenses and by improving efficiencies during fiscal year 2012. net income for fiscal year 2012 was $ 11.6 million or $ 1.10 per diluted share , as compared to net income of $ 5.7 million or $ 0.55 per diluted share for fiscal year 2011. the increase in net income for fiscal year 2012 as compared to fiscal year 2011 was primarily due to the increase in net sales coupled with an improvement in our gross margin and operating income partially offset by an increase in income tax expense . 17 we maintain a strong balance sheet with a current ratio of 2.4 and a long-term debt to equity ratio of 0.19. total cash used in operating activities as defined on our cash flow statement was $ 5.1 million during fiscal year
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the seventh amendment also provided additional covenant flexibility . further discussion regarding the second lien notes , third lien notes and seventh amendment can be found below under `` liquidity and ability to continue as a going concern . '' on october 14 , 2015 , we entered into the ninth amendment to the credit facility which , among other things , reaffirmed the borrowing base at $ 252.0 million and provided flexibility for certain specified asset sales by confirming the amount of the reduction in the borrowing base if any such sale should occur . reverse stock split . on august 3 , 2015 , we completed a 1-for-10 reverse stock split of our outstanding common stock . to effect the reverse stock split , we filed a certificate of amendment to our restated certificate of incorporation , which provides for the reverse stock split and for the corresponding reduction in our authorized capital stock to 100 million shares of common stock , $ 0.01 par value per share , following the reverse stock split . series a preferred stock . on october 1 , 2012 , we issued 325,000 shares of series a mandatorily convertible preferred stock ( `` series a preferred stock '' ) with an initial liquidation preference of 59 $ 1,000 per share and an 8.0 % per annum dividend , payable semiannually at the company 's option in cash or through an increase in the liquidation preference . on september 30 , 2015 , all 325,000 shares of the series a preferred stock converted into shares of our common stock at a conversion price of $ 110.00 per share , which was automatically adjusted to reflect the reverse stock split . each series a preferred share converted into approximately 11.5 shares of our common stock , and as a result , we issued 3,738,424 additional shares of our common stock upon conversion of the series a preferred stock . delistment . on february 3 , 2016 , we received notice from the nyse that the company 's common stock no longer met the nyse continued listing requirements . as a result , the company 's common stock was automatically delisted from the nyse and began trading on the otc pink marketplace , an over the counter exchange , under the symbol `` mpoy '' . ability to continue as a going concern as a result of the sustained commodity price decline and our substantial debt burden , we believe that forecasted cash and available credit capacity will not be sufficient to meet commitments as they come due over the next twelve months , and we will not be able to remain in compliance with current debt covenants unless we are able to successfully increase liquidity or deleverage . the uncertainty associated with the ability to meet commitments as they come due or to repay outstanding debt raises substantial doubt about our ability to continue as a going concern . in consideration of the uncertainty mentioned above , the report of our independent registered public accounting firm that accompanies our audited consolidated financial statements for the year ended december 31 , 2015 in this annual report on form 10-k contains an explanatory paragraph regarding an event of default under the credit facility , a projected additional debt covenant violation , and resulting lack of liquidity , which raises substantial doubt about our ability to continue as a going concern . the report of our independent registered public accounting firm that accompanied our consolidated financial statements for the year ended december 31 , 2014 also contained an explanatory paragraph regarding a projected debt covenant violation and resulting lack of liquidity raising substantial doubt about our ability to continue as a going concern ; however , we obtained a waiver to the credit facility waiving any default as a result of receiving such explanatory paragraph in 2014. we have not received a similar waiver from our lenders under the credit facility for the explanatory paragraph to our 2015 independent registered public accounting firm report . as a result , we are in default under our credit facility . a failure to cure this default within 30 days will result in the acceleration of all of our indebtedness under the credit facility . if the lenders under our credit facility accelerate the loans outstanding thereunder , we will also be in default under the indentures governing our senior notes , in which case the lenders under the indentures governing our senior notes could accelerate the repayment thereof . if lenders , and subsequently noteholders , accelerate the company 's outstanding indebtedness , it will become immediately due and payable and the company will not have sufficient liquidity to repay those amounts . if we are unable to reach an agreement with our creditors prior to any of the above described accelerations , we could be required to immediately file for protection under chapter 11 of the u.s. bankruptcy code . 60 risks and uncertainties our decisions on capital structure , hedging and drilling are based upon widely available information of anticipated future commodity pricing and expected economic conditions . the unexpected substantial decrease in oil and gas prices that began in the second half of 2014 and continued throughout 2015 and into 2016 has resulted in materially lower operating cash flows than expected . our hedging contracts helped to mitigate the impact of lower commodity prices during 2015 and we received cash settlements of these derivatives of $ 167.7 million , which comprised 78.6 % of our cash provided by operations during 2015. however , all of our hedging contracts expired during 2015 , and as a result , we will not receive any cash derivative settlements for 2016 or future periods as compared to our historical operating cash flows . story_separator_special_tag in february 2016 , we borrowed approximately $ 249.2 million under our credit facility , which represented the remaining undrawn amount that was available under the credit facility and as a result , as of february 9 , 2016 , we had a cash balance of approximately $ 335.7 million . our borrowing base under our credit facility will be redetermined in april 2016. any reduction in the borrowing base of the credit facility will result in a deficiency which must be repaid within 30 days or in six equal monthly installments thereafter , at our election . we may not have the financial resources to make any mandatory deficiency principal repayments , which could result in an event of default under the credit facility . we have substantial interest payment obligations over the next twelve months related to our debt . as of december 31 , 2015 , payments due on contractual obligations during the next twelve months were approximately $ 188.0 million . this includes approximately $ 179.5 million of interest payments on our senior notes and other operating expenses such as fixed drilling commitments and operating leases . the company 's next scheduled interest payment is april 1 , 2016 for $ 15.8 million to the holders of the 2020 senior notes and the company is currently evaluating whether such interest payment will be made . if the payment is not made by april 1 , 2016 , we would have 30 days to cure such payment default before an event of default occurs . as a result of the sustained commodity price decline and our substantial debt burden , we believe that forecasted cash and available credit capacity will not be sufficient to meet our commitments as they come due over the next twelve months , and we will not be able to remain in compliance with current debt covenants unless we are able to successfully increase liquidity or deleverage . the uncertainty associated with the ability to meet commitments as they come due or to repay outstanding debt raises substantial doubt about our ability to continue as a going concern . the accompanying financial statements do not include any adjustments related to the recoverability and classification of recorded assets or the amounts and classification of liabilities that might result from the uncertainty associated with the ability to meet obligations as they come due . in order to increase our liquidity to levels sufficient to meet our commitments , we are currently undertaking a number of actions , including minimizing capital expenditures , aggressively managing working capital and further reducing our recurring operating expenses . we believe that even after taking these actions , we will not have sufficient liquidity to satisfy our debt service obligations , meet other financial obligations , and comply with our debt covenants . we have engaged financial and legal advisors to assist with analyzing various strategic alternatives to address our liquidity and capital structure , among other things . we believe a filing under chapter 11 of the u.s. bankruptcy code may provide the most expeditious manner in which to effect a capital structure solution . there can be no assurance we will be able to restructure our capital structure on terms acceptable to us , our creditors , or at all . 61 our revenue oil , ngls and natural gas . our revenues are derived from the sale of oil and natural gas production , as well as the sale of ngls that are extracted from our high btu content natural gas . our oil and gas revenues do not include the effects of derivatives , and may vary significantly from period to period as a result of changes in production volumes or commodity prices . a continued decline in commodity prices could materially and adversely affect our business , financial condition and results of operations . prices for oil , ngls and natural gas fluctuate widely and affect : the amount of our cash flows available for capital expenditures ; our ability to borrow and raise additional capital ; the quantity of oil , ngls and natural gas we can economically produce ; and revenues and profitability . average market prices for oil and ngls decreased significantly in the last part of 2014 with continued declines through 2015. if commodity prices remain depressed as compared to historical levels , we expect significantly lower revenues and operating cash flows compared to historical results . for a description of factors that may impact future commodity prices , please read `` risk factorsrisks related to the oil and natural gas industry and our business . '' realized and unrealized gain ( loss ) on commodity derivative financial contracts . we , at times , utilize commodity derivatives to reduce our exposure to fluctuations in the prices of oil , ngls and natural gas . accordingly , our income statements reflect ( i ) the recognition of unrealized gains and losses associated with our open derivative contracts as commodity prices change and commodity derivatives contracts expire or new ones are entered into , and ( ii ) our realized gains or losses on the settlement of these commodity derivative contracts . unrealized gains and losses result from changes in market valuations of derivatives as future commodity price expectations change compared to the contract prices on the derivatives . if the expected future commodity prices increase compared to the contract prices on the derivatives , unrealized losses are recognized . conversely , if the expected future commodity prices decrease compared to the contract prices on the derivatives , unrealized gains are recognized . since we have elected not to apply hedge accounting to our derivatives , we reflect the unrealized and realized gains and losses in our current income statement periods based on the mark-to-market value at the end of each month . cash flows associated with derivative financial instruments are reflected in cash flow from operations in our consolidated statement of cash flows . we had no open derivative contracts at december 31 , 2015 and currently have no open derivative contracts .
| mbbls in production volumes from our anadarko basin area attributable to natural production declines as we ran no drilling rigs during the year ended december 31 , 2015 due to the decline in commodity prices . these decreases were partially offset by an increase in mississippian lime production of 21 % , or 651 mbbls . for the year ended december 31 , 2015 , we brought approximately 81 wells online in the mississippian lime , which drove the 21 % increase in daily production in the mississippi lime area . average oil sales prices , without realized derivatives , decreased by $ 45.31 per barrel , or 50 % , to $ 45.40 per barrel for the year ended december 31 , 2015 as compared to $ 90.71 for the year ended december 31 , 2014. of the $ 217.6 million in total oil sales revenues , $ 169.2 million was from mississippian lime operations , $ 43.7 million was from the anadarko basin and $ 4.7 million was from the gulf coast . our ngls sales revenues decreased by $ 49.6 million , or 56 % , to $ 38.2 million during the year ended december 31 , 2015 as compared to $ 87.8 million for the year ended december 31 , 2014. lower 65 revenue was primarily the result of decreases in ngls prices for the year ended december 31 , 2015 as compared to the year ended december 31 , 2014. ngls volumes sold increased 56 mbbls , or 2 % , to 2,473 mbbls for the year ended december 31 , 2015 as compared to 2,417 mbbls for the year ended december 31 , 2014. the increase in ngls volumes sold was attributable to an increase of 317 mbbls of production volumes from our mississippian lime area , partially offset by decreases in anadarko basin production of 138 mbbls and gulf coast production of 123 mbbls . average ngls prices , without realized derivatives , decreased by $ 20.85 per barrel , or
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in addition , cost of revenues includes labor and other costs associated with engineering , including salary , benefits and stock-based compensation in addition to costs associated with tooling , testing and quality assurance , warranty fees , logistics fees and excess and obsolete inventory reserves . we operate a warehouse located in utah and outsource other logistics warehousing and order fulfillment functions located primarily in china , and to a lesser extent , poland . we also evaluate and utilize other vendors for various portions of our supply chain from time to time . our operations organization consists of employees and consultants engaged in the management of our contract manufacturers , new product introduction activities , logistical support and engineering . gross profit our gross profit has been , and may in the future be , influenced by several factors including changes in product mix , target end markets for our products , tariffs , pricing due to competitive pressure , production costs and global demand for electronic components . although we procure and sell our products in u.s. dollars , our contract manufacturers incur many costs , including labor costs , in other currencies . to the extent that the exchange rates move unfavorably for our contract manufacturers , they may try to pass these additional costs on to us , which could have a material impact on our future average selling prices and unit costs . in june 2018 , the office of the united states trade representative announced new proposed tariffs for certain products imported into the u.s. from china . to the extent these tariffs are implemented , they may have a materially unfavorable impact on our gross margins . operating expenses we classify our operating expenses as research and development , sales , general and administrative expenses and expense related to the business email compromise fraud loss . research and development expenses consist primarily of salary and benefit expenses , including stock-based compensation , for employees and costs for contractors engaged in research , design and development activities , as well as costs for prototypes , licensed or purchased intellectual property , facilities and travel . over time , we expect our research and development costs to increase as we continue making significant investments in developing new products in addition to new versions of our existing products . sales , general and administrative expenses include salary and benefit expenses , including stock-based compensation , for employees and costs for contractors engaged in sales , marketing and general and administrative activities , as well as the costs of legal expenses , trade shows , marketing programs , promotional materials , bad debt expense , professional services , facilities , general liability insurance and travel . as our product portfolio and targeted markets expand , we may need to employ different sales models , such as building a traditional direct sales force . these sales models would likely increase our costs . over time , we expect our sales , general and administrative expenses to increase in absolute dollars due to continued growth in headcount , expansion of our efforts to register and defend trademarks and patents and to support our business and operations . deferred revenues we recognize revenues when persuasive evidence of an arrangement exists , delivery has occurred , the sales price is fixed or determinable and the collectability of the resulting receivable is reasonably assured . in cases where we lack evidence that all of these criteria have been met , we defer recognition of revenue . included in our deferred revenues is a portion related to pcs obligations that we estimate we will fulfill in the future . as of june 30 , 2018 , and 2017 , we had deferred revenues of $ 12.7 million and $ 7.9 million , respectively , related to these obligations . provisions for income taxes we use the asset and liability method to account for income taxes . significant management judgment is required in determining the provision for income taxes , deferred tax assets and liabilities and any valuation allowance recorded against net 36 deferred tax assets . in preparing the consolidated financial statements , we are required to estimate income taxes in each of the jurisdictions in which we operate . the company must assess such potential exposures and , where necessary , provide a reserve to cover any expected loss . to the extent that the company establishes a reserve , its provision for income taxes would be increased . if the company ultimately determines that payment of these amounts is unnecessary , it reverses the liability and recognizes a tax benefit during the period in which it determines that the liability is no longer necessary . the company records an additional charge in its provision for taxes in the period in which it determines that tax liability is greater than its original estimate . the company recognizes interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statement of operations . in connection with our income tax provisions for fiscal year 2018 , we have considered the guidance in sab 118 , which allows for the recording of provisional estimates related to the 2017 tax act , under asc 740 when the determination of such amounts are not complete in the period of enactment . to the extent the company 's accounting for certain income tax effects of the 2017 tax act is incomplete but the company was able to determine a reasonable estimate of such effects , we recorded a provisional tax estimate in the financial statements . the primary impact of the 2017 tax act in fiscal year 2018 is a reduction of the company 's federal statutory tax rate from 35 % to 28 % and taxation of the accumulated unremitted earnings of the company 's foreign subsidiaries ( “ repatriation tax ” ) . story_separator_special_tag for fiscal year ended june 30 , 2018 , our tax provisions estimates were impacted by $ 116.6 million of net charges related to the 2017 tax act . the charges comprise of $ 114.3 million in deemed repatriation tax and $ 2.3 million for the remeasurement of deferred income taxes . for a discussion of the risks associated with changes in applicable tax regulations , see “ part i-item 1a . risk factors-risks related to our business and industry- changes in applicable tax regulations could negatively affect our financial results. ” critical accounting policies we prepare our consolidated financial statements in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) . in many cases , the accounting treatment of a particular transaction is specifically dictated by gaap and does not require management 's judgment in its application . in other cases , management 's judgment is required in selecting among available alternative accounting standards that provide for different accounting treatment for similar transactions . the preparation of consolidated financial statements also requires us to make estimates and assumptions that affect the amounts we report as assets , liabilities , revenues , costs and expenses and affect the related disclosures . we base our estimates on historical experience and other assumptions that we believe are reasonable under the circumstances . in many instances , we could reasonably use different accounting estimates , and in some instances , changes in the accounting estimates are reasonably likely to occur from period to period . accordingly , our actual results could differ significantly from the estimates made by our management . to the extent that there are differences between our estimates and actual results , our future financial statement presentation , financial condition , results of operations and cash flows will be affected . we believe that the accounting policies discussed below are critical to understanding our historical and future performance , as these policies relate to the more significant areas involving management 's judgments and estimates . recognition of revenues revenues consist primarily of revenues from the sale of hardware and management tools , as well as the related implied pcs . we recognize revenues when persuasive evidence of an arrangement exists , delivery has occurred , the sales price is fixed or determinable and the collectability of the resulting receivable is reasonably assured . in cases where we lack evidence that collectability of the resulting receivable is reasonably assured , we defer recognition of revenue until the receipt of cash . for our sales , evidence of the arrangement consists of an order from a customer . we consider delivery to have occurred once our products have been shipped and title and risk of loss have been transferred . for our sales , these criteria are met at the time the products are transferred to the customer 's shipping agent . our arrangements with majority of our customers do not include provisions for cancellation , returns , inventory swaps or refunds that materially impact recognized revenues . we record amounts billed to distributors for shipping and handling costs as revenues . we classify shipping and handling costs incurred by us as cost of revenues . deposit payments received from distributors in advance of recognition of revenues are included in current liabilities on our balance sheet and are recognized as revenues when all the criteria for recognition of revenues are met . our multi-element arrangements generally include two deliverables . the first deliverable is the hardware and software essential to the functionality of the hardware device delivered at the time of sale . the second deliverable is the implied right to pcs included with the purchase of certain products . pcs is the right to receive , on a when and if available basis , future unspecified software upgrades and features relating to the product 's essential software as well as bug fixes , email and telephone support . we use a hierarchy to determine the allocation of revenues to the deliverables . the hierarchy is as follows : ( i ) vendor-specific objective evidence of fair value ( “ vsoe ” ) , ( ii ) third-party evidence of selling price ( “ tpe ” ) , and ( iii ) best estimate of the selling price ( “ besp ” ) . 37 ( i ) vsoe generally exists only when a company sells the deliverable separately and is the price actually charged by the company for that deliverable . generally , we do not sell the deliverables separately and , as such , do not have vsoe . ( ii ) tpe can be substantiated by determining the price that other parties sell similar or substantially similar offerings . we do not believe that there is accessible tpe evidence for similar deliverables . ( iii ) besp reflects our best estimates of what the selling prices of elements would be if they were sold regularly on a stand-alone basis . we believe that besp is the most appropriate methodology for determining the allocation of revenues among the multiple elements . we have allocated revenues between these two deliverables using the relative selling price method which is based on the besp for all deliverables . revenues allocated to the delivered hardware and the related essential software are recognized at the time of sale provided the other conditions for recognition of revenues have been met . revenues allocated to the pcs are deferred and recognized on a straight-line basis over the estimated period for which services will be delivered to support each of these devices which , currently , is two years . all costs of revenues , including estimated warranty costs , are recognized at the time of sale . costs for research and development and sales and marketing are expensed as incurred . if the estimated life of the hardware product should change , the future rate of amortization of the revenues allocated to pcs would also change .
| the year-over-year increase was primarily due to increased revenue from both our enterprise technology products and service provider technology products . south america revenues in south america decreased $ 13.3 million , or 13 % , from $ 105.5 million in fiscal 2017 to $ 92.3 million in fiscal 2018 . the year-over-year decrease was primarily due to decreased revenue from our service provider technology products , partially offset by increased revenue in our enterprise technology products . europe , the middle east , and africa ( `` emea '' ) revenues in emea increased $ 76.9 million , or 23 % , from $ 334.5 million in fiscal 2017 to $ 411.4 million in fiscal 2018 . the year-over-year increase was primarily due to increased revenue from our enterprise technology products , partially offset by decreased revenue in our service provider technology products . asia pacific revenues in the asia pacific region increased $ 9.0 million , or 10 % , from $ 93.8 million in fiscal 2017 to $ 102.8 million in fiscal 2018 . the year-over-year increase was primarily due to increased revenue from our enterprise technology products , partially offset by decreased revenue in our service provider technology products . cost of revenues and gross profit cost of revenues increased $ 103.7 million , or 22 % , from $ 469.6 million in fiscal 2017 to $ 573.3 million in fiscal 2018 . the increase in fiscal 2018 was primarily due to costs increases associated with an overall increase in revenues , including an increase in indirect costs , charges related to obsolete inventory and vendor deposits and loss on purchase commitments that were primarily associated with the company 's frontrow consumer-oriented product . due to the lower than expected sales performance of frontrow , the company determined it was no longer able to fully recover this inventory and other related commitments . gross profit margin decreased to 44 % in fiscal 2018 from 46 % in
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in february 2019 , we sold approximately 12.5 million shares of our common stock pursuant to our sales agreement with svb leerink , or the leerink sales agreement , and received approximately $ 7.5 million in net proceeds . based on our available cash resources , we do not have sufficient cash on hand to support current operations for at least the next twelve months from the date of filing this annual report on form 10-k. this condition raises substantial doubt about our ability to continue as a going concern . we expect that , in order to obtain additional funding , we will need to receive additional milestone payments and royalties from our partners and / or complete additional public or private financings of debt or equity . we may also seek to procure additional funds through future arrangements with collaborators , licensees or other third parties , and these arrangements would generally require us to relinquish or encumber rights to some of our technologies or drug candidates . we may not receive milestone payments or be able to complete financings or enter into third-party arrangements on acceptable terms , if at all . for more information , refer to “ liquidity and capital resources—liquidity and going concern ” below and note 1 , “ — liquidity and going concern ” of the notes to our consolidated financial statements included elsewhere in this annual report on form 10-k. tivozanib our pipeline includes our lead candidate tivozanib , an oral , once-daily , vegfr tyrosine kinase inhibitor , or tki . tivozanib is a potent , selective and long half-life inhibitor of all three vegf receptors and is designed to optimize vegf blockade while minimizing off-target toxicities , potentially resulting in improved efficacy and minimal dose modifications . tivozanib has been investigated in several tumor types , including renal cell , hepatocellular , colorectal and breast cancers , as well as in age-related macular degeneration . we have exclusive rights to develop and commercialize tivozanib in all countries outside of asia and the middle east under a license from kyowa hakko kirin co. , ltd. ( formerly kirin brewery co. , ltd. ) , or khk . we have sublicensed to eusa pharma ( uk ) limited , or eusa , the right to develop and commercialize tivozanib in our licensed territories outside of north america , including europe ( excluding russia , ukraine and the commonwealth of independent states ) , latin america ( excluding mexico ) , africa and australasia . the eusa sublicense excludes non-oncologic ocular conditions , to which we have retained development rights in all of our licensed territories . we are planning further development of tivozanib as a combination therapy with immune checkpoint inhibitors for the treatment of rcc and hcc . strategic partnerships astrazeneca in december 2018 , we entered into a clinical supply agreement , or the astrazeneca agreement , with a wholly-owned subsidiary of astrazeneca plc , or astrazeneca , to evaluate the safety and efficacy of astrazeneca 's imfinzi ( durvalumab ) , a human monoclonal antibody directed against programmed death-ligand 1 , or pd-l1 , in combination with tivozanib as a first-line treatment for patients with advanced , unresectable hcc in a phase 1/2 study . we will serve as the study sponsor ; each party will contribute the clinical supply of its study drug ; and study costs will be otherwise shared equally . the phase 1 portion of the study is expected to commence in 2019. we did not incur any costs under the astrazeneca agreement in the year ended december 31 , 2018. canbridge in march 2016 , we entered into a collaboration and license agreement with canbridge , or the canbridge agreement , under which we granted canbridge the exclusive right to develop , manufacture and commercialize av-203 , our proprietary erbb3 ( her3 ) inhibitory antibody , for the diagnosis , treatment and prevention of disease in all countries outside of north america . in addition , canbridge has a right of first negotiation if we determine to outlicense any north american rights . the parties have both agreed not to develop or commercialize any erbb3 inhibitory antibody other than av-203 during the term of the canbridge agreement . canbridge has responsibility for all activities and costs associated with the development , manufacture and commercialization of av-203 in its territories . canbridge is obligated to use commercially reasonable efforts to develop and obtain regulatory approval for av-203 in each of china , japan , the united kingdom , france , italy , spain and germany . under the canbridge agreement , canbridge is required to conduct and fund the clinical development of av-203 through phase 2 proof-of-concept in esophageal squamous cell carcinoma , or escc , after which we may elect to contribute to certain worldwide development efforts . in december 2017 , canbridge filed an ind application with the china national drug administration , or cnda , for a clinical study of av-203 in escc . canbridge 's ind application was accepted by the cnda in august 2018. canbridge has advised us that it plans to initiate a phase 1b/extension trial in escc in 2019 . 82 upon entry into the canbridge agreement , canbridge paid us an upfront fee of $ 1.0 million in april 2016 , net of foreign withholding taxes . canbridge also reimbursed us for $ 1.0 million in certain av-203 manufacturing costs that we previously incurred . canbridge paid this manufacturing reimbursement in two installments of $ 0.5 million each , one in march 2017 and one in september 2017 , net of foreign withholding taxes . story_separator_special_tag in august 2018 , canbridge obtained regulatory approval of its ind application from the cnda for a clinical study of av-203 in escc and , accordingly , we earned a $ 2.0 million development and regulatory milestone payment that was received from canbridge in august 2018. pursuant to the canbridge agreement , w e are eligible to receive up to $ 40.0 million in potential additional development and regulatory milestone payments and up to $ 90.0 million in potential commercial milestone payments based on annual net sales of licensed products . upon commercialization , we are eligible to receive a tiered royalty , with a percentage range in the low double-digits , on net sales of approved licensed products . canbridge 's obligation to pay royalties for each licensed product expires on a country-by-country basis on the later of the expiration of patent rights covering such licensed product in such country , the expiration of regulatory data exclusivity in such country or ten years after the first commercial sale of such licensed product in such country . a percentage of any milestone and royalty payments received by us under the canbridge agreement , excluding upfront and reimbursement payments , are due to biogen idec international gmbh , or biogen , as a sublicensing fee under our option and license agreement with biogen dated march 18 , 2009 , as amended . the $ 2.0 million development and regulatory milestone we earned in august 2018 for regulatory approval from the cnda of an ind application for a clinical study of av-203 in escc was subject to this sublicense fee , or $ 0.7 million , which was paid to biogen in october 2018. the term of the canbridge agreement continues until the last to expire royalty term applicable to licensed products . either party may terminate the canbridge agreement in the event of a material breach of the canbridge agreement by the other party that remains uncured for a period of 45 days , in the case of a material breach of a payment obligation , and 90 days in the case of any other material breach . canbridge may terminate the canbridge agreement without cause at any time upon 180 days ' prior written notice to us . we may terminate the canbridge agreement upon thirty days ' prior written notice if canbridge challenges any of the patent rights licensed to canbridge under the canbridge agreement . eusa in december 2015 , we entered into a license agreement with eusa , or the eusa agreement , under which we granted to eusa the exclusive , sublicensable right to develop , manufacture and commercialize tivozanib in the territories of europe ( excluding russia , ukraine and the commonwealth of independent states ) , latin america ( excluding mexico ) , africa and australasia for all diseases and conditions in humans , excluding non-oncologic ocular conditions . eusa is obligated to use commercially reasonable efforts to seek regulatory approval for and commercialize tivozanib throughout its licensed territories for rcc . eusa has responsibility for all activities and costs associated with the further development , manufacture , regulatory filings and commercialization of tivozanib in its licensed territories . eusa made research and development reimbursement payments to us of $ 2.5 million upon the execution of the eusa agreement in 2015 , and $ 4.0 million in september 2017 upon its receipt of marketing authorization from the european commission in august 2017 for tivozanib ( fotivda ) for the treatment of rcc . in september 2017 , eusa elected to opt-in to co-develop the tinivo trial . as a result of eusa 's exercise of its opt-in right , it became an active participant in the ongoing conduct of the tinivo trial and is able to utilize the resulting data from the tinivo trial for regulatory and commercial purposes in its territories . eusa made an additional research and development reimbursement payment to us of $ 2.0 million upon its exercise of its opt-in right . this payment was received in october 2017 , in advance of the completion of the tinivo trial , and represents eusa 's approximate 50 % share of the total estimated costs of the tinivo trial . we are also eligible to receive an additional research and development reimbursement payment from eusa of 50 % of our total costs for our tivo-3 trial , up to $ 20.0 million , if eusa elects to opt-in to that study . we are entitled to receive milestone payments of $ 2.0 million per country upon reimbursement approval , if any , for rcc in each of france , germany , italy , spain and the united kingdom , which we refer to collectively as the eu5 , and an additional $ 2.0 million for the grant of marketing approval for rcc , if any , in three of the licensed countries outside of the eu , as mutually agreed by the parties . in february 2018 and in november 2018 , eusa obtained reimbursement approvals from the nice in the united kingdom and the gkv-sv in germany , respectively , for the first-line treatment of rcc . accordingly , we earned a $ 2.0 million milestone payment with respect to the reimbursement approval in the united kingdom that was received from eusa in march 2018 and a $ 2.0 million milestone payment with respect to the reimbursement approval in germany that was received from eusa in december 2018. we are also eligible to receive a payment of $ 2.0 million per indication in connection with a filing by eusa with the ema for marketing approval , if any , for tivozanib for the treatment of each of up to three additional indications and $ 5.0 million per indication in connection with the ema 's grant of marketing approval for each of up to three additional indications , as well as up to $ 335.0 million upon eusa 's achievement of certain sales thresholds .
| in accordance with asc 606 , we recognized approximately $ 0.7 million of this milestone payment in revenue for the cumulative catch-up for the period from contract execution in december 2015 through the milestone achievement in february 2018 , with the approximate $ 1.3 million balance classified as deferred revenue that is being recognized as revenue over the remainder of our performance period through april 2022. in november 2018 , eusa obtained reimbursement approval for tivozanib ( fotivda ) from the gkv-sv in germany in first-line rcc and , accordingly , we earned a $ 2.0 million milestone payment from eusa . in accordance with asc 606 , we recognized approximately $ 0.9 million of this milestone payment in revenue for the cumulative catch-up for the period from contract execution in december 2015 through the milestone achievement in november 2018 , with the approximate $ 1.1 million balance classified as deferred revenue that is being recognized as revenue over the remainder of our performance period through april 2022. refer to note 4 “ collaborations and license agreements – eusa ” , to our consolidated financial statements included elsewhere in this annual form 10-k , regarding the specific application of asc 606 to our eusa agreement . refer to note 3 “ significant accounting policies – recently adopted accounting pronouncements ” , to our consolidated financial statements included elsewhere in this annual form 10-k , for a comparison of revenue recognized during the year ended december 31 , 2018 under asc 606 compared to the revenue that would have been recognized in that period had we continued to apply the provisions of asc 605. in 2018 as compared to 2017 , revenue increased by $ 1.0 million under our partnership with canbridge . in august 2018 , canbridge obtained regulatory approval from the cnda of an ind application for a clinical study of av-203 in escc and , accordingly , we earned a $ 2.0 million development and regulatory milestone payment . also , canbridge agreed to reimburse us $ 1.0 million for certain manufacturing costs and expenses incurred by us prior to the effective date of the canbridge agreement with respect
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write-downs may also be recorded based on sbs ' decisions to discontinue the marketing of certain products or product lines . if sbs ' forecasts are incorrect , market conditions deteriorate , or sbs decides to exit other product lines , additional inventory write-downs may be required . if market conditions or demand are better than expected , sbs may sell inventories that have been previously written down . allowances for doubtful accounts . sbs maintains allowances for doubtful accounts receivable resulting from the failure of its customers to make required payments . the estimate is based on the aging of sbs ' accounts receivable , sbs ' historical write-off experience , and the current and projected financial condition of customers . if sbs misinterprets the financial condition of customers or if the financial condition of customers deteriorates , additional allowances for doubtful accounts may be required . long-lived and intangible assets . sbs evaluates the carrying value of long-lived and intangible assets whenever certain events or changes in circumstances indicate that the carrying amount may not be recoverable . such events or circumstances include , but are not limited to , a prolonged industry or economic downturn , a significant decline in sbs ' market value , or significant reductions in projected future cash flows . the asset would be considered to be impaired if future undiscounted cash flows , without consideration of interest , are insufficient to recover the carrying amount of the asset . once deemed impaired , a charge to expense is recognized to the extent that the carrying amount of the asset exceeds fair value . fair value is generally determined by calculating the discounted future cash flows using a discount rate based upon sbs weighted average cost of capital . estimates of future cash flows require significant judgement , and any change in these estimates may result in additional impairment charges . income taxes . sbs ' estimates of current and deferred income taxes reflect sbs ' assessment of current and future taxes to be paid or received on items reflected in the financial statements , giving consideration to both timing and probability of realization . estimates of current income taxes include estimates for items such as general business credits and benefits from foreign sales . actual income taxes could vary from these estimates due to future changes in income tax laws or review of sbs ' tax returns by taxing authorities . recent acquisitions on march 4 , 2002 , sbs completed the acquisition of certain assets and assumed certain liabilities of essential communications , a division of publicly held intrusion , inc. , for approximately $ 1.0 million . founded in 1992 , essential develops and delivers early stage infiniband products . sbs utilizes essential 's infiniband product expertise and industry relationships to build on its current infiniband efforts in the enterprise server and storage markets . as required under the purchase method of accounting , essential 's results of operations have been combined with sbs ' since the date of acquisition . the purchase price has been allocated to the underlying assets acquired and liabilities assumed based on their estimated fair values . in conjunction with the purchase price allocation , sbs recorded approximately $ 364,000 of identifiable intangibles , principally core-technology assets , which are being amortized over a two-year period . no goodwill was recorded . proforma results of operations are not presented as essential 's results of operations in fiscal 2002 and 2001 were not material to sbs ' consolidated results of operations . 18 on april 12 , 2000 , sbs completed the acquisition of sdl . located in mansfield , massachusetts , sdl specializes in the design , manufacture and sale of wan i/ o for the telecommunications and data communications markets . sdl designs , manufactures , and markets t1/ ei , t3/ e3 , hssi and oc3 products based on the pci , compactpci , and pmc form factors , and supporting protocols such as frame relay , hdlc , ppp , x.25 and atm . in addition , sdl 's products support the operating systems most commonly used in communications , including windows nt , solaris , and vxworks . sbs acquired all of the outstanding stock of sdl for $ 25.6 million in cash . acquisition costs associated with the purchase were $ 0.6 million . the purchase price included $ 1.2 million for the fair value of sbs options issued in exchange for unvested sdl options . the acquisition was funded with existing cash and a $ 20.0 million borrowing under sbs ' credit agreement with bank of america , n.a . the acquisition was accounted for under the purchase method , whereby the purchase price was allocated to the underlying assets and liabilities based upon their estimated fair values . identifiable intangibles are being amortized over four to eight years and goodwill is being amortized over ten years . in connection with the acquisition , sbs recorded a $ 4.0 million earnings charge , based on an assessment of purchased technology of sdl . the assessment determined that $ 4.0 million of sdl 's purchase price represented technology that did not meet the accounting definitions of completed technology , and thus should be charged to earnings under generally accepted accounting principles . the assessment analyzed certain products that were in various stages of completion ranging from 35 % of completion to 85 % of completion , with estimated completion dates ranging from the third quarter of calendar 2000 to the second quarter of calendar 2001. the value assigned to acquired ipr & d was determined based on estimates of the resulting net cash flows from the evaluated technology of sdl and the discounting of those cash flows to present value . in projecting net cash flows resulting from those products , management estimated revenues , cost of sales , selling expenses , research and development expenses , and income taxes for those products . story_separator_special_tag these estimates were based on the following assumptions : estimated revenues projected a compound annual growth rate over seven years of 18 % . projections of revenue growth were based on management 's estimates of market size and growth , supported by analyst 's estimates and by the nature and expected timing of the development of the products by sbs and its competitors . the estimated cost of sales as a percentage of revenue , initially at 64 % declining to 50 % , was consistent with the historical rates for sdl 's business as well as historical results of companies operating within the industry . estimated selling expenses were expected to remain consistent as a percentage of sales , with an average of 14 % to 15 % . the estimated research and development costs were expected to remain consistent as a percentage of sales at 3.5 % as most research and development efforts are in the maintenance phase . an effective tax rate of 40 % was estimated . the projected net cash flows for the in-process projects were discounted using a 30 % weighted-average cost of capital ( wacc ) . the calculation produces the average required rate of return of an investment in an operating enterprise . the wacc selected was based upon the risk/return characteristics of the subject asset class . a wacc of 25 % or 26 % was used to determine the value of the return of the core developed technology , the customer list and all other intangibles acquired as part of the purchase of sdl . the fair value of the purchased technology was determined in accordance with the views expressed by the staff of the securities and exchange commission . the financial results of sdl have been included in sbs ' consolidated financial statements from april 12 , 2000. in fiscal 2002 , sdl 's test , packaging and support functions were consolidated into communications products . in addition , during the fourth quarter of fiscal 2002 , due to recent order cancellations and a continued decline in sales and bookings , sbs recorded a $ 10.3 million write-down of goodwill and core-developed technology associated with the acquisition of sdl . this write-down was based on sbs ' projection of undiscounted future operating cash flows of sdl over the remaining useful lives of the goodwill and core-technology , which indicated that these cash flows were not sufficient to recover the carrying amounts of the 19 related goodwill and core-technology . as such , impairment charges were recorded to the extent that the carrying amounts exceeded fair value . on december 20 , 1999 , sbs acquired scitech , a madison , wisconsin based designer and manufacturer of communications network i/ o products based on pmc and pci form factors . the acquisition qualified as a pooling of interests for accounting purposes and constituted a tax-free reorganization for federal income tax purposes . under the terms of the agreement , scitech 's shareholders exchanged all outstanding shares of scitech stock for 349,726 shares of sbs ' stock . scitech was subsequently merged into communications products . scitech 's historical results do not have a material effect on combined financial position or results of operations , and as such , the financial position and results of operations of sbs and scitech are combined from october 1 , 1999 on a prospective basis . results of operations the following table sets forth for the periods indicated certain operating data as a percentage of sales : replace_table_token_3_th year ended june 30 , 2002 compared to year ended june 30 , 2001 sales . in fiscal 2002 , sales decreased 36.5 % , or $ 68.3 million , from $ 187.2 million in fiscal 2001 , to $ 118.9 million . unit shipments declined within the communications and enterprise group , primarily due to depressed market and economic conditions , customer order cancellations , and delays of shipment dates by several of the group 's telecommunications infrastructure customers . unit shipments of the commercial and government group 's avionics , telemetry and computer processor products increased . unit shipments of the group 's general purpose i/ o products and computer connectivity and expansion unit products declined , due to unfavorable economic and market conditions and delays of shipment dates by several customers . management does not expect significant improvement in the communications and commercial markets in fiscal 2003. management expects some growth in sales to government customers in fiscal 2003 due to an expected increase in department of defense development and field deployment expenditures . actual results may vary materially . gross profit . in fiscal 2002 , gross profit decreased 51.9 % , or $ 46.0 million , from $ 88.6 million in fiscal 2001 , to $ 42.6 million . this decrease was primarily due to the decrease in sales combined with $ 0.2 million of expenditures associated with the sbs ' manufacturing consolidation and cost reduction efforts , a $ 12.4 million 20 inventory write-down recorded during the second quarter of fiscal 2002 , and a $ 2.7 million inventory write-down recorded during the fourth quarter of fiscal 2002. the second quarter write-down consisted of inventory associated with programs that are not anticipated to come back to their previous forecasts , inventory associated with sbs ' decision to exit its legacy pci chassis product line , and inventory associated with sbs products that will no longer be marketed . additionally , the implementation of a new inventory management methodology associated with the consolidation of sbs ' manufacturing operations contributed to the inventory write-down . the consolidation efforts included a reduction in the number of material handling employees and inventory specialists , a reduction in the amount of floor space for the storage of inventory , and the adoption of a purchasing methodology based on projected component part demand to achieve manufacturing and material handling efficiencies . this new methodology calculates the maximum level of inventory to be maintained by comparing historical usage over a fixed period of time to forecasted future demand .
| this decrease was primarily due to depressed market and economic conditions , customer order cancellations and delays of shipment dates by several of the group 's telecommunications infrastructure customers . as of the date of this report , communications and enterprise group orders remain at severely reduced levels . management does not expect improvement during the remainder of fiscal 2003. actual results may vary materially . for fiscal 2002 , communications and enterprise group segment loss was $ ( 14.4 ) million , compared to segment profit of $ 22.1 million for fiscal 2001. this decrease was primarily due to the decrease in sales , severance and other employee termination costs , reserves for accounts receivable , a second quarter $ 9.0 million inventory write-down and a fourth quarter $ 2.7 million inventory write-down . the second quarter inventory write-down was associated with programs that were not anticipated to come back to their previous forecasts and with sbs ' decision to exit its legacy pci chassis product line . the fourth quarter inventory write-down was due to additional order cancellations and the continued decline in sales and bookings . this decrease was partially offset by a reduction in r & d expenditures resulting from depressed business conditions . in july 2002 , the group 's madison , wisconsin facility was closed , resulting in the termination of 7 full-time employees and 11 part-time employees . commercial and government group sales to external customers segment profit fy02 $ 82.3 million $ 11.7 million fy01 $ 95.2 million $ 21.4 million commercial and government group sales to external customers in fiscal 2002 decreased 13.5 % , or $ 12.9 million from $ 95.2 million in fiscal 2001 , to $ 82.3 million . sales of the group 's general purpose i/ o products and computer connectivity and expansion unit products decreased 33.0 % , primarily as a result of unfavorable economic and market conditions and several customer delays of shipment dates . unit shipments of the group 's computer processor products increased 6.2 % , primarily
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if there are changes in government purchasing policies or budgetary constraints there could be implications for our growth prospects and operating results . if we are unable to meet end-user or customer volume or performance expectations , then our business prospects may be adversely affected . effects of the covid-19 pandemic on our business . in march 2020 , the world health organization characterized the coronavirus ( “ covid-19 ” ) a pandemic , and the president of the united states declared the covid-19 outbreak a national emergency . the rapid spread of the pandemic and the continuously evolving responses to combat it have had an increasingly negative impact on the global economy . in view of the rapidly changing business environment created by the uncertainty related to the depth and or duration of the impact resulting from covid-19 , we have experienced delays in our sales in select vertical markets and are currently unable to determine if there will be any continued disruption and the extent to which this may have future impact on our business . we continue to monitor the progression of the pandemic and its effect on our financial position , results of operations , and cash flows . 23 story_separator_special_tag roman ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > in our identity segment , gross profit was $ 14.8 million in 2020 compared with $ 14.6 million in 2019. gross profit margins in the identity segment in 2020 decreased to 28 % compared to 35 % in 2019 primarily due to the change in product mix , with a higher proportion of lower margin rfid transponder product sales , and a large higher margin bulk order of readers to the u.s. navy reserve in the first quarter of 2019. in our premises segment , gross profit was $ 18.9 million in 2020 compared with $ 22.1 million in 2019. gross profit margins in the premises segment increased to 55 % in 2020 from 53 % in 2019 primarily due to adjustments to our inventory reserves in the first quarter of 2019 as a result of management 's assessment of on-hand inventory levels and demand forecasts . we expect there will be variation in our total gross profit from period to period , as our gross profit has been and will continue to be affected primarily by varying mix among our products . within each product category , gross margins have tended to be consistent , but over time may be affected by a variety of factors , including , without limitation , competition , product pricing , the volume of sales in any given quarter , manufacturing volumes , product configuration and mix , the availability of new products , product enhancements , software and services , risk of inventory write-downs and the cost and availability of components . operating expenses information about our operating expenses for the years ended december 31 , 2020 and 2019 is set forth below . research and development replace_table_token_4_th research and development expenses consist primarily of employee compensation and fees for the development of hardware , software and firmware products . we focus the bulk of our research and development activities on the continued development of existing products and the development of new offerings for emerging market opportunities . research and development expenses in 2020 increased compared with 2019 primarily due to higher salaries and related costs associated with the re-alignment of certain individuals in the first quarter of 2020 from sales and marketing to research and development , as well as continued investments in engineering , including additional headcount and higher external contractor costs . 26 selling and marketing replace_table_token_5_th selling and marketing expenses consist primarily of employee compensation as well as amortization expense of certain intangible assets , customer lead generation activities , tradeshow participation , advertising and other marketing and selling costs . selling and marketing expenses in 2020 decreased compared with 2019 primarily due to the re-alignment of certain individuals in the first quarter of 2020 from sales and marketing to research and development , lower travel related costs associated with the covid-19 pandemic , and lower trade show and advertising costs , partially offset by an increase in employment recruiting fees . general and administrative replace_table_token_6_th general and administrative expenses consist primarily of compensation expenses for employees performing administrative functions , and professional fees incurred for legal , auditing and other consulting services . general and administrative expenses decreased compared with the prior year period primarily due to reductions in headcount and related costs associated with our continued integration efforts across general and administrative functions as well as lower external services costs and professional fees . increase ( decrease ) in fair value of earnout liability replace_table_token_7_th earnout consideration expense for the year ended december 31 , 2019 was attributable to the increase in fair value of the earnout liability associated with the viscount acquisition from $ 200,000 to $ 750,000. during the year ended december 31 , 2020 , the reduction in the earnout expense of $ 261,000 was attributable to the decrease in the fair value of the earnout liability from $ 750,000 to $ 489,000 , representing settlement date fair value of the earnout shares issued to the selling shareholders . see note 4 , business combinations , in the accompanying notes to our consolidated financial statements for more information . story_separator_special_tag restructuring and severance year ended december 31 , 2020 2019 $ change % change ( $ in thousands ) restructuring and severance $ 1,716 $ 14 $ 1,702 n/a restructuring expenses incurred during the year ended december 31 , 2020 consists of severance related costs of $ 375,000 and facility rental related costs associated with office space of an acquired business of approximately $ 1,341,000. the latter included a charge of $ 1,199,000 associated with the impairment of the right-of-use operating lease asset , which was subleased , but subsequently went into default due to non-payment of rent beginning april 1 , 2020. sublease income of $ 198,000 was received in the first quarter of 2020 , however , since the first quarter of 2020 , no rental payments were received . in addition , we recorded a charge of $ 97,000 related to the impairment of a right-of-use operating lease asset for office space we vacated in oakland , california in the fourth quarter of 2020 . 27 d uring the year ended december 31 , 20 19 , we incurred restructuring and severance related costs of $ 105 ,000 . these costs were partially offset by the reversal of a restructuring accrual of $ 91,000 for future rental payment obligation s associated with vacated office space at our fremont , california facility , which was sublet in the third quarter of 2019 . see note 15 , restructuring and severance , in the accompanying notes to our consolidated financial statements for more information . non-operating income ( expense ) information about our non-operating income ( expense ) for the years ended december 31 , 2020 and 2019 is set forth below . replace_table_token_8_th interest expense , net consists of interest on financial liabilities , amortization of debt issuance costs , and interest accretion expense for a liability on a contractual payment obligation arising from our acquisition of hirsch electronics corporation . the increase in interest expense in 2020 compared to 2019 was primarily attributable to both the amortization of warrants and amortization of debt issuance costs associated with our loan and security agreement with our lender . see note 8 , contractual payment obligation and note 9 , financial liabilities , in the accompanying notes to our consolidated financial statements for more information . gain on the sale of investment of $ 142,000 was related to the sale of our investment in a private company in the fourth quarter of 2019 , which had no carrying value . changes in currency valuation in the periods mainly were the result of exchange rate movements between the u.s. dollar , the indian rupee , the canadian dollar , and the euro . our foreign currency gains and losses primarily result from the valuation of current assets and liabilities denominated in a currency other than the functional currency of the respective entity in the local financial statements . income tax provision replace_table_token_9_th as of december 31 , 2020 , our deferred tax assets are fully offset by a valuation allowance . accounting standards codification ( “ asc ” ) 740 , income taxes , provides for the recognition of deferred tax assets if realization of such assets is more likely than not . based upon the weight of available evidence , which includes historical operating performance , reported cumulative net losses since inception and difficulty in accurately forecasting our future results , we provided a full valuation allowance against all of our net u.s. and foreign deferred tax assets . we reassess the need for our valuation allowance on a quarterly basis . if it is later determined that a portion or all of the valuation allowance is not required , it generally will be a benefit to the income tax provision in the period such determination is made . we recorded an income tax provision during the year ended december 31 , 2020. the effective tax rates for the year ended december 31 , 2020 and 2019 differ from the federal statutory rate of 21 % primarily due to a change in valuation allowance , and the provision or benefit in certain foreign jurisdictions , which are subject to higher tax rates . 28 quarterly statements of comprehensive income ( loss ) the following tables set forth our unaudited quarterly statements of comprehensive income ( loss ) for the last eight quarters . in the opinion of management , these data have been prepared on the same basis as the audited consolidated financial statements included elsewhere in this report and reflect all adjustments , including normal recurring adjustments , necessary for a fair presentation of the data . the results of historical periods are not indicative of expectations for any future period . you should read these data together with our audited consolidated financial statements and the related notes included elsewhere in this report . replace_table_token_10_th liquidity and capital resources as of december 31 , 2020 , our working capital , defined as current assets less current liabilities , was $ 11.9 million , an increase of $ 0.2 million compared to $ 11.7 million as of december 31 , 2019. as of december 31 , 2020 , our cash balance was $ 11.4 million . east west bank on february 8 , 2017 , we entered into a loan and security agreement with east west bank ( “ ewb ” ) . following subsequent amendments , on february 8 , 2021 we amended and restated the loan and security agreement in its entirety ( the “ loan and security agreement ” ) . the loan and security agreement provides for a $ 20.0 million revolving loan facility subject to a borrowing base and a $ 4.0 million non-formula revolving loan facility that is not subject to a borrowing base . our obligations under the loan and security agreement are collateralized by substantially all of our assets .
| the primary driver of higher sales of our rfid transponder products was the broad adoption of nfc , and the continued demand for smart card reader products with shelter in place actions driving the need for more work from home technologies . net revenue in this segment in europe , the middle east , and the asia-pacific increased approximately 44 % in 2020 compared with 2019 primarily due to higher sales of rfid transponder products , partially offset by lower sales of smart card readers and access cards . rfid transponder products comprised approximately 65 % of net revenue in these regions in 2020 , and 36 % of net revenue in 2019 , while smart card reader sales in 2020 and 2019 comprised approximately 24 % and 36 % of the net revenue . net revenue in our premises segment , which represented 39 % of our net revenue , was $ 34.2 million in 2020 , a decrease of 18 % compared with $ 41.6 million in 2019. net revenue in this segment in the americas in 2020 decreased 15 % compared with 2019 primarily due to delays associated with the impact of the covid-19 pandemic on our partners ' ability to access customer site locations , as well as the impact of business closures in the retail , hospitality and education markets . these delays were partially offset by higher hirsch velocity software product sales and related support services , particularly in the federal government . net revenue in this segment across europe , the middle east , and asia-pacific decreased 38 % in 2020 compared with 2019 primarily due to lower sales of hirsch related physical access control solutions associated with the impact of the covid-19 pandemic on our partners ' ability to access customer site locations as discussed above . as a general trend , u.s. federal agencies continue to be subject to security improvement mandates under programs such as homeland security presidential directive-12 ( “ hspd-12 ” ) and reiterated in memoranda from the office of management and budget ( “ omb m-11-11 ” ) . we
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same store sales the term `` same store sales '' generally refers to net sales from stores that have been open at least 13 full fiscal months as of the end of the current reporting period , although we include or exclude stores from our calculation of same store sales in accordance with the following additional criteria : stores that are closed for five or fewer days in any fiscal month are included in same store sales ; stores that are closed temporarily , but for more than five days in any fiscal month , are excluded from same store sales beginning in the fiscal month in which the temporary closure begins until the first full month of operation once the store re-opens ; stores that are closed temporarily and relocated within their respective trade areas are included in same store sales ; stores that are permanently closed are excluded from same store sales beginning in the month preceding closure ; and acquired stores are added to same store sales beginning on the later of ( a ) the first day of the first fiscal month following its applicable acquisition date and ( b ) the first day of the first fiscal month after the store has been open for at least 13 full fiscal months regardless of whether the store has been operated under our management or predecessor management . if the criteria described above are met , then all net sales of an acquired store , excluding those net sales before our acquisition of that store , are included for the period presented . however , when an acquired store is included for the period presented , the net sales of such acquired store for periods before its acquisition are included ( to the extent relevant ) for purposes of calculating `` same stores sales growth '' and illustrating the comparison between the applicable periods . pre-acquisition net sales numbers are derived from the books and records of the acquired company , as prepared prior to the acquisition , and have not been independently verified by us . in addition to retail store sales , same store sales also includes e-commerce sales , e-commerce shipping and handling revenue and actual retail store or e-commerce sales returns . we exclude gift card escheatment , provision for sales returns and future loyalty award redemptions from sales in our calculation of net sales per store . measuring the change in year-over-year same store sales allows us to evaluate how our store base is performing . numerous factors affect our same store sales , including : national and regional economic trends ; our ability to identify and respond effectively to regional consumer preferences ; changes in our product mix ; changes in pricing ; competition ; 44 changes in the timing of promotional and advertising efforts ; holidays or seasonal periods ; and weather . opening new stores is an important part of our growth strategy and we anticipate that a significant percentage of our net sales in the near future will come from stores not included in our same store sales calculation . accordingly , same store sales are only one measure we use to assess the success of our business and growth strategy . some of our competitors and other retailers may calculate `` same '' or `` comparable '' store sales differently than we do . as a result , data in this annual report regarding our same store sales may not be comparable to similar data made available by other retailers . new store openings new store openings reflect the number of stores , excluding acquired stores , that are opened during a particular reporting period . in connection with opening new stores , we incur pre-opening costs . pre-opening costs consist of costs incurred prior to opening a new store and primarily consist of manager and other employee payroll , travel and training costs , marketing expenses , initial opening supplies and costs of transporting initial inventory and certain fixtures to store locations , as well as occupancy costs incurred from the time that we take possession of a store site to the opening of that store . occupancy costs are included in cost of goods sold and the other pre-opening costs are included in sg & a expenses . all of these costs are expensed as incurred . new stores often open with a period of high sales levels , which subsequently decrease to normalized sales volumes . in addition , we experience typical inefficiencies in the form of higher labor , advertising and other direct operating expenses , and as a result , store-level profit margins at our new stores are generally lower during the start-up period of operation . the number and timing of store openings has had , and is expected to continue to have , a significant impact on our results of operations . in assessing the performance of a new store , we review its actual sales against the sales that we projected that store to achieve at the time we initially approved its opening . we also review the actual number of stores opened in a fiscal year against the number of store openings that we included in our budget at the beginning of that fiscal year . gross profit gross profit is equal to our net sales less our cost of goods sold . cost of goods sold includes the cost of merchandise , obsolescence and shrinkage provisions , store and warehouse occupancy costs ( including rent , depreciation and utilities ) , inbound and outbound freight , supplier allowances , occupancy- related taxes , compensation costs for merchandise purchasing and warehouse personnel , and other inventory acquisition-related costs . these costs are significant and can be expected to continue to increase as we grow . the components of our reported cost of goods sold may not be comparable to those of other retail companies , including our competitors . our gross profit generally follows changes in net sales . story_separator_special_tag we regularly analyze the components of gross profit , as well as gross profit as a percentage of net sales . specifically , we examine the initial markup on purchases , markdowns and reserves , shrinkage , buying costs , distribution costs and occupancy costs . any inability to obtain acceptable levels of initial markups , or a significant increase in our use of markdowns or in inventory shrinkage , or a significant increase in freight and other inventory acquisition costs could have an adverse impact on our gross profit and results of operations . gross profit is also impacted by shifts in the proportion of sales of our private brand products compared to third-party brand products , as well as by sales mix shifts within and between brands and between major product categories such as footwear , apparel or accessories . 45 selling , general and administrative expenses our selling , general and administrative ( `` sg & a '' ) expenses are composed of labor and related expenses , other operating expenses and general and administrative expenses not included in cost of goods sold . specifically , our sg & a expenses include the following : labor and related expenses labor and related expenses include all store-level salaries and hourly labor costs , including salaries , wages , benefits and performance incentives , labor taxes and other indirect labor costs . other operating expenses other operating expenses include all operating costs , including those for advertising , marketing campaigns , operating supplies , utilities , and repairs and maintenance , as well as credit card fees and costs of third-party services . general and administrative expenses general and administrative expenses comprise expenses associated with corporate and administrative functions that support the development and operations of our stores , including compensation and benefits , travel expenses , corporate occupancy costs , stock compensation costs , legal and professional fees , insurance and other related corporate costs . the components of our sg & a expenses may not be comparable to those of our competitors and other retailers . we expect our selling , general and administrative expenses will increase in future periods as a result of incremental share-based compensation , legal , accounting and other compliance-related expenses associated with being a public company and increases resulting from growth in the number of our stores . ebitda and adjusted ebitda ebitda and adjusted ebitda are important financial measures used by our management , board of directors and lenders to assess our operating performance . we use ebitda and adjusted ebitda as key performance measures because we believe that they facilitate operating performance comparisons from period to period by excluding potential differences primarily caused by the impact of variations from period to period in tax positions , interest expense and depreciation and amortization , as well as , in the case of adjusted ebitda , excluding non-cash expenses , such as stock-based compensation and the non-cash accrual for future award redemptions , and unusual or non-recurring costs and expenses that are not directly related to our operations , including recapitalization expenses , acquisition expenses , acquisition-related integration and reorganization costs , amortization of inventory fair value adjustment , loss on disposal of assets and other unusual or non-recurring expenses . see `` item 6 , selected consolidated financial data '' for a reconciliation of our ebitda and adjusted ebitda to net income , the most directly comparable financial measure calculated and presented in accordance with gaap . because ebitda and adjusted ebitda facilitate internal comparisons of our historical operating performance on a more consistent basis , we also use ebitda and adjusted ebitda ( or some variations thereof ) for business planning purposes , in calculating covenant compliance for our credit facilities , in determining incentive compensation for members of our management and in evaluating acquisition opportunities . in addition , we believe that ebitda and adjusted ebitda and similar measures are widely used by investors , securities analysts , ratings agencies and other parties in evaluating companies in our industry as a measure of financial performance and debt-service capabilities . given that ebitda and adjusted ebitda are measures not deemed to be in accordance with gaap and are susceptible to varying calculations , our ebitda and adjusted ebitda may not be comparable to similarly titled measures of other companies , including companies in our industry , because other companies may calculate ebitda and adjusted ebitda in a different manner than we calculate these measures . 46 story_separator_special_tag increase was primarily a result of the increase in net income noted above , together with increases in the following non-cash expenses , which are added to net income to arrive at adjusted ebitda : increased stock-based compensation as well as certain secondary offering costs and professional fees that were incurred in connection with other acquisition activity . these increases were offset by decreased acquisition expenses and acquisition-related integration and reorganization costs , decreased amortization of the inventory fair value adjustment and decreased losses on asset disposals . see `` item 6selected consolidated financial data '' for a discussion and reconciliation of adjusted ebitda to net income . fiscal 2014 compared to fiscal 2013 net sales . net sales in fiscal 2014 increased by $ 112.7 million , or 48.3 % , to $ 345.9 million compared to $ 233.2 million in fiscal 2013. the increase in net sales was partially because of an increase in same store sales of $ 19.7 million , or 6.7 % , during fiscal 2014 and partially due to contributions from nine new store openings during fiscal 2014. same store sales in fiscal 2014 included $ 63.4 million in net sales realized from the 30 stores that we acquired in the baskins acquisition during the ten full fiscal months in fiscal 2014 in which we owned those stores , but only to the extent that those stores had been opened for 13 full fiscal months .
| the sales increase was also due to the inclusion of a full year of sales from the baskins stores in fiscal 2015 compared to the ten fiscal months of sales in fiscal 2014 during which we owned those stores . gross profit . gross profit increased by $ 21.6 million , or 19.1 % , to $ 134.8 million in fiscal 2015 from $ 113.2 million in fiscal 2014. the increase in gross profit was primarily the result of increased overall net sales , increased sales of higher margin merchandise including our private brands , and a decrease in amortization of acquisitionrelated inventory fair value adjustments , which are recorded in cost of goods sold . the amortization of acquisition-related inventory fair value adjustments , was completed in fiscal 2014. the gross margin improvement was also driven by the absence of large markdowns and liquidation of inventory acquired in the baskins acquisition that totaled $ 2.3 million in fiscal 2014. gross profit as a percentage of net sales increased to 33.5 % in fiscal 2015 from 32.7 % in fiscal 2014. gross profit as a percentage of net sales , exclusive of amortization of acquisition-related inventory fair value , increased 0.5 % largely due to increased sales of higher margin merchandise including our private brands . selling , general and administrative expenses . sg & a expenses increased by $ 7.3 million , or 8.0 % , to $ 99.3 million in fiscal 2015 from $ 92.0 million in fiscal 2014. as a percentage of net sales , sg & a expenses were 24.7 % for fiscal 2015 compared to 26.6 % for fiscal 2014. the decrease in sg & a expenses as a percentage of net sales is mostly because of one-time expenses in fiscal 2014 associated with the closure of baskins corporate headquarters , the termination of certain contracts , severance and retention payments , and fees and expenses to integrate the baskins store operations under our management that we did not incur in fiscal 2015. the total cost associated with these additional one-time expenses was $ 3.5 million . additionally , we paid an additional
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further , hotel operating revenues for the year ended december 31 , 2016 included revenues for the following hotels that were purchased 41 during the year ended december 31 , 2015. hotels acquired during the year ended december 31 , 2015 would have a full year of results included in the year ended december 31 , 2016 but not necessarily a full year of results during the same period in 2015 . we acquired interests in the following consolidated hotels during the year ended december 31 , 2015 : replace_table_token_14_th offsetting these acquisitions is our contribution of the seven properties to the joint venture with cindat during the second quarter of 2016 , and the sale of four properties during 2016. these 11 hotels contributed $ 30,123 in operating revenues to our consolidated hotel portfolio for the period of ownership during the year ended december 31 , 2016 compared to the revenues they generated during the year ended december 31 , 2015 when we recorded $ 99,764 related to these hotels . replace_table_token_15_th in addition , our comparable consolidated portfolio experienced improvements in adr and revpar during the year ended december 31 , 2016 when compared to the same period in 2015. adr improved 2.1 % , increasing from $ 202.62 for the year ended december 31 , 2015 to $ 206.96 during the same period in 2016. revpar in our same comparable consolidated hotels increased 2.1 % from $ 167.68 during the year ended december 31 , 2015 to $ 171.27 for the same period in 2016. these improvements were due to improvements in lodging trends in the markets in which our hotels are located . in particular , t he company experienced stronger revpar growth from comparable consolidated hotels in our west coast , philadelphia , and washington d.c. markets which all experienced greater than 6 % growth for 2016 when compared to 2015. current year results compared to 2015 were also hindered by ongoing renovations at seven of our hotels , and new supply which inhibited rate growth in some of our properties in the new york city and south florida markets . expenses total hotel operating expenses , including room , food and beverage and other operating department expenses increased 3.4 % to approximately $ 262,956 for the year ended december 31 , 2016 from $ 254,313 for the year ended december 31 , 2015. this increase in operating expenses is primarily attributable to hotel properties acquired in our existing portfolio , offset by a $ 29,214 decrease in hotel operating expenses recorded during the year ended december 31 , 2015 compared to 2016 due to the contribution of seven hotel properties to the joint venture with cindat as well as the other hotel dispositions . depreciation and amortization increased by 1.3 % , or $ 1,000 , to $ 75,390 for the year ended december 31 , 2016 from $ 74,390 for the year ended december 31 , 2015. the increase was a result of depreciation and amortization recorded on the hotels recently acquired , offset by a decrease of approximately $ 5,685 in depreciation and amortization recorded during the year ended december 31 , 2015 compared to 2016 for properties part of the joint venture with cindat . real estate and personal property tax and property insurance decreased $ 2 , 361 , or 6 . 8 % , for the year ended december 31 , 2016 when compared to the same period in 2015. this was primarily attributable to a decrease of $ 6,000 in real estate and property insurance during the current year related to the seven hotel properties contributed to the joint venture with cindat in april of 2016. w e otherwise 42 typically experience increases in tax assessments and tax rates as the economy improves which are offset by reductions resulting from our management of this expense . general and administrativ e expense increased by approximately $ 3,92 9 to $ 2 4,44 4 for t he year ended december 31 , 2016 from $ 20,515 f or the year ended december 31 , 2015 . general and administrative expense includes expense related to non-cash share based payments issued as incentive compensation to the company 's trustees , executives , and employees . expense relate d to share based compensation in creased $ 1,525 when comparing the year ended december 31 , 2016 to the same period in 2015. this increase in share based compensation expense is primarily related to the issuance of share awards under the 2013 multi-year ltip during the year ended december 31,2016 as the performance period ended december 31 , 2015. please refer to “ note 8 – share based payments ” of the notes to the consolidated financial statements for more information about our stock based compensation . amounts recorded on our consolidated statement of operations for acquisition and terminated transaction costs will fluctuate from period to period based on our acquisition activities . acquisition and terminated transaction costs typically consist of transfer taxes , legal fees and other costs associated with acquiring a hotel property and transactions that were terminated during the year . acquisition and terminated transaction costs increased $ 1 , 441 from $ 1,119 for the year ended december 31 , 2015 to $ 2,5 6 0 for the same period in 2016. the costs incurred in 2016 were primarily related to our acquisition of the sanctuary beach resort , marina , ca , the hilton garden inn m street , washington , dc , the envoy hotel , boston , ma , the courtyard by marriott , sunnyvale , ca and the ambrose , santa monica , ca while the costs incurred in 2015 primarily related to our acquisitions of st. gregory hotel in washington , dc , towneplace suites , sunnyvale , ca and ritz carlton georgetown , washington , dc . also included in acquisi tion and terminated transaction cost s are charges related to transactions that were terminated during the period . story_separator_special_tag operating income operating income for the year ended december 31 , 2016 was $ 65,522 compared to operating income of $ 82,393 during the same period in 2015. o perating income was negatively impacted by the dispositions of the hotel properties noted above . interest expense interest expense increased $ 795 from $ 43,557 for the year ended december 31 , 2015 to $ 44,352 for the year ended december 31 , 2016. the increase in interest expense is primarily due to increased borrowings drawn on the second term loan during the third and fourth quarters of 2015 , and the third term loan during the third and fourth quarter of 2016. these borrowings were used to acquire hotel properties and to pay down consolidated mortgage debt . gain on disposition of hotel properties during the year ended december 31 , 2016 , the company recorded a net gain of $ 115,839 related to the cindat joint venture transaction and the sales of the hyatt place , king of prussia , pa , hawthorn suites , franklin , ma , residence inn , norwood , ma and residence inn , framingham , ma . please refer to “ note 3 – investment in unconsolidated joint ventures ” of the notes to the consolidated financial statements for more information about the cindat joint venture . unconsolidated joint venture investments the income from unconsolidated joint ventures consists of our interest in the operating results of the properties we own in joint ventures . income from our unconsolidated joint ventures decreased by $ 2,788 to a loss of $ 1,823 for the year ended december 31 , 2016 compared to income of $ 965 during the same period in 2015 , due to the loss we recognized on our equity interest in the cindat joint venture , offset by improvements in the markets of the hotels owned by our unconsolidated joint venture investments , particularly the boston market where two of these hotels are located . income tax benefit during the year ended december 31 , 2016 , the company recorded an income tax benefit of $ 4,888 compared to an income tax benefit of $ 3,141 for the year ended december 31 , 2015 . net income applicable to common shareholders net income applicable to common shareholders for the year ended december 31 , 2016 was $ 95,579 compared to income of $ 27,440 during the same period in 2015. this increase in net income was primarily caused by the net gain of $ 115,839 realized on the cindat joint venture transaction and the sales of the hyatt place , king of prussia , pa , the hawthorn suites , franklin , ma , residence inn norwood , ma and residence inn , framingham , ma . please refer to “ note 3 – investment in unconsolidated joint ventures ” of the notes to the consolidated financial statements for more information about the cindat 43 joint venture . offsetting this increase in net income was an increase of approximately $ 3,024 in preferred distributions and $ 4,021 in extinguishment of issuance costs related to our redemption of the series b preferred shares in 2016 and a $ 16,831 expense incurred as result of a lease buyout of a restaurant at our courtyard by marriott , miami , fl property made in conjunction with an overall property improvement and up-branding strategy . comprehensive income attributable to common shareholders comprehensive income attributable to common shareholders for the year ended december 31 , 2016 was $ 97 , 328 compared to comprehensive income of $ 27,3 3 2 for the same period in 2015. this amount was primarily attributable to gains on disposition of hotel properties as more fully described above . for the year ended december 31 , 2016 , we recorded comprehensive income of $ 123 , 296 compared to $ 42,099 of comprehensive income for the year ended december 31 , 2015. the increase in comprehensive income was primarily due to the $ 79,250 increase in net income . comparison of the year ended december 31 , 201 5 to december 31 , 201 4 ( dollars in thousands , except per share data ) revenue our total revenues for the years ended december 31 , 2015 and 2014 consisted entirely of hotel operating revenues and other revenue . hotel operating revenues are recorded for wholly owned hotels that are leased to our wholly owned trs and hotels owned through joint venture interests that were consolidated in our financial statements during the period . hotel operating revenues increased $ 53,046 , or 12.7 % , from $ 417,226 for the year ended december 31 , 2014 to $ 470,272 for the same period in 2015. this increase in hotel operating revenues was primarily attributable to the acquisition of hotel properties consummated in 2015 and 2014 as well as the continued growth and stabilization of our existing assets . since december 31 , 2014 , we have acquired interests in three consolidated hotels . these three hotels contributed the following operating revenues for the twelve months ended december 31 , 2015 . replace_table_token_16_th revenues for all hotels were recorded from the date of acquisition as hotel operating revenues . further , hotel operating revenues for the year ended december 31 , 2015 included revenues for the following hotels that were purchased during the year ended december 31 , 2014. hotels acquired during the year ended december 31 , 2014 would have a full year of results included in the year ended december 31 , 2015 but not necessarily a full year of results during the same period in 2014. we acquired interests in the following consolidated hotels during the year ended december 31 , 2014 : replace_table_token_17_th * date the hotel began operations .
| acquired 6/16/2015 ) · towneplace suites – sunnyvale , ca ( acquired 8/25/2015 ) · ritz carlton georgetown – washington , dc ( acquired 12/29/2015 ) · sanctuary resort – monterey , ca ( acquired 1/28/2016 ) · hilton garden inn m street – washington , dc ( acquired 3/9/2016 ) · courtyard – sunnyvale , ca ( acquired 10/20/2016 ) for the comparison of december 31 , 2015 to december 31 , 2014 , comparable hotel operating results contain results from our consolidated hotels owned as of december 31 , 2015 , excluding : ( 1 ) hilton garden inn midtown east and hampton inn pearl street because the hotels were newly constructed and not open for business for the full year ended december 31 , 2014 ; ( 2 ) the ritz carlton georgetown due to the fact that we owned the hotel for less than a month over the comparable period and determined its inclusion not meaningful to the analysis ; and ( 3 ) the results of all hotels sold during the years ended december 31 , 2015 and 2014. the comparison of december 31 , 2015 to december 31 , 2014 includes results as reported by the prior owners for the following hotels acquired during 2015 and 2014 : · hotel milo – santa barbara , ca ( acquired 2/28/2014 ) · parrot key resort – key west , fl ( acquired 5/7/2014 ) · st. gregory hotel – washington , dc ( acquired 6/16/2015 ) · towneplace suites – sunnyvale , ca ( acquired 8/25/2015 ) replace_table_token_11_th revpar for the year ended december 31 , 2016 increased 2.1 % for our comparable consolidated hotels when compared to 2015. the 2.1 % incr ease in 2016 is off from the 5.8 % comparable hotel growth experienced in 2015 , which can be partially explained by the softening of the new york and south florida market s during 2016 which negatively impacted revpar growth on a comparable basis by -140 basis points and -80 basis
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while we expect our operating expenses to increase substantially in connection with our ongoing development activities related to our product candidates , including the planned advancement of aav-rpgr into the phase 3 lumeos clinical trial for the treatment of patients with xlrp and the initiation of a phase 3 clinical trial of aav-rpe65 for the treatment of retinal dystrophy associated with mutations in the rpe65 gene , we believe that certain of these increases will be partially offset by the research funding in connection with the collaboration agreement . in addition to these planned phase 3 trials , we anticipate that our expenses will also increase due to costs associated with our clinical development program targeting achromatopsia due to mutations in the cngb3 or cnga3 gene . in addition , we expect to continue incurring increasing costs associated with our clinical activities for aav-aqp1 for the treatment of radiation-induced xerostomia and xerostomia associated with sjogren 's syndrome . we expect to file an ind application for aav-gad in the third quarter of 2021 following the release of the clinical material manufactured in our 110 london cgmp facility . we also incurred expenses during the year ended december 31 , 2020 and expect to continue to incur expenses related to research activities in additional therapeutic areas to expand our pipeline , hiring additional personnel in manufacturing , research , clinical operations , quality and other functional areas , and associated cash and share-based compensation expense , as well as the further development of internal manufacturing capabilities and capacity and other associated costs including the management of our intellectual property portfolio . as a result of these anticipated expenditures and the acquisition , development and startup of our new shannon , ireland manufacturing facilities , we raised net proceeds of $ 81.9 million during the year ended december 31 , 2020 from an at-the market offering and a public offering of our ordinary shares . we will require additional capital in the future , which we may raise through equity offerings , debt financings , marketing and distribution arrangements and other collaborations , strategic alliances and licensing arrangements or other sources to enable us to complete the development and potential commercialization of our product candidates . furthermore , we expect to continue incurring costs associated with being a public company . adequate additional financing may not be available to us on acceptable terms , or at all . our failure to raise capital as and when needed would have a negative effect on our financial condition and our ability to pursue our business strategy . in addition , attempting to secure additional financing may divert the time and attention of our management from day-to-day activities and harm our product candidate development efforts . if we are unable to raise capital when needed or on acceptable terms , we would be forced to delay , reduce or eliminate certain of our research and development programs . based on our cash and cash equivalents at december 31 , 2020 and the research funding and milestone payments we expect to receive under the collaboration agreement , we estimate that such funds will be sufficient to enable us to fund our operating expenses and capital expenditure requirements into the middle of 2023. we have based these estimates on assumptions that may prove to be wrong , and we may use our available capital resources sooner than we currently expect . see “ liquidity and capital resources. ” because of the numerous risks and uncertainties associated with the development of our product candidates , any future product candidates , our platform and technology and because the extent to which we may enter into collaborations with third parties for development of any of our product candidates is unknown , we are unable to estimate the amounts of increased capital outlays and operating expenses associated with completing the research and development of our product candidates . adequate additional funds may not be available to us on acceptable terms , or at all . to the extent that we raise additional capital through the sale of equity or convertible securities , your ownership interest will be diluted , and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a shareholder . any future debt financing or preferred equity or other financing , if available , may involve agreements that include covenants limiting or restricting our ability to take specific actions , such as incurring additional debt , making capital expenditures or declaring dividends and may require the issuance of warrants , which could potentially dilute your ownership interests . if we raise additional funds through collaborations , strategic alliances , or licensing arrangements with third parties , we may have to relinquish valuable rights to our technologies , future revenue streams , research programs or product candidates or grant licenses on terms that may not be favorable to us . if we are unable to raise additional funds through equity or debt financings when needed , we may be required to delay , limit , reduce , or terminate our product development programs or any future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves . because of the numerous risks and uncertainties associated with drug development , we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability . even if we are able to generate revenue from product sales , we may not become profitable . if we fail to become profitable or are unable to sustain profitability on a continuing basis , then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations . story_separator_special_tag 111 highlights and recent developments recent clinical development highlights and anticipated 2021 milestones aav-aqp1 for the treatment of grade 2/3 radiation-induced xerostomia : ● we reported preliminary data from the phase 1 aquax clinical trial in december 2020. o of the three patients treated in cohort 1 , one patient reached the 12-month assessment and two passed the six-month assessment . in all patients , the investigational gene therapy aav-haqp1 has been well tolerated with no dose limiting toxicity and no serious adverse events reported . o encouraging responses have been seen in patient-reported measures of xerostomia symptoms and in salivary output in the patients treated in cohort 1. o complete resolution of symptoms was observed in the patient who has reached the 12-month timepoint . ● we continue to activate clinical trial sites in our phase 1 aquax study , with two sites re-opened after shutdowns due to covid-19 , and all five sites are anticipated to be open and enrolling patients in the first half of 2021 . ● the single center phase 1 dose-finding study of aav-aqp1 at the national institutes of health ( nih ) also continues to enroll patients . enrollment in the fourth dose escalation cohort is now ongoing . aav-rpgr for the treatment of x-linked retinitis pigmentosa ( xlrp ) : ● we and our development partner janssen are preparing to initiate the phase 3 lumeos clinical trial . ● in 2020 , we and janssen were granted priority medicines ( prime ) and advanced therapy medicinal product ( atmp ) designations for aav-rpgr . ● in 2020 , we and janssen announced positive 6- , 9- and 12-month data from the phase 1/2 clinical study ( mgt009 ) of aav-rpgr at the american society of retina specialists ( asrs ) annual meeting , the european society of retina specialists ( euretina ) , and the american academy of ophthalmology annual meeting : o data from each time point demonstrated that patients treated with low and intermediate dose aav-rpgr experienced statistically significant improvement in retinal sensitivity . nine-month data also indicated significant improvement in vision-guided mobility . at 12-months , six of seven patients continued to show improved or stable vision in the treated eye . aav-gad for the treatment of parkinson 's disease : ● we anticipate filing an investigational new drug application ( ind ) by the third quarter of 2021 , with material that has been manufactured with our in-house proprietary manufacturing process at our cgmp manufacturing facility in london . aav-rpe65 for the treatment of rpe65 -associated retinal dystrophy : ● we anticipate initiating a phase 3 pivotal trial of aav-rpe65 in the second half of 2021 . aav-cngb3 and aav-cnga3 for the treatment of achromatopsia ( achm ) : ● we and janssen continue to advance our ongoing clinical development of aav-cngb3 and aav-cnga3 for the treatment of achm associated with mutations in the cngb3 and cnga3 genes . o on january 26 , 2021 the u.s. food and drug administration ( fda ) granted fast track designation to our aav-cnga3 gene therapy product candidate for the treatment of achm caused by mutations in the cnga3 gene . o we and janssen have now completed dosing of both adults and pediatric patients in the phase 1/2 dose escalation study of aav-cnga3 and expect to provide an update on further clinical studies for both aav-cngb3 and aav-cnga3 later in 2021 . 112 riboswitch gene regulation platform : ● we expect to present in-vivo data from our proprietary riboswitch gene regulation platform in the second half of 2021 , demonstrating regulation of multiple therapeutic genes in multiple tissues . recent corporate development highlights second viral vector manufacturing facility and plasmid and dna production facility ● we expanded our industry-leading manufacturing capabilities by acquiring and building a second wholly owned cgmp viral vector manufacturing facility as well as a cgmp plasmid and dna production facility located in shannon , ireland . ● the campus encompasses approximately 150,000 square feet serving numerous functions : high capacity cgmp manufacturing hub , clinical supply storage , qc laboratories for global release , up to ten flexible and scalable viral vector suites , fully scalable automated fill and finish , an extensive warehouse and a separate internal cgmp plasmid and dna manufacturing facility . ● construction of the cgmp plasmid and dna manufacturing facility has been completed , with the cgmp viral vector manufacturing facility expected to be completed by the end of 2021 . expanding clinical , regulatory , manufacturing , msat and preclinical development teams ● we continue to increase the number of personnel across key functional areas to support our broad pipeline of optimized investigational gene therapies . our team now includes more than 215 full-time employees . components of our results of operations license revenue our license revenue consisted of the amortization of the upfront payment we received in connection with the collaboration agreement . operating expenses our operating expenses since inception have consisted primarily of general and administrative costs and research and development costs . general and administrative expenses general and administrative expenses consist primarily of salaries and other related costs , including share-based compensation , for personnel in our executive , finance , legal , business development and administrative functions . general and administrative expenses also include legal fees relating to intellectual property and corporate matters ; professional fees for accounting , auditing , tax and consulting services ; insurance costs ; travel expenses ; and office facility-related expenses , which include direct depreciation costs . we expect that our general and administrative expenses will increase in the future as we increase our personnel headcount to support increased research and development activities . we have also incurred and expect to continue to incur increased expenses associated with being a public company , including costs of accounting , audit , legal , regulatory and tax-related services associated with maintaining compliance with nasdaq and sec requirements ; director and officer insurance costs ; and investor and public relations costs .
