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our contribution of $ 400,000 in cash and $ 9.3 million in common stock to the first federal community foundation ( `` foundation '' ) established in connection with our conversion resulted in a pre-tax , noninterest expense charge of $ 9.7 million and primarily caused our $ 5.1 million net loss during the year ended june 30 , 2015 . the contribution to the foundation , on a net-tax basis , was $ 8.3 million . our business and operating strategy throughout most of our over 90-year history , we have operated as a traditional savings and loan association , attracting deposits and investing those funds primarily in residential mortgage loans and investment securities . during the past decade , recognizing our need to adapt to changing market conditions , we revised our operating strategy to diversify our loan portfolio , expand our deposit product offerings and enhance our infrastructure . certain highlights of our operations in recent years are as follows : 65 repositioning the loan portfolio . we have significantly increased the origination of commercial real estate and multi-family real estate loans , and decreased reliance on originating and retaining longer-term , fixed-rate , owner-occupied residential mortgage loans . this has been done to reduce our exposure to interest rate risk , increase the yield on our loan portfolio and shorten the maturity of the loan portfolio . in addition , given current market conditions , we are not presently emphasizing land and land development loans or construction loans . reorganized and strengthened the senior management team . during the past five years , we have experienced significant management turnover . this has resulted in a change in our senior management team , through promotions as well as external hires . during 2013 we promoted laurence j. hueth from executive vice president , chief financial officer , and chief operating officer to president and chief executive officer , regina m. wood was promoted from vice president and controller to executive vice president and chief financial officer and kelly a. liske was promoted from vice president and commercial relationship manager to executive vice president and chief banking officer . mr. hueth , ms. wood , and ms. liske have collectively been with first federal for 18 years and collectively possess over 50 years industry experience . christopher a. donohue was hired as executive vice president and chief credit officer with over 30 years industry experience outside of the state of washington . jeffrey s. davis was hired during fiscal 2015 and currently holds the position of executive vice president and chief operations officer with over 25 years industry experience . the senior management team consists of nine individuals , and these individuals are primarily responsible for the design and implementation of our business plan . selling residential mortgage loans into the secondary market . since 2009 , we have generally sold most newly originated and refinanced , conforming single-family owner-occupied mortgage loans into the secondary market on a servicing retained or servicing released basis . this strategy has helped to reduce our exposure to interest rate risk and increase our noninterest income . after reducing the retention of one- to four-family residential loans , in 2012 we began selectively adding non-conforming 30-year fixed-rate mortgages to the portfolio in an effort to meet increasing consumer demand as well as to enhance our net interest income . adding new deposit capabilities . historically , we have offered traditional consumer and business deposit products . over the past several years , we have added remote deposit capture , consumer and business on-line banking and consumer mobile banking capabilities . at our new kitsap county branch location , we implemented interactive tellers machines , allowing our customers to conduct business with a teller through the video monitor . the board and management remain committed to maintaining competitive deposit products and services . enhancing our infrastructure . over the past several years , we have focused on upgrading our infrastructure , both in terms of equipment and personnel , in order to support our changing lending and deposit capabilities and position ourselves for growth . our objective is to develop first federal into an independent high performing bank focused on meeting the needs of individuals , small businesses and community organizations in the puget sound region through exceptional service and competitive products . after the conversion and offering , we intend to implement these strategies to achieve our objective : increasing our portfolio of higher yielding commercial loans . through increased loan originations and purchases , we intend to increase our loan to deposit ratio and the percentage of our loan portfolio consisting of higher-yielding commercial real estate and commercial business loans . these loan categories offer higher risk-adjusted returns , shorter maturities and more sensitivity to interest rate fluctuations than traditional fixed-rate , one- to four-family residential loans . our commercial real estate , commercial business and multi-family real estate loans have increased from $ 99.8 million , or 23.2 % of total loans , at june 30 , 2011 , to $ 173.5 million , or 35.1 % of total loans , at june 30 , 2015 . the increase resulted in part from developing relationships with new loan referral sources , including our board of directors and loan brokers , pursuing loan purchase and participation opportunities , competing successfully in new and existing markets , and benefiting from the improvement of the economy in northwestern washington . maintaining our focus on asset quality . we believe that strong asset quality is a key to our long-term financial success . we are focused on monitoring existing performing loans , resolving nonperforming loans and selling foreclosed assets . nonperforming assets have decreased from $ 16.5 million at june 30 , 2011 , to $ 6.8 million at june 30 , 2015 . the level of our nonperforming assets has been reduced through write-downs , collections , modifications and sales of real estate owned and repossessed assets . story_separator_special_tag we have taken proactive steps to resolve our nonperforming loans , including negotiating repayment plans , forbearances , loan modifications and loan extensions with our borrowers when appropriate . we have also accepted short payoffs on delinquent loans , particularly when such payoffs result in a smaller loss to us than foreclosure . we also retain the services of independent firms to periodically review segments of our loan portfolio and 66 provide comments regarding our loan policies and procedures . given current market conditions , we are not presently emphasizing land and land development loans or construction loans . our exposure to these categories of loans has declined to $ 19.1 million at june 30 , 2015 compared to $ 23.6 million at june 30 , 2011 . attracting core deposits and other deposit products . our strategy is to emphasize relationship banking with our customers to obtain a greater share of their deposits , with specific emphasis on their core transaction accounts . we believe this emphasis will help to increase our level of core deposits and locally-based retail certificates of deposit . in addition to our retail branches , we maintain state-of-the-art technology-based products , such as on-line personal financial management , business online banking , business remote deposit products , mobile remote deposit services through smartphones and tablets , account-to-account transfer services between first federal and other banks , and person to person funds transfer through smartphones and tablets that enable us to compete effectively with banks of all sizes . we recently enhanced our integrated mobile banking platform by introducing applications for both smartphones and tablets and we have begun implementing a new branching structure that includes extended banking hours through the use of interactive teller machines . expanding our market presence and capturing business opportunities resulting from changes in the competitive environment . by delivering high quality , customer-focused products and services , we believe we can attract additional borrowers and depositors and thus increase our market share and revenue generation in our primary market area . as the local economy continues to recover and loan demand strengthens , we also believe that opportunities will exist in the puget sound region to expand our franchise . we are planning up to four new branch openings in the contiguous counties in the puget sound region during the next three years . we also expect that community bank consolidation will continue to take place and we may consider acquiring individual branches or other banks . we do not , however , currently have any understandings or agreements regarding any specific acquisitions and will be disciplined when evaluating and deciding on future acquisitions , recognizing that there may also be opportunity for increasing our market share as a result of customer dissatisfaction from other transactions or changes in strategy of market competitors . our primary focus for expansion will be in the northwest washington markets we know and understand , although we may consider opportunities that arise in other parts of western washington . hiring experienced employees with a customer sales and service focus . our goal is to compete by relying on the strength of our customer service and relationship building . we believe that our ability to continue to attract and retain banking professionals who have a significant knowledge of existing and new market areas , possess strong business banking sales and service skills , and maintain a focus on community relationships will enhance our success . we intend to hire additional lenders and business development officers who are established in their communities to enhance our market position and add profitable growth opportunities . critical accounting policies we have certain accounting policies that are important to the assessment of our financial condition , since they require management to make difficult , complex or subjective judgments , some of which may relate to matters that are inherently uncertain . estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances . facts and circumstances which could affect these judgments include , but are not limited to , changes in interest rates , changes in the performance of the economy and changes in the financial condition of borrowers . our accounting policies are discussed in detail in note 1 of the notes to consolidated financial statements included in `` item 8. financial statements and supplementary data . '' the following represent our critical accounting policies : allowance for loan losses . the allowance for loan losses is the amount estimated by management as necessary to cover losses inherent in the loan portfolio as of balance sheet date . the allowance is established through the provision for loan losses , which is charged to income . determining the amount of the allowance for loan losses necessarily involves a high degree of judgment . among the material estimates required to establish the allowance are : the likelihood of default ; the loss exposure at default ; the amount and timing of future cash flows on impaired loans ; the value of collateral ; and the determination of loss factors to be applied to the various elements of the portfolio . all of these estimates are susceptible to significant change . management reviews , and the board of directors approves , at least quarterly , the level of the allowance and the provision for loan losses based on past loss experience , current economic conditions and other factors related to the collectability of the loan portfolio . although we believe that we use the best information available to establish the allowance for loan losses , future adjustments to the allowance may be necessary if economic or other conditions differ substantially from the assumptions used in making the evaluation . in addition , the fdic and the dfi , as an integral part 67 of their examination process , periodically review our allowance for loan losses and may require us to recognize adjustments to the allowance based on their judgment about information available at the time of their examination .