| reimbursements under the collaboration agreement for the year ended december 31 , 2020 increased $ 29.3 million as compared to the prior year primarily due to an increase in activity in the programs licensed under the collaboration agreement . tax incentive reimbursement for the year ended december 31 , 2020 decreased $ 6.7 million as compared to the prior year primarily due to the 2018 and 2019 uk refundable research and development credit being recorded in 2019. in 2020 , only the 2020 uk refundable research and development credit was recorded . foreign currency gain foreign currency gain was $ 3.4 million for the year ended december 31 , 2020 compared to a gain of $ 3.2 million for the year ended december 31 , 2019. the change of $ 0.2 million was primarily due to a strengthening of the pound sterling and euro against the u.s. dollar in 2020. interest income interest income was $ 1.3 million for the year ended december 31 , 2020 compared to $ 0.4 million for the year ended december 31 , 2019. the increase was due to a higher average cash balance during 2020 and a reallocation of funds into an account earning a higher interest rate . liquidity and capital resources since our inception , we have incurred significant operating losses . for the year ended december 31 , 2020 , we used $ 64.0 million in cash flows from operations . we did not generate positive cash flows from operations during the year and there are no assurances that we will generate positive cash flows in the future . additionally , there are no assurances that we will be successful in obtaining an adequate level of financing for the development and commercialization of our product candidates . we expect to incur significant expenses and operating losses for the foreseeable future as we advance the preclinical and clinical development of our product candidates . we expect that our research and development and general and administrative costs
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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 amounts recognized each year in the future . when we are entitled to reimbursement of all or a portion of the expenses ( e.g . , research and development expenses ) that we incur under a collaboration , we record those reimbursable amounts in the period in which such costs are incurred . if both we and our collaborator perform development work or commercialization-related activities and share costs , we also recognize , as expense ( i.e . , research and development expense or selling , general and administrative expense , as applicable ) in the period when our collaborator incurs such expenses , the portion of the collaborator 's expenses that we are obligated to reimburse . our collaborators provide us with estimated 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 ' expenses that we are obligated to reimburse is adjusted on a prospective basis accordingly , as necessary . under certain of the company 's collaboration agreements , product sales and cost of sales may be recorded by the company 's collaborators as they are deemed to be the principal in the transaction . in arrangements where we : are obligated to use commercially reasonable efforts to supply commercial product to our collaborator , we may be reimbursed for our manufacturing costs as commercial product is shipped to the collaborator ; however , recognition of such cost reimbursements is deferred until the product is sold by our collaborator to third-party customers ; share in any profits or losses arising from the commercialization of such products , we record our share of the variable consideration , representing net product sales less cost of goods sold and shared commercialization and other expenses , in the period in which such underlying sales occur and costs are incurred by the collaborator ; and receive royalties and or sales-based milestone payments from our collaborator , we recognize such amounts in the period earned . our collaborators provide us with estimates of product sales and our share of profits or losses , as applicable , for such quarter . these estimates are reconciled to actual results in the subsequent fiscal quarter , and collaboration revenue is adjusted accordingly , as necessary . stock-based compensation we recognize stock-based compensation expense for equity 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 76 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 . we use a monte carlo simulation to compute the estimated fair value of performance-based restricted stock units , which are subject to vesting based on the company 's attainment of pre-established market performance goals . the assumptions used in computing the fair value of equity 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 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 . story_separator_special_tag 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 that the position will be sustained upon examination 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 . 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 . 77 story_separator_special_tag style= '' color : # 000000 ; font-family : 'times new roman ' , sans-serif ; font-size:10pt ; font-style : italic ; font-weight:400 ; line-height:120 % '' > net product sales net product sales of eylea in the united states increased in 2020 , compared to 2019 , due to higher sales volume partly offset by an increase in sales-related deductions primarily due to higher rebates and discounts . net product sales of eylea in the united states were lower in the second quarter of 2020 , compared to the second quarter of 2019 , due to lower sales volume attributable to the impact of the covid-19 pandemic . while we observed an increase in u.s. eylea demand during the remainder of 2020 relative to the second quarter of 2020 , we are unable to predict whether there will be additional adverse impacts on net product sales from shelter-in-place , social distancing , and other similar measures due to the covid-19 pandemic ( refer to part i , item 1a . `` risk factors - our business may be further adversely affected by the effects of the covid-19 pandemic ) . refer also to part i , item 1a . `` risk factors - sales of our marketed products are dependent on the availability and extent of reimbursement from third-party payors , and changes to such reimbursement may materially harm our business , prospects , operating results , and financial condition `` for information and potential future risks concerning the mfn interim final rule issued by the hhs on medicare reimbursements for eylea . 78 effective april 1 , 2020 , the company is solely responsible for the development and commercialization of praluent in the united states and records net product sales of praluent in the united states . refer to part i , item . 1 . `` collaboration , license , and other agreements - sanofi - antibody `` for further details . during the third and fourth quarters of 2020 , net product sales of regen-cov were recorded in connection with our july 2020 agreement with the u.s. government . in january 2021 , the company announced an agreement to manufacture and deliver additional filled and finished drug product of regen-cov to the u.s. government . refer to part i , item 1 . `` agreements related to covid-19 - u.s. government `` section above for further details . 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 . replace_table_token_6_th sanofi collaboration revenue year ended december 31 , ( in millions ) 2020 2019 2018 antibody : regeneron 's share of profits ( losses ) in connection with commercialization of antibodies $ 785.2 $ 209.3 $ ( 227.0 ) sales-based milestone earned 50.0 — — reimbursement for manufacturing of commercial supplies ( 1 ) 368.0 216.0 113.7 total antibody 1,203.2 425.3 ( 113.3 ) immuno-oncology : regeneron 's share of losses in connection with commercialization of libtayo outside the united states ( 25.7 ) ( 21.7 ) ( 12.4 ) reimbursement for manufacturing of commercial supplies ( 1 ) 8.9 — — total immuno-oncology ( 16.8 ) ( 21.7 ) ( 12.4 ) total sanofi collaboration revenue $ 1,186.4 $ 403.6 $ ( 125.7 ) ( 1 ) corresponding costs incurred by us in connection with such production is recorded
| results of operations certain revisions have been made to the previously reported december 31 , 2019 and 2018 amounts below in connection with changing the presentation of certain amounts earned from collaborators ; see note 1 to our consolidated financial statements for further details . net income replace_table_token_5_th revenues year ended december 31 , $ change ( in millions ) 2020 2019 2018 2020 vs. 2019 2019 vs. 2018 net product sales in the united states : eylea $ 4,947.2 $ 4,644.2 $ 4,076.7 $ 303.0 $ 567.5 libtayo 270.7 175.7 14.8 95.0 160.9 praluent 150.9 * * * * regen-cov 185.7 — — 185.7 — arcalyst 13.1 14.5 14.7 ( 1.4 ) ( 0.2 ) sanofi and bayer collaboration revenue : sanofi 1,186.4 403.6 ( 125.7 ) 782.8 529.3 bayer 1,186.1 1,145.6 1,036.1 40.5 109.5 other revenue 557.0 174.0 129.0 383.0 45.0 total revenues $ 8,497.1 $ 6,557.6 $ 5,145.6 $ 1,939.5 $ 1,412.0 * net product sales of praluent in the united states were recorded by sanofi prior to april 1 , 2020 < span
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as a result of these factors , and others described later in this report , we generated earnings of $ 480.0 million , or $ 1.09 per diluted share , in 2011 and , at the end of the year , recorded assets of $ 42.0 billion , including loans and securities of $ 30.3 billion and $ 4.5 billion ; deposits of $ 22.3 billion ; and stockholders ' equity of $ 5.6 billion . in addition , our tangible stockholders ' equity totaled $ 3.1 billion , representing 7.78 % of tangible assets , after distributing cash dividends of $ 436.9 million over the course of the year . ( please see the discussion and reconciliations of stockholders ' equity and tangible stockholders ' equity , total assets and tangible assets , and the related measures that appear later in this report . ) recent events dividend declaration on january 24 , 2012 , the board of directors declared a quarterly cash dividend of $ 0.25 per share , payable on february 17 , 2012 to shareholders of record at the close of business on february 7 , 2012. critical accounting policies we consider certain accounting policies to be critically important to the portrayal of our financial condition and results of operations , since they require management to make complex or subjective judgments , some of which may relate to matters that are inherently uncertain . the inherent sensitivity of our consolidated financial statements to these critical accounting policies , and the judgments , estimates , and assumptions used therein , could have a material impact on our financial condition or results of operations . we have identified the following to be critical accounting policies : the determination of the allowances for loan losses ; the valuation of loans held for sale ; the determination of whether an impairment of securities is other than temporary ; the determination of the amount , if any , of goodwill impairment ; and the determination of the valuation allowance for deferred tax assets . the judgments used by management in applying these critical accounting policies may be influenced by a further and prolonged deterioration in the economic environment , which may result in changes to future financial results . in addition , the current economic environment has increased the degree of uncertainty inherent in our judgments , estimates , and assumptions . allowances for loan losses allowance for losses on non-covered loans the allowance for losses on non-covered loans is increased by provisions for non-covered loan losses that are charged against earnings , and is reduced by net charge-offs and or reversals , if any , that are credited to earnings . although non-covered loans are held by either the community bank or the commercial bank , and a separate loan loss allowance is established for each , the total of the two allowances is available to cover all losses incurred . in addition , except as otherwise noted below , the process for establishing the allowance for losses on non-covered loans is the same for each of the community bank and the commercial bank . in determining the respective allowances for loan losses , management considers the community bank 's and the commercial bank 's current business strategies and credit processes , including compliance with guidelines approved by the respective boards of directors with regard to credit limitations , loan approvals , underwriting criteria , and loan workout procedures . the allowance for losses on non-covered loans is established based on our evaluation of the probable inherent losses in our portfolio in accordance with gaap , and are comprised of both specific valuation allowances and general valuation allowances . specific valuation allowances are established based on management 's analyses of individual loans that are considered impaired . if a non-covered loan is deemed to be impaired , management measures the extent of the impairment and establishes a specific valuation allowance for that amount . a non-covered loan is classified as impaired when , based on current information and events , it is probable that we will be unable to collect both the principal and interest due under the contractual terms of the loan agreement . we apply this classification as necessary to non-covered loans individually evaluated for 42 impairment in our portfolios of multi-family ; commercial real estate ; acquisition , development , and construction ; and commercial and industrial loans . smaller balance homogenous loans and loans carried at the lower of cost or fair value are evaluated for impairment on a collective , rather than individual , basis . we generally measure impairment on an individual loan and determine the extent to which a specific valuation allowance is necessary by comparing the loan 's outstanding balance to either the fair value of the collateral , less the estimated cost to sell , or the present value of expected cash flows , discounted at the loan 's effective interest rate . a specific valuation allowance is established when the fair value of the collateral , net of the estimated costs to sell , or the present value of the expected cash flows , is less than the recorded investment in the loan . we also follow a process to assign general valuation allowances to non-covered loan categories . general valuation allowances are established by applying our loan loss provisioning methodology , and reflect the inherent risk in outstanding held-for-investment loans . this loan loss provisioning methodology considers various factors in determining the appropriate quantified risk factors to use to determine the general valuation allowances . the factors assessed begin with the historical loan loss experience for each of the major loan categories we maintain . story_separator_special_tag our historical loan loss experience is then adjusted by considering qualitative or environmental factors that are likely to cause estimated credit losses associated with the existing portfolio to differ from historical loss experience , including , but not limited to : changes in lending policies and procedures , including changes in underwriting standards and collection , charge-off , and recovery practices ; changes in international , national , regional , and local economic and business conditions and developments that affect the collectability of the portfolio , including the condition of various market segments ; changes in the nature and volume of the portfolio and in the terms of loans ; changes in the volume and severity of past due loans , the volume of non-accrual loans , and the volume and severity of adversely classified or graded loans ; changes in the quality of our loan review system ; changes in the value of the underlying collateral for collateral-dependent loans ; the existence and effect of any concentrations of credit , and changes in the level of such concentrations ; changes in the experience , ability , and depth of lending management and other relevant staff ; and the effect of other external factors , such as competition and legal and regulatory requirements , on the level of estimated credit losses in the existing portfolio . by considering the factors discussed above , we determine quantified risk factors that are applied to each non-impaired loan or loan type in the loan portfolio to determine the general valuation allowances . in recognition of prevailing macroeconomic and real estate market conditions , the time periods considered for historical loss experience continue to be the last three years and the current period . we also evaluate the sufficiency of the overall allocations used for the allowance for losses on non-covered loans by considering the loss experience in the current and prior calendar year . the process of establishing the allowance for losses on non-covered loans also involves : periodic inspections of the loan collateral by qualified in-house and external property appraisers/inspectors , as applicable ; regular meetings of executive management with the pertinent board committee , during which observable trends in the local economy and or the real estate market are discussed ; assessment of the aforementioned factors by the pertinent members of the boards of directors and executive management when making a business judgment regarding the impact of anticipated changes on the future level of loan losses ; and analysis of the portfolio in the aggregate , as well as on an individual loan basis , taking into consideration payment history , underwriting analyses , and internal risk ratings . in order to determine their overall adequacy , each of the respective loan loss allowances is reviewed quarterly by management and by the mortgage and real estate committee of the community bank 's board of directors ( the mortgage committee ) or the credit committee of the board of directors of the commercial bank ( the credit committee ) , as applicable . 43 we charge off loans , or portions of loans , in the period that such loans , or portions thereof , are deemed uncollectible . the collectability of individual loans is determined through an assessment of the financial condition and repayment capacity of the borrower and or through an estimate of the fair value of any underlying collateral . generally , the time period in which this assessment is made is within the same quarter that the loan is considered impaired and quarterly thereafter . for non-real estate-related consumer credits , the following past-due time periods determine when charge-offs are typically recorded : ( 1 ) closed-end credits are charged off in the quarter that the loan becomes 120 days past due ; ( 2 ) open-end credits are charged off in the quarter that the loan becomes 180 days past due ; and ( 3 ) both closed-end and open-end credits are typically charged off in the quarter that the credit is 60 days past the date we received notification that the borrower has filed for bankruptcy . the level of future additions to the respective non-covered loan loss allowances is based on many factors , including certain factors that are beyond management 's control such as changes in economic and local market conditions , including declines in real estate values , and increases in vacancy rates and unemployment . management uses the best available information to recognize losses on loans or to make additions to the loan loss allowances ; however , the community bank and or the commercial bank may be required to take certain charge-offs and or recognize further additions to their loan loss allowances , based on the judgment of regulatory agencies with regard to information provided to them during their examinations of the banks . allowance for losses on covered loans we have elected to account for the loans acquired in the amtrust and desert hills acquisitions ( i.e. , our covered loans ) based on expected cash flows . this election is in accordance with financial accounting standards board ( fasb ) accounting standards codification ( asc ) topic 310-30 , loans and debt securities acquired with deteriorated credit quality ( asc 310-30 ) . in accordance with asc 310-30 , we will maintain the integrity of a pool of multiple loans accounted for as a single asset and with a single composite interest rate and an aggregate expectation of cash flows . under our loss sharing agreements with the fdic , covered loans are reported exclusive of the fdic loss share receivable . the covered loans acquired in the amtrust and desert hills acquisitions are , and will continue to be , reviewed for collectability based on the expectations of cash flows from these loans . covered loans have been aggregated into pools of loans with common characteristics . in determining the allowance for losses on covered loans , we periodically perform an analysis to estimate the expected cash flows for each of the loan pools .
| in 2009 , non-interest income was increased by a $ 139.6 million bargain purchase gain on the amtrust acquisition and by a $ 10.1 million gain on the repurchase and exchange of certain reit- and trust preferred securities . on an after-tax basis , the respective gains were equivalent to $ 84.2 million and $ 6.5 million , and added $ 0.24 and $ 0.02 , respectively , to our 2009 diluted earnings per share . these contributions to non-interest income were largely offset by pre-tax otti losses on securities totaling $ 96.5 million , equivalent to $ 58.5 million , or $ 0.17 per diluted share , after-tax . in 2010 , the year-over-year increase in total revenues was tempered by a $ 28.0 million increase in the provision for losses on non-covered loans to $ 91.0 million , and by a $ 170.7 million increase in non-interest expense to $ 577.5 million . operating expenses accounted for $ 162.2 million of the increase in non-interest expense and totaled $ 546.2 million , primarily reflecting the full-year impact of the amtrust acquisition and the costs of operating a significantly larger franchise in five states . included in operating expenses in 2010 and 2009 were acquisition-related costs of $ 11.5 million and $ 5.2 million , respectively . notwithstanding the increase in operating expenses , our efficiency ratio improved to 35.99 % in 2010 from 36.13 % in the prior year . the impact of higher non-interest expense and the higher loan loss provision was exceeded by the significant increase in total revenues . as a result , pre-tax income rose $ 244.3 million year-over-year , to $ 837.5 million , and income tax expense rose $ 102.0 million to $ 296.5 million . net interest income in 2010 , our net interest income rose $ 274.6 million , or 30.3 % , to $ 1.2 billion , representing 77.7 % of total revenues for the year . the increase was fueled by a $ 279.2 million , or 17.1 % , rise in interest income to $ 1.9 billion , which far exceeded the impact of a $ 4.5 million rise in
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in addition , our sales represent a number of different products across a wide range of price points and distribution channels that do not always allow for meaningful quantitative analysis of changes in demand or price per unit with respect to the effect on sales and earnings . strategically , our current focus is on three mega trends that we believe will fuel the future growth of our company - continued growth of the internet and the variety of ways in which it can be accessed , expansion of mass transit , and further investment in clean technology . these trends and their related markets all require materials that perform to the highest standards , a characteristic which has been a key strength of our products over the years . we are also focused on growing our business both organically and through strategic acquisitions or technology investments that will add to or expand our product portfolio , as well as strengthen our presence in existing markets or expand into new markets . we will continue to focus on business opportunities and invest in expansion around the globe . our vision is to be the leading innovative , growth oriented , and high technology materials solutions provider for our selective markets . to achieve this vision , we must have an organization that can cost effectively develop , produce and market products and services that provide clear advantages for our customers and markets . 2013 executive summary in 2013 , rogers continued its transformation into a more agile , innovative and market driven organization . we experienced strong sales growth , particularly in the power electronics solutions and printed circuit materials operating segments , and were able to leverage this growth into stronger profitability as a result of the streamlining activities that were initiated in 2012. rogers ' core management team is now in place , and we are beginning to see the results of all the work that has already gone into realigning the corporation both internally and externally to better service our customers and markets . we are continuing to work to improve the corporation and have launched significant projects targeted at improving our infrastructure , particularly our information systems and manufacturing planning capabilities . we are also looking for new ways to grow , both organically through a combination of new product launches , new market applications , and geographic expansion , as well as externally through targeted acquisitions and technology initiatives . we announced the opening of the rogers innovation center , a partnership with northeastern university , that will focus on the long-term development of new technology platforms that we believe will be another opportunity to provide the future growth we are working to secure . we believe that the recent actions taken to transform rogers will provide a solid base for us to achieve our strategic goals and to increase value for our shareholders . from a results perspective , we achieved net sales of $ 537.5 million in 2013 , an increase of 7.8 % from $ 498.8 million in 2012. this strong rebound in 2013 can be primarily attributed to the growth in the printed circuit materials ( pcm ) operating segment of 14.2 % from $ 161.9 million in 2012 to $ 184.9 million in 2013 and in the power electronics solutions ( pes ) operating segment of 19.7 % from $ 134.3 million in 2012 to $ 160.7 million in 2013. at pcm , these increases were driven by significant growth in global telecommunications infrastructure capacity in both 3g and 4g base stations and antenna systems , as well as other new application areas such as automotive radar systems . at pes , these increases were driven by a significant rebound in demand for energy efficient motor drives , as well as the return of rail and solar power investment projects . these increases were partially offset by a 6.3 % decline in sales in the high performance foams operating segment from $ 179.4 million in 2012 to $ 168.1 million in 2013. this decline was driven by lower demand in mobile device applications , specifically in the tablet segment due in part to design changes and shifting market dynamics . however , significant progress was made in penetrating new opportunities in the consumer and general industrial segments where we continue to expand sales through application , technology and geographic expansion . from an operating results perspective , we achieved $ 49.3 million in operating income during 2013 , a 92.0 % improvement over the $ 25.7 million achieved in 2012 . 2013 and 2012 operating results included approximately $ 12.6 million and $ 19.7 million of special charges , respectively . the 2013 special charges were related to the impairment of an investment in solicore ( see footnote 9 - investment ) and severance related charges , while the 2012 special charges were related primarily to the various streamlining and restructuring activities that took place during the year . excluding these charges , operating results improved as a percentage of sales by 240 basis points from 9.1 % in 2012 to 11.5 % in 2013. these increases can be attributable both to the increased volumes achieved in 2013 as compared to 2012 , as well as the increased operating leverage we now enjoy as a result of the streamlining initiatives that began in 2012. going forward , we expect to experience continued success in our core markets , with pockets of pressure particularly in the mobile internet device market , as we expect rapid technology advancements as well as increased competition to put pressure on our sales volumes and profitability . however , we do believe many opportunities for growth exist , particularly as we expand our presence across new markets and regions , as well as further diversify our product portfolio in the markets we serve today . 29 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > million in 2012 . as a percentage of sales , r & d expenses were 4.0 % in 2013 and 3.9 story_separator_special_tag % in 2012 . the increase in r & d expenditures is consistent with our long term strategic plan of investing up to 6 % of net sales back into r & d activities . in the past year , we have made concerted efforts to begin realigning our r & d organization to better fit the future direction of the company , including dedicating resources to focus on current product extensions and enhancements to build our short term technology needs , as well as increasing investments directed at developing new platforms and technologies that are focused on long term growth initiatives , as evidenced by our partnership with northeastern university in boston , massachusetts that will create the rogers innovation center on their campus . restructuring and impairment charges restructuring and impairment charges were $ 10.4 million in 2013 as compared to $ 14.1 million in 2012 . in 2013 , these charges were comprised primarily of the following : ( i ) $ 4.6 million related to the impairment charge on the investment in solicore , inc. , ( ii ) $ 4.2 million of severance and related charges as a result of additional streamlining initiatives as well as changes to the executive management team , and ( iii ) a $ 1.5 million curtailment charge related to the freezing of the defined benefit pension plans . in 2012 , these charges were comprised primarily of the following : ( i ) $ 7.1 million in severance related charges resulting from the streamlining initiatives that took place throughout the year , including the early retirement program implemented in the first quarter of 2012 ; ( ii ) approximately $ 2.3 million related to the shut-down of the bremen manufacturing facility in germany and relocation of certain production to the manufacturing facility in carol stream , illinois ; and ( iii ) $ 3.8 million in severance related charges resulting from actions taken to move the final inspection operations of curamik from germany to hungary . equity income in unconsolidated joint ventures equity income in unconsolidated joint ventures was $ 4.3 million in 2013 , a decrease of 8.8 % from $ 4.7 million in 2012 . the decline was primarily due to the depreciation of the japanese yen against the u.s. dollar of approximately 22.2 % year over year , as well as the generally softer demand across most of the joint venture end markets . other income ( expense ) , net other income ( expense ) , net was expense of $ 1.2 million in 2013 as compared to expense of $ 0.2 million in 2012 . 2013 results included approximately $ 0.7 million of unfavorable mark to market adjustments related to copper hedging contracts and approximately $ 0.3 million related to unfavorable foreign currency translation adjustments . 2012 results included approximately $ 1.0 million of unfavorable foreign currency translation adjustment , partially offset by a $ 1.7 million gain from the sale of certain assets at the arizona and bremen , germany manufacturing facilities . realized investment gain ( loss ) realized investment gain ( loss ) represents the portion of the auction rate security impairment that relates to credit losses and is required to be recorded in the consolidated statements of income ( loss ) . there was no loss recognized in 2013 and a loss of $ 3.2 million recognized in 2012 . the 2012 loss was a result of the liquidation of the full auction rate securities portfolio , which resulted in the company receiving net cash proceeds of approximately $ 25.4 million . 31 interest income ( expense ) , net interest income ( expense ) , net was expense of $ 3.5 million in 2013 as compared to expense of $ 4.3 million in 2012. this expense relates to the interest expense on our long-term debt , as well as the interest expense on the long term obligation related to the leased power electronic solutions manufacturing facility in eschenbach , germany . the overall decline in the expense is driven by the decline in long term debt during 2013 as we paid down the facilities by $ 20.5 million from $ 98.0 million at december 31 , 2012 to $ 77.5 million at december 31 , 2013. income tax expense ( benefit ) our effective tax rate was 23.0 % in 2013 and ( 205.2 ) % in 2012. in both 2013 and 2012 , our tax rate was favorably impacted by the tax benefit associated with certain discrete rate items recorded during the year and also benefited from favorable tax rates on certain foreign business activity . in 2013 , the rate was primarily impacted by the following items : ( i ) 5.3 % benefit related to the lapse of statute in accordance with applicable accounting guidance ; and ( ii ) 6.8 % benefit related to foreign source income which is taxed at lower rates than income generated in the u.s. in 2012 , the rate was primarily impacted by the following items : ( i ) 232.5 % benefit related to the reversal of the valuation allowance on the u.s. deferred tax assets ; and ( ii ) 16.1 % benefit related to foreign source income which is taxed at lower rates than income generated in the u.s. in 2009 , we established a valuation allowance against substantially all of our u.s. deferred tax assets as we concluded that we did not have sufficient evidence to support the position that these assets would be utilized in the future . this conclusion was reached primarily due to the presence of recent cumulative losses in the u.s. and upon consideration of all other available evidence , both positive and negative , using a “ more likely than not standard ” in accordance with applicable accounting guidance .
| the remaining net improvement of 240 basis points is attributable primarily to efficiencies in the production process that enabled us to absorb lower cost , incremental manufacturing capacity through our existing manufacturing base while continuing to implement improvements in supply chain , product quality and procurement . selling and administrative expenses selling and administrative ( s & a ) expenses were $ 106.4 million in 2013 , an increase of 6.7 % from $ 99.7 million in 2012 . 2013 results included approximately $ 1.3 million of special charges comprised of $ 0.6 million in costs related to the move of certain manufacturing operations from the power electronic solutions manufacturing facility is eschenbach , germany to a lower cost 30 facility in hungary and $ 0.7 million of other severance related charges . 2012 results included approximately $ 5.8 million of special charges comprised primarily of a $ 2.9 million charge taken as a result of increasing the forecast period on asbestos related liabilities from 5 to 10 years during the fourth quarter of 2012 , as well as a $ 2.0 million charge related to the settlement of a pension obligation with the former chief executive officer of the company . excluding these charges , selling and administrative expense increased from $ 93.8 million in 2012 to $ 105.0 million in 2013. as a percentage of sales , excluding special charges , non-gaap selling and administrative expenses increased from 18.8 % in 2012 to 19.5 % in 2013. the overall increase in expenses is due to a variety of factors , including $ 9.3 million of incremental incentive and equity compensation costs , as there was no incentive compensation during 2012 due to the decline in results as compared to 2011 , and $ 1.6 million of higher amortization expense related to curamik intangible assets as the amortization expense is based on the expected future cash flows related to the respective assets , which results in some year to year volatility . these increases
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70 dividends as part of the financial repositioning , we increased our regular quarterly cash dividend by 50 percent from the previous quarterly dividend of $ 0.20 per share paid in december 2016 , to $ 0.30 per share for the dividends paid in each quarter of 2017. registrations in september 2016 , wpz filed a registration statement for its distribution reinvestment program . in may 2015 , we filed a shelf registration statement , as a well-known seasoned issuer . in february 2015 , wpz filed a shelf registration statement , as a well-known seasoned issuer , registering common units representing limited partner interests and debt securities . also in february 2015 , wpz filed a shelf registration statement for the offer and sale from time to time of common units representing limited partner interests in wpz having an aggregate offering price of up to $ 1 billion . these sales are to be made over a period of time and from time to time in transactions at prices which are market prices prevailing at the time of sale , prices related to market price , or at negotiated prices . such sales are to be made pursuant to an equity distribution agreement between wpz and certain banks who may act as sales agents or purchase for their own accounts as principals . during 2016 and 2015 , wpz received net proceeds of approximately $ 115 million and approximately $ 59 million , respectively , from equity issued under this registration ; there was no activity during 2017. distributions from equity-method investees the organizational documents of entities in which we have an equity-method investment generally require distribution of their available cash to their members on a quarterly basis . in each case , available cash is reduced , in part , by reserves appropriate for operating their respective businesses . ( see note 5 – investing activities of notes to consolidated financial statements for our more significant equity-method investees . ) credit ratings our ability to borrow money is impacted by our credit ratings and the credit ratings of wpz . the current ratings are as follows : rating agency outlook senior unsecured debt rating corporate credit rating wmb : s & p global ratings stable bb+ bb+ moody 's investors service positive ba2 n/a fitch ratings stable bb+ n/a wpz : s & p global ratings stable bbb bbb moody 's investors service positive baa3 n/a fitch ratings positive bbb- n/a during march 2017 , s & p global ratings upgraded its rating for both wmb and wpz . these credit ratings are included for informational purposes and are not recommendations to buy , sell , or hold our or wpz 's securities , and each rating should be evaluated independently of any other rating . no assurance can be given that the credit rating agencies will continue to assign us or wpz the ratings shown above even if we or wpz meet or exceed their current criteria . a downgrade of our credit ratings or the credit ratings of wpz might increase our future cost of borrowing and would require us to provide additional collateral to third parties , negatively impacting our available liquidity . 71 sources ( uses ) of cash the following table summarizes the sources ( uses ) of cash and cash equivalents for each of the periods presented ( see notes to consolidated financial statements for the notes referenced in the table ) : replace_table_token_15_th operating activities the factors that determine operating activities are largely the same as those that affect net income ( loss ) , with the exception of noncash items such as depreciation and amortization , provision ( benefit ) for deferred income taxes , net ( gain ) loss on disposition of equity-method investments , impairment of goodwill , impairment of equity-method investments , impairment of and net ( gain ) loss on sale of assets and businesses , gain on sale of geismar interest , and regulatory charges resulting from tax reform . our net cash provided ( used ) by operating activities in 2017 decreased from 2016 primarily due to the absence in 2017 of receipts from 2016 contract restructurings , partially offset by higher operating income in 2017. our net cash provided ( used ) by operating activities in 2016 increased from 2015 primarily due to the impact of net favorable changes in operating working capital and receipts from contract restructurings . 72 off-balance sheet arrangements and guarantees of debt or other commitments we have various other guarantees and commitments which are disclosed in note 3 – variable interest entities , note 10 – property , plant , and equipment , note 13 – debt , banking arrangements , and leases , note 16 – fair value measurements , guarantees , and concentration of credit risk , and note 17 – contingent liabilities and commitments of notes to consolidated financial statements . we do not believe these guarantees and commitments or the possible fulfillment of them will prevent us from meeting our liquidity needs . contractual obligations the table below summarizes the maturity dates of our contractual obligations at december 31 , 2017 : replace_table_token_16_th ( 1 ) includes the borrowings outstanding under credit facilities , but does not include any related variable-rate interest payments . ( 2 ) includes approximately $ 348 million in open property , plant , and equipment purchase orders . includes an estimated $ 314 million long-term ethane purchase obligation with index-based pricing terms that is reflected in this table at december 31 , 2017 prices . this obligation is part of an overall exchange agreement whereby volumes we transport on oppl are sold at a third-party fractionator near conway , kansas , and we are subsequently obligated to purchase ethane volumes at mont belvieu . story_separator_special_tag the purchased ethane volumes may be utilized or sold at comparable prices in the mont belvieu market . includes an estimated $ 454 million long-term ethane purchase obligation with index-based pricing terms that primarily supplies third parties at their plants and is valued in this table at a price calculated using december 31 , 2017 prices . any excess purchased volumes may be sold at comparable market prices . includes an estimated $ 765 million long-term mixed ngls purchase obligation with index-based pricing terms that is reflected in this table at december 31 , 2017 prices . includes an estimated $ 278 million long-term ethane purchase obligation with index-based pricing terms that primarily supplies a third party for consumption at their plant and is reflected in this table at a price calculated using december 31 , 2017 prices . any excess purchased volumes may be sold at comparable market prices . in addition , we have not included certain natural gas life-of-lease contracts for which the future volumes are indeterminable . we have not included commitments , beyond purchase orders , for the acquisition or construction of property , plant , and equipment or expected contributions to our jointly owned investments . ( see company outlook — expansion projects . ) ( 3 ) does not include estimated contributions to our pension and other postretirement benefit plans . we made contributions to our pension and other postretirement benefit plans of $ 90 million in 2017 and $ 72 million in 2016 . in 2018 , we expect to contribute approximately $ 91 million to these plans ( see note 9 – employee benefit plans of notes to consolidated financial statements ) . tax-qualified pension plans are required to meet minimum contribution requirements . in the past , we have contributed amounts to our tax-qualified pension plans in excess of the minimum required contribution . these excess amounts can be used to offset future minimum contribution requirements . during 2017 , we contributed $ 80 million to our tax-qualified pension plans . in addition to these contributions , a portion of the excess contributions was used to meet the minimum contribution requirements . during 2018 , we expect to contribute approximately $ 80 million to our tax-qualified pension plans and use excess amounts to satisfy minimum contribution requirements , if needed . additionally , estimated future minimum funding requirements may vary significantly from historical requirements if actual results differ significantly from estimated results for assumptions such as returns on plan assets , interest rates , retirement rates , mortality , and other significant assumptions or by changes to current legislation and regulations . 73 ( 4 ) we have not included income tax liabilities in the table above . see note 7 – provision ( benefit ) for income taxes of notes to consolidated financial statements for a discussion of income taxes , including our contingent tax liability reserves . effects of inflation our operations have historically not been materially affected by inflation . approximately 43 percent of our gross property , plant , and equipment is comprised of our interstate natural gas pipeline assets . they are subject to regulation , which limits recovery to historical cost . while amounts in excess of historical cost are not recoverable under current ferc practices , we anticipate being allowed to recover and earn a return based on increased actual cost incurred to replace existing assets . cost-based regulations , along with competition and other market factors , may limit our ability to recover such increased costs . for our gathering and processing assets , operating costs are influenced to a greater extent by both competition for specialized services and specific price changes in crude oil and natural gas and related commodities than by changes in general inflation . crude oil , natural gas , and ngl prices are particularly sensitive to the market perceptions concerning the supply and demand balance in the near future , as well as general economic conditions . however , our exposure to certain of these price changes is reduced through the fee-based nature of certain of our services and the use of hedging instruments . environmental we are a participant in certain environmental activities in various stages including assessment studies , cleanup operations , and or remedial processes at certain sites , some of which we currently do not own ( see note 17 – contingent liabilities and commitments of notes to consolidated financial statements ) . we are monitoring these sites in a coordinated effort with other potentially responsible parties , the epa , or other governmental authorities . we are jointly and severally liable along with unrelated third parties in some of these activities and solely responsible in others . current estimates of the most likely costs of such activities are approximately $ 38 million , all of which are included in accrued liabilities and regulatory liabilities , deferred income , and other in the consolidated balance sheet at december 31 , 2017 . we will seek recovery of the accrued costs related to remediation activities by our interstate gas pipelines totaling approximately $ 7 million through future natural gas transmission rates . the remainder of these costs will be funded from operations . during 2017 , we paid approximately $ 6 million for cleanup and or remediation and monitoring activities . we expect to pay approximately $ 10 million in 2018 for these activities . estimates of the most likely costs of cleanup are generally based on completed assessment studies , preliminary results of studies , or our experience with other similar cleanup operations . at december 31 , 2017 , certain assessment studies were still in process for which the ultimate outcome may yield different estimates of most likely costs . therefore , the actual costs incurred will depend on the final amount , type , and extent of contamination discovered at these sites , the final cleanup standards mandated by the epa
| approximately $ 1.7 billion of our growth capital funding needs include transco expansions and other interstate pipeline growth projects , most of which are fully contracted with firm transportation agreements . the remaining growth capital spending in 2018 primarily reflects investment in gathering and processing systems in the northeast region limited primarily to known new producer volumes , including volumes that support transco expansion projects including our atlantic sunrise project . in addition to growth capital and investment expenditures , we also remain committed to projects that maintain our assets for safe and reliable operations , as well as projects that meet legal , regulatory , and or contractual commitments . wpz intends to fund their planned 2018 growth capital with retained cash flow and debt . we retain the flexibility to adjust planned levels of growth capital and investment expenditures in response to changes in economic conditions or business opportunities . liquidity based on our forecasted levels of cash flow from operations and other sources of liquidity , we expect to have sufficient liquidity to manage our businesses in 2018. wpz expects to be self-funding and maintain separate bank accounts and credit facilities , including its commercial paper program . our potential material internal and external sources and uses of consolidated liquidity for 2018 are as follows : 69 applicable to : wpz wmb sources : cash and cash equivalents on hand ü ü cash generated from operations ü distributions from investment in wpz ü distributions from equity-method investees ü utilization of credit facilities and or commercial paper program ü ü cash proceeds from issuance of debt and or equity securities ü ü proceeds from asset monetizations ü uses : working capital requirements ü ü capital and investment expenditures ü investment in wpz ü quarterly distributions to unitholders ü < font
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we expect our revenue in the a & d market to be driven by the upgrading of radar systems and modern battlefield communications equipment and networks designed to improve situational awareness . growth in this market is subject to changes in governmental programs and budget funding , which is difficult to predict . we expect revenue in multi-market to be driven by diverse demand for our multi-purpose catalog products . critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements . the preparation of financial statements , in conformity with generally accepted accounting principles in the u.s. ( gaap ) , requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period . by their nature , these estimates and judgments are subject to an inherent degree of uncertainty and could be material if our actual or expected experience were to change unexpectedly . on an ongoing basis , we re-evaluate our estimates and judgments . we base our estimates and judgments on our historical experience and on other assumptions that we believe are reasonable under the circumstances , the results of which form the basis for making the judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results could differ from those estimates , and material effects on our operating results and financial position may result . the accounting policies which our management believes involve the most significant application of judgment , or involve complex estimation , are inventories and associated reserves ; goodwill and intangibles asset valuations and associated impairment assessments ; revenue reserves ; contingent consideration valuations ; share-based compensation valuations and income taxes and deferred income tax accounting . for additional information related to these and other accounting policies refer to note 2summary of significant accounting policies to our consolidated financial statements included in this annual report which is incorporated by reference herein . during the first quarter of 2015 we re-evaluated certain revenue recognition estimates and judgments associated with certain sales to distributors . we generally do not provide customers other than distributors the right to return product , with the exception of warranty related matters . accordingly , we do not typically maintain 45 a reserve for customers . shipping and handling fees billed to customers are recorded as revenue while the related costs are classified as a component cost of revenue . we provide warranties for certain products and accrue the costs of warranty claims in the period the related revenue is recorded . prior to fiscal 2015 , we had concluded that we had insufficient information as well as limited experience in estimating the effect of the right of distributors to return product and price protection and , accordingly , used the sell through approach of revenue recognition . under this approach , we would recognize revenue from sales after the distributor resold the product to its end customer ( the sell through basis ) . after concluding an extensive three year study of distributor related transactions , we completed an evaluation of our revenue recognition policy and concluded that it was more appropriate to recognize revenue to distributors at the time of shipment to the distributor ( sell-in basis ) . we believe we now have sufficient data to predict future price adjustments from distributors and has a basis of being able to reasonably estimate these future price adjustments . on a consolidated basis , revenue from distribution customers impacted by the change in estimate accounts for approximately 20-25 % of total consolidated revenue . certain agreements with distribution customers provide for rights of return and compensation credits until such time as our products are sold by the distributors to their end customers . we have agreements with some distribution customers for various programs , including compensation , volume-based pricing , obsolete inventory , new products and stock rotation . sales to these distribution customers , as well as the existence of compensation programs , are in accordance with terms set forth in written agreements with these distribution customers . in general , credits allowed under these programs are capped based upon individual distributor agreements . we record charges associated with these programs as a reduction of revenue at the time of sale with a corresponding adjustment to accounts receivable based upon historical activity . our policy is to use a 12 month rolling historical experience rate and an estimated general reserve percentage in order to estimate the necessary allowance to be recorded . during the first fiscal quarter of 2015 , we recorded corresponding adjustments related to this change in estimate to recognize previously deferred revenues . the net effect was an increase of $ 15.1 million , of which $ 12.4 million was from previously deferred revenue and $ 2.7 million was related to the change in distributor inventories . additionally , we recognized the related deferred inventory costs of $ 4.7 million which resulted in a reduction to net loss of $ 8.5 million , or a reduction of $ 0.18 net loss per share when the change in estimate was recorded . the full year impact of this change in estimate resulted in additional revenue of $ 17.4 million and a net income of $ 7.7 million , or $ 0.15 earnings per share . we also established a new reserve of $ 5.6 million during the first quarter of fiscal year 2015 which was increased to $ 6.0 million for the fiscal year ended october 2 , 2015 related to future rebates and returns under various programs associated with our distributor agreements . the amount of this reserve is largely driven by the individual distribution agreements and our business strategy whereby we will invoice the distributor at list price . we expect to issue compensation credits consistent with the distributor agreements . story_separator_special_tag the difference between the list price and distributor selling price will vary by product grouping consistent with historical trends and marketing strategies . historically , 90 percent of the credits issued to distributors are based on list price credits and 10 percent of the credits were for product returns and stock rotation rights , based upon the 12 month rolling historical experience rate . 46 the table below shows the changes in gross and net distributor revenue and reserve balances associated with the change in estimate for the fiscal year ended october 2 , 2015 ( in thousands ) : replace_table_token_6_th ( 1 ) this amount was recorded as deferred revenue as of october 3 , 2014 . ( 2 ) this amount represents the impact of the change in estimate associated with increases in distributor inventories as compared to the prior reporting period . ( 3 ) this amount represents the net revenue impact of the one-time change in estimate after applying the associated reserve for future credits and returns . ( 4 ) this amount represents the impact of the change in estimate associated with increases in distributor inventories as compared to the prior reporting period after applying the associated reserve for future credits and returns . ( 5 ) this amount reflects the change in the revenue reserve for future returns and credits . story_separator_special_tag year 2015 , sg & a expense increased $ 27.4 million , or 33.2 % , to $ 110.0 million , or 26.2 % of our revenue , compared with $ 82.6 million , or 24.4 % of our revenue for fiscal year 2014. the increase was primarily due to increased headcount and employee compensation expense related to acquired businesses , acquisition integration costs and higher litigation costs . restructuring charges . in fiscal year 2015 , restructuring charges were $ 1.3 million , or 0.3 % of our revenue compared with $ 14.8 million , or 4.4 % of our revenue for fiscal year 2014. restructuring charges were higher in 2014 primarily due to a reduction in headcount and changes related to payments associated with mindspeed employment agreements , as well as , reductions associated with the integration of the mindspeed business which included severance and related benefits . income ( loss ) from operations . in fiscal year 2015 , we reported income from operations of $ 10.1 million , or 2.4 % , compared to a loss from operations of $ 27.8 million , or 8.2 % . this change of $ 37.9 million , or 136.3 % , was primarily the result of higher revenue and gross profit associated with recently acquired businesses , partly offset by higher operating expenses in fiscal year 2015 compared the prior fiscal year 2014. warrant liability . in fiscal year 2015 , we recorded an expense of $ 6.0 million compared to an expense of $ 3.9 million for fiscal year 2014. the expense relates to the change in the estimated fair value of common stock warrants we issued in december 2010 , which we carry as a liability at fair value . our common stock price is a key input in determining the fair value of the warrant liability and has increased over the past year which has resulted in a higher expense . interest expense . in fiscal year 2015 , interest expense was $ 18.4 million , or 4.4 % of our revenue , compared with $ 12.4 million , or 3.6 % of our revenue for fiscal year 2014 , due to increased borrowings outstanding under our credit agreement at higher interest rates . the borrowings were primarily utilized to fund our acquisitions . other income . in fiscal year 2015 , other income , net , was $ 1.1 million expense and primarily related to contingent consideration income of $ 2.0 million associated with a 2014 product line divestiture and income for 50 services and fees earned under a transition services agreement related to a business sold during the fiscal year , offset by $ 3.5 million related to a minority equity investment impairment . discontinued operations . see note 19 to the consolidated financial statements for additional information . provision for income taxes . in fiscal year 2015 , the provision for income taxes was a benefit of $ 9.9 million compared to a benefit of $ 16.1 million for fiscal year 2014. the benefit decreased primarily due to a decrease in the current period taxable loss in the u.s. partially offset by income taxed in foreign jurisdictions . the difference between the u.s. federal statutory income tax rate of 35 % and the company 's effective income tax rates for fiscal year 2015 and 2014 , was primarily impacted by changes in fair values of the stock warrant liability which are not deductible nor taxable for tax purposes , as well as income taxed in foreign jurisdictions at generally lower tax rates , research and development credits , non-deductible compensation and for fiscal year 2015 provision to return adjustments . the aggregate net deferred income tax liabilities acquired in the binoptics acquisition were $ 33.3 million . at the date of the acquisition , binoptics had federal net operating loss ( nol ) carryforwards of approximately $ 44.9 million , which will expire at various dates through 2034 , and federal research and development tax credit carryforwards of $ 1.5 million . both the nol and the tax credits are subject to change-in-control limitations within the internal revenue code and , accordingly , the nol carryforwards were reduced to $ 43.3 million and the research and development credits were reduced to $ 1.1 million , to reflect the estimated realizable amount after consideration of the limitations . the nol carryforwards and tax credits are included in the computation of net deferred income tax assets arising from the acquisition . during fiscal year 2015 , the company 's unrecognized tax benefits did not change and remained at $ 1.7 million .
| in fiscal year 2015 , our revenue increased $ 81.4 million , or 24.0 % , to $ 420.6 million from $ 339.2 million for fiscal year 2014. revenue from our primary markets , the percentage of change between the years , and revenue by primary markets expressed as a percentage of total revenue were ( in thousands , except percentages ) : replace_table_token_10_th 49 in fiscal year 2015 , our networks market revenue increased by $ 90.6 million , or 49.4 % , compared to fiscal year 2014. the increase in revenue was primarily from sales of products from the binoptics acquisition in december 2014 and the full year impact of the mindspeed acquisition in december 2013. each of these acquisitions expanded our product offerings significantly . in fiscal year 2015 , our a & d market revenue decreased by $ 4.3 million , or 4.9 % , compared to fiscal year 2014. we attribute this decrease to lower demand and shipments of certain legacy radar programs as well as cyclical demand for radar applications . in fiscal year 2015 , our multi-market revenues decreased $ 4.9 million , or 7.2 % , compared to fiscal year 2014. the decrease in revenue in the 2015 period was primarily due to lower general market demand for catalog products , partially offset by distributor revenue adjustments associated with a change in estimate during the first quarter of fiscal year 2015. gross profit . in fiscal year 2015 , our gross profit increased by $ 62.7 million or 44.5 % , compared to fiscal 2014. gross margin of 48.4 % , increased 6.8 % , compared to fiscal year 2014. the higher gross profit was largely the result of a favorable product mix with higher revenue from recent acquisitions and legacy products , partially offset by acquisition related increases in amortization expense . research and development . in fiscal year 2015 , r & d expense increased $ 10.8 million , or 15.2 % , to $ 82.2 million , or 19.5 % of our revenue , compared with $ 71.4 million , or 21.0 %
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for the year ended december 31 , 2013 , overall selling and administrative expenses decreased by $ 3.4 million , or 9.2 % , to $ 33.8 million , as compared to $ 37.2 million for the same period in 2012. selling and administrative expenses , as a percentage of net sales decreased to 19.0 % , as compared to 21.4 % for the same period of 2012 . the decrease in selling and administrative expenses consisted of a $ 3.4 million decrease in payroll and payroll-related costs . 38 other operating costs other operating costs include travel , accounting/legal/consulting fees , credit card processing fees , banking fees , off-site storage fees , utilities , and other miscellaneous operating expenses . changes in other operating costs are associated with the changes in our net sales . for the year ended december 31 , 2013 , other operating costs increased by $ 1.1 million , or 4.4 % , to $ 25.1 million , as compared to $ 24.0 million for the same period in 2012. for the year ended december 31 , 2013 , other operating costs , as a percentage of net sales , were 14.1 % , as compared to 13.9 % for the same period in 2012. the increase in other operating costs was primarily due to a $ 0.7 million increase in travel costs and a $ 0.9 million increase attributed to transaction tax adjustments . these cost increases were partially offset by decreases in legal and consulting fees , facilities , repairs and maintenance cost . d uring 2012 , the company reduced by $ 0.9 million the accrued present value of the estimated future royalty payments related to the post-employment royalty benefit payable to dr. mcanalley to a $ 0.13 million liability at december 31 , 2012. the estimated post-employment royalty benefit payable to dr. mcanalley was a $ 0.07 million liability at december 31 , 2013. depreciation and amortization expense for the year ended december 31 , 2013 , depreciation and amortization expense was $ 2.1 million , as compared to $ 4.8 million for the same period in 2012. as a percentage of net sales , depreciation and amortization expense decreased to 1.2 % from 2.7 % for the same period in 2012. other income ( expense ) , net for the year ending december 31 , 2013 and 2012 , other income ( expense ) , net was ( $ 2.0 ) million and $ 0.6 million , respectively . during 2013 , the other expense included ( $ 1.0 ) million of customs taxes and ( $ 1.0 ) of foreign exchange loss . during 2012 , other income resulted from foreign exchange gains . provision for income taxes provision for income taxes include current and deferred income taxes for both our domestic and foreign operations . our statutory income tax rates by jurisdiction are as follows , for the years ended december 31 : replace_table_token_13_th 39 income from our international operations is subject to taxation in the countries in which we operate . although we may receive foreign income tax credits that would reduce the total amount of income taxes owed in the united states , we may not be able to utilize our foreign income tax credits in the united states . we use the recognition and measurement provisions of financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) topic 740 , income taxes ( “ topic 740 ” ) , to account for income taxes . the provisions of topic 740 require a company to record a valuation allowance when the “ more likely than not ” criterion for realizing net deferred tax assets can not be met . furthermore , the weight given to the potential effect of such evidence should be commensurate with the extent to which it can be objectively verified . as a result , we reviewed the operating results , as well as all of the positive and negative evidence related to realization of such deferred tax assets to evaluate the need for a valuation allowance in each tax jurisdiction . as of december 31 , 2013 and 2012 , we maintained our valuation allowance for deferred tax assets in the following table ( in millions ) , as we believe the “ more likely than not ” criterion for recognition and realization purposes , as defined in topic 740 , can not be met . replace_table_token_14_th the dollar amount of the provisions for income taxes is directly related to our profitability and changes in the taxable income among countries . for the years ended december 31 , 2013 and 2012 , our effective tax rate was ( 13.0 ) % and ( 363.1 ) % ，respectively . for 2013 , the effective income tax rate was lower than what would be expected if the federal statutory income tax rate were applied to income before taxes primarily because of the tax benefit recognized from an irs tax audit settlement , reversal of valuation allowances against net deferred tax assets and differences from foreign operations ( see note 14 to our consolidated financial statements , litigation ) . for 2012 , we had a provision for income tax despite the pre-tax losses primarily because of differences from foreign operations and increases in uncertain income tax positions . seasonality we believe the impact of seasonality on our consolidated results of operations is minimal . story_separator_special_tag we have experienced and believe we will continue to experience variations on our quarterly results of operations in response to , among other things : · the timing of the introduction of new products and incentives ; · our ability to attract and retain associates and members ; · the timing of our incentives and contests ; · the general overall economic outlook ; · government regulations ; · the outcome of certain lawsuits ; · the perception and acceptance of network marketing ; and · the consumer perception of our products and overall operations . as a result of these and other factors , our quarterly results may vary significantly in the future . period-to-period comparisons should not be relied upon as an indication of future performance since we can give no assurances that revenue trends in new markets , as well as in existing markets , will follow our historical patterns . the market price of our common stock may also be adversely affected by the above factors . 40 liquidity and capital resources cash and cash equivalents as of december 31 , 2013 , our cash and cash equivalents increased by 41.9 % , or $ 6.0 million , to $ 20.4 million from $ 14.4 million as of december 31 , 2012. our restricted cash balance increased during the period ending december 31 , 2013 by $ 0.5 million . finally , fluctuations in currency rates produced a decline of $ 0.4 million in cash and cash equivalents in 2013 as compared to a decline of $ 0.8 million in 2012. our principal use of cash is to pay for operating expenses , including commissions and incentives , capital assets , inventory purchases , and international expansion . in august 2009 , the quarterly cash dividend was suspended and remained suspended as of december 31 , 2013. we fund our business objectives , operations , and expansion of our operations through net cash flows from operations rather than incurring long-term debt . working capital working capital represents total current assets less total current liabilities . at december 31 , 2013 , our working capital increased by $ 2.4 million , or 21.6 % , to $ 13.5 million from $ 11.1 million at december 31 , 2012. the increase in working capital is primarily due to an increase in cash , prepaid expenses and deferred commissions , offset by commissions payable and deferred revenue . deferred commissions and deferred revenue increased during 2013 due to the loyalty program ( see note 1 to our consolidated financial statements , organization and summary of significant accounting policies ) . net cash flows our net consolidated cash flows consisted of the following , for the years ended december 31 ( in millions ) : replace_table_token_15_th operating activities due to improvements in profitability and the cash used in working capital , cash provided in operating activities was $ 8.6 million for the year ended december 31 , 2013 compared to cash used in operating activities of $ 1.5 million for the same period in 2012. investing activities for the year ended december 31 , 2013 , our net investing activities used cash of $ 0.6 million compared to cash used of $ 0.3 million for the same period of 2012. during the year ended december 31 , 2013 , we used cash of $ 0.6 million to purchase capital assets as compared to purchasing $ 0.4 million in capital assets for the same period in 2012. financing activities for the years ended december 31 , 2013 and 2012 , we used cash of $ 1.6 million and $ 1.1 million , respectively , primarily to repay capital lease obligations . general liquidity and cash flows short term liquidity we believe our existing liquidity and anticipated return to positive cash flows from operations are adequate to fund our normal expected future business operations and possible international expansion costs for the next 12 months . as our primary source of liquidity is our cash flow from operations , this will be dependent on our ability to maintain and increase revenue and or continue to reduce operational expenses . however , if our existing capital resources or cash flows become insufficient to meet current business plans , projections , and existing capital requirements , we may be required to raise additional funds , which may not be available on favorable terms , if at all . 41 we entered into an investment agreement with dutchess opportunity fund , ii , lp , a delaware limited partnership ( the “ investor ” ) on september 16 , 2010. the investor committed to purchase , subject to certain restrictions and conditions , up to $ 10 million of our common stock , over a period of 36 months from the first trading following the effectiveness of the registration statement , which was october 28 , 2010. this agreement expired on october 28 , 2013. no shares of our common stock were issued pursuant to the investment agreement . we are engaged in ongoing audits in various tax jurisdictions and other disputes in the normal course of business . it is impossible at this time to predict whether we will incur any liability , or to estimate the ranges of damages , if any , in connection with these matters . adverse outcomes on these uncertainties may lead to substantial liability or enforcement actions that could adversely affect our cash position . for more information , see note 8 income taxes and note 13 litigation to our consolidated financial statements .
| consolidated net sales for the year ended december 31 , 2013 increased by $ 4.0 million , or 2.3 % , to $ 177.4 million , as compared to $ 173.4 million for the same period in 2012. north america sales decreased by $ 4.3 million , or 5.0 % , to $ 82.2 million as compared to $ 86.5 million for the same period in 2012. asia/pacific sales increased by $ 9.8 million , or 13.9 % , to $ 80.3 million as compared to $ 70.6 million for the same period in 2012. emea sales decreased by $ 1.5 million , or 9.1 % , to $ 14.9 million as compared to $ 16.3 million for the same period in 2012. during 2013 , fluctuations in foreign currency exchange rates had an overall unfavorable impact on our net sales . in constant dollars , a non-gaap financial measure that calculates 2013 financial results in the prior year exchange rates , net sales for the year ending december 31 , 2013 grew by $ 9.0 million , compared to 2012. the net sales impact is calculated as the difference between ( 1 ) the current period 's net sales in usd and ( 2 ) the current period 's net sales in local currencies converted to usd by applying average exchange rates for the year ended december 31 , 2012. our total sales and sales mix could be influenced by any of the following : changes in our sales prices ; changes in consumer demand ; changes in the number of independent associates and members ; changes in competitors ' products ; changes in economic conditions ; changes in regulations ; announcements of new scientific studies and breakthroughs ; introduction of new products ; discontinuation of existing products ; adverse publicity ; changes in our commissions and incentives programs ; direct competition ; and fluctuations in foreign currency exchange rates . 36 our sales mix for the years ended december 31 , was as follows ( in millions , except percentages ) : replace_table_token_10_th pack sales correlate to new independent associates who purchase starter packs and to continuing independent associates who purchase upgrade or renewal packs . however , there is no direct correlation between product sales and
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strategy we are committed to being the care provider 's most trusted partner and executing on the vision of the autonomous pharmacy by delivering automation , intelligence , and advanced services , powered by a single , cloud-based platform . we believe there are significant challenges in pharmacy practice including , but not limited to , medication errors , drug shortages , medication loss due to drug diversion , significant medication waste and expiration costs , a high level of manual steps in the medication management automation process , complexity around compliance requirements , high pharmacy employee turnover rates , hospitalizations from adverse drug events in outpatient settings , high variability in outcomes , and limited inventory visibility . we believe that these significant challenges in pharmacy practice drive the demand for increased digitization and virtualization , and that our solutions enable this and represent large opportunities in four market categories : point of care . as a market leader , we expect to continue expansion of this product category as customers increase use of our dispensing systems in more areas within their hospitals . in addition , we are early in the replacement , upgrade , and expansion cycle of our xt series automated dispensing systems which we believe is a significant market opportunity and we expect to continue to focus on further penetrating markets through competitive conversions . we believe our current portfolio within the point of care market and new innovation and services will continue to drive improved outcomes and lower costs for our customers . central pharmacy . this market represents the beginning of the medication management process in acute care settings , and , we believe , the next big automation opportunity to replace manual and repetitive processes which are common in the pharmacy today . manual processes are prone to significant errors , and products such as ivx workflow , our iv sterile compounding solutions , and the xr2 automated central pharmacy system automate these manual processes and are designed to reduce the risk of error for our healthcare partners . we believe new products and innovations , including omnicell one , in the central pharmacy market create opportunities to replace prior generation central pharmacy robotics and carousels . the central pharmacy also represents an opportunity to provide technology-enabled services designed to reduce the administrative burden on the pharmacy and allow clinicians to operate at the top of their license . 340b software-enabled services . this market is targeted to covered entities participating in section 340b of the public health services act . the act requires pharmaceutical manufacturers participating in medicaid to sell outpatient drugs at discounted prices to health care organizations that care for many uninsured and low-income patients and results in a complex compliance environment . we believe that there are significant opportunities for health systems to improve participation benefits and maximize program savings through software-enabled services 38 and solutions . our omnicell 340b platform of technology-enabled services includes split billing software , contract pharmacy administration , specialty contract pharmacy administration , and drug discount access solutions . retail , institutional , and payer . we believe the retail , institutional , and payer market represents a large opportunity as the majority of drugs are distributed in the non-acute sector . new technology and updated state board regulations are leading to innovation at traditional retail providers , which , combined with the move to value-based care , we believe will incentivize the market to adopt solutions to help providers and payers engage patients in new ways that lower the total cost of care . we believe adoption of our enlivenhealth ( formerly population health solutions ) portfolio of software products and services , along with medication adherence packaging , will increase adherence performance rates , increase prescription volume for our customers , and reduce hospital and emergency room visits due to improved adherence . as retail pharmacies play an increasingly vital role in population health following the onset of the covid-19 pandemic , enlivenhealth has extended solutions to assist with vaccination programs , testing protocols , and patient engagement efforts . there are three main areas of focus : ◦ carescheduler is an exclusive digital solution that automates the scheduling , reporting , and patient outreach for administering the covid-19 vaccine and other vaccines and testing procedures . ◦ medication synchronization is an appointment-based solution that aligns a patient 's medications to a single refill date , designed to improve medication adherence and reduce hospital readmissions . ◦ medication therapy management is a platform that offers intuitive workflow with high-level decision support for efficiently completing cms-compliant comprehensive medication reviews using pharmacy claims data . we believe our technology , services , and solutions within these market categories position us well to address the needs of retail , acute , and post-acute pharmacy providers . covid-19 update keeping in mind our role in the healthcare industry , we are continuing to closely monitor the covid-19 pandemic . as a result of the covid-19 pandemic , health systems have faced financial pressures which we believe led our customers to delay or defer purchasing decisions and or implementation of our solutions during the first half of 2020. however , starting in the third quarter of 2020 , we began to see our customers returning to pre-pandemic purchasing patterns consistent with long-term strategic investments . we believe that the challenges that our customers have faced during the covid-19 pandemic , including the need for robust visibility throughout their pharmacy supply chains , have increased the strategic relevance of our products and services . though we expect to continue to face challenges and opportunities brought on by the covid-19 pandemic , we remain confident in the overall health of our business and in our ability to navigate through these unusual times . story_separator_special_tag acquisitions on october 1 , 2020 , we completed the acquisition of the 340b link business ( the “ 340b link business ” ) of pharmaceutical strategies group , llc pursuant to the terms and conditions of the equity purchase agreement , dated august 11 , 2020 , as amended , by and among the company , psgh , llc , bw apothecary holdings , llc , the sellers identified therein and the seller 's representative for total cash consideration of $ 225.0 million . the acquisition adds a comprehensive and differentiated suite of software-enabled services and solutions used by certain eligible hospitals , health systems , clinics , and entities to manage compliance and capture 340b drug cost savings on outpatient prescriptions filled through the eligible entity 's pharmacy or a contracted pharmacy partner . the results of the operations of the 340b link business have been included in our consolidated results of operations beginning october 1 , 2020. critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles ( “ gaap ” ) . the preparation of these financial statements requires us to make certain estimates and assumptions that affect the reported amounts of assets and liabilities , disclosure of any contingent assets and liabilities at the date of the financial statements , and the reported amounts of revenues and expenses during the reporting periods . we regularly review our estimates and assumptions , which are based on historical experience and various other factors that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of certain assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates and assumptions . we believe the following critical accounting policies are affected by significant judgments and estimates used in the preparation of our consolidated financial statements : 39 revenue recognition we earn revenues from sales of our products and related services , which are sold in the healthcare industry , our principal market . prior to recognizing revenue , we identify the contract , performance obligations , and transaction price , and allocate the transaction price to the performance obligations . all identified contracts meet the following required criteria : parties to the contract have approved the contract ( in writing , orally , or in accordance with other customary business practices ) and are committed to perform their respective obligations . a majority of our contracts are evidenced by a non-cancelable written agreement . contracts for consumable products are generally evidenced by an order placed via phone or a purchase order . entity can identify each party 's rights regarding the goods or services to be transferred . contract terms are documented within the written agreements . where a written contract does not exist , such as for consumable products , the rights of each party are understood as following our standard business process and terms . the entity can identify the payment terms for the goods or services to be transferred . payment terms are documented within the agreement and are generally net 30 to 60 days from shipment of tangible product or services performed for customers in the united states . where a written contract does not exist , our standard payment terms are net 30 day terms . the contract has commercial substance ( that is the risk , timing , or amount of the entity 's future cash flows is expected to change as a result of the contract ) . our agreements are an exchange of cash for a combination of products and services which result in changes in the amount of our future cash flows . it is probable the entity will collect the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer . we perform a credit check for all significant customers or transactions and where collectability is not probable , payment in full or a substantial down payment is typically required to help assure the full agreed upon contract price will be collected . distinct goods or services are identified as performance obligations . a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer are considered a single performance obligation . where a good or service is determined not to be distinct , we combine the good or service with other promised goods or services until a bundle of goods or services that is distinct is identified . to identify our performance obligations , we consider all of the products or services promised in the contract regardless of whether they are explicitly stated or are implied by customary business practices . when performance obligations are included in separate contracts , we consider an entire customer arrangement to determine if separate contracts should be considered combined for the purposes of revenue recognition . most of our sales , other than renewals of support and maintenance , contain multiple performance obligations , with a combination of hardware systems , consumables and software products , support and maintenance , and professional services . the transaction price of a contract is determined based on the fixed consideration , net of an estimate for variable consideration such as various discounts or rebates provided to customers . as a result of our commercial selling practices , contract prices are generally fixed with minimal , if any , variable consideration . the transaction price is allocated to separate performance obligations proportionally based on the standalone selling price of each performance obligation . standalone selling price is best evidenced by the price we charge for the good or service when selling it separately in similar circumstances to similar customers .
| the effects of the covid-19 pandemic have had an adverse impact on our revenues for the year ended december 31 , 2020. during the first half of 2020 , we experienced delays in implementations and lower product bookings compared to management 's expectations prior to the covid-19 outbreak . starting in the third quarter of 2020 , we began to see our customers returning to pre-pandemic purchasing patterns consistent with long-term strategic investments . future developments with respect to the covid-19 pandemic remain uncertain and may impact future periods . cost of revenues and gross profit cost of revenues is primarily comprised of three general categories : ( i ) standard product costs which account for the majority of the product cost of revenues that are provided to customers , and are inclusive of purchased material , labor to build the product and overhead costs associated with production ; ( ii ) installation costs as we install our equipment at the customer site and include costs of the field installation personnel , including labor , travel expenses , and other expenses ; and ( iii ) other costs , including variances in standard costs and overhead , scrap costs , rework , warranty , provisions for excess and obsolete inventory , and amortization of software development costs and intangibles . replace_table_token_4_th cost of revenues for the year ended december 31 , 2020 compared to the year ended december 31 , 2019 increased by $ 18.8 million , of which $ 9.1 million was attributed to the increase in cost of product revenues and $ 9.7 million was attributed to the increase in cost of services and other revenues . the increase in cost of product revenues is reflective of investments made to drive the customer experience and support expected annual revenue levels which were impacted by the covid-19 pandemic . while product revenues decreased by $ 23.6 million for the year ended december 31 , 2020 compared to the year ended december 31 , 2019 , cost of product revenues increased by $ 9.1 million primarily due to certain fixed costs , such as labor and overhead . the increase in cost of product revenues
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our practice is to include sales from a store in comparable store sales beginning on the first day of the 61st week following the store 's opening and to exclude sales from a closed store from comparable store sales beginning on the day of closure . we include sales from an acquired store in comparable store sales on the later of ( i ) the day of acquisition or ( ii ) the first day of the 61st week following the store 's opening . this practice may differ from the methods that other retailers use to calculate similar measures . we use pro forma comparable store sales to calculate pro forma comparable store sales growth . see the table titled “ supplemental pro forma data—net sales ” in item 6. selected financial data . our net sales have increased as a result of new store openings and comparable store sales growth and the additional week in fiscal 2015. factors that influence comparable store sales growth and other sales trends include : · general economic conditions and trends , including levels of disposable income and consumer confidence ; · consumer preferences and buying trends ; · our ability to identify market trends , and to source and provide product offerings that promote customer traffic and growth in average ticket ; · the number of customer transactions and average ticket ; · the prices of our products , including the effects of inflation and deflation ; · opening new stores in the vicinity of our existing stores ; · advertising , in-store merchandising and other marketing activities ; and · our competition , including competitive store openings in the vicinity of our stores and competitor pricing and merchandising strategies . cost of sales , buying and occupancy and gross profit cost of sales includes the cost of inventory sold during the period , including direct costs of purchased merchandise ( net of discounts and allowances ) , distribution and supply chain costs , buying 38 costs and supplies . merchandise incentives received from vendors are reflected in the carrying value of invento ry when earned or as progress is made toward earning the rebate or allowance , and are reflected as a component of cost of sales as the inventory is sold . inflation and deflation in the prices of food and other products we sell may periodically affect our g ross profit and gross margin . the short-term impact of inflation and deflation is largely dependent on whether or not we pass the effects through to our customers , which will depend upon competitive market conditions . occupancy costs include store rental , property taxes , utilities , common area maintenance , amortization of favorable and unfavorable leasehold interests and property insurance . occupancy costs do not include building depreciation , which is classified as a direct store expense . our cost of sales , buying and occupancy and gross profit are correlated to sales volumes . as sales increase , gross margin is affected by the relative mix of products sold , pricing strategies , inventory shrinkage and improved leverage of fixed costs of sales , buying and occupancy . direct store expenses direct store expenses consist of store-level expenses such as salaries and benefits , related equity-based compensation , supplies , depreciation and amortization for buildings , store leasehold improvements , equipment and other store specific costs . as sales increase , direct store expenses generally decline as a percentage of sales . selling , general and administrative expenses selling , general and administrative expenses primarily consist of salaries and benefits costs , equity-based compensation , advertising , acquisition-related costs and corporate overhead . we charge third-parties to place advertisements in our in-store guide and newspaper circulars . we record consideration received from vendors in connection with cooperative advertising programs as a reduction to advertising costs when the allowance represents reimbursement of a specific and identifiable cost . advertising costs are expensed as incurred . store pre-opening costs store pre-opening costs include rent expense during construction of new stores and costs related to new store openings , including costs associated with hiring and training personnel and other miscellaneous costs . store pre-opening costs are expensed as incurred . store closure and exit costs we recognize a reserve for future operating lease payments associated with facilities that are no longer being utilized in our current operations . the reserve is recorded based on the present value of the remaining non-cancelable lease payments after the cease use date less an estimate of subtenant income . if subtenant income is expected to be higher than the lease payments , no accrual is recorded . lease payments included in the closed store reserve are expected to be paid over the remaining terms of the respective leases . our assumptions about subtenant income are based on our experience and knowledge of the area in which the closed property is located , guidance received from local brokers and agents and existing economic conditions . adjustments to the closed store reserve relate primarily to changes in actual or estimated subtenant income and changes in actual lease payments from original estimates . adjustments are made for changes in estimates in the period in which the change becomes known , considering timing of new information regarding market , subleases or other lease updates . changes in reserve estimates are classified as store closure and exit costs in the consolidated statements of operations . 39 provision for incom e taxes on july 29 , 2013 , sprouts farmers markets , llc , a delaware limited liability company , converted into sprouts farmers market , inc. , a delaware corporation . see “ —factors affecting comparability of result of operations—corporate conversion. ” the corporate conversion has not had a material impact on our results of operations , financial position or cash flows since we were treated as a corporation for income tax purposes prior to the conversion . factors affecting comparability of results of operations additional week in 2015 fiscal 2015 consists of 53 weeks . story_separator_special_tag the 53rd week resulted in additional sales and expenses as further discussed in “ —comparison of fiscal 2015 to fiscal 2014 ” below . adoption of deferred tax asset guidance in fiscal 2015 , we adopted the guidance under financial accounting standards board ( “ fasb ” ) accounting standards update ( “ asu ” ) no . 2015-17 , “ income taxes ( topic 740 ) : balance sheet classification of deferred taxes ” . asu no . 2015-17 requires that deferred tax liabilities and assets be classified as noncurrent in our consolidated balance sheet . we elected to early adopt the guidance prospectively , and as such , did not restate prior periods to conform to the current presentation . april 2015 refinancing in april 2015 , we completed a transaction in which we refinanced our debt ( referred to as the “ april 2015 refinancing ” ) , as further discussed in “ —liquidity and capital resources ” below . the april 2015 refinancing resulted in an decrease in borrowings , a reduction in interest rate and the recording of a loss on extinguishment of debt . april 2013 refinancing in april 2013 , we completed a transaction in which we refinanced our debt ( the “ april 2013 refinancing ” ) and made a distribution to our equity and option holders , as further discussed in “ —liquidity and capital resources ” below . the april 2013 refinancing resulted in an increase in borrowings , a reduction in interest rate and the recording of a loss on extinguishment of debt . corporate conversion in connection with our ipo , on july 29 , 2013 , sprouts farmers markets , llc , a delaware limited liability company , converted into sprouts farmers market , inc. , a delaware corporation . as part of the corporate conversion , holders of membership interests of sprouts farmers markets , llc in the form of class a and class b units received 11 shares of our common stock for each unit held immediately prior to the corporate conversion , and options to purchase units became options to purchase 11 shares of our common stock for each unit underlying options outstanding immediately prior to the corporate conversion , at the same aggregate exercise price in effect prior to the corporate conversion . for the convenience of the reader , except where the context otherwise requires , information in this annual report on form 10-k has been presented giving effect to the corporate conversion . the corporate conversion has not had a material impact on the comparability of our results of operations , since we were treated as a corporation for income tax purposes prior to the conversion . ipo on august 6 , 2013 , we completed our initial public offering of 21,275,000 shares of common stock of sprouts farmers market , inc. , including 2,775,000 shares of common stock issued as a result of the exercise in full of the underwriters ' option to purchase additional shares , at a price of $ 18.00 per share . 40 we sold 20,477,215 shares of common stock , including the additional shares , and certain stockholders sold the remaining 797,785 shares . we received net proceeds from our ipo of approximately $ 344.1 million , after deducting underwriting discounts and offering expenses . we used the net proceeds to repay $ 340.0 million of outstanding indebtedness under our former term loan and for general corporate purposes . we recorded a loss on extinguishment of debt related to the repayment . 41 story_separator_special_tag stores operated prior to 2014 and ( iii ) new store openings . net sales growth at stores operated prior to december 29 , 2013 contributed $ 343.0 million , or 65 % of the increase in net sales for 2014. new store openings during 2014 contributed $ 186.5 million , or 35 % , of the increase in net sales during 2014. cost of sales , buying and occupancy and gross profit replace_table_token_17_th cost of sales , buying and occupancy increased during 2014 compared to 2013 , primarily due to the increase in sales from new store openings and comparable store sales growth , as discussed above . gross profit increased $ 157.0 million as a result of increased sales volume and $ 2.9 million as a result of increased margin . the 10 basis point increase in gross margin during 2014 was primarily driven by leverage in occupancy , utilities and buying costs partially offset by lower merchandise margins from higher inflation in certain categories and increased promotional activities . direct store expenses replace_table_token_18_th direct store expenses increased $ 85.4 million , primarily due to a $ 43.2 million increase for stores operated prior to 2014. the remaining $ 42.2 million increase in direct store expenses is associated with stores opened during 2014. direct store expenses , as a percentage of net sales , decreased 80 basis points , primarily due to leverage in payroll , lower utilization of medical benefits , leverage in depreciation and store level expenses . selling , general and administrative expenses replace_table_token_19_th 46 the increase in selling , general and administrative expenses included $ 4.6 million of advertising expense due to additional new stores and new markets , $ 4.2 million of corporate payroll and benefits to support growth , $ 2.6 million of corporate bonus due to goal attainment , $ 1.8 million of regional expenses due to increased store count and expansion into new regions , $ 1.3 million increase in it maintenance due to growth . $ 0.9 million increase in depreciation primarily du e to accelerated depreciation for corporate office move , $ 0.5 million increase in secondary offering expenses including related payroll taxes and other less significant increases . these increases were partially offset by a $ 3.2 million ipo bonus expense in the prior year , a $ 1.4 million decrease in accounting fees related to the insourcing of certain functions , and $ 1.1 million decrease in share based compensation expense due to vesting of historical grants .