| total interest income increased $ 764,000 , or 3.0 % , to $ 26.6 million for the year ended june 30 , 2014 , from $ 25.8 million for the comparable period in 2013. interest income on loans increased $ 432,000 , or 2.0 % , during the year ended june 30 , 2014 , reflecting an increase of $ 50.9 million in the average balance of net loans receivable outstanding for the year ended june 30 , 2014 , compared to the comparable period in 2013. during the year ended june 30 , 2014 , average loan yields decreased 46 basis points as higher yielding loans continued to pay off and were replaced with loans at lower interest rates . interest income on investment securities increased $ 248,000 to $ 1.1 million for the year ended june 30 , 2014 , compared to $ 901,000 for the year ended june 30 , 2013. the average balance of our investment securities increased $ 1.0 million to $ 61.6 million for the year ended june 30 , 2014 , compared to $ 60.6 million for the year ended june 30 , 2013. the yield on investment securities for the year ended june 30 , 2014 increased 37 basis points due to slowing prepayment activity , which reduced premium amortization , and higher reinvestment rates available in 2014. interest income on mortgage-backed securities increased by $ 91,000 , primarily due to slowing amortization of premiums along with the reinvestment of repayments and proceeds from sales of such securities into higher yielding mortgage-backed securities . the following table compares average earning asset balances , associated yields , and resulting changes in interest income for the year ended june 30 , 2014 and 2013 : 76 replace_table_token_31_th interest expense . total interest expense decreased $ 1.3 million , or 21.2 % , to $ 4.7 million for the year ended june 30 , 2014 , compared to $ 6.0 million for the year ended june 30 , 2013 , primarily due to a restructuring of $ 89.9 million in fhlb advances in april 2013. the restructuring lengthened maturities by 47 months and decreased the
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summary of acquisition activity replace_table_token_10_th critical accounting policies the accounting and financial reporting policies of the company conform to generally accepted accounting principles in the united states ( gaap ) and to general practices within the banking industry . accordingly , the financial statements require certain estimates , judgments and assumptions , which are believed to be reasonable , based upon the information available . these estimates and assumptions affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of income and expenses during the periods presented . the following accounting policies comprise those that management believes are the most critical to aid in fully understanding and evaluating our reported financial results . these policies require numerous estimates or economic assumptions that may prove inaccurate or may be subject to variations which may significantly affect our reported results and financial condition for the period or in future periods . allowance for loan losses . the allowance for loan losses on loans in our portfolio is maintained at an amount which management determines covers the reasonably estimable and probable losses on such portfolio . the allowance for loan losses is established through a provision for loan losses charged to expense . loans are charged 21 against the allowance for loan losses when management believes that the collectability of the principal is unlikely . subsequent recoveries are added to the allowance . the allowance is an amount that represents the amount of probable and reasonably estimable known and inherent losses in the loan portfolio , based on evaluations of the collectability of loans . the evaluations take into consideration such factors as changes in the types and amount of loans in the loan portfolio , historical loss experience , adverse situations that may affect the borrower 's ability to repay , estimated value of any underlying collateral , estimated losses relating to specifically identified loans and current economic conditions . this evaluation is inherently subjective as it requires material estimates including , among others , exposure to default , the amount and timing of expected future cash flows on loans , value of collateral , estimated losses on our commercial and residential loan portfolios as well as consideration of general loss experience . all of these estimates may be susceptible to significant change . while management uses the best information available to make loan loss allowance evaluations , adjustments to the allowance may be necessary based on changes in economic and other conditions or changes in accounting guidance . the occ , as an integral part of its examination processes , periodically reviews our allowance for loan losses . the occ may require the recognition of adjustments to the allowance for loan losses based on their judgment of information available to them at the time of their examinations . to the extent that actual outcomes differ from management 's estimates , additional provisions to the allowance for loan losses may be required that would adversely impact earnings in future periods . as part of the risk management program , an independent review is performed on the loan portfolio , which supplements management 's assessment of the loan portfolio and the allowance for loan losses . the result of the independent review is reported directly to the audit committee of the board of directors . acquired loans were recorded at fair value at the date of acquisition with no carryover of the allowance for loan losses . as of december 31 , 2017 , our allowance for loan losses included $ 504,000 allocated to acquired loans since the date of acquisition . our accounting policy for acquired loans is described below . accounting for loans . the following describes the distinction between originated and acquired loans and certain significant accounting policies relevant to each category . originated loans loans originated for investment are reported at the principal balance outstanding net of unearned income . interest on loans and accretion of unearned income are computed in a manner that approximates a level yield on recorded principal . interest on loans is recorded as income as earned . the accrual of interest on an originated loan is discontinued when it is probable the borrower will not be able to meet payment obligations as they become due . the company maintains an allowance for loan losses on originated loans that represents management 's estimate of probable losses incurred in this portfolio category . acquired loans acquired loans are those collectively associated with our acquisitions of statewide , gsfc , britton & koontz , bno and smb . these loans were recorded at estimated fair value at the acquisition date with no carryover of the related allowance for loan losses . the acquired loans were segregated as of the date of acquisition between those considered to be performing ( acquired performing ) and those with evidence of credit deterioration ( acquired impaired ) , and then further segregated into loan pools designed to facilitate the estimation of expected cash flows . the fair value estimate for each pool of acquired performing and acquired impaired loans was based on the estimate of expected cash flows , both principal and interest , from that pool , discounted at prevailing market interest rates . the difference between the fair value of an acquired performing loan pool and the contractual amounts due at the acquisition date ( the fair value discount ) is accreted into income over the estimated life of the pool . management estimates an allowance for loan losses for acquired performing loans using a methodology similar to that used for originated loans . the allowance determined for each loan pool is compared to the remaining fair value discount for that pool . if the allowance amount calculated under the company 's methodology is greater than the company 's remaining discount , the additional amount called for is added to the reported allowance through a provision for loan losses . story_separator_special_tag if the allowance amount calculated under the company 's methodology is less than the company 's recorded discount , no additional allowance or provision is recognized . actual losses first reduce any remaining fair value discount for the loan pool . once the discount is fully depleted , losses are applied against the allowance established for that pool . acquired performing loans are placed on nonaccrual status and considered and reported as nonperforming or past due using the same criteria applied to the originated portfolio . 22 the excess of cash flows expected to be collected from an acquired impaired loan pool over the pool 's estimated fair value at acquisition is referred to as the accretable yield and is recognized in interest income using an effective yield method over the remaining life of the pool . each pool of acquired impaired loans is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows . management recasts the estimate of cash flows expected to be collected on each acquired impaired loan pool periodically . if the present value of expected cash flows for a pool is less than its carrying value , an impairment is recognized by an increase in the allowance for loan losses and a charge to the provision for loan losses . if the present value of expected cash flows for a pool is greater than its carrying value , any previously established allowance for loan losses is reversed and any remaining difference increases the accretable yield which will be taken into interest income over the remaining life of the loan pool . acquired impaired loans are generally not subject to individual evaluation for impairment and are not reported with impaired loans , even if they would otherwise qualify for such treatment . business combinations . assets and liabilities acquired in business combinations are recorded at their fair value . in accordance with asc topic 805 , business combinations , the company generally records provisional amounts at the time of acquisition based on the information available to the company . the provisional estimates of fair values may be adjusted for a period of up to one year ( measurement period ) from the date of acquisition if new information is obtained . subsequently , adjustments recorded during the measurement period are recognized in the current reporting period . income taxes . we make estimates and judgments to calculate some of our tax liabilities and determine the recoverability of some of our deferred tax assets ( dta ) , which arise from temporary differences between the tax and financial statement recognition of revenues and expenses and enacted changes in tax rates and laws are recognized in the period in which they occur . we also estimate a valuation allowance for deferred tax assets if , based on the available evidence , it is more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods . these estimates and judgments are inherently subjective . historically , our estimates and judgments to calculate our deferred tax accounts have not required significant revision to our initial estimates . in evaluating our ability to recover deferred tax assets , we consider all available positive and negative evidence , including our past operating results , recent cumulative losses and our forecast of future taxable income . in determining future taxable income , we make assumptions for the amount of taxable income , the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies . these assumptions require us to make judgments about our future taxable income and are consistent with the plans and estimates we use to manage our business . any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets . an increase in the valuation allowance would result in additional income tax expense in the period and could have a significant impact on our future earnings . other-than-temporary impairment of investment securities . securities are evaluated periodically to determine whether a decline in their fair value is other-than-temporary . the term other-than-temporary is not intended to indicate a permanent decline in value . rather , it means that the prospects for near term recovery of value are not necessarily favorable , or that there is a lack of evidence to support fair values equal to , or greater than , the carrying value of the investment . management reviews criteria such as the magnitude and duration of the decline , the reasons for the decline and the performance and valuation of the underlying collateral , when applicable , to predict whether the loss in value is other-than-temporary and the intent and ability of the company to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value . once a decline in value is determined to be other-than-temporary , the carrying value of the security is reduced to its fair value and a corresponding charge to earnings is recognized for the decline in value determined to be credit related . the decline in value attributable to noncredit factors is recognized in other comprehensive income . stock-based compensation . the company accounts for its stock options in accordance with asc topic 718 , compensation stock compensation . asc 718 requires companies to expense the fair value of employee stock options and other forms of stock-based compensation . management utilizes the black-scholes option valuation model to estimate the fair value of stock options . the option valuation model requires the input of highly subjective assumptions , including expected stock price volatility and option life . these subjective input assumptions materially affect the fair value estimate . 23 financial condition loans , loan quality and allowance for loan losses loans the types of loans originated by the company are subject to federal and state laws and regulations .