| the gross margin decrease was primarily driven by continued price investments in certain categories and produce tightness due to adverse weather conditions and west coast port strikes that limited product availability , compared to a very strong produce season in the prior year . the impact of the 53 rd week on gross margin was insignificant . direct store expenses replace_table_token_13_th direct store expenses increased $ 124.4 million , due to a $ 64.1 million increase in direct store expenses associated with stores operated prior to 2015 and $ 60.3 million of direct store expenses related to stores opened during 2015. included in that increase was approximately $ 12.7 million of direct store expenses attributable to the 53 rd week in 2015. direct store expenses , as a percentage of net sales , was relatively flat year over year . lower bonus expense was offset by increased training and by higher payroll costs due to an extra holiday in the year . the impact of the 53 rd week on direct store expenses was insignificant . 43 selling , general and administrative exp enses replace_table_token_14_th the increase in selling , general and administrative expenses included $ 5.9 million for advertising expense to support growth into new markets , $ 4.0 million for corporate payroll to support growth and internalize outsourced functions , $ 2.4 million of increased share-based compensation expense related to changes in the executive team , $ 1.8 million for regional payroll and benefits to support additional store count and growth into new regions , $ 0.7 million for regional expenses to support growth and $ 1.6 million increase in depreciation and occupancy expense for our new corporate headquarters . in addition , selling , general and administrative expenses were impacted by the 53 rd week of 2015 by approximately $ 0.6 million . these increases were partially offset by $ 2.2 million less in offering expenses in current year , a $ 1.9 million decrease in bonus expense due to lower expected attainment and current year benefit from lower than expected actual payments for the prior fiscal year and a $ 1.6 million decrease in expense
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the dmc 's recommendation was based on the committee 's assessment of safety and data integrity of all patients randomized in the trial as of october 4 , 2018. the dmc reviewed study data at regular intervals throughout the patient enrollment period , with the primary responsibilities of ensuring the safety of all patients enrolled in the study , the quality of the data collected , and the continued scientific validity of the study design . as part of its review of all 556 patients enrolled into the trial , the dmc evaluated a quality matrix relating to the total clinical data set , confirming the timely collection of data , that all data are current as well as other data collection and quality criteria . 32 post-hoc data analysis from the company 's earlier phase iii heat study suggest that thermodox® may substantially improve os , when compared to the control group , in patients if their lesions undergo a 45-minute rfa procedure standardized for a lesion greater than 3 cm in diameter . data from nine os sweeps have been conducted since the top line progression free survival ( “ pfs ” ) data from the heat study were announced in january 2013 , with each data set demonstrating substantial improvement in clinical benefit over the control group with statistical significance . on august 15 , 2016 , the company announced updated results from its final retrospective os analysis of the data from the heat study . these results demonstrated that in a large , well bounded , subgroup of patients with a single lesion ( n=285 , 41 % of the heat study patients ) , treatment with a combination of thermodox® and optimized rfa provided an average 54 % risk improvement in os compared to optimized rfa alone . the hazard ratio ( “ hr ” ) at this analysis is 0.65 ( 95 % ci 0.45 - 0.94 ) with a p-value of 0.02. median os for the thermodox® group has been reached which translates into a two-year survival benefit over the optimized rfa group ( projected to be greater than 80 months for the thermodox® plus optimized rfa group compared to less than 60 months projection for the optimized rfa only group ) . additional findings from this most recent analysis specific to the chinese patient cohort of 223 patients are summarized below : ● in the population of 154 patients with a single lesion who received optimized rfa treatment for 45 minutes or more showed a 53 % risk improvement in os ( hr = 0.66 ) when treated with thermodox® plus optimized rfa . ● these data continue to support and further strengthen thermodox® 's potential to significantly improve os compared to an rfa control in patients with lesions that undergo optimized rfa treatment for 45 minutes or more . the clinical benefit seen in the intent-to-treat chinese patient cohort further confirms the importance of rfa heating time as 72 % of patients in this large patient cohort in china received an optimized rfa treatment . while this information should be viewed with caution since it is based on a retrospective analysis of a subgroup , we also conducted additional analyses that further strengthen the evidence for the heat study sub-group . we commissioned an independent computational model at the university of south carolina medical school . the results indicate that longer rfa heating times correlate with significant increases in doxorubicin concentration around the rfa treated tissue . in addition , we conducted a prospective preclinical study in 22 pigs using two different manufacturers of rfa and human equivalent doses of thermodox® that clearly support the relationship between increased heating duration and doxorubicin concentrations . on november 29 , 2016 , the company announced the results of an independent analysis conducted by the national institutes of health ( the “ nih ” ) from the heat study which reaffirmed the correlation between increased rfa burn time per tumor volume and improvements in overall survival . the nih analysis , which sought to evaluate the correlation between rfa burn time per tumor volume ( min/ml ) and clinical outcome , concluded that increased burn time per tumor volume significantly improved overall survival in patients treated with rfa plus thermodox® compared to patients treated with rfa alone . for all patients with single lesions treated with rfa plus thermodox® : ● one-unit increase in rfa duration per tumor volume improved overall survival by 20 % ( p=0.017 ; n=227 ) ; ● more significant differences in subgroup of patients with rfa burn times per tumor volume greater than 2.5 minutes per ml ; ● cox multiple covariate analysis showed overall survival to be significant ( p=0.038 ; hazard ratio = 0.85 ) ; and ● burn time per tumor volume did not have a significant effect on overall survival in single lesion patients treated with rfa only . the heat study . on january 31 , 2013 , we announced that thermodox ® in combination with radio frequency ablation ( “ rfa ” ) did not meet the primary endpoint of progression free survival ( “ pfs ” ) for the 701-patient clinical trial in patients with hepatocellular carcinoma ( hcc ) , also known as primary liver cancer ( the heat study ) . we determined , after conferring with the heat study 's independent dmc , that the heat study did not meet the goal of demonstrating persuasive evidence of clinical effectiveness , that being a clinically meaningful improvement in progression free survival ( pfs ) , that could form the basis for regulatory approval . in the trial , thermodox ® was well-tolerated with no unexpected serious adverse events . following the announcement of the heat study results , we continued to follow patients for overall survival ( os ) , the secondary endpoint of the heat study . we have conducted a comprehensive analysis of the data from the heat study to assess the future strategic value and development strategy for thermodox ® . story_separator_special_tag findings from the heat study post-hoc data analysis suggest that thermodox ® may substantially improve overall survival , when compared to the control group , in patients if their lesions undergo a 45-minute rfa procedure standardized for a lesion greater than 3 cm in diameter . data from nine os sweeps have been conducted since the top line pfs data from the heat study were announced in january 2013 , with each data set demonstrating progressive improvement in clinical benefit and statistical significance . on august 15 , 2016 , the company announced the most recent post-hoc os analysis from the heat study . these results demonstrated that in a large , well bounded subgroup of patients with a single lesion ( n=285 , 41 % of the heat study patients ) , the combination of thermodox® and optimized rfa provided an average 54 % risk improvement in os compared to optimized rfa alone . the hazard ratio at this latest os analysis is 0.65 ( 95 % ci 0.45 - 0.94 ) with a p-value of 0.02. median os for the thermodox® group has been reached which translates into a two-year survival benefit over the optimized rfa group ( projected to be greater than 80 months for the thermodox® plus optimized rfa group compared to less than 60 months projection for the optimized rfa only group ) . these data continue to strongly suggest that thermodox ® may significantly improve overall survival compared to an rfa control in patients whose lesions undergo optimized rfa treatment for 45 minutes or more as well as support the protocol for our phase iii optima study as described below . 33 findings from the heat study post-hoc data analysis have shown to be well balanced and not diminished in anyway by other factors . supplementary computational modeling and prospective preclinical animal studies have shown additional support the relationship between heating duration and clinical outcomes . these data have been presented , without objection , at multiple scientific and medical conferences in 2013 through 2016 by key heat study investigators and leading liver cancer experts . on october 16 , 2017 , the company announced the publication of the manuscript , “ phase iii heat study adding lyso-thermosensitive liposomal doxorubicin to radiofrequency ablation in patients with unresectable hepatocellular carcinoma lesions , ” in clinical cancer research , a peer-reviewed medical journal . the article reports on one of the largest controlled studies in hepatocellular carcinoma . it provides a comprehensive review of thermodox ® for the treatment of primary liver cancer . the article details learnings from the company 's 701 patient heat study and includes results from computer simulation studies and includes findings from a post hoc subgroup analysis , all of which are consistent with each other and which - when examined together - suggests a clearer understanding of a key thermodox® heat-based mechanism of action : the longer the target tissue is heated , the greater the doxorubicin tissue concentration . additionally , the article explores a new hypothesis prompted by these findings : thermodox® when used in combination with radiofrequency ablation ( rfa ) standardized to a minimum dwell time of 45 minutes ( srfa > 45 minutes ) , may increase the overall survival ( os ) of patients with hcc . the lead author is won young tak , m.d. , ph.d. , professor internal medicine , gastroenterology & hepatology , kyungpook national university hospital daegu , republic of korea , and there are 22 heat study co-authors along with nicholas borys , m.d. , celsion 's senior vice president and chief medical officer . immuno-oncology program on june 20 , 2014 , we completed the acquisition of substantially all of the assets of egen , a private company located in huntsville , alabama . pursuant to the asset purchase agreement , clsn laboratories acquired all of egen 's right , title and interest in and to substantially all of the assets of egen , including cash and cash equivalents , patents , trademarks and other intellectual property rights , clinical data , certain contracts , licenses and permits , equipment , furniture , office equipment , furnishings , supplies and other tangible personal property . a key asset acquired from egen was the theraplas technology platform and the first drug developed from it is gen-1 . theraplas technology platform theraplas is a technology platform for the delivery of dna and mrna therapeutics via synthetic non-viral carriers and is capable of providing cell transfection for double-stranded dna plasmids and large therapeutic rna segments such as mrna . there are two components of the theraplas system , a plasmid dna or mrna payload encoding a therapeutic protein , and a delivery system . the delivery system is designed to protect the dna/rna from degradation and promote trafficking into cells and through intracellular compartments . we designed the delivery system of theraplas by chemically modifying the low molecular weight polymer to improve its gene transfer activity without increasing toxicity . we believe that theraplas is a viable alternative to current approaches to gene delivery due to several distinguishing characteristics , including enhanced molecular versatility that allows for complex modifications to improve activity and safety . the design of theraplas delivery system is based on molecular functionalization of polyethyleneimine ( pei ) , a cationic delivery polymer with a distinct ability to escape from the endosomes due to heavy protonation . the transfection activity and toxicity of pei is tightly coupled to its molecular weight therefore the clinical application of pei is limited . we have used molecular functionalization strategies to improve the activity of low molecular weight peis without augmenting their cytotoxicity . in one instance , chemical conjugation of a low molecular weight branched bpei1800 with cholesterol and polyethylene glycol ( peg ) to form peg-pei-cholesterol ( ppc ) dramatically improved the transfection activity of bpei1800 following in vivo delivery . together , the cholesterol and peg modifications produced approximately 20-fold enhancement in transfection activity .
| this decrease in r & d expenses resulted from cost concessions negotiated with our lead contract research organization ( cro ) for the optima study as well as lower monthly cro fees and program expenses after completion of enrollment of this phase iii study during the third quarter of 2018. costs associated with the ovation studies were $ 0.4 million in 2018 compared to $ 0.2 million in 2017. the company announced the completion of enrollment of all cohorts of the ovation i study in 2017. the company initiated the ovation 2 study during 2018. other clinical costs remained relatively unchanged at $ 2.5 million in 2018 and compared to $ 2.4 million in 2017. in 2018 , other clinical costs included an increase of $ 0.5 million in non-cash stock compensation expense compared to the same period of 2017. in early 2017 , the company executed a cost reduction plan by reducing the costs associated with the support of the thermodox® studies in europe . the majority of the $ 0.5 million in 2017 costs were realized in the first quarter of 2017. costs associated with the production of thermodox to support the optima study remained relatively unchanged at $ 1.1 million in 2018 and 2017. the company expects the clinical supply costs associated with supporting the optima study to be significantly reduced starting in 2019. costs associated with clsn laboratories ( which includes research and development activities for gen-1 , theraplas and therasilence ) were $ 2.8 million in 2018 compared to $ 2.3 million in 2017 as the company expanded its manufacturing capabilities and reduced the costs to manufacture gen-1 for its planned clinical study requirements beyond 2018. other research and development costs related to preclinical operations and regulatory affairs were $ 0.3 million in 2018 compared to $ 0.2 million in 2017. general and administrative expenses general and administrative expenses increased to $ 9.7 million in 2018 compared to $ 5.9 million in 2017. this increase is primarily attributable to ( i ) higher professional fees of approximately $ 0.7 million ,
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the engineered materials business net sales decreased from $ 1,451 in fiscal 2011 to $ 1,362 in fiscal 2012 as a result of a volume decline of 8 % partially offset by net selling price increases of 1 % and net sales from acquired businesses of 1 % . the volume decline is primarily attributed to a decrease in sales volumes due to the strategy we implemented in fiscal 2011 to improve profitability in products with historically lower margins . net sales in the flexible packaging business decreased from $ 796 in fiscal 2011 to $ 737 in fiscal 2012 as a result of a volume decline of 10 % partially offset by 3 % net selling price increases . the volume decline is primarily due to a decrease in sales volumes due to the strategy implemented in fiscal 2011 discussed above . operating income . operating income increased from $ 42 ( 1 % of net sales ) in fiscal 2011 to $ 325 ( 7 % of net sales ) in fiscal 2012. this increase , excluding the impact from acquisitions , is primarily attributed to $ 59 from the relationship of net selling price to raw material costs , $ 29 decrease of depreciation expense , $ 11 decrease in amortization expense , $ 188 decrease in business integration and impairment charges , and $ 35 of improved manufacturing efficiencies partially offset by $ 27 from volume declines described above , $ 4 of increased selling , general and administrative expenses and $ 8 of operating loss from acquisitions . the operating income from acquisitions for periods without comparable prior year activity was negative $ 8 which includes $ 29 of selling , general and administrative expenses , $ 28 of business integration expenses , $ 37 of depreciation expense and $ 14 of amortization expense . the following discussion in this section provides a comparison of operating income by business segment . replace_table_token_4_th operating income for the rigid open top business increased from $ 155 ( 12 % of net sales ) in fiscal 2011 to $ 159 ( 13 % of net sales ) in fiscal 2012. this increase is primarily attributed to a $ 26 improvement in the relationship of net selling price to raw material costs and $ 12 reduction of depreciation and amortization expense partially offset by a decline in manufacturing efficiencies of $ 6 , $ 17 increase in business integration expenses , volume declines described above of $ 7 and $ 4 increase of selling , general and administrative expenses . operating income for the rigid closed top business increased from $ 77 ( 7 % of net sales ) in fiscal 2011 to $ 95 ( 7 % of net sales ) in fiscal 2012. this increase is primarily attributed to a $ 28 increase of manufacturing efficiencies , $ 5 reduction of selling , general and administrative expense , $ 4 from acquisition volume and $ 9 reduction of depreciation and amortization expense partially offset by $ 2 decrease -19- in the relationship of net selling price to raw material costs , $ 9 from the volume decline described above and $ 17 of increased business integration expense . operating income for the engineered materials business improved from a loss of $ 71 ( -5 % of net sales ) in fiscal 2011 to $ 70 ( 5 % of net sales ) in fiscal 2012. this increase is primarily attributed to a $ 18 improvement in the relationship of net selling price to raw material costs , $ 14 of improved operating performance in manufacturing , $ 4 reduction of depreciation and amortization expense and $ 127 decrease in business integration and impairment charges partially offset by $ 8 of volume decline described above , $ 12 loss from acquisition volume and $ 2 increase in selling , general and administrative expenses . operating loss for the flexible packaging business improved from a loss of $ 119 ( -15 % of net sales ) in fiscal 2011 to $ 1 ( 0 % of net sales ) in fiscal 2012. this improvement is primarily attributed to a $ 17 improvement in the relationship of net selling price to raw material costs , $ 96 reduction of business integration and impairment charges and $ 16 reduction of depreciation and amortization expense partially offset by $ 4 from the volume decline described above , $ 4 increase of selling , general and administrative expense , and a $ 1 decline in manufacturing efficiencies . other expense ( income ) net . other expense ( income ) improved from expense of $ 61 in fiscal 2011 to income of $ 7 in fiscal 2012. fiscal 2011 other expense is primarily related to the loss on extinguishment of debt of $ 68 attributed to the write-off of deferred fees , debt discount and the premiums paid related to the debt extinguishment of the company 's 8⅞ % second priority senior secured notes partially offset by a gain attributed to the fair value adjustment for our interest rate swaps . the fiscal 2012 other income is primarily a contract settlement . interest expense , net . interest expense increased slightly from $ 327 in fiscal 2011 to $ 328 in fiscal 2012. income tax expense ( benefit ) . fiscal 2012 , we recorded an income tax expense of $ 2 or an effective tax rate of 50 % compared to an income tax benefit of $ 47 or an effective tax rate of 14 % in fiscal 2011 due to the relative impact of permanent items on the pre-tax income and establishment of valuation allowance for certain foreign losses where benefits are not expected to be realized . net income ( loss ) . net income ( loss ) improved from a net loss of $ 299 in fiscal 2011 to net income of $ 2 in fiscal 2012 for the reasons discussed above . discussion of results of operations for fiscal 2011 compared to fiscal 2010 net sales . story_separator_special_tag net sales increased to $ 4,561 for fiscal 2011 from $ 4,257 for fiscal 2010. this increase is primarily attributed to increased selling prices of 9 % as a result of higher plastic resin costs as noted in the “ raw material trends ” section above and the company pursuing a strategy to improve product profitability in markets with historically lower margins and acquisition volume growth of 5 % partially offset by a base volume decline of 7 % . the following discussion in this section provides a comparison of net sales by business segment . replace_table_token_5_th net sales in the rigid open top business increased from $ 1,160 in fiscal 2010 to $ 1,261 in fiscal 2011 as a result of net selling price increases of 10 % due to the factors noted above and acquisition growth attributed to superfos packaging , inc. ( “ superfos ” ) of 1 % partially offset by a base volume decline . the base volume decline is primarily attributed to a decrease in sales volumes in various container products due to market softness partially offset by continued volume growth in thermoforming drink cups as capital investments from prior periods provided additional capacity . net sales in the rigid closed top business increased from $ 970 in fiscal 2010 to $ 1,053 in fiscal 2011 as a result of net selling price increases of 6 % due to the factors noted above and acquisition volume growth attributed to rexam sbc of 4 % partially offset by a base volume decline . the base volume decline is primarily attributed to a decrease in sales volumes in closures and tubes due to softness in the personal care market . net sales in the engineered materials business decreased from $ 1,457 in fiscal 2010 to $ 1,451 in fiscal 2011 as a result of a base volume decline of 11 % partially offset by acquisition volume growth attributed to pliant corporation ( “ pliant ” ) and filmco of 3 % and net selling price increases of 8 % due to the factors listed above . the base volume decline is primarily attributed to a decrease in sales volumes in bags , sheeting , institutional can liners and stretch film . the bags and sheeting decreases were primarily due to the loss of the private label wal-mart waste bag business and our -20- decision to exit certain sheeting businesses during fiscal 2010. the declines in institutional can liners and stretch film were primarily attributed to the company strategically addressing products with profitability that was lower than the value we believed our product provided to our customers . net sales in the flexible packaging business increased from $ 670 in fiscal 2010 to $ 796 in fiscal 2011 primarily as a result of net selling price increases of 13 % due to the factors listed above and acquisition growth attributed to pliant of 19 % partially offset by a base volume decline of 13 % . the base volume decline is primarily attributed to a decrease in sales volumes in personal care films and barrier films . these declines were primarily attributed to the company strategically addressing products with profitability that was lower than the value we believed our products provided to our customers . operating income . operating income decreased from $ 124 in fiscal 2010 to $ 42 in fiscal 2011. this decrease is primarily attributed to a $ 165 non-cash goodwill impairment , $ 11 increase integration and business optimization expenses excluding acquisition activity for periods without comparable prior year activity , $ 15 increase in depreciation expense excluding acquisition activity for periods without comparable prior year activity , and $ 13 from base volume decline described above partially offset by $ 61 from the relationship of net selling price to raw material costs , $ 5 decrease in amortization expense excluding acquisition activity for periods without comparable prior year activity , $ 9 of operating income from acquisitions for periods without comparable prior year activity , and $ 48 of improved operating performance . the operating income from acquisition for periods without comparable prior year activity includes $ 2 of selling , general and administrative expenses and $ 4 of amortization expense . the following discussion in this section provides a comparison of operating income by business segment . replace_table_token_6_th operating income for the rigid open top business increased from $ 124 ( 11 % of net sales ) for fiscal 2010 to $ 155 ( 12 % of net sales ) in fiscal 2011. this increase is primarily attributed to $ 19 of improved operating performance in manufacturing , $ 22 from the relationship of net selling price to raw material costs and $ 4 reduction of business optimization expense partially offset by $ 9 of higher selling , general and administrative expenses and $ 9 of higher depreciation and amortization expense . operating income for the rigid closed top business increased from $ 73 ( 8 % of net sales ) for fiscal 2010 to $ 77 ( 7 % of net sales ) in fiscal 2011. this increase is primarily attributed to $ 16 of improved operating performance in manufacturing partially offset by a $ 2 negative relationship of net selling price to raw material costs , $ 3 of higher selling , general and administrative costs , $ 5 increase in restructuring costs and $ 4 decline from base volume partially offset by $ 4 of operating income from acquisitions .
| our business has both geographic and end market diversity , which reduces the effect of any one of these factors on our overall performance . our results are affected by our ability pass through raw material cost changes to our customers , improve manufacturing productivity and adapt to volume changes of our customers . we seek to improve our overall profitability by implementing cost reduction programs for our manufacturing , selling and general and administrative expenses . looking forward to the first fiscal quarter of 2013 , we believe overall economic activity will continue to remain sluggish , but modestly positive , as it has been for the past three quarters . despite headwinds we will be facing and assuming volumes remain consistent , we anticipate profitability , as defined as adjusted ebitda less pro forma adjustments , will improve versus the first fiscal quarter of 2012 . -17- recent developments in october 2012 , we completed our initial public offering selling 29,411,764 shares of common stock at $ 16.00 per share . we used proceeds of our initial public offering , net of underwriting fees , of $ 444 and cash on hand to repurchase all $ 455 of 11 % senior subordinated notes due september 15 , 2016. in connection with the initial public offering , we entered into an income tax receivable agreement that provides for the payment by us to our pre-initial public offering stockholders , option holders and holders of our stock appreciation rights of 85 % of the amount of cash savings , if any , in u.s. federal , foreign , state and local income tax that we actually realize ( or are deemed to realize in the case of a change of control ) as a result of the utilization of our and our subsidiaries ' net operating losses attributable to periods prior to the initial public offering . we expect to pay between $ 300 and $ 350 in cash related to this agreement , based on our current taxable income
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gross profit in the outdoor equipment business decreased $ 1,099 from 2011 due to decreases in sales , but increased as a percent of net sales from 36.7 % in the prior year to 37.3 % in 2012. the increase in gross profit as a percentage of net sales in 2012 was largely driven by the impact of the flood in the prior year results and a favorable mix in the military tent business in the current year . gross profit in the watercraft segment was $ 1,800 lower than 2011 levels and decreased as a percent of sales from 32.5 % in 2011 to 29.2 % in 2012. the decrease in gross profit was due primarily to the mix of lower priced product as well as the closure of the u.k. sales office and the sale of its remaining inventory to a distributor at low margins . gross profit for the diving segment increased by $ 1,363 and increased as a percentage of sales from 48.2 % in 2011 to 50.6 % in 2012. the increase in margin was driven primarily by price increases implemented in the current year to address the impact of cost increases in the prior year . 18 operating expenses operating expenses overall decreased from the prior year by $ 2,556. the decrease was driven by a $ 3,500 favorable settlement with an insurance carrier that was recognized as an expense reduction in the company 's second fiscal quarter and $ 2,600 of lower legal expenses , offset in part by an increase in bad debt expense , higher incentive compensation expense , and higher deferred compensation expense resulting from the increase in the market value of the non-qualified plan 's assets . operating expenses for the marine electronics segment decreased by $ 1,470 from 2011 levels . the decrease was due mainly to lower legal and warranty costs offset in part by higher incentive compensation and severance costs related to the closure of the european office . outdoor equipment operating expenses decreased by $ 934 from their levels in 2011 due primarily to the recovery of flood related losses in the current year versus flood related expenses incurred in the prior year . see further discussion of the impact of the flooding at note 14 to the consolidated financial statements included elsewhere in this report . the watercraft business saw a decline in operating expenses of $ 2,743 from the prior year due primarily to the favorable insurance settlement of $ 3,500 which was partially offset by costs related to the closure of the u.k. office and restructuring activities in the u.s. see further discussion of the impact of the insurance settlement at note 13 to the consolidated financial statements included elsewhere in this report . operating expenses for the diving business decreased by $ 1,434 due primarily to the $ 1,636 favorable impact of currency translation which was offset in part by higher bad debt expense driven by the economic conditions in southern europe . operating results the company 's operating profit was $ 21,413 in 2012 compared to an operating profit of $ 17,670 in fiscal 2011. marine electronics operating profit increased by $ 4,156 from the prior year . outdoor equipment operating profit declined year over year from $ 2,996 to $ 2,831. the watercraft business incurred an operating loss in 2012 of $ 408 , compared to a loss of $ 1,351 in the prior year . diving operating profit increased $ 2,798 from the prior year . other income and expenses interest expense decreased from the prior year by $ 962 , due largely to lower principal balances , decreases in interest rates and lower expense for amortization of interest rate swaps . interest income was approximately $ 100 in both years . other income of $ 631 in fiscal 2012 compared to other expense of $ 2,290 in the prior year . the current year included currency losses of $ 213 which were more than offset by market gains of $ 1,320 on deferred compensation plan assets . in the prior year , this line item included $ 1,701 of currency losses and market losses of $ 253 on the deferred compensation plan assets . market gains and losses on deferred compensation plan assets recognized in other income and expense are offset in full in operating expenses . pretax income and income taxes the company realized pretax income of $ 19,926 in fiscal 2012 , compared to pretax income of $ 12,250 in fiscal 2011. the company recorded income tax expense of $ 9,792 in 2012 compared to $ 20,394 of income tax benefit in 2011. the 2011 benefit reflected the net reduction of the company 's deferred tax asset valuation allowance which was a result of the company 's determination at the end of fiscal 2011 that it was more likely than not to realize the majority of its deferred tax assets . see further discussion of the deferred tax asset valuation allowance in note 6 to the consolidated financial statements found elsewhere in this report . net income the company recognized net income of $ 10,134 in fiscal 2012 , or $ 1.03 per diluted common share , compared to net income of $ 32,644 in fiscal 2011 , or $ 3.36 per diluted common share , based on the factors discussed above . 19 fiscal 2011 vs fiscal 2010 net sales net sales in 2011 increased 6.5 % to $ 407,422 compared to $ 382,432 in 2010. the increase was driven primarily by the success of new products in the marine electronics business . those sales , in addition to favorable foreign currency translations which positively impacted sales by $ 6,367 in comparison to 2010 , more than offset significant declines in sales in the outdoor equipment and watercraft businesses . net sales for the marine electronics business increased $ 36,621 , or 19.7 % , during 2011. both the minn kota and humminbird brands grew by over 20 % in all channels and each exceeded $ 100 million in sales . story_separator_special_tag the increases were primarily the result of the introduction of successful new products including talon shallow water anchors and humminbird down imaging fishfinders . outdoor equipment net sales decreased $ 9,808 in 2011 , or 20.1 % , primarily due to significant reductions in military spending and the temporary closure of the binghamton , new york facility due to the flood that occurred in september 2011. see further discussion of the impact of the flooding at note 14 to the consolidated financial statements included elsewhere in this report . the watercraft business experienced a decline in sales of $ 6,269 , or 9.8 % , across all sales channels and all brands . both a slow start to the paddling season due to unfavorable weather conditions and overall weak demand were the primary drivers leading to the decline year over year . the diving business saw an increase in sales of $ 4,468 , or 5.3 % year over year , due in large part to favorable currency translation of $ 3,656 , or 4.3 % year over year , as well as wider distribution of the new subgear brand and increased scubapro demand . cost of sales cost of sales was 60.0 % of net sales on a consolidated basis for the year ended september 30 , 2011 compared to $ 228,909 or 59.9 % of net sales in 2010. the cost of sales increase of $ 15,378 was primarily attributable to the increase in sales volume during 2011 as compared to 2010. gross profit gross profit of $ 163,135 was 40.0 % of net sales on a consolidated basis for the year ended september 30 , 2011 compared to $ 153,523 million or 40.1 % of net sales in the prior year . the gross profit increase of $ 9,612 was primarily attributable to the increase in sales volume during 2011 as compared to 2010. gross profit in the marine electronics business increased $ 16,209 from 2010 due to higher sales volume . favorable product mix and increased efficiencies resulting from the higher sales volumes improved this segment 's gross profit as a percent of net sales from 38.1 % in 2010 to 39.1 % in 2011. gross profit in the outdoor equipment business decreased $ 3,738 from 2010 , and declined as a percent of net sales from 37.0 % to 36.7 % in 2011 primarily due to lower volumes and the related reduced absorption of fixed costs . gross profit in the watercraft segment was 32.5 % of net sales in 2011 and was $ 3,695 lower than 2010 levels , which were equal to 35.1 % of net sales . the decrease in gross profit was due primarily to lower sales volumes and reduced absorption of fixed costs . gross profit for the diving segment increased by $ 828 but decreased as a percentage of sales from 49.7 % in 2010 to 48.2 % in 2011 primarily due to increases in product and component costs . operating expenses operating expenses increased in 2011 from 2010 by $ 6,497. the increase was mainly attributable to higher direct expenses related to higher sales volumes , increased r & d spending and higher legal costs . 20 operating expenses for the marine electronics segment increased by $ 9,073 from 2010 levels . the increase was due mainly to increased direct expenses as the result of higher sales volumes and increased legal costs . outdoor equipment operating expenses decreased by $ 854 from 2010 levels due primarily to lower marketing related costs which were driven by the declines in sales volume during 2011. the watercraft business saw a decline in operating expenses of $ 517 from 2010 due primarily to lower direct expenses driven by lower sales volume which were offset in part by increased freight costs . operating expenses for the diving business increased by $ 249 due primarily to the $ 2,067 unfavorable impact of currency translation which was largely offset by the effects of cost reduction efforts undertaken in this segment . story_separator_special_tag margin-left : 0pt ; margin-right : 0pt '' > the company has contractual obligations and commitments to make future payments under its existing credit facilities , including interest , operating leases and open purchase orders . the following schedule details these significant contractual obligations at september 28 , 2012. replace_table_token_9_th the company utilizes letters of credit primarily as security for the payment of future claims under its workers ' compensation insurance . letters of credit outstanding at september 28 , 2012 were $ 1,401 compared to $ 2,103 on september 30 , 2011 and were included in the company 's total loan availability . the company had no unsecured revolving credit facilities at its foreign subsidiaries as of september 28 , 2012. the company had no unsecured lines of credit as of september 28 , 2012. the company has no other off-balance sheet arrangements . the company anticipates making contributions to its defined benefit pension plans of $ 1,140 through september 27 , 2013. on november 14 , 2012 , subsequent to the end of the company 's most recent fiscal year the company acquired all of the outstanding common and preferred stock of jetboil , inc. ( “ jetboil ” ) . jetboil , founded and based in manchester , new hampshire , designs and manufactures the world 's top brand of outdoor cooking systems . the approximately $ 16,000 acquisition was funded with existing cash and credit facilities . the company believes that sales of jetboil 's innovative cooking products can be expanded through the company 's global marketing and distribution network and both companies will benefit from an increased presence in the outdoor specialty trade channel . the jetboil acquisition will be included in the company 's outdoor equipment segment . the company anticipates that jetboil will contribute approximately $ 10,000 of sales and $ 1,500 of operating profit to fiscal 2013 results .
| see further discussion of the deferred tax asset valuation allowance in note 6 to the consolidated financial statements found elsewhere in this report . net income the company recognized net income of $ 32,644 in fiscal 2011 , or $ 3.36 per diluted common share , compared to net income of $ 6,539 in fiscal 2010 , or $ 0.68 per diluted common share , based on the factors discussed above . 21 financial condition , liquidity and capital resources the company 's cash flows from operating , investing and financing activities , as reflected in the accompanying consolidated statements of cash flows , are summarized in the following table : replace_table_token_6_th operating activities the following table sets forth the company 's working capital position at the end of each of the years shown : replace_table_token_7_th cash flows provided by operations totaled $ 31,764 , $ 30,980 and $ 19,751 in fiscal 2012 , 2011 and 2010 , respectively . the most significant drivers in the increase in cash flows from operations over the past two years were increases in income and decreases in accounts receivable . depreciation and amortization charges were $ 11,882 , $ 10,877 and $ 9,977 in fiscal 2012 , 2011 and 2010 , respectively . investing activities cash flows used for investing activities were $ 10,789 , $ 13,323 and $ 9,271 in fiscal 2012 , 2011 and 2010 , respectively . the purchase of waypoint technologies inc. and pro map technologies inc. , the maker of lakemaster® brand high definition electronic lake charts used $ 3,969 of cash in fiscal 2011. expenditures for property , plant and equipment were $ 12,032 , $ 9,367 and $ 9,966 in fiscal 2012 , 2011 and 2010 , respectively . in general , the company 's ongoing capital expenditures are primarily related to tooling for new products and facilities and information systems improvements . financing activities the following table sets forth the company 's debt and capital structure at the end of the past two fiscal years : replace_table_token_8_th cash flows used for
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we expect to support these initiatives with internet and social media campaigns on such websites as facebook , twitter , and youtube designed to communicate with the consumer in fun , engaging , and informative ways . 19 as a result of our efforts to date , our total net sales for the year ended december 31 , 2010 were 53 % greater than total net sales during the year ended december 31 , 2009 , with loose jewel sales and finished jewelry sales improving 43 % and 106 % period to period , respectively . the increase in net sales , combined with close scrutiny of our cost structure resulting in the elimination of unnecessary expenses and the renegotiation of many other expenses , led to a profitable first quarter of 2010 , the first time we posted a profit since the third quarter of 2007. we remained profitable throughout 2010. there can be no assurance that future results for each reporting period will exceed past results in sales , operating cash flow , and or net income due to the challenging business environment in which we operate , our changing business model , and our investment in various initiatives to support our growth strategies . however , we remain committed to our current priorities of generating positive cash flow and strengthening our financial position through cost-reduction initiatives and selling down our inventory while we execute and refine our strategy and messaging initiatives . we believe that we have the right leadership team to execute the strategic roadmap that can continue to significantly improve our business . we believe the results of these efforts will propel us to new heights of revenue growth and profitability and further enhance shareholder value in coming years , but we fully recognize the business and economic challenges in which we operate . 2010 summary the following is a summary of key financial results and certain non-financial results achieved for the year ended december 31 , 2010 : · we grew our total net sales by $ 4.37 million , or 53 % , to $ 12.69 million in 2010 from $ 8.31 million in 2009. the improvement in 2010 sales was primarily due to the execution of our strategy to revitalize existing customer relationships , the addition of several new domestic and international customers during the year , an expansion of our business into finished jewelry featuring moissanite , and the improvement in the overall retail environment . · we reduced our operating expenses by $ 1.58 million , or 19 % , in 2010 primarily as a result of very tight cost control initiatives that commenced in the latter part of 2009. fiscal 2009 also included a non-recurring impairment loss on long-lived assets , severance , certain professional services including management fees paid pursuant to a professional services agreement , and research and development expenses . as we grow our business , we will continue to closely manage our operating expenses by seeking the most cost effective and efficient solutions . · we achieved a $ 5.17 million improvement in profitability with net income totaling $ 1.56 million in 2010 compared to a net loss of $ 3.62 million in 2009. our earnings per share improved $ 0.27 to $ 0.08 in 2010 from a net loss per share of $ 0.19 in 2009 . · we generated positive cash flows from operations during 2010 of $ 1.48 million . · cash and liquid long-term investments at december 31 , 2010 were $ 8.75 million compared to $ 7.41 million at december 31 , 2009. the primary reasons for this increase are a $ 1.48 million cash flow from operations that included net income of $ 1.56 million , a decrease in inventory of $ 3.10 million , an increase in trade accounts payable of $ 277,000 , and a net increase in accrued liabilities of $ 170,000 that more than offset an increase in trade accounts receivable of $ 3.38 million , an increase in income tax receivable of $ 113,000 , and an increase in prepaid expenses and other assets of $ 154,000 . · total inventory , including long-term and consignment inventory , was $ 37.38 million as of december 31 , 2010 , which was down from approximately $ 39.13 million at the end of 2009 primarily as a result of sales , offset in part by purchases of raw material sic crystals that we agreed to purchase from cree in full satisfaction of a 2007 purchase commitment ; jewelry castings , findings , and other jewelry components ; and limited production of moissanite gemstones . we believe we have a significant opportunity to build our cash position as we sell down our on-hand inventory . · we continue to carry no long-term debt and believe we can fund our growth strategies for the foreseeable future from operating cash flows . 20 critical accounting policies and estimates our discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements , which we prepared in accordance with accounting principles generally accepted in the united states , or u.s. gaap . the preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues , and expenses and related disclosures of contingent assets and liabilities . “ critical accounting policies and estimates ” are defined as those most important to the financial statement presentation and that require the most difficult , subjective , or complex judgments . we base our estimates on historical experience and on various other factors that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . under different assumptions and or conditions , actual results of operations may materially differ . story_separator_special_tag the most significant estimates impacting our consolidated financial statements relate to valuation and classification of inventories , accounts receivable reserves , deferred tax assets , uncertain tax positions , and cooperative advertising . we also have other policies that we consider key accounting policies , the most significant of which is our policy for revenue recognition ; however , this policy typically does not require us to make estimates or judgments that are difficult or subjective . inventories - inventories are stated at the lower of cost or market on an average cost basis . our finished goods inventory consists primarily of near-colorless moissanite jewels that meet rigorous grading criteria and are of cuts and sizes most commonly used in the jewelry industry . as of december 31 , 2010 , we carried only a limited amount of moissanite jewels in finished jewelry settings , and the carrying value of these jewels is included in the finished jewelry valuation described below . our moissanite jewel inventories do not degrade in quality over time and are not subject to fashion trends . we have very small market penetration in the worldwide jewelry market and have the exclusive right through 2015 to produce and sell created sic for use in jewelry applications . in view of the foregoing factors , we have concluded that no excess or obsolete loose jewel inventory reserve requirements existed as of december 31 , 2010. during 2002 , we established a lower of cost or market reserve of $ 400,000 to allow for a portion of the finished goods inventory to be re-cut to achieve higher quality standards . to determine this reserve , we estimated the amount of inventory that was anticipated to be re-cut and the amount of weight loss that would occur during the process . since the establishment of this reserve , no portion of the loose jewel inventories had been re-cut . in 2010 , we identified several customers for the sale of lower grades of loose jewels and finished jewelry containing these jewels without the need to re-cut them ; therefore , this reserve was not deemed necessary and was reversed in december 2010. jewelry inventories consist primarily of finished goods , the majority of which we acquired as part of the january 2009 settlement agreement with a former manufacturer customer to reduce the outstanding receivable to us . due to the lack of a plan to market this inventory at that time , a jewelry inventory reserve was established to reduce the majority of the jewelry inventory value to scrap value , or the amount we would expect to obtain by melting the gold in the jewelry and returning to loose-jewel finished goods inventory those jewels that meet grading standards . to determine the amount of the jewelry reserve , we needed to estimate the amount of gold in each piece of jewelry , the price per ounce we would receive for the gold , and the amount of jewels that could be returned to finished goods inventory . this scrap reserve has declined as the associated jewelry is sold down , and the balance was $ 496,000 and $ 1.35 million at december 31 , 2010 and 2009 , respectively . in 2010 , we entered the finished jewelry business and began manufacturing jewelry containing our moissanite jewels . this inventory is not subject to this reserve , though we review the finished jewelry inventory on an ongoing basis for any lower of cost or market and obsolescence issues and have concluded that no such finished jewelry inventory reserve requirements relating to our new line of finished jewelry products existed as of december 31 , 2010. any inventory in excess of our current requirements based on historical and anticipated levels of sales is classified as long-term on our consolidated balance sheets . our classification of long-term inventory requires us to estimate the portion of inventory that can be realized over the next 12 months . accounts and note receivable reserves - estimates are used to determine the amount of two reserves against trade accounts receivable . the first reserve is an allowance for sales returns . at the time revenue is recognized , we estimate future returns and reduce sales and accounts receivable by this estimated amount . this amount is estimated using our historical return rate and takes into account any contractual return privileges granted to customers . the allowance for sales returns was $ 117,000 and $ 145,000 at december 31 , 2010 and 2009 , respectively . second , an 21 allowance for doubtful accounts is established to reduce trade accounts receivable to an amount expected to be collected . based on historical percentages of uncollectible accounts by aging category , changes in payment history , and facts and circumstances regarding specific accounts that become known to management when evaluating the adequacy of the allowance for doubtful accounts , we determine a percentage based on the age of the receivable that we deem uncollectible . the allowance is then calculated by applying the appropriate percentage to each of our receivables . any increases or decreases to this allowance are charged or credited as a bad debt expense to general and administrative expenses . any accounts with significant balances are reviewed separately to determine an appropriate allowance based on the facts and circumstances of the specific account . during our review for 2010 , we specifically reviewed and recorded an allowance for the balance owed to us by an international customer for which we have initiated collection efforts and nearly fully reserved the outstanding accounts receivable balance . it was not necessary to review any individual customers separately during our review for 2009. the total allowance for doubtful accounts was $ 866,000 and $ 90,000 at december 31 , 2010 and 2009 , respectively . we evaluate the need for reserves on notes receivable as facts and circumstances regarding their collectibility become known to us .
| sales of finished jewelry represented 20 % of total net sales in 2010 compared to 15 % of total net sales in 2009. the majority of our finished jewelry sales in 2009 were for jewelry we had in inventory as a result of a january 2009 settlement agreement with a former manufacturer customer and the related marketing programs canceled in september 2009. we also sold in 2009 a limited amount of jewelry we produced several years ago as a test market . in early 2010 , we began manufacturing and selling finished jewelry featuring moissanite , and we are also developing a sample line of designer-inspired fashion jewelry that we intend to offer as an expansion to the basic line of jewelry . as a result of these efforts , as well as the continued sell-down of the former manufacturer customer 's jewelry through certain customers ' retail stores and or websites at closeout prices , we have replaced the jewelry sales for the marketing programs that were discontinued in 2009. u.s. net sales accounted for approximately 66 % and 64 % of total net sales during the years ended december 31 , 2010 and 2009 , respectively . u.s. net sales and carat shipments , which do not include shipments of consigned inventory , increased by 56 % and 89 % , respectively , for the year ended december 31 , 2010 as compared to the year ended december 31 , 2009. u. s. sales increased during 2010 primarily due to our continuing efforts to revitalize existing customer relationships , the execution of our strategic plan including the expansion of our business into finished jewelry featuring moissanite , the addition of several new customers during the year , and the improvement in the overall retail environment . our two largest u.s. customers during the year ended december 31 , 2010 accounted for 18 % and 15 % , respectively , of our total sales compared to 19 % and 8 % , respectively , during the year ended december 31 , 2009. no additional u.s. customers accounted for more than 10 % of total sales in 2010 or 2009. we expect that we will remain dependent on our ability , and that of our largest customers , to maintain and enhance retail programs . a change in or loss of any of
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in addition , in december 2011 , we announced commencement of patient dosing in our cardiovascular outcomes study of vascepa , titled reduce-it ( reduction of cardiovascular events with epaintervention trial ) . the reduce-it study is designed to evaluate the efficacy of vascepa in reducing major cardiovascular events in a high risk patient population on statin therapy . we have a pending supplemental new drug application , or snda , with the fda that seeks marketing approval of vascepa for use in the anchor indication . on october 16 , 2013 , the fda convened an advisory committee to review our snda . this advisory committee was not asked by the fda to evaluate whether vascepa is effective in lowering triglycerides in the studied population , the anchor indication as specified in the snda . rather , the advisory panel was asked whether vascepa would improve cardiovascular outcomes or whether approval of the anchor indication should wait for successful completion of the reduce-it study , the first prospective study of cardiovascular outcomes in patients who have high triglyceride levels despite statin therapy . the advisory committee voted 9 to 2 against recommending approval of the anchor indication based on information presented at the meeting . the fda considers the recommendation of advisory committees , but final decisions on the approval of new drug applications are made by the fda . the anchor clinical study was conducted under a special protocol assessment , or spa , agreement with the fda . the law governing spa agreements requires that if the results of the trial conducted under the spa substantiate the hypothesis of the protocol covered by the spa , the fda must use the data from the protocol as part of the primary basis for approval of the product . a spa agreement is not a guarantee of fda approval of the related new drug application . a spa agreement is generally binding upon the fda except in limited circumstances , such as if the fda identifies a substantial scientific issue essential to determining safety or efficacy of the drug after the study begins that rises to the level of a public health concern , or if the study sponsor fails to follow the protocol that was agreed upon with the fda . on october 29 , 2013 , the fda rescinded the anchor study spa agreement because the fda determined that a substantial scientific issue essential to determining the effectiveness of vascepa in the studied population was identified after testing began . as a basis for this determination , the fda communicated that it determined that the cumulative results from outcome studies of other triglyceride-lowering drugs failed to support the hypothesis that a triglyceride-lowering drug significantly reduces the risk for cardiovascular events among the population studied in the anchor trial . thus , the fda stated that while information we submitted supports testing the hypothesis that vascepa 4 grams/day versus placebo reduces major adverse cardiovascular events in statin-treated subjects with residually high triglyceride levels , as is being studied in the vascepa reduce-it cardiovascular outcomes study , the fda no longer considers a change in serum triglyceride levels alone as sufficient to establish the effectiveness of a drug intended to reduce cardiovascular risk in subjects with serum triglyceride levels below 500 mg/dl . beginning in november 2013 , we sought reconsideration and appealed the spa rescission decision to three levels of increasing authority within the fda and were denied each time , most recently in september 2014. based on fda 's repeated position in its appeal denials and its internal consultation with fda officials at higher levels , we informed the fda that we did not intend to appeal the spa rescission further . 62 the fda did not take action on the anchor snda by the prescription drug user fee act , or pdufa , goal date for completion of fda 's review , december 20 , 2013. given our september 2014 determination to not appeal the spa rescission further , we expect the fda to take action on our pending anchor snda in the near future . we are currently focused on the ongoing reduce-it cardiovascular outcomes study of vascepa . reduce-it , a multinational , prospective , randomized , double-blind , placebo-controlled study , is the first prospective cardiovascular outcomes study of any drug in a population of patients who , despite stable statin therapy , have elevated triglyceride levels . based on the results of reduce-it , we plan to seek additional indicated uses for vascepa beyond the indications studied in the anchor and marine trials . in reduce-it , cardiovascular event rates for patients on stable statin therapy plus four grams per day of vascepa will be compared to cardiovascular event rates for patients on stable statin therapy plus placebo . the reduce-it study is designed to be completed after reaching an aggregate number of cardiovascular events . based on projected event rates , we estimate the reduce-it study can be completed in or about 2017 with results then expected to be available and published in 2018. an interim review of the efficacy and safety results of the trial is scheduled to occur upon reaching 60 % of the target aggregate number of cardiovascular events . we currently expect this interim review by the independent data monitoring committee ( dmc ) to occur during 2016. the dmc has been more frequently examining interim reviews of the safety data from the study . following each of these reviews , the dmc has communicated to us that we should continue the study as planned . amarin remains blinded to all data from the study . over 90 % of the 8,000 patients targeted for enrollment in the reduce-it study have been enrolled . based on our communications with the fda , we currently expect that final positive results from the reduce-it outcomes study will be required for label expansion for vascepa . story_separator_special_tag there can be no assurance that we will be successful in our efforts to obtain a label expansion reflecting the anchor clinical trial whether or not we obtain final positive results from the reduce-it outcomes study . if the fda does not approve the anchor indication , it could have a material impact on our future results of operations and financial condition . on october 22 , 2013 , in an effort to reduce operating expenses following the recommendation of the advisory committee to the fda against approval of the anchor indication , we implemented a worldwide reduction in force of approximately 50 % of our staff positions . the majority of affected staff members were sales professionals who supported the initial commercial launch of vascepa . we incurred approximately $ 2.8 million in charges related to the reduction in force , all of which includes cash expenditures for one-time termination benefits and associated costs . the charges were recorded in the fourth quarter of 2013 and the related payments were made by the first half of 2014. as part of the reduction in force , we retained approximately 130 sales representatives , excluding sales management , in the united states in sales territories that we believe have demonstrated the greatest potential for vascepa sales growth . this team covers the target base of physicians responsible for the majority of vascepa prescription volume and growth since its launch in early 2013. with these changes and the resulting target base coverage , as well as the addition of the promotional efforts of 250 sales representatives from kowa pharmaceuticals america , inc. that began in may 2014 , we anticipate continued vascepa revenue growth over time . we also anticipate that such sales growth may be inconsistent from period to period . commercialization strategy vascepa became commercially available in the united states by prescription in january 2013 when we commenced sales and shipments to our network of u.s.-based wholesalers . we commenced the commercial launch of vascepa in the united states in january 2013 with approximately 275 sales representatives . vascepa has not yet been approved or commercially launched outside of the united states . in october 2013 , we reduced our number of sales representatives to approximately 130 , excluding sales management , in the united states to focus on the sales territories that we believe have demonstrated the greatest potential for vascepa sales growth . we now market vascepa in the united states through our sales force of approximately 150 sales professionals 63 and their managers . commencing in the middle of the second quarter of 2014 , in addition to promotion by our sales representatives , approximately 250 kowa pharmaceuticals america , inc. sales representatives began promoting vascepa . we also employ various marketing personnel to support our commercialization of vascepa . as of february 1 , 2015 , over 26,000 clinicians had written prescriptions for vascepa . under the co-promotion agreement with kowa pharmaceuticals america , inc. , under which promotion commenced in may 2014 , both parties have agreed to use commercially reasonable efforts to promote , detail and optimize sales of vascepa in the united states and have agreed to specific performance requirements detailed in the related agreement . the performance requirements include a negotiated minimum number of sales details to be delivered by each party in the first and second position , the use of a negotiated number of minimum sales representatives from each party , including no less than 250 kowa pharmaceuticals america , inc. sales representatives and the achievement of minimal levels of vascepa revenue in 2015 and beyond . kowa pharmaceuticals america , inc. has also agreed to continue to bear the costs incurred for its sales force associated with the commercialization of vascepa and to pay for certain incremental costs associated with the use of its sales force , such as sample costs and costs for promotional and marketing materials . we will continue to recognize all revenue from sales of vascepa . in exchange for kowa pharmaceuticals america , inc. 's co-promotional services , kowa pharmaceuticals america , inc. is entitled to a quarterly co-promotion fee based on a percentage of aggregate vascepa gross margins that increases during the term . the percentage of aggregate vascepa gross margins earned by kowa pharmaceuticals america , inc. is scheduled to increase from the high single digits in 2014 , to mid-teen percent levels in 2015 , and to the low twenty percent levels in 2018 , subject to certain adjustments . the term of this co-promotion agreement expires on december 31 , 2018. based on monthly compilations of data provided by a third party , symphony health solutions , the estimated number of normalized total vascepa prescriptions for the three months ended december 31 , 2014 was approximately 146,000 as compared to 132,000 , 110,000 , 93,000 and 94,000 prescriptions in the three months ended september 30 , 2014 , june 30 , 2014 , march 31 , 2014 and december 31 , 2013 , respectively . according to data from another third party , ims health , the estimated number of normalized total vascepa prescriptions for the three months ended december 31 , 2014 was approximately 131,000 as compared to 113,000 , 93,000 , 78,000 and 79,000 prescriptions in the three months ended september 30 , 2014 , june 30 , 2014 , march 31 , 2014 and december 31 , 2013 , respectively . normalized total prescriptions represent the estimated total number of vascepa prescriptions shipped to patients , calculated on a normalized basis ( i.e. , total capsules shipped divided by 120 capsules , or one month 's supply ) . the data reported above is based on information made available to us from a third party resource and may be subject to adjustment and may overstate or understate actual prescriptions . timing of shipments to wholesalers , as used for revenue recognition purposes , and timing of prescriptions as estimated by these third parties may differ from period to period .
| our cost for these co-payment mitigation rebates was up to $ 75 per prescription filled prior to february 20 , 2014 and up to $ 70 per prescription filled after february 20 , 2014 to december 31 , 2014. commencing in march and april 2013 , certain third-party payors added vascepa to their tier 2 coverage , which results in lower co-payments for patients covered by these third-party payors . as of february 1 , 2015 , approximately 125 million lives covered by medical insurance were under insurance plans that have added vascepa to their tier 2 coverage . in connection with the start of such tier 2 coverage , we have agreed to pay customary rebates to these third-party payors on the resale of vascepa to patients covered by these third-party payors . as is typical for the pharmaceutical industry , the majority of vascepa sales are to major commercial wholesalers which then resell vascepa to retail pharmacies . as of february 1 , 2015 , over 26,000 clinicians had written prescriptions for vascepa . as of february 1 , 2015 , we are not aware of any clinician who is responsible for 10 % or more of the aggregate prescriptions written for vascepa . on october 22 , 2013 , in an effort to lower operating expenses following the recommendation of the advisory committee to the fda , we implemented a worldwide reduction in force including a reduction of approximately fifty percent of our sales representatives . following the reduction in force , we retained approximately 130 sales representatives in the united states in sales territories which have demonstrated what we believe is the greatest potential for vascepa sales growth . this team will cover the target base of physicians responsible for the majority of vascepa prescription volume and growth since its launch in early 2013. with these changes and resulting target base coverage , as well as the addition of the promotional efforts of 250 sales representatives from kowa pharmaceuticals america , inc. that began in may 2014 ,
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primarily associated with 2014 including a $ 26.1 million gain on the sale of our rights in a letter of intent which entitled us to a portion of an economic interest in the income from the land underlying the new mgm casino project in national harbor , maryland . additionally , during 2015 , we incurred a $ 16.0 million increase in the loss on the change in the fair value of derivative liabilities associated with portions of warrants related to our previous 3.75 % convertible notes , partially offset by a $ 6.9 million gain associated with the reimbursement of costs that were previously incurred related to our proposed development in aurora , colorado . these costs were impaired in 2012 as part of our strategic shift away from long-term development , but were reimbursed in 2015 by the current developer . an increase in the benefit for income taxes of $ 10.4 million in 2015 , as compared to 2014 , primarily attributable to a federal tax law change enacted in the fourth quarter of 2015 , as well as changes in valuation allowance . 2014 results as compared to 2013 results the increase in our total revenues during 2014 , as compared to 2013 , is attributable to increases in our hospitality segment and entertainment segment revenues of $ 75.7 million and $ 10.8 million , respectively , as discussed more fully below . total hospitality revenues in 2014 include $ 8.9 million in attrition and cancellation fee collections , a $ 0.4 million increase from 2013. the increase in total operating expenses during 2014 , as compared to 2013 , is primarily the result of an increase in hotel operating expenses of $ 34.4 million , partially offset by a lack of reit conversion costs during 2014 , as compared to $ 22.2 million in 2013 , as discussed more fully below . the above factors resulted in a $ 76.9 million increase in operating income for 2014 , as compared to 2013. the $ 8.1 million increase in our net income in 2014 , as compared to 2013 , was due to the change in our operating income described above , and the following factors , each as described more fully below : a decrease in the benefit for income taxes of $ 91.2 million in 2014 , as compared to 2013. a $ 21.0 million increase in other gains and losses for 2014 , as compared to 2013 , primarily associated with a $ 26.1 million gain on the 2014 sale of our rights in a letter of intent which entitled us to a portion of an economic interest in the income from the land underlying the new mgm casino project in national harbor , maryland . factors and trends contributing to operating performance in 2015 compared to 2014 the most important factors and trends contributing to our operating performance in 2015 as compared to 2014 were : increased outside-the-room spending at gaylord texan ( 6.0 % ) and gaylord opryland ( 4.3 % ) during 2015 , as compared to 2014 , primarily due to increases in banquet revenue . increased occupancy at gaylord texan ( an increase of 5.8 percentage points of occupancy , during 2015 , as compared to 2014 ) , primarily as a result of an increase in group business . increased adr at gaylord texan ( an increase of 5.7 % for 2015 , as compared to 2014 ) , primarily as a result of room rate increases for both groups and transient business . 35 decreased occupancy at gaylord opryland ( a decrease of 1.3 points of occupancy for 2015 , as compared to 2014 ) primarily as a result of a norovirus outbreak and a severe weather winter storm , which took place during january and february 2015. in-the-year , for-the-year cancellations for 2015 decreased 6.2 % as compared to 2014. increased attrition levels for 2015 , as compared to 2014 , which partially offset the increase in operating income and total revpar . attrition for 2015 was 12.8 % of bookings , compared to 10.6 % in 2014. increased net definite group room nights booked ( an increase of 4.6 % for 2015 , as compared to 2014 ) . increased revenue for our entertainment segment ( an increase of 12.3 % for 2015 , as compared to 2014 ) , primarily due to increased attendance and additional shows at the grand ole opry , as well as increased ancillary business such as tours and retail . factors and trends contributing to operating performance in 2014 compared to 2013 the most important factors and trends contributing to our operating performance in 2014 as compared to 2013 were : increased outside-the-room spending at each of our hotel properties ( an increase of 9.4 % during 2014 , as compared to 2013 ) , primarily due to increased levels of premium groups and the resulting increase in banquet revenues . increased occupancy at gaylord national and gaylord opryland ( an increase of 5.1 percentage points of occupancy and 3.4 percentage points of occupancy , respectively , during 2014 , as compared to 2013 ) , primarily as a result of an increase in corporate and association group room nights . increased adr at gaylord opryland , gaylord texan and gaylord palms ( an increase of 5.9 % , 5.5 % and 3.3 % , respectively , for 2014 , as compared to 2013 ) , primarily as a result of room rate increases for both groups and transient . story_separator_special_tag in-the-year , for-the-year cancellations for 2014 decreased 52.4 % as compared to 2013. increased net definite group room nights booked ( an increase of 14.0 % for 2014 , as compared to 2013 ) , as overall group performance metrics continue to improve and second quarter 2014 included a record number of bookings for second quarter . increased revenue for our entertainment segment ( an increase of 14.2 % for 2014 , as compared to 2013 ) , primarily as a result of increased attendance at the grand ole opry house and ryman auditorium . the incurrence of $ 22.2 million in reit conversion costs during 2013 that did not recur in 2014. operating results detailed segment financial information hospitality segment as a result of the updates to the hospitality industry 's uniform system of accounts for the lodging industry , eleventh revised edition , as discussed further in note 1 to the consolidated financial statements included herein , certain amounts in prior periods related to the hospitality segment have been reclassified to conform to the 2015 presentation . 36 total segment results . the following presents the financial results of our hospitality segment for the years ended december 31 , 2015 , 2014 and 2013 ( in thousands , except percentages and performance metrics ) : replace_table_token_7_th ( 1 ) hospitality results and performance metrics include the results of our gaylord hotels and the inn at opryland for all periods presented . results of the ac hotel are included as of its opening date in april 2015 . ( 2 ) hospitality operating income does not include reit conversion costs of $ 7.6 million in 2013 , impairment charges of $ 19.2 million and $ 2.8 million in 2015 and 2013 , respectively , or preopening costs of $ 0.9 million during 2015. see the discussion of these items set forth below . ( 3 ) we calculate hospitality revpar by dividing room revenue by room nights available to guests for the period . hospitality revpar is not comparable to similarly titled measures such as revenues . ( 4 ) we calculate hospitality total revpar by dividing the sum of room , food and beverage , and other ancillary services revenue ( which equals hospitality segment revenue ) by room nights available to guests for the period . hospitality total revpar is not comparable to similarly titled measures such as revenues . ( 5 ) same-store hospitality performance metrics do not include the ac hotel , which opened in april 2015. the increase in total hospitality segment revenue in 2015 , as compared to the same period in 2014 , is primarily due to increases in revenue of $ 18.1 million , $ 7.8 million and $ 5.1 million at gaylord texan , gaylord opryland and gaylord national , respectively , as well as $ 7.0 million in revenue at the ac hotel , which opened in april 2015. the increase is primarily a result of increased rooms revenue and outside-the-room spending during 2015 as a result of an increase in premium group business discussed below . the increase in total hospitality segment revenue in 2014 , as compared to the same period in 2013 , is primarily due to increases of $ 30.3 million , $ 18.4 million , $ 15.7 million and $ 10.0 million at gaylord opryland , gaylord national , gaylord texan and gaylord palms , respectively , primarily a result of increased rooms revenue and outside-the-room spending during 2014 as a result of an increase in premium group business discussed below . 37 the percentage of group versus transient business based on rooms sold for our hospitality segment for the years ended december 31 was approximately as follows : replace_table_token_8_th the type of group based on rooms sold for our hospitality segment for the years ended december 31 was approximately as follows : replace_table_token_9_th the decrease in rooms operating expenses in 2015 , as compared to 2014 , is primarily attributable to a decrease at gaylord opryland , as described below , partially offset by rooms expense at the ac hotel , which opened in april 2015. the increase in rooms operating expenses in 2014 , as compared to 2013 , is primarily attributable to increases at gaylord national and gaylord opryland , as described below . the increase in food and beverage operating expenses in 2015 , as compared to 2014 , is attributable to increases at gaylord texan , gaylord opryland and gaylord national , as described below . the increase in food and beverage operating expenses in 2014 , as compared to 2013 , is attributable to increases at each of our gaylord hotels properties , as described below . other hotel expenses for the years ended december 31 consist of the following ( in thousands ) : replace_table_token_10_th administrative employment costs include salaries and benefits for hotel administrative functions , including , among others , senior management , accounting , human resources , sales , conference services , engineering and security . administrative employment costs increased during 2015 , as compared to 2014 , primarily due to previously unfilled positions at gaylord opryland and gaylord texan , as well as increased benefit costs at gaylord national . utility costs decreased during 2015 , as compared to 2014 , primarily due to decreases at gaylord national and gaylord palms . property taxes increased during 2015 , as compared to 2014 , primarily as a result of an increase at gaylord texan . other expenses , which include supplies , advertising , maintenance costs and consulting costs , decreased during 2015 , as compared to 2014 , primarily as a result of decreases at each of our gaylord hotels properties . administrative employment costs decreased slightly during 2014 , as compared to 2013. utility costs increased during 2014 , as compared to 2013 , primarily due to an increase at gaylord national as a result of increased rates . property taxes
| . these increases were partially offset by the lack of interest expense associated with our 3.75 % convertible notes , which matured in october 2014 , and a decrease in interest expense associated with our credit facility due to a decrease in borrowings . our weighted average interest rate on our borrowings , excluding the write-off of deferred financing costs during the period , was 4.2 % in 2015 as compared to 4.9 % in 2014. cash interest expense increased $ 9.8 million to $ 56.6 million in 2015 as compared to 2014 , and noncash interest expense , which includes amortization of deferred financing costs and debt discounts , the write-off of deferred financing costs , and capitalized interest , decreased $ 7.4 million to $ 7.3 million in 2015 as compared to 2014. interest expense , net of amounts capitalized , increased $ 0.5 million to $ 61.4 million in 2014 as compared to 2013 , due primarily to interest associated with our $ 400 million term loan b facility , which we entered into in june 2014 and an increase in interest expense associated with our $ 350 million 5 % senior notes that were issued in april 2013 , partially offset by a decrease in interest expense associated with our 3.75 % convertible notes , which were partially repurchased at various points in 2013 and 2014 with the balance paid at maturity in october 2014. our weighted average interest rate on our borrowings , excluding the write-off of deferred financing costs during the period , was 4.9 % in 2014 as compared to 5.0 % in 2013. cash interest expense increased $ 7.1 million to $ 46.8 million in 2014 as compared to 2013 , and noncash interest expense decreased $ 6.6 million to $ 14.6 million in 2014 as compared to 2013. interest income interest income for 2015 , 2014 and 2013 primarily includes amounts earned on the bonds that we received
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net revenue for the year ended december 31 , 2015 and 2014 , was $ 202.2 million and $ 187.8 million , respectively , reflecting an increase of $ 14.5 million , or 7.7 % . income from operations for the year ended december 31 , 2015 totaled $ 32.5 million compared to $ 22.2 million for the same period in 2014 , representing an increase of $ 10.3 million or 46.5 % . casino revenues increased 8.1 % in the year ended december 31 , 2015 compared to the same period of 2014. casino revenues increased at both the monarch casino black hawk and at the atlantis . the increase in monarch casino black hawk revenues was primarily due to the completion of the casino floor upgrade and remodel which attracted more gaming customers . the increase in casino revenues at the atlantis was driven primarily by the increased local patrons ' visitation . casino operating expenses as a percentage of casino revenue decreased to 42.1 % for the twelve months ended december 31 , 2015 , compared to 42.4 % in 2014 due to the effect of higher casino revenues partially offset by higher casino expense . food and beverage revenues for the twelve months ended december 31 , 2015 increased 8.1 % over the same period in 2014 due to a 5.4 % increase in average revenue per cover , combined with a 2.5 % increase in total covers served . food and beverage operating expenses as a percentage of food and beverage revenues in the twelve months ended december 31 , 2015 were 39.4 % compared to 40.9 % over the same period in 2014 due primarily to an increase in revenues related to menu price increases in anticipation of commodity price increases . hotel revenues increased 4.1 % due to higher adr of $ 76.92 for the year ended december 31 , 2015 compared to $ 73.66 for the same period in 2014 and slightly higher hotel occupancy of 89.7 % in 2015 compared to 89.1 % in 2014. revpar was $ 75.24 and $ 72.26 for years ended december 31 , 2015 and 2014 , respectively . hotel operating expenses as a percent of hotel revenues for the twelve months ended december 31 , 2015 was 30.0 % compared to 27.6 % for the same period in 2014. the increase is due primarily to higher payroll and related benefits expense , operating supplies expense and repair and maintenance expense . 33 other revenues increased 7.7 % in 2015 compared to 2014 driven primarily by increased atlantis arcade revenue , atlantis spa and salon revenue and commission revenue . promotional allowances as a percentage of gross revenues was flat at 18.2 % for both years ended december 31 , 2015 and 2014. sg & a expense increased to $ 54.8 million in the twelve months ended december 31 , 2015 from $ 53.0 million in the same period of 2014 primarily due to : i ) higher salaries , wages and related benefits expenses by $ 0.9 million ; ii ) higher repair and maintenance expense by $ 0.6 million ; iii ) higher software maintenance expense by $ 0.4 million ; and iv ) higher bad debt expense by $ 0.2 million , all offset by a decrease in sales and marketing expense . depreciation and amortization expense decreased to $ 15.9 million for the year ended december 31 , 2015 as compared to $ 17.8 million for the same period in 2014 as a result of : i ) lower depreciation expense on the parking structure at the monarch casino black hawk by $ 1.2 million ; ii ) lower depreciation expense at atlantis by $ 1.1 million due to assets becoming fully depreciated , all partially offset by the increase in depreciation expense from new assets related to the remodel and upgrade project at the monarch casino black hawk . the company incurred $ 9 thousand and $ 343 thousand net loss on disposal of slot machines and other equipment in the years ended december 31 , 2015 and 2014 , respectively . in 2014 , the company incurred $ 1.9 million of expense related to the campaign against the proposed 2014 ballot initiatives to expand gaming in colorado . the company had no such expense in 2015. during the year ended december 31 , 2015 , the company paid down the principal balance on its credit facility by $ 5.4 million , which decreased the outstanding balance of the credit facility to $ 40.9 million at december 31 , 2015 from $ 46.3 million at december 31 , 2014. interest expense , net of amounts capitalized , decreased to $ 0.7 million for the year 2015 from $ 1.1 million for the year 2014 primarily as a result of a lower interest rate driven by our lower leverage ratio combined with lower average outstanding borrowings in 2015 compared to 2014. capital spending and development we seek to continuously upgrade and maintain our facilities in order to present a fresh , high quality product to our guests . capital expenditures during the years ended december 31 , 2016 and 2015 were as follows ( in thousands ) : capital expenditures : replace_table_token_5_th during the twelve months ended december 31 , 2016 and 2015 , capital expenditures related primarily to the redesign and upgrade of the monarch casino black hawk property and work on the new parking structure , as well as acquisition of gaming equipment to upgrade and replace existing equipment at the monarch casino black hawk and the atlantis . since the acquisition of the monarch casino black hawk , we have upgraded the property 's food and beverage operations ( including an all-new buffet ) and completed the redesign and upgrade of the existing casino floor . our plans also call for the exterior of the existing facility to be refinished to match the master planned expansion . story_separator_special_tag the exterior refinishing is expected to cost approximately $ 14- $ 16 million and is anticipated to be funded primarily from operating cash flow or the amended credit facility . 34 monarch black hawk expansion plan the company has commenced its monarch black hawk expansion plan , which will convert the monarch casino black hawk into a full-scale casino resort . in the fourth quarter of 2013 , we began work on a multi-phased expansion of the monarch casino black hawk which involves construction of a new parking structure , demolition of the existing parking structure followed by the construction of a new hotel tower and casino expansion . in november 2016 , the new nine-story parking structure , offering approximately 1,350 parking spaces , was completed and became available for use by monarch casino black hawk guests . immediately following the new garage opening , we began work on demolition and removal of the old parking structure . this work , which included a controlled implosion of the old garage , was completed in the first quarter of 2017. on february 8 , 2017 the company broke ground on the hotel tower and casino expansion . the new 23-story tower will nearly double the existing casino space and will include approximately 500 hotel rooms , an upscale spa and pool facility , three additional restaurants and additional bars . tower floors will be opened as they are finished beginning with the casino expansion and additional restaurants . we currently expect completion of the entire tower in the second quarter of 2019 at a total cost of approximately $ 229- $ 234 million . the cost is expected to be financed through a combination of operating cash flow and the amended credit facility . we can provide no assurance that any project will be completed on schedule , if at all , or within established budgets , or that any project will result in increased earnings to us . liquidity and capital resources our principal sources of liquidity have been cash provided by operations and , for capital expansion projects , borrowings available under our credit facilities . for the year ended december 31 , 2016 , net cash provided by operating activities totaled $ 43.7 million , an increase of approximately $ 5.5 million , or 14.3 % , compared to the same period of the prior year . this increase was primarily the result of an increase of $ 3.9 million in net income and an increase in loss on disposal of assets by $ 0.7 million , combined with changes in ordinary working capital accounts , partially offset by a decrease in depreciation expense . net cash used in investing activities totaled $ 24.9 million and $ 38.0 million in the years ended december 31 , 2016 and 2015 , respectively . net cash used in investing activities during 2016 consisted primarily of cash used for the garage structure at monarch casino black hawk , the redesign and upgrade of the toucan charlie 's buffet at atlantis and for the acquisition of gaming equipment at both properties . net cash used in investing activities during 2015 consisted primarily of net cash used for the redesign and upgrade of the monarch casino black hawk , work on the garage foundation and for the acquisition of gaming equipment and general upgrades at the atlantis property . during the year ended december 31 , 2016 , net cash used in financing activities of $ 13.6 million resulted from $ 14.7 million in payments made on our credit facility and $ 2.6 million in deferred loan cost related to the amended credit facility , partially offset by $ 3.7 million in proceeds from the exercise of stock options , including related tax benefits . during the year ended december 31 , 2015 , net cash used in financing activities of $ 0.6 million represented $ 5.4 million in payments made on our credit facility , partially offset by $ 4.8 million in proceeds from the exercise of stock options , including related tax benefits . on july 20 , 2016 , we entered into an amended and restated credit facility agreement ( the “ amended credit facility ” ) , under which our former $ 100 million credit facility ( which as of june 30 , 2016 had borrowing capacity reduced to $ 45.5 million as a result of $ 19.5 million in mandatory reductions pursuant to the agreement and $ 35 million in voluntary reductions , as allowed by the agreement ) was increased to $ 250.0 million , and the maturity date was extended from november 15 , 2016 to july 20 , 2021. as of december 31 , 2016 , we had $ 26.2 million borrowed and $ 223.8 million remaining in available borrowings of the $ 250.0 million maximum principal available under the amended credit facility . 35 the total revolving loan commitment under the amended credit facility will be automatically and permanently reduced to $ 50 million in the first full quarter after completion of the expansion project at the monarch casino black hawk and all then outstanding revolving loans up to $ 200 million under the amended credit facility will be converted to a term loan at such time . we may be required to prepay borrowings under the amended credit facility using excess cash flows depending on our leverage ratio no later than december 31 , 2019. we have an option to permanently reduce the maximum revolving available credit at any time so long as the amount of such reduction is at least $ 0.5 million and in multiples of $ 50,000. borrowings are secured by liens on substantially all of our real and personal property .
| the increase in expense margin is due primarily to the costs , related to the redesign and upgrade of toucan charlie 's buffet at atlantis , which costs were expensed during the first quarter of 2016. hotel revenues increased 3.3 % due to a higher adr of $ 79.52 for the year ended december 31 , 2016 compared to $ 76.92 for the same period in 2015 , partially offset by slightly lower hotel occupancy of 88.2 % in 2016 compared to 89.7 % in 2015. revpar was $ 77.50 and $ 75.24 for the years ended december 31 , 2016 and 2015 , respectively . hotel operating expenses as a percent of hotel revenues for the twelve months ended december 31 , 2016 was 30.9 % compared to 30.0 % for the same period in 2015. the increase is due primarily to higher payroll and related benefits expense and expense related to the implementation of advanced analytical tools . other revenues increased 3.9 % in 2016 compared to 2015 driven primarily by increased atlantis arcade revenue , atlantis spa and salon revenue and retail revenue . promotional allowances as a percentage of gross revenues declined to 17.8 % for the year ended december 31 , 2016 compared to 18.2 % for the year ended december 31 , 2015. this decrease was primarily due to higher revenues and more efficient utilization of complimentaries . 32 selling , general and administrative ( “ sg & a expense ” ) expense increased to $ 57.7 million in the twelve months ended december 31 , 2016 from $ 54.8 million in the same period of 2015 primarily due to : i ) $ 1.8 million increase in salaries , wages and related benefits expense ; ii ) $ 0.7 million increase in marketing expense ; iii ) $ 0.5 million increase in rental expense from the parking lot lease at atlantis ( see note 12. related party transactions ) ; iv ) $ 0.2 million increase in property tax expense , resulting from the new parking
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the company has four consolidated subsidiaries , wsfs bank , cypress capital management , llc ( cypress ) , wsfs capital management , llc ( west capital ) and wsfs wealth management , llc ( powdermill ) , as well as one unconsolidated subsidiary , wsfs capital trust iii ( the trust ) . wsfs bank has three wholly-owned subsidiaries , wsfs wealth investments , 1832 holdings , inc. and monarch entity services , llc ( monarch ) . story_separator_special_tag style= '' color : # 999999 '' width= '' 100 % '' / > see notes ( 1 ) weighted average yields have been computed on a tax-equivalent basis using a 35 % effective tax rate . ( 2 ) average balances include nonperforming loans and are net of unearned income . ( 3 ) includes securities available for sale at fair value . ( 4 ) includes federal funds purchased and securities sold under agreement to repurchase . provision for loan losses we maintain an allowance for loan losses at an appropriate level based on our assessment of estimable and probable losses in the loan portfolio , which we evaluate in accordance with applicable accounting principles , as discussed further in nonperforming assets . our evaluation is based on a review of the portfolio and requires significant , complex and difficult judgments . for the year ended december 31 , 2016 we recorded a provision for loan losses of $ 13.0 million compared to $ 7.8 million in 2015 and $ 3.6 million in 2014. the increase was primarily the result of two large relationships . a $ 15.4 million substandard c & i loan relationship was exited during the third quarter of 2016 , which resulted in a $ 4.2 million charge-off and $ 3.0 million in incremental loan loss provision in that quarter . in addition , a $ 4.0 million private banking credit exposure granted under a business development initiative was downgraded to non-performing status , $ 3.5 million of which was unsecured . this resulted in a $ 3.5 million charge-off and incremental loan loss provision during the fourth quarter of 2016. noninterest ( fee ) income fee income increased $ 14.1 million to $ 102.4 million in 2016 from $ 88.3 million in 2015. excluding securities gains net , as shown in the table below , noninterest income increased $ 13.2 million , or 15 % , to $ 100.0 million in 2016 from $ 86.8 million in 2015. this increase reflected both strong organic and acquisition growth . replace_table_token_15_th ( 1 ) the company uses non-gaap financial information in its analysis of its performance . the company 's management believes that these non-gaap measures provide a greater understanding of ongoing operations , enhance comparability of results of operations with prior periods and show the effects of significant gains and changes in the periods presented . the company 's management believes that investors may use these non-gaap measures to analyze the company 's performance without the impact of unusual items or events that may obscure trends in the company 's underlying performance . this non-gaap data should be considered in addition to results prepared in accordance with gaap , and is not a substitute for , or superior to , gaap results . credit/debit card and atm fees increased $ 4.2 million , or 16 % , in 2016 compared to 2015 reflecting growth as well as the impact of new products and expanded revenue sources . wealth management income grew $ 3.8 million , or 17 % , in 2016 compared to 2015 reflecting growth in several business lines , with particular strength in trustee securitization appointments , family office services , and financial planning . fees from mortgage banking activities increased $ 1.5 million or 26 % when compared to 2015 reflecting strong growth provided by wsfs mortgage . fees for cash management and other services in our cash connect segment increased $ 1.2 million , due to several new services and product enhancements . lastly , deposit service charges increased slightly compared to 2015 , primarily due to growth in deposit accounts . wealth management income grew $ 4.5 million , or 26 % , in 2015 compared to 2014 reflecting growth in several business lines , with particular strength in bankruptcy administration , trustee securitization appointments and retail brokerage services . fees from mortgage banking activities increased $ 1.9 million or 48 % when compared to 2014 reflecting strong growth provided by wsfs mortgage . credit/debit card and atm fees increased $ 1.6 million , or 7 % , in 2015 compared to 2014 reflecting organic growth and new product offerings . lastly , deposit service charges decreased slightly compared to 2014 due to changes in the regulatory environment and customer behavior . 47 noninterest expenses noninterest expense in 2016 increased $ 22.5 million to $ 186.0 million from $ 163.5 million in 2015. excluding the non-routine and other one-time items listed in the table below , noninterest expense increased $ 22.2 million , or 14 % , to $ 177.4 million in 2016 from $ 155.2 million in 2015. noninterest expense in 2015 increased $ 16.9 million to $ 163.5 million from $ 146.6 million in 2014. excluding the non-routine and other one-time items listed in the table below , noninterest expense increased $ 12.6 million , or 9 % , to $ 155.2 million in 2015 from $ 142.6 million in 2014. replace_table_token_16_th ( 1 ) corporate development costs were largely attributable to our acquisitions of penn liberty , powdermill and west capital in 2016 , alliance in 2015 , and fnbw in 2014 . ( 2 ) the company uses non-gaap financial information in its analysis of its performance . the company 's management believes that these non-gaap measures provide a greater understanding of ongoing operations , enhance comparability of results of operations with prior periods and show the effects of significant gains and changes in the periods presented . story_separator_special_tag the company 's management believes that investors may use these non-gaap measures to analyze the company 's performance without the impact of unusual items or events that may obscure trends in the company 's underlying performance . this non-gaap data should be considered in addition to results prepared in accordance with gaap , and is not a substitute for , or superior to , gaap results . contributing to the $ 22.2 million increase in adjusted noninterest expense in 2016 was ongoing operating costs from the addition of penn liberty , powdermill , and west capital as well as the full year impact of the acquisition of alliance in october 2015. also contributing to the increase was higher compensation and related costs due to added staff to support the company 's overall growth . the $ 12.6 million increase in noninterest expense in 2015 was primarily the result of increased compensation expense tied to organic and acquisition growth as well as improved core performance . also contributing to the increase were increased operating costs to support the infrastructure from our significant organic and acquisition growth , and the ongoing operating costs from the addition of the alliance franchise in early october 2015. income taxes we recorded $ 33.1 million of income tax expense for the year ended december 31 , 2016 compared to income tax expense of $ 30.3 million and $ 18.8 million for the years ended december 31 , 2015 and 2014 , respectively . in 2013 , we recorded a deferred tax asset and corresponding valuation allowance in connection with the consolidation of the reverse mortgage trust . during early 2014 , this valuation allowance was removed and the consolidation resulted in a $ 6.7 million tax benefit in 2014. the effective tax rates for the years ended december 31 , 2016 , 2015 and 2014 were 34.0 % , 36.1 % , and 25.9 % , respectively . excluding the 2014 tax item , the effective tax rate for the year ended december 31 , 2014 was 35.2 % . volatility in effective tax rates is impacted by the level of pretax income or loss , combined with the amount of tax-free income as well as the effects of stock compensation tax benefits , consistent with our adoption during 2016 of asu 2016-09 , improvements to employee share-based payment accounting , compensation - stock compensation , compensation - stock compensation ( topic 718 ) . the provision for income taxes includes federal , state and local income taxes that are currently payable or deferred because of temporary differences between the financial reporting basis and the tax reporting basis of the assets and liabilities . for additional information , see note 14 to the consolidated financial statements . segment information for financial reporting purposes , our business has three reporting segments : wsfs bank , cash connect , and wealth management . the wsfs bank segment provides loans and other financial products to commercial and retail customers . 48 cash connect provides turnkey atm services through strategic partnerships with several of the largest networks , manufacturers and service providers in the atm industry as well as smart safe and other cash logistics services in the u.s. the wealth management segment provides a broad array of fiduciary , investment management , credit and deposit products to clients . wsfs bank segment the wsfs bank segment income before taxes grew $ 14.4 million or 23 % , in 2016 compared to 2015 due primarily to an increase in external net interest income of $ 33.9 million or 19 % , reflecting positive performance in our portfolio of purchased loans , improvement in our balance sheet mix , and strong organic and acquisition growth . the increase in net interest income was partially offset by an increase in external operating expenses of $ 17.4 million or 14 % , primarily driven by increased compensation expense tied to organic and acquisition growth as well as improved core performance and a $ 1.9 million increase in the provision for loan losses , primarily driven by our exit of a substandard c & i relationship and the associated charge-off . also contributing to the increase in operating expenses were increased costs to support the infrastructure from the segment 's significant organic and acquisition growth . the wsfs bank segment income before taxes grew $ 10.2 million or 19 % , in 2015 compared to 2014 due primarily to an increase in external net interest income reflecting positive performance in our portfolio of purchased loans , improvement in our balance sheet mix , as well as strong organic and acquisition growth . the increase in net interest income was partially offset by an increase in external operating expenses driven by increased compensation expense tied to organic and acquisition growth as well as improved core performance . also contributing to the increase in operating expenses were increased costs to support the infrastructure from the segment 's significant organic and acquisition growth . cash connect segment the cash connect segment income before taxes grew $ 0.6 million , or 8 % , in 2016 compared to 2015 primarily due to a $ 4.7 million , or 16 % , increase in external fee income reflecting overall growth of the segment 's business . the year-over-year increase in fee income was partially offset by a $ 2.5 million , or 14 % , increase in external operating expenses primarily due to increased investments for several new services and product enhancements to our fee-based managed services and smart safe offerings which continue to both diversify and expand revenue sources .