| the increases in 2016 compared to 2015 were primarily due to increases in average loans and deposits due to the full year impact of the louisiana bancorp acquisition . the company 's net interest spread was 4.32 % , 4.22 % and 4.32 % for the years ended december 31 , 2017 , 2016 and 2015 , respectively . the company 's net interest margin , which is net interest income as a percentage of average interest-earning assets , was 4.48 % , 4.34 % and 4.43 % during the years ended december 31 , 2017 , 2016 and 2015 , respectively . the following table sets forth , for the periods indicated , information regarding ( i ) the total dollar amount of interest income to the company from interest-earning assets and the resultant average yields ; ( ii ) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average rate ; ( iii ) net interest income ; ( iv ) net interest spread ; and ( v ) net interest margin . information is based on average monthly balances during the indicated periods . taxable equivalent ( te ) yields have been calculated using a marginal tax rate of 35 % . replace_table_token_23_th 33 replace_table_token_24_th ( 1 ) nonperforming loans are included in the respective average loan balances , net of deferred fees , discounts and loans in process . acquired loans were recorded at fair value upon acquisition and accrete interest income over the remaining life of the respective loans . the following table displays the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities . the table distinguishes between ( i ) changes attributable to volume ( changes in average volume between periods times prior year rate ) , ( ii ) changes attributable to rate ( changes in average rate between periods times prior year volume ) and ( iii ) total increase ( decrease ) . replace_table_token_25_th 34 interest income includes interest income earned on earning assets as well as applicable loan fees earned . interest income that would have been earned on nonaccrual loans had they been on accrual status is
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29 lease spread metrics the following table summarizes signed leases that were scheduled or expected to commence in 2014 and 2015 compared to expiring leases in the same suite , for leases where the downtime between new and previous tenant was less than 24 months and the occupied space between the previous tenant and new tenant did not change by more than 10,000 square feet . replace_table_token_18_th _ ( 1 ) represents initial annual rent over the lease consisting of base minimum rent and common area maintenance . ( 2 ) represents expiring rent at end of lease consisting of base minimum rent and common area maintenance . results of operations year ended december 31 , 2014 and 2013 the following table is a breakout of the components of minimum rents : replace_table_token_19_th base minimum rents increased by $ 28.1 million primarily due to a 0.3 % increase in occupancy between december 31 , 2013 and december 31 , 2014 , the acquisition of an additional 50 % of quail springs mall during the second quarter of 2013 , and the acquisition of two operating properties during the fourth quarter of 2013. these increases were partially offset by our contribution of the grand canal shoppes and the shoppes at the palazzo into a joint venture during the second quarter of 2013 , which resulted in lower base minimum rents during the year ended december 31 , 2014 compared to the year ended december 31 , 2013 . tenant recoveries increased $ 22.5 million primarily due to higher fixed operating expense recoveries of approximately $ 11.5 million and higher real estate tax recoveries of approximately $ 9.4 million in 2014. overage rents decreased $ 4.4 million due in part to our contribution of the grand canal shoppes and the shoppes at the palazzo into a joint venture during the second quarter of 2013. this resulted in $ 1.2 million less overage rents in 2014 compared to 2013 , as the properties are now accounted for as unconsolidated real estate affiliates ( defined in note 1 ) . real estate taxes decreased $ 11.8 million primarily due to a $ 11.1 million settlement of a multi-year real estate tax suit with a municipality during the first quarter of 2013. property maintenance costs decreased $ 2.5 million primarily due to our contribution of the grand canal shoppes and the shoppes at the palazzo into a joint venture during the second quarter of 2013. this resulted in a $ 4.9 million decrease in property maintenance costs in 2014 compared to 2013 , as the properties are now accounted for as unconsolidated real estate affiliates ( defined in note 1 ) . other property operating costs decreased $ 8.0 million primarily due to our contribution of the grand canal shoppes and the shoppes at the palazzo into a joint venture during the second quarter of 2013. this resulted in a $ 5.8 million decrease in other property operating costs in 2014 compared to 2013 , as the properties are now accounted for as unconsolidated real estate affiliates ( defined in note 1 ) . 30 property management and other costs decreased $ 9.4 million primarily due to a reduction of the self-insurance obligations in 2014. general and administrative increased $ 14.8 million primarily due to a $ 17.9 million loss from the settlement of litigation in the second quarter of 2014 ( note 18 ) . there was provision for impairment of $ 5.3 million in 2014 ( notes 2 and 5 ) . depreciation and amortization decreased by $ 41.3 million primarily due to in-place leases becoming fully amortized during the year leading to a $ 34.6 million decrease in amortization expense . in addition , our contribution of the grand canal shoppes and the shoppes at the palazzo into a joint venture during the second quarter of 2013 resulted in $ 12.0 million less in depreciation and amortization in 2014 as compared to 2013 , as these properties are now accounted for as unconsolidated real estate affiliates ( defined in note 1 ) . interest income increased $ 20.9 million primarily due to interest income received from the note receivable recorded in conjunction with the sale of aliansce in the third quarter of 2013 and secured partner loans provided in 