| we recorded net income of $ 53.5 million , or $ 1.85 per diluted share for the year ended december 31 , 2015 a $ 0.2 million decrease compared to $ 53.8 million , or $ 1.93 per diluted share for the year ended december 31 , 2014. results for 2014 included a one-time tax benefit of $ 6.7 million , or $ 0.24 per diluted share and $ 3.6 million ( pre-tax ) , or $ 0.08 per diluted share , less in corporate development expenses . earnings for 2015 were impacted by a significant increase in net interest income driven by both organic growth and the acquisition of alliance in october 2015. additionally , our wealth management and mortgage banking businesses continued to see significant growth over the prior year . offsetting the growth in net interest income was an increase to the provision for loan losses of $ 4.2 million for the full year 2015 compared to the full year 2014 driven by one large c & i credit that had a net charge-off of $ 5.7 million during 2015. lastly , we saw an increase of $ 16.9 million in our operating expenses during the year , reflecting growth in ongoing operating costs from our recent acquisition of alliance and the investment in the related infrastructure and staffing costs to support our growth . net interest income net interest income increased $ 26.9 million , or 16 % , to $ 193.7 million in 2016 while net interest margin increased slightly to 3.88 % in 2016 compared to 3.87 % in 2015. the increase in net interest income was due to both organic and acquisition-related loan growth , mostly in our commercial and real estate loan portfolios . net interest income increased $ 22.3 million , or 15 % , to $ 166.8 million in 2015 while net interest margin increased 19 basis points to 3.87 % in 2015 compared to 3.68 % in 2014. the increase in net interest income was due to positive 44 performance in our portfolio of purchased loans and improvement in our balance sheet mix , as well as strong organic and acquisition growth . the following table provides certain information regarding changes in net interest income attributable to changes in the volumes of interest-earning assets and interest-bearing liabilities and changes in the rates for the periods indicated . for each category of interest-earning assets and interest-bearing
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during 2015 , all the third-party ethylene and co-products sales related to such third party ethylene sales have generated greater than 17 % of our total revenues . the significant drop in crude oil prices 32 since the third quarter of 2014 and continuing through 2015 may create volatility in the north american and global markets , which may result in further reduced prices and margins in third-party ethylene and such co-products sales in 2016. please refer to note 2 to the consolidated and combined financial statements within this report for more information on the ethylene sales agreement . how we source feedstock in connection with the ipo , opco entered into a 12-year feedstock supply agreement ( the `` feedstock supply agreement '' ) with westlake petrochemicals llc , a wholly owned subsidiary of westlake , under which westlake petrochemicals llc supplies opco with ethane and other feedstocks that opco uses to produce ethylene under the ethylene sales agreement . opco may purchase the ethane and other feedstocks to produce ethylene and resulting co-products to sell to unrelated third parties from westlake petrochemicals llc . please refer to note 2 to the consolidated and combined financial statements within this report for more information on the feedstock supply agreement . how we evaluate operations our 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 : ( 1 ) production volumes , ( 2 ) operating and maintenance expenses , including turnaround costs , and ( 3 ) mlp distributable cash flow and ebitda . production volumes the amount of profit we generate primarily depends on the volumes of ethylene and resulting co-products we are able to produce at calvert city olefins and lake charles olefins . although westlake has committed to purchasing minimum volumes from us under the ethylene sales agreement , our results of operations are impacted by our ability to : produce sufficient volumes of ethylene to meet our commitments under the ethylene sales agreement or recover our estimated costs through the pricing provisions of the ethylene sales agreement ; contract with third parties for the remaining uncommitted processing capacity ; add or increase capacity at our existing processing facilities , or add additional processing capacity via organic expansion projects and acquisitions ; and achieve or exceed the specified yield factors for natural gas , ethane and other feedstock under the ethylene sales agreement . operating expenses , maintenance capital expenditures and turnaround costs our management seeks to maximize the profitability of our operations by effectively managing operating expenses , maintenance capital expenditures and turnaround costs . our operating expenses are comprised primarily of feedstock costs and natural gas , labor expenses ( including contractor services ) , utility costs ( other than natural gas ) and repair and maintenance expenses . with the exception of feedstock , including natural gas , and utilities-related expenses , operating expenses generally remain relatively stable across broad ranges of production volumes but can fluctuate from period to period depending on the circumstances , particularly maintenance and turnaround activities . our maintenance capital expenditures and turnaround costs are comprised primarily of maintenance of our processing facilities and the amortization of capitalized turnaround costs . these capital expenditures relate to the maintenance and integrity of our facilities . we capitalize the costs of major maintenance activities , or turnarounds , and amortize the costs over the period until the next planned turnaround of the affected unit . operating expenses , maintenance capital expenditures and turnaround costs are built into the price per pound of ethylene charged to westlake under the ethylene sales agreement . because the expenses other than feedstock costs and natural gas are based on forecasted amounts and remain a fixed component of the price per pound of ethylene sold under the ethylene sales agreement for any given 12-month period , our ability to manage operating expenses , maintenance expenditures and turnaround costs directly affects our profitability and cash flows . we seek to manage our operating and maintenance expenses on our natural gas liquids processing facilities by scheduling maintenance and turnarounds over time to avoid significant variability in our operating margins and minimize the impact on our cash flows , without compromising our commitment to safety and environmental stewardship . in addition , we reserve cash on an annual basis from what we would otherwise distribute to minimize the impact of turnaround costs in the year of incurrence . the purchase price under the ethylene sales agreement is not designed to cover capital expenditures for expansions . 33 mlp distributable cash flow and ebitda we use each of mlp distributable cash flow and ebitda to analyze our performance . we define distributable cash flow as net income plus depreciation and amortization , less contributions for turnaround reserves and maintenance capital expenditures . we define mlp distributable cash flow as distributable cash flow attributable to periods subsequent to the date of the ipo less distributable cash flow attributable to westlake 's noncontrolling interest in opco . mlp distributable cash flow does not reflect changes in working capital balances . we define ebitda as net income before interest expense , income taxes , depreciation and amortization . mlp distributable cash flow and ebitda are non-gaap supplemental financial measures that management and external users of our consolidated financial statements , such as industry analysts , investors , lenders and rating agencies , may use to assess : our operating performance as compared to other publicly traded partnerships ; our ability to incur and service debt and fund capital expenditures ; the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities . we believe that the presentation of mlp distributable cash flow and ebitda provides useful information to investors in assessing our financial condition and results of operations . the gaap measures most directly comparable to mlp distributable cash flow are net income and net cash provided by operating activities . story_separator_special_tag mlp distributable cash flow should not be considered as an alternative to gaap net income or net cash provided by operating activities . mlp distributable cash flow has important limitations as an analytical tool because it excludes some but not all items that affect net income and net cash provided by operating activities . the gaap measures most directly comparable to ebitda are net income and cash flow from operating activities , but ebitda should not be considered an alternative to such gaap measures . ebitda has important limitations as an analytical tool because it excludes ( 1 ) interest expense , which is a necessary element of our costs and ability to generate revenues because we have borrowed money to finance our operations , ( 2 ) depreciation , which is a necessary element of our costs and ability to generate revenues because we use capital assets and ( 3 ) income taxes , which was a necessary element of predecessor 's operations . mlp distributable cash flow and ebitda should not be considered in isolation or as a substitute for analysis of our results as reported under gaap . see reconciliations for each of mlp distributable cash flow and ebitda under `` results of operations '' below . factors affecting the comparability of our financial results our results of operations subsequent to the ipo are not comparable to the predecessor 's historical results of operations for the reasons described below : revenue ethylene , co-products and excess feedstock sales there are differences in the way the predecessor generated and recorded revenue and the way we generate and record revenue from ethylene sales to westlake . the predecessor generally recognized revenue for ethylene sold internally based on a transfer pricing formula intended to approximate the fair market value of the commodity . subsequent to the ipo , a substantial majority of our revenue from ethylene sales is generated from sales of ethylene to westlake under the ethylene sales agreement . the ethylene sales agreement contains minimum purchase commitments and pricing that is expected to generate a fixed margin of $ 0.10 per pound . the predecessor 's third-party sales consisted of ethylene , feedstock and associated co-products sales . with respect to third-party ethylene sales , the predecessor also resold externally procured ethylene to third parties . subsequent to the ipo , the ethylene procurement and reselling activities of the predecessor remained with westlake . in addition , the predecessor 's net sales included revenue from sales to third parties of excess feedstock not used in the ethylene production process . following the closing of the ipo , we do not generate revenues from the sale of excess feedstock to third parties as all of the predecessor 's feedstock risk-management activities remained with westlake . however , we sell all of our co-products volume to third parties in a manner consistent with the predecessor . as such , there are no significant changes to revenue related to the sale of co-products , as compared to the predecessor 's historical revenue from co-products sales . expenses selling , general and administrative expenses the predecessor 's selling , general and administrative expenses included direct and indirect charges for the management and operation of our ethylene and other transportation assets allocated by westlake for general corporate services such as treasury , information technology , legal , corporate tax , human resources , executive compensation , and other financial and 34 administrative services . these expenses were charged or allocated to the predecessor based on the nature of the expense and the predecessor 's proportionate share of fixed assets , headcount or other measure , as deemed appropriate . subsequent to the ipo , under the services and secondment agreement and the omnibus agreement , westlake continues to charge us a combination of direct and allocated charges for similar general corporate services as those charged to the predecessor historically . we also incur certain annual general and administrative expenses as a result of being a separate publicly traded partnership which were not reflected in the periods prior to the ipo . income taxes the partnership is a limited partnership and is treated as a partnership for u.s. federal income tax purposes and , therefore , is not liable for entity-level federal income taxes . the partnership is , however , subject to state and local income taxes . the predecessor 's tax provision was determined on a separate return basis . accordingly , we expect our tax provision to be significantly reduced as compared to that of the predecessor . noncontrolling interest at the closing of the ipo , westlake contributed a 5.8 % limited partner interest and the general partner interest in opco to us . immediately following the ipo , we used the ipo net proceeds to acquire an additional 4.8 % limited partner interest in opco directly from opco and westlake retained the remaining 89.4 % limited partner interest in opco . subsequently , in april 2015 , we purchased an additional 2.7 % newly-issued limited partner interest in opco , resulting in an aggregate 13.3 % limited partner interest in opco effective april 1 , 2015. westlake owns the remaining 86.7 % limited partner interest in opco , which is recorded as noncontrolling interest in our consolidated financial statements . factors affecting our business supply and demand for ethylene and resulting co-products we generate a substantial majority of our revenue from the ethylene sales agreement .
| income from operations for the year ended december 31 , 2015 decreased as compared to 2014 primarily as result of the overall lower margin achieved on ethylene resulting from the execution of the ethylene sales agreement after the ipo and the decline in the market prices of ethylene and co-products , partially offset by lower feedstock and energy costs as well as lower selling , general and administrative expenses . 2015 compared with 2014 net sales . net sales decreased by $ 742.5 million , or 42.4 % , to $ 1,007.2 million in 2015 from $ 1,749.7 million in 2014 , primarily due to a lower average sales price of ethylene sold to westlake resulting from the execution of the ethylene sales agreement following the ipo , lower average sales price of ethylene sold to third parties due to the significant decline in market prices in 2015 and a lower volume of ethylene sold to third parties , partially offset by increased volume of ethylene sold to westlake in 2015 as compared to 2014. the total ethylene sales volume in 2015 was lower as compared to 2014 due primarily to westlake 's retention of the predecessor 's ethylene procurement and reselling activities , which was partially offset by higher production in 2015 resulting from the calvert city olefins expansion in 2014 and other efficiency projects . further , co-product sales prices were significantly lower in 2015 as compared to 2014 , primarily due to the significant decline in market prices of co-products , which resulted in a decrease in co-product sales to third parties . this decrease in sales prices was partially offset by an increase in volume of co-product sales to third parties . additionally , there were no excess feedstock sales subsequent to the ipo in 2014 or in 2015 as such activities were retained by westlake . the overall average sales prices of ethylene and co-products in 2015 decreased by 38.0 %
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under such agreements , we are generally eligible to receive non-refundable upfront payments , funding for research and development services , milestone payments , and royalties . in contracts where we have more than one performance obligation to provide our customer with goods or services , each performance obligation is evaluated to determine whether it is distinct based on whether ( i ) the customer can benefit from the good or service either on its own or together with other resources that are readily available and ( ii ) the good or service is separately identifiable from other promises in the contract . the consideration under the contract is then allocated between the distinct performance obligations based on their respective relative stand-alone selling prices . the estimated stand-alone selling price of each deliverable reflects our best estimate of what the selling price would be if the deliverable was regularly sold on a stand-alone basis and is determined by reference to market rates for the good or service when sold to others or by using an adjusted market assessment approach if the selling price on a stand-alone basis is not available . the consideration allocated to each distinct performance obligation is recognized as revenue when control is transferred to the customer for the related goods or services . consideration associated with at-risk substantive performance milestones , including sales-based milestones , is recognized as revenue when it is probable that a significant reversal of the cumulative revenue recognized will not occur . sales-based royalties received in connection with licenses of intellectual property are subject to a specific exception in the revenue standards , whereby the consideration is not included in the transaction price and recognized in revenue until the customer 's subsequent sales or usages occur . stock-based compensation / the stock-based compensation that we record is a critical accounting estimate due to the value of compensation recorded , the volume of our stock option activity , and the many assumptions that are required to be made to calculate the compensation expense . compensation expense is recorded for stock options issued to employees and directors using the fair value method . we must calculate the fair value of stock options issued and amortize the fair value to stock compensation expense over the vesting period , and adjust the expense for stock option forfeitures and cancellations . we use the black-scholes model to calculate the fair value of stock options issued which requires that certain estimates , including the expected life of the option and expected volatility of the stock , be made at the time that the options are issued . this accounting estimate is reasonably likely to change from period to period as further stock options are issued and adjustments are made for stock option forfeitures and cancellations . our accounting policy is to recognize forfeitures as they occur . the term `` forfeitures '' is distinct from `` cancellations '' or `` expirations '' and represents only the unvested portion of the surrendered stock option . for the purpose of calculating fair value , the expected life of stock options granted is five years for employees and eight years for directors and executives . we amortize the fair value of stock options using the straight-line method over the vesting period of the options , generally a period of three years for employees and immediate vesting for directors . 53 we recorded stock-based compensation expense for our equity-classified awards in 2018 of $ 6.0 million ( as compared to $ 15.1 million in 2017 ) . stock-based compensation expense for 2017 includes $ 8.0 million of compensation expense related to the expiration of repurchase rights on certain shares held by the founders of arbutus inc. - refer to note 2 to our consolidated financial statements . goodwill and intangible assets - impairment / intangible assets classified as indefinite-lived and goodwill are not amortized , but are evaluated for impairment annually using a measurement date of december 31. in addition , if there is a major event indicating that the carrying value of an asset may not be recoverable , then management will perform an impairment test in an interim period by comparing the discounted cash flow values to each asset 's carrying value to determine if a write down is necessary . such indicators include , but are not limited to , on an ongoing basis : ( a ) industry and market considerations such as an increased competitive environment or an adverse change in legal factors including an adverse assessment by regulators ; ( b ) an accumulation of costs significantly in excess of the amount originally expected for the development of the asset ; ( c ) current period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of the asset ; ( d ) adverse research and development program results ; and ( e ) if applicable , a sustained decrease in share price . in assessing impairment , significant judgments are required to be made by management to estimate the timing and extent of future net cash flows , appropriate discount rates , probability of program success and other estimates and assumptions that could materially affect the determination of fair value . these judgments include the use of , but are not limited to : projected results of operations and forecast cash flows based on our corporate budgets as approved by our board of directors , third party forecasts and data and other macroeconomic indicators that forecasts market conditions and our estimated future revenues and growth , market-based discount rates and other market-comparative data . as assumptions related to the probability of program success and timing and amount of potential future cash flows related to these programs is highly uncertain due to the unpredictable nature of each phase of these programs , management risk adjusts the estimated cash flows to reflect these uncertainties . story_separator_special_tag during the year ended december 31 , 2018 , we recorded a net impairment charge to our intangible assets of $ 10.5 million ( impairment charge of $ 14.8 million less a corresponding income tax benefit of $ 4.3 million ) related to the indefinite deferral of further development of our ab-423 program in the capsid inhibitor drug class as a result of our decision to advance our second generation capsid inhibitor ( ab-506 ) into the hbv patient portion of our phase 1 clinical trial . during the year ended december 31 , 2017 , we recorded a total net impairment charge of $ 23.9 million ( impairment charge of $ 40.8 million less a corresponding income tax benefit of $ 16.9 million ) against our identified intangible assets for the discontinuance of sting agonists , which represented the entire remaining acquired immune modulator drug class . we perform our annual impairment analysis at december 31st each year . effective october 1 , 2017 , we early adopted accounting standards update 2017-04 – intangibles – goodwill and other ( topic 350 ) : simplifying the test for goodwill impairment . asu 2017-04 and eliminated step 2 from the goodwill impairment test , which required a hypothetical purchase price allocation , and permits a qualitative assessment to determine if a quantitative assessment ( step 1 ) is required . at december 31 , 2018 and 2017 , we performed a qualitative assessment using factors including but not limited to : ( a ) macroeconomic conditions ; ( b ) industry and market considerations ; ( c ) cost factors ; ( d ) overall financial performance ; ( e ) other relevant entity-specific events ; ( f ) events affecting a reporting unit ; and ( g ) if applicable , a sustained decrease in share price in absolute terms and relative to peers . based on our qualitative assessment , we concluded that as at december 31 , 2018 and 2017 , it was not more likely than not that the fair value of our single reporting unit was less than its carrying amount ; therefore , a quantitative assessment was not necessary . fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors , and any key assumptions in the cash flow projections are interdependent on each other . a change in any one or combination of these assumptions could impact the estimated fair value of the reporting unit . although we believe our assumptions are reasonable , the significant level of judgment needed to determine our assumptions , the uncertainty inherent in these assumptions and the extended time frame over which we are required to make our estimates , increases the risk that actual results will vary significantly . given the dependency of our cash flow models on the successful development , production and sale of products from our existing programs , if any significant programs are unsuccessful then , excluding other possible changes in our forecasts , our estimated future cash flows will be reduced and such reduction may be significant enough to result in an impairment of the carrying value of our intangible assets . the outcome of our programs are subject to a variety of risks , including but not limited to , technological risk associated with in-process research and development ( `` ipr & d '' ) assets , dependency on regulatory approval and competitive , legal and other regulatory forces . see the `` risk factors '' in this annual report on form 10-k for additional risk factors . 54 contingent consideration / in connection with the acquisition of enantigen in october 2014 , we have obligations to make potential future payments to the former shareholders of enantigen contingent upon the achievement of certain development milestones ( up to $ 21.0 million ) and commercial milestones ( up to $ 102.5 million ) . the development milestones are tied to programs which are no longer under development by us . the sales milestones are tied to the first commercial sales by us of a product indicated for the treatment of hbv . these potential contingent payments are recorded as a liability and remeasured to fair value each reporting date . in assessing the fair value of the liability , significant judgments are required to be made by management to estimate the probability of program success , the achievement of development milestones , the timing and extent of future product sales , appropriate discount rates , and other estimates and assumptions that could materially affect the determination of fair value . these judgments include the use of , but are not limited to : future forecasts and other macroeconomic indicators that forecast market conditions , the timing and amount of estimated future revenues , market-based discount rates and other market-comparative data . as assumptions related to the probability of program success and timing and amount of potential future product sales are highly uncertain due to the unpredictable nature of product development , management risk adjusts the estimated cash flows to reflect these uncertainties . 55 story_separator_special_tag style= '' line-height:120 % ; padding-top:0px ; text-align : left ; text-indent:48px ; font-size:10pt ; '' > interest income increased $ 1.5 million in 2018 compared to 2017 primarily due to a higher average balance of cash , cash equivalents and investments and higher interest rates . gain on investment and equity investment loss in 2018 , together with roivant , we launched genevant , a company focused on the discovery , development , and commercialization of a broad range of rna-based therapeutics enabled by our lnp delivery technologies . this transaction , together with a subsequent secondary financing of genevant , resulted in a gain on investment of $ 24.9 million . we account for our 40 % ownership interest in genevant using the equity method of accounting .
| in april 2018 , together with roivant , we launched genevant , a company focused on the discovery , development and commercialization of a broad range of rna-based therapeutics . in connection with that transaction , we licensed exclusive rights to our lnp technology to genevant for rna-based applications outside hbv . as a result of our agreement with genevant , from april 11 , 2018 onwards , genevant is entitled to 50 % of the revenues earned ( excluding the upfront license payment discussed above ) by us from gritstone . in 2018 , gritstone paid a development milestone of $ 2.5 million pursuant to the license agreement , half of which went to us and half of which went to genevant . we record service revenues from gritstone net of charges by genevant for services provided to gritstone . other milestone and royalty payments during the third quarter of 2018 , alnylam 's onpattro tm , which utilizes our lnp technology , was approved by the fda and the ema . in 2018 , we recorded revenue of $ 750,000 for development milestones related to fda approval and the first commercial sale of onpattro tm . additionally , we retain full rights to low to mid single-digit royalties on global sales of 56 onpattro tm . we received the first royalty payment for sales of onpattro tm from alnylam in the fourth quarter of 2018. we also continue to earn royalties from spectrum on the sales of marqibo , which uses a license to our technology , and licensing fee revenue from acuitas under a licensing and collaboration arrangement . additionally , in 2018 , we received a final close-out payment under an agreement with the dod related to the development of tkm-ebola that was terminated in 2015. expenses / expenses are summarized in the following table , in millions : replace_table_token_3_th research and development research and development expenses consist primarily of clinical and pre-clinical trial expenses , personnel expenses , consulting and third party expenses , consumables and materials , as well as a portion of stock-based compensation and general overhead costs . research and development expenses decreased by $ 4.7 million
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the company recognizes revenue , but not profit , for certain claims ( including change orders in dispute and unapproved change orders in regard to both scope and price ) when it is determined that recovery of incurred cost is probable and the amounts can be reliably estimated . under claims accounting ( asc 605-35-25 ) , these requirements are satisfied when ( a ) the contract or other evidence provides a legal basis for the claim , ( b ) additional costs were caused by circumstances that were unforeseen at the contract date and not the result of deficiencies in the company 's performance , ( c ) claim-related costs are identifiable and considered reasonable in view of the work performed , and ( d ) evidence supporting the claim is objective and verifiable . cost , but not profit , associated with unapproved change orders is accounted for in revenue when it is probable that the cost will be recovered through a change in the contract price . in circumstances where recovery is considered probable , but the revenue can not be reliably estimated , cost attributable to change orders is deferred pending determination of the impact on contract price . if the requirements for recognizing revenue for claims or unapproved change orders are met , revenue is recorded only to the extent that costs associated with the claims or unapproved change orders have been incurred . back charges to suppliers or subcontractors are recognized as a reduction of cost when it is determined that recovery of such cost is probable and the amounts can be reliably estimated . disputed back charges are recognized when the same requirements described above for claims accounting have been satisfied . the company periodically evaluates its positions and amounts recognized with respect to all its claims and back charges . 37 as of december 31 , 2017 and 2016 , the company had recorded $ 124 million and $ 61 million , respectively , of claim revenue for costs incurred to date and such costs are included in contract work in progress . additional costs , which will increase the claim revenue balance over time , are expected to be incurred in future periods . the company had also recorded disputed back charges totaling $ 18 million and $ 41 million as of december 31 , 2017 and 2016 , respectively . the company believes the ultimate recovery of amounts related to these claims and back charges is probable in accordance with asc 605-35-25. backlog in the engineering and construction industry is a measure of the total dollar value of work to be performed on contracts awarded and in progress . although backlog reflects business that is considered to be firm , cancellations , deferrals or scope adjustments may occur . backlog is adjusted to reflect any known project cancellations , revisions to project scope and cost , foreign currency exchange fluctuations and project deferrals , as appropriate . engineering and construction partnerships and joint ventures certain contracts are executed jointly through partnership and joint venture arrangements with unrelated third parties . generally , these arrangements are characterized by a 50 percent or less ownership interest that requires only a small initial investment . the arrangements are often formed for the single business purpose of executing a specific project and allow the company to share risks and secure specialty skills required for project execution . in accordance with asc 810 , `` consolidation , '' the company assesses its partnerships and joint ventures at inception to determine if any meet the qualifications of a variable interest entity ( `` vie '' ) . the company considers a partnership or joint venture a vie if it has any of the following characteristics : ( a ) the total equity investment is not sufficient to permit the entity to finance its activities without additional subordinated financial support , ( b ) characteristics of a controlling financial interest are missing ( either the ability to make decisions through voting or other rights , the obligation to absorb the expected losses of the entity or the right to receive the expected residual returns of the entity ) , or ( c ) the voting rights of the equity holders are not proportional to their obligations to absorb the expected losses of the entity and or their rights to receive the expected residual returns of the entity , and substantially all of the entity 's activities either involve or are conducted on behalf of an investor that has disproportionately few voting rights . upon the occurrence of certain events outlined in asc 810 , the company reassesses its initial determination of whether the partnership or joint venture is a vie . the majority of the company 's partnerships and joint ventures qualify as vies because the total equity investment is typically nominal and not sufficient to permit the entity to finance its activities without additional subordinated financial support . the company also performs a qualitative assessment of each vie to determine if the company is its primary beneficiary , as required by asc 810. the company concludes that it is the primary beneficiary and consolidates the vie if the company has both ( a ) the power to direct the economically significant activities of the entity and ( b ) the obligation to absorb losses of , or the right to receive benefits from , the entity that could potentially be significant to the vie . the company considers the contractual agreements that define the ownership structure , distribution of profits and losses , risks , responsibilities , indebtedness , voting rights and board representation of the respective parties in determining if the company is the primary beneficiary . the company also considers all parties that have direct or implicit variable interests when determining whether it is the primary beneficiary . in most cases , the company does not qualify as the primary beneficiary . when the company is determined to be the primary beneficiary , the vie is consolidated . story_separator_special_tag as required by asc 810 , management 's assessment of whether the company is the primary beneficiary of a vie is continuously performed . for construction partnerships and joint ventures , unless full consolidation is required , the company generally recognizes its proportionate share of revenue , cost and profit in its consolidated statement of earnings and uses the one-line equity method of accounting in the consolidated balance sheet , which is a common application of asc 810-10-45-14 in the construction industry . the cost and equity methods of accounting are also used , depending on the company 's respective ownership interest and amount of influence on the entity , as well as other factors . at times , the company also executes projects through collaborative arrangements for which the company recognizes its relative share of revenue and cost . 38 deferred taxes and uncertain tax positions deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been recognized in the company 's financial statements or tax returns . as discussed in note 4 of the notes to consolidated financial statements , enactment of the act on december 22 , 2017 significantly changed how u.s. corporations are taxed . the act requires complex computations to be performed that were not previously required in u.s. tax law , significant judgments to be made in interpretation of the provisions of the act , the use of significant estimates in calculations , and the preparation and analysis of information not previously considered relevant or regularly produced . the u.s. treasury department , the irs , and other standard-setting bodies could interpret or issue guidance on how provisions of the act will be applied or otherwise administered that is different from the company 's interpretation . as the company completes its analysis of the act , collects and prepares necessary data , and interprets any additional guidance , the company may make adjustments to provisional amounts over the next twelve months that may materially impact the company 's provision for income taxes in the period in which the adjustments are made . as of december 31 , 2017 , the company had deferred tax assets of $ 618 million which were partially offset by a valuation allowance of $ 100 million and further reduced by deferred tax liabilities of $ 202 million . the valuation allowance reduces certain deferred tax assets to amounts that are more likely than not to be realized . the valuation allowance for 2017 primarily relates to the deferred tax assets on certain net operating loss carryforwards in certain jurisdictions for u.s. and non-u.s. subsidiaries . the company evaluates the realizability of its deferred tax assets by assessing its valuation allowance and by adjusting the amount of such allowance , if necessary . the factors used to assess the likelihood of realization are the company 's forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets . failure to achieve forecasted taxable income in the applicable taxing jurisdictions could affect the ultimate realization of deferred tax assets and could result in an increase in the company 's effective tax rate on future earnings . income tax positions must meet a more-likely-than-not recognition threshold to be recognized . income tax positions that previously failed to meet the more-likely-than-not threshold are recognized in the first subsequent financial reporting period in which that threshold is met . previously recognized tax positions that no longer meet the more-likely-than-not threshold are derecognized in the first subsequent financial reporting period in which that threshold is no longer met . the company recognizes potential interest and penalties related to unrecognized tax benefits within its global operations in income tax expense . retirement benefits the company accounts for its defined benefit pension plans in accordance with asc 715-30 , `` defined benefit plans pension . '' as required by asc 715-30 , the unfunded or overfunded projected benefit obligation is recognized in the company 's financial statements . assumptions concerning discount rates , long-term rates of return on plan assets and rates of increase in compensation levels are determined based on the current economic environment in each host country at the end of each respective annual reporting period . the company evaluates the funded status of each of its retirement plans using these current assumptions and determines the appropriate funding level considering applicable regulatory requirements , tax deductibility , reporting considerations and other factors . assuming no changes in current assumptions , the company expects to contribute up to $ 25 million to its defined benefit pension plans in 2018 , which is expected to be in excess of the minimum funding required . if the discount rates were reduced by 25 basis points , plan liabilities would increase by approximately $ 57 million . segment operations the company provides professional services in the fields of engineering , procurement , construction , fabrication and modularization , commissioning and maintenance , as well as project management services , on a global basis and serves a diverse set of industries worldwide . during the first quarter of 2017 , the company changed the name of the maintenance , modification & asset integrity segment to diversified services . the company now reports its operating results in the following four reportable segments : energy , chemicals & mining ; industrial , infrastructure & power ; government ; and diversified services . for more information on the business segments see `` item 1 . business '' above . 39 energy , chemicals & mining revenue and segment profit for the energy , chemicals & mining segment are summarized as follows : replace_table_token_6_th revenue in 2017 decreased 4 percent compared to 2016 , primarily due to reduced volume of project execution activity for chemicals projects completed in 2016 or nearing completion in 2017 , partially offset by an increase in construction activities for an , upstream project and several downstream and mining and metals projects .
| plan participants received vested benefits from the plan assets by electing either a lump-sum distribution , roll-over contribution to other defined contribution or individual retirement plans , or an annuity contract with a third-party provider . as a result of the settlement , the company was relieved of any further obligation . during 2015 , the company recorded a pension settlement charge of $ 240 million which consisted primarily of unrecognized actuarial losses included in accumulated other comprehensive loss . as discussed in note 2 of the notes to consolidated financial statements , the company recorded an after-tax loss from discontinued operations of $ 6 million ( net of taxes of $ 3 million ) during 2015 resulting from the settlement of lead exposure cases and the payment of legal fees related to the divested lead business of st. joe minerals corporation and the doe run company in herculaneum , missouri , which the company sold in 1994. the company filed suit against the buyer seeking indemnification for all liabilities arising from these lead exposure cases . the effective tax rate on earnings from continuing operations was 31.6 % , 40.1 % , and 33.8 % for 2017 , 2016 , and 2015 , respectively . the effective tax rate for 2017 was unfavorably impacted by a $ 37 million tax charge resulting from the enactment on december 22 , 2017 of comprehensive tax legislation commonly referred to as the tax cuts and jobs act ( the `` act '' ) , as further discussed in note 4 of the notes to consolidated financial statements . apart from the impact of the act , the effective tax rate for 2017 benefited from the release of a deferred tax liability as a result of the restructuring of certain international operations and a worthless stock deduction for an insolvent foreign subsidiary . these benefits were partially offset by the establishment of valuation allowances on certain foreign net operating loss carryforwards . the 2016 rate was unfavorably impacted by foreign losses without a tax benefit and by an adjustment to deferred tax assets as a result of the issuance of u.s. treasury regulations under internal revenue code
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as a result of the loss of control of fenco and the subsequent filing of the petition for relief under the bankruptcy code , fenco had effectively been disposed of and we did not and do not retain any continuing involvement in the operations of fenco ( see note 3 of the notes to consolidated financial statements ) . we may be subject to claims relating to the bankruptcy , as described in item 3 – legal proceedings . the accompanying consolidated financial statements include the accounts of motorcar parts of america , inc. and its wholly owned subsidiaries . all significant inter-company accounts and transactions have been eliminated . we have classified fenco operations as discontinued operations in the consolidated financial statements as a result of the fenco entities voluntary petition for relief under the bankruptcy code in the u.s. bankruptcy court for the district of delaware on june 10 , 2013. correspondingly , reclassifications of fenco 's assets , liabilities , and operations for prior year periods to discontinued operations have been made . critical accounting policies we prepare our consolidated financial statements in accordance with generally accepted accounting principles , or gaap , in the united states . our significant accounting policies are discussed in detail below and in note 2 of the notes to consolidated financial statements . in preparing our consolidated financial statements , we use estimates and assumptions for matters that are inherently uncertain . we base our estimates on historical experiences and reasonable assumptions . our use of estimates and assumptions affect the reported amounts of assets , liabilities and the amount and timing of revenues and expenses we recognize for and during the reporting period . actual results may differ from our estimates . our remanufacturing operations require that we acquire used cores , a necessary raw material , from our customers and offer our customers marketing and other allowances that impact revenue recognition . these elements of our business give rise to accounting issues that are more complex than many businesses our size or larger . in addition , the relevant accounting standards and issues continue to evolve . inventory non-core inventory non-core inventory is comprised of ( i ) non-core raw materials , ( ii ) the non-core value of work in process , ( iii ) the non-core value of remanufactured finished goods , and ( iv ) purchased finished goods . used cores , the used core value of work in process and the remanufactured core portion of finished goods are classified as long-term core inventory as described below under the caption “ long-term core inventory. ” used cores are a source of raw materials used in the remanufacturing of our rotating electrical products . 22 non-core inventory is stated at the lower of cost or market . the cost of non-core remanufactured inventory approximates average historical purchase prices paid for raw materials , and is based upon the direct costs of material and an allocation of labor and variable and fixed overhead costs . the cost of purchased finished goods inventory approximates average historical purchase prices paid , and an allocation of fixed overhead costs . the cost of non-core inventory is evaluated at least quarterly during the fiscal year and adjusted as necessary to reflect current lower of cost or market levels . these adjustments are determined for individual items of inventory within each of the three classifications of non-core inventory as follows : ● non-core raw materials are recorded at average cost , which is based on the actual purchase price of raw materials on hand . the average cost is updated quarterly . this average cost is used in the inventory costing process and is the basis for allocation of materials to finished goods during the production process . ● non-core work in process is in various stages of production and is valued at the average cost of materials issued to the open work orders . historically , non-core work in process inventory has not been material compared to the total non-core inventory balance . ● the cost of remanufactured finished goods includes the average cost of non-core raw materials and allocations of labor and variable and fixed overhead . the allocations of labor and variable and fixed overhead costs are determined based on the average actual use of the production facilities over the prior twelve months which approximates normal capacity . this method prevents the distortion in allocated labor and overhead costs that would occur during short periods of abnormally low or high production . in addition , we exclude certain unallocated overhead such as severance costs , duplicative facility overhead costs , and spoilage from the calculation and expense these unallocated overhead as period costs . during fiscal 2015 there was no unallocated overhead charged directly to cost of sales due to the usage of our u.s. facilities for wheel hub products and new brake master cylinder products . for the fiscal years ended march 31 , 2014 and 2013 , costs of approximately $ 1,070,000 , and $ 1,561,000 , respectively , were considered unallocated overhead charged directly to cost of sales and thus excluded from the calculation of cost for remanufactured finished goods . we record an allowance for potentially excess and obsolete inventory based upon recent sales history , the quantity of inventory on-hand , and a forecast of potential use of the inventory . we periodically review inventory to identify excess quantities and part numbers that are experiencing a reduction in demand . any part numbers with quantities identified during this process are reserved for at rates based upon management 's judgment , historical rates , and consideration of possible scrap and liquidation values which may be as high as 100 % of cost if no liquidation market exists for the part . the quantity thresholds and reserve rates are subjective and are based on management 's judgment and knowledge of current and projected industry demand . story_separator_special_tag the reserve estimates may , therefore , be revised if there are changes in the overall market for our products or market changes that in management 's judgment , impact our ability to sell or liquidate potentially excess or obsolete inventory . we recorded $ 2,675,000 and $ 2,708,000 for excess and obsolete inventory at march 31 , 2015 and 2014 , respectively . we record vendor discounts as reductions of inventories that are recognized as reductions to cost of sales as the inventories are sold . inventory unreturned inventory unreturned represents our estimate , based on historical data and prospective information provided directly by the customer , of finished goods shipped to customers that we expect to be returned , under our general right of return policy , after the balance sheet date . because all cores are classified separately as long-term assets , the inventory unreturned balance includes only the added unit value of a finished good . the return rate is calculated based on expected returns within the normal operating cycle of one year . as such , the related amounts are classified in current assets . inventory unreturned is valued in the same manner as our finished goods inventory . 23 long-term core inventory long-term core inventory consists of : ● used cores purchased from core brokers and held in inventory at our facilities , ● used cores returned by our customers and held in inventory at our facilities , ● used cores returned by end-users to customers but not yet returned to us which are classified as remanufactured cores until they are physically received by us , ● remanufactured cores held in finished goods inventory at our facilities ; and ● remanufactured cores held at customer locations as a part of the finished goods sold to the customer . for these remanufactured cores , we expect the finished good containing the remanufactured core to be returned under our general right of return policy or a similar used core to be returned to us by the customer , in each case , for credit . long-term core inventory is recorded at average historical purchase prices determined based on actual purchases of inventory on hand . the cost and market value of used cores for which sufficient recent purchases have occurred are deemed the same as the purchase price for purchases that are made in arm 's length transactions . long-term core inventory recorded at average historical purchase prices is primarily made up of used cores for newer products related to more recent automobile models or products for which there is a less liquid market . we must purchase these used cores from core brokers because our customers do not have a sufficient supply of these newer used cores available for the core exchange program . used cores obtained in core broker transactions are valued based on average purchase price . the average purchase price of used cores for more recent automobile models is retained as the cost for these used cores in subsequent periods even as the source of these used cores shifts to our core exchange program . long-term core inventory is recorded at the lower of cost or market value . in the absence of sufficient recent purchases , we use core broker price lists to assess whether used core cost exceeds used core market value on an item by item basis . the primary reason for the insufficient recent purchases is that we obtain most of our used core inventory from the customer core exchange program . we classify all of our core inventories as long-term assets . the determination of the long-term classification is based on our view that the value of the cores is not consumed or realized in cash during our normal operating cycle , which is one year for most of the cores recorded in inventory . according to guidance provided under the fasb asc , current assets are defined as “ assets or resources commonly identified as those which are reasonably expected to be realized in cash or sold or consumed during the normal operating cycle of the business. ” we do not believe that core inventories , which we classify as long-term , are consumed because the credits issued upon the return of used cores offset the amounts invoiced when the remanufactured cores included in finished goods were sold . we do not expect the core inventories to be consumed , and thus we do not expect to realize cash , until our relationship with a customer ends , a possibility that we consider remote based on existing long-term customer agreements and historical experience . however , historically for a portion of finished goods sold , our customer will not send us a used core to obtain the credit we offer under our core exchange program . therefore , based on our historical estimate , we derecognize the core value for these finished goods upon sale , as we believe they have been consumed and we have realized cash . we realize cash for only the core exchange program shortfall . this shortfall represents the historical difference between the number of finished goods shipped to customers and the number of used cores returned to us by customers . we do not realize cash for the remaining portion of the cores because the credits issued upon the return of used cores offset the amounts invoiced when the remanufactured cores included in finished goods were sold . we do not expect to realize cash for the remaining portion of these cores until our relationship with a customer ends , a possibility that we consider remote based on existing long-term customer agreements and historical experience . 24 for these reasons , we concluded that it is more appropriate to classify core inventory as long-term assets . long-term core inventory deposit the long-term core inventory deposit account represents the value of remanufactured cores we have purchased from customers , which are held by the customers and remain on the customers ' premises .
| our cost of goods sold as a percentage of net sales increased during fiscal 2015 to 73.0 % from 68.5 % for fiscal 2014 , resulting in a corresponding decrease in our gross profit to 27.0 % for fiscal 2015 from 31.5 % for fiscal 2014. our gross profit for the fiscal 2015 was lower primarily due to changes in the mix of product sold . in addition , our gross profit for fiscal 2015 was impacted by ( i ) $ 5,746,000 of sales allowances recorded for the core purchases in connection with the new business awarded to us in our rotating electrical product lines , which we began shipping in january 2015 , ( ii ) $ 4,432,000 recorded in connection with the returns of certain wheel hub and new brake master cylinder products , ( iii ) $ 2,879,000 of sales allowance recorded in connection with certain core inventory purchases , ( iv ) $ 2,819,000 of initial warranty accrual set up for the new brake master cylinder products and the new business awarded to us in our existing product lines , ( v ) $ 1,070,000 of special upfront allowances incurred , ( vi ) $ 537,000 net expense recorded in connection with the returns of products associated with the new business awarded to us , and ( vii ) $ 189,000 of start-up costs incurred related to new brake master cylinder products . in addition , our gross profit was impacted by lower per unit manufacturing costs due to better absorption of manufacturing overhead . 31 operating expenses the following table summarizes operating expenses from our continuing operations for fiscal 2015 and 2014 : replace_table_token_6_th general and administrative . our general and administrative expenses for fiscal 2015 were $ 37,863,000 , which represents a decrease of $ 1,821,000 , or 4.6 % , from general and administrative expenses for fiscal 2014 of $ 39,684,000. the decrease in general and administrative expenses was primarily due to ( i ) $ 7,949,000 of decreased loss recorded due to the change in the fair value of the wanxiang warrant liability and ( ii ) our prior year general and administrative expenses included $ 2,035,000 of
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a phase 3 trial has been completed and submitted to the fda for review and we anticipate their response in the second half of 2020. if approved , em-100 is expected to complement our broad range of bausch + lomb integrated eye-health products . in october 2018 , we completed the planned acquisition of medpharma pharmaceutical and chemical industries llc ( `` medpharma '' ) . the completion of this acquisition provides us with full control over the business activities of medpharma and allows us to wholly benefit from the allocation of additional company resources and the growth , if any , in the arab emirates and the surrounding region . we are considering further acquisition opportunities within our core therapeutic areas , some of which could be sizable . r & d investment - we continuously search for new product opportunities through internal development and strategic licensing agreements , that if successful , will allow us to leverage our commercial footprint , particularly our sales force , and supplement our existing product portfolio and address specific unmet needs in the market . internal r & d projects - our r & d organization focuses on the development of products through clinical trials . as of december 31 , 2019 , approximately 1,400 dedicated r & d and quality assurance employees in 23 r & d facilities were involved in our r & d efforts internally . our r & d expenses for 2019 , 2018 and 2017 , were $ 471 million , $ 413 million and $ 361 million , respectively , and was approximately 5 % as a percentage of revenue for 2019 and 2018 and approximately 4 % for 2017 . as part of our turnaround , we removed projects related to divested businesses and rebalanced our portfolio to better align with our long-term plans and focus on core businesses . our investment in r & d reflects our commitment to drive organic growth through internal development of new products , a pillar of our strategy . we have over 225 projects in our global pipeline and anticipate submitting approximately 100 of those projects for regulatory approval in 2020 and 2021. core assets that have received a significant portion of our r & d investment in current and prior periods are listed below . dermatology - in june 2019 , we launched duobrii ® , the first and only topical lotion that contains a unique combination of halobetasol propionate and tazarotene for the treatment of moderate-to-severe plaque psoriasis in adults . halobetasol propionate and tazarotene are each approved to treat plaque psoriasis when used separately , but the duration of halobetasol propionate is limited by food and drug administration ( `` fda '' ) labeling constraints and the use of tazarotene can be limited due to tolerability concerns . however , the combination of these ingredients in duobrii ® , with a dual mechanism of action , allows for expanded duration of use , with reduced adverse events . dermatology - in november 2018 , we launched bryhali ® , a novel product that contains a unique , lower concentration of halobetasol propionate for the treatment of moderate-to-severe psoriasis which is fda approved for 8 weeks of use . the fda has previously approved halobetasol propionate to treat plaque psoriasis , but limited duration of use to two weeks . 47 bausch + lomb - bausch + lomb ultra ® for astigmatism is a monthly planned replacement contact lens for astigmatic patients . the bausch + lomb ultra ® for astigmatism lens was developed using the proprietary moistureseal ® technology . in addition , the bausch + lomb ultra ® for astigmatism lens integrates an opticalign ® design engineered for lens stability and to promote a successful wearing experience for the astigmatic patient . in 2017 , we launched this product and the extended power range for this product . in 2018 , we launched the bausch + lomb ultra ® for astigmatism -2.75 cylinder expanded sku range . bausch + lomb - sihy daily aqualox is a silicone hydrogel daily disposable contact lens designed to provide clear vision throughout the day . product validation was completed in june 2018 and sihy daily aqualox was launched in japan in september 2018. we expect to launch our sihy daily disposable contact lens in the u.s. in the second half of 2020. dermatology - internal development project ( `` idp '' ) 126 is an acne product with a fixed combination of benzoyl peroxide , clindamycin phosphate and adapalene . phase 3 studies were initiated in december 2019. bausch + lomb - lumify ® ( brimonidine tartrate ophthalmic solution , 0.025 % ) is an otc eye drop developed as an ocular redness reliever . we have several line extensions currently under development and further clinical studies are planned to start in 2020. gastrointestinal - we have initiated a phase 2 study for the treatment of overt hepatic encephalopathy with a new formulation of rifaximin , which we acquired as part of the salix acquisition . we expect to complete an interim analysis in the first quarter of 2020. gastrointestinal - following the read out of the overt hepatic encephalopathy study , we are planning to initiate a study potentially evaluating the new formulation of rifaximin in potential hepatic encephalopathy and gastrointestinal conditions . the study is expected to start in the second half of 2020. this study replaces the planned xifaxan ® 550mg tablets phase 2 study evaluating the prevention of complications of decompensation cirrhosis referenced in our quarterly report on form 10-q for the quarterly period ended june 30 , 2019. gastrointestinal - we are initiating a phase 2 study to evaluate rifaximin for the treatment of small intestinal bacterial overgrowth or sibo . patient enrollment is expected to begin in the first half of 2020. dermatology - idp-120 is an acne product with a fixed combination of mutually incompatible ingredients : benzoyl peroxide and tretinoin . phase 3 clinical studies are ongoing . story_separator_special_tag dermatology - arazlo ( tazarotene ) lotion , 0.045 % ( formerly idp-123 ) is an acne product containing lower concentration of tazarotene in a lotion form to help reduce irritation while maintaining efficacy . the fda approved the new drug application ( `` nda '' ) for arazlo on december 18 , 2019 , which we expect to launch in the first half of 2020. gastrointestinal - our partner alfasigma s.p.a. ( `` alfasigma '' ) is initiating a phase 2/3 study for the treatment of postoperative crohns disease using a novel rifaximin extended release formulation . the study is expected to start in the first half of 2020. gastrointestinal - we are developing a probiotic supplement to address gastrointestinal disturbances . patient enrollment for clinical trial has been completed and we expect to launch this product in 2020. dermatology - idp-124 is a topical lotion product designed to treat moderate to severe atopic dermatitis , with pimecrolimus , currently in phase 3 testing . bausch + lomb - biotrue ® oneday for astigmatism is a daily disposable contact lens for astigmatic patients . the biotrue ® oneday contact lens incorporates surface active technology to provide a dehydration barrier . the biotrue ® oneday for astigmatism also includes evolved peri-ballast geometry to deliver stability and comfort for the astigmatic patient . we launched this product in december 2016 and launched an extended power range and further extended power ranges in 2017 , 2018 and november 2019. bausch + lomb - we are developing a new ophthalmic viscosurgical device product , with a formulation to protect corneal endothelium during phacoemulsification process during a cataract surgery and to help chamber maintenance and lubrication during interocular lens delivery . we anticipate filing a premarket approval application for the dispersive ophthalmic viscosurgical device with the fda in the first quarter of 2020. bausch + lomb - in april 2019 , we launched lotemax ® sm ( loteprednol etabonate ophthalmic gel ) 0.38 % , a new formulation for the treatment of post-operative inflammation and pain following ocular surgery . lotemax ® sm is the 48 lowest concentrated loteprednol ophthalmic corticosteroid indicated for the treatment of post-operative inflammation and pain following ocular surgery in the u.s. bausch + lomb - envista ® trifocal intraocular lens is an innovative lens design . we initiated an investigative device exemption study for this product in may 2018 and initiated a phase 2 study in october of 2019. bausch + lomb - enhanced envista ® toric intraocular lens was launched in july 2018. bausch + lomb - we are developing a preloaded intraocular lens injector platform for envista interocular lens . we have received approvals from the european union and canada and received fda clearance for the injector . we anticipate launching this platform in the second quarter of 2020. bausch + lomb - we are developing an extended depth of focus intraocular lens which we anticipate launching in 2020 , excluding the u.s. , starting with europe . bausch + lomb ultra ® multifocal for astigmatism contact lens is the first and only multifocal toric lens available as a standard offering in the eye care professional 's fit set . the new monthly silicone hydrogel lens , which was specifically designed to address the lifestyle and vision needs of patients with both astigmatism and presbyopia , combines the company 's unique 3-zone progressive multifocal design with the stability of its opticalign ® toric with moistureseal ® technology to provide eye care professionals and their patients an advanced contact lens technology that offers the convenience of same-day fitting during the initial lens exam . bausch + lomb ultra ® multifocal for astigmatism was launched in june 2019. bausch + lomb - renu ® advanced multi-purpose solution ( “ mps ” ) contains a triple disinfectant system that kills 99.9 % of germs , and has a dual surfactant system that provides up to 20 hours of moisture . renu ® advanced mps is fda cleared with indications for use to condition , clean , remove protein , disinfectant , rinse and store soft contact lenses including those composed of silicone hydrogels . renu ® advanced mps has gained regulatory approvals in korea , india , mexico , indonesia , malaysia and singapore . bausch + lomb - custom soft contact lens ( ultra buttons ) is a latheable silicone hydrogel button for custom soft specialty lenses including ; sphere , toric , multifocal , toric multifocal and irregular corneas . if approved by the fda , we expect to launch in the first quarter of 2021. bausch + lomb - in january 2019 , we launched zen multifocal scleral lens for presbyopia exclusively available with zenlens and zen rc scleral lenses and will allow eye care professionals to fit presbyopic patients with irregular and regular corneas and those with ocular surface disease , such as dry eye . the zen multifocal scleral lens incorporates decentered optics , enabling the near power to be positioned over the visual axis . bausch + lomb - in march 2019 , we launched tangible ® hydra-peg ® , a high-water polymer coating that is bonded to the surface of a contact lens and designed to address contact lens discomfort and dry eye . tangible ® hydra-peg ® coating technology in combination with our boston ® materials and zenlens family of scleral lenses will help eye care professionals provide a better lens wearing experience for their patients with challenging vision needs . strategic licensing agreements - to supplement our reliance on our internal r & d organization to build-out and refresh our product portfolio , we also search for opportunities to augment our pipeline through arrangements that allow us to gain access to unique products and investigational treatments , by strategically aligning ourselves with other innovative product solutions . in the normal course of business , the company will enter into select licensing and collaborative agreements for the commercialization and or development of unique products primarily in the u.s. and canada . these products are sometimes investigational treatments in early stage development that target unique conditions .
| the increase was primarily driven by : ( i ) higher gross selling prices , ( ii ) higher volumes , ( iii ) the incremental contribution of the sales of our trulance ® product , which we added to our portfolio in march 2019 as part of the acquisition of certain assets of synergy and ( iv ) better inventory management , partially offset by : ( i ) the unfavorable effect of foreign currencies , ( ii ) the impact of divestitures and discontinuations , ( iii ) higher sales deductions and ( iv ) the amortization of the inventory fair value step-up recorded in acquisition accounting related to the inventories we acquired as part of the acquisition of certain assets of synergy ; an increase in selling , general , and administrative expenses ( “ sg & a ” ) of $ 81 million , primarily attributable to : ( i ) higher selling , advertising and promotion expenses , ( ii ) the impact of the acquisition of certain assets of synergy , ( iii ) costs in 2019 attributable to our it infrastructure improvement projects and ( iv ) the charge associated with the termination of a co-promotional agreement with us worldmeds , llc . the increase was partially offset by : ( i ) the favorable effect of foreign currencies , ( ii ) lower costs related to professional services and ( iii ) the impact of divestitures and discontinuations ; an increase in r & d of $ 58 million primarily attributable to a number of projects within our bausch + lomb and gi businesses ; a decrease in amortization of intangible assets of $ 747 million , primarily due to : ( i ) the impact of the change in the estimated useful life of the xifaxan ® related intangible assets made in september 2018 to reflect management 's changes in assumptions , ( ii ) fully amortized intangible assets no longer being amortized in 2019 and ( iii ) lower amortization as a result of impairments to intangible assets in prior periods ; a decrease in goodwill impairments of $ 2,322 million , as a result of impairments in 2018 to the goodwill of our : ( i ) salix reporting unit upon adopting the new guidance for goodwill impairment accounting at january 1 , 2018 , ( ii ) ortho dermatologics reporting unit due to unforeseen changes in business dynamics during the three months ended march 31 , 2018 and ( iii ) dentistry reporting unit as a result of revised forecasts due to changing market conditions during the three months ended december 31 , 2018 ; 59 a decrease in asset impairments of $ 493 million , primarily related to specific impairments in 2018 as a result of : ( i ) decreases in forecasted sales for the uceris ® tablet product due to generic competition and ( ii ) decreases in
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the decrease in investment spread in 2011 resulted from a decline in the average yield in investments , offset in part by a smaller decline in the average cost of money on our fixed index annuities . the increase in investment spread in 2010 resulted from a lower aggregate cost of money on our fixed index annuities , offset in part by a smaller decline in the yield on invested assets . the lower cost of money during 2011 and 2010 was due to lower costs of options purchased to fund the annual index credits on fixed index annuities and lower rates for the fixed rate strategy in fixed index annuities . the 2011 decrease in average yield on invested assets was primarily attributable to lower yields on investments purchased in 2010 and 2011. the 2010 decrease in the average yield on invested assets was primarily attributable to a lag in reinvestment of proceeds from bonds called for redemption during the year into new assets resulting in high levels of low yielding short-term investments and interest earning cash and cash equivalents , as well as lower yields on investments purchased in 2010. we also have experienced a benefit from index annuity hedging that reduced the cost of money by 0.06 % and 0.10 % for the years ended december 31 , 2011 and 2010 . 20 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 . the impact of unlocking during the year ended december 31 , 2011 was a $ 5.0 million decrease in the amortization of deferred sales inducements and a $ 9.1 million decrease in amortization of deferred policy acquisition costs and included the impact of account balance true ups as of september 30 , 2011 and adjustments to future period assumptions for interest margins and surrenders . the impact of unlocking during the year ended december 31 , 2010 was a $ 0.3 million increase in the amortization of deferred sales inducements and a $ 1.4 million increase in amortization of deferred policy acquisition costs . there was no unlocking for the year ended december 31 , 2009. during 2011 , we discovered a prior period error related to policy benefit reserves for our single premium immediate annuity products . we evaluated the materiality of the error from qualitative and quantitative perspectives and concluded it was not material to any prior periods . the correction of the error in 2011 is not material to the results of operations for the year ended december 31 , 2011. accordingly , we made an adjustment in the first quarter of 2011 which resulted in a decrease of policy benefit reserves and a decrease in interest sensitive and index product benefits of $ 4.2 million . on an after-tax basis , the adjustment resulted in a $ 2.7 million increase in net income for the year december 31 , 2011 . operating income , a non-gaap financial measure ( see reconciliation to net income in item 6. selected consolidated financial data ) increased 23 % to $ 133.7 million in 2011 and increased 7 % to $ 108.9 million in 2010 from $ 101.8 million in 2009 . 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 net realized gains on investments , including net other than temporary impairment ( `` otti '' ) losses recognized in operations and related deferred tax asset valuation allowance , fair value changes in derivatives and embedded derivatives , ( gain ) loss on retirement of debt , the lehman counterparty default on expired call options and the cost to settle a class action lawsuit . because these items fluctuate from year to year in a manner unrelated to core operations , we believe measures excluding their impact are useful in analyzing operating trends . 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 . 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 . we could also produce a high level of net income in a given period , despite poor operating performance , if in that period we generate significant net realized gains from our investment portfolio . as an example of another limitation of operating income , it does not include the decrease in cash flows expected to be collected as a result of credit loss otti . therefore , our management and board of directors also separately review net realized investment gains ( losses ) and analyses of our net investment income , including impacts related to otti write-downs , in connection with their review of our investment portfolio . in addition , our management and board of directors examine net income as part of their review of our overall financial results . net realized gains ( losses ) on investments and net impairment losses recognized in operations fluctuate from year to year based upon changes in the interest rate and economic environment and the timing of the sale of investments or the recognition of other than temporary impairments . story_separator_special_tag the amounts disclosed in the reconciliation in item 6. selected consolidated financial data are net of related reductions in amortization of deferred sales inducements and deferred policy acquisition costs and income taxes . net income for 2009 includes a benefit of $ 11.9 million for the reduction of the deferred tax valuation allowance established in 2008 related to other than temporary impairments of investment securities and capital loss carryforwards . amounts attributable to the fair value accounting for fixed index annuity derivatives and embedded derivatives fluctuate from year to year based upon changes in the fair values of call options purchased to fund the annual index credits for fixed index annuities and changes in the interest rates used to discount the embedded derivative liability . the amounts disclosed in the reconciliation in item 6. selected consolidated financial data are net of related adjustments to amortization of deferred sales inducements and deferred policy acquisition costs and income taxes . the significant changes in the impact from the item disclosed in the reconciliation in item 6. selected consolidated financial data relate primarily to changes in the interest rates used to discount the embedded derivative liabilities . the litigation settlement amount for 2010 includes a class action settlement benefit to policyholders and attorneys ' fees and expenses aggregating $ 48 million ( see other operating costs and expenses later in this item for additional discussion ) . the amount disclosed in the reconciliation in item 6. selected consolidated financial data is net of related reductions in amortization of deferred sales inducements and deferred policy acquisition costs and income taxes . annuity product charges ( surrender charges assessed against policy withdrawals and fees deducted from policyholder account balances for living income benefit riders ) increased 10 % to $ 76.2 million in 2011 and 9 % to $ 69.1 million in 2010 from $ 63.4 million in 2009 . these increases were primarily attributable to increases in the amount of fees assessed for lifetime income benefit riders which were $ 26.2 million $ 13.5 million and $ 4.5 million for the years ended december 31 , 2011 , 2010 and 2009 , respectively . the increases in these fees are attributable to a larger volume of business in force subject to the fee . see interest sensitive and index product benefits below for corresponding expense recognized on lifetime income benefit riders . withdrawals from annuity and single premium universal life policies subject to surrender charges were $ 378.9 million , $ 418.9 million and $ 432.1 million for the years ended december 31 , 2011 , 2010 and 2009 , respectively . the average surrender charge collected on withdrawals subject to a surrender charge was 13.1 % , 13.2 % and 13.5 % for the years ended december 31 , 2011 , 2010 and 2009 , respectively . 21 net investment income increased 18 % to $ 1,218.8 million in 2011 and 11 % to $ 1,036.1 million in 2010 from $ 932.2 million in 2009 . the increases were principally attributable to the growth in our annuity business and corresponding increases in our invested assets . average invested assets excluding derivative instruments ( on an amortized cost basis ) increased 23 % to $ 21.0 billion in 2011 and 15 % to $ 17.1 billion in 2010 compared to $ 14.8 billion in 2009 . the average yield earned on average invested assets was 5.80 % , 6.06 % and 6.30 % for 2011 , 2010 and 2009 , respectively . the decrease in yield earned on average invested assets in 2011 and 2010 was primarily attributable to lower yields on investments purchased in those periods . in addition , net investment income and average yield were negatively impacted by a lag in reinvestment of proceeds from bonds called for redemption during 2011 and 2010 into new assets causing excess liquidity . based on yields received for purchases of fixed maturity securities in 2011 and 2010 , we estimate that approximately $ 15.8 million and $ 28.0 million in net investment income was foregone during 2011 and 2010 , respectively , as a result of the excess liquidity , and the average yield on invested assets would have been 5.87 % and 6.23 % for 2011 and 2010 , respectively , if such income had been earned . change in fair value of derivatives ( principally call options purchased to fund annual index credits on fixed index annuities ) is affected by the performance of the indices upon which our options are based and the aggregate cost of options purchased . the components of change in fair value of derivatives are as follows : replace_table_token_8_th the differences between the change in fair value of derivatives between years for call options are primarily due to the performance of the indices upon which our call options are based . a substantial portion of our call options are based upon the s & p 500 index with the remainder based upon other equity and bond market indices . the range of index appreciation for options expiring is as follows : replace_table_token_9_th actual amounts credited to policyholder account balances may be less than the index appreciation due to contractual features in the fixed index annuity policies ( caps , participation rates , and asset fees ) which allow us to manage the cost of the options purchased to fund the annual index credits . the change in fair value of derivatives is also influenced by the aggregate costs of options purchased . the aggregate cost of options has increased primarily due to an increased amount of fixed index annuities in force . the aggregate cost of options is also influenced by the amount of policyholder funds allocated to the various indices and market volatility which affects option pricing . costs for options purchased during the year ended december 31 , 2011 and 2010 decreased compared to prior years due to lower volatility in equity markets and adjustments to caps , participation rates , and asset fees .
| our business model contemplates continued growth in invested assets and operating income while maintaining a high quality investment portfolio that will not experience significant losses from impairments of invested assets . growth in invested assets is predicated on a continuation of our high sales achievements of the last three years while at the same time maintaining a high level of retention of the funds received . the economic and personal investing environments continue to be conducive for high sales levels as retirees and others look to put their money in instruments that will protect their principal and provide them with consistent cash flow sources in their retirement years . we expect to continue to grow our operating income by maintaining a reliable investment spread of 2.90 % or more through effective management of our investment portfolio and the cost of money for our annuity business . we are committed to maintaining a high quality investment portfolio with limited exposure to below investment grade securities and other riskier assets . overview we specialize in the sale of individual annuities ( primarily deferred annuities ) and , to a 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 and other charges deducted from the account balances of policyholders , net realized gains ( losses ) on investments and changes in fair value of derivatives . components of expenses for products accounted for as deposit liabilities are interest sensitive and index product benefits ( primarily interest credited to account balances ) , changes in fair value of embedded derivatives , amortization of deferred sales inducements and deferred policy acquisition costs , other operating costs and expenses and income taxes . 18 earnings from products accounted for
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see the results of operations section below for a discussion of the factors impacting income applicable to common stockholders for the three years ended december 31 , 2014 , 2013 and 2012. key issues we intend to achieve our long-term strategy of increasing production and expanding our proven and probable reserves through development and exploration , as well as by future acquisitions . our strategic plan requires that we manage several challenges and risks inherent in conducting mining , development , exploration and metal sales at multiple locations . one such risk involves metals prices , over which we have no control except through derivative contracts . as discussed in the critical accounting estimates section below , metals prices are influenced by a number of factors beyond our control . average market prices of silver , gold , and lead in 2014 were lower than their levels in 2013 , while zinc prices were higher , as illustrated by the table in results of operations below . while we believe current global economic and industrial trends could result in growing demand , prices have been volatile and there can be no assurance that current prices will continue . 47 on june 1 , 2013 , we completed the acquisition of all of the issued and outstanding common shares of aurizon for total consideration of cad $ 740.8 million ( us $ 714.5 million ) . see note 15 of notes to consolidated financial statements for more information . the acquisition gave us 100 % ownership of the producing casa berardi gold mine , along with interests in various gold exploration properties in the abitibi region of north-western quebec , canada . as further discussed in item 7a . quantitative and qualitative disclosures about market risk , the acquisition has increased our exposure to risks associated with exchange fluctuations between the u.s. dollar and canadian dollar . the acquisition was partially funded by $ 490 million in net proceeds from our issuance of senior notes in april 2013 ( see note 6 of notes to consolidated financial statements ) . as discussed in the financial liquidity and capital resources section below , we believe that we will be able to meet the obligations associated with the acquisition of aurizon and the related debt ; however , a number of factors could impact our ability to meet the debt obligations and fund our other projects . we make our strategic plans in the context of significant uncertainty about future operational capacity , which may impact new opportunities that require many years and substantial expenditures from discovery to production . we approach this challenge by investing in exploration and capital in districts with known mineralization . however , in an effort to address the recent decline in precious metals prices , we reduced our exploration and pre-development spending in 2014 and 2013 compared to the respective prior year , after significantly increasing our exploration and pre-development activity in 2012 compared to 2011. as further discussed in the lucky friday segment section below , we are in the process of constructing an internal shaft at the lucky friday mine ( “ # 4 shaft ” ) , which , we believe , will significantly increase production and extend the life of the mine . the # 4 shaft project will involve significant additional capital costs during the periods leading up to its expected completion date in 2016. although we believe that our current capital resources will allow us to complete the # 4 shaft project , there are a number of factors that could affect its completion . volatility in global financial markets poses a significant challenge to our ability to access credit and equity markets , should we need to do so , and to predict sales prices for our products . we utilize forward contracts to manage exposure to declines in the prices of silver , gold , zinc and lead contained in our concentrates that have been shipped but have not yet settled , and zinc and lead contained in our forecasted future concentrate shipments . in addition , we have in place a four-year $ 100 million revolving credit agreement under which there were no borrowings during 2014 or as of the filing date of this report . we strive to achieve excellent mine safety and health performance . we seek to implement this goal by : training employees in safe work practices ; establishing , following and improving safety standards ; investigating accidents , incidents and losses to avoid recurrence ; involving employees in the establishment of safety standards ; and participating in the national mining association 's coresafety program . we attempt to implement reasonable best practices with respect to mine safety and emergency preparedness . see the lucky friday segment section below for information on accidents and other events that impacted operations at our lucky friday unit . we work with msha to address issues outlined in the investigations of these incidents and continue to evaluate our safety practices . another challenge is the risk associated with environmental matters and ongoing reclamation activities . as described in risk factors and note 7 of notes to consolidated financial statements , it is possible that our estimate of these liabilities ( and our ability to estimate liabilities in general ) may change in the future , affecting our strategic plans . we are involved in various environmental legal matters with no assurance that the estimate of our environmental liabilities , liquidity needs , or strategic plans will not be significantly impacted as a result of these matters or new matters that may arise . we strive to ensure that our activities are conducted in compliance with applicable laws and regulations and attempt to resolve environmental litigation on as favorable terms as possible . reserve estimation is a major risk inherent in mining . our reserve estimates , which drive our mining and investment plans and many of our costs , may change based on economic factors and actual production experience . story_separator_special_tag until ore is mined and processed , the volumes and grades of our reserves must be considered as estimates . our reserves are depleted as we mine . reserves can also change as a result of changes in economic and operating assumptions . 48 as a result of industry-wide fatal accidents in recent years , primarily at underground coal mines , there has been an increase in mine regulation . in addition , under the dodd-frank wall street reform and consumer protection act , the sec was directed to issue rules regarding the disclosure of mine safety data . our ability to achieve and maintain compliance with msha regulations will be challenging and may increase our operating costs . see item 1a . risk factors - we face substantial governmental regulation and environmental risk . results of operations sales of products by metal for the years ended december 31 , 2014 , 2013 and 2012 were as follows : replace_table_token_12_th for the year ended december 31 , 2014 , we reported income applicable to common stockholders of $ 17.3 million compared to a loss of $ 25.7 million in 2013 and income of $ 14.4 million in 2012. the following factors led to the results for the year ended december 31 , 2014 compared to 2013 and 2012 : decreased average silver and gold prices in 2014 compared to 2013 and 2012 , with average lead prices remaining substantially consistent and zinc prices higher in 2014 compared to the previous two years . these price variances are illustrated in the table below . replace_table_token_13_th 49 average realized prices differ from average market prices primarily because concentrate sales are generally recorded as revenues at the time of shipment at forward prices for the estimated month of settlement , which differ from average market prices . due to the time elapsed between shipment of concentrates and final settlement with customers , we must estimate the prices at which sales of our metals will be settled . previously recorded sales are adjusted to estimated settlement metal prices each period through final settlement . for 2014 , we recorded net negative price adjustments to provisional settlements of $ 2.3 million compared to net negative price adjustments to provisional settlements of $ 17.0 million in 2013 and net negative price adjustments of $ 3.8 million in 2012. the price adjustments related to zinc and lead contained in our concentrate shipments were largely offset by gains and losses on forward contracts for those metals for each year . for 2014 and 2013 , the price adjustments related to silver and gold contained in our concentrate and doré sales were partially offset by gains and losses on forward contracts for those metals , as we began utilization of forward contracts for those metals in july 2013 ( see note 10 of notes to consolidated financial statements for more information ) . the gains and losses on these contracts are included in revenues and impact the realized prices for silver , gold , lead and zinc . realized prices are calculated by dividing gross revenues for each metal ( which include the price adjustments and gains and losses on the forward contracts discussed above ) by the payable quantities of each metal included in concentrate and doré shipped during the period . increased gross profit at our lucky friday unit of $ 21.9 million in 2014 compared to a gross loss of $ 4.9 million in 2013 and gross profit of $ 0.2 million in 2012. in addition , at our casa berardi unit acquired in june 2013 , we reported gross profit of $ 17.8 million in 2014 versus gross profit of $ 1.3 million in 2013. however , we reported decreased gross profit at our greens creek unit of $ 45.5 million in 2014 compared to $ 69.7 million in 2013 and $ 143.3 million in 2012. see the greens creek segment , lucky friday segment , and casa berardi segment sections below for further discussion of operating results . costs related to the acquisition of aurizon of $ 26.4 million in 2013. interest expense , net of amounts capitalized , of $ 26.8 million in 2014 compared to $ 21.7 million in 2013 and $ 2.4 million in 2012. the increase since 2012 is due to the issuance of senior notes in april 2013 , with the net proceeds used to partially fund the acquisition of aurizon , and additional issuances in 2014 to satisfy the funding requirements for one of our defined benefit pension plans ( see notes 6 and 16 of notes to consolidated financial statements ) . increased general and administrative costs , which increased to $ 31.5 million in 2014 from $ 28.9 million in 2013 and $ 21.3 million in 2012 due to increased incentive compensation and staffing . the temporary halt in production and suspension-related costs of $ 25.3 million incurred at our lucky friday unit in 2012 related to maintenance of surface facilities and mine workings and refurbishing the mill in preparation for the return to production . see the lucky friday segment section for more information on the temporary suspension of production during 2012. net mark-to-market gains on base metal forward contracts of $ 9.1 million in 2014 and $ 18.0 million in 2013 , and net losses of $ 10.5 million in 2012. these gains and losses are related to financially-settled forward contracts on forecasted zinc and lead production as part of a risk management program . the gains in 2014 and 2013 resulted from decreases in zinc and lead prices during those periods , with the losses in 2012 due to increasing prices for those metals . we do not include silver and gold in this program .
| we also invested $ 150.7 million in capital expenditures in 2013 , excluding $ 12.3 million in non-cash capital lease additions , compared to $ 113.1 million , excluding $ 13.1 million in capital leases , in 2012. the increase in capital expenditures was primarily due to the addition of the casa berardi unit , where we incurred capital expenditures of approximately $ 40.0 million following its acquisition . in addition to purchasing investments for $ 6.0 million in 2013 , we sold investments having a cost basis of $ 1.6 million for proceeds of $ 1.8 million . we acquired securities for approximately $ 5.8 million in 2012 , and acquired the monte cristo property in nevada for approximately $ 4.5 million in july 2012. replace_table_token_31_th we received $ 54.4 million in proceeds from the exercise of warrants during 2014 , as discussed above . in 2013 , we received proceeds from the issuance of the senior notes , net of initial purchaser discount , of $ 490.0 million , and incurred fees of $ 1.5 million related to the issuance of the notes . during 2014 , 2013 , and 2012 , we paid cash dividends on our common stock totaling $ 3.5 million , $ 6.0 million , and $ 17.1 million , respectively . we also paid cash dividends of $ 0.6 million on our series b preferred stock during each of those years . we made payments on our capital leases of $ 9.1 million , $ 7.0 million , and $ 5.9 million , in 2014 , 2013 , and 2012 , respectively . we also purchased shares of our common stock for $ 3.7 million , $ 0.3 million , and $ 2.1 million in 2014 , 2013 , and 2012 , respectively , with $ 1.5 million and $ 1.9 million of the amounts in 2014 and 2012 , respectively , related to our stock repurchase program discussed above . 69 contractual obligations and contingent liabilities and commitments the table below presents our fixed , non-cancelable contractual obligations and commitments primarily related to our outstanding purchase orders , certain capital expenditures , our credit facility , and lease arrangements as of december 31 , 2014 ( in thousands ) : replace_table_token_32_th
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vertical ; ( 5 ) in the long-term we expect innovation in the retail supply chain will increase the pace of product obsolescence and , therefore , increase the supply of surplus assets ; and ( 6 ) the increase in demand from sellers and buyers to transact in a low touch , online solution as compared to live , in-person auctions or public sale events . revenues substantially all of our revenue is earned through the following transaction models : purchase model . under our purchase transaction model , we recognize revenue within the revenue line item on the consolidated statements of operations from the resale of inventory that we purchased from sellers . we consider these sellers to be our vendors . we pay our sellers either a fixed amount or a portion of the net or gross proceeds received from our completed sales based on the value we receive from the sale , in some cases , after deducting a required return to us that we have negotiated with the seller . because we are the principal in purchase transaction model sales , we recognize as revenue the sale price paid by the buyer upon completion of a transaction . the proceeds paid by buyers also include transaction fees , referred to as buyer premiums . revenue from our purchase transaction model accounted for 62.0 % , 65.3 % and 66.7 % , of our total revenue for the years ended september 30 , 2020 , 2019 and 2018 , respectively . these amounts included sales of commercial merchandise sourced from multiple vendor contracts with amazon.com , inc. by our rscg segment . the commercial merchandise we purchased under this contract represented 55.1 % , 43.6 % and 33.7 % , of cost of goods sold for the years ended september 30 , 2020 , 2019 and 2018 , respectively . the merchandise sold under our purchase transaction model accounted for 20.9 % , 23.0 % and 22.9 % , of our gmv for the years ended september 30 , 2020 , 2019 and 2018. consignment model—fee revenue . under our consignment transaction model , we enable our sellers to sell goods they own in our marketplaces and we charge them a commission fee based on the gross or net proceeds received from such sales . the revenue from our consignment transaction model is recognized within the fee revenue line item on the consolidated statements of operations . because we are the agent in consignment model sales , our commission fee revenue , which we refer to as seller commissions , represents a percentage of the sales 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 , or provide enhanced product information for the merchandise . in most cases we collect the seller commission by deducting the appropriate amount from the sales proceeds prior to the distribution to the seller after completion of the transaction . in addition to seller commissions , we also collect buyer premiums . revenue from our consignment model accounted for 31.8 % , 29.4 % and 30.3 % , of our total revenue for the years ended september 30 , 2020 , 2019 and 2018 , respectively , and 79.1 % , 77.0 % and 77.1 % , of our gmv for the years ended september 30 , 2020 , 2019 and 2018 , respectively . other — fee revenue . we also earn non-consignment fee revenue from machinio 's sales listing subscription and machineryhost services , as well as other services including returns management , refurbishment of assets , and asset valuation services . prior to the wind-down of our operations under the surplus contract , we also earned non-consignment fee revenue 36 from services provided under that contract . other revenues accounted for 6.2 % , 5.3 % and 3.0 % of our total revenue for the years ended september 30 , 2020 , 2019 and 2018 , respectively . our vendor agreements commercial agreements . we have multiple vendor contracts with amazon.com , inc. under which we acquire and sell commercial merchandise . the property we purchased under this contract represented 55.1 % , 43.6 % and 33.7 % , of cost of goods sold for the years ended september 30 , 2020 , 2019 and 2018 , respectively . this contract is included within our rscg segment . our agreements with our other sellers are generally terminable at will by either party . dod agreements . historically , we had two material vendor contracts with the dod : the scrap contract and the surplus contract . both contracts were included in the results of our cag segment . scrap contract . under the scrap contract , which concluded on september 30 , 2019 , we acquired , managed and sold all non-electronic scrap property of the dod turned into the dla , and paid the dla a revenue-sharing payment equal to 64.5 % of the gross resale proceeds . scrap property generally consisted of items determined by the dod to have no use beyond their base material content , such as metals , alloys , and building materials . we bore all of the costs for the sorting , merchandising and sale of the property . the resale transactions for scrap property sourced under this contract followed the purchase model . resale of scrap property that we purchased under the scrap contract accounted for 7.4 % and 10.2 % of our total revenues and 2.6 % and 3.6 % of our gmv in the years ended september 30 , 2019 and 2018 , respectively . surplus contract . under the surplus contract , which concluded on june 30 , 2018 , we acquired , managed and sold usable surplus personal property of the dod turned into the dla . story_separator_special_tag we paid the dla 4.35 % of the dod 's original acquisition value for the surplus property , which consisted of items determined by the dod to be no longer needed , and not claimed for reuse by any federal agency , such as electronics , industrial equipment , office supplies , scientific and medical equipment , aircraft parts , clothing and textiles . we retained 100 % of the profits from the resale of the property and bore all of the costs for the merchandising and sale of the property . the resale transactions for surplus property sourced under this contract followed the purchase model . resale of surplus property that we purchased under the surplus contract , as well as services we provided to the dod under the surplus contract , accounted for 12.4 % of our total revenues and 4.1 % of our gmv in the year ended september 30 , 2018. key business metrics our management periodically reviews certain key business metrics for operational planning purposes and to evaluate the effectiveness of our operational strategies , allocation of resources and our capacity to fund capital expenditures and expand our business . these key business metrics include : gross merchandise volume ( gmv ) . gmv is the total sales value of all merchandise sold by us or our sellers through our marketplaces or by us through other channels during a given period of time . we review gmv because it provides a measure of the volume of goods being sold in our marketplaces and thus the activity of those marketplaces . gmv also provides a means to evaluate the effectiveness of investments that we have made and continue to make , including in the areas of buyer and seller support , value-added services , product development , sales and marketing , and operations . our gmv for the year ended september 30 , 2020 was $ 619.8 million . total registered buyers . we grow our buyer base through a combination of marketing and promotional efforts . a person becomes a registered buyer by completing an online registration process on one of our marketplaces . as part of this process , we collect business and personal information , including name , title , company name , business address and contact information , and information on how the person intends to use our marketplaces . each prospective buyer must also accept our terms and conditions of use . following the completion of the online registration process , we verify each prospective buyer 's e-mail address and confirm that the person is not listed on any banned persons list maintained internally or by the u.s. federal government . after the verification process , which is completed generally within 24 hours , the registration is approved and activated , and the prospective buyer is added to our registered buyer list . total registered buyers , as of a given date , represent the aggregate number of persons or entities who have registered on one of our marketplaces . we use this metric to evaluate how well our marketing and promotional efforts are performing . total registered buyers exclude duplicate registrations , buyers who are suspended from utilizing our marketplaces and those buyers who have voluntarily removed themselves from our registration database . in addition , if we become aware of registered buyers that are no longer in business , we remove them from our database . as of september 30 , 2020 and 2019 , we had 3,772,000 and 3,580,000 registered buyers , respectively . 37 total auction participants . for each auction we manage , the number of auction participants represents the total number of registered buyers who have bid one or more times in that auction . as a result , a registered buyer who bids , or participates , in more than one auction is counted as an auction participant in each auction in which he or she participates . thus , total auction participants for a given period is the sum of the auction participants in each auction conducted during that period . we use this metric to allow us to compare our online auction marketplaces to our competitors , including other online auction sites and traditional on-site auctioneers . in addition , we measure total auction participants on a periodic basis to evaluate the activity level of our base of registered buyers and to measure the performance of our marketing and promotional efforts . during the years ended september 30 , 2020 , 2019 , and 2018 , 1,899,000 , 2,085,000 , and 2,079,000 total auction participants participated in auctions on our marketplaces , respectively . largely as a result of the wind-down of the scrap contract , there has been a decrease in auction participants during 2020 compared with 2019. completed transactions . completed transactions represents the number of auctions in a given period from which we have recorded revenue . similar to gmv , we believe that completed transactions is a key business metric because it provides an additional measurement of the volume of activity flowing through our marketplaces . during the years ended september 30 , 2020 , 2019 , an d 2018 , we completed 553,000 , 607,000 and 567,000 transactions , respectively . critical accounting policies and estimates the company 's consolidated financial statements , included in part iv , item 15 ( a ) ( 1 ) of this annual report on form 10-k with their accompanying notes , have been prepared in accordance with gaap , which requires management of the company to make assumptions , judgments and estimates that affect amounts reported in its consolidated financial statements . accounting policies and estimates are considered to be `` critical '' when the nature of the estimate includes subjective or sensitive assumptions or judgments that can have a material impact on the financial condition or operating performance of the company . actual results may differ from these estimates . we consider the following accounting policies to be critical : revenue recognition , business combinations , valuation of goodwill and other intangible assets , and income taxes .
| general and administrative . general and administrative expenses include all corporate and administrative functions that support our operations and provide an infrastructure to facilitate our future growth . these expenses are generally more fixed in nature than our other operating expenses and do not significantly vary in response to the volume of merchandise sold through our marketplaces . depreciation and amortization . depreciation and amortization expenses consist of depreciation of property and equipment , amortization of internally developed software , and amortization of intangible assets . acquisition costs and impairment of goodwill and long-lived assets . acquisition costs and impairment of goodwill and long-lived assets consist of expenses incurred to complete a business combination , and impairment of goodwill and long-lived assets . other operating expenses ( income ) . other operating expense includes the change in fair value of financial instruments and contingent consideration , as well as business realignment expenses , including those associated with restructuring initiatives and the exit of certain business operations . interest and other income , net . interest and other income , net consists of interest income on short-term investments and the promissory note issued to jtc , the components of net periodic pension ( benefit ) other than the service component , and impacts of foreign currency fluctuations . income taxes . during the years ended september 30 , 2020 , 2019 , and 2018 had an effective income tax rate for continuing operations of ( 26.9 ) % , ( 6.6 ) % and 44.6 % , respectively , which included federal , state and foreign income taxes . 39 results of operations the following table presents segment revenue , gross profit , and gross profit margin for the periods indicated ( $ in thousands ) : replace_table_token_5_th nm = not meaningful year ended september 30 , 2020 compared to year ended september 30 , 2019 segment results govdeals . revenue from our govdeals segment decreased 0.4 % , or $ 0.1 million , due to a 0.4 % , or $ 1.5 million , decrease in gmv primarily resulting from decreased activity due
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in 2013 , almost all of our operated drilling activities and approximately 70 % of our total capital expenditures of $ 373.5 million were directed to our operations in south texas , primarily in the eagle ford shale , as we continued to increase our oil production and oil reserves . we also increased our leasehold position significantly in the permian basin in southeast new mexico and west texas during 2013. at december 31 , 2013 , we held approximately 70,800 gross ( 44,800 net ) acres in the permian basin , as compared to approximately 15,900 gross ( 7,600 net ) acres at december 31 , 2012. we also initiated our exploratory drilling activities in the permian basin during 2013 to begin the evaluation and delineation of our acreage position . approximately 27 % of our 2013 capital expenditures were directed to our three-well exploration program testing portions of our leasehold position in the permian basin and to the acquisition of additional interests prospective for the wolfcamp , bone spring and other oil and liquids-rich plays in the permian basin . for the year ended december 31 , 2013 , approximately 50 % of our total production by volume ( using a conversion ratio of one bbl of oil per six mcf of natural gas ) and almost 80 % of our total oil and natural gas revenues were attributable to oil production , primarily in the eagle ford shale . during the first quarter of 2013 , we had two contracted drilling rigs operating full-time in south texas and all of our operated drilling and completion activities were focused on the eagle ford shale . in late april 2013 , we moved one of these contracted drilling rigs to southeast new mexico to begin a three-well exploration program testing portions of our leasehold acreage in the permian basin , while the second contracted drilling rig continued to operate in the eagle ford shale . in mid-august 2013 , we added a third contracted drilling rig to our drilling program and returned to operating two contracted drilling rigs in the eagle ford shale . we expect to operate two contracted drilling rigs in the eagle ford shale and one rig in the permian basin throughout 2014. at march 13 , 2014 , our two eagle ford rigs were operating in la salle and wilson counties , texas , respectively , and our permian basin rig was operating in lea county , new mexico . during the year ended december 31 , 2013 , we completed and began producing oil and natural gas from 25 gross ( 25.0 net ) operated and seven gross ( 2.6 net ) non-operated eagle ford shale wells . we also participated in 11 gross ( 0.4 net ) non-operated haynesville shale wells in northwest louisiana and one non-operated test of the buda formation in south texas ( approximately 21 % working interest ) . during 2013 , we also initiated an exploration program testing portions of our growing leasehold position in the permian basin . we drilled three wells on this acreage in 2013 , including one vertical data well , where we collected extensive well log and whole core data , and one horizontal well testing the second bone spring formation , both in lea county , new mexico . we began producing oil and natural gas from the second bone spring horizontal well in late october 2013. we also drilled a horizontal well testing the wolfcamp “ a ” formation in loving county , texas . this well was completed and began producing oil and natural gas in january 2014. our average daily oil equivalent production for the year ended december 31 , 2013 was the best in matador 's history at 11,740 boe per day , including 5,843 bbl of oil per day and 35.4 mmcf of natural gas per day , an increase of 30 % as compared to 9,000 boe per day , including 3,317 bbl of oil per day and 34.1 mmcf of natural gas per day , for the year ended december 31 , 2012 . our average daily oil production of 5,843 bbl of oil per day was an increase of 76 % , as compared to an average daily oil production of 3,317 bbl of oil per day during the year ended december 31 , 2012 . this increase in oil production was a direct result of our drilling operations in the eagle ford shale . oil production comprised 50 % of our total production ( using a conversion ratio of one bbl of oil per six mcf of natural gas ) for the year ended december 31 , 2013 , as compared to 37 % for the year ended december 31 , 2012 and only 6 % for the year ended december 31 , 2011 . 54 our oil and natural gas revenues and adjusted ebitda for the year ended december 31 , 2013 were also the highest achieved for any year in our history . for the year ended december 31 , 2013 , our oil and natural gas revenues were $ 269.0 million , an increase of 72 % from oil and natural gas revenues of $ 156.0 million for the year ended december 31 , 2012 . our oil revenues and natural gas revenues increased 72 % and 74 % to approximately $ 212.8 million and $ 56.2 million , respectively , for the year ended december 31 , 2013 , as compared to $ 123.7 million and $ 32.3 million , respectively , for the year ended december 31 , 2012 . adjusted ebitda for the year ended december 31 , 2013 was $ 191.8 million , an increase of 65 % from an adjusted ebitda of $ 115.9 million reported for the year ended december 31 , 2012 . adjusted ebitda is a non-gaap financial measure . story_separator_special_tag for a definition of adjusted ebitda and a reconciliation of adjusted ebitda to our net income ( loss ) and net cash provided by operating activities , see “ selected financial data — non-gaap financial measures. ” at december 31 , 2013 , our estimated total proved oil and natural gas reserves were 51.7 million boe , including 16.4 million bbl of oil and 212.2 bcf of natural gas , with a pv-10 of $ 655.2 million and a standardized measure of $ 578.7 million . at december 31 , 2012 , our estimated proved oil and natural gas reserves were 23.8 million boe , including 10.5 million bbl of oil and 80.0 bcf of natural gas , with a pv-10 of $ 423.2 million and a standardized measure of $ 394.6 million . our estimated proved oil reserves of 16.4 million bbl at december 31 , 2013 increased 56 % , as compared to 10.5 million bbl at december 31 , 2012 . these reserves estimates were based on evaluations prepared by our engineering staff and have been audited for their reasonableness and conformance with sec guidelines by netherland , sewell & associates , inc. , independent reservoir engineers . standardized measure represents the present value of estimated future net cash flows from proved reserves , less estimated future development , production , plugging and abandonment costs and income tax expenses , discounted at 10 % per annum to reflect the timing of future cash flows . standardized measure is not an estimate of the fair market value of our properties . pv-10 is a non-gaap financial measure . for a reconciliation of pv-10 to standardized measure , see “ business — estimated proved reserves. ” the unweighted arithmetic average of the first-day-of-the-month natural gas price used to estimate natural gas reserves at december 31 , 2013 increased to $ 3.670 per mmbtu , as compared to $ 2.757 per mmbtu for 2012 . primarily as a result of continued improvement in natural gas prices over the past year , we added approximately 134.2 bcf ( 22.4 million boe ) of proved undeveloped natural gas reserves in the haynesville shale in northwest louisiana to our estimated total proved reserves in the second , third and fourth quarters of 2013 , which are reflected in our estimated total proved reserves at december 31 , 2013 . we had removed 97.8 bcf ( 16.3 million boe ) of previously classified proved undeveloped natural gas reserves from our estimated total proved reserves at june 30 , 2012 because the natural gas price used to estimate natural gas reserves at june 30 , 2012 had declined to $ 3.146 per mmbtu , a price at which the natural gas volumes associated with almost all of our identified haynesville shale well locations could no longer be classified as proved undeveloped reserves . as we continue to explore and develop our leasehold positions in the eagle ford shale and as we continue to explore and develop our leasehold positions in the wolfcamp and bone spring plays in the permian basin , we may face various challenges in establishing operations in new areas , including securing the necessary services to drill and complete wells and securing the necessary facilities to gather , process , transport and market the oil and natural gas that we produce . we may also incur higher than anticipated costs associated with establishing new operating infrastructure on our leases throughout the area . we believe that we have successfully secured the necessary drilling and completion services for our current eagle ford operations . we did not experience difficulties in securing completion , and in particular hydraulic fracturing , services for our newly drilled wells during the years ended december 31 , 2013 or december 31 , 2012 , although we experienced these problems at various times during 2011 in south texas and may have such difficulties again in the future . we believe that maintaining reliable and timely drilling and completion services and reducing drilling and completion costs will be essential to the successful development and profitability of the eagle ford shale play , as well as the wolfcamp and bone spring plays in the permian basin . see “ risk factors — the unavailability or high cost of drilling rigs , completion equipment and services , supplies and personnel , including hydraulic fracturing equipment and personnel , could adversely affect our ability to establish and execute exploration and development plans within budget and on a timely basis , which could have a material adverse effect on our financial condition , results of operations and cash flows. ” in the past , we have experienced pipeline and natural gas processing interruptions and capacity and infrastructure constraints associated with natural gas production , which have , among other things , required us to flare natural gas occasionally . to alleviate a portion of such interruptions and processing capacity constraints , effective september 1 , 2012 , we entered into a firm five-year natural gas processing and transportation agreement whereby we committed to transport the anticipated natural gas production from a significant portion of our eagle ford acreage through the counterparty 's system for processing at the counterparty 's facilities . the agreement also includes firm transportation of the natural gas liquids extracted at the counterparty 's processing plant downstream for fractionation . no assurance can be made that this agreement will alleviate these issues completely , and if we were required to shut in or flare our production for long periods of time due to pipeline interruptions or lack of processing facilities or capacity of these facilities , it would have a material adverse effect on our business , financial condition , results of operations and cash flows . we may experience similar interruptions and processing 55 capacity constraints as we explore and develop our leasehold position in the permian basin in 2014 , although we experienced no material issues in 2013 .
| on a unit-of-production basis , the increase in general and administrative expenses was partially offset by the increase of approximately 30 % in our total oil and natural gas production to 4.3 million boe from 3.3 million boe during the respective periods . interest expense . for the year ended december 31 , 2013 , we incurred total interest expense of approximately $ 7.6 million . we capitalized approximately $ 1.9 million of our interest expense on certain qualifying projects for the year ended december 31 , 2013 and expensed the remaining $ 5.7 million to operations . for the year ended december 31 , 2012 , we incurred total interest expense of approximately $ 2.6 million . we capitalized approximately $ 1.6 million of our interest expense on certain qualifying projects for the year ended december 31 , 2012 and expensed the remaining $ 1.0 million to operations . the increase in interest expense for the year ended december 31 , 2013 of $ 4.7 million , as compared to the year ended december 31 , 2012 , was primarily attributable to higher average outstanding borrowings under our credit agreement during 2013 , as compared to average outstanding borrowings under our credit agreement during 2012. in september 2013 , we used a portion of the net proceeds of our public equity offering to repay $ 130.0 million of outstanding borrowings under our credit agreement . at december 31 , 2013 , we had $ 200.0 million in borrowings and $ 0.3 million in letters of credit outstanding under our credit agreement , and the effective interest rate on our borrowings was approximately 3.3 % per annum . in february 2012 , we used a portion of the net proceeds of our initial public offering to repay our then outstanding borrowings of $ 123.0 million . at december 31 , 2012 , we had $ 150.0 million in borrowings and $ 1.1 million in letters of credit outstanding under our credit agreement . total income tax provision ( benefit ) . we recorded a
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actual results may differ from these estimates . we believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements . revenue recognition revenue is recognized when persuasive evidence of an arrangement exists , delivery has occurred , the fee is fixed and determinable , collectability is reasonably assured , contractual obligations have been satisfied and title and risk of loss have been transferred to the customer . we generate our revenue from two different types of contractual arrangements : ( i ) cost-reimbursable grants and contracts and ( ii ) fixed-price grants and contracts . costs consist primarily of actual internal labor charges , subcontractor and material costs incurred , plus an allocation of fringe benefits , overhead and general and administrative expenses ( `` g & a `` ) , and applicable fees , if any , based on the terms of the contract . 40 revenues on cost-reimbursable grants and contracts are recognized in an amount equal to the costs incurred during the period , plus an estimate of the applicable fee earned . the estimate of the applicable fee earned is determined by reference to the contract : if the contract defines the fee in terms of risk-based milestones and specifies the fees to be earned upon the completion of each milestone , then the fee is recognized when the related milestones are earned . otherwise , we compute fee income earned in a given period by using a proportional performance method based on costs incurred during the period as compared to total estimated project costs and application of the resulting fraction to the total project fee specified in the grant or contract . revenues on fixed-price grants and contracts are recognized using a percentage-of-completion method , which uses assumptions and estimates , as appropriate . these assumptions and estimates are developed in coordination with the principal investigator performing the work under the fixed-price grant or contract to determine levels of accomplishments throughout the life of the grant or contract . stock-based compensation we expense all share-based awards to employees and consultants , including grants of stock options and shares , based on their estimated fair value at the date of grant . costs of all share-based payments are recognized over the requisite service period that an employee or consultant must provide to earn the award ( i.e. , the vesting period ) and allocated to the functional operating expense associated with that employee or consultant . fair value of financial instruments the carrying value of cash and cash equivalents , accounts receivable , short-term investments , accounts payable and accrued expenses approximates fair value due to the relatively short maturity of these instruments . common stock warrants , which are classified as liabilities , are recorded at their fair market value as of each reporting period . the measurement of fair value requires the use of techniques based on observable and unobservable inputs . observable inputs reflect market data obtained from independent sources , while unobservable inputs reflect our market assumptions . the inputs create the following fair value hierarchy : level 1 – quoted prices for identical instruments in active markets . level 2 – quoted prices for similar instruments in active markets ; quoted prices for identical or similar instruments in markets that are not active ; and model-derived valuations where inputs are observable or where significant value drivers are observable . level 3 – instruments where significant value drivers are unobservable to third parties . we use the black-scholes model to determine the fair value of certain common stock warrants on a recurring basis and classify such warrants in level 3. the black-scholes model utilizes inputs consisting of : ( i ) the closing price of our common stock ; ( ii ) the expected remaining life of the warrants ; ( iii ) the expected volatility using a weighted-average of historical volatilities of cbli and a group of comparable companies ; and ( iv ) the risk-free market rate . as of december 31 , 2019 , we held approximately $ 0.01 million in accrued expenses classified as level 3 securities for warrants to purchase common stock . income taxes determining the consolidated provision for income tax expense , deferred tax assets and liabilities and related valuation allowance , if any , involves judgment . on an on-going basis , we evaluate whether a valuation allowance is needed to reduce our deferred income tax assets to an amount that is more likely than not to be realized . the evaluation process includes assessing historical and current results in addition to future expected results . upon determining that we would be able to realize our deferred tax assets , an adjustment to the deferred tax valuation allowance would increase income in the period we make such determination . research and development expenses research and development ( `` r & d `` ) costs are expensed as incurred . advance payments are deferred and expensed as performance occurs . r & d costs include the cost of our personnel ( which consists of salaries and incentive and stock-based compensation ) , out-of-pocket preclinical and clinical trial costs usually associated with contract research organizations , drug product manufacturing and formulation , and a pro-rata share of facilities expense and other overhead items . 41 general and administrative expenses general and administrative ( `` g & a `` ) functions include executive management , finance and administration , government affairs and regulations , corporate development , human resources , and legal and compliance . story_separator_special_tag the specific costs include the cost of our personnel consisting of salaries , incentive and stock-based compensation , out-of-pocket costs usually associated with attorneys ( both corporate and intellectual property ) , bankers , accountants and other advisors , and a pro-rata share of facilities expense and other overhead items . other income and expenses other recurring income and expenses primarily consists of interest income on our investments , changes in the market value of our derivative financial instruments , and foreign currency transaction gains or losses . year ended december 31 , 2019 compared to year ended december 31 , 2018 revenue revenue decreased from $ 1.1 million for the year ended december 31 , 2018 to $ 1.1 million for the year ended december 31 , 2019 , representing a decrease of $ 0.02 million , or 2 % , primarily due to a decrease in revenue from the incuron service contract for continued preclinical development partially offset by an increase in both revenue from our jwmrp contract for preclinical studies and prmrp revenues due to the commencement of preparatory activities for the clinical study . we anticipate jwmrp revenues will increase due to the commencement of contracted preclinical required for the bla for the to-be-marketed formulation of entolimod as a mrc . we do not anticipate any significant revenues from the prmrp grant due to the clinical trial hold . service revenue from incuron is expected to decrease as extension of our current service contract is not anticipated . since these revenue sources are cost reimbursable in nature , variances in these activities , period to period , are directly aligned with variances in the underlying costs of service . differences in our revenue sources , by program , between 2019 and 2018 are set forth in the following table : replace_table_token_0_th we anticipate any revenue over the next year will continue to be derived primarily from government grants and contracts . the following table sets forth information regarding our currently active grant contracts as of december 31 , 2019 : replace_table_token_1_th 42 the company is in the midst of discussions with the dod regarding cost overruns experienced on certain of its contracts with the dod . the company received reimbursement from the dod for these overruns , and anticipates that the overruns will be eligible for application against cost under-spending on other tasks under the same contracts . however , given that these discussions remain on-going and have not been resolved as of the date of this annual report , there remains uncertainty as to the ultimate resolution of this matter . should this matter ultimately be resolved unfavorably to the company , the company may be required to refund revenues previously received and recorded in the amount of $ 472,310 , plus the potential for penalties and interest . should this occur , we may need to revise downward our previously recorded revenues during the fiscal years ended december 31 , 2018 and 2019. research and development expenses r & d expenses decreased from $ 3.62 million for the year ended december 31 , 2018 to $ 1.66 million for the year ended december 31 , 2019 , representing a decrease of $ 1.96 million , or 54 % . variances in individual development programs are noted in the table below . significant reductions include the $ 0.7 million reduction of funds spent on entolimod for biodefense indication due to reduced preclinical development activity due to our previously disclosed vendor delays in the analytical analyses required to complete the biocomparability study and the fda having not agreed with the company 's conclusions regarding the biocomparability study until the first quarter of 2020 , which has prevented further development progress from occurring , a decrease in expenses of 0.9 million spent on entolimod for oncology application due to the transfer of ip to gpi in 2018 as part of our investment in this joint venture , and a decrease of $ 0.3 million related to curaxins . we expect that r & d expenses associated with the development of entolimod towards bla for biodefense indication to increase in 2020 if dod activities commence . we expect that costs related to oncology applications of the entolimod family of compounds to be immaterial in 2020. curaxins expenditures are expected to decrease as the service contract with incuron is n't expected to be extended beyond the first quarter of 2020. r & d spending on panacela product candidates are expected to decrease . replace_table_token_2_th story_separator_special_tag that we can obtain additional government financing for our operations . if we are unable to raise adequate capital and or achieve profitable operations , future operations might need to be scaled back or discontinued . the financial statements do not include any adjustments relating to the recoverability of the carrying amount of recorded assets and liabilities that might result from the outcome of these uncertainties . in addition , the covid-19 pandemic may negatively impact our ability to complete our planned preclinical and clinical trials , our ability to obtain approval of any product candidates from fda or other regulatory authorities and our workforce and therefore our research and development activities . this may ultimately have a material adverse effect on our liquidity , although we are unable to make any prediction with certainty given the rapidly changing nature of the pandemic and governmental and other responses to it . operating activities the following table provides information regarding our cash flows for the years ended december 31 , 2019 and 2018 : replace_table_token_3_th operating activities net cash used in operations decreased by $ 1.9 million to $ 2.7 million for the year ended december 31 , 2019 from $ 4.6 million for the year ended december 31 , 2018 . net cash used in operating activities for the period ending december 31 , 2019 consisted of a reported net loss of $ 2.7 million , which was further increased by $ 0.1 million
| we have also received $ 7.3 million in net proceeds from the issuance of long-term debt instruments ; dod and the barda have funded grants and contracts totaling $ 60.4 million for the development of entolimod for its biodefense indication ; the russian federation has funded a series of contracts totaling $ 17.3 million , based on the exchange rates in effect on the date of funding . these contracts include requirements for us to contribute matching funds , which we have satisfied with both the value of developed intellectual property at the time of award , incurred development expenses and future expenses ; we have been awarded $ 4.0 million in grants and contracts not described above , all of which has been recognized at december 31 , 2019 ; 43 incuron was formed to develop and commercialize the curaxins product line , including its lead oncology drug candidate cbl0137 . in 2015 , we sold our ownership interest for approximately $ 4.0 million and retained a 2 % royalty interest in the cbl0137 technology ; and panacela was formed to develop and commercialize preclinical compounds , which were transferred to panacela through assignment and lease agreements . rusnano contributed $ 9.0 million to panacela and cbli contributed $ 3.0 million plus intellectual property to panacela . as of the date of this filing , cbli owns 67.57 % of panacela . we have incurred cumulative net losses and expect to incur additional losses related to our r & d activities . we do not have commercial products and have limited capital resources . as of december 31 , 2019 , we had $ 1.6 million in cash , cash equivalents and short-term investments which , along with the active government contracts described above , are expected to fund our projected operating requirements and allow us to fund our operating plan , in each case , into june of 2020. however , until we are able to commercialize our product candidates at a level that covers our
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operating income decreased $ 19.7 million in fiscal 2020 as compared to fiscal 2019 , primarily as a result of the decrease in net sales and increased fixed costs to support new production ramps , as well as employee compensation and supplies costs associated with covid-19 . in addition , there was an increase in s & a primarily due to an increase in bad debt expense , which was partially offset by a positive shift in customer mix . apac . operating income increased $ 38.4 million in fiscal 2020 as compared to fiscal 2019 , primarily as a result of the increase in net sales , partially offset by a negative shift in customer mix and employee compensation and supplies costs associated with covid-19 . emea . operating income decreased $ 3.0 million in fiscal 2020 as compared to fiscal 2019 primarily as a result of the increase in fixed costs to support new production ramps . other expense . other expense for fiscal 2020 increased $ 1.9 million as compared to fiscal 2019. the increase in other expense for fiscal 2020 was primarily due to an increase of $ 3.3 million in interest expense due to borrowings on the term loans and $ 0.9 million decrease in foreign currency exchange losses , partially offset by a decrease of $ 2.5 million in factoring fees . 30 income taxes . income tax expense and effective annual income tax rates for fiscal 2020 and 2019 were as follows ( dollars in millions ) : replace_table_token_8_th replace_table_token_9_th ( 1 ) we believe the non-gaap presentation of income tax expense and the effective annual tax rate excluding special tax items , guidance issued by the u.s. department of the treasury and restructuring charges provides additional insight over the change from the comparative reporting periods by isolating the impact of these significant , special items . in addition , we believes that our income tax expense , as adjusted , and effective tax rate , as adjusted , enhance the ability of investors to analyze our operating performance and supplement , but do not replace , our income tax expense and effective tax rate calculated in accordance with u.s. gaap income tax expense for fiscal 2020 was $ 17.9 million compared to $ 17.3 million for fiscal 2019. the increase is primarily due to the geographic distribution of worldwide earnings . our annual effective tax rate varies from the u.s. statutory rate of 21.0 % primarily due to the geographic distribution of worldwide earnings as well as a tax holiday granted to a subsidiary located in the apac segment where we derive a significant portion of our earnings . our effective tax rate also may be impacted by disputes with taxing authorities , tax planning activities , adjustments to uncertain tax positions and changes in valuation allowances . we have been granted a tax holiday for a foreign subsidiary operating in the apac segment . this tax holiday will expire on december 31 , 2034 , and is subject to certain conditions with which we expect to continue to comply . in fiscal 2020 and 2019 , the holiday resulted in tax reductions of approximately $ 28.3 million net of the impact of the global intangible low-taxed income ( `` gilti '' ) provisions of u.s. tax reform ( $ 0.97 per basic share , $ 0.95 per diluted share ) and $ 23.9 million ( $ 0.79 per basic share , $ 0.77 per diluted share ) , respectively . see also note 6 , `` income taxes , '' in notes to consolidated financial statements for additional information regarding our tax rate . the annual effective tax rate for fiscal 2021 is expected to be approximately 13.0 % to 15.0 % . net income . net income for fiscal 2020 increased $ 8.9 million , or 8.2 % , from fiscal 2019 to $ 117.5 million . net income increased primarily as a result of the increase in operating income , partially offset by an increase in other expense as previously discussed . 31 diluted earnings per share . diluted earnings per share for fiscal 2020 and 2019 , as well as information as to the effects of special events that occurred in the indicated periods , as previously discussed and detailed below , were as follows : replace_table_token_10_th ( 1 ) we believe the non-gaap presentation of diluted earnings per share excluding special tax items , consisting of those related to restructuring costs , u.s. tax reform and a change in our permanent reinvestment assertions related to undistributed earnings of two foreign subsidiaries provide additional insight over the change from the comparative reporting periods by eliminating the effects of special or unusual items . in addition , we believe that diluted earnings per share , as adjusted , enhances the ability of investors to analyze our operating performance and supplements , but does not replace , its diluted earnings per share calculated in accordance with u.s. gaap . diluted earnings per share increased to $ 3.93 in fiscal 2020 from $ 3.50 in fiscal 2019 primarily as a result of increased net income due to the factors discussed above and a reduction in diluted shares outstanding due to repurchase activity under our stock repurchase plans . return on invested capital ( `` roic '' ) and economic return . we use a financial model that is aligned with our business strategy and includes a roic goal of 500 basis points over our weighted average cost of capital ( `` wacc '' ) , which we refer to as `` economic return . '' non-gaap financial measures , including roic and economic return , are used for internal management goals and decision making because such measures provide management and investors additional insight into financial performance . in particular , we provide roic and economic return because we believe they offer insight into the metrics that are driving management decisions because we view roic and economic return as important measures in evaluating the efficiency and effectiveness of our long-term capital requirements . story_separator_special_tag we also use a derivative measure of roic as a performance criteria in determining certain elements of compensation , and certain compensation incentives are based on economic return performance . we define roic as tax-effected operating income before restructuring and other special items divided by average invested capital over a rolling five-quarter period for the fiscal year . invested capital is defined as equity plus debt and operating lease liabilities , less cash and cash equivalents . other companies may not define or calculate roic in the same way . roic and other non-gaap financial measures should be considered in addition to , not as a substitute for , measures of our financial performance prepared in accordance with u.s. generally accepted accounting principles ( `` gaap '' ) . we review our internal calculation of wacc annually . our wacc was 8.8 % for fiscal year 2020 and 9.0 % for fiscal year 2019. by exercising discipline to generate roic in excess of our wacc , our goal is to create value for our shareholders . fiscal 2020 roic of 14.0 % reflects an economic return of 5.2 % , based on our weighted average cost of capital of 8.8 % , and fiscal 2019 roic of 13.1 % reflects an economic return of 4.1 % , based on our weighted average cost of capital of 9.0 % for that fiscal year . for a reconciliation of roic , economic return and adjusted operating income ( tax effected ) to our financial statements that were prepared using gaap , see exhibit 99.1 to this annual report on form 10-k , which exhibit is incorporated herein by reference . refer to the table below , which includes the calculation of roic and economic return ( dollars in millions ) for the indicated periods : replace_table_token_11_th 32 liquidity and capital resources cash and cash equivalents and restricted cash were $ 387.9 million as of october 3 , 2020 , as compared to $ 226.3 million as of september 28 , 2019. as of october 3 , 2020 , 76 % of our cash and cash equivalents balance was held outside of the u.s. by our foreign subsidiaries . with the enactment of u.s. tax reform , we believe that our offshore cash can be accessed in a more tax efficient manner than before u.s. tax reform . currently , we believe that our cash balance , together with cash available under our credit facility , will be sufficient to meet our liquidity needs and potential share repurchases , if any , for the next twelve months and for the foreseeable future . our future cash flows from operating activities will be reduced by $ 59.6 million due to cash payments for u.s. federal taxes on the deemed repatriation of undistributed foreign earnings that are payable over an eight year period that began in fiscal 2019 with the first payment . the table below provides the expected timing of these future cash outflows , in accordance with the following installment schedule for the remaining six years ( in millions ) : replace_table_token_12_th cash flows . the following table provides a summary of cash flows for fiscal 2020 and 2019 ( in millions ) : replace_table_token_13_th operating activities . cash flows provided by operating activities were $ 210.4 million for fiscal 2020 , as compared to $ 115.3 million for fiscal 2019. the increase was primarily due to cash flow improvements ( reductions ) of : $ 121.8 million in accounts payables cash flows driven by increased purchasing activity to support ramp of customer programs and longer lead times for certain components heightened by the covid-19 outbreak . $ 105.5 million in accounts receivable cash flows , which resulted from the timing of payments and shipments , as well as mix of customer payment terms . $ ( 75.2 ) million in inventory cash flows driven by increased inventory levels to support the ramp of customer programs and longer lead times for certain components heightened by the covid-19 outbreak . $ ( 40.7 ) million in other current and noncurrent liabilities cash flows driven by decreases in advance payments from customers , partially offset by an increase in accrued salaries and wages due to timing of the quarter-end . $ ( 30.8 ) million in customer deposit cash flows driven by significant deposits received from two customers in the prior year , partially offset by a significant deposit received from one customer in the current year . 33 the following table provides a summary of cash cycle days for the periods indicated ( in days ) : replace_table_token_14_th we calculate days in accounts receivable and contract assets as each balance sheet item for the respective quarter divided by annualized sales for the respective quarter by day . we calculate days in inventory , accounts payable , and cash deposits as each balance sheet line item for the respective quarter divided by annualized cost of sales for the respective quarter by day . we calculate annualized cash cycle as the sum of days in accounts receivable , days in contract assets and days in inventory , less days in accounts payable and days in cash deposits . as of october 3 , 2020 , annualized cash cycle days decreased eleven days compared to september 28 , 2019 due to the following factors : days in accounts receivable for the three months ended october 3 , 2020 decreased seven days compared to the three months ended september 28 , 2019. the decrease is primarily attributable to the timing of customer shipments and payments and mix of customer payment terms , partially offset by a decrease in accounts receivable sold under factoring programs . days in contract assets for the three months ended october 3 , 2020 increased one day compared to the three months ended september 28 , 2019. the increase is due to increased demand from customers with arrangements requiring revenue to be recognized over time as products are produced .
| the decrease was also driven by a reduction in net sales of $ 46.3 million due to manufacturing transfers to our apac segment and $ 23.6 million due to disengagements with customers . these decreases were partially offset by a $ 111.3 million increase in production ramps of new products for existing customers , inclusive of increased demand due to covid-19 , and a $ 27.8 million increase in production ramps for new customers . apac . net sales for fiscal 2020 in the apac segment increased $ 267.6 million , or 17.2 % , as compared to fiscal 2019. the increase in net sales was driven by a $ 80.1 million increase in production ramps of new products for existing customers , a $ 46.3 million increase due to manufacturing transfers from our amer segment and a $ 19.8 million increase in production ramps for a new customer . in addition , there was an overall net increased customer end-market demand primarily in the industrial/commercial sector , partially offset by decreased demand due to covid-19 in the aerospace/defense sector . the overall increase was partially offset by a $ 36.0 million decrease for end-of-life products . emea . net sales for fiscal 2020 in the emea segment increased $ 39.2 million , or 12.6 % , as compared to fiscal 2019. the increase in net sales was the result of a $ 17.1 million increase in production ramps for new customers as a result of covid-19 , a $ 15.5 million increase in production ramps of new products for existing customers and overall net increased customer end-market demand , inclusive of increased demand driven by covid-19 . our net sales by market sector for the indicated fiscal years were as follows ( in millions ) : replace_table_token_6_th healthcare/life sciences . net sales for fiscal 2020 in the healthcare/life sciences sector increased $ 38.4 million , or 3.1 % , as compared to fiscal 2019. the increase in net sales was driven by a $ 65.7 million increase in production ramps of new products for existing customers and a
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during march and april 2012 we completed a secondary public offering of 2,053,400 shares of our common stock at $ 4.50 per share for gross proceeds of $ 9.24 million and listed our common stock on the nasdaq capital market . the net proceeds of the public offering after deducting underwriting discounts and commissions and offering expenses was $ 8.0 million . we are seeking to expand into new markets through both product sales and licensing . our licensing strategy is to identify large or high-growth markets , develop needed technology solutions and features , and work with established industry participants and oems to make products incorporating our technologies widely available to consumers . business outlook we are experiencing positive response to our licensing initiative and increased acceptance of our hss-3000 products . we believe we have a solid technology and product foundation , and we are targeting new markets and applications for business growth . we have strong commercial and consumer market opportunities worldwide . we have expanded our business development and selling force both internally and through a growing network of distributors , integrators and agents . we are growing our engineering and technical staff to support licensees and product sales . we expect increased product sales in fiscal 2013 and additional licensing and or co-development arrangements pursuant to our licensing initiative . 27 we are unable to predict the level of future product sales in our current markets or the timing of future licensing revenues , if any . we are also unable to predict the acceptance of our technology or resulting products by consumers as we target new commercial and consumer markets through licensing . we face significant challenges in growing our business in existing and targeted markets . the continued global economic downturn could increase the challenges in operating our business . we expect we will need to continue to innovate new applications for our sound technology , develop new products to meet customer requirements and identify and develop new markets for our products and planned licensing activities . critical accounting policies and estimates the preparation of financial statements in accordance with accounting principles generally accepted in the united states , which we refer to as u.s. gaap , requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenue and expenses , and related disclosure of contingent assets and liabilities . on an on-going basis , we evaluate our estimates , including those related to valuation of accounts receivable and inventory , warranty liabilities , impairment of intangible assets , contingencies , the grant date fair value of stock options and warrants , share-based compensation expense , valuation of acquired intangible assets and valuation allowance related to deferred tax assets . we base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances . actual results may differ from these estimates under different assumptions or conditions . some of our accounting policies require higher degrees of judgment than others in their application . these include revenue recognition , warranty liabilities , impairments , share-based compensation and valuation of acquired intangible assets . we believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements : revenue recognition and product costs product sales to customers , including resellers , are recognized in the periods that products are shipped to customers ( fob shipping point ) or received by customers ( fob destination ) , when the fee is fixed or determinable , when collection of resulting receivables is probable and there are no remaining obligations on our part . our customers do not have the right to return product unless the product is found to be defective . product costs include direct manufacturing costs and allocated overhead that require estimates to allocate various costs to product results . our strategy is to derive licensing revenues primarily from royalties paid by licensees of our intellectual property rights , including patents , trademarks , and know-how . revenues generated from license agreements are recognized in the period earned , provided that amounts are fixed or determinable and collectability is reasonably assured . deferred revenue is reported for amounts that are expected to be recognized as revenue including upfront license fees , but for which not all revenue recognition criteria have been met . warranty liabilities we establish a warranty reserve based on anticipated warranty claims at the time product revenue is recognized . this reserve requires us to make estimates regarding the amount and costs of warranty repairs we expect to make over a period of time . factors affecting warranty reserve levels include the number of units sold , anticipated cost of warranty repairs , and anticipated rates of warranty claims . if actual results differ significantly from our estimates , cost of sales and our results of operations could be materially impacted . impairments our inventory is comprised of raw materials , assemblies and finished products . we must periodically make judgments and estimates regarding the future utility and carrying value of our inventory . the carrying value of our inventory is periodically reviewed and impairments , if any , are recognized when the expected future benefit from our inventory is less than its carrying value . intangible assets consist of purchased technology , patents , pending patents and trademarks that are amortized over their estimated useful lives . we make judgments and estimates regarding the future utility and carrying value of intangible assets , and such assets are periodically reviewed and impairments , if any , are recognized when the expected future benefit to be derived from an individual intangible asset is less than its carrying value . story_separator_special_tag 28 share-based compensation we account for share-based compensation in accordance with the provisions of accounting standards codification ( “ asc ” ) 718 , “ compensation—stock compensation ” ( “ asc 718 ” ) and asc 505-50 , equity-based payments to non-employees ( “ asc 505-50 ” ) requiring the measurement and recognition of compensation expense for all share-based payment awards based on estimated grant or measurement date fair values . asc 718 asc 505-50 require the use of subjective assumptions , including expected stock price volatility , forfeitures and the estimated term of each award . if actual results differ significantly from our estimates , stock-based compensation expense and our results of operations could be materially impacted . acquired intangible assets we account for acquired intangible technology in accordance with asc 350-30-30 , intangible – goodwill and other - general intangibles other than goodwill - initial measurement , and asc 805-50-30 , business combinations – related issues – initial measurement , which requires that intangible assets acquired through a transaction that is not a business combination be measured based on the cash consideration paid plus either the fair value of the non-cash consideration given or the fair value of the assets acquired , whichever is more clearly evident . deferred tax asset we have provided a full valuation reserve related to our deferred tax assets . in the future , if sufficient evidence of our ability to generate sufficient future taxable income in certain tax jurisdictions becomes apparent , we may be required to reduce our valuation allowances , resulting in income tax benefits in our statement of operations . we evaluate quarterly the realizability of the deferred tax assets and assess the need for a valuation allowance . utilizing the net operating loss carry forwards in future years could be substantially limited due to restrictions imposed under federal and state laws upon a change in ownership or control . segment and related information we operate as a single reportable segment on an enterprise-wide basis . we generate revenue by selling our technology-based products and expect future licensing revenues from such technology . story_separator_special_tag times new roman , times , serif '' > we added research and development personnel during the year ended september 30 , 2012 and personnel and consulting costs increased $ 286,000 compared to the prior year . patent costs and patent , technology and fixed asset amortization and depreciation costs increased by $ 94,000 compared to the prior year as a result of purchased technology amortization and increased patent filings and related research . prototype and related testing and development costs increased by $ 90,000 compared to the prior year as a result of expanded development related to product improvements and preparing for licensing in new markets . occupancy costs increased $ 63,000 due to the lease of new engineering and product prototyping space and related costs of increased personnel . net loss the net loss for the year ended september 30 , 2012 and 2011 was $ 4,462,182 and $ 1,484,458 , respectively . the most recent year 's loss included $ 1,686,909 of non-cash share-based compensation expenses compared to $ 188,311 for the prior year . 30 liquidity and capital resources overview at september 30 , 2012 we had cash and cash equivalents of $ 5,527,647 and our current assets exceeded our current liabilities by $ 5,760,338. we obtained net proceeds of approximately $ 8.0 million from our secondary public offering during march and april 2012 and $ 192,338 from the exercise of stock options during the year ended september 30 , 2012. other than cash , accounts receivable and inventory , we have no available sources of additional liquidity at this time . cash flows operating activities during the year ended september 30 , 2012 net cash used in operating activities was $ 2,752,165. the net loss of $ 4,462,182 was reduced by net non-cash expenses of $ 1,870,817. other major items using operating cash included a $ 39,371 increase in accounts receivable , a $ 162,832 increase in inventory and a $ 84,400 decrease in deferred compensation . major items providing operating cash included a $ 131,564 increase in accounts payable and accrued liabilities . for the prior year ended september 30 , 2011 cash used in operating activities was $ 992,519 resulting primarily from the net loss of $ 1,484,458 reduced by non-cash expenses of $ 552,779. investing activities we used cash of $ 108,785 for property and equipment purchases and $ 295,096 for patent costs during the year ended september 30 , 2012. in june 2012 we paid $ 250,000 to syzygy , a related party , which amount represents the cash portion of the consideration we paid to syzygy in connection with the assignment agreement with syzygy entered into in december 2011. we have no material commitments for future capital expenditures but expect to continue to incur patent costs in the future . financing activities during the year ended september 30 , 2012 we obtained $ 7,999,591 of net proceeds from our secondary public offering and $ 192,338 from the exercise of stock options . non-cash activities in december 2011 we purchased technology from syzygy , a related party , in exchange for 300,000 shares of our common stock valued at $ 975,000 and an obligation to pay $ 250,000 , which we paid in june 2012 as described above . in addition , we satisfied $ 140,000 of deferred officer compensation liability by issuing 31,111 shares of our common stock . we also issued warrants to purchase 205,339 shares of our common stock to the underwriter in our secondary public offering valued at $ 622,729. capital requirements our future capital requirements , cash flows and results of operations could be affected by and will depend on many factors some of which are currently unknown to us , including : · market acceptance of our products and our ability to grow revenues ; · the costs , timing
| we expect increased product sales in fiscal 2013 and additional licensing and or co-development arrangements pursuant to our licensing initiative but we are unable to predict the level of future product sales or the timing of future licensing revenues , if any . we had no significant backlog at september 30 , 2012 . 29 gross profit gross profit for the year ended september 30 , 2012 was $ 113,507 ( 49 % of revenues ) compared to $ 43,643 ( 55 % of revenues ) for the year ended september 30 , 2011. the margin in each respective period was positively impacted from usage of parts valued at $ 14,972 and $ 3,091 , respectively , that had inventory obsolescence and excess parts allowances recorded in prior periods . the margin for the year ended september 30 , 2012 was negatively impacted by $ 9,563 for parts deemed obsolete due to model changes . we continue to develop and implement volume pricing and production strategies , product updates and changes , including raw material and component changes that may impact margins . with such product updates and changes we have limited warranty cost experience and estimated future warranty costs can impact our gross margins . due to our limited sales and manufacturing history , we do not believe that historical gross profit margins should be relied upon as an indicator of future gross profit margins . selling , general and administrative expenses selling , general and administrative expenses for the year ended september 30 , 2012 were $ 3,247,698 , compared to $ 572,325 during the year ended september 30 , 2011. these amounts included non-cash share based compensation expenses of $ 1,420,708 and $ 94,031 , respectively . the current year non-cash share based compensation expenses is attributable to the awarding of options to purchase shares of our common stock to new employees and consultants and the effect that the increased price of our common stock during the year had on the quarterly revaluation of non-employee stock options for which service had not been completed . we expect to
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we believe core enterprise resource planning ( “ erp ” ) , customer relationship management ( “ crm ” ) , product lifecycle management ( “ plm ” ) and technology software platforms have become increasingly important in the operation of mission-critical business processes over the last 30 years , and also that the costs associated with failure , downtime , security exposure and maintaining the tax , legal and regulatory compliance of these core software systems have also increased . as a result , we believe that licensees often view software support as a mandatory cost of doing business , resulting in recurring and highly profitable revenue streams for enterprise software vendors . for example , for fiscal year 2016 , sap reported that support revenue represented approximately 48 % of its total revenue and oracle reported a margin of 94 % for software license updates and product support . we believe that software vendor support is an increasingly costly model that has not evolved to offer licensees the responsiveness , quality , breadth of capabilities or value needed to meet the needs of licensees . organizations are under increasing pressure to reduce their it costs while also delivering improved business performance through the adoption and integration of emerging technologies , such as mobile , virtualization , internet of things ( “ iot ” ) and cloud computing . today , however , the majority of it budget is spent operating and maintaining existing infrastructure and systems . as a result , we believe organizations are increasingly seeking ways to redirect budgets from maintenance to new technology investments that provide greater strategic value , and our software products and services help clients achieve these objectives by reducing the total cost of support . as of december 31 , 2017 , we employed approximately 920 professionals and supported over 1,560 active clients globally , including 70 fortune 500 companies and 20 fortune global 100 companies across a broad range of industries . we define an active client as a distinct entity , such as a company , an educational or government institution , or a business unit of a company that purchases our services to support a specific product . for example , we count as two separate active client instances in circumstances where we provide support for two different products to the same entity . we market and sell our services globally , primarily through our direct sales force , and have wholly-owned subsidiaries in australia , brazil , france , germany , hong kong , india , israel , japan , korea , new zealand , singapore , sweden , taiwan , the united kingdom and the united states . we believe our primary competitors are the enterprise software vendors whose products we service and support , including ibm , microsoft , oracle and sap . we have experienced 48 consecutive quarters of revenue growth through december 31 , 2017. in addition , our subscription-based revenue provides a strong foundation for , and visibility into , future period results . we generated net revenue of $ 212.6 million , $ 160.2 million and $ 118.2 million for the years ended december 31 , 2017 , 2016 and 2015 , respectively , representing a year-over-year increase of 33 % and 36 % in 2017 and 2016 , respectively . we have a history of losses , and as of december 31 , 2017 , we had an accumulated deficit of $ 304.4 million . we had net losses of $ 53.3 million , $ 12.9 million and $ 45.3 million for the years ended december 31 , 2017 , 2016 and 2015 , respectively . we generated approximately 68 % of our net revenue in the united states and approximately 32 % of our net revenue from our international business for the year ended december 31 , 2017. since our inception , we have financed our operations through cash collected from clients and net proceeds from equity financings and borrowings . as of december 31 , 2017 , we had outstanding contractual obligations under our credit facility and a note payable to related party in the aggregate amount of $ 142.5 million and the net carrying value of those debt obligations was $ 82.1 million . we intend to continue investing for long-term growth . we have invested and expect to continue investing in expanding our ability to market , sell and provide our current and future products and services to clients globally . we also expect to continue investing in the development and improvement of new and existing products and services to address client needs . we currently do not expect to be profitable in the near future . recent developments reference is made to note 15 to our consolidated financial statements included in item 8 of this report for a discussion of recent events . our business model we believe most enterprise software vendors license the rights for customers to use their software . in a traditional licensing model , the customer typically procures a perpetual software license and pays for the license in a single upfront fee ( “ perpetual license ” ) , and base software support services can be optionally procured from the software vendor for an annual fee that averages 22 % of the total cost of the software license . in a subscription-based licensing model , such as software as a service , or saas , the customer generally pays as it goes for usage of the software on a monthly or annual basis ( “ subscription license ” ) . under a subscription license , the product license and a base level of software support are generally bundled together as a single purchase , and the base level of software support is not procured separately nor is it an optional purchase . story_separator_special_tag - 42 - when we provide base software support for a perpetual license , we generally offer our clients service for a fee that is equal to approximately 50 % of the annual fees charged by the software vendor for their base support . when providing supplemental software support for a perpetual license , where the client procures our support service in addition to retaining the software vendor 's base support , we generally offer our clients service for a fee that is equal to 25 % of the annual fees charged by the software vendor for their base support . for supplemental software support on a subscription license , we generally offer our clients services for a fee that is equal to 50 % of the annual fees charged by the software vendor for their supplemental or premium support . we also offer a special support service , rimini street extra secure support , for clients that require a higher level of security clearance for our engineers accessing their system . rimini street extra secure support is an additional fee added to our base or supplemental support fee , and priced at approximately 1 % of the software vendor 's annual fees for base maintenance for perpetual licenses and at approximately 2 % of the subscription fees for subscription licenses . subscriptions for additional software products and services are available , designed to meet specific client needs and provide exceptional value for the fees charged . our subscription-based software support products and services offer enterprise software licensees a choice of solutions that replace or supplement the support products and services offered by enterprise software vendors for their products . features , service levels , service breadth , technology and pricing differentiate our software products and services . we believe clients utilize our software products and services to achieve substantial cost savings ; receive more responsive and comprehensive support ; obtain support for their customized software that is not generally covered under the enterprise software vendor 's service offerings ; enhance their software functionality , capabilities , and data usage ; and protect their systems and extend the life of their existing software releases and products . our products and services enable our clients to keep their mission-critical systems operating smoothly and to remain in tax , legal and regulatory compliance ; improve productivity ; and better allocate limited budgets , labor and other resources to investments that provide competitive advantage and support growth . we currently offer most of our support products and services on a subscription basis for a term that is generally 15 years in length with an average initial , non-cancellable period of two years . the negotiated fees extend for the full term of the contract and usually include modest increases ( averaging approximately three percent ) after the initial non-cancelable period of each contract . for the year ended december 31 , 2017 , approximately 75 % of our invoicing was generated inside a non-cancellable period , and approximately 25 % of our invoicing was generated outside of a non-cancellable period . for the year ended december 31 , 2016 , approximately 78 % of our invoicing was generated inside a non-cancellable period , and approximately 22 % of our invoicing was generated outside of a non-cancellable period . after a non-cancellable period , our clients generally have the ability to terminate their support contracts on an annual basis upon 90 days ' notice prior to the end of the support period or renegotiate a mutually-agreeable , additional support period – including potentially an additional multi-year , non-cancellable support period . we generally invoice our clients annually in advance of the support period . we record amounts invoiced for support periods that have not yet occurred as deferred revenue on our balance sheet . we net any unpaid accounts receivable amounts relating to cancellable support periods against deferred revenue on our balance sheet . our pricing model is a key component of our marketing and sales strategy and we believe delivers significant savings and value to our clients . key business metrics number of clients since we founded our company , we have made the expansion of our client base a priority . we believe that our ability to expand our client base is an indicator of the growth of our business , the success of our sales and marketing activities , and the value that our services bring to our clients . we define an active client as a distinct entity , such as a company , an educational or government institution , or a business unit of a company that purchases our services to support a specific product . for example , we count as two separate active clients when support for two different products is being provided to the same entity . as of december 31 , 2017 , 2016 and 2015 , we had over 1,560 , 1,200 and 850 active clients , respectively . we define a unique client as a distinct entity , such as a company , an educational or government institution or a subsidiary , division or business unit of a company that purchases one or more of our products or services . we count as two separate unique clients when two separate subsidiaries , divisions or business units of an entity purchase our products or services . as of december 31 , 2017 , 2016 and 2015 , we had over 940 , 780 and 600 unique clients , respectively . - 43 - the increase in both our active and unique client counts have been almost exclusively from new unique clients and not from sales of new products and services to existing unique clients . however , as noted previously , we intend to focus future growth on both new and existing clients . we believe that the growth in our number of clients is an indication of the increased adoption of our enterprise software products and services . annualized subscription revenue we recognize subscription revenue on a daily basis .
| for the year ended december 31 , 2017 , changes in working capital contributed $ 20.2 million of positive operating cash flows including ( i ) customer cash collections that resulted in an increase in deferred revenue of $ 17.0 million , ( ii ) the cash proceeds from a non-recurring insurance settlement , net of related legal fees , of $ 8.0 million , and ( iii ) an increase in accounts payable and accrued expenses of $ 6.8 million . these positive changes in working capital total $ 31.8 million and were partially offset by an increase in accounts receivable of $ 8.3 million , and cash payments resulting in an increase in prepaid expenses of $ 3.3 million . due to the accounting for the insurance settlement as a deferred liability , future legal expenses will be reduced through the non-cash amortization of the deferred settlement liability . for the year ended december 31 , 2016 , cash flows used in operating activities amounted to $ 59.6 million . while we recognized a net loss of $ 12.9 million for the year ended december 31 , 2016 , non-cash expenses helped mitigate the cash impact of our net loss . for the year ended december 31 , 2016 , non-cash expenses amounted to $ 18.4 million including ( i ) accretion and amortization expense of $ 10.1 million , ( ii ) a loss from changes in fair value of embedded derivatives of $ 5.4 million , and ( iii ) stock-based compensation expense of $ 2.3 million . however , for the year ended december 31 , 2016 , changes in working capital used $ 65.1 million of operating cash flows . negative changes in working capital included ( i ) $ 121.4 million to pay an accrued litigation settlement liability , ( ii ) an increase in accounts receivable of $ 14.7 million , and ( iii ) an increase in prepaid expenses of $ 1.4 million . these negative changes in working capital totaled $ 137.5 million and were partially offset by customer cash collections that resulted in an increase in deferred revenue of $ 57.0 million , and an increase in accounts payable and accrued expenses of $ 15.4 million . for the year ended december 31 , 2015 , cash flows provided by
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our determination of the amount of the reserve for credit losses is a critical accounting estimate as it requires significant reliance on the accuracy of credit risk ratings on individual borrowers , the use of estimates and significant judgment as to the amount and timing of expected future cash flows on impaired loans , significant reliance on estimated loss rates on homogenous portfolios , and consideration of our quantitative and qualitative evaluation of economic factors and trends . while our methodology in establishing the reserve for credit losses attributes portions of the allowance and unfunded reserve to the commercial and consumer portfolio segments , the entire allowance and unfunded reserve is available to absorb credit losses inherent in the total loan and lease portfolio and total amount of unfunded credit commitments , respectively . the reserve for credit losses related to our commercial portfolio segment is generally most sensitive to the accuracy of credit risk ratings assigned to each borrower . commercial loan risk ratings are evaluated based on each situation by experienced senior credit officers and are subject to periodic review by an independent internal team of credit specialists . the reserve for credit losses related to our consumer portfolio segment is generally most sensitive to economic assumptions and delinquency trends . the reserve for credit losses attributable to each portfolio segment also includes an amount for inherent risks not reflected in the historical analyses . relevant factors include , but are not limited to , concentrations of credit risk ( geographic , large borrower , and industry ) , economic trends and conditions , changes in underwriting standards , experience and depth of lending staff , trends in delinquencies , and the level of criticized and classified loans . see note 4 to the consolidated financial statements and the `` corporate risk profile – credit risk '' section in management 's discussion and analysis of financial condition and results of operations ( `` md & a '' ) for more information on the allowance and the unfunded reserve . fair value measurements fair value is the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for an asset or liability in an orderly transaction between market participants at the measurement date . the degree of management judgment involved in determining the fair value of a financial instrument is dependent upon the availability of quoted market prices or observable market inputs . for financial instruments that are traded actively and have quoted market prices or observable market inputs , there is minimal subjectivity involved in measuring fair value . however , when quoted market prices or observable market inputs are not fully available , significant management judgment may be necessary to estimate fair value . in developing our fair value measurements , we maximize the use of observable inputs and minimize the use of unobservable inputs . the fair value hierarchy defines level 1 valuations as those based on quoted prices , unadjusted , for identical instruments traded in active markets . level 2 valuations are those based on quoted prices for similar instruments in active markets , quoted prices for identical or similar instruments in markets that are not active , or model-based valuation techniques for which all significant assumptions are observable in the market . level 3 valuations are based on model-based techniques that use at least one significant assumption not observable in the market , or significant management judgment or estimation , some of which may be internally developed . financial assets that are recorded at fair value on a recurring basis include available-for-sale investment securities , loans held for sale , mortgage servicing rights , investments related to deferred compensation arrangements , and derivative financial instruments . as of december 31 , 2014 and 2013 , $ 2.3 billion or 16 % of our total assets consisted of financial assets recorded at fair value on a recurring basis and most of these financial assets consisted of available-for-sale investment securities measured using information from a third-party pricing service . these investments in debt securities and mortgage-backed securities were all classified in either levels 1 or 2 of the fair value hierarchy . financial liabilities that are recorded at fair value on a recurring basis are comprised of derivative financial instruments . as of december 31 , 2014 and 2013 , $ 16.8 million and $ 22.0 million , respectively , or less than 1 % of our total liabilities consisted of financial liabilities recorded at fair value on a recurring basis . as of december 31 , 2014 and 2013 , level 3 financial assets recorded at fair value on a recurring basis were $ 19.0 million and $ 25.3 million , respectively , or less than 1 % of our total assets , and were comprised of mortgage servicing rights and derivative financial instruments . as of december 31 , 2014 and 2013 , level 3 financial liabilities recorded at fair value on a recurring basis were $ 16.3 million and $ 21.0 million , respectively , or less than 1 % of our total liabilities , and were comprised of derivative financial instruments . our third-party pricing service makes no representations or warranties that the pricing data provided to us is complete or free from errors , omissions , or defects . as a result , we have processes in place to monitor and periodically review the information provided to us by our third-party pricing service such as : 1 ) our third-party pricing service provides us with documentation by asset class of inputs and methodologies used to value securities . we review this documentation to evaluate the inputs and 21 valuation methodologies used to place securities into the appropriate level of the fair value hierarchy . this documentation is periodically updated by our third-party pricing service . accordingly , transfers of securities within the fair value hierarchy are made if deemed necessary . story_separator_special_tag 2 ) on a quarterly basis , management reviews the pricing information received from our third-party pricing service . this review process includes a comparison to non-binding third-party broker quotes , as well as a review of market-related conditions impacting the information provided by our third-party pricing service . we also identify investment securities which may have traded in illiquid or inactive markets by identifying instances of a significant decrease in the volume or frequency of trades relative to historic levels , as well as instances of a significant widening of the bid-ask spread in the brokered markets . as of december 31 , 2014 and 2013 , management did not make adjustments to prices provided by our third-party pricing service as a result of illiquid or inactive markets . 3 ) on a quarterly basis , management also reviews a sample of securities priced by the company 's third-party pricing service to review significant assumptions and valuation methodologies used . based on this review , management determines whether the current placement of the security in the fair value hierarchy is appropriate or whether transfers may be warranted . 4 ) on an annual basis , to the extent available , we obtain and review independent auditor 's reports from our third-party pricing service related to controls placed in operation and tests of operating effectiveness . we did not note any significant control deficiencies in our review of the independent auditor 's reports related to services rendered by our third-party pricing service . 5 ) our third-party pricing service has also established processes for us to submit inquiries regarding quoted prices . periodically , we will challenge the quoted prices provided by our third-party pricing service . our third-party pricing service will review the inputs to the evaluation in light of the new market data presented by us . our third-party pricing service may then affirm the original quoted price or may update the evaluation on a going forward basis . based on the composition of our investment securities portfolio , we believe that we have developed appropriate internal controls and performed appropriate due diligence procedures to prevent or detect material misstatements . see note 20 to the consolidated financial statements for more information on our fair value measurements . leased asset residual values lease financing receivables include a residual value component , which represents the estimated value of leased assets upon lease expiration . our determination of residual value is derived from a variety of sources , including equipment valuation services , appraisals , and publicly available market data on recent sales transactions for similar equipment . the length of time until lease termination , the cyclical nature of equipment values , and the limited marketplace for re-sale of certain leased assets , are important variables considered in making this determination . we update our valuation analysis on an annual basis , or more frequently as warranted by events or circumstances . when we determine that the fair value is lower than the expected residual value at lease expiration , the difference is recognized as an asset impairment in the period in which the analysis is completed . income taxes we determine our liabilities for income taxes based on current tax regulation and interpretations in tax jurisdictions where our income is subject to taxation . currently , we file tax returns in seven federal , state and local domestic jurisdictions , and four foreign jurisdictions . in estimating income taxes payable or receivable , we assess the relative merits and risks of the appropriate tax treatment considering statutory , judicial , and regulatory guidance in the context of each tax position . accordingly , previously estimated liabilities are regularly reevaluated and adjusted through the provision for income taxes . changes in the estimate of income taxes payable or receivable occur periodically due to changes in tax rates , interpretations of tax law , the status of examinations being conducted by various taxing authorities , and newly enacted statutory , judicial and regulatory guidance that impact the relative merits and risks of each tax position . these changes , when they occur , may affect the provision for income taxes as well as current and deferred income taxes , and may be significant to our statements of income and condition . management 's determination of the realization of net deferred tax assets is based upon management 's judgment of various future events and uncertainties , including the timing and amount of future income , as well as the implementation of various tax planning strategies to maximize realization of the deferred tax assets . a valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized . as of december 31 , 2014 and 2013 , we carried a valuation allowance of $ 4.7 million and $ 4.2 million , respectively , related to our deferred tax assets established in connection with our low-income housing investments . we are also required to record a liability , referred to as an unrecognized tax benefit ( `` utb '' ) , for the entire amount of benefit taken in a prior or future income tax return when we determine that a tax position has a less than 50 % likelihood of being accepted by the taxing authority . as of december 31 , 2014 and 2013 , our liabilities for utbs were $ 12.2 million and $ 11.8 million , respectively . see note 16 to the consolidated financial statements for more information on income taxes . 22 in 2014 , the company recognized federal and state of hawaii investment tax credits from energy investments . the company uses the deferral method of accounting for its investment tax credit with the benefit recognized in the provision for income taxes . these credits reduced the company 's provision for income taxes by $ 2.9 million in 2014 .
| we also contributed 21,600 visa class b restricted shares to the bank of hawaii foundation in 2014. the contribution had no impact on noninterest expense ; however , the contribution favorably impacted our effective tax rate in 2014. we recorded a negative provision for credit losses of $ 4.9 million in 2014 compared to no provision in 2013. the negative provision reflects the continued strength of our credit risk profile , several large commercial loan recoveries in 2014 , as well as a reduction in the specific reserve related to one commercial loan during 2014. noninterest expense was $ 326.9 million , a decrease of $ 4.1 million or 1 % in 2014 compared to 2013. this decrease was primarily due to an insurance reserve reduction coupled with lower net occupancy expense and lower separation expense . these items were partially offset by the following : mortgage banking income was $ 7.6 million in 2014 , a decrease of $ 11.6 million or 61 % compared to 2013 . this decrease was primarily due to lower mortgage application and production volume as refinancing activity declined . also contributing to the decrease was our decision to add more conforming saleable loans to our portfolio in 2014 which reduced our gains on sales of residential mortgage loans . 24 the provision for income taxes was $ 74.6 million in 2014 , an increase of $ 10.9 million or 17 % compared to 2013 due to higher pretax income and a higher effective income tax rate mainly resulting from a larger release of tax reserves in 2013. we continued our focus on maintaining a strong balance sheet throughout 2014 , with adequate reserves for credit losses , and high levels of liquidity and capital . in particular : total loans and leases were $ 6.9 billion as of december 31 , 2014 , an increase of $ 802.2 million or 13 % from december 31 , 2013 primarily due to growth in our commercial lending portfolio and residential mortgage portfolio . the allowance for loan and lease losses ( the `` allowance '' ) was $ 108.7 million as of december 31 , 2014 , a decrease of $ 6.8 million or 6 % from december 31 , 2013 . the ratio of our allowance to total loans and leases outstanding decreased to 1.58 % as of december 31 , 2014 , compared to 1.89 % as of december 31 , 2013 . this decrease was commensurate with the company 's stable credit risk profile , loan portfolio growth and
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in 2012 , we are currently receiving advances on a convertible promissory note from an investment fund affiliated with one of our directors , up to an aggregate amount of $ 600,000. advances have totaled $ 110,000 through april 10 , 2012. we are currently incurring operating expenses of approximately $ 100,000 per month . although we are attempting to curtail our expenses , there is no guarantee that we will be able to reduce these expenses significantly , and expenses for some periods may be higher as we prepare our product for broader sales , increase our sales efforts and maintain adequate inventories . further , we have approximately $ 2,382,000 in debts , liabilities and cash obligations that become due in the second and third quarters of calendar 2012. as of april 10 , 2012 , we have $ 682,000 in principal and accrued interest on debts that are past due and in default . we are attempting to persuade the holders of a portion of debt to convert it into common stock or to negotiate a restructuring of such debt . the holders of debt representing $ 382,000 in principal and accrued interest have threatened legal action against the company . if the company can not repay or restructure the indebtedness and if such holders commence legal action , the company may be subject to litigation expense and possible judgments against the company , and the holders could assert various remedies including forcing the company into involuntary bankruptcy proceedings we believe that we will need to raise at least an aggregate of $ 2 million from future financing in order to have sufficient financial resources to fund our operations for the next 12 months because of our cash flow deficit . we will attempt to raise these funds through equity or debt financing , alternative offerings or other means , and we will also endeavor to convert existing obligations into equity , settle such obligations or otherwise reduce their amounts . we are not planning on any significant capital or equipment investments , and we will only have a few human resource additions over the next 12 months . although we have been able to fund our current working capital requirements , principally through debt and equity financing , there is no assurance that we will be able to do so in the future . if financing is available , it may be highly dilutive to our existing shareholders and may otherwise include burdensome or onerous terms . our independent registered public accounting firm has indicated in their audit opinion , contained in our financial statements , that they have serious doubts about our ability to continue as a going concern . our inability to raise additional working capital at all or to raise it in a timely manner would negatively impact our ability to fund our operations , to generate revenues , and to otherwise execute our business plan , leading to the reduction or suspension of our operations and ultimately forcing us to declare bankruptcy , reorganize or go out of business . should this occur , the value of any investment in our securities could be adversely affected , and an investor would likely lose all or a significant portion of their investment . 33 related party transactions the company entered into agreements , in 2008 , with our chairman of the board , lawrence gadbaw , and in 2009 with board member , peter morawetz , to pay mr. gadbaw $ 25,000 and mr. morawetz $ 30,000 upon the company raising $ 3 million in new equity . mr. gadbaw will also be paid the balance , if any , due under his separation agreement from 2008. this amount was $ 46,000 upon signing the agreement in 2008 , is payable at $ 2,000 per month , and $ 12,000 remains in accounts payable as of december 31 , 2011. mr. morawetz will also receive a stock option for 75,000 shares at $ .35 per share and mr. gadbaw will receive a stock option for 160,000 shares at $ .35 per share upon the company raising $ 3 million . on march 28 , 2012 , the company , entered into a convertible note purchase agreement , dated as of march 28 , 2012 ( the “ sok purchase agreement ” ) with sok partners , llc ( “ sok partners ” ) , an investment partnership . josh kornberg , who is a member of the company 's board of directors , and dr. samuel herschkowitz are affiliates of the manager of sok partners . pursuant to the sok purchase agreement , the company issued a 20.0 % convertible note due august 2012 in the principal amount of up to $ 600,000. principal and accrued interest on the note are due and payable on august 28 , 2012. the company 's obligations under the note are secured by the grant of a security interest in substantially all tangible and intangible assets of the company . the sok purchase agreement and the note include customary events of default that include , among other things , non-payment defaults , covenant defaults , inaccuracy of representations and warranties , cross-defaults to other indebtedness and bankruptcy and insolvency defaults . the occurrence of an event of default could result in the acceleration of the company 's obligations under the note , and interest rate of twenty-four ( 24 % ) percent per annum accrues if the note is not paid when due . on march 28 , 2012 , the company received an advance of $ 84,657 under the note , including a cash advance of $ 60,000 net of a prepayment of interest on the first $ 300,000 in advances under the note . story_separator_special_tag the holder of the note is entitled to convert the note into shares of common stock of the company at an initial conversion price per share of $ 0.065 per share , subject to adjustment in the event of ( 1 ) certain issuances of common stock or convertible securities at a price lower than the conversion price of the note , and ( 2 ) recapitalizations , stock splits , reorganizations and similar events . in addition , the company is required to issue two installments of an equity bonus to sok partners in the form of common stock valued at the rate of $ 0.065 per share . in april 2012 , the company issued the first equity bonus to sok partners , consisting of 4,615,385 shares of common stock , with a second installment due within five business days after sok partners has made aggregate advances under the note of at least $ 300,000. until the maturity date of the note , if the company obtains financing from any other source without the consent of sok partners , then the company is required to issue additional bonus equity in an amount equal to $ 600,000 less the aggregate advances on the note made prior to the breach . as long as any amount payable under the note remains outstanding , sok partners or its designee is entitled to appoint a special advisor to the company 's board of directors , who will be appointed as a member of the board upon request . on march 28 , 2012 , the company signed an amended and restated note purchase agreement , dated as of december 20 , 2011 , with dr. samuel herschkowitz ( as amended , the “ herschkowitz purchase agreement ” ) . pursuant to the herschkowitz purchase agreement , the company issued a 20.0 % convertible note due june 20 , 2012 in the principal amount of $ 240,000 for previous advances under the note . the company 's obligations under the note are secured by the grant of a security interest in substantially all tangible and intangible assets of the company . the company has previously issued to dr. herschkowitz an equity bonus consisting of 1,546,667 shares of common stock . an additional 7,500,000 shares are required to be transferred to dr. herschkowitz upon the occurrence of an event of default on the note . as long as any amount payable under the note remains outstanding , dr. herschkowitz or his designee is entitled to appoint a special advisor to the company 's board of directors , who will be appointed as a member of the board upon request . pursuant to this authority , josh kornberg was appointed to the board on march 9 , 2012. critical accounting policies and estimates and recent accounting developments critical accounting policies and estimates . the discussion and analysis of our financial condition and results of operations are based upon our audited financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles ( “ gaap ” ) . the preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of our financial statements , the reported amounts of revenues and expenses during the reporting periods presented , as well as our disclosures of contingent assets and liabilities . on an on-going basis , we evaluate our estimates and assumptions , including , but not limited to , fair value of stock-based compensation , fair value of acquired intangible assets and goodwill , useful lives of intangible assets and property and equipment , income taxes , and contingencies and litigation . we base our estimates and assumptions on our historical experience and on various other information available to us at the time that these estimates and assumptions are made . we believe that these estimates and assumptions are reasonable under the circumstances and form the basis for our making judgments about the carrying values of our assets and liabilities that are not readily apparent from other sources . actual results and outcomes could differ from our estimates . 34 our significant accounting policies are described in “ note 1 – summary of significant accounting policies , ” in notes to financial statements of this annual report on form 10-k. we believe that the following discussion addresses our critical accounting policies and reflects those areas that require more significant judgments , and use of estimates and assumptions in the preparation of our financial statements . revenue recognition . we recognize revenue in accordance with the sec 's staff accounting bulletin no . 101 , revenue recognition in financial statements , as amended by staff accounting bulletin no . 104 ( together , sab 101 ) and asc 605- revenue recognition . revenue is recognized when persuasive evidence of an arrangement exists , delivery has occurred , the fee is fixed and determinable and collectability is probable . delivery is considered to have occurred upon either shipment of the product or arrival at its destination based on the shipping terms of the transaction . our standard terms specify that shipment is fob biodrain and we will , therefore , recognize revenue upon shipment in most cases . this revenue recognition policy applies to shipments of our fms units as well as shipments of cleaning solution kits . when these conditions are satisfied , we recognize gross product revenue , which is the price we charge generally to our customers for a particular product . under our standard terms and conditions , there is no provision for installation or acceptance of the product to take place prior to the obligation of the customer . the customer 's right of return is limited only to our standard one-year warranty , whereby we replace or repair , at our option . we believe it would be rare that the fms unit or significant quantities of cleaning solution kits may be returned .
| although we have continued to compensate consulting with stock-based instruments , the total value of the stock and the number of shares has decreased . salary expense declined in 2011 in comparison to 2010 due to a $ 70,000 charge to expense in 2010 to estimate the costs to settle a termination matter with a former officer . total g & a expenses are expected to increase due to increased insurance premiums , investor relations expenses and audit and legal fees , resulting from becoming a public company , but otherwise remain relatively constant over the next several quarters . operations expense . operations expense primarily consists of expenses related to product development and prototyping and testing in the company 's current stage . operations expense increased to $ 352,000 in 2011 compared to $ 277,000 in 2010. the $ 75,000 increase in operations expense in 2011 is primarily due to an increase of $ 76,000 in stock-based compensation and an increase in manufacturing supplies and components expense of $ 19,000 for the year as the operations department continued to revise and adjust various parts and components in the streamway unit to respond to results of operating the equipment in live surgical settings . operations expense in the next several quarters is expected to increase significantly as the company expects to increase shipments of the streamway unit as customers complete their evaluations and place orders for billable units . although we are attempting to curtail our expenses , there is no guarantee that we will be able to reduce these expenses significantly , and expenses for some periods may be higher as we prepare our product for broader sales , increase our sales efforts and maintain adequate inventories . sales and marketing expense . sales and marketing expense consists of expenses required to sell products through independent reps , attendance at trades shows , product literature and other sales and marketing activities . sales and marketing expense increased to
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under the terms of the agreement , the company has the option to acquire the remaining 80 percent of mtd beginning on july 1 , 2021 and ending on january 2 , 2029. in the event the option is exercised , the companies have agreed to a valuation multiple based on mtd 's 2018 earnings before interest , taxes , depreciation and amortization ( `` ebitda '' ) , with an equitable sharing arrangement for future ebitda growth . the investment in mtd increases the company 's presence in the $ 20 billion outdoor power equipment market and allows the two companies to work together to pursue revenue and cost opportunities , improve operational efficiency , and introduce new and innovative products for professional and residential outdoor equipment customers , utilizing each company 's respective portfolios of strong brands . on april 2 , 2018 , the company acquired nelson fastener systems ( “ nelson ” ) , which excluded nelson 's automotive stud welding business . this acquisition , which has been integrated into the engineered fastening business , is complementary to the company 's product offerings , enhances its presence in the general industrial end markets , expands its portfolio of highly-engineered fastening solutions , and is delivering cost synergies . on march 9 , 2017 , the company acquired the tools business of newell brands ( `` newell tools '' ) which included the highly attractive industrial cutting , hand tool and power tool accessory brands irwin® and lenox® . the acquisition enhanced the company 's position within the global tools & storage industry and broadened the company 's product offerings and solutions to customers and end users , particularly within power tool accessories . on march 8 , 2017 , the company purchased the craftsman® brand from sears holdings corporation ( “ sears holdings ” ) . the acquisition provided the company with the rights to develop , manufacture and sell craftsman®-branded products in non-sears holdings channels . the acquisition significantly increased the availability of craftsman®-branded products to consumers in previously underpenetrated channels , enhanced innovation , and added manufacturing jobs in the u.s. to support growth . pending acquisition on january 3 , 2020 , the company entered into an agreement to purchase consolidated aerospace manufacturing , llc ( `` cam '' ) . cam is an industry-leading manufacturer of specialty fasteners and components for the aerospace and defense markets . the company expects the acquisition to further diversify the company 's presence in the industrial markets and expand its portfolio of specialty fasteners in the high-growth , high-margin aerospace and defense market . the acquisition will provide well-recognized brands , a proven business model , deep customer relationships , an experienced management team and compelling cash flow characteristics , which will create an attractive pathway for profitable organic and acquisitive growth and shareholder returns . this transaction is subject to customary closing conditions , including regulatory approval , and is expected to close in late february 2020 . 26 refer to note e , acquisitions and investments , for further discussion . divestitures on may 30 , 2019 , the company sold its sargent and greenleaf mechanical locks business within the security segment . the divestiture allows the company to invest in other areas of the company that fit into its long-term growth strategy . on february 22 , 2017 , the company sold the majority of its mechanical security businesses , which included the commercial hardware brands of best access , phi precision and gmt . the sale allowed the company to deploy capital in a more accretive and growth-oriented manner . refer to note t , divestitures , for further discussion of the company 's divestitures . certain items impacting earnings throughout md & a , the company has provided a discussion of the outlook and results both inclusive and exclusive of acquisition-related and other charges . the results and measures , including gross profit and segment profit , on a basis excluding these amounts are considered relevant to aid analysis and understanding of the company 's results aside from the material impact of these items . these amounts are as follows : 2019 the company reported $ 363 million in pre-tax charges during 2019 , which were comprised of the following : $ 40 million reducing gross profit pertaining to facility-related and inventory step-up charges ; $ 139 million in sg & a primarily for integration-related costs , security business transformation and margin resiliency initiatives ; $ 30 million in other , net primarily related to deal transaction costs ; $ 17 million gain related to the sale of the sargent & greenleaf business ; $ 153 million in restructuring charges pertaining to severance and facility closures associated with a cost reduction program ; and $ 18 million related to a non-cash loss on the extinguishment of debt . the tax effect on the above net charges was approximately $ 78 million . in addition , the company 's share of mtd 's net earnings included an after-tax charge of approximately $ 24 million primarily related to an inventory step-up adjustment . the amounts above resulted in net after-tax charges of $ 309 million , or $ 2.05 per diluted share . 2018 the company reported $ 450 million in pre-tax charges during 2018 , which were comprised of the following : $ 66 million reducing gross profit primarily pertaining to inventory step-up charges for the nelson acquisition and an incremental freight charge due to nonperformance by a third-party service provider ; $ 158 million in sg & a primarily for integration-related costs , consulting fees , and a non-cash fair value adjustment ; $ 108 million in other , net primarily related to deal transaction costs and a settlement with the environmental protection agency ( `` epa '' ) ; $ 1 million related to a previously divested business ; and $ 117 million in restructuring charges which primarily related to a cost reduction program . story_separator_special_tag the company also recorded a net tax charge of $ 181 million , which was comprised of charges related to the tax cuts and jobs act ( `` the act '' ) partially offset by the tax benefit of the above pre-tax charges . the above amounts resulted in net after-tax charges of $ 631 million , or $ 4.16 per diluted share . 2017 the company reported $ 156 million in pre-tax charges during 2017 , which were comprised of the following : 27 $ 47 million reducing gross profit primarily pertaining to inventory step-up charges for the newell tools acquisition ; $ 38 million in sg & a primarily for integration-related costs and consulting fees ; $ 58 million in other , net primarily for deal transaction and consulting costs ; and $ 13 million in restructuring charges pertaining to facility closures and employee severance . the company also reported a $ 264 million pre-tax gain on sales of businesses in 2017 , primarily relating to the sale of the majority of the mechanical security businesses . the net tax benefit of the acquisition-related charges and gain on sales of businesses was $ 7 million . furthermore , the company recorded a $ 24 million net tax charge relating to the act . the acquisition-related charges , gain on sales of businesses , and net tax charge relating to the act resulted in a net after-tax gain of $ 91 million , or $ 0.59 per diluted share . driving further profitable growth by fully leveraging our core franchises each of the company 's franchises share common attributes : they have world-class brands and attractive growth characteristics , they are scalable and defensible , they can differentiate through innovation , and they are powered by the sbd operating model . the tools & storage business is the tool company to own , with strong brands , proven innovation , global scale , and a broad offering of power tools , hand tools , accessories , and storage & digital products across many channels in both developed and developing markets . the engineered fastening business is a highly profitable , gdp+ growth business offering highly engineered , value-added innovative solutions with recurring revenue attributes and global scale . the security business , with its attractive recurring revenue , presents a significant margin accretion opportunity over the longer term and has historically provided a stable revenue stream through economic cycles , is a gateway into the digital world and an avenue to capitalize on rapid digital changes . security has embarked on a business transformation which will apply technology to lower its cost to serve and create new commercial offerings for its small to medium enterprise and large key account customers . while diversifying the business portfolio through strategic acquisitions remains important , management recognizes that the core franchises described above are important foundations that continue to provide strong cash flow and growth prospects . management is committed to growing these businesses through innovative product development , brand support , continued investment in emerging markets and a sharp focus on global cost competitiveness . continuing to invest in the stanley black & decker brands the company has a strong portfolio of brands associated with high-quality products including stanley® , black+decker® , d e walt® , flexvolt® , irwin® , lenox® , craftsman® , porter-cable® , bostitch® , proto® , mac tools® , facom® , aeroscout® , powers® , lista® , sidchrome® , vidmar® , sonitrol® , and gq® . among the company 's most valuable assets , the stanley® , black+decker® and d e walt® brands are recognized as three of the world 's great brands , while the craftsman® brand is recognized as a premier american brand . during 2019 , the stanley® , d e walt® and craftsman® brands had prominent signage in major league baseball ( `` mlb '' ) stadiums appearing in many mlb games . the company has also maintained long-standing nascar and nhra racing sponsorships , which provided brand exposure during nearly 60 events in 2019 with the stanley® , d e walt® , craftsman® , irwin® and mac tools® brands . the company also advertises in the english premier league , which is the number one soccer league in the world , featuring stanley® , black+decker® and dewalt® brands to a global audience . in 2014 , the company became a sponsor for one of the world 's most popular football clubs , fc barcelona ( `` fcb '' ) , including player image rights , hospitality assets and stadium signage . in 2018 , the company was announced as the first ever shirt sponsor for the fcb women 's team in support of its commitment to global diversity and inclusion . in addition , the company continues to sponsor the envision virgin racing formula e team in support of the company 's commitment to sustainability and the future of electric mobility . the above marketing initiatives highlight the company 's strong emphasis on brand building and commercial support , which has resulted in more than 300 billion global brand impressions annually via digital and traditional advertising and strong brand awareness . the company will continue allocating its brand and advertising spend wisely to capture the emerging digital landscape , whilst continuing to evolve proven marketing programs to deliver famous global brands that are deeply committed to societal improvement , along with transformative technologies to build relevant and meaningful 1:1 customer , consumer , employee and shareholder relationships in support of the company 's long-term vision . 28 the sbd operating model : winning in the 2020s over the past 15 years , the company has successfully leveraged its proven and continually evolving operating model to focus the organization to sustain top-quartile performance , resulting in asset efficiency , above-market organic growth and expanding operating margins . in its first evolution , the stanley fulfillment system ( `` sfs '' ) focused on streamlining operations , which helped reduce lead times , realize synergies during acquisition integrations , and mitigate material and energy price inflation .