2014. interest expense decreased by $ 23.9 million primarily due to our contribution of the grand canal shoppes and the shoppes at the palazzo into a joint venture during the second quarter of 2013. this resulted in a $ 10.3 million decrease in interest expense in 2014 compared to 2013 , as the properties are now accounted for as unconsolidated real estate affiliates ( defined in note 1 ) . in addition , interest expense decreased due to the redemption of $ 700.5 million of unsecured corporate bonds in 2013 and refinancing activity resulting in lower interest rates ( note 7 ) . the loss on foreign currency is related to a note receivable denominated in brazilian reais , and received in conjunction with the sale of aliansce in the third quarter of 2013 ( note 14 ) . the gain from change in control of investment properties of $ 91.2 million in 2014 is due to the partial sale of bayside marketplace ( note 3 ) . the 2013 gain from change in control of investment properties of $ 219.8 million is due to our contribution of the grand canal shoppes and the shoppes at the palazzo into a joint venture and the purchase of our partner 's interest in quail springs mall previously held in a joint venture . the loss on extinguishment of debt of $ 36.5 million in 2013 is the result of fees incurred for the early payoff of debt . story_separator_special_tag $ 20.5 million of such fees were expensed as a result of the early redemption of $ 608.7 million of 6.75 % unsecured corporate bonds due november 9 , 2015. in addition , we expensed $ 6.6 million in financing fees resulting from the refinancing of the $ 1.5 billion secured corporate loan , $ 3.5 million as a result of the early redemption of $ 91.8 million of 5.38 % unsecured corporate bonds due november 26 , 2013 , and $ 5.9 million as a result of the early payoff of mortgage debt at one operating property . equity in income from unconsolidated real estate affiliates decreased by $ 7.5 million primarily due to the sale of aliansce in the third quarter of 2013. preferred stock issued during the first quarter of 2013 resulted in $ 15.9 million in preferred stock dividends accrued during 2014 ( note 11 ) . year ended december 31 , 2013 and 2012 the following table is a breakout of the components of minimum rents : replace_table_token_20_th base minimum rents increased by $ 34.3 million primarily due to an increase in permanent occupancy from 90.2 % as of december 31 , 2012 to 92.0 % as of december 31 , 2013. tenant recoveries increased $ 23.2 million primarily due to higher real estate tax recoveries in 2013 , which were driven by increased real estate tax expense and therefore increased recovery income . additionally in 2013 , we settled a multi-year real estate tax suit 31 with a municipality , which resulted in a $ 5.1 million recovery during the first quarter of 2013. tenant recoveries also increased due to increased permanent occupancy . overage rents decreased $ 13.6 million due in part to our contribution of the grand canal shoppes and the shoppes at the palazzo into a joint venture during the second quarter of 2013. this resulted in $ 7.5 million less overage rents in 2013 compared to 2012 , as the properties are now accounted for as unconsolidated real estate affiliates ( defined in note 1 ) . management fees and other corporate revenues decreased $ 3.2 million primarily due to higher one-time development and finance fees earned during 2012 at various joint venture properties . other revenue increased $ 16.4 million primarily due to a gain on sale of land to a municipality in the fourth quarter of 2013 for $ 9.6 million . real estate taxes increased $ 24.7 million primarily due to an $ 11.1 million settlement of a multi-year real estate tax suit with a municipality during the first quarter of 2013. in addition , certain other properties saw increased real estate tax expense in 2013. property maintenance costs decreased $ 4.9 million primarily due to lower contracted services of $ 3.2 million resulting from successful continued efforts to control operating expenses in 2013. other property operating costs decreased $ 8.8 million primarily due to our contribution of the grand canal shoppes and the shoppes at the palazzo into a joint venture during the second quarter of 2013. this resulted in a $ 18.7 million decrease in other property operating costs in 2013 compared to 2012 , as the properties are now accounted for as unconsolidated real estate affiliates ( defined in note 1 ) . this decrease is partially offset by increased compensation and benefits and the write-off of a ground lease intangible related to a land purchase at one operating property . property management and other costs increased $ 5.1 million due to higher compensation and benefits in 2013. general and administrative increased $ 10.1 million primarily due to a litigation settlement in 2012 that reduced general and administrative by $ 5.3 million in that year . in addition , we incurred one-time acquisition related transaction costs during the fourth quarter of 2013. depreciation and amortization decreased by $ 19.1 million primarily due to our contribution of the grand canal shoppes and the shoppes at the palazzo into a joint venture during the second quarter of 2013 , which resulted in $ 20.1 million less in depreciation and amortization in 2013 as compared to 2012 as these properties are now accounted for as unconsolidated real estate affiliates . interest income increased $ 5.3 million primarily due to interest income received from the note receivable recorded in conjunction with the sale of aliansce in the third quarter of 2013. interest expense decreased by $ 58.1 million primarily due to the redemption of $ 700.5 million of unsecured corporate bonds in 2013. the decrease is also due to a $ 9.7 million increase in capitalized interest related to redevelopment projects . this decrease is partially offset by a write-off of a market rate adjustment related to the refinancing of ala moana center , which reduced interest expense during 2012. the loss on foreign currency is related to a note receivable denominated in brazilian reais , and received in conjunction with the sale of aliansce in the third quarter of 2013. the warrant liability adjustment for the year ended december 31 , 2013 , represents the non-cash income or expense recognized as a result of the change in the fair value of the warrant liability . we incurred a net warrant liability adjustment of $ 40.5 million during the first quarter of 2013. this adjustment reflects our purchase of the warrants from fairholme and blackstone ( both defined in note 1 ) , as the amount paid exceeded the liability by approximately $ 55 million . this was partially offset by the revaluation of the remaining warrants as of march 28 , 2013. as of march 28 , 2013 , an amendment to the warrant agreement changed the classification of the warrants owned by brookfield from a liability to a component of permanent equity . as a result , the warrants have not been revalued after march 28 , 2013. refer to note 9 for a discussion of transactions related to the warrants .
| significant components of net cash used in investing activities include : 2014 activity development of real estate and property improvements of $ ( 624.8 ) million ; 38 distributions received from our unconsolidated real estate affiliates in excess of income of $ 387.2 million ; contributions of $ ( 537.4 ) million to form seven new joint ventures and loans to venture partners of $ ( 137.1 ) million ( note 3 ) ; partially offset by proceeds from the disposition of one retail property and three other assets and the contribution of one property to a joint venture for $ 361.2 million ( note 4 ) . 2013 activity proceeds from the formation of a joint venture of $ 411.5 million ( note 3 ) ; acquisition of our joint venture partner 's 50 % interest in quail springs for $ ( 55.5 ) million , net ( note 3 ) ; contribution to a joint venture that acquired a portfolio in san francisco 's union square area for $ ( 40.3 ) million ; proceeds from the sale of our investment in aliansce shopping centers s.a. of $ 446.3 million ( note 14 ) ; and the acquisition of two retail properties for $ ( 314.8 ) million ( note 3 ) ; 2012 activity the acquisition of 11 sears anchor pads for $ ( 270.0 ) million ; the acquisition of the remaining 49 % of the oaks and westroads , which were previously owned through a joint venture for $ ( 98.3 ) million ; proceeds from the disposition of 21 properties and a portion of our office portfolio for $ 362.4 million ( note 4 ) ; and distributions received from unconsolidated real estate affiliates in excess of income primarily related to distributions received from three of our joint ventures of $ 372.2 million . cash flows from financing activities net cash used in financing activities was $ 476.6 million for the year ended december 31 , 2014 , $ 1.1 billion for the year ended december 31 , 2013 , and $ 533.7 million for the year ended december 31 , 2012 . significant components of net cash used in financing activities include : 2014 activity the acquisition of 27.6 million shares of our common stock for $ ( 555.8 ) million ; cash distributions paid to common stockholders of $ ( 534.2 ) million ; and proceeds from the refinancing
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gross margin was 26 % in fiscal 2004 and 21 % in fiscal 2003. the improvement in gross margin was mainly attributable to approximately $ 0.8 million in sales in fiscal 2004 for products that were written off in fiscal 2003 and $ 1.0 million in sales in fiscal 2004 for a development contract with the corresponding costs in research and development . therefore , there was no cost of sales associated with these revenues in fiscal 2004. although we implemented cost cutting measures that reduced absolute overhead expenses , we were unable to reduce expenses enough to offset the decline in revenue . direct material costs were reduced as a percent of sales due to reduced revenue from power amplifier modules for handsets which had a higher than average material content . research and development . research and development expense for fiscal 2004 was $ 9.3 million , or 31 % of net sales compared to $ 10.8 million , or 22 % of net sales , in fiscal 2003 , a decrease of 14 % . the decrease was primarily due to our decision to close our office in lincoln , united kingdom and to exit the power amplifier handset market resulting in a reduction in our design staff . this decrease was slightly offset by increased staffing for defense product development . selling , general and administrative . selling , general and administrative expense for fiscal 2004 was $ 8.2 million , or 27 % of net sales compared to $ 8.7 million , or 18 % of net sales , in fiscal 2003 , a decrease of 6 % . the decreased expense was due to lower commission expenses based on lower revenue levels . costs related to shareholder actions . the $ 3.4 million in costs related to shareholder and strategic actions in fiscal 2004 consisted of approximately $ 1.4 million in expense related to the special meeting of shareholders that was requested by the celeritek shareholder protective committee ( described below ) and $ 2.0 million in investment banking fees related to strategic actions . the $ 1.3 million in costs related to shareholder actions in fiscal 2003 was for legal and investment advisors in response to an overture by anaren microwave , inc. with respect to a possible acquisition of our company . in-process research and development . we recorded in-process research and development expenses of $ 4.4 million in the third quarter of fiscal 2003 , resulting from our purchase of tavanza , which we accounted for as an acquisition of assets . of the total purchase price of $ 6.1 million , $ 4.4 million represented purchased in-process research and development , which at the date of purchase had not yet reached technical feasibility , had no alternative future use and was therefore charged to operations . the valuation of in-process research and development included estimating the stage of development of each in-process research and development project at the date of acquisition , estimating cash flows resulting from the expected revenue generated from such projects , and discounting the net cash flows back to their present value using an appropriate discount rate . the discount rate used represents a premium to our cost of capital . all of the projections used were based on management 's estimates of market size and growth , expected trends in technology and the expected timing of new product introductions . special charges . during fiscal 2004 , we incurred $ 4.5 million in special charges due to our exit of the wireless handset power amplifier market , offset by $ 0.2 million in proceeds from the sale of equipment impaired in fiscal 2002 , for a net expense of $ 4.3 million for fiscal 2004. the special charges of $ 4.5 million in fiscal 2004 are comprised of approximately $ 0.2 million of impairment charges related to the reassessment of