| industrial net sales increased 11 % compared to 2017 primarily due to acquisition growth of 9 % and favorable currency of 2 % . security net sales increased 2 % compared to 2017 due to increases of 1 % in price , 3 % in small bolt-on commercial electronic security acquisitions and 1 % in foreign currency , partially offset by declines of 1 % from the sale of the majority of the mechanical security businesses and 2 % from lower volumes . gross profit : the company reported gross profit of $ 4.806 billion , or 33.3 % of net sales , in 2019 compared to $ 4.851 billion , or 34.7 % of net sales , in 2018 . acquisition-related and other charges , which reduced gross profit , were $ 39.7 million in 2019 and $ 65.7 million in 2018. excluding these charges , gross profit was 33.5 % of net sales in 2019 compared to 35.2 % in 2018 , as volume , productivity and price were more than offset by tariffs , commodity inflation and foreign exchange . the company reported gross profit of $ 4.851 billion , or 34.7 % of net sales , in 2018 compared to $ 4.778 billion , or 36.9 % of net sales , in 2017 . acquisition-related and other charges , which reduced gross profit , were $ 65.7 million in 2018 and $ 46.8 million in 2017. excluding these charges , gross profit was 35.2 % of net sales in 2018 , compared to 37.2 % in 2017 , as volume leverage , productivity and price were more than offset by external headwinds , including commodity inflation , foreign exchange and tariffs . sg & a expense : selling , general and administrative expenses , inclusive of the provision for doubtful accounts ( “ sg & a ” ) , were $ 3.041 billion , or 21.1 % of net sales , in 2019 compared to $ 3.172 billion , or 22.7 % of net sales , in 2018 . within sg & a , acquisition-related and other charges totaled $ 139.5 million in 2019 and $ 157.8 million in 2018. excluding these charges , sg & a was 20.1 %
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as we do so , we are confronting new competitors , many of which have more experience in the categories or markets and have greater marketing resources and brand name recognition than we have . in addition , because of the continuing convergence of the markets for computing devices and consumer electronics , we expect greater competition in the future from well-established consumer electronics companies in our developing categories as well as future ones we might enter . many of these companies have greater financial , technical , sales , marketing and other resources than we have . we seek to fulfill the increasing demand for interfaces between people and the expanding digital world across multiple platforms and user environments . the interface evolves as platforms , user models and our target markets evolve . as access to digital information has expanded , we have extended our focus to mobile devices , the living room , and the meeting room , in addition to the pc , as access points to the internet and the digital world . all of these platforms require interfaces that are customized according to how the devices are used . we believe that continued investment in product research and development is critical to creating the innovation required to strengthen our competitive advantage and to drive future sales growth . we are committed to identifying and meeting current and future customer trends with new and improved product technologies , as well as leveraging the value of the logitech and lifesize brands from a competitive , channel partner and consumer experience perspective . we believe innovation and product quality are important to gaining market acceptance and maintaining market leadership . the broadening of our product lines has been primarily organic . however we also seek to acquire , when appropriate , companies that have products , personnel , and technologies that complement our strategic direction . as part of our corporate strategy , we plan to increase investments in and realign resources to focus on certain market adjacencies , geographic markets or new categories , including the china market , tablet peripherals , video communications and uc ( unified communications ) , which is the integration of enterprise-class collaboration and communications solutions such as voice mail , e-mail , chat , presentation sharing and live video meetings . we continually evaluate our product offerings and our strategic direction in light of current global economic conditions , changing consumer trends , and the evolving nature of the interface between the consumer and the digital world . summary of financial results our total net sales for the fiscal year ended march 31 , 2011 increased 20 % compared with the fiscal year ended march 31 , 2010 , based on increased demand in our americas and asia pacific regions , including a strong performance in china , and sales of our lifesize products , offset in part by unexpectedly weak performance in our emea region in the last quarter of the fiscal year . 37 retail sales in fiscal year 2011 increased 15 % and retail units increased 19 % compared with fiscal year 2010 , with increases in all product families except gaming . our overall retail average selling price in fiscal year 2011 declined 3 % compared with fiscal year 2010 , as unit sales of our retail products priced below $ 40 increased more than other price bands . retail sales in our asia pacific and amr regions increased 37 % and 28 % in fiscal year 2011 compared with fiscal year 2010. retail sales in our emea region decreased 2 % in the same period , reflecting a disappointing decline of 17 % in the fourth quarter of fiscal year 2011 compared with the fourth quarter of fiscal year 2010. the weakness in the emea region in the fourth quarter of fiscal year 2011 was due to lower than expected demand and poor execution of pricing and channel programs in europe . oem sales increased 13 % in fiscal year 2011 compared with fiscal year 2010 , and oem units sold increased 9 % , primarily due to increased keyboard sales . sales of lifesize communications products were 6 % of total net sales in fiscal year 2011. in fiscal year 2010 , lifesize sales were included in our financial results from december 9 , 2009 , the date of acquisition , to the end of the fiscal year . our gross margin for fiscal year 2011 was 35.4 % compared with 31.9 % in the prior fiscal year , primarily due to the a favorable shift in product mix towards products with higher margin , operational efficiencies in our supply chain costs , and lower obsolescence write-downs , somewhat offset by the negative impact of the weaker euro during most of fiscal year 2011. our gross margin for fiscal year 2011 would have been higher but for weak sales and profitability in our emea retail region in the fourth quarter . operating expenses for fiscal year 2011 were 29.4 % of net sales compared with 27.9 % in fiscal year 2010. the increase in operating expenses was primarily due to the addition of lifesize in december 2009 , increased advertising and marketing expenses related to promotional campaigns for harmony and logitech revue , and increased investment in areas of future growth opportunities , such as china . net income for the year ended march 31 , 2011 was $ 128.5 million , compared with net income of $ 65.0 million in fiscal year 2010. the increase in net income was primarily due to increased sales and improved gross margin , somewhat offset by the increase in operating expenses . trends in our business our sales of pc peripherals for use by consumers in the americas and europe have historically made up the large majority of our revenues . the increasing popularity of smaller , mobile computing devices such as tablets and smartphones with touch interfaces and the declining popularity of desktop pcs is rapidly changing the pc market . story_separator_special_tag consumer demand for pcs is decelerating in our traditional , mature markets such as north america , western and nordic europe , japan , australia , and new zealand , and we believe sales of our pc peripherals in mature markets will decline in fiscal year 2012 and potentially beyond . we believe there are continued growth opportunities for our pc peripherals outside the more mature markets of the americas and europe . we also believe there are significant opportunities to sell products to consumers to help make their tablets and other mobile devices more productive and comfortable . however , we only recently introduced our product line for tablets , and consumer acceptance and demand for peripherals for use with tablets and other mobile computing devices is still uncertain . we believe our future sales growth will be significantly impacted by our ability to grow sales in emerging markets such as china , to grow our lifesize videoconferencing division , and to develop sales and innovations for our emerging product categories which are not pc-dependent , such as our products for tablets and the google tv platform . our overall corporate strategy for future growth includes increasing our presence and sales in emerging markets , which we anticipate will be the high growth markets of the future as sales growth decelerates in our traditional , mature markets . we are currently investing significantly in growing the number of our sales , marketing and administrative personnel in china , and we expect that china may represent one of our top three 38 countries , by sales , in the future . emerging markets include potentially high economic growth , offset by potentially entrenched local competition , higher credit risks , and cultural differences that affect consumer trends in ways which may be substantially different from our current major markets . for the fiscal year ended march 31 , 2011 , our video conferencing segment represented 6 % of our net sales , and we expect sales from the lifesize division to grow faster than our overall sales . our lifesize division will require significant continuing investments in product development and sales and marketing to stimulate and support future growth . in october 2010 , we introduced our logitech revue and related peripherals for the google tv platform in the united states . logitech revue is a companion box for google tv software that incorporates logitech 's harmony remote control technology and enables google tv software to bring together the internet and the television . we have invested and expect to continue to invest significant funds in the further development of products for the google tv platform and other tv-related peripherals . to date the google tv platform has not met widespread consumer acceptance and our sales of logitech revue and related products have been below our expectations . however , we believe that the continued enhancement of the features and functionality of the google tv platform over time will lead to greater consumer acceptance , and our development of additional home-entertainment and tv-related peripherals will provide us with incremental sales over an extended period of time . sales of our oem mice and keyboards have historically made up the bulk of our oem sales . oem sales accounted for 9 % and 10 % of total revenues during the fiscal years ended march 31 , 2011 and 2010. in recent years , the shift away from desktop pcs adversely affected our sales of oem mice and keyboards , which are sold with name-brand desktop pcs . we expect this trend to continue and for oem sales to comprise a smaller percentage of our total revenues in the future . we continue to evaluate potential acquisitions to enhance the breadth and depth of our expertise in engineering and other functional areas , our technologies and our product offerings . most of our revenue comes from sales to our retail channels , which resell to consumers , retailers and distributors . as a result , our customers ' demand for our products depends in substantial part on trends in consumer confidence and consumer spending , as well as the levels of inventory which our customers , and their customers , choose to maintain . we use sell-through data , which represents sales of our products by our retailer customers to consumers , and by our distributor customers to their customers , along with other metrics to indicate consumer demand for our products . sell through data is subject to limitations due to collection methods and the third party nature of the data and thus may not be an entirely accurate indicator of actual consumer demand for our products . in addition , the customers supplying sell through data vary by geographic region and from period to period , but typically represent a majority of our retail sales . although our financial results are reported in u.s. dollars , approximately 42 % of our sales for the fiscal year ended march 31 , 2011 were made in currencies other than the u.s. dollar , such as the euro , chinese renminbi , canadian dollar and japanese yen . our product costs are primarily in u.s. dollars and chinese renminbi . our operating expenses are incurred in u.s. dollars , chinese renminbi , euros , swiss francs and , to a lesser extent , 28 other currencies . to the extent that the u.s. dollar significantly increases or decreases in value relative to the currencies in which our sales and operating expenses are denominated , the reported dollar amounts of our sales and expenses may decrease or increase . in fiscal year 2011 the impact of foreign currency exchange rates on our operating income was not material . our gross margins vary with the mix of products sold , competitive activity , product life cycle , new product introductions , unit volumes , commodity and supply chain costs , foreign currency exchange rate fluctuations , geographic sales mix , and the complexity and functionality of new product introductions .
| sales of oem mice were essentially flat in fiscal year 2011 compared with 2010. the decline in oem sales for fiscal year 2010 compared with 2009 was primarily attributable to our console microphones , which sold well in fiscal year 2008 and the first three quarters of fiscal year 2009. lifesize net sales in fiscal year 2011 represent sales for a complete fiscal year , whereas in fiscal year 2010 , lifesize net sales represent sales for the period from december 11 , 2009 , the date of acquisition , to the end of the fiscal year . foreign currency exchange rates did not affect lifesize sales . comparing the fourth quarter of fiscal year 2011 with the same period in fiscal year 2010 , lifesize net sales increased 88 % . unit shipments and revenue for the fourth quarter of fiscal year 2011 increased in comparison with the preceding year and the preceding quarter . approximately 42 % , 49 % and 55 % of the company 's total net sales were denominated in currencies other than the u.s. dollar in fiscal years 2011 , 2010 and 2009. if foreign currency exchange rates had been the same in 45 fiscal years 2011 and 2010 , our constant dollar sales increase would have been 22 % . if foreign currency exchange rates had been the same in fiscal years 2010 and 2009 , our constant dollar sales decrease would have been 12 % . we refer to our net sales excluding the impact of foreign currency exchange rates as constant dollar sales . constant dollar sales are a non-gaap financial measure , which is information derived from consolidated financial information but not presented in our financial statements prepared in accordance with u.s. gaap . our management uses these non-gaap measures in its financial and operational decision-making , and believes these non-gaap measures , when considered in conjunction with the corresponding gaap measures , facilitate a better understanding of changes in net sales . constant dollar sales are calculated by translating prior period sales in each local currency at the current period 's average exchange rate for that currency . retail sales by region the following table presents the change in
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refinery , petrochemical and industrial projects : in refining , we believe large , complex refineries should gain advantage in a more competitive , oversupplied landscape in 2018 as the industry globalizes and refiners position to meet local demand and secure export potential . in petrochemicals , we continue to see healthy demand and cost-advantaged supply driving projects forward in 2018. the industrial market continues to grow as outdated infrastructure is replaced , policy changes come into effect and power is decentralized . we continue to see growing demand across these markets in 2018. we have other segments in our portfolio that are more correlated with different industrial metrics such as our digital solutions business . overall , we believe our portfolio is uniquely positioned to compete across the value chain , and deliver unique solutions for our customers . we remain optimistic about the long-term economics of the industry , but are continuing to operate with flexibility given our expectations for volatility and changing assumptions in the near term . in 2016 , solar and wind net additions exceeded coal and gas for the first time and it continued throughout 2017. governments may change or may not continue incentives for renewable energy additions . in the long term , renewables ' cost decline may accelerate to compete with new-built fossil capacity , however , we do not anticipate any significant impacts to our business in the foreseeable future . despite the near-term volatility , the long-term outlook for our industry remains strong . we believe the world 's demand for energy will continue to rise , and the supply of energy will continue to increase in complexity , requiring greater service intensity and more advanced technology from oilfield service companies . as such , we remain focused on delivering innovative cost-efficient solutions that deliver step changes in operating and economic performance for our customers . business environment the following discussion and analysis summarizes the significant factors affecting our results of operations , financial condition and liquidity position as of and for the year ended december 31 , 2017 , 2016 and 2015 , and should be read in conjunction with the consolidated and combined financial statements and related notes of the company . amounts reported in millions in graphs within this report are computed based on the amounts in hundreds . as a result , the sum of the components reported in millions may not equal the total amount reported in millions due to rounding . we operate in more than 120 countries helping customers find , evaluate , drill , produce , transport and process hydrocarbon resources . our revenue is predominately generated from the sale of products and services to major , national , and independent oil and natural gas companies worldwide , and is dependent on spending by our customers for oil and natural gas exploration , field development and production . this spending is driven by a number of factors , including our customers ' forecasts of future energy demand and supply , their access to resources to develop and produce oil and natural gas , their ability to fund their capital programs , the impact of new government regulations and most importantly , their expectations for oil and natural gas prices as a key driver of their cash flows . oil and natural gas prices oil and natural gas prices are summarized in the table below as averages of the daily closing prices during each of the periods indicated . replace_table_token_2_th ( 1 ) energy information administration ( eia ) europe brent spot price per barrel bhge llc 2017 form 10-k | 24 ( 2 ) eia cushing , ok wti ( west texas intermediate ) spot price ( 3 ) eia henry hub natural gas spot price per million british thermal unit outside north america , customer spending is most heavily influenced by brent oil prices , which fluctuated significantly throughout the year , ranging from a low of $ 43.98/bbl in june 2017 to a high of $ 68.80/bbl in december 2017. oil prices bottomed early in 2016 due to the impending production increases in iran after economic sanctions were lifted . during 2017 , opec considered production cuts , and in the fourth quarter they announced extensions to agreed-upon production cuts . as a result , in the fourth quarter of 2017 , brent oil prices shifted meaningfully higher . in addition , demand for oil was higher than expected due to robust consumption in north america and revisions to chinese , russian , and european demand growth expectations . in north america , customer spending is highly driven by wti oil prices , which , similar to brent oil prices , fluctuated significantly throughout the year , with the highest prices being recorded towards the end of the year . overall , wti oil prices ranged from a low of $ 42.48/bbl in june 2017 to a high of $ 60.46/bbl in december 2017. although oil prices have rebounded more than 100 % from the previous year 's twelve-year low of $ 26/bbl reached in february 2016 to near $ 60/bbl at the end of 2017 , there has yet to be any material change in customer behavior , other than in certain u.s. basins , to suggest a near-term broader recovery in activity levels . in north america , natural gas prices , as measured by the henry hub natural gas spot price , averaged $ 2.99 /mmbtu in 2017 , representing a 19 % increase over the prior year . story_separator_special_tag throughout the year , henry hub natural gas spot prices ranged from a high of $ 3.71 /mmbtu in january 2017 to a low of $ 2.44 /mmbtu in february 2017. according to the u.s. department of energy ( `` doe '' ) , working natural gas in storage at the end of 2017 was 3,126 billion cubic feet ( `` bcf '' ) , which was 5.6 % , or 185 bcf , below the corresponding week in 2016. baker hughes rig count the baker hughes rig counts are an important business barometer for the drilling industry and its suppliers . when drilling rigs are active they consume products and services produced by the oil service industry . rig count trends are driven by the exploration and development spending by oil and natural gas companies , which in turn is influenced by current and future price expectations for oil and natural gas . the counts may reflect the relative strength and stability of energy prices and overall market activity , however , these counts should not be solely relied on as other specific and pervasive conditions may exist that affect overall energy prices and market activity . we have been providing rig counts to the public since 1944. we gather all relevant data through our field service personnel , who obtain the necessary data from routine visits to the various rigs , customers , contractors and other outside sources as necessary . we base the classification of a well as either oil or natural gas primarily upon filings made by operators in the relevant jurisdiction . this data is then compiled and distributed to various wire services and trade associations and is published on our website . we believe the counting process and resulting data is reliable , however , it is subject to our ability to obtain accurate and timely information . rig counts are compiled weekly for the u.s. and canada and monthly for all international rigs . published international rig counts do not include rigs drilling in certain locations , such as russia , the caspian region , iran and onshore china because this information is not readily available . rigs in the u.s. and canada are counted as active if , on the day the count is taken , the well being drilled has been started but drilling has not been completed and the well is anticipated to be of sufficient depth to be a potential consumer of our drill bits . in international areas , rigs are counted on a weekly basis and deemed active if drilling activities occurred during the majority of the week . the weekly results are then averaged for the month and published accordingly . the rig count does not include rigs that are in transit from one location to another , rigging up , being used in non-drilling activities including production testing , completion and workover , and are not expected to be significant consumers of drill bits . bhge llc 2017 form 10-k | 25 the rig counts are summarized in the table below as averages for each of the periods indicated . replace_table_token_3_th 2017 compared to 2016 overall the rig count was 2,030 in 2017 , an increase of 27 % as compared to 2016 due primarily to north american activity . the rig count in north america increased 69 % in 2017 compared to 2016. internationally , the rig count decreased 1 % in 2017 as compared to the same period last year . within north america , the increase was primarily driven by the land rig count , which was up 72 % , partially offset by a decrease in the offshore rig count of 16 % . internationally , the rig count decrease was driven primarily by decreases in latin america of 7 % , the europe region and africa region , which were down by 4 % and 2 % , respectively , partially offset by the asia-pacific region , which was up 8 % . 2016 compared to 2015 overall the rig count was 1,598 in 2016 , a decrease of 32 % as compared to 2015 due primarily to north american activity . the rig count in north america decreased 46 % in 2016 compared to 2015 . internationally , the rig count decreased 18 % in 2016 compared to 2015 . within north america , the decrease was primarily driven by a 44 % decline in oil-directed rigs . the natural gas-directed rig count in north america declined 50 % in 2016 as natural gas well productivity improved . internationally , the rig count decrease was driven primarily by decreases in latin america which was down 38 % , the africa region , which was down 20 % , and the europe region and asia-pacific region , which were down 18 % and 15 % , respectively . key performance indicators ( millions ) product services and backlog of product services our consolidated and combined statement of income ( loss ) displays sales and costs of sales in accordance with sec regulations under which `` goods '' is required to include all sales of tangible products and `` services '' must include all other sales , including other service activities . for the amounts shown below , we distinguish between `` equipment '' and `` product services '' , where product services refer to sales under product services agreements , including sales of both goods ( such as spare parts and equipment upgrades ) and related services ( such as monitoring , maintenance and repairs ) , which is an important part of its operations . we refer to `` product services '' simply as `` services '' within the business environment section of management 's discussion and analysis . backlog is defined as unfilled customer orders for products and services believed to be firm . for product services , an amount is included for the expected life of the contract .
| the volume impact on profit is calculated by multiplying the prior period profit rate by the change in revenue volume between the current and prior period . price is defined as the change in sales price for a comparable product or service period-over-period and is calculated as the period-over-period change in sales prices of comparable products and services . foreign exchange ( fx ) : fx measures the translational foreign exchange impact , or the translation impact of the period-over-period change on sales and costs directly attributable to change in the foreign exchange rate compared to the us dollar . fx impact is calculated by multiplying the functional currency amounts ( revenue or profit ) with the period-over-period fx rate variance , using the average exchange rate for the respective period . ( inflation ) /deflation : ( inflation ) /deflation is defined as the increase or decrease in direct and indirect costs of the same type for an equal amount of volume . it is calculated as the year-over-year change in cost ( i.e . price paid ) of direct material , compensation & benefits and overhead costs . productivity : productivity is measured by the remaining variance in profit , after adjusting for the period-over-period impact of volume & price , foreign exchange and ( inflation ) /deflation as defined above . improved or lower period-over-period cost productivity is the result of cost efficiencies or inefficiencies , such as cost decreasing or increasing more than volume , or cost increasing or decreasing less than volume , or changes in sales mix among segments . this also includes the period-over-period variance of transactional foreign exchange , aside from those foreign currency devaluations that are reported separately for business evaluation purposes . revenue and segment operating income ( loss ) before tax revenue and segment operating income ( loss ) for each of our four operating segments is provided below . replace_table_token_4_th bhge llc 2017 form 10-k | 28 replace_table_token_5_th ( 1 ) inventory impairments and related charges are reported in the `` cost of goods sold '' caption of the consolidated and combined statements of income ( loss ) . 2017
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completion of the proposed corrective actions is expected to occur by the end of 2015. on may 19 , 2014 , the company 's endo pharmaceuticals inc. ( epi ) subsidiary acquired worldwide rights to sumavel ® dosepro ® ( sumatriptan injection ) for subcutaneous use , a needle-free delivery system for sumatriptan , from zogenix , inc. epi acquired the product for an upfront payment of $ 89.7 million , with additional cash payments to be made by epi based on the achievement of certain commercial milestones . in addition , epi assumed an existing third-party royalty obligation on net sales . sumavel ® dosepro ® is a prescription medicine given with a needle-free delivery system to treat adults who have been diagnosed with acute migraine or cluster headaches . in may 2014 , one of the company 's subsidiaries completed the repurchase of approximately $ 240.7 million aggregate principal amount of its convertible notes and a proportionate amount of the associated warrants and call options , for cash consideration of approximately $ 488.4 million , including accrued interest . in july 2014 , on of the company 's subsidiaries completed the repurchase of approximately $ 40.0 million aggregate principal amount of its convertible notes and a proportionate amount of the associated warrants and call options , for total consideration of approximately $ 83.3 million . after giving effect to these transactions , the remaining outstanding principal amount of these notes was approximately $ 98.8 million . during the third quarter of 2014 , the company determined that u.s. shareholders of endo will generally recognize gain ( but not loss ) on the endo shareholders ' exchange of ehsi common stock for endo international plc ordinary shares in the merger ( endo share exchange ) . this determination was based on various factors , including the upward movement of the ehsi stock price following signing of the arrangement agreement and the aggregate estimated tax basis of the endo shareholders in the ehsi common stock at the time of the endo share exchange . due to these factors the conditions necessary to prevent the application of section 367 ( a ) to the merger were not satisfied , and , as a result , the endo share exchange was a taxable transaction for u.s. federal income tax purposes effective february 28 , 2014 whereby u.s. shareholders of endo will generally recognize gain ( but not loss ) on the endo share exchange . with respect to each u.s. shareholder , such gain will generally equal the excess of the fair market value of the endo international plc ordinary shares received over such holder 's adjusted tax basis in the shares of ehsi common stock exchanged therefor . the company accrued approximately $ 54.3 million of expense related to the reimbursement of directors ' and certain employees ' excise tax liabilities pursuant to section 4985 of the internal revenue code , substantially all of which was advanced in december 2014. this reimbursement was approved by shareholders at a special meeting to vote upon the paladin transaction . on july 7 , 2014 , the company 's epi subsidiary and biodelivery sciences international , inc. ( biodelivery ) announced positive top-line results from its pivotal phase iii efficacy study of belbuca ( buprenorphine hcl ) buccal film in opioid-experienced patients . the nda for belbuca was submitted on december 23 , 2014 , based primarily on the data from the two pivotal phase iii studies that demonstrated safety and efficacy in double-blind randomized , placebo-controlled , enriched-enrollment studies conducted in patients with chronic lower back pain . on february 23 , 2015 , the u.s. food and drug administration ( fda ) accepted this nda for substantive review . on july 24 , 2014 , the company , together with its endo netherlands b.v. subsidiary , acquired the entirety of the representative shares of the capital stock of grupo farmacéutico somar , sociedad anónima promotora de inversión de capital variable ( somar ) , a leading privately-owned specialty pharmaceuticals company based in mexico city , for $ 270.1 million in cash consideration , subject to a customary post-closing net working capital adjustment . somar generated revenues of approximately $ 100.0 million in 2013 . during the second quarter of 2014 , the company entered into an indenture , dated as of june 30 , 2014 , between the company and wells fargo bank , national association , as trustee , pursuant to which the company issued $ 750.0 million in aggregate principal amount of 5.375 % senior notes due 2023 ( the 2023 notes ) . endo issued the 2023 notes for general corporate purposes , which included acquisitions , including the acquisition of dava pharmaceuticals , inc. ( dava ) . on august 6 , 2014 , the company 's generics international ( us ) , inc. subsidiary acquired dava , a privately-held company specializing in marketed , pre-launch and pipeline generic pharmaceuticals based in fort lee , new jersey , for $ 590.2 million in cash consideration , with additional cash consideration of up to $ 25.0 million contingent on the achievement of certain sales milestones . dava 's strategically-focused generics portfolio includes thirteen on-market products in a variety of therapeutic categories . on december 9 , 2014 , the company 's epi subsidiary acquired the rights to natesto ( testosterone nasal gel ) , the first and only testosterone nasal gel for replacement therapy in adult males diagnosed with hypogonadism , from trimel biopharma srl , a wholly-owned subsidiary of trimel pharmaceuticals corporation . epi acquired the product for an upfront payment of $ 25.0 million , with additional cash payments to be made by epi based on the achievement of certain clinical and commercial milestones as well as royalties based on a percentage of potential future sales of natesto . story_separator_special_tag epi will collaborate with trimel 51 on all regulatory and clinical development activities regarding natesto , which was approved by the fda in may of 2014. endo intends to launch the product , through its epi subsidiary , in early 2015. during 2014 , ams and certain plaintiffs ' counsel representing mesh-related product liability claimants entered into various agreements in principle regarding settling up to approximately 45,400 mesh claims handled or controlled by the participating counsel . see note 14. commitments and contingencies in the consolidated financial statements , included in part iv , item 15. of this report `` exhibits , financial statement schedules '' for further discussion of our product liability cases . on january 27 , 2015 , certain of the company 's subsidiaries issued $ 1.20 billion in aggregate principal amount of 6.00 % senior notes due 2025 ( the 2025 notes ) . the 2025 notes were issued to ( i ) finance its acquisition of auxilium pharmaceuticals , inc. ( auxilium ) , ( ii ) refinance certain indebtedness of auxilium and ( iii ) pay related transaction fees and expenses . on january 29 , 2015 , the company acquired auxilium , a fully integrated specialty biopharmaceutical company with a focus on developing and commercializing innovative products for specific patient 's needs , for equity and cash consideration of approximately $ 3.0 billion . on january 29 , 2015 , in connection with the consummation of the merger , endo and auxilium entered into an agreement relating to auxilium 's $ 350.0 million of 1.50 % convertible senior notes due 2018 ( the auxilium notes ) , pursuant to which endo became a co-obligor of auxilium 's obligations under the auxilium notes . from the closing of the acquisition on january 29 , 2015 until february 20 , 2015 , holders of the auxilium notes converted the majority of the auxilium notes . on february 10 , 2015 , paladin acquired substantially all of litha 's remaining outstanding ordinary share capital that it did not own for consideration of approximately $ 0.24 per share in a cash transaction valued at approximately $ 40.1 million , based on the exchange rate in effect on december 31 , 2014. at december 31 , 2014 , our paladin subsidiary owned approximately 70.3 % of the issued ordinary share capital of litha . on march 1 , 2015 , the transactions committee of the board of directors approved a plan to sell the company 's ams business , which comprises the entirety of our devices segment . subsequently , the company entered into a definitive agreement to sell the men 's health and prostate health components of the ams business to boston scientific corporation for up to $ 1.65 billion , with $ 1.6 billion in upfront cash . the company is also eligible to receive a potential milestone payment of $ 50 million in cash conditioned on boston scientific achieving certain product revenue milestones in the men 's health and prostate health components in 2016. the transaction with boston scientific corporation is expected to close in the third quarter of 2015 , subject to customary conditions , including the expiration or termination of any applicable waiting periods under applicable competition laws . in addition , the company is currently evaluating strategic alternatives for the women 's health component of the ams business . highlights the following table is a summary of our financial highlights for the three years ended december 31 ( dollars in thousands ) : replace_table_token_13_th business environment the company conducts its business within the pharmaceutical and devices industries , which are highly competitive and subject to numerous government regulations . many competitive factors may significantly affect the company 's sales of its products , including 52 efficacy , safety , price and cost-effectiveness , marketing effectiveness , product labeling , quality control and quality assurance at our and our third-party manufacturing operations and research and development of new products . to compete successfully for business in the healthcare industry , the company must demonstrate that its products offer medical benefits as well as cost advantages . currently , most of the company 's products compete with other products already on the market in the same therapeutic category , and are subject to potential competition from new products that competitors may introduce in the future . generic competition is one of the company 's leading challenges . similarly , the company competes with other providers with respect to the devices we offer , as well as providers of alternative treatments . in the pharmaceutical industry , the majority of an innovative product 's commercial value is usually realized during the period that the product has market exclusivity . when a product loses exclusivity , it is no longer protected by a patent and is subject to new competing products in the form of generic brands . upon loss of exclusivity , the company can lose a major portion of that product 's sales in a short period of time . intellectual property rights have increasingly come under attack in the current healthcare environment . generic drug firms continue to file andas seeking to market generic forms of certain of the company 's key pharmaceutical products , prior to expiration of the applicable patents covering those products . in the event the company is not successful in defending the patent claims challenged in anda filings , the generic firms will then introduce generic versions of the product at issue , resulting in the potential for substantial market share and revenue losses for that product . for a description of significant legal proceedings , see note 14. commitments and contingencies of the consolidated financial statements included in part iv , item 15. of this report `` exhibits , financial statement schedules '' . the healthcare industry is subject to various government-imposed regulations authorizing prices or price controls that have and will continue to have an impact on the company 's sales .
| this decrease was primarily attributable to cost savings resulting from ongoing cost reduction initiatives including , 65 among others , the june 2013 restructuring which were partially offset by severance and other restructuring charges recorded as part of these initiatives . research and development expenses . research and development ( r & d ) expenses in 2013 decrease d 35 % to $ 142.5 million from 2012 . this decrease was primarily driven by a decline in expenses related to milestones from the previous year . in addition , r & d expenses decrease d company-wide as we focused our efforts on key products in development . there was $ 11.4 million in expense related to upfront and milestone payments in 2013 , compared to $ 57.9 million in 2012 , which included the initiation of the bema ® buprenorphine hcl buccal film development program . the company made an upfront payment to biodelivery for $ 30.0 million and incurred $ 15.0 million of additional costs related to the achievement of certain regulatory milestones during the first quarter of 2012 , which were recorded as r & d expenses . as a percent of revenues , r & d expense was approximately 5 % in 2013 and 8 % in 2012. the decrease in r & d expense as a percent of revenues is primarily due to upfront and milestone payments to third party collaborative partners included in r & d expense totaling $ 11.4 million or less than one percent of revenue in 2013 compared to $ 57.9 million or 2 % of revenue in 2012 . the following table presents the composition of our total r & d expense for the years ended december 31 : replace_table_token_22_th patent litigation settlement , net . amounts related to patent litigation settlement , net in 2012 totaled $ 85.1 million of expense , with no comparable amounts in 2013 . this amount relates to the initial establishment of and subsequent change in estimate for the liability related to the watson settlement agreement , as described in more detail in note 14. commitments and contingencies of the consolidated financial statements included in part iv , item
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all subsequent written and oral forward-looking statements attributable to us or any person acting on the company 's behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section and in our risk factors set forth in part i , item 1a of this form 10-k and in other reports filed with the sec by the company . 32 the following discussion of the financial condition and results of operations of altra holdings , inc. and its subsidiaries should be read together with the selected historical financial data , and the consolidated financial statements of altra holdings , inc. and its subsidiaries and related notes included elsewhere in this form 10-k. the following discussion includes forward-looking statements . for a discussion of important factors that could cause actual results to differ materially from the results referred to in the forward-looking statements , see forward-looking statements and risk factors . unless the context requires otherwise , the terms altra holdings , the company , we , us and our refer to altra holdings , inc. and its subsidiaries . general we are a leading global designer , producer and marketer of a wide range of electromechanical power transmission and motion control products with a presence in over 70 countries . our global sales and marketing network includes over 1,000 direct oem customers and over 3,000 distributor outlets . our product portfolio includes industrial clutches and brakes , enclosed gear drives , open gearing , couplings , engineered bearing assemblies , linear components , gear motors , and other related products . our products serve a wide variety of end markets including energy , general industrial , material handling , mining , transportation and turf and garden . we primarily sell our products to a wide range of oems and through long-standing relationships with industrial distributors such as motion industries , applied industrial technologies , kaman industrial technologies and w.w. grainger . while the power transmission industry has undergone some consolidation , we estimate that in 2012 the top five broad-based electromechanical power transmission companies represented approximately 20 % of the u.s. power transmission market . the remainder of the power transmission industry remains fragmented with many small and family-owned companies that cater to a specific market niche often due to their narrow product offerings . we believe that consolidation in our industry will continue because of the increasing demand for global distribution channels , broader product mixes and better brand recognition to compete in this industry . business outlook our future financial performance depends , in large part , on conditions in the markets that we serve and on the u.s. , european , and global economies in general . currently , the demand environment remains flat across most of our early and late cycle end markets and , assuming this trend continues , we do not expect substantial end market growth in 2013. we expect new products and programs that we have been developing to contribute to our top line performance in 2013. we also plan to enhance our bottom line performance as a result of the lower interest costs achieved through our 2012 refinancing and due to a number of strategic actions we completed in 2012 , including cost savings and productivity improvement initiatives . we also continue to maintain a strong balance sheet and ample liquidity to pursue strategic acquisitions should appropriate opportunities arise during 2013. critical accounting policies the methods , estimates and judgments we use in applying our critical accounting policies have a significant impact on the results we report in our financial statements . we evaluate our estimates and judgments on an on-going basis . our estimates are based upon historical experience and assumptions that we believe are reasonable under the circumstances . our experience and assumptions form the basis for our judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may vary from what our management anticipates and different assumptions or estimates about the future could change our reported results . we believe the following accounting policies are the most critical in that they are important to the financial statements and they require the most difficult , subjective or complex judgments in the preparation of the financial statements . 33 inventory . inventories are stated at the lower of cost or market using the first-in , first-out ( fifo ) method for all of our subsidiaries except tb wood 's . tb wood 's inventory is stated at the lower of current cost or market , principally using the last-in , first-out ( lifo ) method . inventory stated using the lifo method approximates 10 % of total inventory . we state inventories acquired by us through acquisitions at their fair values at the date of acquisition as determined by us based on the replacement cost of raw materials , the sales price of the finished goods less an appropriate amount representing the expected profitability from selling efforts , and for work-in-process the sales price of the finished goods less an appropriate amount representing the expected profitability from selling efforts and costs to complete . we periodically review our quantities of inventories on hand and compare these amounts to the historical and expected usage of each particular product or product line . we record as a charge to cost of sales any amounts required to reduce the carrying value of inventories to net realizable value . business combinations . business combinations are accounted for at fair value . acquisition costs are generally expensed as incurred and recorded in selling , general and administrative expenses ; and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally affect income tax expense . the accounting for business combinations requires estimates and judgment as to expectations for future cash flows of the acquired business , and the allocation of those cash flows to identifiable intangible assets , in determining the estimated fair value for assets and liabilities acquired . story_separator_special_tag the fair values assigned to tangible and intangible assets acquired and liabilities assumed are based on management 's estimates and assumptions , as well as other information compiled by management , including valuations that utilize customary valuation procedures and techniques . if the actual results differ from the estimates and judgments used in these estimates , the amounts recorded in the financial statements could result in a possible impairment of the intangible assets and goodwill , or require acceleration of the amortization expense of finite-lived intangible assets goodwill , intangibles and other long-lived assets . in connection with our acquisitions , goodwill and intangible assets were identified and recorded at their fair value . we recorded intangible assets for customer relationships , trade names and trademarks , product technology , patents and goodwill . in valuing the customer relationships , trade names , and trademarks , we utilized variations of the income approach . the income approach was considered the most appropriate valuation technique because the inherent value of these assets is their ability to generate current and future income . the income approach relies on historical financial and qualitative information , as well as assumptions and estimates for projected financial information . projected financial information is subject to risk if our estimates are incorrect . the most significant estimate relates to our projected revenues and profitability . if we do not meet the projected revenues and profitability used in the valuation calculations then the intangible assets could be impaired . in determining the value of customer relationships , we reviewed historical customer attrition rates which were determined to be approximately 5 % per year . most of our customers tend to be long-term customers with very little turnover . while we do not typically have long-term contracts with customers , we have established long-term relationships with customers which make it difficult for competitors to displace us . additionally , we assessed historical revenue growth within our industry and customers ' industries in determining the value of customer relationships . the value of our customer relationships intangible asset could become impaired if future results differ significantly from any of the underlying assumptions . this could include a higher customer attrition rate or a change in industry trends such as the use of long-term contracts which we may not be able to obtain successfully . customer relationships and product technology and patents are considered finite-lived assets , with estimated lives ranging from 8 years to 16 years . the estimated lives were determined by calculating the number of years necessary to obtain 95 % of the value of the discounted cash flows of the respective intangible asset . goodwill and trade names and trademarks are considered indefinite lived assets . other intangible assets include trade names and trademarks that identify us and differentiate us from competitors , and therefore competition does not limit the useful life of these assets . additionally , we believe that our trade names and trademarks will continue to generate product sales for an indefinite period . accounting standards require that an annual goodwill impairment assessment be conducted at the reporting unit level using either a quantitative or qualitative approach . as part of the annual goodwill impairment assessment we performed a quantitative assessment and estimated the fair value of each of our five reporting units using an income approach . we forecasted future cash flows by reporting unit for each of the next five years 34 and applied a long term growth rate to the final year of forecasted cash flows . the cash flows were then discounted using our estimated discount rate . the forecasts of revenue and profitability growth for use in the long-range plan and the discount rate were the key assumptions in our goodwill fair value analysis we review the difference between the estimated fair value and net book value of each reporting unit . if the excess is less than $ 1.0 million , the reporting unit could be required to perform a step two goodwill impairment analysis in a future period , if the estimated profitability decreased by 10 % when compared to our forecasts to determine what amount of goodwill is potentially impaired . as of december 31 , 2012 , each of our reporting units had estimated fair values that were at least $ 1.0 million greater than the net book value . management believes the preparation of revenue and profitability growth rates for use in the long-range plan and the discount rate requires significant use of judgment . if any of our operating segments do not meet our forecasted revenue and or profitability estimates , we could be required to perform an interim goodwill impairment analysis in future periods . in addition , if our discount rate increases , we could be required to perform an interim goodwill impairment analysis . we performed a sensitivity analysis on the estimated fair value of our reporting units by decreasing profitability by 5 % and 10 % in each of the following 5 years leaving all other assumptions constant and increasing the discount rate by 5 % and 10 % leaving all other assumptions constant . we did not identify any reporting unit that would be required to perform a step 2 goodwill impairment analysis as the fair value of our reporting units are substantially in excess of their carrying value . the company 's most recent significant acquisition was the bauer acquisition . the company recorded approximately $ 8.1 million in goodwill in connection with the bauer acquisition . bauer 's sales are predominantly in the european market and therefore are impacted by prevailing economic conditions in europe . if bauer 's future financial performance were to deteriorate , as a result of further weakening of the european economy or otherwise , an interim goodwill impairment analysis may be required . for our indefinite lived intangible assets , mainly trademarks , we estimated the fair value first by estimating the total revenue attributable to the trademarks for each of the reporting units .
| we forecast that 2013 gross profit as a percentage of sales will increase modestly when compared to 2012 due to price increases and as we continue to focus on improving operational efficiency within europe and , in particular , as part of restructuring activities implemented during late 2012. replace_table_token_8_th selling , general and administrative expenses . the vast majority of the increase in sg & a , approximately $ 13.9 million , was due to the acquisitions of bauer and lamiflex . increased costs associated with wage increases of $ 4.1 million were offset by the favorable effect of foreign exchange of $ 2.1 million and a decrease in acquisition related expense of $ 2.5 million . sg & a as a percentage of sales increased as a result of the acquisition of bauer . we have begun to take actions in europe to improve profitability . these actions include reducing headcount and limiting discretionary spending . we forecast increases to our sg & a costs as a result of a full year of lamiflex and general wage and benefit cost increases and plan to leverage them on increased sales as we invest in resources to enable us to grow faster in emerging markets and strategic industries in 2013. amounts in thousands , except percentage data year ended december 31 , 2012 december 31 , 2011 change % research and development expenses ( r & d ) $ 11,457 $ 10,609 $ 848 8.0 % research and development expenses . r & d expenses increased on an absolute dollar basis but maintained a level of approximately 1.5 % of sales in both periods . $ 0.9 million of the increase in r & d expense in 2012 is related to the full year effect of the acquisition of bauer , which occurred in may 2011. increased r & d activities as well as headcount additions also contributed to the increase in r & d expense . we do not forecast significant variances in 2013 as a percentage of sales . amounts in thousands , except percentage data year ended december 31 , 2012 december 31 , 2011 change % interest expense , net $ 40,790
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( 4 ) incorporated by reference to the exhibits to the company 's registration statement on form s-8 filed with the sec on june 11 , 1999 ( 5 ) incorporated by story_separator_special_tag you should read this discussion together with the financial statements , related notes and other financial information included in this form 10-k. the following discussion may contain predictions , estimates and other forward-looking statements that involve a number of risks and uncertainties , including those discussed under item 1arisk factors and elsewhere in this form 10-k. these risks could cause our actual results to differ materially from any future performance suggested below . please see important note about forwardlooking statements at the beginning of this form 10-k. 18 overview mitek systems , inc. is engaged in the development , sale and service of its proprietary software solutions related to mobile imaging solutions and intelligent character recognition software . we have historically provided financial institutions with advanced imaging and analytics software to authenticate and extract data from imaged checks and other documents . currently , we are applying our patented technology in image correction and intelligent data extraction to enter the market for mobile financial and business applications . our technology for extracting data from any photo taken using camera-equipped smartphones and tablets enables the development of consumer friendly applications that use the camera as a keyboard to enter data and complete transactions . users take a picture of the document and our products do the restcorrecting image distortion , extracting relevant data , routing images to their desired location , and processing transactions through users ' financial institutions . our mobile deposit ® product is a software application that allows users to remotely deposit a check using their smartphone camera . as of september 30 , 2011 , 161 financial institutions , including 7 of the top 10 u.s. retail banks and payment facilitating companies , have signed agreements to deploy mobile deposit ® . other mobile applications we offer include mobile photo bill pay , a mobile bill paying application that allows users to pay their bills using their smartphone camera , mobile ach enrollment , an application that enables consumers to enroll their checking accounts as funding sources for mobile payments by taking photos of blank checks with their smartphones , mobile balance transfer , a credit card shopping application that allows a user to transfer an existing balance by capturing an image of their current statement , mobile imaging cloud , our mobile imaging platform that allows users to capture , extract and route information contained in documents and can be used to create camera-based mobile solutions , mobile receipt ® , a receipt archival and expense report application , and mobile phax ® , a mobile document faxing application using our proprietary technology . our mobile applications support all major smartphone operating systems , including the iphone ® , android ® , and blackberry ® . we market and sell our mobile solutions through channel partners or directly to enterprise customers and end-users who typically purchase term licenses based on the number of transactions or subscribers that use our mobile applications . our mobile solutions are often embedded in other mobile banking or enterprise applications developed by banks or their partners , and marketed under their own proprietary brands . during the past fiscal year , we began developing new solutions for the insurance market as well as leveraged our platform to create custom mobile imaging solutions . all of our mobile imaging solutions use our proprietary technology to capture and read data from photos of documents taken using camera-equipped smartphones . recent events listing on the nasdaq capital market on july 14 , 2011 , our common stock began trading on the nasdaq capital market under the ticker symbol mitk. prior to july 14 , 2011 , our common stock was quoted on the over-the-counter bulletin board . private placement in may 2011 , we entered into a securities purchase agreement with certain accredited investors pursuant to which , we sold to the investors an aggregate of 2,857,143 shares of our common stock at a purchase price of $ 5.25 per share for aggregate gross proceeds of $ 15,000,000. we paid cash compensation of $ 1,050,000 in placement agent fees , reimbursed approximately $ 25,000 of placement agent out-of-pocket expenses , and incurred legal fees of approximately $ 80,000 in connection with the private placement . 19 market opportunities , challenges and risks the growth in the acceptance of mobile banking by financial institutions and their customers has helped drive our recent growth . during fiscal 2011 , we experienced a significant increase in the number of financial institutions that have integrated and launched our mobile applications , particularly our mobile deposit ® application , as part of their offering of mobile banking choices for their customers . we believe that financial institutions see our patented solutions as a way to provide an all-around better retail customer experience in mobile banking . to sustain our growth , we must continue to offer mobile applications that address a growing market for mobile banking and mobile imaging solutions sold into other vertical markets . factors adversely affecting the pricing of or demand for our mobile applications , such as competition from other products or technologies , any decline in the demand for mobile applications or negative publicity or obsolescence of the software environments in which our products operate , could result in lower revenues or gross margins . story_separator_special_tag further , because most of our revenues are from a single type of technology , our product concentration may make us especially vulnerable to market demand and competition from other technologies , which could reduce our revenues . the implementation cycles for our software and services by our channel partners and customers can be lengthy , often a minimum of three to six months and sometimes longer for larger customers , subject to delays and require significant investments . for example , through the end of fiscal 2011 , we executed agreements indirectly through channel partners or directly with customers covering 161 mobile deposit ® customers , 35 of whom have completed implementation and launched mobile deposit ® to their customers . if implementation of our products by our channel partners and customers are delayed or otherwise not completed , our business , financial condition , and results of operations may be adversely affected . we derive revenue predominately from the sale of licenses to use the products covered by our patented technologies , such as our mobile deposit ® application , and to a lesser extent by providing maintenance and professional services for the products we offer . the revenue we derive from the sale of licenses to use the products covered by our patented technologies is primarily derived from the sale to our channel partners of licenses to sell the applications we offer . through the end of fiscal 2011 , revenues related to most of our licenses for mobile products are required to be recognized upon satisfaction of all applicable revenue recognition criteria . the recognition of future revenues from these licenses is dependent on a number of factors , including the timing of implementation of our products by our channel partners and customers and the timing of any re-orders of additional licenses and or license renewals by our channel partners and customers . during the last few quarters , sales of licenses to one or two channel partners has comprised a significant part of our revenue each quarter . this is attributable to the timing of when a particular channel partner renews or purchases a license from us and does not represent a dependence on any channel partner . if we were to lose a channel partner relationship , we do not believe such a loss would adversely affect our operations because either we or another channel partner could sell our products to the end-user that purchased from the channel partner we lost . however in that case , we or other channel partners must establish a relationship with the end-user , which could take time to develop , if it develops at all . we have numerous competitors in the mobile payments industry , many of which have greater financial , technical , marketing and other resources than we do . however , we believe our patented image-analysis technology , our growing portfolio of products for the financial services industry and our position as a pure play mobile-payments company provides us with a competitive advantage . to remain competitive , we must be able to continue to offer products that are attractive to the ultimate end-user and that are secure , accurate and convenient . we intend to continue to further strengthen our portfolio of products through research and development to help us remain competitive . we may have difficulty meeting changing market conditions and developing enhancements to our software applications on a timely basis in order to maintain our competitive advantage . our continued growth will ultimately depend upon our ability to develop additional applications and attract strategic alliances that sell such technologies . 20 story_separator_special_tag cash provided by operating activities net cash provided by operating activities during the fiscal year ended september 30 , 2011 was $ 316,168. the primary non-cash adjustments to operating activities were stock-based compensation expense of $ 1,271,238 , non-cash interest expense on the convertible debentures of $ 384,124 , and depreciation and amortization of $ 179,291. cash provided by operating activities also increased due to increases in accrued payroll and related taxes and accounts payable of $ 299,478 and $ 130,393 , respectively , associated with the growth of our business . these changes in cash provided by operating activities were offset by an increase in accounts receivable of $ 1,750,636 associated with increased sales and the timing of customer billings and receipt of payments . 22 net cash used in investing activities net cash used in investing activities was $ 10,819,081 during the fiscal year ended september 30 , 2011 , which consisted of $ 10,614,723 related to the purchase of investments and $ 204,358 related to the purchase of property and equipment . net cash provided by financing activities net cash provided by financing activities during the fiscal year ended september 30 , 2011 included net proceeds of ( i ) $ 14,595,366 from the fiscal 2011 private placements and ( ii ) $ 258,214 from the exercise of warrants and stock options . other liquidity matters on september 30 , 2011 , we had investments , designated as available-for-sale marketable securities , of $ 10,604,868 , which consisted of commercial paper and corporate issuances , carried at fair value as determined by quoted market prices for identical or similar assets , with unrealized gains and losses , net of tax , and reported as a separate component of stockholders ' equity . all securities whose maturity or sale is expected within one year are classified as current on the balance sheet . all other securities are classified as long-term on the balance sheet .
| selling and marketing expenses increased $ 1,481,026 , or 159 % , to $ 2,410,711 in 2011 compared to $ 929,685 in 2010. as a percentage of net sales , selling and marketing expenses increased to 23 % in 2011 compared to 18 % in 2010. the increase is primarily due to increased personnel-related costs , including stock-based and other incentive compensation expense , totaling approximately $ 1,291,000 related to an increase in headcount associated with the growth of our business , as well as higher advertising and promotion expenses totaling approximately $ 145,000. research and development expenses research and development expenses include payroll , employee benefits , consultant expenses , and other headcount-related costs associated with product development . these costs are incurred to develop new products and to maintain and enhance existing products . we retain what we believe to be sufficient staff to sustain our existing product lines , including development of new , more feature-rich versions of our existing product , as we determine the marketplace demands . we also employ research personnel , whose efforts are instrumental in ensuring product paths from current technologies to anticipated future generations of products within our area of business . research and development expenses increased $ 993,710 , or 50 % , to $ 2,996,109 in 2011 compared to $ 2,002,399 in 2010. the increase is primarily due to increased personnel-related costs , including stock-based and other incentive compensation expense , totaling approximately $ 724,000 related to an increase in headcount associated with the growth of our business . as a percentage of net sales , research and development expenses decreased to 29 % in 2011 compared to 39 % in 2010. general and administrative expenses general and administrative expenses include payroll , employee benefits , and other personnel-related costs associated with finance , facilities , legal , accounting , and other administrative fees . general and administrative expenses increased $ 1,810,666 , or 112 % , to $ 3,431,023 in 2011 compared to $ 1,620,357 in 2010. the increase is primarily due to increased personnel-related costs , including stock-based and other incentive compensation 21 expenses , totaling approximately $ 859,000 due to higher incentive compensation provided in 2011. other factors contributing to increased general and administrative expenses in 2011 include higher legal fees of approximately $
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in the past five years , write-offs have averaged approximately 0.2 % of net sales annually . write-offs as a percentage of net sales were 0.1 % in 2014 , 0.1 % in 2013 and 0.1 % in 2012 . we expect that write-offs will remain at approximately 0.1 % of net sales in 2015 . at the end of each fiscal year , we prepare a hindsight analysis by comparing the prior year-end allowance for doubtful accounts balance to ( i ) current year write-offs and ( ii ) any significantly aged outstanding receivable balances . based on our hindsight analysis , we concluded that the prior year allowance was within a range of acceptable estimates and that our reserve methodology is appropriate . if the balance of the accounts receivable reserve increased or decreased by 20 % at december 31 , 2014 , pretax income would change by approximately $ 0.8 million and earnings per share would change by approximately $ 0.01 per diluted share ( based on the number of weighted average diluted shares outstanding for the year ended december 31 , 2014 ) . 21 inventory obsolescence product inventories represent the largest asset on our balance sheet . our goal is to manage our inventory such that we minimize stock-outs to provide the highest level of service to our customers . to do this , we maintain at each sales center an adequate inventory of stock keeping units ( skus ) with the highest sales volumes . at the same time , we continuously strive to better manage our slower moving classes of inventory , which are not as critical to our customers and thus , inherently have lower velocity . we classify products into 13 classes at the sales center level based on sales at each location over the past 12 months ( or 36 months for tile and parts products ) . all inventory is included in these classes , except for special order non-stock items that lack an sku in our system and products with less than 12 months of usage . the table below presents a description of these inventory classes : class 0 new products with less than 12 months usage ( or 36 months for tile and parts products ) classes 1-4 highest sales value items , which represent approximately 80 % of net sales at the sales center classes 5-12 lower sales value items , which we keep in stock to provide a high level of customer service class 13 products with no sales for the past 12 months at the local sales center level , excluding special order products not yet delivered to the customer null class non-stock special order items there is little risk of obsolescence for products in classes 1-4 because products in these classes generally turn quickly . we establish our reserve for inventory obsolescence based on inventory classes 5-13 , which we believe represent some exposure to inventory obsolescence , with particular emphasis on skus with the least sales over the previous 12 months . the reserve is intended to reflect the value of inventory that we may not be able to sell at a profit . we provide a reserve of 5 % for inventory in classes 5-13 and non-stock inventory as determined at the sales center level . we also provide an additional 5 % reserve for excess inventory in classes 5-12 and an additional 45 % reserve for excess inventory in class 13. we determine excess inventory , which is defined as the amount of inventory on hand in excess of the previous 12 months ' usage , on a company-wide basis . we also evaluate whether the calculated reserve provides sufficient coverage of the total class 13 inventory . in evaluating the adequacy of our reserve for inventory obsolescence , we consider a combination of factors including : the level of inventory in relation to historical sales by product , including inventory usage by class based on product sales at both the sales center and on a company-wide basis ; changes in customer preferences or regulatory requirements ; seasonal fluctuations in inventory levels ; geographic location ; and superseded products and new product offerings . we periodically adjust our reserve for inventory obsolescence as changes occur in the above-identified factors . at the end of each fiscal year , we prepare a hindsight analysis by comparing the prior year-end obsolescence reserve balance to ( i ) current year inventory write-offs and ( ii ) the value of products with no sales for the past 12 months that remain in inventory . based on our hindsight analysis , we concluded that our prior year reserve was within a range of acceptable estimates and that our reserve methodology is appropriate . if the balance of our inventory reserve increased or decreased by 20 % at december 31 , 2014 , pretax income would change by approximately $ 1.3 million and earnings per share would change by approximately $ 0.02 per diluted share ( based on the number of weighted average diluted shares outstanding for the year ended december 31 , 2014 ) . vendor incentives many of our vendor arrangements provide for us to receive incentives of specified amounts of consideration when we achieve any of a number of measures . these measures are generally related to the volume level of purchases from our vendors and may include negotiated pricing arrangements . we account for vendor incentives as a reduction of the prices of the vendor 's products and therefore a reduction of inventory until we sell the product , at which time such incentives are recognized as a reduction of cost of sales in our income statement . 22 throughout the year , we estimate the amount of the incentive earned based on our estimate of total purchases for the fiscal year relative to the purchase levels that mark our progress toward earning the incentives . we accrue vendor incentives on a monthly basis using these estimates provided that we determine they are probable and reasonably estimable . story_separator_special_tag our estimates for annual purchases , future inventory levels and sales of qualifying products are driven by our sales projections , which can be significantly impacted by a number of external factors including weather and changes in economic conditions . changes in our purchasing mix also impact our incentive estimates , as incentive rates can vary depending on our volume of purchases from specific vendors . we continually revise these estimates throughout the year to reflect actual purchase levels and identifiable trends . as a result , our estimated quarterly vendor incentive accruals may include cumulative catch-up adjustments to reflect any changes in our estimates between reporting periods . these adjustments tend to have a greater impact on gross margin in the fourth quarter since it is our seasonally slowest quarter and because the majority of our vendor incentive arrangements are based on calendar year periods . we update our estimates for these arrangements at year end to reflect actual annual purchase levels . in the first quarter of the subsequent year , we prepare a hindsight analysis by comparing actual vendor incentives received to the prior year vendor incentive balances . based on our hindsight analysis , we concluded that our vendor incentive estimates were within a range of acceptable estimates and that our estimation methodology is appropriate . if market conditions were to change , vendors may change the terms of some or all of these programs . although such changes would not affect the amounts we have recorded related to products already purchased , they may lower or raise our gross margins for products purchased and sold in future periods . income taxes we record deferred tax assets and liabilities based on differences between the financial reporting and tax basis of assets and liabilities using currently enacted rates and laws that will be in effect when we expect the differences to reverse . due to changing tax laws and state income tax rates , significant judgment is required to estimate the effective tax rate expected to apply to tax differences that are expected to reverse in the future . as of december 31 , 2014 , we have not provided for united states income taxes on undistributed earnings of our foreign subsidiaries , as we have invested or expect to invest the undistributed earnings indefinitely . if these earnings are repatriated to the united states in the future , or if we determine that the earnings will be remitted in the foreseeable future , additional tax provisions may be required . determining the amount of unrecognized deferred tax liability on these undistributed earnings is not practicable due to the complexity of tax laws and regulations and the varying circumstances , tax treatments and timing of any future repatriation . we hold , through our wholly owned affiliates , cash balances in the countries in which we operate , including amounts held outside the united states . most of the amounts held outside the united states could be repatriated to the united states , but under current law , may be subject to united states federal income taxes , less applicable foreign tax credits . repatriation of some foreign balances is restricted by local laws including the imposition of withholding taxes in some jurisdictions . historically our foreign locations have not generated adequate earnings to both repatriate to the united states and fund foreign operations . those historical and future foreign earnings will remain permanently reinvested and be used to support our foreign operations and pay non-u.s. obligations . we have operations in 39 states , 1 united states territory and 11 foreign countries . the amount of income taxes we pay is subject to adjustment by the applicable tax authorities . we are subject to regular audits by federal , state and foreign tax authorities . we recognize a benefit from an uncertain tax position only after determining it is more likely than not that the tax position will withstand examination by the applicable taxing authority . our estimate for the potential outcome of any uncertain tax issue is highly judgmental . we regularly evaluate our tax positions , assess the probability of examinations by taxing authorities and incorporate these expectations into our reserve estimates . we believe we have adequately provided for any reasonably foreseeable outcome related to these matters . however , our future results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period the assessments are made or resolved , or when statutes of limitation on potential assessments expire . these adjustments may include changes in valuation allowances that we have established . as a result of these uncertainties , our total income tax provision may fluctuate on a quarterly basis . each year , we prepare a return to provision analysis upon filing our income tax returns . based on this hindsight analysis , we concluded that our prior year income tax provision was within a range of acceptable estimates and that our provision calculation methodology is appropriate . 23 incentive compensation accrual our incentive compensation structure is designed to attract , motivate and retain employees . our incentive compensation packages include bonus plans that are specific to each group of eligible participants and their levels and areas of responsibility . the majority of our bonus plans have annual cash payments that are based primarily on objective performance criteria , with a component based on management 's discretion . we calculate bonuses based on the achievement of certain key measurable financial and operational results , including budgeted operating income and diluted earnings per share . management sets the objectives for our bonus plans at the beginning of the bonus plan year using both historical information and forecasted results of operations for the current plan year . the compensation committee of our board approves these objectives for certain bonus plans . we record incentive compensation accruals based on positive operating income achieved in a quarter as a percentage of total expected operating income for the year .
| financial position and liquidity cash provided by operations was $ 121.8 million in 2014 and exceeded total net income by $ 10.8 million . combined with $ 73.4 million in net proceeds from borrowings , cash from operating activities helped fund the following initiatives : share repurchases in the open market of $ 132.3 million ; quarterly cash dividend payments to shareholders , which totaled $ 37.6 million for the year ; net capital expenditures of $ 17.3 million ; and payments of $ 10.6 million for acquisitions . total net receivables , including pledged receivables , in creased 12 % compared to december 31 , 2013 . this increase is consistent with our december 2014 sales growth , which included an additional billing day compared to december 2013 . our receivables quality remains high , with days sales outstanding ( dso ) , as calculated on a trailing twelve month basis , of 28.7 days at december 31 , 2014 compared to 28.1 days at december 31 , 2013 . inventory levels grew 9 % to $ 467.0 million at december 31 , 2014 compared to $ 429.2 million at december 31 , 2013 . our inventory turns , as calculated on a trailing twelve month basis , were 3.4 times at both december 31 , 2014 and december 31 , 2013 . total debt outstanding of $ 320.8 million at december 31 , 2014 in creased $ 74.4 million compared to december 31 , 2013 primarily to fund greater share repurchases in 2014 versus 2013 . 19 current trends and outlook the pool industry continued to show signs of recovery in 2014 , mostly due to the gradual improvement in remodeling and replacement activity . heightened demand for discretionary products that create and enhance outdoor living areas supported industry growth . stability in single-family home construction markets also benefited the landscape and irrigation business . the economic downturn between 2007 and 2009 had a significant impact on our industry , driving an approximate 80 % reduction in new pool construction in the united states compared to peak levels in
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artesian development is a real estate holding company that owns properties , including land zoned for office buildings , a water treatment plant and wastewater facility , as well as property for current operations , including an office facility in sussex county , delaware . the facility consists of approximately 10,000 square feet of office space along with nearly 10,000 square feet of warehouse space . this facility allows all of our sussex county , delaware operations to be housed in one central location . artesian consulting engineers no longer offers development and architectural services to outside third parties . artesian will continue to provide design and engineering contract services through our artesian utility subsidiary . strategic direction our strategy is to significantly increase customer growth , revenues , earnings and dividends by expanding our water , wastewater and service line protection plan services across the delmarva peninsula . we remain focused on providing superior service to our customers and continuously seeking ways to improve our efficiency and performance . by providing water and wastewater services , we believe we are positioned as the primary resource for developers and communities throughout the delmarva peninsula seeking to fill both needs simultaneously . we have a proven ability to acquire and integrate high growth , reputable entities , through which we have captured additional service territories that will serve as a base for future revenue . we believe this experience presents a strong platform for further expansion and that our success to date also produces positive relationships and credibility with regulators , municipalities , developers and customers in both existing and prospective service areas . in our regulated water division , our strategy is to focus on a wide spectrum of activities , which include identifying new and dependable sources of supply , developing the wells , treatment plants and delivery systems to supply water to customers and educating customers on the wise use of water . our strategy includes focused efforts to expand in new regions added to our delaware service territory over the last 10 years . in addition , we believe growth will occur in the maryland counties on the delmarva peninsula . we plan to expand our regulated water service area in the cecil county designated growth corridor and to expand our business through the design , construction , operation , management and acquisition of additional water systems . the expansion of our exclusive franchise areas elsewhere in maryland and the award of contracts will similarly enhance our operations within the state . on february 23 , 2017 , artesian water entered into an agreement with fort dupont redevelopment and preservation corporation , or fdrpc , for the purchase of existing water assets and for the provision of potable water and fire suppression services . the fort dupont national historic district , or fort dupont , consists of 325-acres and lies between the delaware river on the east , the chesapeake and delaware canal on the south and the delaware city branch canal . the total price for the purchase of the water assets is $ 1.0 million . the water assets include a water treatment plant , storage tank , mains , and other equipment used to provide potable water and fire suppression services to portions of fort dupont and the surrounding properties . in connection with the planned future development of fort dupont , the parties intend to design , build and operate a state of the art , cost effective , safe and reliable water system that will include both new water assets as well as improvements and upgrades to the existing water assets . the water system can be expanded to meet the needs of the planned 600 residential unit as well as new commercial customers , in addition to water service currently provided to the governor bacon health center and national guard facilities . the agreement may be terminated at any time prior to closing by mutual written consent of artesian and fdrpc . 22 table of content we believe that delaware 's generally lower cost of living in the region , availability of development sites in relatively close proximity to the atlantic ocean in sussex county , and attractive financing rates for construction and mortgages have resulted , and will continue to result , in increases to our customer base . delaware 's lower property and income tax rate make it an attractive region for new home development and retirement communities . substantial portions of delaware are currently not served by a public water system , which could also assist in an increase to our customer base as systems are added . in our regulated wastewater division , we foresee significant growth opportunities and will continue to seek strategic partnerships and relationships with developers and municipalities to complement existing agreements for the provision of wastewater service on the delmarva peninsula . artesian wastewater plans to utilize our larger regional wastewater facilities to expand service areas to new customers while transitioning our smaller treatment facilities into regional pump stations in order to gain additional efficiencies in the treatment and disposal of wastewater . we feel this will reduce operational costs at the smaller treatment facilities in the future since they will be converted from treatment and disposal plants to pump stations to assist with transitioning the flow of wastewater from one regional facility to another . artesian wastewater entered into agreements that will provide growth opportunities and will utilize our larger regional wastewater facilities . in august 2016 , artesian wastewater and sussex county , a political subdivision of delaware , entered into an agreement to provide wastewater treatment and disposal services for each other in order to address the periodic need of additional wastewater treatment and disposal capacities and facilities in sussex county , beyond those under their own ownership and control , to assure the timely , efficient and cost effective transmission and management of wastewater . story_separator_special_tag there are numerous locations in sussex county where artesian wastewater 's and sussex county 's facilities are capable of being connected or integrated to allow for the movement and disposal of wastewater generated by one or the other 's system . on september 27 , 2016 , artesian wastewater entered into a wastewater services agreement with allen harim foods , llc , or allen harim , for artesian wastewater to provide treatment and disposal services for sanitary wastewater discharged from allen harim 's properties located in sussex county , delaware upon completion of a pipeline to transfer the sanitary wastewater . the completion of the pipeline should occur during the second quarter of 2017. on january 27 , 2017 , artesian wastewater entered into a second wastewater agreement with allen harim for artesian wastewater to provide disposal services for approximately 1.5 million gallons per day of treated industrial and or process wastewater upon completion of an approximately eight mile pipeline that will transfer the wastewater from allen harim 's properties to a 67 million gallon storage lagoon at artesian 's northern sussex water recycling facility . artesian will use the reclaimed wastewater for spray irrigation on agricultural land in the area . the completion of the industrial and or process wastewater pipeline and storage lagoon should occur during the first quarter of 2018. the general need for increased capital investment in our water and wastewater systems is due to a combination of population growth , more protective water quality standards and aging infrastructure . our capital investment plan for the next three years includes projects for water treatment plant improvements and additions in both delaware and maryland and wastewater treatment plant improvements and additions in delaware . capital improvements are planned and budgeted to meet anticipated changes in regulations and needs for increased capacity related to projected growth . the delaware public service commission and maryland public service commission have generally recognized the operating and capital costs associated with these improvements in setting water and wastewater rates for current customers and capacity charges for new customers . in our non-regulated division , we continue pursuing opportunities to expand our contract operations . through artesian utility , we will seek to expand our contract design , engineering and construction services of water and wastewater facilities for developers , municipalities and other utilities . artesian development owns two nine-acre parcels of land , located in sussex county , delaware , which will allow for construction of a water treatment facility and wastewater treatment facility . inflation we are affected by inflation , most notably by the continually increasing costs required to maintain , improve and expand our service capability . the cumulative effect of inflation results in significantly higher facility costs compared to investments made 20 to 40 years ago , which must be recovered from future cash flows . 23 table of content critical accounting policies and estimates critical accounting policies and estimates are those we believe are most important to portraying the financial condition and results of operations and also require significant estimates , assumptions or other judgments by management . the following provides an overview of the accounting policies that are particularly important to the results of operations and financial condition of the company . changes in the estimates , assumptions or other judgments included within these accounting policies could result in a significant change to the financial statements in any quarterly or annual period . we consider the following policies to be the most critical in understanding the judgment that is involved in preparing our consolidated financial statements . senior management has discussed the selection and development of our critical accounting policies and estimates with the audit committee of the board of directors . all additions to plant are recorded at cost . cost includes direct labor , materials , and indirect charges for such items as transportation , supervision , pension , medical , and other fringe benefits related to employees engaged in construction activities . when depreciable units of utility plant are retired , any cost associated with retirement , less any salvage value or proceeds received , is charged to a regulated retirement liability . maintenance , repairs , and replacement of minor items of plant are charged to expense as incurred . we record water service revenue , including amounts billed to customers on a cycle basis and unbilled amounts , based upon estimated usage from the date of the last meter reading to the end of the accounting period . as actual usage amounts are received , adjustments are made to the unbilled estimates in the next billing cycle based on the actual results . estimates are made on an individual customer basis , based on one of three methods ( the previous year 's consumption in the same period , the previous billing period 's consumption , or averaging ) and are adjusted to reflect current changes in water demand on a system-wide basis . while actual usage for individual customers may differ materially from the estimate , we believe the overall total estimate of consumption and revenue for the fiscal period will not differ materially from actual billed consumption . we record accounts receivable at the invoiced amounts . the reserve for bad debts is adjusted based on the provision for bad debts , which is calculated as a percentage of total water sales . the company reviews the bad debt provision expense and the reserve for bad debts on a quarterly basis . account balances are written off against the reserve when it is probable the receivable will not be recovered . our regulated utilities record deferred regulatory assets under financial accounting standards board , or fasb , accounting standards codification , or asc , topic 980 , which are costs that may be recovered over various lengths of time as prescribed by the depsc , mdpsc and papuc . as the utility incurs certain costs , such as expenses related to rate case applications , a deferred regulatory asset is created .
| the volume of water sold to residential customers increased to 3,741 million gallons in 2016 compared to 3,737 million gallons in 2015 , a 0.1 % increase . the number of residenti al customers served increased by approximately 1,300 , or 1.6 % , in 2016. commercial water service revenues from commercial customers in 2016 increased by 2.4 % , from $ 16.7 million in 2015 to $ 17.1 million in 2016 , primarily due to an increase in dsic revenue and an increase overall water consumption . the volume of water sold to commercial customers increased to 2,178 million gallons in 2016 compared to 2,150 million gallons sold in 2015 , an increase of 1.3 % . industrial water service revenues from industrial customers decreased 22.2 % from $ 99,000 in 2015 to $ 77,000 in 2016. the volume of water sold to industrial customers decreased to 8,000 gallons in 2016 from 11,000 gallons in 2015 , a decrease of 25.7 % . government and other government and other water service revenues in 2016 increased by 2.8 % , from $ 10.9 million in 2015 to $ 11.2 million in 2016 , primarily due to an increase in dsic revenue . the volume of water sold to government and other customers was 810,000 gallons in 2016 and 2015 , respectively . 25 table of content other utility operating revenue other utility operating revenue , derived from contract operations , antenna leases on water tanks , finance/service charges and wastewater customer service revenues increased 3.3 % , from $ 3.7 million in 2015 to $ 3.8 million in 2016. the increase is primarily due to an increase in revenue from wastewater customers compared to 2015 and an increase in inspection fee revenue related to new development , partially offset by a decrease in operating subsidies due to developers satisfying their wastewater connection payments for all lots within certain communities . non-utility operating revenue non-utility operating revenue , derived from non-regulated water and wastewater operations , increased 6.5 % , from $ 4.4 million in 2015 to $ 4.7 million in
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net income decreased by $ 319,000 , or 3.6 % , to $ 8.5 million for the fiscal year ended september 30 , 2014 from $ 8.8 million for the fiscal year ended september 30 , 2013. an increase in net interest income and a decrease in the provision for loan losses was offset by a decrease in noninterest income and an increase in noninterest expense . net interest income . net interest income increased by $ 304,000 , or 0.8 % , to $ 40.1 million for fiscal year 2014 from $ 39.8 million for fiscal year 2013. interest income . interest income decreased $ 326,000 , or 0.6 % , to $ 50.8 million for fiscal year 2014 from $ 51.1 million for fiscal year 2013. the decrease resulted from a 19 basis point decrease in the overall yield on interest earning assets to 3.77 % from 3.96 % for the prior year which had the effect of decreasing interest income by $ 2.8 million offset in part by a $ 60.6 million increase in average interest earning assets , which had the effect of increasing interest income by $ 2.4 million . the increase in average interest earning assets during 2014 compared to 2013 included increases in average loans of $ 44.5 million , average investments of $ 3.9 million and average mortgage backed securities of $ 15.6 million . these increases were partially offset by a decrease in average regulatory stock of $ 4.3 million . the average yield on loans decreased to 4.38 % for the fiscal year 2014 , from 4.73 % for the fiscal year 2013. the average yields on investment securities increased to 2.34 % from 1.96 % and the average yields on mortgage backed securities increased to 2.01 % from 1.99 % for the 2014 and 2013 periods , respectively . interest expense . interest expense decreased $ 630,000 , or 5.6 % , to $ 10.6 million for fiscal year 2014 from $ 11.3 million for fiscal year 2013 , while average interest bearing liabilities increased by $ 65.5 million year over year . the decrease resulted from an 11 basis point decrease in the overall cost of interest-bearing liabilities to 0.88 % for fiscal 2014 from 0.99 % for fiscal 2013. average savings and club accounts increased by $ 11.1 million , average now accounts increased $ 18.4 million , average money market accounts increased $ 12.7 million and average certificates of deposit increased $ 24.5 million . for fiscal 2014 , average borrowed funds decreased $ 1.3 million compared to fiscal 2013. the cost of money market accounts decreased to 0.20 % for fiscal year 2014 from 0.23 % for fiscal year 2013. the cost of savings and club accounts remained unchanged at 0.05 % for fiscal 2014. the cost of certificates of deposit increased to 1.20 % from 1.17 % and the cost of borrowed funds decreased to 1.36 % from 1.91 % for fiscal years 2014 and 2013 , respectively . provision for loan losses . the company establishes provisions for loan losses , which are charged to earnings , at a level necessary to absorb known and inherent losses that are both probable and reasonably estimable at the date of the financial statements . in evaluating the level of the allowance for loan losses , management considers historical loss experience , the types of loans and the amount of loans in the loan portfolio , adverse situations that may affect the borrower 's ability to repay , the estimated value of any underlying collateral , peer group information and prevailing economic conditions . this evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available or as future events occur . after an evaluation of these factors , the company made a provision of $ 2.4 million for fiscal year 2014 compared to a $ 3.8 million provision for the 2013 fiscal year . the allowance for loan losses was $ 8.6 million , or 0.81 % , of loans outstanding at september 30 , 2014 , compared to $ 8.1 million , or 0.86 % , of loans outstanding at september 30 , 2013. determining the amount of the allowance for loan losses necessarily involves a high degree of judgment . management reviews the level of the allowance on a quarterly basis , and establishes the provision for loan losses based on the factors set forth in the preceding paragraph . historically , the bank 's loan portfolio has consisted primarily of one-to four-family residential mortgage loans . however , our current business plan calls for increases in commercial real estate loan originations . as management evaluates the allowance for loan losses , the increased risk associated with larger non-homogenous commercial real estate may result in large additions to the allowance for loan losses in future periods . loans secured by commercial real estate generally expose a lender to greater risk of non-payment and loss than one-to-four family residential mortgage loans because repayment of the loans often depends on the successful operation of the property and the income stream of the underlying property . additionally , such loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to one-to-four family residential mortgage loans . accordingly , an adverse development with respect to one loan or one credit relationship can expose us to greater risk of loss compared to an adverse development with respect to a one-to-four family residential mortgage loan . 41 although we believe that we use the best information available to establish the allowance for loan losses , future additions to the allowance may be necessary , based on estimates that are susceptible to change as a result of changes in economic conditions and other factors . in addition , the federal reserve board , as an integral part of its examination process , will periodically review our allowance story_separator_special_tag net income decreased by $ 319,000 , or 3.6 % , to $ 8.5 million for the fiscal year ended september 30 , 2014 from $ 8.8 million for the fiscal year ended september 30 , 2013. an increase in net interest income and a decrease in the provision for loan losses was offset by a decrease in noninterest income and an increase in noninterest expense . net interest income . net interest income increased by $ 304,000 , or 0.8 % , to $ 40.1 million for fiscal year 2014 from $ 39.8 million for fiscal year 2013. interest income . interest income decreased $ 326,000 , or 0.6 % , to $ 50.8 million for fiscal year 2014 from $ 51.1 million for fiscal year 2013. the decrease resulted from a 19 basis point decrease in the overall yield on interest earning assets to 3.77 % from 3.96 % for the prior year which had the effect of decreasing interest income by $ 2.8 million offset in part by a $ 60.6 million increase in average interest earning assets , which had the effect of increasing interest income by $ 2.4 million . the increase in average interest earning assets during 2014 compared to 2013 included increases in average loans of $ 44.5 million , average investments of $ 3.9 million and average mortgage backed securities of $ 15.6 million . these increases were partially offset by a decrease in average regulatory stock of $ 4.3 million . the average yield on loans decreased to 4.38 % for the fiscal year 2014 , from 4.73 % for the fiscal year 2013. the average yields on investment securities increased to 2.34 % from 1.96 % and the average yields on mortgage backed securities increased to 2.01 % from 1.99 % for the 2014 and 2013 periods , respectively . interest expense . interest expense decreased $ 630,000 , or 5.6 % , to $ 10.6 million for fiscal year 2014 from $ 11.3 million for fiscal year 2013 , while average interest bearing liabilities increased by $ 65.5 million year over year . the decrease resulted from an 11 basis point decrease in the overall cost of interest-bearing liabilities to 0.88 % for fiscal 2014 from 0.99 % for fiscal 2013. average savings and club accounts increased by $ 11.1 million , average now accounts increased $ 18.4 million , average money market accounts increased $ 12.7 million and average certificates of deposit increased $ 24.5 million . for fiscal 2014 , average borrowed funds decreased $ 1.3 million compared to fiscal 2013. the cost of money market accounts decreased to 0.20 % for fiscal year 2014 from 0.23 % for fiscal year 2013. the cost of savings and club accounts remained unchanged at 0.05 % for fiscal 2014. the cost of certificates of deposit increased to 1.20 % from 1.17 % and the cost of borrowed funds decreased to 1.36 % from 1.91 % for fiscal years 2014 and 2013 , respectively . provision for loan losses . the company establishes provisions for loan losses , which are charged to earnings , at a level necessary to absorb known and inherent losses that are both probable and reasonably estimable at the date of the financial statements . in evaluating the level of the allowance for loan losses , management considers historical loss experience , the types of loans and the amount of loans in the loan portfolio , adverse situations that may affect the borrower 's ability to repay , the estimated value of any underlying collateral , peer group information and prevailing economic conditions . this evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available or as future events occur . after an evaluation of these factors , the company made a provision of $ 2.4 million for fiscal year 2014 compared to a $ 3.8 million provision for the 2013 fiscal year . the allowance for loan losses was $ 8.6 million , or 0.81 % , of loans outstanding at september 30 , 2014 , compared to $ 8.1 million , or 0.86 % , of loans outstanding at september 30 , 2013. determining the amount of the allowance for loan losses necessarily involves a high degree of judgment . management reviews the level of the allowance on a quarterly basis , and establishes the provision for loan losses based on the factors set forth in the preceding paragraph . historically , the bank 's loan portfolio has consisted primarily of one-to four-family residential mortgage loans . however , our current business plan calls for increases in commercial real estate loan originations . as management evaluates the allowance for loan losses , the increased risk associated with larger non-homogenous commercial real estate may result in large additions to the allowance for loan losses in future periods . loans secured by commercial real estate generally expose a lender to greater risk of non-payment and loss than one-to-four family residential mortgage loans because repayment of the loans often depends on the successful operation of the property and the income stream of the underlying property . additionally , such loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to one-to-four family residential mortgage loans . accordingly , an adverse development with respect to one loan or one credit relationship can expose us to greater risk of loss compared to an adverse development with respect to a one-to-four family residential mortgage loan . 41 although we believe that we use the best information available to establish the allowance for loan losses , future additions to the allowance may be necessary , based on estimates that are susceptible to change as a result of changes in economic conditions and other factors . in addition , the federal reserve board , as an integral part of its examination process , will periodically review our allowance
| due to the inability to reduce many deposit rates by the full 200 basis points , the company 's net interest income at risk in a 100 basis point decline was within the company 's policy limit of a decline of less than 10 % of net interest income . 45 the following table sets forth the results of the twelve month projected net interest income model as of september 30 , 2014. replace_table_token_25_th the above table indicates that as of september 30 , 2014 , in the event of a 300 basis point instantaneous increase in interest rates , the company would experience a 10.3 % , or $ 4.4 million , decrease in net interest income . in the event of a 100 basis point decrease in interest rates , the company would experience a 2.7 % , or $ 1.2 , million decrease in net interest income . another measure of interest rate sensitivity is to model changes in the economic value of equity through the use of immediate and sustained interest rate shocks . the following table illustrates the economic value of equity model results as of september 30 , 2014. replace_table_token_26_th the preceding table indicates that as of september 30 , 2014 , in the event of an immediate and sustained 300 basis point increase in interest rates , the company would experience a 27.2 % , or $ 52.2 million decrease in the present value of equity . if rates were to decrease 100 basis points , the company would experience a 3.1 % , or $ 6.0 million increase , in the present value of equity . certain shortcomings are inherent in the methodologies used in the above interest rate risk measurements . modeling changes in net interest income requires the making of certain assumptions regarding prepayment and deposit decay rates , which may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates . while management believes such assumptions are reasonable , there can be no assurance that assumed prepayment rates and decay rates will approximate actual future loan
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cost of products sold cost of products sold is principally composed of two elements , product and logistics costs . product cost for our produce is primarily composed of cultivation ( the cost of growing crops ) , harvesting , packaging , labor , depreciation and farm administration . product cost for produce obtained from independent growers is composed of procurement and packaging costs . logistics costs include land and sea transportation and expenses related to port facilities and distribution centers . sea transportation cost is the most significant component of logistics costs and is comprised of the cost of ship operating expenses , chartering refrigerated ships and container equipment related costs . ship operating expenses for our owned ships include operations , maintenance , depreciation , 29 insurance , fuel ( the cost of which is subject to commodity price fluctuations ) , and port charges . for chartered ships , operating expenses include the cost of chartering the ships , fuel and port charges . container equipment costs include leasing expense and in the case of owned equipment , also depreciation expense . third-party containerized shipping rates are also a significant component of our logistic costs . in recent years these container shipping rates have decreased and we have increased the use of third-party containerized shipping . overall , our per unit sea transportation costs have decreased in recent years principally as a result of improved ship utilization combined with lower operating expenses and greater use of containers . variations in containerboard prices , which affect the cost of boxes and other packaging materials , and fuel prices can have a significant impact on our product cost and our profit margins . also , variations in the production yields , fertilizers and other input costs and the cost to procure products from independent growers can have a significant impact on our costs . containerboard , plastic , resin and fuel prices have historically been volatile . during 2016 , cost of fuel decreased 25 % , containerboard decreased 4 % and fertilizer decreased 13 % resulting in a reduction of cost of product sold of $ 26.2 million . during 2017 , cost of fuel increased 36 % , containerboard increased 2 % and fertilizer decreased 3 % resulting in an increase of cost of product sold of $ 21.7 million . in general , changes in our volume of products sold can have a disproportionate effect on our gross profit . within any particular year , a significant portion of our cost of products sold is fixed , both with respect to our operations and with respect to the cost of produce purchased from independent growers from whom we have agreed to purchase all the products they produce . accordingly , higher volumes produced on company-owned farms directly reduce the average per-box cost , while lower volumes directly increase the average per-box cost . in addition , because the volume that will actually be produced on our farms and by independent growers in any given year depends on a variety of factors , including weather , that are beyond our control or the control of our independent growers , it is difficult to predict volumes and per-box costs . during 2017 , cost of product sold was negatively affected by higher fuel costs and positively affected by lower ship operating expenses and lower third-party containerized shipping costs , resulting in a 4 % reduction in our per unit ocean freight costs . our banana production and procurement costs remained relatively flat and our pineapple production and procurement costs were slightly lower . in our expanding avocado and fresh-cut product category , procurements costs increased significantly as unfavorable growing conditions in mexico and higher costs negatively affected our results . non-tropical fruit costs were also negatively affected by unfavorable growing conditions in our chile operations . in our prepared food segment , production costs were positively affected by lower poultry production costs in our jordanian operations and negatively affected by increased production costs for canned pineapple in our kenya operations . since our financial reporting currency is the u.s. dollar , our costs are affected by fluctuations in the value of the currency in which we have significant operations versus the dollar , with lower costs resulting from a strong u.s. dollar . during 2017 , cost of products sold was positively impacted by approximately $ 13.2 million as compared with 2016 due to a weaker costa rica colon , philippine peso and british pound . selling , general and administrative expenses selling , general and administrative expenses primarily include the costs associated with selling in countries where we have our own sales force , advertising and promotional expenses , professional fees , general corporate overhead and other related administrative functions . during 2017 , our selling , general and administrative expenses decreased primarily as a result of lower executive compensation and legal expenses . loss ( gain ) on disposal of property , plant and equipment loss ( gain ) on disposal of property , plant and equipment was $ 3.0 million in 2017 comprised primarily of the loss on disposal of low-yielding banana plants in costa rica and guatemala in order to replant and improve productivity , disposal of deciduous plants in chile , and a gain on the sale of shipping containers . goodwill and trademark impairment charges we review goodwill and other intangible assets for impairment on an annual basis or earlier if indicators for impairment are present . during 2017 , we incurred a trademark impairment of $ 0.9 million related to the del monte ® perpetual , royalty-free brand name license for beverage products in the united kingdom due to lower than expected sales volume and pricing related to the prepared food segment . during 2016 , we incurred a goodwill impairment of $ 2.6 million representing 100 % of the goodwill associated with the poultry business in jordan due to underperformance . story_separator_special_tag the goodwill associated with our banana segment business unit and the trade names and trademarks associated with our prepared segment business are highly sensitive to differences between estimated and actual cash flows and changes in the related discount rate used to evaluate the fair value of these assets . if the banana segment does not perform to expected levels , the banana 30 segment goodwill may be at risk for impairment in the future . if the prepared food reporting unit does not perform to expected levels , the trade names and trademarks associated with this unit may also be at risk for impairment in the future . asset impairment and other charges , net in 2017 , we incurred asset impairment and other charges totaling $ 1.8 million related to flood damage in our chile non-tropical fruit and philippines banana operations , asset impairments in central america in the banana segment , impairment due to our decision to cease the development of an investment initiative in africa , other charges related to kunia well site in hawaii for epa remediation additional expenses and a credit due to insurance proceeds related to previously announced flood damage in our chile non-tropical fruit operations . in 2016 , we incurred asset impairment and other charges totaling $ 27.2 million principally related to compensatory expenses related to the former president/coo 's transition , asset impairments in the banana segment in the philippines and central america , contract termination charges in the united kingdom and other charges related to the kunia , hawaii well site environmental liability . interest expense interest expense consists primarily of interest on borrowings under working capital facilities that we maintain and interest on other long-term debt primarily for capital lease obligations . in 2017 , our interest expense increased due to higher average debt balances and higher interest rates . other expense , net other expense , net , primarily consists of currency exchange gains or losses and other miscellaneous income and expense items . during 2017 , we incurred lower foreign exchange losses as compared with 2016 . provision for income taxes the provision for income taxes in 2017 was $ 24.9 million . income taxes consist of the consolidation of the tax provisions , computed on a separate entity basis , in each country in which we have operations . since we are a non-u.s. company with substantial operations outside the united states , a substantial portion of our results of operations is not subject to u.s. taxation . several of the countries in which we operate have lower tax rates than the united states . we are subject to u.s. taxation on our operations in the united states . from time to time , tax authorities in various jurisdictions in which we operate audit our tax returns and review our tax positions . there are audits presently pending in various countries . there can be no assurance that any tax audits , or changes in existing tax laws or interpretations in countries in which we operate will not result in an increased effective tax rate for us . tax reform on december 22 , 2017 , the united states enacted significant changes to tax law following the passage and signing of the tax cuts and jobs act ( “ the act ” ) . we are subject to the provisions of the asc guidance on income taxes , which requires that the effect on deferred tax assets and liabilities of a change in tax rates be recognized in the period the tax rate change was enacted . among other items , the legislation permanently reduces the u.s. federal corporate tax rate from 35 % to 21 % effective january 1 , 2018. as a result , this caused our u.s. net deferred tax assets to be revalued . our deferred tax assets represent a decrease in corporate taxes expected to be paid in the future . the reduction in the federal corporate tax rate reduces these benefits . as a result of the decrease in the u.s. corporate tax rate , in the fourth quarter we incurred a one-time , non-cash increase to income tax expense of $ 2.1 million for the year ended december 29 , 2017. the act includes a transition rule that provides for a mandatory repatriation tax imposed on u.s. companies with certain foreign subsidiaries ( the `` transition tax '' ) . we have two subsidiaries for which the transition tax may apply . the sec has issued staff accounting bulletin ( `` sab '' ) no . 118 which allows us to record provisional amounts during a measurement period which is similar to the measurement period used when accounting for business combinations . due to the fact that these two subsidiaries are equity-method investments which have not historically been material , there is a lack of information available to us at this time in order to calculate this transition tax . therefore , no tax liability for the repatriation tax has been recorded at this time . we will continue to analyze available data 31 for these subsidiaries as it becomes available , and will revise the provisional estimate for transition tax if needed as required by sab 118. new internal revenue code section 951a has been adopted , which would require a u.s. shareholder of a controlled foreign corporation ( `` cfc '' ) , to include in income its global intangible low-taxed income ( `` gilti '' ) in a manner similar to subpart f income . the statutory language allows a deduction for corporate shareholders equal to 50 % of gilti , which would be reduced to 37.5 % starting in 2026. in general , gilti would be the excess of a shareholder 's cfcs ' net income over a routine or ordinary return .
| 33 ◦ net sales of non-tropical fruit decreased primarily due to lower sales volumes and per unit sales price of apples and citrus in the middle east principally a result of lower demand . partially offsetting this decrease were higher net sales of blueberries and strawberries in north america principally due to increase customer demand . net sales of bananas decreased $ 36.4 million principally due to lower net sales in the middle east and asia , partially offset by higher net sales in north america and europe . worldwide banana sales volume increased by 1 % . ◦ middle east banana net sales decreased principally due to lower per unit sales price as a result of high industry volumes during the first half of the year as well as lower sales volume during the fourth quarter . ◦ asia banana net sales decreased as a result of lower per unit sales price principally due to high industry supply and increased competition . ◦ north america banana net sales increased as a result of higher sales volumes and per unit sales price , principally due to increased customer demand . ◦ europe banana net sales increased slightly due to higher sales volumes , partially offset by lower per unit sales price primarily as a result of unfavorable euro and british pound exchange rates . net sales in the prepared food segment decreased $ 33.8 million principally due to lower sales volume and per unit sales price of canned pineapple and deciduous products as a result of lower production and increased competition . also contributing to the decrease were lower pricing on industrial pineapple products , primarily as a result of high industry supply . partially offsetting this decrease were higher net sales in our jordanian poultry business principally as a result of improved pricing . cost of products sold . cost of products sold was $ 3,754.3 million for 2017 compared
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the amount of the federal nol generated prior to the 2017 legislation commonly referred to as the tax cuts and jobs act ( “ tcja ” ) of $ 2.6 million may be carried forward for 20 years and begins to expire in 2032. the remaining amount of $ 0.9 million federal nol generated in years 2018 and 2019 may be carried forward indefinitely and its utilization is limited to 80 % of taxable income . this limitation applies to losses arising in taxable years beginning after december 31 , 2017 . 17 we file a consolidated federal income tax returns and separate company state returns as well as combined state returns where applicable . there are currently no pending income tax examinations . story_separator_special_tag > in consideration of mr. karkus 's voluntary reduction in salary , our board of directors awarded mr. karkus a stock option to purchase 2,300,000 shares of our common stock at an exercise price of $ 3.00 per share on february 23 , 2018 ( the “ ceo option ” ) . the ceo option will vest and be exercisable in 35 equal monthly installments of 63,888 shares and one monthly installment of 63,290 shares , subject to his continued employment , and subject to accelerated vesting in the event mr. karkus 's employment is terminated for any reason other than by us for cause or by mr. karkus without good reason ( as such terms are defined in the amended employment agreement ) . the ceo option is exercisable for a five year term commencing on the date of grant . the ceo option was granted pursuant to the 2018 stock plan , which was also adopted and approved by our board of directors on february 16 , 2018. the 2018 plan , like the amended employment agreement , received stockholder approval at a special meeting of stockholders held on april 12 , 2018 at which time the options were considered granted for accounting purposes . the 2018 plan authorizes the issuance of up to 2,300,000 shares pursuant to stock options granted under the 2018 plan , all of which were issued to mr. karkus as part of the ceo option . the 2018 plan requires certain proportionate adjustments to be made to the stock options granted under the 2018 plan upon the occurrence of certain events , including special distributions ( whether in the form of cash , shares , other securities , or other property ) in order to maintain parity . accordingly , the compensation committee of the board of directors adjusted the exercise price of the ceo option on may 7 , 2018 , such that the exercise price of the ceo option was reduced from $ 3.00 per share to $ 2.00 per share , effective as of june 5 , 2018 , the date a special $ 1.00 cash dividend was paid to our stockholders , from $ 2.00 to $ 1.75 per share , effective as of january 24 , 2019 , the date a special $ 0.25 cash dividend was paid to our stockholders , and from $ 1.75 to $ 1.50 per share , effective as of december 12 , 2019 , the date another special $ 0.25 cash dividend was paid to our stockholders . asset purchase agreement with mylan we have indemnification obligations to mylan under the asset purchase agreement with mylan ( the “ asset purchase agreement ” ) that may require us to make future payments to mylan and or other related persons for any damages incurred by mylan or such related persons as a result of any breaches of our representations , warranties , covenants or agreements contained in the asset purchase agreement , or arising from the retained liabilities ( as such term is defined in the asset purchase agreement ) or certain third-party claims specified in the asset purchase agreement . generally , our representations and warranties survive for a period of 24 months from the closing date , which was march 29 , 2017 , other than certain fundamental representations which survive until the expiration of the applicable statute of limitations . there is a limited indemnification cap with respect to a majority of the company 's indemnification obligations under the asset purchase agreement with the exception of claims for actual fraud , the breach of any fundamental representations and certain other items , which have a larger indemnification cap ( e.g. , the purchase price ) . pursuant to the terms of the asset purchase agreement , we , mylan , and an escrow agent entered into an escrow agreement at closing , pursuant to which mylan deposited $ 5 million of the aggregate purchase price for the cold-eeze ® business into an escrow account established with the escrow agent in order to satisfy , in whole or in part , certain of our indemnity obligations under the asset purchase agreement . the terms of the escrow agreement provide that if , as of september 29 , 2018 ( the 18 month anniversary of the closing date ) , there were funds remaining in the escrow account , then the escrow account would be reduced by the difference , if a positive number , of ( i ) $ 2.5 million minus ( ii ) the aggregate amount of all escrow claims asserted by mylan prior to this date that had either been paid out of the escrow account or were pending as of such date , and , within two business days of such date , the escrow agent would disburse such difference , if a positive number , to us . story_separator_special_tag in addition , within two business days of march 29 , 2019 ( the second anniversary of the closing date ) , the escrow agent would release any funds remaining in the escrow account to us minus any amounts being reserved for escrow claims asserted by mylan prior to such date . upon the resolution of any pending escrow claims , the escrow agent would then , within two business days of receipt of joint instructions or a final order from a court ( as described in the escrow agreement ) , disburse such reserved amount to the parties entitled to such funds . as described below , in august 2018 , mylan asserted an indemnification claim against us , for a yet to be determined amount . accordingly , the distributions were not released to us on september 29 , 2018 or march 29 , 2019. on may 31 , 2018 , we received notice of an indemnification claim for $ 800,000 in losses . we have resolved this claim pursuant to a settlement agreement with mylan , which became effective october 16 , 2018 , pursuant to which $ 160,000 of the funds held in escrow were released to mylan . this expense is reflected in discontinued operations for the year ended december 31 , 2018 . 19 on august 2 , 2018 , we received notice of an indemnification claim from mylan in relation to certain product advertising claims brought against mylan relating to certain cold-eeze ® products . pursuant to the terms of the asset purchase agreement , we have elected to assume the defense of these claims on behalf of mylan . we dispute these product advertising claims and intend to vigorously contest such claims . while we believe these claims are without merit , we are currently negotiating a settlement of these claims . we expect to collect the remaining escrow balance within the next three months , net of an immaterial settlement amount . in the event we are unable to reach a reasonable settlement agreement , however , and the remaining escrow funds are insufficient to cover the losses asserted under these claims or the legal fees associated with defending these claims , we may be required to pay amounts in excess of what is remaining in the escrow account , which could have an adverse impact on our operations . general management is not aware of any other trends , events or uncertainties that have or are reasonably likely to have a material negative impact upon our ( i ) short-term or long-term liquidity , or ( ii ) net sales or income from continuing operations . any challenge to our trademark rights could have a material adverse effect on our future ; however , we are not aware of any condition that would make such an event probable . our business is subject to seasonal variations thereby impacting our liquidity and working capital during the course of our fiscal year . to the extent that we do not generate sufficient cash from operations , our cash balances will decline . we may also use our cash to explore and or acquire new product technologies , applications , product line extensions , new contract manufacturing applications and other new business opportunities . in the event that our available cash is insufficient to support such initiatives , we may need to incur indebtedness or issue common stock to finance plans for growth . volatility in the credit markets and the liquidity of major financial institutions may have an adverse effect on our ability to fund our business strategy through borrowings , under either existing or newly created instruments in the public or private markets on terms that we believe to be reasonable , if at all . off-balance sheet arrangements it is not our usual business practice to enter into off-balance sheet arrangements such as guarantees on loans and financial commitments and retained interests in assets transferred to an unconsolidated entity for securitization purposes . we have no off-balance sheet arrangements that have , or are reasonably likely to have , a material current or future effect on our financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources . impact of inflation we are subject to normal inflationary trends and anticipate that any increased costs would be passed on to our customers . inflation has not had a material effect on our business . critical accounting policies and estimates our significant accounting policies are described in note 2 of the notes to consolidated financial statements included under item 8 of this part ii . however , certain accounting policies are deemed “ critical ” , as they require management 's highest degree of judgment , estimates and assumptions . these accounting policies , estimates and disclosures have been discussed with the audit committee of our board of directors . a discussion of our critical accounting policies and estimates , the judgments and uncertainties affecting their application and the likelihood that materially different amounts would be reported under different conditions or using different assumptions are as follows : use of estimates the preparation of financial statements and the accompanying notes thereto , in conformity with generally accepted accounting principles in the united states of america ( “ gaap ” ) , requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the respective reporting periods . examples include the provision for bad debt , sales returns and allowances , inventory obsolescence , useful lives of property and equipment , impairment of property and equipment , income tax valuations and assumptions related to accrued advertising .
| the decrease of $ 66,000 in research and development costs for fiscal 2019 as compared to fiscal 2018 was principally due to a decrease in the amount and the timing of product research expenses in the current period . net interest income for fiscal 2019 was $ 133,000 as compared to $ 167,000 for fiscal 2018. the decrease in interest income in fiscal 2019 as compared to fiscal 2018 is principally due to a lower balance in our investment account . as a result of the effects of the above , the loss from continuing operations for fiscal 2019 was $ 3.1 million , or ( $ 0.27 ) per share , as compared to a loss from continuing operations of $ 1.6 million , or ( $ 0.14 ) per share , for fiscal 2018. loss from discontinued operations for fiscal 2019 was $ 40,000 , or ( $ 0.00 ) per share , as compared to $ 170,000 , or ( $ 0.01 ) per share , for fiscal 2018. net loss for fiscal 2019 was $ 3.1 million , or ( $ 0.27 ) per share , as compared to $ 1.7 million , or ( $ 0.15 ) per share for fiscal 2018. liquidity and capital resources our aggregate cash and cash equivalents and marketable securities as of december 31 , 2019 were $ 1.4 million as compared to $ 8.2 million at december 31 , 2018. our working capital was $ 9.0 million and $ 14.0 million as of december 31 , 2019 and 2018 , respectively . the decrease of $ 6.8 million in our cash and cash equivalents and marketable securities balance for the 12 months ended december 31 , 2019 was principally due to the $ 2.9 million payment of a $ 0.25 special cash dividend per share in january 2019 and the $ 2.9 million payment of a $ 0.25 special cash dividend per share in december 2019 and cash used in operations of $ 841,000. as a consequence of the seasonality of
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” our subsidiary , intl fcstone markets , llc , is a provisionally registered swap dealer . some important rules , such as those setting capital and margin requirements , have not been finalized or fully implemented , and it is too early to predict with any degree of certainty how we will be affected . we will continue to monitor all applicable developments in the implementation of the dodd-frank act . the legislation and implementing regulations affect not only us , but also many of our customers and counterparties . we are reviewing the regulatory changes that will be introduced by the markets in financial instruments directive ii ( “ mifid ii ” ) and the markets in financial instruments regulation ( “ mifir ” ) to assess the impact this legislation is likely to have on our united kingdom business when implemented . implementation is expected in 2017 and the legislation will impose , among other things , additional transaction and position reporting requirements , disclosure obligations , as well as requiring certain over-the-counter derivatives to be traded on organized trading facilities ( “ otfs ” ) . fiscal 2015 highlights record overall operating revenues of $ 624.3 million , as well as record operating revenues in our commercial hedging , global payments and securities segments . completed the acquisition of g.x . clarke & co. , an sec registered institutional dealer in fixed income securities . excluding incremental expenses of the g.x . clarke business acquired , fixed expenses increased modestly at 3 % , versus fiscal 2014. realized a 15.0 % return on equity for fiscal 2015 , equal to our internal target for the company . completed the consolidation of four of our u.s. regulated subsidiaries , forming one financial services firm which is dually registered as a broker-dealer and an fcm , realizing capital and other synergies . executive summary we experienced strong revenue growth across all of our business segments during fiscal 2015 , increasing 27 % versus the prior year , led by our securities , commercial hedging and global payment segments . overall , segment income increased 46 % while net income from continuing operations increased 184 % to $ 55.7 million in fiscal 2015 . global payments continued its growth , adding an additional $ 14.9 million in segment income in fiscal 2015 to $ 43.2 million , while our securities and commercial hedging segments increased segment income by 93 % and 27 % , respectively . segment income in our ces segment more than doubled versus the prior year , while physical commodities declined modestly . our securities segment 's strong growth in operating performance was a result of a 44 % increase in equity market-making volumes as well as the acquisition of g.x . clarke , which added an incremental $ 31.4 million in operating revenues since the acquisition on january 1 , 2015. the growth in global payments segment income was attributable to the continued on-boarding of additional financial institutions to our platform which led to an increase of 70 % in the number of payments made compared to the prior year . this growth was partially tempered by a narrowing of the average revenue per payment . the growth in our core commercial hedging segment income was primarily the result of increased interest income on customer deposits and an increase in exchange-traded revenues , particularly on the lme . in addition , otc volumes increased 24 % versus the prior year , driven by strong performance in the agricultural commodities . in our ces segment , increased interest income as well as a 64 % increase in foreign exchange prime brokerage volumes drove the improved performance versus the prior year . exchange-traded volumes in this segment increased 5 % , however exchange-traded operating revenues were relatively flat as a result of a 5 % decline in the average rate per contract due to the overall business mix . our physical commodity segment income declined 2 % versus the prior year , as a 13 % increase in operating revenues was offset by $ 2.8 million of bad debt provisions , primarily related to a customer in the renewable fuels industry . in connection with the merger of our wholly owned u.s. subsidiaries , we transferred our remaining available-for-sale of securities to the trading category during the fourth quarter of fiscal 2015 . the transfer resulted in $ 3.3 million , net of tax , of unrealized gains not previously recognized in earnings . see further discussion in our results of operations . 28 on the expense side , we continue to focus on maintaining our variable cost model and limiting the growth of our non-variable expenses . to that end , variable expenses were 59 % of total expenses in fiscal 2015 compared to 56 % in the fiscal 2014. non-variable expenses increased 8 % year-over-year , primarily as a result of incremental expenses from the acquisition of g.x . clarke . selected summary financial information discontinued operations during fiscal 2013 , we began an exit of our physical base metals business through the sale and orderly liquidation of then-current open positions . we completed the exit of the physical base metals business during fiscal 2014. t he physical base metals activities in the financial statements for fiscal 2014 and 2013 are presented as discontinued operations . we continue to operate the portion of our base metals business related to non-physical assets , conducted primarily through the lme in our commercial hedging segment . results of operations set forth below is our discussion of the results of our operations , as viewed by management , for the fiscal years ended september 30 , 2015 , 2014 , and 2013 . the discussion below relates only to continuing operations . story_separator_special_tag all revenues and expenses , including income tax expense , relating to discontinued operations have been removed from disclosures of total revenues and expenses for the applicable periods , and are reported net in our consolidated income statements in “ ( loss ) income from discontinued operations , net of tax ” . financial overview the following table shows an overview of our financial results : financial overview ( unaudited ) replace_table_token_4_th the selected data table below reflects key operating metrics used by management in evaluating our product lines , for the periods indicated : replace_table_token_5_th 29 operating revenues year ended september 30 , 2015 compared to year ended september 30 , 2014 operating revenues for fiscal 2015 and fiscal 2014 were $ 624.3 million and $ 490.9 million , respectively . all of our business segments experienced operating revenue growth compared to the prior year , led by our securities and commercial hedging segments which increased $ 49.5 million and $ 38.4 million , respectively . in addition , operating revenues in our global payments segment increased $ 21.6 million , while our ces and physical commodities segments increased $ 9.7 million and $ 2.6 million , respectively . operating revenues in our commercial hedging segment increased 17 % in fiscal 2015 to $ 262.4 million , as exchange-traded revenues increased $ 20.1 million to $ 129.4 million and otc revenues increased $ 16.1 million to $ 111.0 million in fiscal 2015 . strong growth in our lme metals business combined with improved market conditions in the domestic agricultural markets , drove a 16 % increase in exchange-traded volumes . otc revenues increased as a result of a 24 % increase in volumes while the average rate per contract declined 6 % compared to the prior year . growth in agricultural commodity otc revenues and the addition of interest rate otc derivatives to our customer offering helped to drive the growth in otc revenues . operating revenues in our securities segment increased 62 % in fiscal 2015 to $ 129.8 million , primarily as a result of a $ 17.5 million increase in our equity market-making product line , as well as the acquisition of g.x . clarke which added $ 31.4 million in incremental revenues to our debt trading product line . operating revenues in our global payments segment increased 39 % in fiscal 2015 to a record $ 77.0 million compared to the prior year , driven by a 70 % increase in the number of global payments made , however spreads have narrowed in this business due to a continuing increase in lower dollar value per payment transaction volume from financial institutions . physical commodity segment operating revenues increased 13 % to $ 23.2 million in fiscal 2015 as a result of a 60 % increase in the number of ounces traded in precious metals , which was partially offset by a decrease of customer activity in the physical agricultural and energy commodity product line . operating revenues in our ces segment increased 9 % in fiscal 2015 to $ 123.4 million . exchange-traded commission and clearing fee revenues were relatively flat with the prior year at $ 96.5 million , while operating revenues in our customer prime brokerage product line increased $ 7.4 million to $ 21.5 million in fiscal 2015 as a result of increased market volatility in foreign exchange markets . interest income increased $ 31.4 million to $ 39.4 million in fiscal 2015 compared to fiscal 2014 , and was significantly impacted by the acquisition of g.x . clarke , which added $ 19.6 million in interest income during the nine months following the acquisition effective january 1 , 2015. in addition , while average customer segregated equity was relatively flat with the prior year , the continued implementation of our interest rate management program , resulted in an aggregate $ 5.2 million increase in interest income in our commercial hedging and ces segments . on july 1 , 2015 , the company merged three of its wholly owned u.s. subsidiaries ( fcstone , llc , intl fcstone partners l.p. , and fcc investments , inc. ) into its wholly owned subsidiary , intl fcstone securities inc. , and renamed the surviving subsidiary intl fcstone financial inc. intl fcstone financial is registered as a broker-dealer with finra and is registered as a futures commission merchant with the cftc and nfa . in connection with the merger of wholly owned subsidiaries , the company transferred its remaining available-for-sale investments , at fair value , to the trading category in accordance with the accounting requirements for broker-dealers . the july 1 , 2015 transfer of securities resulted in $ 5.4 million of pre-tax unrealized gains not previously recognized in earnings being included in operating revenues during the fourth quarter of fiscal 2015 . in addition , operating revenues for fiscal 2015 include a $ 1.2 million pre-tax gain on the sale of common stock held in the intercontinental exchange , inc. year ended september 30 , 2014 compared to year ended september 30 , 2013 operating revenues for fiscal 2014 and fiscal 2013 were $ 490.9 million and $ 468.2 million , respectively . this $ 22.7 million , or 5 % increase in operating revenues primarily resulted from strong revenue growth in our commercial hedging , global payments and securities segments . operating revenues in the commercial hedging and securities segments increased $ 22.0 million and $ 10.3 million , respectively , while global payments increased $ 14.5 million , or 35 % , over the prior year . these increases were partially offset by declines in our physical commodities and ces segments of $ 6.2 million and $ 7.6 million , respectively . also , fiscal 2013 operating revenues included a $ 9.2 million realized gain on the sale of shares of the lme and kansas city board of trade .
| our base metals business includes a position as a category one ring dealing member of the lme , providing execution , clearing and advisory services in exchange-traded futures and otc products . we also provide execution of foreign currency forwards and options as well as a wide range of structured product solutions to our commercial customers who are seeking cost-effective hedging strategies . generally , our clients direct their own trading activity , and our risk management consultants do not have discretionary authority to transact trades on behalf of our clients . 36 the following table provides the financial performance for commercial hedging for the periods indicated . replace_table_token_10_th the following tables set forth transactional revenues and selected data for commercial hedging for the periods indicated . replace_table_token_11_th ( 1 ) give-up fee revenues included in exchange-traded transactional revenues have been excluded from the calculation of exchange-traded average rate per contract . replace_table_token_12_th ( 1 ) cash brokerage revenues included in otc transactional revenues have been excluded from the calculation of otc average rate per contract . 37 for information about the assets of this segment , see note 22 to the consolidated financial statements . year ended september 30 , 2015 compared to year ended september 30 , 2014 operating revenues increased 17 % to $ 262.4 million in fiscal 2015 compared to $ 224.0 million in fiscal 2014 . exchange-traded revenues increased 18 % to $ 129.4 million in fiscal 2015 , resulting primarily from strong growth in lme metals revenues , driven by increased customer activity and expansion activities in the far east . in addition , agricultural commodity exchange- traded revenues increased as a result of increased volatility and an increase in customer hedging activity related to the large domestic crop in calendar 2014 being purchased by our customers . overall exchange-traded contract volume increased 16 % and the average rate per contract increased to $ 6.16 . otc revenues increased 17 % to $ 111.0 million in fiscal 2015 , primarily driven by strong performance in agricultural commodities , in
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while net sales are dependent on which automotive platforms the company serves , overall , an automotive forecasting service is predicting production of automobiles to increase by 1.7 % in the u.s. and to decrease by 1.8 % in europe during 2013 compared to 2012. the company had $ 63.6 million of cash on hand at december 31 , 2012 and domestic and foreign credit facilities with availability of $ 44.4 million . the company remains committed to funding organic growth and capital investment and to pursuing strategic acquisitions . 17 consolidated results of operations net sales replace_table_token_4_th net sales in 2012 decreased $ 4.7 million , or 1.2 % , compared to 2011. foreign currency translation decreased net sales in 2012 by $ 10.6 million , or 2.8 % , compared to 2011 , impacting the thermal/acoustical metals segment 's net sales by $ 7.5 million , or 4.8 % , and the performance materials segment 's net sales by $ 3.1 million , or 2.3 % . in the performance materials segment , lower sales volumes , lower sales due to the sale of a product line in 2010 , and the unfavorable foreign currency translation resulted in lower net sales of $ 16.0 million in 2012 compared to 2011. in the thermal/acoustical metals segment , unfavorable foreign currency translation resulted in lower net sales of $ 2.0 million compared to a year ago . the decrease in net sales in the performance materials and thermal/acoustical metals segments were partially offset by thermal/acoustical fibers segment and ops increases in net sales . in the thermal/acoustical fibers segment , net sales increased $ 12.7 million , or 15.5 % , compared with 2011 , primarily due to increased sales volume . in ops , net sales increased $ 2.2 million , or 14.9 % , primarily due to volume . net sales in 2011 increased $ 67.5 million , or 21.3 % , compared to 2010. the increase was primarily attributable to higher sales volumes from the thermal/acoustical metals segment of $ 27.7 million , or 21.6 % , and the thermal/acoustical fibers segment of $ 30.0 million , or 57.9 % . in addition , performance materials segment net sales in 2011 increased by $ 10.9 million , or 8.9 % , compared to 2010. net sales of ops decreased by $ 0.9 million , or 5.7 % . included in these figures is foreign currency translation , which increased net sales by $ 6.6 million , or 2.1 % , for 2011 compared to 2010 , impacting the thermal/acoustical metals segment 's net sales by $ 4.6 million and the performance materials segment 's net sales by $ 2.0 million . gross profit replace_table_token_5_th the increase in gross margin in 2012 compared to 2011 was primarily attributable to the thermal/acoustical fibers segment , which reported improved gross margin realized from increased sales and manufacturing efficiency improvements . partially offsetting the thermal/acoustical fibers gross margin improvement was the performance materials segment , which reported lower gross margin due to lower net sales and unfavorable absorption of fixed costs due to lower production . the thermal/acoustical metals segment reported essentially flat gross margin in 2012 compared to 2011 , while gross margin for ops was higher in 2012 compared to 2011 due to an increase in net sales and favorable mix of products . the increase in gross margin in 2011 compared to 2010 was attributable to the thermal/acoustical fibers segment . improved absorption of fixed costs due to higher net sales and realized manufacturing efficiency improvements and other cost savings contributed to increased gross margin for the thermal/acoustical fibers segment . partially offsetting the gross margin improvement was the thermal/acoustical metals segment which reported lower gross margin due to higher raw material costs , specifically inflation in aluminum and aluminum conversion costs . the performance materials segment reported essentially flat gross margin in 2011 compared to 2010 , while gross margin for ops was lower in 2011 compared to 2010 due to lower net sales and unfavorable absorption of fixed costs due to lower production . selling , product development and administrative expenses replace_table_token_6_th selling , product development and administrative expenses increased by $ 4.3 million , or 8.1 % , in 2012 compared to 2011. the increase was primarily due to higher expenses incurred by the corporate office and , to a lesser extent , higher salaries and wages . during the fourth quarter 18 of 2012 , the company recorded a $ 1.8 million asset impairment charge due to the abandonment of an erp project as the original project costs were deemed to have no future fair value . also contributing to the increase in selling , product development and administrative expenses in 2012 were higher professional services expenses , related to strategic initiatives , of $ 1.1 million , severance and recruiting charges , of $ 1.0 million , primarily associated with the departure of the company 's chief financial officer and hiring of the company 's new chief financial officer , and salaries and wages of $ 0.7 million . higher salaries and wages expense in 2012 was primarily caused by annual salary increases . partially offsetting the increase was $ 0.2 million in lower sales commission expense . the decrease in net sales in 2012 , compared to 2011 , caused the decrease in sales commission expense in 2012. foreign currency translation decreased selling , product development and administrative expenses by $ 1.1 million , or 2.0 % , for 2012 compared to 2011. selling , product development and administrative expenses in 2011 were essentially flat with 2010. reductions in legal expenses of $ 0.9 million and severance related charges of $ 1.0 million were offset by increases in sales commission expense of $ 0.8 million , workers compensation charges of $ 0.5 million and salaries and wages expense of $ 0.3 million , as well as increases in other discretionary spending . higher legal expenses in 2010 were primarily related to litigation and settlement costs with a former employee . story_separator_special_tag the increase in net sales in 2011 , compared to 2010 , caused the increase in sales commission expense in 2011. higher salaries and wages expense in 2011 was primarily caused by annual salary increases . gain on sale of product line replace_table_token_7_th on june 30 , 2010 , the company divested its electrical papers product line business , included in the performance materials segment , for total consideration of $ 5.8 million , of which $ 4.8 million was paid on june 30 , 2010 , with the remaining $ 1.0 million paid in accordance with a license agreement on july 2 , 2012. this transaction contained multiple deliverables , some of which were delivered on june 30 , 2010 , while others were delivered in subsequent periods . the company deferred $ 3.2 million of the gain from this sale related to undelivered elements of the transaction at june 30 , 2010. as part of the sale transaction , the company entered into a manufacturing agreement and a license agreement with the buyer . under the manufacturing agreement , the company was obligated to manufacture and sell electrical paper products to the buyer for a two-year period . pursuant to the license agreement , treated as a separate unit of accounting , the company granted the buyer the right to use certain process technology and provided certain services to the buyer to facilitate the transfer of know-how for the manufacture of electrical paper products . for the year ended december 31 , 2010 , the company recorded a $ 2.5 million gain related to this transaction . this gain was comprised of the gain on sale of $ 1.7 million recognized in the second quarter of 2010 , net of a write-off of $ 0.8 million of goodwill that was allocated to the electrical papers product line , and income of $ 0.8 million recognized during the six months ended december 31 , 2010 as the company provided services to the buyer in accordance with the terms of the license agreement . the deferred gain amount was recognized as income as services under the license agreement were delivered in periods subsequent to the sale , including $ 1.6 million recognized in 2011 and $ 0.8 million in 2012. as of june 30 , 2012 , the company satisfied its obligations under the license agreement . discontinued operations , net of tax on june 29 , 2011 , the company sold its affinity business for $ 15.2 million in cash . affinity designed and manufactured high precision , specialty engineered temperature-control equipment for semiconductor , pharmaceutical , life sciences and industrial applications . the company recorded a gain on sale , net of transaction costs and income taxes of $ 3.9 million for the year ended december 31 , 2011. replace_table_token_8_th 19 interest expense replace_table_token_9_th interest expense was lower in 2012 compared to 2011 due to decreased amortization of debt financing costs associated with the company 's domestic revolving credit facility entered into in june 2011 and decreases in unused borrowing fees , as well as lower average principal balances on capital lease obligations . interest expense was higher in 2011 compared to 2010 due to fully amortizing debt financing costs of $ 0.3 million associated with the company 's prior domestic revolving credit facility that was terminated by the company during the second quarter of 2011 , partially offset by lower average principal balances on capital lease obligations . other income and expense replace_table_token_10_th the amounts included in other expense ( income ) , net , in all years presented are primarily related to insignificant activity related to foreign currency transaction gains and losses and interest income . income taxes from continuing operations replace_table_token_11_th the company 's effective tax rate from continuing operations for 2012 was 19.9 % compared to 41.3 % in 2011 and 31.5 % in 2010. for 2012 , the difference between the company 's effective tax rate from continuing operations and the statutory federal income tax rate was primarily caused by the release of valuation allowances against foreign tax credit carryovers of $ 3.9 million and state net operating loss carryovers , partially offset by additional valuation allowance against a foreign net deferred tax asset . the $ 3.9 million reversal of valuation allowances against foreign tax credit carryovers included $ 2.9 million of foreign tax credits to be used to offset 2012 u.s. federal income taxes and $ 1.0 million to benefit future periods . the company 's state income taxes in 2012 were offset by the reversal of valuation allowances against state net operating loss carryovers of $ 0.5 million as the company will use certain state net operating loss carryovers to offset 2012 and 2013 state income taxes . during 2012 , the company increased its valuation allowance against a foreign deferred tax asset in the netherlands by $ 0.7 million as future realization of such tax benefit was not reasonably assured . the company 's expects its effective tax rate from continuing operations for 2013 to approximate statutory income tax rates . the company maintains valuation allowances against certain deferred tax assets where realization is not reasonably assured . the company evaluates the likelihood of the realization of deferred tax assets and reduces the carrying amount to the extent it believes a portion will not be realized . the company 's effective tax rates in future periods could be affected by earnings being lower or higher than anticipated in countries where tax rates differ from the united states federal rate , the relative impact of permanent tax adjustments on higher or lower earnings from domestic operations , changes in net deferred tax asset valuation allowances , completion of acquisitions or divestitures , changes in tax rates or tax laws and the completion of tax audits . the company has been relying on proposed regulations that were issued in 2008 for its tax accounting policy regarding deduction versus capitalization of repairs related to tangible property .
| operations , net ; cash and short-term term investments were $ 63.6 million at december 31 , 2012 compared to $ 42.9 million at december 31 , 2011 ; and cash generated from operations was $ 34.4 million in 2012 compared to $ 14.7 million in 2011. performance materials segment the performance materials segment reported net sales of $ 118.0 million in 2012 , a decrease of $ 16.0 million , or 12.0 % , compared to 2011. foreign currency translation negatively impacted net sales by $ 3.1 million , or 2.3 % , in 2012 compared to 2011. a reduction in industrial thermal insulation net sales of $ 8.9 million primarily contributed to the reduction in segment net sales , as electrical paper products net sales decreased by $ 6.3 million in 2012 compared to 2011. this reduction was due to the company selling the electrical papers product line to a customer in 2010 and the customer phasing out orders from lydall in 2012 as the customer prepared to commence its own manufacturing of electrical paper products . the remaining decrease in net sales was primarily driven by a reduction in demand from the company 's global air and life sciences filtration customers due to economic conditions . the segment reported operating income of $ 10.4 million in 2012 , or 8.8 % of net sales , compared to operating income of $ 18.2 million in 2011 , or 13.6 % . lower net sales of $ 16.0 million , change in product mix and lower production negatively impacting absorption of fixed manufacturing costs primarily contributed to a reduction in gross profit . also , the company completed services under a license agreement associated with the sale of the electrical papers product line in the second quarter of 2012 and recognized a gain of $ 0.8 million in 2012 compared to a gain of $ 1.6 million in 2011. thermal/acoustical metals segment the thermal/acoustical metals segment reported net sales of $ 153.9 million in 2012 ,
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final demand in advanced economies expanded broadly as expectedmuch of the upward surprise in growth is due to higher inventory demand . in emerging market economies , an export rebound was the main driver behind better activity , while domestic demand generally remained subdued , except in china . the weo update projected that growth in the united states is expected to be 2.8 percent in 2014 , up from 1.9 percent in 2013. during 2013 and 2012 , the overall trend has been steady for our large license sales , with recognized $ 1.0 million or larger software license sales totaling fourteen , twelve , and thirteen for 2013 , 2012 , and 2011 , respectively . however , the large deal flow has been inconsistent from quarter to quarter , reflecting what we believe to be ongoing macroeconomic uncertainty in the united states and western europe . while we are encouraged by our 2013 and 2012 results , we , along with many of our customers , still remain cautious regarding the pace of global economic recovery . with global gdp growth continuing to be well below pre-2008 levels , we believe global economic volatility likely will continue to shape customers ' and prospects ' enterprise software buying decisions , making it more difficult to forecast sales cycles for our products and the timing of large enterprise software license sales . revenue license revenue : license revenue , a leading indicator of our business , is primarily derived from software license fees that customers pay for supply chain solutions . in 2013 , license revenue totaled $ 62.4 million , or 15 % of total revenue , with gross margins of 86 % . for the year ended december 31 , 2013 , americas , emea , and apac recognized $ 49.5 million , $ 7.9 million , and $ 5.0 million in license revenue , respectively . our typical license revenue percentage mix of new to existing customers historically has 26 index to financial statements approximated 50/50 . however , for the year ended december 31 , 2013 , the percentage mix of new to existing customers was approximately 35/65 . we believe our current mix of new customer to existing customer license sales will fluctuate with continuing global macroeconomic uncertainty ; however , we anticipate that the mix will be at historically normal levels on a more consistent basis in improved global economic conditions . license revenue growth is influenced by the strength of general economic and business conditions and the competitive position of our software products . our license revenue generally has long sales cycles . in addition , the timing of the closing of a few large license transactions can have a material impact on our license revenues , operating profit , operating margins and earnings per share . for example , $ 1.0 million of license revenue in 2013 equates to approximately one cent of diluted earnings per share impact . our software solutions are singularly focused on the supply chain commerce planning and execution markets , which are intensely competitive and characterized by rapid technological change . we are a market leader in the supply chain management software solutions market as defined by industry analysts such as arc advisory group and gartner . our goal is to extend our position as a leading global supply chain solutions provider by growing our license revenues faster than our competitors through investment in innovation . we expect to continue to face increased competition from enterprise resource planning ( erp ) and supply chain management application vendors and business application software vendors that may broaden their solution offerings by internally developing , or by acquiring or partnering with independent developers of supply chain planning and execution software . increased competition could result in price reductions , fewer customer orders , reduced gross margins , and loss of market share . services revenue : our services business consists of professional services ( consulting and customer training ) and customer support services and software enhancements ( csse ) . in 2013 , our services revenue totaled $ 315.9 million , or 76 % of total revenue , with gross margins of 55.0 % . the americas , emea , and apac recognized $ 254.9 million , $ 41.0 million , and $ 20.0 million , respectively , in services revenue for the year ended december 31 , 2013. professional services accounted for approximately 67 % of total services revenue and approximately 51 % of total revenue in 2013. our consolidated operating margin profile may be lower than those of various other technology companies due to our large services revenue mix as a percentage of total revenue . while we believe our services margins are very strong , they do lower our overall operating margin profile as services margins are inherently lower than license revenue margins . at december 31 , 2013 , our professional services organization totaled approximately 1,560 employees , accounting for 62 % of our total employees worldwide . our professional services organization provides our customers with expertise and assistance in planning and implementing our solutions . to ensure a successful product implementation , consultants assist customers with the initial installation of a system , the conversion and transfer of the customer 's historical data onto our system , and ongoing training , education , and system upgrades . we believe our professional services enable customers to implement our software rapidly , ensure the customer 's success with our solution , strengthen our customer relationships , and add to our industry-specific knowledge base for use in future implementations and product innovations . although our professional services are optional , the majority of our customers use at least some portion of these services for their planning , implementation , or related needs . professional services are typically rendered under time and materials-based contracts with services typically billed on an hourly basis . professional services are sometimes rendered under fixed-fee based contracts with payments due on specific dates or milestones . story_separator_special_tag typically , our professional services lag license revenue by several quarters , as implementation services and related consulting are performed after the purchase of the software . services revenue growth is contingent upon license revenue and customer upgrade cycles , which is influenced by the strength of general economic and business conditions and the competitive position of our software products . in addition , our professional services business has competitive exposure to offshore providers and other consulting companies . all of these factors potentially create the risk of pricing pressure , fewer customer orders , reduced gross margins , and loss of market share . for csse , we offer a comprehensive 24 hours per day , 365 days per year program that provides our customers with software upgrades , when and if available , which include additional or improved functionality and technological advances incorporating emerging supply chain and industry initiatives . our csse revenues totaled $ 105.1 million in 2013 , representing approximately 33 % of services revenue and approximately 25 % of total revenue , respectively . the growth of csse revenues is influenced by : ( 1 ) new license revenue growth ; ( 2 ) annual renewal of support contracts ; ( 3 ) increase in customers through acquisitions ; and ( 4 ) fluctuations in currency rates . substantially all of our customers renew their annual support contracts . over the last three years , our annual revenue renewal rate of customers subscribing to comprehensive support and enhancements has been greater than 90 % . csse revenue is generally paid in advance and recognized ratably over the term of the agreement , typically twelve months . csse renewal revenue is not recognized unless payment is received from the customer . 27 index to financial statements hardware and other revenue : our hardware and other revenue totaled $ 36.2 million in 2013 representing 9 % of total revenue with gross margins of 16.6 % . in conjunction with the licensing of our software , and as a convenience for our customers , we resell a variety of hardware products developed and manufactured by third parties . these products include computer hardware , radio frequency terminal networks , rfid chip readers , bar code printers and scanners , and other peripherals . we resell all third-party hardware products and related maintenance pursuant to agreements with manufacturers or through distributor-authorized reseller agreements pursuant to which we are entitled to purchase hardware products and services at discount prices . we generally purchase hardware from our vendors only after receiving an order from a customer . as a result , we generally do not maintain hardware inventory . other revenue represents amounts associated with reimbursements from customers for out-of-pocket expenses . the total amount of expense reimbursement recorded to hardware and other revenue was $ 15.3 million , $ 12.6 million , and $ 10.4 million for 2013 , 2012 , and 2011 , respectively . product development we continue to invest significantly in research and development ( r & d ) to provide leading solutions that help global manufacturers , wholesalers , distributors , retailers , and logistics providers successfully manage accelerating and fluctuating demands as well as the increasing complexity and volatility of their local and global supply chains . our research and development expenses for the years ended december 31 , 2013 , 2012 , and 2011 were $ 44.5 million , $ 44.7 million , and $ 42.4 million , respectively . at december 31 , 2013 , our r & d organization totaled approximately 650 employees , located in the u.s. and india . we expect to continue to focus our r & d resources on the development and enhancement of supply chain software solutions . we offer what we believe to be the broadest solution portfolio in the supply chain solutions marketplace , to address all aspects of planning and forecasting , inventory optimization , order lifecycle management , transportation lifecycle management , and distribution management . we also plan to continue to enhance our existing solutions and to introduce new solutions to address evolving industry standards and market needs . we identify opportunities to further enhance our solutions and to develop and provide new solutions through our customer support organization , as well as through ongoing customer consulting engagements and implementations , interactions with our user groups , association with leading industry analysts and market research firms , and participation on industry standards and research committees . our solutions address the needs of customers in various vertical markets , including retail , consumer goods , food and grocery logistics service providers , industrial and wholesale , high technology and electronics , life sciences , and government . cash flow and financial condition for 2013 , we generated cash flow from operating activities of $ 89.4 million and have generated a cumulative total of $ 220.5 million for the three years ended december 31 , 2013. our cash and investments at december 31 , 2013 totaled $ 133.0 million , with no debt on our balance sheet . we currently have no credit facilities . during the past three years , our primary uses of cash have been funding investment in r & d and operations to drive earnings growth and repurchases of common stock . during 2013 , we repurchased approximately $ 59.2 million of manhattan associates ' outstanding common stock under the share repurchase program approved by our board of directors throughout the year . in january 2014 , our board of directors approved raising our remaining share repurchase authority to $ 50 million . in 2014 , we anticipate that our priorities for use of cash will be in developing sales and services resources and continued investment in product development to drive and support profitable growth and extend our market leadership . we will continue to evaluate acquisition opportunities that are complementary to our product footprint and technology direction . we will also continue to weigh our share repurchase options against cash for acquisitions and investing in the business .
| 29 index to financial statements results of operations the following table summarizes selected statement of income data for the years ended december 31 , 2013 , 2012 , and 2011. replace_table_token_5_th ( 1 ) amount represents recovery of an auction rate security investment which had been impaired in a prior period . 30 index to financial statements we manage our business based on three geographic regions : the americas , emea , and apac . geographic revenue information is based on the location of sale . the revenues represented below are from external customers only . the geographical-based expenses include costs of personnel , direct sales , and marketing expenses , and general and administrative costs to support the business . there are certain corporate expenses included in the americas region that are not charged to the other segments including research and development , certain marketing and general and administrative costs that support the global organization , and the amortization of acquired developed technology . included in the americas costs are all research and development costs , including the costs associated with the company 's india operations . during 2013 , 2012 , and 2011 , we derived the majority of our revenues from sales to customers within our americas region . the following table summarizes revenue and operating profit by region : replace_table_token_6_th the results of our operations for the years ended december 31 , 2013 , 2012 , and 2011 are discussed below . revenue our revenue consists of fees generated from the licensing and hosting of software ; fees from professional services , customer support services and software enhancements ; hardware sales of complementary radio frequency and computer equipment ; and other revenue representing amounts associated with reimbursements from customers for out-of-pocket expenses . 31 index to financial statements replace_table_token_7_th license revenue year 2013 compared with year 2012 license revenue increased $ 0.9 million , or 1 % , to $ 62.4 million in 2013 compared to 2012. we completed fourteen and twelve large deals greater than $ 1.0 million in 2013 and 2012 , respectively . our apac license revenue increased $
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in march 2020 , to protect the health of our employees , and their families and communities , we restricted access to our offices to personnel who performed critical activities that must be completed on-site , limited the number of such personnel that can be present at our facilities at any one time , and requested that most of our employees work remotely . in may 2020 , as certain states eased restrictions , we established new protocols to better allow our full laboratory staff access to our facilities . these protocols included several shifts working over a seven-day-week protocol . we expect to continue incurring additional costs to ensure we adhere to the guidelines instituted by the cdc and to provide a safe working environment to our onsite employees . the extent to which the covid-19 pandemic impacts our business , our corporate development objectives , results of operations and financial condition , including and the value of and market for our common stock , will depend on future developments that are highly uncertain and can not be predicted with confidence at this time , such as the ultimate duration of the pandemic , travel restrictions , quarantines , social distancing and business closure requirements , and the effectiveness of actions taken globally to contain and treat the disease . disruptions to the global economy , disruption of global healthcare systems , and other significant impacts of the covid-19 pandemic could have a material adverse effect on our business , financial condition , results of operations and growth prospects . while the covid-19 pandemic did not significantly impact our business or results of operations during the year ended december 31 , 2020 , the length and extent of the pandemic , its consequences , and containment efforts will determine the future impact on our operations and financial condition . financial operations overview general we were incorporated on january 25 , 2017 and commenced operations shortly thereafter . since our inception , we have devoted substantially all of our resources to building our base editing platform and advancing development of our portfolio of programs , establishing and protecting our intellectual property , conducting research and development activities , organizing and staffing our company , business planning , raising capital and providing general and administrative support for these operations . to date , we have financed our operations primarily through the sales of our redeemable convertible preferred stock and proceeds from our ipo and follow on offerings . we are a development stage company , and all of our programs are at a preclinical stage of development . to date , we have not generated any revenue from product sales and do not expect to generate revenue from the sale of products for the foreseeable future . since inception we have incurred significant operating losses . our net losses for the years ended december 31 , 2020 and 2019 were $ 194.6 million and $ 78.3 million , respectively . as of december 31 , 2020 , we had an accumulated deficit of $ 397.6 million . we expect to continue to incur significant expenses and increasing operating losses in connection with ongoing development activities related to our portfolio of programs as we continue our preclinical development of product candidates ; advance these product candidates toward clinical development ; build and operate our gmp facility in north carolina , further develop our base editing platform ; continue to make investments in delivery technology for our base editors , including in connection with our recent acquisition of guide therapeutics ; conduct research activities as we seek to discover and develop additional product candidates ; maintain , expand , enforce , defend and protect our intellectual property portfolio ; and continue to hire research and development , clinical and commercial personnel . in addition , we expect to continue to incur additional costs associated with operating as a public company and implementing controls over financing reporting . as a result of these anticipated expenditures , we will need additional financing to support our continuing operations and pursue our growth strategy . until such time as we can generate significant revenue from product sales , if ever , we expect to finance our operations through a combination of equity offerings , debt financings , collaborations , strategic alliances , and licensing arrangements . we may be unable to raise additional funds or enter into such other agreements when needed on favorable terms or at all . our inability to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy . we can give no assurance that we will be able to secure such additional sources of funds to support our operations , or , if such funds are available to us , that such additional funding will be sufficient to meet our needs . 95 research and development expenses research and development expenses consist of costs incurred in performing research and development activities , which include : expenses incurred in connection with investments in delivery technology for our base editors , including as a result of our acquisition of guide therapeutics ; the cost to obtain licenses to intellectual property , such as those with harvard university , or harvard , broad institute of mit and harvard , or broad institute , and editas medicine , inc , or editas , and related future payments should certain success , development and regulatory milestones be achieved ; personnel-related expenses , including salaries , bonuses , benefits and stock-based compensation for employees engaged in research and development functions ; expenses incurred in connection with the discovery and preclinical development of our research programs , including under agreements with third parties , such as consultants , contractors and contract research organizations ; expenses incurred in connection with the building of our base editing platform ; the cost of manufacturing for use in our preclinical studies and future clinical trials ; laboratory supplies and research materials ; and facilities , depreciation and other expenses which include direct story_separator_special_tag and allocated expenses . we expense research and development costs as incurred . advance payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses . the prepaid amounts are expensed as the benefits are consumed . in the early phases of development , our research and development costs are often devoted to product platform and proof-of-concept studies that are not necessarily allocable to a specific target . we expect that our research and development expenses will increase substantially in connection with our planned preclinical and future clinical development activities . 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 , intellectual property , business development , and administrative functions . general and administrative expenses also include legal fees relating to intellectual property and corporate matters , professional fees for accounting , auditing , tax and consulting services , insurance costs , travel , and direct and allocated facility related expenses and other operating costs . we anticipate that our general and administrative expenses will increase in the future to support increased research and development activities . we also expect to continue to incur increased costs associated with being a public company and implementing controls over financial reporting , including costs of accounting , audit , legal , regulatory and tax-related services associated with maintaining compliance with nasdaq and sec requirements , director and officer insurance costs , and investor and public relations costs . other income and expenses other income and expenses consist of the following items : change in fair value of derivative liabilities consists primarily of remeasurement gains or losses associated with changes in success payment liabilities associated with our license agreement with harvard , dated as of june 27 , 2017 , as amended , or the harvard license agreement , and the license agreement between blink and broad institute , as amended , dated as of may 9 , 2018 , or the broad license agreement . interest and other income ( expense ) , net consists primarily of interest income as well as interest expense related to our equipment financings . 96 story_separator_special_tag shares , at a public offering price of $ 17.00 per share . we received net proceeds from our ipo of $ 188.3 million , after deducting underwriting discounts and offering expenses payable by us . in october 2020 , we issued and sold 5,750,000 shares of our common stock , including 750,000 shares pursuant to the full exercise of the underwriters ' option to purchase additional shares , at a public offering price of $ 23.50 per share , for aggregate gross proceeds of $ 135.1 million . we received approximately $ 126.6 million in net proceeds after deducting applicable underwriting discounts and offering expenses payable by us . to date , we have funded our operations primarily through equity offerings . as of december 31 , 2020 , we had $ 299.7 million in cash , cash equivalents , and marketable securities . in january 2021 , we issued and sold 2,795,700 shares of our common stock in a private placement at an offering price of $ 93.00 per share for aggregate gross proceeds of $ 260.0 million . we received $ 252.1 million in net proceeds after deducting estimated offering expenses payable by us . we are required to make success payments to harvard and broad institute based on increases in the per share fair market value of our series a-1 preferred stock and series a-2 preferred stock or , subsequent to our ipo , our common stock . the first success payment measurement will occur during may of 2021 , and any amounts due may be settled in cash or shares of our common stock , at our discretion . we have assessed the liability and several key variables thereto , including probability of event occurrence , timing of event occurrence , as well as the price per share at the time of success payment and have determined that a significant portion of the liability may be coming due within the next twelve months , which could affect our cash resources if not settled in shares of our common stock . to date , we have not generated any revenue from product sales and do not expect to generate revenue from the sale of products for the foreseeable future . we anticipate the need for additional capital in order to continue to fund our research and development , including our plans for preclinical and clinical trials , building , maintaining , and operating a commercial-scale cgmp manufacturing facility , and new product development , as well as to fund general operations . as and if necessary , we will seek to raise these additional funds through various potential sources , such as equity and debt financings or through corporate collaboration and license agreements . especially in light of the covid-19 pandemic , we can give no assurances that we will be able to secure such additional sources of funds to support our operations , or , if such funds are available to us , that such additional financing will be sufficient to meet our needs . for a more detailed discussion of risks related to covid-19 , please see part ii , item 1a , risk factors—risks related to our relationships with third parties , in this annual report on form 10-k . cash flows the following table summarizes our sources and uses of cash ( in thousands ) : replace_table_token_2_th 98 operating activities net cash used in operating activities for the year ended december 31 , 2020 was $ 95.7 million , consisting primarily of our net loss of $ 194.6 million and an increase in prepaid expenses and other current assets of $ 5.7 million , offset by cash provided by increases in accrued expenses of $ 7.0 million , operating lease liabilities of $ 3.2 million and long-term liabilities of $ 1.0 million .
| research and development expenses will continue to increase as we continue our current research programs , initiate new research programs , continue our preclinical development of product candidates and conduct future clinical trials for any of our product candidates . general and administrative expenses general and administrative expenses were $ 29.6 million and $ 20.6 million for the years ended december 31 , 2020 and 2019 , respectively . the increase of $ 9.1 million was primarily due to the following : an increase of $ 2.9 million in insurance costs due to increased directors and officers insurance costs as a result of our being a public company . increases of $ 2.7 million in personnel related costs and $ 1.1 million in other ( primarily information technology related ) costs due to an increase in general and administrative employees from 21 employees as of december 31 , 2019 to 32 employees as of december 31 , 2020. an increase of $ 1.5 million in intellectual property costs , offset by a $ 0.6 million decrease in corporate legal expenses . an increase of $ 1.4 million in stock-based compensation from additional stock options granted due to an increase in the number of general and administrative employees , as well as an increase in the value of our common stock . 97 change in fair value of derivative liabilities during the year ended december 31 , 2020 , we recorded a $ 63.4 million change in fair value expense related to the success payment liabilities as compared to a $ 5.4 million expense for the year ended december 31 , 2019 , due to a significant increase in the value of our common stock . the success payment obligations are still outstanding as of december 31 , 2020 and will continue to be revalued at each reporting period . interest and other income ( expense ) , net interest and other income ( expense ) , net was $ 1.6 million for the year ended december 31 , 2020 as compared
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if we obtain , or believe that we are likely to obtain , marketing approval for any product candidates for which we retain commercialization rights , and intend to commercialize a product , we expect to incur significant commercialization expenses related to product sales , marketing , manufacturing and distribution . we expect to seek to fund our operations through a 59 combination of equity offerings , debt financings , additional collaborations and licensing arrangements , and other sources for at least the next several years . however , we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all . our failure to raise capital or enter into such other arrangements as and when needed would force us to delay , limit , reduce or terminate our research and development programs and could have a material adverse effect on our financial condition and our ability to develop our products . we will need to generate significant revenues to achieve sustained profitability and we may never do so . collaborations we have entered into a number of collaborations for the research , development and commercialization of deuterated compounds . to date , our collaborations have provided us with significant funding for both our specific development programs and our dce platform . our collaborators also have applied their considerable scientific , development , regulatory and commercial capabilities to the development of our compounds . in addition , in some instances , where we develop and seek to collaborate with respect to deuterated analogs of marketed drugs or of drug candidates that are more advanced in clinical trials , our collaborators may be eligible for an expedited development or regulatory pathway by relying on previous clinical data regarding their corresponding non-deuterated compound . we believe that our collaborations have contributed to our ability to progress our product candidates and build our dce platform . we have established the following key collaborations , which are discussed further in note 13 in the consolidated financial statements appearing elsewhere in this annual report on form 10-k. avanir in february 2012 , we entered into a development and license agreement with avanir under which we granted avanir an exclusive worldwide license to develop , manufacture and commercialize deuterated dextromethorphan analogs , including d 6 -dextromethorphan , or deudextromethorphan . avanir is currently focused on developing avp-786 , which is a combination of deudextromethorphan and an ultra- low dose of quinidine , for the treatment of neurologic and psychiatric disorders . in january 2015 , avanir was acquired by otsuka pharmaceutical co. , ltd. and it is now a wholly owned subsidiary of otsuka america , inc. under the agreement , we received a non-refundable upfront payment of $ 2.0 million and have received milestone payments of $ 6.0 million . we have the potential to earn up to $ 162.0 million in additional development , regulatory and sales-based milestone payments , of which $ 21.5 million in development and regulatory milestone payments are associated with the first indication . the next anticipated milestone payments that we may be entitled to receive are $ 5.0 million upon acceptance for filing of a nda , $ 3.0 million upon acceptance for filing of a maa , and $ 1.5 million upon acceptance for filing of a nda by the ministry of health , labour , and welfare , or mhlw , related to avp-786 . avanir also is required to pay us royalties at defined percentages ranging from the mid-single digits to low double digits below 20 % on net sales of licensed products on a country-by-country basis . celgene in april 2013 , we entered into a master development and license agreement with celgene , which is primarily focused on the research , development and commercialization of specified deuterated compounds targeting inflammation or cancer . while the collaboration has the potential to encompass multiple programs , it is initially focused on one program , ctp-730 , which is deuterated apremilast . we were responsible for conducting and funding research and early development activities for the ctp-730 program pursuant to mutually agreed upon development plans . this included the completion of single and multiple ascending dose phase 1 clinical trials . celgene is responsible for any development of ctp-730 beyond the completed phase 1 clinical trials . if celgene exercises its rights with respect to any additional program and pays us the applicable exercise fee , we are responsible for conducting research and development activities at our own expense pursuant to mutually agreed upon development plans until the completion of the first phase 1 clinical trial , which will be defined in each development plan on a program-by-program basis , discussed further in note 13 in the consolidated financial statements appearing elsewhere in this annual report on form 10-k. in addition , if celgene exercises its rights with respect to the option program and pays us the applicable exercise fee , we are responsible for seeking to generate a deuterated compound for clinical development in the selected option program at our own expense . under the agreement , we received a non-refundable upfront payment of $ 35.0 million and received an $ 8.0 million development milestone in october 2015 upon completion of clinical evaluation for ctp-730 . in addition , we have the potential to earn up to $ 312.5 million in additional development , regulatory and sales-based milestone payments with respect to ctp-730 . the next milestone that we may be entitled to receive is $ 15.0 million upon the first dosing in a phase 3 clinical trial 60 or , if earlier , acceptance for filing a new drug application , or nda , related to ctp-730 . if celgene exercises its rights under any additional program , we may be eligible for milestone payments for each additional program . story_separator_special_tag in addition , with respect to each program , celgene is required to pay us royalties on worldwide net sales of each licensed product at defined percentages ranging from the mid-single digits to low double digits below 20 % . jazz pharmaceuticals in february 2013 , we entered into a development and license agreement with jazz pharmaceuticals to research , develop and commercialize products containing a deuterated sodium oxybate analog , or d-sxb . jazz pharmaceuticals is initially focused on developing one analog , designated as jzp-386 for the treatment of narcolepsy . under the terms of the agreement , we granted jazz pharmaceuticals an exclusive , worldwide , royalty-bearing license under intellectual property controlled by us to develop , manufacture and commercialize d-sxb products including , but not limited to , jzp-386 . we , together with jazz pharmaceuticals , have conducted certain development activities for phase 1 clinical trials with respect to jzp-386 pursuant to an agreed upon development plan . we were responsible under the development plan for conducting the phase 1 clinical trials with respect to jzp-386 . thereafter , our obligations to conduct further development activities are subject to mutual agreement . jazz pharmaceuticals has assumed all manufacturing and development responsibilities relating to jzp-386 . under the agreement , we received a non-refundable upfront payment of $ 4.0 million and are eligible to earn an aggregate of up to $ 113.0 million in development , regulatory and sales-based milestone payments . the next milestone payment that we may be entitled to receive is $ 4.0 million related to initiation of the first phase 2 clinical trial of jzp-386 . in addition , jazz pharmaceuticals is required to pay us royalties at defined percentages ranging from the mid-single digits to low double digits below 20 % on worldwide net sales of licensed products . for further discussion regarding our collaboration agreements , refer to note 13 in the consolidated financial statements . patent assignment agreement in september 2011 , we entered into a patent assignment agreement with auspex pharmaceuticals , inc. , or auspex , pursuant to which we assigned to auspex a u.s. patent application relating to deuterated pirfenidone analogs as described in note 14 in the consolidated financial statements appearing elsewhere in this annual report on form 10-k. among other things , the patent assignment agreement provides that if auspex is acquired in a change in control transaction at any time while it , or any of its affiliates , own certain patents or patent applications related to deuterated pirfenidone , we will receive within a specified period following the closing of the transaction 1.44 % of any proceeds payable as consideration for the change in control transaction , including any amounts paid to stockholders and certain equity holders of auspex . any such change in control payment to us is credited to auspex as a deduction against certain future payments that may become due under the agreement , such that auspex will not be required to make further payments to us until the aggregate amount of such payments otherwise due exceeds the amount of the change in control payment . pursuant to the agreement , we became eligible to receive a one-time payment of $ 50.2 million , which was received in june 2015 , due to teva pharmaceutical industries ltd. 's acquisition of auspex in may 2015. financial operations overview revenue we have not generated any revenue from the sales of products . all of our revenue to date has been generated through collaboration , license and research arrangements with collaborators and nonprofit organizations for the development and commercialization of product candidates and a patent assignment agreement . the terms of these agreements include one or more of the following types of payments : non-refundable license fees , payments for research and development activities , payments based upon the achievement of specified milestones , payment of license exercise or option fees relating to product candidates and royalties on any net product sales . to date , we have received non-refundable upfront payments , several milestone payments , payments for research and development services provided to our collaborators and a change in control payment pursuant to a patent assignment agreement . however , we have not yet earned any license exercise or option fees , sales-based milestone payments or royalty revenue as a result of product sales . 61 in the future , we will seek to generate revenue from a combination of product sales and milestone payments and royalties on product sales in connection with our current collaborations with avanir , celgene , and jazz pharmaceuticals , or other collaborations we may enter into . research and development expenses research and development expenses consist primarily of costs incurred for the development of our product candidates , which include : employee-related expenses , including salary , benefits , travel and stock-based compensation expense ; expenses incurred under agreements with contract research organizations and investigative sites that conduct our clinical trials ; the cost of acquiring , developing and manufacturing clinical trial materials ; facilities , depreciation and other expenses , which include direct and allocated expenses for rent and maintenance of facilities , insurance and other supplies ; platform-related lab expenses , which includes costs related to synthesis , analysis and in vitro and in vivo characterization of deuterated compounds to support the selection and progression of potential product candidates ; expenses related to consultants and advisors ; and costs associated with nonclinical activities and regulatory operations . research and development costs are expensed as incurred . costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and our clinical sites . a significant portion of our research and development costs have been external costs , which we track on a program-by-program basis .
| as of december 31 , 2016 , we had deferred revenue of : $ 7.2 million related to our collaboration with celgene , $ 1.1 million of which is attributable to the ctp-730 program and is currently expected to be recognized as revenue in the next twelve months as we satisfy our remaining research 68 and development activities pursuant to mutually agreed upon development plans , and $ 6.1 million of which is attributable to two additional license programs that we will not recognize as revenue until celgene exercises its rights with respect to those programs , or at such time that celgene 's rights lapse , as discussed further in note 13 to the consolidated financial statements appearing elsewhere in this annual report on form 10-k ; $ 0.1 million related to our collaboration with jazz pharmaceuticals and associated with research and development services to be performed and recognized as revenue over the estimated remaining performance period of 24 months ; and $ 2.8 million related to a payment received from gsk that we will not recognize as revenue until all repayment obligations lapse in 2018. research and development expenses the following table summarizes our external research and development expenses , by program , for the years ended december 31 , 2016 and 2015 , with our internal research expenses separately classified by category . because avanir is conducting the clinical development of avp-786 at its expense , we made minimal investment in the program during these periods . replace_table_token_5_th research and development expenses were $ 37.0 million for the year ended december 31 , 2016 , compared to $ 28.9 million for the prior year period , an increase of $ 8.1 million . this increase was primarily due to an increase of $ 5.8 million and $ 5.5 million in direct external expenses associated with ctp-656 and ctp-543 , respectively , which were partially attributable to the conduct of phase 1 clinical testing during the year ended december 30 , 2016 , as well as costs incurred to support the advancement of ctp-656 and ctp-543 into phase 2 clinical testing . the increase in employee and contractor-related expenses of $ 1.0 million was attributable to higher compensation expenses as compared to the 2015 period , primarily due to an increase in headcount . the decrease in ctp-730 and jzp-386 expenses
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expi and platform thinking to date , the company has evolved through substantial dependence on independent third-party softwares and applications which , when taken together , constitute a patchwork that has sustained and supported the company 's growth to date but which could become unwieldy prospectively , both for the company and for its agents and brokers . as the company continues to introduce and execute on a number of initiatives aimed at accelerating expansion , in 2016 it will also look to move away from the integrations of external systems in order to support scalable growth in favor of platform technologies which the company will look to develop and own and through which agents , brokers and others can co-create value , build businesses that grow in concert with , and which piggyback on , the growth of the company . the proliferation of cloud computing , digital and social media marketing ; and mobile technologies has facilitated global reach , global connectivity and accessibility to cloud infrastructure from any location and at any time . successful development of a company platform infrastructure will yield us opportunity to scale the breadth and depth of our real estate brokerage operations without experiencing limitations on functionality specific to our organization . moreover , successful platform development could potentially lead to opportunities for marketability and revenues from sources beyond the company 's real estate agent and broker population . 24 market conditions and trends the united states housing market was adversely impacted beginning in 2006 by the combination of a number of factors , including but not limited to more stringent lending guidelines , increased unemployment , and an overall macroeconomic decline . overall u.s. sales volume declined as did the market value of homes which in turn created a swell in foreclosures and mortgage defaults . it was this combination of factors which , in part , served as the impetus for the company 's business model as traditional real estate brokerages on a large scale experienced a diminishment of revenues without , in many cases , a corresponding reduction in fixed expenses , resulting in an erosion of profits . while markets throughout much of the united states have recovered , the company still estimates that a significant number of real estate brokerages today are not profitable or are marginally profitable due to the impact of high or fixed overhead and a costly struggle to drive higher productivity among their agents . continued upward trends in market activity and continued acceleration of home values is susceptible to macroeconomic conditions , including signals by the federal reserve bank that it intends to raise interest rates which increases could take effect in 2016 and which could impact the ability of new home buyers seeking purchase money mortgages as well as existing borrowers with adjustable mortgage rates . in the event that market activity slows , many traditional real estate brokerage owners will again be pressured by an operating cost structure that is n't responsive to cyclical turns in the market with overhead costs that hold steady or continue to climb . technology continues to disrupt traditional business models in many different ways . recently there has been a viral post in social media talking about the largest media company by market cap being facebook and yet it generates none of their own content . it is supplied by its members . uber now has one of the largest market caps for a transportation company and yet it does not own any of the underlying assets that being the automobiles . those are owned by its drivers . alibaba , which had one of the all time largest ipo 's , is an ecommerce company in china that does n't manage or own physical inventory . everyone is familiar with amazon which has its roots in books and which has no physical footprint bookstore . exp realty as a residential real estate brokerage generally speaking only maintains the physical footprint of a brokerage that is required by the states we operate in rather than trying to have an office on every corner . with the continual improvement of high speed internet availability we tend to see the office be more and more mobile for all agents and brokers . we believe that in some cases the physical office actually detracts from collaboration rather than encourages it . we plan on continuing to pursue these efforts through the use of the cloud-office and other mobile collaboration platforms . we believe this is great for the agents , brokers , and consumers who understand it but more importantly it is a much easier business model to facilitate and grow than trying to grow and manage the hundreds or thousands of physical offices that would be necessary to cover the geographic footprint that exp realty currently covers . the exp cloud office has enabled would be real estate brokers who join the company to shed enormous overhead expenses and staffing costs while still retaining a percentage of commissions generated by the agents they attract while availing themselves of an opportunity to scale their business in a way that traditional models do not easily support . market conditions prospectively are susceptible to impact from , among other factors , employment growth or decline , population trends , the re-entry into the market of former homeowners who suffered delinquencies , foreclosures , short-sales , or bankruptcies during the downturn . these factors , coupled with uncertain federal reserve policy , suggests that the real estate industry could continue to see growth in sales during the upcoming fiscal year but at the same time could experience a decline . story_separator_special_tag in either turn , the company expects to adhere to its low-cost , high-engagement model , affording a growing number of agents and brokers increased income and ownership opportunities while offering a scalable solution to brokerage owners looking to survive and thrive in a wide range of economic conditions . we believe that the opportunities in the real estate business are what might be considered the industry 's sacred cows , or those things that the majority of agents and brokers believe to be the way it will always be but which will be challenged by up and coming companies . we are challenging the notion of there needing to be a physical office in order to run a growing and thriving real estate brokerage model . there are many broker owners that believe this is necessary and will challenge exp realty for pursuing this path and may suggest that it is bad for the agent and the consumer in order to defend what has been the model for so many years . there are millions of dollars being poured into start-ups all over the united states aimed at disrupting the cooperative commission model that we rely on as a brokerage in order to continue to be profitable . if someone figures out a way to credibly crack the commission model this may adversely impact exp realty as well as many other more traditional real estate brokerages . we are not focusing our energy there as a brokerage however we do look to see what is happening in the industry in order to stay ahead and relevant to our agents and brokers who are our effective customers and partners . 25 potential challenges for exp realty and other brokerages come our way through the large third party syndicators . the relevancy of a brokerage in the face of a significant percentage of lead generation for the agents who work for the firm being generated through third party portals does raise the question of relevancy to the agents that work for the brand . we see this as a very real threat to us as a real estate brokerage and we are proactively developing low cost lead generation platforms that our agents can take advantage of which provide significant cost savings vs going through third party syndicators . as a small brokerage covering a large geographic area it is relatively easy for exp realty to generate leads at a lower cost than the portals however as we grow this may become harder and harder to do . in the first quarter of 2015 we launched the making it rain program for our agents and brokers to take advantage of . over 10 % of our agent base signed up and since then we have seen leads generated by participants in a range between $ 7.00 - $ 40.00 / lead . leads may become more expensive over time and in some cases may exceed the cost of leads from other third party syndicators so we need to be aware of this and continually innovate on behalf of our agents and brokers again with the goal of being relevant in their business . if agents believe that their business is generated from third party syndicators then it may follow that agents may pursue the lowest expense brokerage in order to maximize their income . over the last number of years , again propelled by technology , numerous firms whether brokerage , vendor or even those outside of the real estate brokerage business have used education as a major attractor in order to develop a following and or customers . activerain was one of the first companies to push into education with activerain university . they were later acquired by market leader which was eventually purchased by trulia and most recently acquired by zillow . zillow had their own educational outreach initiatives called zillow academy . both of these initiatives were facilitated by exp realty 's own brad andersohn when he was with the respective companies , first at activerain and then eventually at zillow prior to all of the consolidation of the above companies . chris smith and jimmy mackin provide many free classes and training in support of their company curaytor . numerous real estate coaches provide training and classes in facilitation of selling coaching services . brian buffini , the largest real estate coaching business in the world , broadcasts livestream events where brokerages and others can sponsor these events to provide education to real estate professionals for free while facilitating a flow of coaching clients to the buffini organization . education is a differentiator however the space is getting crowded . even outside of the real estate space , free education is part of the larger mooc movement or massive open online course movement where major universities and educational institutions are taking some of their most popular classes and putting them online so that individuals can take the classes and in some cases get degrees at a very low cost if not free from certain institutions . technology has allowed for this disrupting of education such that education is less valuable as a differentiator and yet not offering education is definitely a detractor of a brokerage business model . one of the ways that we believe we have been able to grow into as many states and in our opinion remain relevant is by adopting an agile mindset as a company . in this context exp realty continues to regularly deliver value to our agents and brokers , and by prioritizing work based on what our agents and brokers have told us they want , we have been able to develop a company framework that is relevant to our agents and brokers .
| in 2015 , the company continued and accelerated its rapid pace of year-over-year growth continuing to enter into new us states ( and sub-markets within those states ) . in its annual report one year ago , the company expressed its intention to “ to begin to implement measures to increase the depth of its presence ” within states in which it operates “ through the expansion and development of a regional , state or provincial leadership structure permitting the company to capitalize on , among other things , its relatively low cost of entry into markets and submarkets whose agent demographics and population generally are less supportive of competitors opening and supporting a franchise or traditional model. ” in 2015 , the attraction and concentration of high quality agents and brokers in markets and submarkets in states such as texas , louisiana , virginia , california , hawaii , and new mexico suggest that its implementation efforts have thus far been effective . moreover , in 2015 the company was fortunate to attract and welcome strong , credible and respected leaders with a demonstrated history of great success in their local markets .. today , exp realty is one of the fastest growing ( if not the fastest growing ) real estate brokerages in austin , texas . in the ensuing months , strong leadership has been introduced in a number of markets throughout the united states , including , but not limited to most recently wisconsin and wyoming where the company has commenced operations and others where the credentials of leadership applicants are presently being evaluated and considered . also in 2015 , the company for the first time , extended its operational reach and opportunity beyond mainland north america with the commencement of operations in hawaii . as has been stated previously , the company has received and continues to receive expressions relative to international markets and , in 2016 , anticipates evaluating those opportunities in earnest and identifying the systems , processes and structure required to pursue these markets successfully . to increase the company 's capacity to manage its rapid growth in terms of revenue ,
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the company 's results in 2011 were impacted by the following factors : core sales increased 1.8 % in 2011 , compared to 2010 , driven by core sales growth in the u.s. and emerging markets , with double-digit increases in latin america and asia pacific , as the company continues its focus on expanding geographically and into emerging markets . european core sales declined 3.4 % , compared to 2010 , due to weak consumer spending resulting from the challenging macroeconomic environment . core sales increased 6.0 % in the tools , hardware & commercial products segment , led by double-digit core sales growth in the industrial products & services gbu . core sales decreased 0.8 % in the home & family segment , primarily due to 23 the impact of a declining category in the baby & parenting gbu . office products core sales increased 1.5 % , led by a mid-single-digit core sales increase in the technology gbu . input and sourced product cost inflation , partially offset by productivity and pricing , resulted in a 40 basis point gross margin decrease compared to 2010. continued selective spend for strategic sg & a activities to drive sales , enhance the new product pipeline and increase geographic expansion . during 2011 , the company 's spend for strategic brand-building and consumer demand creation activities included spend for the following : graco ® smart seat all-in-one car seat , the first all-in-one car seat to feature a one-time install , stay-in-car smart base that accommodates newborns all the way up to children weighing 100 pounds ; expansion of the aprica ® product line in japan with car seats and strollers with features to enhance comfort , convenience and maneuverability ; launch of the rubbermaid ® glass with easy find lids food storage platform , which combines the nesting , stacking and “ no spill lid ” system with the reheating and serving advantages of glass ; ongoing support for the rubbermaid ® reveal microfiber spray mop that helps consumers clean floors better , while reducing waste and saving money ; the continued rollout of the size-in-store program , which leverages advanced technology to make it easy for consumers to purchase custom-sized levolor ® blinds and shades right in the store ; the launch of calphalon ® kitchen electrics , which are designed to provide accurate temperature control , even heat delivery and ensure foods cook evenly and thoroughly , for reliable results ; initiatives to support geographic expansion , with a particular focus on activities supporting launches of paper mate ® and sharpie ® products in brazil ; launch of paper mate ® 's inkjoy ® line of writing instruments , which feature innovative ultra-low-viscosity ink for a smooth writing experience , rolled out worldwide , starting in latin america ; continued expansion of dedicated parker ® “ shop-in-shop ” retail outlets in china and other regions to enhance in-store merchandising ; launches of the parker ® sonnet collection , the parker ® ingenuity collection featuring parker 5th technology and the waterman ® pure white collection ; expansion of sales forces in the technology and industrial products & services gbus to drive greater sales penetration and enhance the availability of products ; rubbermaid ® commercial products hygen clean water system , which is a revolutionary mopping system featuring an integrated , innovative water filter for generating cleaner water from dirty mopping water ; and the launch of lenox ® 's innovative new hole saw , which features a unique slotted design for easy plug removal . non-cash impairment charges of $ 382.6 million were recorded as a result of the company 's annual impairment testing of goodwill and indefinite-lived intangible assets , principally relating to impairment of goodwill in the baby & parenting and hardware gbus . divestiture of the hand torch and solder business , which resulted in an after-tax loss on the sale of $ 15.2 million . this loss , when combined with the $ 5.8 million of net income from operations of the hand torch and solder business and other items , was reported as a $ 9.4 million net loss from discontinued operations in 2011. commenced the implementation of project renewal with restructuring charges of $ 31.2 million incurred in the fourth quarter of 2011 and continued the execution of the european transformation plan , which includes projects designed to prepare the region for the implementation of an enterprise resource planning system , centralize decision making in the 24 geneva headquarters and improve the financial performance of the european business . the expiration of various worldwide statutes of limitation for certain tax periods resulted in the recognition of $ 49.0 million of previously unrecognized tax benefits . completion of the capital structure optimization plan after finalization of the accelerated stock buyback program in march 2011 , resulting in an additional 2 million shares of the company 's common stock being repurchased and retired . in addition , the company exchanged shares and cash for an additional $ 20 million principal amount of the extant convertible notes in 2011 , essentially eliminating these notes from the company 's capital structure . commenced a $ 300.0 million three-year share repurchase plan that expires in august 2014 , pursuant to which the company repurchased and retired 3.4 million shares of common stock for $ 46.1 million during 2011. the company 's board of directors approved a 60 % increase in the company 's quarterly dividend from $ 0.05 per share to $ 0.08 per share , which took effect with the company 's dividend paid in june 2011. key initiatives project renewal in october 2011 , the company launched project renewal , a program designed to reduce the complexity of the organization and increase investment in the most significant growth platforms within the business , funded by a reduction in structural selling , general & administrative ( `` sg & a '' ) costs . story_separator_special_tag cost savings from the program are expected to be achieved in large part through the consolidation of three operating groups into two — newell professional and newell consumer — and of 13 gbus into nine , with the baby & parenting gbu operating as a stand-alone operating segment . in connection with the program , the company expects to incur cash costs of $ 75 to $ 90 million and record pretax restructuring charges in the range of $ 90 to $ 100 million through the end of 2012 , the majority of which are employee-related cash costs , including severance , retirement , and other termination benefits and costs . charges of between $ 55 and $ 70 million are expected to be incurred in 2012. the consolidation of a limited number of manufacturing facilities and distribution centers has also been initiated as part of the program , with the goal of increasing operational efficiency , reducing costs , and improving gross margin , and the company estimates a total net headcount reduction of approximately 500 resulting from project renewal . through december 31 , 2011 , the company has incurred restructuring charges of approximately $ 31 million under project renewal . in the fourth quarter of 2011 , the company began reducing structural overhead to facilitate the consolidation of the three operating groups into two and the 13 gbus into nine , which resulted in a headcount reduction of approximately 175 employees . in addition , the company announced the closure of the greenville , texas , manufacturing facility , with the operations of the facility being consolidated into the company 's existing manufacturing facilities in the states of kansas and ohio . the company expects to generate cost savings of approximately $ 90 to $ 100 million when the program is fully implemented by the end of 2012. the majority of the savings will be reinvested in the business to unlock accelerated growth . european transformation plan in june 2010 , the company announced a program to simplify and centralize its european business ( the “ european transformation plan ” ) . the european transformation plan includes initiatives designed to transform the european organizational structure and processes to centralize certain operating activities , improve performance , leverage the benefits of scale and to contribute to a more efficient and cost-effective implementation of an enterprise resource planning system in europe , all with the aim of increasing operating margin in the european region to at least ten percent . the european transformation plan is expected to result in aggregate restructuring and other plan-related costs of $ 110 to $ 115 million . the european transformation plan is expected to be completed by the end of 2012 and is expected to result in cumulative restructuring charges totaling between $ 40 and $ 45 million , substantially all of which are employee-related cash costs , including severance , retirement , and other termination benefits and relocation costs . the company also expects to incur an additional $ 70 to $ 75 million of incremental selling , general and administrative expenses , referred to herein as restructuring-related charges , to implement the european transformation plan . through december 31 , 2011 , the company has incurred restructuring and restructuring-related charges of approximately $ 19 million and $ 53 million , respectively , under the european transformation plan . the company expects to realize annual after-tax savings of $ 55 to $ 65 million upon completion of the implementation of the european transformation plan , the majority of which have been realized and are included in the company 's 2011 operating results . in 2011 , as part of its european transformation plan , the company completed the relocation of key personnel to geneva , switzerland . in addition , the company vacated and closed offices in two locations in the european region . the company has also undertaken various projects to maximize gross margins and centralize operations in the region . 25 one newell rubbermaid the company strives to leverage the common business activities and best practices of its gbus , and to build one common culture of shared values with a focus on collaboration and teamwork . through this initiative , the company has established regional shared service centers to leverage nonmarket-facing functional capabilities to reduce costs . in addition , the company has consolidated the leadership and strategic operations of five of the company 's gbus into the company 's headquarters facilities to facilitate the sharing of knowledge and better leverage best practices . the company is also migrating multiple legacy systems and users to a common sap global information platform in a phased , multi-year rollout . sap is expected to enable the company to integrate and manage its worldwide business and reporting processes more efficiently . through december 31 , 2011 , the north american operations of substantially all of the company 's 13 gbus have successfully gone live with their sap implementation efforts , including the north american operations of the décor gbu which was the last to go live in august 2011. the company 's european operations are expected to go live on sap in the first half of 2012. consolidated results of operations the company believes the selected data and the percentage relationship between net sales and major categories in the consolidated statements of operations are important in evaluating the company 's operations .
| in constant currency , sg & a costs as a percentage of net sales decreased 50 basis points due to lower structural sg & a costs partially offset by higher sg & a spend to support geographic expansion and distribution gains . office products net sales for 2011 were $ 1,778.8 million , an increase of $ 69.9 million , or 4.1 % , from $ 1,708.9 million for 2010. core sales increased 1.5 % with low- to mid-single-digit core sales growth in the fine writing & luxury accessories and technology gbus , partially offset by a modest core sales decline in the everyday writing gbu . core sales growth for the everyday writing and markers , highlighters , art & office organization gbus was impacted by an estimated $ 5 to $ 10 million of sales shifted from 29 2011 to the fourth quarter of 2010 due to customer order acceleration to qualify for annual volume rebates . foreign currency had a favorable impact of 2.6 % . operating income for 2011 was $ 300.2 million , or 16.9 % of net sales , an increase of $ 30.8 million , or 11.4 % , from $ 269.4 million , or 15.8 % of net sales , for 2010. the 110 basis point increase in operating margin is attributable to pricing , productivity , improved product mix , and leverage of sg & a , partially offset by input cost inflation . in constant currency , sg & a costs as a percentage of net sales decreased 30 basis points due to the increase in core sales , as lower structural sg & a costs , including lower incentive compensation , was offset by increased strategic sg & a spending to support new market entries , expanded sales forces and geographic expansion . tools , hardware & commercial products net sales for 2011 were $ 1,695.3 million , an increase of $ 124.4 million , or 7.9 % , from $ 1,570.9 million for 2010. core sales increased 6.0 % . double-digit cores sales growth in the industrial products & services gbu and high
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the increased demand for our seismic products is being driven by strong oil and gas exploration activities throughout the world . 17 consolidated gross profits for fiscal year 2011 increased by $ 26.8 million , or 56.5 % , from fiscal year 2010. the increase in gross profits resulted from ( i ) increased sales and rentals of seismic products , ( ii ) a more favorable product mix , and ( iii ) improved manufacturing productivity due to higher production output . consolidated operating expenses for fiscal year 2011 increased $ 3.6 million , or 14.0 % , from fiscal year 2010. the increase in operating expenses resulted from ( i ) increased pretax earnings giving rise to $ 0.5 million of increased incentive compensation expenses , ( ii ) increased product development expenditures of $ 1.2 million relating to product enhancements and new product introductions , and ( iii ) a general increase in expenses associated with increased sales activities . the u.s. statutory tax rate applicable to us for fiscal years 2011 and 2010 was 35.0 % ; however , our effective tax rate was 33.4 % and 32.6 % for fiscal years 2011 and 2010 , respectively . the lower effective tax rate in fiscal year 2011 resulted from ( i ) the impact of the manufacturers'/producers ' deduction available in the united states and ( ii ) an increase in research and experimentation tax credits resulting from united states congress ' renewal and extension of the tax credit program during fiscal year 2011 through december 2012. the lower effective tax rate in fiscal year 2010 resulted from ( i ) the impact of the manufacturers'/producers ' deduction available in the united states , ( ii ) a revaluation of our united states net deferred tax assets from 34.0 % to 35.0 % , ( iii ) the revaluation of a tax loss carryback for our canadian subsidiary , and ( iv ) a reduction in our contingent tax expenses . fiscal year 2010 compared to fiscal year 2009 consolidated net sales for fiscal year 2010 increased $ 35.7 million , or 38.4 % , from fiscal year 2009. the higher level of sales stems from the increase in customer demand for our seismic products and particularly robust demand for our land-based wireless ( or nodal ) data acquisition systems . the increased demand for our seismic products in fiscal year 2010 was driven by higher crude oil commodity prices and increased natural gas exploration activities in north america . consolidated gross profits for fiscal year 2010 increased by $ 20.8 million , or 78.2 % , from fiscal year 2009. the increase in gross profits was caused by an increase in sales of our products , improved factory utilization and a favorable product mix . consolidated operating expenses for fiscal year 2010 increased $ 3.1 million , or 13.6 % , from fiscal year 2009. increased operating expenses primarily resulted from a $ 2.3 million increase of incentive compensation resulting from higher consolidated pretax profits , and general expense increases due to higher sales volume . these operating expense increases were partially offset by lower bad debt expenses resulting from improved collection of our outstanding accounts receivable . the u.s. statutory tax rate applicable to us for fiscal years 2010 and 2009 was 35.0 % and 34.0 % , respectively ; however , our effective tax rate was 32.6 % and 46.8 % for fiscal years 2010 and 2009 , respectively . the lower effective tax rate in fiscal year 2010 resulted from ( i ) the impact of the manufacturers'/producers ' deduction available in the united states , ( ii ) a revaluation of our united states net deferred tax assets from 34.0 % to 35.0 % , ( iii ) the revaluation of a tax loss carryback for our canadian subsidiary , and ( iv ) a reduction in our contingent tax expenses . the united states congress had not extended the provision for research and experimentation credits beyond calendar year 2009 ; therefore , the company had not recorded any related tax benefit of such credits beyond its first quarter ended december 31 , 2009. the higher effective tax rate for fiscal year 2009 resulted primarily from pretax losses in foreign taxing jurisdictions having lower statutory tax rates than the u.s. statutory rate . 18 story_separator_special_tag payable resulting from the payment of income taxes owed on our pretax profits and ( v ) a $ 0.6 million decrease in deferred revenue resulting from a reduction in the amount of advanced payments received from our customers . throughout fiscal years 2009 and 2010 , we made substantial efforts to reduce our inventory levels in order to meet declining levels of product demand for our traditional seismic products and to generate cash flows to reduce our indebtedness . due to the relatively low levels of inventories at the outset of fiscal year 2011 and the significant demand for new products like our wireless data acquisition system and our intention to establish and increase our rental fleet of wireless data acquisition equipment , we have strategically increased certain product inventories to meet this demand . however , we continue to be subject to high levels of inventory obsolescence expense for our older and slower moving products . we continue to give substantial attention to the management of our inventories in this area . for fiscal year 2011 , we used approximately $ 5.2 million of cash in investing activities . the uses of cash primarily resulted from ( i ) our investment of $ 15.4 million for rental equipment , ( ii ) $ 4.7 million of capital expenditures for property and equipment , and ( iii ) a $ 4.9 million investment in short-term investments . in addition , we transferred $ 0.2 million of inventories to our rental equipment during fiscal year 2011 which had a non-cash impact . the uses of cash outlined above were partially offset by $ 19.9 million of proceeds from the sale of used rental equipment . story_separator_special_tag due to strong customer demand for our wireless rental equipment , we estimate that our capital expenditures for rental equipment in fiscal year 2012 could be approximately $ 16.0 million or more , including non-cash additions to our used rental fleet . in addition , we estimate that other capital expenditures for property and equipment could be approximately $ 5.0 million . similar to fiscal year 2011 , in fiscal year 2012 we expect to sell a significant amount of our rental equipment to customers and , therefore , generate sales proceeds to partially or fully offset such investments in rental equipment . for fiscal year 2012 , we expect to finance our capital expenditures in rental equipment and other property and equipment from our cash on hand , internal cash flow , rental equipment sales proceeds and or from borrowings under our credit agreement . 20 for fiscal year 2011 , we generated approximately $ 2.0 million of cash in the financing activities of our operations . during fiscal year 2011 , we generated $ 9.7 million of proceeds from the exercise of stock options and related tax benefits . partially offsetting these proceeds was a $ 7.7 million cash payment to pay off a mortgage loan obligation . at september 30 , 2010 , we had $ 33.5 million in cash and cash equivalents . for fiscal year 2010 , we generated approximately $ 30.0 million of cash from our operating activities . sources of cash generated in our operating activities include net income of $ 14.1 million . additional sources of cash include net non-cash charges of $ 6.6 million for deferred income tax expense , depreciation , amortization , stock-based compensation , inventory obsolescence and bad debts . other sources of cash included ( i ) a $ 6.7 million decrease in inventories due to improved management activities , ( ii ) a $ 5.0 million increase in accrued expenses primarily resulting from higher incentive compensation costs resulting from higher levels of pretax income and ( iii ) a $ 1.9 million increase in income taxes payable primarily resulting from the increase in taxable income . these sources of cash were offset by ( i ) a $ 2.7 million increase in accounts and notes receivable resulting from higher levels of sales , ( ii ) a $ 0.9 million decrease in accounts payable due to increases in purchases of raw materials and ( iii ) a $ 0.9 million decrease in prepaid expenses and other resulting from the timing of funding our payrolls . for fiscal year 2010 , we used approximately $ 6.1 million of cash in investing activities primarily resulting from our capital expenditures for rental equipment . in addition , we transferred $ 0.3 million of inventories to our rental equipment during fiscal year 2010 which had a non-cash impact . for fiscal year 2010 , we generated approximately $ 1.3 million of cash in the financing activities of our operations . sources of cash included $ 3.3 million of proceeds from the exercise of stock options and related tax benefits . these sources of cash were offset by $ 1.8 million of principal payments under mortgage loans and a $ 0.1 million payment as a penalty for early extinguishment of debt . at september 30 , 2009 , we had $ 8.6 million in cash and cash equivalents . for fiscal year 2009 , we generated approximately $ 17.3 million of cash in operating activities . sources of cash generated in our operating activities resulted from net income of $ 1.8 million . additional sources of cash include net non-cash charges of $ 7.5 million for deferred income tax expense , depreciation , amortization , stock-based compensation , inventory obsolescence and bad debts . other sources of cash included a $ 14.3 million decrease in accounts and notes receivable due to improved collections and lower levels of product sales , and a $ 3.2 million decrease in inventories . these sources of cash were offset by ( i ) a $ 4.2 million decrease in accrued expenses primarily resulting from a decline in payroll-related costs due to employee headcount reductions and lower incentive compensation costs resulting from lower levels of pretax income , ( ii ) a $ 3.4 million decrease in accounts payable due to declines in purchases of raw materials and other expense reductions and ( iii ) a $ 1.4 million decrease in income taxes payable primarily resulting from the decrease in taxable income . for fiscal year 2009 , we used approximately $ 1.7 million of cash in investing activities resulting from our capital expenditures . for fiscal year 2009 , we used approximately $ 9.7 million of cash in the financing activities of our operations , resulting from $ 10.0 million of principal payments under the credit agreement and $ 0.7 million principal payments for our mortgage loans . these uses of cash were offset by $ 1.0 million of proceeds from the exercise of stock options and related tax benefits . on march 2 , 2011 , we entered into a new credit agreement ( as amended , the new credit agreement ) with a bank . under the new credit agreement , we can borrow up to $ 25.0 million principally secured by our accounts receivable , inventories and equipment . in addition , certain of our domestic subsidiaries have guaranteed our obligations under the new credit agreement and such subsidiaries have secured the obligations by the pledge 21 of certain of the assets of such subsidiaries . the new credit agreement expires on march 2 , 2014. the new credit agreement limits the incurrence of additional indebtedness , requires the maintenance of certain financial ratios , restricts us and our subsidiaries ' ability to pay dividends and contains other covenants customary in agreements of this type . the interest rate for borrowings under the new credit agreement is a libor based rate with a margin spread of 250-350 basis points depending upon the maintenance of certain ratios .
| operating income from sales of our seismic products for fiscal year 2010 increased $ 18.4 million , or 173.4 % , from fiscal year 2009. the higher operating income is directly related to ( i ) improved product sales and product mix , ( ii ) higher factory utilization resulting from increased manufacturing activities , ( iii ) improved operating results from our subsidiary in the russian federation , and ( iv ) the leveraging of fixed operating expenses over a greater volume of revenues . thermal solutions products fiscal year 2011 compared to fiscal year 2010 net sales . sales of our thermal solutions products for fiscal year 2011 increased $ 0.6 million , or 4.4 % , from fiscal year 2010. approximately $ 0.3 million of this increase resulted from growing sales to our canadian customers . we consider the remaining increase to be somewhat normal due to recurring fluctuations in product sales volume and not associated with any long-term trend . operating income . our operating income from our thermal solutions products for fiscal year 2011 decreased $ 0.4 million , or 109.3 % , from fiscal year 2010. the decline in profitability resulted from ( i ) lower margins on product sales due to higher material costs for our film products , ( ii ) additional charges for inventory obsolescence expense due to the aging of certain inventories , and ( iii ) increased incentive compensation expenses relative to the improvement in our consolidated financial results . fiscal year 2010 compared to fiscal year 2009 net sales . sales of our thermal solutions products for fiscal year 2010 decreased $ 73,000 , or 0.6 % , from fiscal year 2009. we consider this small decrease to be somewhat normal due to recurring fluctuations in product sales volume and not associated with any long-term trend . operating income . our operating income from our thermal solutions products for fiscal year 2010 increased $ 27,000 , or 7.3 % , from fiscal year 2009. the increase in operating income is caused by increased production efficiencies . incentive compensation program we adopted an incentive compensation program for fiscal year 2011 whereby most employees will be eligible to begin earning incentive compensation if the company reaches a five percent pretax return on stockholders ' equity , determined as of
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mr. cooper group inc. - 2019 annual report on form 10-k 40 table 6. servicing portfolio - unpaid principal balances replace_table_token_11_th ( 1 ) subservicing and other includes ( i ) loans we service for others , ( ii ) residential mortgage loans originated but have yet to be sold , and ( iii ) agency reo balances for which we own the mortgage servicing rights . 41 mr. cooper group inc. - 2019 annual report on form 10-k the following table provides a rollforward of our forward servicing and subservicing portfolio upb : table 7. forward servicing and subservicing portfolio upb rollforward replace_table_token_12_th ( 1 ) voluntary reductions are related to loan payoffs by customers . ( 2 ) involuntary reductions refer to loan chargeoffs . during the year ended december 31 , 2019 , our forward servicing and subservicing portfolio upb increased when compared to 2018 , primarily due to increased boarding of loans generated from the acquisitions of pacific union and seterus , and the portfolio growth from our subservicing clients . the increase in dispositions was primarily due to various msr sales . the table below summarizes the overall performance of the forward servicing and subservicing portfolio : table 8. key performance metrics - forward servicing and subservicing portfolio ( 1 ) replace_table_token_13_th ( 1 ) characteristics and key performance metrics of our servicing portfolio exclude upb and loan counts acquired but not yet boarded and currently serviced by others . ( 2 ) average loan amount is presented in whole dollar amounts . ( 3 ) the weighted average coupon amounts for our credit and interest sensitive pools presented in the table above are only reflective of our owned forward msr portfolio that is reported at fair value . ( 4 ) loan delinquency is based on the current contractual due date of the loan . in the case of a completed loan modification , delinquency is based on the modified due date of the loan . delinquency is a significant assumption in determining the mark-to-market adjustment and is a key indicator of msr portfolio performance . delinquent loans contribute to lower msr values due to higher costs to service and increased carrying costs of advances . we continued to experience low delinquency rates during the year ended december 31 , 2019 , which preserves the value of our msrs . mr. cooper group inc. - 2019 annual report on form 10-k 42 table 9. forward loan modifications and workout units replace_table_token_14_th ( 1 ) refer to basis of presentation section for discussion on presentation of combined results . total modifications and workouts during the year ended december 31 , 2019 decreased compared to the same period in 2018 , on a combined basis , primarily due to lower delinquency rates and lower disaster-related ( hurricanes and wildfires ) loss mitigation activity . 43 mr. cooper group inc. - 2019 annual report on form 10-k the following table provides the composition of revenues for the servicing segment : table 10. servicing - revenues replace_table_token_15_th mr. cooper group inc. - 2019 annual report on form 10-k 44 ( 1 ) refer to basis of presentation section for discussion on presentation of combined results . ( 2 ) calculated basis points ( “ bps ” ) are as follows : annual $ amount/total average upb x 10000 . ( 3 ) certain ancillary and other non-base fees related to subservicing operations are separately presented as other subservicing revenues . ( 4 ) the predecessor recorded msl accretion within reverse servicing fees , whereas the successor has elected to record msl accretion within amortization , net of accretion . ( 5 ) the amount of msr mtm includes the impact of negative modeled cash flows which have been transferred to reserves on advances and other receivables . the negative modeled cash flows relate to advances and other receivables associated with inactive and liquidated loans that are no longer part of the msr portfolio . the impact of negative modeled cash flows was $ 62 and $ 25 for the year ended december 31 , 2019 and five months ended december 31 , 2018 , respectively . the impact of negative modeled cash flows for the predecessor was $ 38 for the seven months ended july 31 , 2018 . forward - due to the increase of the forward msr portfolio 's upb , base servicing fee revenue increased for the year ended december 31 , 2019 as compared to the same period in 2018 , on a combined basis . the improvement in delinquency rates in 2019 contributed to the decrease in modification fees . other ancillary revenues increased primarily due to the gain on sale from the securitization of reperforming gnma loans and the collapse of trust 2009-a . forward msr amortization increased for the year ended december 31 , 2019 as compared to the same period in 2018 , on a combined basis , primarily due to the increase in the average forward msr upb and higher prepayments driven by the lower interest rate environment . total mtm adjustments were negative in the year ended december 31 , 2019 as compared to positive mtm adjustments in the same period in 2018 , on a combined basis , primarily due to the declining interest rate environment during 2019. subservicing - subservicing fees increased for the year ended december 31 , 2019 as compared to the same period in 2018 , on a combined basis , due to significant growth in the subservicing portfolio upb . reverse - reverse servicing fees for the year ended december 31 , 2019 decreased as compared to the same period in 2018 , on a combined basis , primarily due to the decline in the reverse mortgage portfolio . in addition , the predecessor recorded msl accretion within reverse servicing fees , whereas the successor has elected to record msl accretion within amortization , net of accretion . story_separator_special_tag 45 mr. cooper group inc. - 2019 annual report on form 10-k the table below summarizes expenses for the servicing segment : table 11. servicing - expenses replace_table_token_16_th ( 1 ) refer to basis of presentation section for discussion on presentation of combined results . ( 2 ) calculated basis points ( “ bps ” ) are as follows : annual $ amount/total average upb x 10000. total expenses decreased during the year ended december 31 , 2019 compared to the same period in 2018 , on a combined basis , primarily due to a decrease in foreclosure and other liquidation related expenses , partially offset by increased salaries , wages and benefits expense and corporate and other general and administrative expenses . foreclosure and other liquidation related expenses were higher in 2018 , on a combined basis , as a result of a refined modeling method driven by a change in estimate recorded in connection with the merger and associated with the refinement of loss expectations on the fnma reverse mortgage portfolio , which led to increased reserves . the increase in salaries , wages and benefits is primarily due to the expansion of the servicing portfolio and an increase in headcount largely driven by the pacific union and seterus acquisitions . the increase in corporate and other general and administrative expenses was primarily a result of higher expenses related to our project titan , which is expected to increase operational efficiencies and enhance overall customer experience . mr. cooper group inc. - 2019 annual report on form 10-k 46 the table below summarizes other income ( expenses ) , net for the servicing segment : table 12. servicing - other income ( expenses ) , net replace_table_token_17_th ( 1 ) refer to basis of presentation section for discussion on presentation of combined results . ( 2 ) calculated basis points ( “ bps ” ) are as follows : annual $ amount/total average upb x 10000. total other income ( expenses ) , net decreased during the year ended december 31 , 2019 as compared to the same period in 2018 , on a combined basis , primarily due to an increase in interest expense . the increase in interest expense was primarily due to an increase in other interest expense as a result of an increase of $ 45 in excess spread costs and $ 92 of earnings credits and bank fee credits which the predecessor previously classified as interest expense , and $ 21 of compensating interest expense driven by higher payoff volume . partially offsetting the increase in other interest expense was a decrease in reverse mortgage interest expense , primarily due to the decline in the reverse mortgage interest portfolio balance , as well as the accretion of the hmbs bond premium due to a decline in the quarterly revaluation of the original mark-to-market premium on hmbs bonds , which was estimated in connection with the merger . in addition , interest income decreased due to a decrease in income earned on reverse mortgage interest , partially offset by an increase in other interest income . income earned on reverse mortgage interest decreased due to the decline in the reverse mortgage interests balance and the amortization of a net asset premium into income . other interest income increased primarily as a result of aforementioned $ 92 of earnings credits and bank fee credits which the predecessor previously classified as interest expense , coupled with higher interest income due to higher yields on custodial balances combined with higher balances driven by portfolio growth . 47 mr. cooper group inc. - 2019 annual report on form 10-k servicing portfolio and liabilities the tables below summarize the servicing portfolio and related liabilities in the servicing segment : table 13. servicing portfolios and related liabilities replace_table_token_18_th ( 1 ) subservicing and other amounts include loans we service for others , residential mortgage loans originated but have yet to be sold , and agency reo balances for which we own the mortgage servicing rights . mr. cooper group inc. - 2019 annual report on form 10-k 48 we assess whether acquired portfolios are more credit sensitive or interest sensitive in nature on the date of acquisition . we consider numerous factors in making this assessment , with the primary factors consisting of the overall portfolio delinquency characteristics , portfolio seasoning and residential mortgage loan composition . interest rate sensitive portfolios typically consist of single-family conforming residential forward mortgage loans serviced for gses or other third-party investors . credit sensitive portfolios primarily consist of higher delinquency single-family non-conforming residential forward mortgage loans in private-label securitizations . table 14. fair value msr valuation replace_table_token_19_th as of december 31 , 2019 , when measuring the fair value of the portfolio as a basis point of the unpaid principal balance , our credit and interest sensitive pools decreased in value compared to december 31 , 2018 primarily due to higher forecasted prepayment speeds as a result of the declining interest rate environment in 2019 . 49 mr. cooper group inc. - 2019 annual report on form 10-k the following table provides information on the fair value of our owned forward msr portfolio . table 15. msrs - fair value , rollforward replace_table_token_20_th ( 1 ) amount for the seven months ended july 31 , 2018 was related to the sale of nonperforming loans , which had a negative msr value . ( 2 ) amounts primarily represent negative fair values reclassified from the msr asset to reserves as underlying loans are removed from the msr and other reclassification adjustments . mr. cooper group inc. - 2019 annual report on form 10-k 50 the following table sets forth the weighted-average assumptions in estimating the fair value of forward msrs . table 16. msrs - fair value replace_table_token_21_th the discount rate for credit sensitive and interest sensitive msrs as of december 31 , 2019 remained consistent compared to december 31 , 2018 .
| mr. cooper group inc. - 2019 annual report on form 10-k 34 table 2. provision for income taxes replace_table_token_5_th ( 1 ) refer to basis of presentation section for discussion on presentation of combined results . ( 2 ) effective tax rate is calculated using whole numbers . income tax benefit decreased for the year ended december 31 , 2019 as compared to the same period in 2018 , on a combined basis , primarily driven by a decrease in the release of the valuation allowance associated with the pre-merger net operating loss ( “ nol ” ) carryforwards , as well as state adjustments and permanent differences . the release of the valuation allowance decreased from $ 990 for the five months ended december 31 , 2018 to $ 285 for the year ended december 31 , 2019 . the effective tax rate for the year ended december 31 , 2019 was 7718.8 % as compared to the effective tax rate of 742.4 % and 23.8 % for the five months ended december 31 , 2018 and the seven months ended july 31 , 2018 , respectively . the increase in the effective tax rate in 2019 as compared to the five months ended december 31 , 2018 resulted from adjustments having a relatively higher impact on the effective tax rate due to a significantly lower loss before income tax benefit of $ 3 in 2019 as compared to loss before income tax benefit of $ 137 in the five months ended december 31 , 2018 . the relative impact of adjustments to the effective tax rate will significantly increase as the income ( loss ) before income tax expense ( benefit ) approaches zero . segment results we have four reportable segments : servicing , originations , xome , and corporate/other . the servicing segment performs operational activities on behalf of investors or owners of the underlying mortgages , including collecting and disbursing borrower payments , investor reporting , customer service , modifying loans where appropriate to help borrowers stay current , and , when necessary , performing collections , foreclosures , and the sale of reo . the originations segment originates residential mortgage loans through our direct-to-consumer channel , which provides
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peng k. lim , the company 's former chief executive officer ended his employment on september 10 , 2012. subsequently , the company and mr. lim entered into an agreement and release ( the agreement ) effective march 1 , 2013. pursuant to the agreement , mr. lim resigned as chief executive officer and from the company 's board of directors effective september 10 , 2012. mr. lim resigned as a director to pursue a new business venture in the consumer electronics industry . the company and mr. lim agreed to general releases from liability and customary restrictive covenants , and the company agreed to pay mr. lim 's attorneys ' fees of $ 30 thousand . mr. lim will not receive any other compensation . kevin g. lynch , the chairman of the company 's board of directors , is serving as acting chief executive officer until mr. lim 's replacement is named . mr. lynch is serving as advisor to the company at a monthly fee of $ 20 thousand . story_separator_special_tag consolidated accumulated deficit of $ 122.2 million as of december 31 , 2012. during the year ended december 31 , 2012 , the company generated net loss attributed to mti of $ 2.1 million , cash used in operating activities totaling $ 1.5 million and had working capital of $ 1.4 million , a $ 1.8 million decrease from $ 3.1 million at december 31 , 2011. this decrease was primarily attributed to cash used to fund operations during a loss year . during the second half of 2012 , the company continued its transitional phase and implemented personnel reductions throughout the organization while scaling back on discretionary spending to reduce future cash burn . these reductions , on an annualized basis , equated to approximately $ 1.0 million in cost savings . however , since this overall restructuring of the company occurred late in 2012 , the full impact of these savings will not be realized until 2013 and beyond . as such , management believes that the reorganized company currently has adequate resources to avoid any other cost cutting measures which could adversely affect the business . as of december 31 , 2012 , we had no debt , no outstanding commitments for capital expenditures , approximately $ 289 thousand of cash available and $ 400 thousand available from our existing line of credit at mti instruments to fund our future operations . if production levels rise at mti instruments , additional capital equipment may be required in the foreseeable future . we expect to spend approximately $ 125 thousand on capital equipment and $ 1.4 million in research and development on mti instruments ' products during 2013. we expect to finance any such potential future expenditures and continue funding our operations from our current cash position , our projected 2013 cash flow pursuant to management 's current plan and draw downs from our existing $ 400 thousand line of credit at mti instruments . we may also seek to supplement our resources through the sales of stock , or assets , including our investment in mti micro . besides the $ 400 thousand line of credit at mti instruments , we have no other commitments for funding future needs of the organization at this time and such additional financing during 2013 may not be available to us on acceptable terms , if at all . while it can not be assured , the new management team believes that , due in part to our backlog at december 31 , 2012 of $ 1.6 million , the aforementioned cost reductions implemented in the second half of 2012 , recent replacements in sales staff and projected inventory reductions , the company expects to resume positive cash flows in 2013 to fund the company 's operations for the foreseeable future . however , if near-term revenue estimates are delayed or missed , the company will need to implement additional steps to ensure liquidity including , but not limited to , the deferral of planned capital spending , postponing anticipated new hires and or delaying existing or pending product development initiatives . such steps , if required , could potentially have a material and adverse effect on the business . 19 although mti micro continues to believe in the potential of its mobion ® based power solutions , operations have been suspended since late 2011 at mti micro until such time as market demand and other deciding factors , including obtaining additional external financing , the successful completion of customer trials , a new development program with a government agency , and or a customer order , come to fruition . mti micro will continue to seek additional capital from external sources to resume operations and fund future development , if any . if mti micro is unable to secure additional financing , a new development program or customer order , the mti micro board of directors will assess other options for mti micro , including the sale of its intellectual property portfolio and or remaining assets . line of credit on september 20 , 2011 , mti instruments entered into a working capital line of credit with first niagara bank , n.a . pursuant to the demand grid note , mti instruments may borrow from time to time up to $ 400 thousand to support its working capital needs . the note is payable upon demand , and the interest rate on the note is equal to the prime rate with a floor of 4.0 % per annum . the note is secured by a lien on all of the assets of mti instruments and is guaranteed by the company . the line of credit was renewed on may 7 , 2012. the line of credit is subject to a review date of june 30 , 2013. under the line of credit , mti instruments is required to hold a line balance of $ 0 for 30 consecutive days out during each consecutive year . story_separator_special_tag as of december 31 , 2012 and december 31 , 2011 there were no amounts outstanding under the line of credit . backlog , inventory and accounts receivable at december 31 , 2012 , the company 's order backlog was $ 1.6 million , compared to $ 861 thousand at december 31 , 2011 due to the timing of shipments of aviation balancing systems , accessory kits and cable sets , predominately at the request of customers . our inventory turnover ratios and average accounts receivable days outstanding for the years ended december 31 , 2012 and 2011 and their changes are as follows : replace_table_token_5_th the decline in inventory turnover is a result of a 20 % increase in average inventory balances , driven by current production schedules , combined with a 43 % lower sales volume . the average accounts receivable days outstanding improved one day in 2012 compared with 2011 due to improved collection efforts . off-balance sheet arrangements there are no off balance sheet arrangements of the company . contractual payment obligations contractual payment obligations are not required for a smaller reporting company as defined by rule 12b-2 of the exchange act and in item 10 ( f ) ( 1 ) of regulation s-k. as such , we are electing scaled disclosure reporting obligations and therefore are not required to provide the information required under this item . market risk market risk is the risk that changes in market conditions will adversely affect earnings or cashflow . we categorize our market risks as interest rate risk and credit risk . immediately below are detailed descriptions of the market risks and explanations as to how each of these risks are managed . interest rate risk . interest rate risk is the risk that changes in interest rates could adversely affect earnings or cashflows . the company 's cash equivalents are sensitive to changes in interest rates . interest rate changes would result in a change in interest income due to the difference between the current interest rates on cash . interest rate risk sensitivity analysis is used to measure interest rate risk by computing estimated changes in cashflow as a result of assumed changes in market interest rates . a 10 % decrease in 2012 interest rates would be immaterial to the company 's consolidated financial statements . credit risk . credit risk is the risk of loss we would incur if counterparties fail to perform their contractual obligations . financial instruments that subject the company to concentrations of credit risk principally consist of cash equivalents , trade accounts receivable and unbilled contract costs . 20 our trade accounts receivable and unbilled contract costs and fees are primarily from sales to commercial customers , the u.s. government and state agencies . we do not require collateral and have not historically experienced significant credit losses related to receivables or unbilled contract costs and fees from individual customers or groups of customers in any particular industry or geographic area . our deposits are primarily in cash and deposited in commercial banks and investment companies . the company has cash deposits in excess of federally insured limits . the amount of such deposits is essentially all cash at december 31 , 2012. critical accounting policies and significant judgments and estimates the following 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 of america . note 2 of the consolidated financial statements in part ii , item 8 of this annual report on form 10-k includes a summary of our most significant accounting policies . the preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets , liabilities , revenue , expenses , and related disclosure of assets and liabilities . on an ongoing basis , we evaluate our estimates and judgments , including those related to revenue recognition , inventories , income taxes , share-based compensation and derivatives . we base our estimates on historical experience and on various other factors that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . periodically , we review our critical accounting estimates with the audit committee of our board of directors . the significant accounting policies that we believe are most critical to aid in fully understanding and evaluating our consolidated financial statements include the following : revenue recognition . we recognize product revenue when there is persuasive evidence of an arrangement , delivery of the product to the customer or distributor has occurred , at which time title generally is passed to the customer or distributor , and we have determined that collection of a fixed fee is probable , all of which occur upon shipment of the product . if the product requires installation to be performed by us , all revenue related to the product is deferred and recognized upon the completion of the installation . we recognize revenue from development contracts based upon the relationship of actual costs to estimated costs to complete the contract . these types of contracts typically provide development services to achieve a specific scientific result relating to direct methanol fuel cell technology . some of these contracts require us to contribute to the development effort . the customers for these contracts are commercial customers and various state and federal government agencies . while government agencies are providing revenue , we do not expect the government to be a significant end user of the resulting products . therefore , we do not reduce funded research and product development expense by the funding received .
| information regarding government contracts included in product revenue is as follows : replace_table_token_3_th 17 ( 1 ) contract values represent maximum potential values and may not be representative of actual results . ( 2 ) date represents expiration of contract , which includes the exercise of all four option extensions . ( 3 ) date represents expiration of contract , which includes the exercise of all four option extensions . ( 4 ) date represents expiration of contract , which includes the exercise of two option extensions . cost of product revenue : cost of product revenue in our test and measurement instrumentation segment for the year ended december 31 , 2012 decreased by $ 814 thousand , or 21.5 % , to $ 3.0 million in 2012 from $ 3.8 million in 2011 in conjunction with the aforementioned 42.6 % decrease in product revenue . gross profit , as a percentage of product revenue , decreased to 49.7 % , compared to 63.2 % for the same period in 2011 due to an increase to the inventory reserve to account for potentially obsolete/slow moving inventory , higher production overhead costs related to over staffing during the first half of the year and the change in product mix . unfunded research and product development expenses : unfunded research and product development expenses in our test and measurement instrumentation segment for the year ended december 31 , 2012 increased by $ 122 thousand , or 9.8 % , to $ 1.4 million in 2012 from $ 1.2 million in 2011. this increase was due to additional personnel costs for general engineering and development and increased external development spending . selling , general and administrative expenses : selling , general and administrative expenses in our test and measurement instrumentation segment for the year ended december 31 , 2012 decreased by $ 399 thousand , or 17.3 % , to $ 1.9 million in 2012 from $ 2.3 million in 2011. this decrease is the result of reduced personnel costs . new energy segment funded research and development revenue : there was no funded research and development revenue in our new energy segment
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springfield town center on march 31 , 2015 , we acquired springfield town center in springfield , virginia for aggregate consideration of $ 486.6 million , consisting of the following components : ( i ) the assumption and immediate payoff of $ 263.8 million of indebtedness owed to affiliates of vornado realty l.p. ; ( ii ) 6,250,000 op units valued at $ 145.2 million , ( iii ) liabilities relating to tenant improvements and allowances of $ 14.8 million , ( iv ) the estimated present value ( at the acquisition date ) of the “ earnout ” ( as described below ) of $ 8.6 million , and ( v ) the remainder in cash . the seller is potentially entitled to receive consideration ( the “ earnout ” ) under the terms of the contribution agreement which will be calculated as of march 31 , 2018. the acquisition of springfield town center affects the comparability of our occupancy , real estate revenue , property operating expenses and depreciation and amortization to prior periods . in addition , the debt incurred to finance a portion of the purchase price will cause us to incur interest expense . the impact of the acquisition on our net income , net operating income and funds from operations will depend on rental rates , occupancy and the overall performance of the property . acquisitions and dispositions see note 2 to our consolidated financial statements for a description of our dispositions and acquisition in 2016 , 2015 and 2014 . current economic conditions and our near term capital needs the conditions in the economy have caused fluctuations and variations in retail sales , business and consumer confidence and consumer spending on retail goods . as a result , the sales and profit performance of certain retailers has fluctuated , and in some cases , has led to bankruptcy filings and store closings , at certain anchor tenants in particular . we continue to adjust our plans and actions to take into account the current environment . in particular , we continue to contemplate ways to maintain or reduce our leverage through a variety of means available to us , subject to and in accordance with the terms of our credit agreements . these steps might include ( i ) sales of properties or interests in properties with values in excess of their mortgage loans ( if applicable ) and application of the excess proceeds to debt reduction , or by obtaining capital from joint ventures or other partnerships or arrangements involving our contribution of assets with institutional investors , private equity investors or other reits , and ( ii ) obtaining equity capital , including through the issuance of common or preferred equity securities if market conditions are favorable , or through other actions . capital improvement projects and development we might engage in various types of capital improvement projects at our operating properties . such projects vary in cost and complexity , and can include building out new or existing space for individual tenants , upgrading common areas or exterior areas such as parking lots , or redeveloping the entire property , among other projects . project costs are accumulated in “ construction in progress ” on our consolidated balance sheet until the asset is placed into service , and amounted to $ 97.6 million as of december 31 , 2016 . we are also engaged in several types of projects at our development properties . however , we do not expect to make any significant investment in these projects in the short term other than the fashion outlets of philadelphia . in july 2014 , we entered into a 50/50 joint venture with the macerich company ( “ macerich ” ) to redevelop the gallery at market east in philadelphia , pennsylvania into the fashion outlets of philadelphia ( the “ fashion outlets of philadelphia ” ) . in connection therewith , we contributed and sold real estate assets to the venture , and macerich acquired its interest in the venture and real estate from us for $ 106.8 million in cash . it is expected that both parties will make additional investments in the project . net proceeds after closing costs from the sale of the interests were $ 104.0 million . we used $ 25.8 million of such proceeds to repay a mortgage loan secured by 801 market street , philadelphia , pennsylvania , a property that is part of the fashion outlets of philadelphia , $ 50.0 million to repay the outstanding balance on our 2013 revolving facility , and the remaining proceeds for general corporate purposes . as we redevelop the fashion outlets of philadelphia , operating results in the short term , as measured by sales , occupancy and net operating income , will likely be negatively affected until the newly constructed space is completed , leased and occupied . the joint venture we formed with macerich to develop the fashion outlets of philadelphia has committed to commence and complete a comprehensive redevelopment of that property costing not less than $ 300.0 million within 48 months after commencement of construction , which was march 14 , 2016. our operating partnership , preit associates , and macerich have jointly and severally guaranteed this obligation . 46 we have also committed to significant redevelopment projects at exton square mall , plymouth meeting mall and cumberland mall . the following table sets forth key information regarding our largest current development and redevelopment projects . replace_table_token_17_th ( 1 ) preit 's projected share of costs and total project costs are net of any expected tenant reimbursements , parcel sales , tax credits or other incentives . ( 2 ) total project costs are net of $ 25.0 million of approved public financing grants that will be a reduction of costs . story_separator_special_tag 47 as of december 31 , 2016 , we had unaccrued contractual and other commitments related to our capital improvement projects and development projects at our consolidated properties of $ 186.7 million in the form of tenant allowances and contracts with general service providers and other professional service providers . critical accounting policies critical accounting policies are those that require the application of management 's most difficult , subjective , or complex judgments , often because of the need to make estimates about the effect of matters that are inherently uncertain and that might change in subsequent periods . in preparing the consolidated financial statements , management has made estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements , and the reported amounts of revenue and expenses during the reporting periods . in preparing the consolidated financial statements , management has utilized available information , including our past history , industry standards and the current economic environment , among other factors , in forming its estimates and judgments , giving due consideration to materiality . management has also considered events and changes in property , market and economic conditions , estimated future cash flows from property operations and the risk of loss on specific accounts or amounts in determining its estimates and judgments . actual results may differ from these estimates . in addition , other companies may utilize different estimates , which may affect comparability of our results of operations to those of companies in a similar business . the estimates and assumptions made by management in applying critical accounting policies have not changed materially during 2016 , 2015 and 2014 , except as otherwise noted , and none of these estimates or assumptions have proven to be materially incorrect or resulted in our recording any significant adjustments relating to prior periods . we will continue to monitor the key factors underlying our estimates and judgments , but no change is currently expected . set forth below is a summary of the accounting policy that management believes is critical to the preparation of the consolidated financial statements . this summary should be read in conjunction with the more complete discussion of our accounting policies included in note 1 to our consolidated financial statements . asset impairment real estate investments and related intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the property might not be recoverable . a property to be held and used is considered impaired only if management 's estimate of the aggregate future cash flows , less estimated capital expenditures , to be generated by the property , undiscounted and without interest charges , are less than the carrying value of the property . this estimate takes into consideration factors such as expected future operating income , trends and prospects , as well as the effects of demand , competition and other factors . the determination of undiscounted cash flows requires significant estimates by management , including the expected course of action at the balance sheet date that would lead to such cash flows . subsequent changes in estimated undiscounted cash flows arising from changes in the anticipated action to be taken with respect to the property could impact the determination of whether an impairment exists and whether the effects could materially affect our net income . to the extent estimated undiscounted cash flows are less than the carrying value of the property , the loss will be measured as the excess of the carrying amount of the property over the estimated fair value of the property . assessment of our ability to recover certain lease related costs must be made when we have a reason to believe that the tenant might not be able to perform under the terms of the lease as originally expected . this requires us to make estimates as to the recoverability of such costs . an other than temporary impairment of an investment in an unconsolidated joint venture is recognized when the carrying value of the investment is not considered recoverable based on evaluation of the severity and duration of the decline in value . to the extent impairment has occurred , the excess carrying value of the asset over its estimated fair value is charged to income . if there is a triggering event in relation to a property to be held and used , we will estimate the aggregate future cash flows , less estimated capital expenditures , to be generated by the property , undiscounted and without interest charges . in addition , this estimate may consider a probability weighted cash flow estimation approach when alternative courses of action to recover the carrying amount of a long-lived asset are under consideration or when a range of possible values is estimated . in determining the estimated undiscounted cash flows of the property or properties that are being analyzed for impairment of assets , we take the sum of the estimated undiscounted cash flows , generally assuming a holding period of 10 years , plus a terminal value calculated using the estimated net operating income in the eleventh year and terminal capitalization rates , which in 2016 ranged from 5.0 % to 10.0 % , in 2015 ranged from 4.50 % to 15.5 % and in 2014 ranged from 5.25 % to 12.5 % as further 48 detailed in note 2 to our consolidated financial statements , in 2016 , 2015 and 2014 , as a result of our analysis , we determined that five , seven and three properties , respectively , had incurred impairment of assets . new accounting developments see note 1 to our consolidated financial statements for descriptions of new accounting developments .
| from 2015 to 2016 , total occupancy for our retail portfolio increased 50 basis points to 95.7 % , and mall occupancy increased 80 basis points to 95.9 % , including consolidated and unconsolidated properties ( and including all tenants irrespective of the term of their agreement ) . same store mall occupancy increased 80 basis points to 95.9 % , including consolidated and unconsolidated properties ( and including all tenants irrespective of the term of their agreement ) . 49 leasing activity the table below sets forth summary leasing activity information with respect to our properties for the year ended december 31 , 2016 , including anchor and non anchor space at consolidated , unconsolidated and held for sale properties : replace_table_token_19_th _ ( 1 ) initial gross rent renewal spread is computed by comparing the initial rent per square foot in the new lease to the final rent per square foot amount in the expiring lease . for purposes of this computation , the rent amount includes minimum rent , common area maintenance ( “ cam ” ) reimbursements , estimated real estate tax reimbursements and marketing charges , but excludes percentage rent . in certain cases , a lower rent amount may be payable for a period of time until specified conditions in the lease are satisfied . ( 2 ) average renewal spread is computed by comparing the average rent per square foot over the new lease term to the final rent per square foot amount in the expiring lease . for purposes of this computation , the rent amount includes minimum rent and fixed cam reimbursements , but excludes pro rata cam reimbursements , estimated real estate tax reimbursements , marketing charges and percentage rent . ( 3 ) these leasing costs are presented as annualized costs per square foot and are spread uniformly over the initial lease term . ( 4 ) includes 25 leases and 85,603 square feet of gla with respect to our unconsolidated partnerships . we own a 25 % to 50 % interest in each of our unconsolidated properties and do not control such properties . our percentage ownership is not necessarily indicative of the legal and economic implications of our ownership interest . see `` —use of non gaap measures '' for further
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35 factors deriving from the covid-19 response , as well as the oil oversupply , that have and may continue to negatively impact sales , liquidity and gross margins in the future include , but are not limited to : limitations on the ability of our suppliers to provide materials or equipment , limitations on the ability of our employees to perform their work due to illness caused by the pandemic or local , state or federal orders requiring employees to remain at home ; reduction of capital expenditures and discretionary spend ; limitations on the ability of our customers to conduct business ; and limitations on the ability of our customers to pay us on a timely basis . if prolonged , such factors may also negatively affect the carrying values of our property and equipment and intangible assets . we will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal , state or local authorities , or that we determine are in the best interests of our employees , customers and stakeholders . the u.s. government has implemented a number of programs in the wake of the impacts of covid-19 , including the coronavirus aid , relief , and economic security act ( the “ cares act ” ) , the largest relief package in u.s. history , and the main street lending program established by the federal reserve . we qualified for limited aid under the cares act and have deferred payroll tax payments of $ 1.9 million as of december 31 , 2020 under the cares act . our segments our service offerings consist of well completion support , workover , well maintenance , wireline , fluid management , other complementary services , as well as installation , commissioning and operating of modular equipment , which are conducted in three reportable segments , as follows : high specification rigs . provides high-spec well service rigs and complementary equipment and services to facilitate operations throughout the lifecycle of a well . completion and other services . provides wireline completion services necessary to bring a well on production and other ancillary services often utilized in conjunction with our high-spec rig services to enhance the production of a well . processing solutions . provides proprietary , modular equipment for the processing of natural gas . for additional financial information about our segments , please see “ part ii , item 8. financial and supplementary data —note 15 — segment reporting. ” how we evaluate our operations management uses a variety of metrics to analyze our operating results and profitability , which include operating revenues , costs of conducting our operations , operating income ( loss ) and adjusted ebitda , among others . within our high specification rig segment , management uses additional metrics to analyze our activity levels and profitability , including rig hours and rig utilization . how we generate revenues we generate revenues through the provision of a variety of oilfield services . these services are performed under a variety of contract structures , including a long term take‑or‑pay contract and various master service agreements , as supplemented by statements of work , pricing agreements and specific quotes . a portion of our master services agreements include provisions that establish pricing arrangements for a period of up to one year in length . however , the majority of those agreements provide for pricing adjustments based on market conditions . the majority of our services are priced based on prevailing market conditions and changing input costs at the time the services are provided , giving consideration to the specific requirements of the customer . we analyze our revenues by comparing actual revenues to our internal projections for a given period and to prior periods to assess our performance . we believe that revenues are a meaningful indicator of the demand and pricing for our services . rig hours within our high specification rigs segment , we analyze rig hours as an important indicator of our activity levels and profitability . rig hours represent the aggregate number of hours that our well service rigs actively worked during the periods presented . we typically bill customers on an hourly basis during the period that a well service rig is actively working , making rig hours a useful metric for evaluating our profitability . rig utilization within our high specification rigs segment , we analyze rig utilization as a further important indicator of our activity levels and profitability . we measure rig utilization by reference to average monthly hours per rig , which is calculated by 36 dividing ( a ) the approximate , aggregate operating well service rig hours for the periods presented by ( b ) the aggregate number of high specification rigs in our fleet during such period , as aggregated on a monthly basis utilizing a mid-month convention whereby a high-spec rig is added to our fleet during a month , meaning that we have taken delivery of such high-spec rig and is ready for service , is assumed to be in our fleet for one half of such month . we believe that rig utilization as measured by average monthly hours per high-spec rig is a meaningful indicator of the operational efficiency of our core revenue-producing assets , market demand for our well services and our ability to profitably capitalize on such demand . our evaluation of our rig utilization as measured by average monthly hours per rig may not be comparable to that of our competitors . story_separator_special_tag the primary factors that have historically impacted , and will likely continue to impact , our actual aggregate well service rig hours for any specified period are ( i ) customer demand , which is influenced by factors such as commodity prices , the complexity of well completion operations and technological advances in our industry , and ( ii ) our ability to meet such demand , which is influenced by changes in our fleet size and resulting rig availability , as well as weather , employee availability and related factors . the primary factors that have historically impacted , and will likely continue to impact , the aggregate number of high-spec rigs in our fleet during any specified period are the extent and timing of changes in the size of our fleet to meet short-term and expected long-term demand , and our ability to successfully maintain a fleet capable of ensuring sufficient , but not excess , rig availability to meet such demand . costs of conducting our business the principal expenses involved in conducting our business are personnel , repairs and maintenance costs , general and administrative costs , depreciation and amortization and interest expense . we manage the level of our expenses , except depreciation and amortization and interest expense , based on several factors , including industry conditions and expected demand for our services . in addition , a significant portion of the costs we incur in our business is variable based on the quantities of specific services provided and the requirements of such services . direct cost of services and general and administrative expenses include the following major cost categories : ( i ) personnel costs and ( ii ) equipment costs ( including repair and maintenance ) . personnel costs associated with our operational employees represent a significant cost of our business . a substantial portion of our labor costs is attributable to our crews and is partly variable based on the requirements of specific customers and operations . a key component of personnel costs relates to the ongoing training of our employees , which improves safety rates and reduces attrition . we also incur costs to employ personnel to support and manage our services and perform maintenance on our assets . costs for these employees are not directly tied to our level of business activity . we incur significant equipment costs in connection with the operation of our business , including repair and maintenance costs , as well as direct material costs . operating income ( loss ) we analyze our operating income ( loss ) , which we define as revenues less cost of services , general and administrative expenses , depreciation and amortization , impairment and other operating expenses , to measure our financial performance . we believe operating income ( loss ) is a meaningful metric because it provides insight on profitability and true operating performance based on the historical cost basis of our assets . we also compare operating income ( loss ) to our internal projections for a given period and to prior periods . adjusted ebitda we view adjusted ebitda , which is a non‑gaap financial measure , as an important indicator of performance . we define adjusted ebitda as net income or loss before net interest expense , income tax provision or benefit , depreciation and amortization , equity‑based compensation , acquisition‑related and severance costs , impairment of goodwill and other non‑cash and certain other items that we do not view as indicative of our ongoing performance . see “ —results of operations ” and “ —note regarding non‑gaap financial measure ” for more information and reconciliations of net income ( loss ) to adjusted ebitda , the most directly comparable financial measure calculated and presented in accordance with gaap . 37 story_separator_special_tag during the year ended december 31 , 2019 , across all operating segments . gain on debt retirement . gain on debt retirement increased $ 2.1 million , or 100 % , to $ 2.1 million for the year ended december 31 , 2020 , which is attributable to the settlement of the esco seller 's notes during the year ended december 31 , 2020. interest expense , net . net interest expense decreased $ 2.4 million , or 41 % , to $ 3.4 million for the year ended december 31 , 2020 from $ 5.8 million for the year ended december 31 , 2019. the decrease to net interest expense was attributable to the reduction of the principal balances on our encina master financing agreement ( “ financing agreement ” ) and credit facility . tax expense . tax expense decreased $ 2.2 million , or 100 % from $ 2.2 million for the year ended december 31 , 2019. the decrease was primarily attributable to the net loss incurred during the year ended december 31 , 2020 compared to net income generated during the year ended december 31 , 2019. note regarding non‑gaap financial measure adjusted ebitda is not a financial measure determined in accordance with us gaap . we define adjusted ebitda as net income or loss before net interest expense , income tax provision or benefit , depreciation and amortization , equity‑based compensation , acquisition-related , severance and reorganization costs , gain or loss on disposal of assets , and certain other non-cash items that we do not view as indicative of our ongoing performance . we believe adjusted ebitda is a useful performance measure because it allows for an effective evaluation of our operating performance when compared to our peers , without regard to our financing methods or capital structure . we exclude the items listed above from net income or loss in arriving at adjusted ebitda because these amounts can vary substantially within our industry depending upon accounting methods , book values of assets , capital structures and the method by which the assets were acquired . adjusted ebitda should not be considered as an alternative to , or more meaningful than , net income or loss determined in accordance with us gaap .
| completion and other services revenues decreased $ 85.8 million , or 47 % , to $ 98.5 million for the year ended december 31 , 2020 from $ 184.3 million for the year ended december 31 , 2019. the decrease is primarily attributable to our wireline business , which accounted for approximately $ 56.0 million , or 65 % , of the segment revenue decrease . the decrease in wireline services revenue included a 36 % decrease in average active wireline units to seven units for the year ended december 31 , 2020 , from 11 units for the year ended december 31 , 2019. all other service lines within the segment also experienced revenue declines due to the deterioration of crude oil pricing . processing solutions . processing solutions revenues decreased $ 13.7 million , or 67 % , to $ 6.8 million for the year ended december 31 , 2020 from $ 20.5 million for the year ended december 31 , 2019. the decrease was primarily attributable 38 to a decline in mobilization and maintenance revenue related to our mechanical refrigeration units ( “ mru ” ) . additionally revenues related to mru rentals declined $ 5.0 million and included an 80 % decrease in average mru 's rented . cost of services . cost of services decreased $ 115.1 million , or 44 % , to $ 147.9 million for the year ended december 31 , 2020 from $ 263.0 million for the year ended december 31 , 2019. as a percentage of revenue , cost of services was approximately 78 % for both of the years ended december 31 , 2020 and 2019. the change in cost of services by segment was as follows : high specification rigs . high specification rig cost of services decreased $ 43.3 million , or 38 % , to $ 71.5 million for the year ended december 31 , 2020 from $ 114.8 million for the year ended december 31 , 2019. the decrease was primarily attributable to a reduction in variable expenses , notably employee costs and repair and maintenance costs . additionally , the reduction corresponds with the decrease in rig hours and revenues . completion and other services . completion and other services cost of services decreased $ 65.3 million , or
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● also during 2013 , the company sold eight properties in its latin american portfolio for an aggregate sales price of $ 115.4 million . these transactions , which are included in discontinued operations , resulted in an aggregate gain of $ 23.3 million , before income taxes , and aggregate impairment charges of $ 26.9 million ( including the release of the cumulative foreign currency translation loss of $ 7.8 million associated with the sale of the company 's interest in two properties within brazil , which represents a full liquidation of the company 's investment in brazil ) , before income taxes and noncontrolling interests . ● during 2013 , the company reduced its non-retail book values by $ 337.3 million , of which $ 304.7 million was monetized . as of december 31 , 2013 , these investments had a book value of $ 61.2 million . joint venture investments activity ( see footnote 7 of the notes to consolidated financial statements ) : ● during june 2013 , the intown portfolio was sold for a sales price of $ 735.0 million which included the assignment of $ 609.2 million in debt . this transaction resulted in a deferred gain to the company of $ 21.7 million due to the company 's continued guarantee of a portion of the assumed debt . ● also during 2013 , kimco increased its ownership interest in three institutional joint ventures through the acquisition of additional equity interests totaling $ 153.0 million : kimco income fund ( kif ) joint venture from 15.2 % to 39.5 % ; the kimco income reit ( kir ) joint venture from 45.0 % to 48.6 % ; and the kimstone joint venture ( formerly the kimco-ubs joint venture ) from 18.0 % to 33.3 % . ● during the year ended december 31 , 2013 , the company and its joint venture partner sold their noncontrolling ownership interest in a joint venture which held interests in 84 operating properties located throughout mexico for $ 603.5 million ( including the assignment of $ 301.2 million in debt ) . this transaction resulted in a net gain to the company of $ 78.2 million , before income taxes of $ 25.1 million . ● additionally , during the year ended december 31 , 2013 , joint ventures in which the company held noncontrolling interests sold 20 operating properties located throughout mexico and chile for $ 341.9 million . these transactions resulted in an aggregate net gain to the company of $ 22.4 million , after income tax . capital activity ( for additional details see liquidity and capital resources below ) : ● during 2013 , the company issued $ 350.0 million of 10-year senior unsecured notes at an interest rate of 3.125 % payable semi-annually in arrears which are scheduled to mature in june 2023. net proceeds from the issuance were $ 344.7 million , after related transaction costs of $ 0.5 million . ● additionally , during 2013 , a wholly-owned subsidiary of the company issued $ 200.0 million canadian denominated ( “ cad ” ) series 4 unsecured notes on a private placement basis in canada . the notes bear interest at 3.855 % and are scheduled to mature on august 4 , 2020. these proceeds were used to repay the company 's cad $ 200.0 million 5.180 % unsecured notes , which matured on august 16 , 2013 . ● also during 2013 , the company repaid ( i ) its $ 100.0 million 6.125 % senior unsecured notes , which matured in january 2013 , ( ii ) its $ 75.0 million 4.70 % senior unsecured notes , which matured in june 2013 and ( iii ) its $ 100.0 million 5.190 % senior unsecured notes which matured on october 1 , 2013 . ● the company also entered into a new five year 1.0 billion mexican peso ( “ mxn ” ) term loan which matures in march 2018. this term loan bears interest at a rate equal to tiie ( equilibrium interbank interest rate ) plus 1.35 % . the company used these proceeds to repay its 1.0 billion mxn term loan , which matured in march 2013 and bore interest at a fixed rate of 8.58 % . 18 impairments ( see footnote 6 of the notes to consolidated financial statements ) : ● in connection with the company 's efforts to market certain assets and management 's assessment as to the likelihood and timing of such potential transactions , the company recognized impairment charges of $ 190.2 million ( including $ 98.8 million which is classified within discontinued operations ) , before income tax benefit and noncontrolling interests . ( see footnote 4 of the notes to consolidated financial statements included in this annual report on form 10-k ) . ● in addition to the impairment charges above , various unconsolidated joint ventures in which the company holds noncontrolling interests recognized impairment charges relating to certain properties during 2013. the company 's share of these charges was $ 29.5 million ( see footnote 7 of the notes to consolidated financial statements included in this annual report on form 10-k ) . ● also during 2013 , the company acquired the remaining interest in a portfolio of office properties from a preferred equity investment in which the company held a noncontrolling interest and recognized a change in control loss of $ 9.6 million in connection with the fair value adjustment associated with the company 's original ownership . critical accounting policies the consolidated financial statements of the company include the accounts of the company , its wholly-owned subsidiaries and all entities in which the company has a controlling interest , including where the company has been determined to be a primary beneficiary of a variable interest entity in accordance with the consolidation guidance of the financial accounting standards board 's ( “ fasb ” ) accounting standards codification ( “ asc ” ) . story_separator_special_tag the company applies these provisions to each of its joint venture investments to determine whether the cost , equity or consolidation method of accounting is appropriate . the preparation of financial statements in conformity with accounting principles generally accepted in the united states requires management to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying consolidated financial statements and related notes . in preparing these financial statements , management has made its best estimates and assumptions that affect the reported amounts of assets and liabilities . these estimates are based on , but not limited to , historical results , industry standards and current economic conditions , giving due consideration to materiality . the most significant assumptions and estimates relate to revenue recognition and the recoverability of trade accounts receivable , depreciable lives , valuation of real estate and intangible assets and liabilities , valuation of joint venture investments and other investments , realizability of deferred tax assets and uncertain tax positions . application of these assumptions requires the exercise of judgment as to future uncertainties , and , as a result , actual results could materially differ from these estimates . the company is required to make subjective assessments as to whether there are impairments in the value of its real estate properties , investments in joint ventures , marketable securities and other investments . the company 's reported net earnings are directly affected by management 's estimate of impairments and or valuation allowances . revenue recognition and accounts receivable base rental revenues from rental property are recognized on a straight-line basis over the terms of the related leases . certain of these leases also provide for percentage rents based upon the level of sales achieved by the lessee . these percentage rents are recorded once the required sales level is achieved . operating expense reimbursements are recognized as earned . rental income may also include payments received in connection with lease termination agreements . in addition , leases typically provide for reimbursement to the company of common area maintenance , real estate taxes and other operating expenses . the company makes estimates of the uncollectability of its accounts receivable related to base rents , straight-line rent , expense reimbursements and other revenues . the company analyzes accounts receivable and historical bad debt levels , customer credit-worthiness and current economic trends when evaluating the adequacy of the allowance for doubtful accounts . in addition , tenants in bankruptcy are analyzed and estimates are made in connection with the expected recovery of pre-petition and post-petition claims . the company 's reported net earnings are directly affected by management 's estimate of the collectability of accounts receivable . real estate the company 's investments in real estate properties are stated at cost , less accumulated depreciation and amortization . expenditures for maintenance and repairs are charged to operations as incurred . significant renovations and replacements , which improve and extend the life of the asset , are capitalized . upon acquisition of real estate operating properties , the company estimates the fair value of acquired tangible assets ( consisting of land , building , building improvements and tenant improvements ) and identified intangible assets and liabilities ( consisting of above and below-market leases , in-place leases and tenant relationships , where applicable ) , assumed debt and redeemable units issued at the date of acquisition , based on evaluation of information and estimates available at that date . fair value is determined based on an exit price approach , which contemplates the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date . if , up to one year from the acquisition date , information regarding fair value of the assets acquired and liabilities assumed is received and estimates are refined , appropriate adjustments are made to the purchase price allocation on a retrospective basis . the company expenses transaction costs associated with business combinations in the period incurred . 19 depreciation and amortization are provided on the straight-line method over the estimated useful lives of the assets , as follows : buildings and building improvements 15 to 50 years fixtures , leasehold and tenant improvements terms of leases or useful ( including certain identified intangible assets ) lives , whichever is shorter the company is required to make subjective assessments as to the useful lives of its properties for purposes of determining the amount of depreciation to reflect on an annual basis with respect to those properties . these assessments have a direct impact on the company 's net earnings . on a continuous basis , management assesses whether there are any indicators , including property operating performance and general market conditions , that the value of the real estate properties ( including any related amortizable intangible assets or liabilities ) may be impaired . a property value is considered impaired only if management 's estimate of current and projected operating cash flows ( undiscounted and unleveraged ) of the property over its remaining useful life is less than the net carrying value of the property . such cash flow projections consider factors such as expected future operating income , trends and prospects , as well as the effects of demand , competition and other factors . to the extent impairment has occurred , the carrying value of the property would be adjusted to reflect the estimated fair value of the property . when a real estate asset is identified by management as held-for-sale , the company ceases depreciation of the asset and estimates the sales price of such asset net of selling costs . if , in management 's opinion , the net sales price of the asset is less than the net book value of such asset , an adjustment to the carrying value would be recorded to reflect the estimated fair value of the property .
| million , primarily due to acquisitions of properties during 2013 and 2012 , partially offset by ( vi ) a decrease in insurance expense of $ 2.9 million due to a decrease in insurance claims . ( 3 ) depreciation and amortization increased for the year ended december 31 , 2013 , as compared to the corresponding period in 2012 , primarily due to ( i ) operating property acquisitions during 2013 and 2012 and ( ii ) expensing of unamortized tenant costs related to tenant vacancies prior to their lease expiration , partially offset by ( iii ) certain operating property dispositions during 2013 and 2012 . 21 general and administrative costs include employee-related expenses ( salaries , bonuses , equity awards , benefits , severance costs and payroll taxes ) , professional fees , office rent , travel expense , and other company-specific expenses . general and administrative expenses increased $ 4.0 million to $ 127.9 million for the year ended december 31 , 2013 , as compared to $ 123.9 million for the corresponding period in 2012. this increase is primarily a result of an increase in professional fees related to the company 's response to a subpoena from the enforcement division of the sec and a parallel investigation by the doj , in connection with the investigation of wal-mart stores , inc. with respect to the foreign corrupt practices act ( see item 3 ) . during the year ended december 31 , 2013 , the company recognized impairment charges of $ 190.2 million , of which $ 98.8 million , before income taxes , is included in discontinued operations . these impairment charges consist of ( i ) $ 175.6 million related to adjustments to property carrying values , primarily due to sales or pending sales of properties , ( ii ) $ 10.4 million related to a cost method investment , ( iii ) $ 1.0 million related to certain joint venture investments and ( iv ) $ 3.2 million related to a preferred equity investment . during the year ended december 31 , 2012 , the company recognized impairment charges related to
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