carrying values for certain tangible and intangible assets to be sold , $ 1.8 million of equipment impairment charges related to exiting the wireless handset power amplifier market , $ 0.6 million of equipment impairment charges related to restructuring at the belfast facility , $ 0.7 million in employee termination charges , $ 0.9 million for building lease termination costs , $ 0.2 million of facilities consolidation costs , and $ 0.1 million to close our korean sales office . in fiscal 2003 , we recorded special charges of $ 2.8 million due to motorola 's decision to transition from the model 120v handset platform on which we were the sole source for power amplifier modules , to the next generation of handset platforms , for which we would not be supplying power amplifier modules . as a result of this decrease in revenue and operations , we closed our office in lincoln , united kingdom and restructured various operations in the united states . the special charges of $ 2.8 million are comprised of operating lease and fixed asset impairments and employee termination charges . approximately $ 1.3 million of the $ 2.8 million total charge is due to operating lease impairments , 11 which were the result of equipment covered by united states manufacturing operating leases no longer used by us . another $ 1.1 million of the $ 2.8 million total charge is due to the write off of certain lincoln fixed assets , mainly equipment , related to the closing of this design center . the lincoln building , which we owned , was reclassified to current asset for resale under prepaid and other current assets . we subsequently sold the building in july 2003 for approximately $ 0.3 million , which resulted in a gain of approximately $ 0.05 million . the remaining $ 0.4 million of the $ 2.8 story_separator_special_tag million charge is related to employee termination charges . the total number of employees terminated in all locations was 44. the following table summarizes our special charges activity ( in thousands ) : replace_table_token_4_th amortization of intangibles . amortization of intangibles was $ 0.3 million during fiscal 2004 compared to $ 0.2 million during fiscal 2003. the intangible assets were acquired as part of the purchase of tavanza 's assets during the third quarter of fiscal 2003 and subsequently sold as part of the tavanza asset sale during the third quarter of fiscal 2004. impairment of short-term and strategic investments . during fiscal 2003 we recorded an impairment charge of approximately $ 0.4 million against our strategic investment in a taiwanese foundry , which was deemed to have an other than temporary decline in value . we reviewed the investments during fiscal 2004 and determined no further impairment was required at march 31 , 2004. in order to determine the impairment charges , we reviewed updated financial statements and projections from the foundry and analyzed its actual and expected revenues , net income and cash balances . interest income and other , net . interest income and other , net , for fiscal 2004 was $ 1.7 million compared to $ 1.5 million in fiscal 2003. the increase was primarily due to the collection of a customer 's order cancellation charge of $ 0.8 million , lower interest expense from the repayment of capital leases and debt and gains on the disposal of assets , offset by decreased interest income due to lower interest rates on lower cash and short-term investment balances . provision ( benefit ) for income taxes . for the fiscal year ended march 31 , 2004 , we recorded no income tax provision . for the fiscal year ended march 31 , 2003 , we recorded an income tax provision of approximately $ 0.1 million that represented foreign taxes incurred that do not currently provide a benefit in the united states . liquidity and capital resources we have funded our operations to date primarily through the use of available cash on hand and cash flows from sales of equity securities . as of march 31 , 2005 , we had $ 8.3 million in cash and cash equivalents , $ 2.5 million in short-term investments and $ 11.4 million in working capital . net cash used in operating activities was $ 5.6 million in fiscal 2005 which was primarily due to operating losses of $ 7.7 million offset by decreases in inventory and accounts receivable . the sale of our subsystems defense business resulted in lower business levels and lower inventory and accounts receivable . net cash used in operating activities was $ 8.6 million in fiscal 2004 , which was primarily due to operating losses , increases in accounts receivable and decreases in accounts payable , offset by decreases in inventories , related party receivables and prepaid expenses and increases in 12 accrued liabilities . net cash provided by operating activities was $ 3.8 million in fiscal 2003 , which was primarily the result of decreases in accounts receivable , inventories and prepaid and other current assets and increases in accrued payroll and accrued liabilities . net cash provided by investing activities was $ 51.6 million in fiscal 2005 , which was the result of sales and maturities of short-term investments of $ 38.4 million and the cash proceeds from the sale of the subsystem defense business of $ 30.9 million , offset by purchases of short-term investments of $ 16.8 million and property and equipment of $ 0.9 million . net cash provided by investing activities was $ 42.5 million in fiscal 2004 , which was the result of the sale and maturities of short-term investments of $ 167.2 million and proceeds from the sale of property and equipment of $ 0.8 million , offset by the purchases of short-term investments of $ 124.5 million and property and equipment of $ 0.9 million . net cash provided by investing activities was $ 19.5 million in fiscal 2003 , which was the result of the sale and maturities of short-term investments of $ 156.1 million , offset by the purchases of short-term investments of $ 132.1 million , property and equipment of $ 2.6 million and strategic investments of $ 2.0 million . net cash used by financing activities was $ 40.9 million in fiscal 2005 , which was the result of the extraordinary dividend payment of $ 38.9 million , principal payments of the short-term portion of long-term debt of $ 1.9 million and capital leases of $ 0.4 million , offset by proceeds from the exercise of stock options and employee stock purchase plan of $ 0.3 million . net cash used by financing activities was $ 59.5 million in fiscal 2004 , which was the result of the extraordinary dividend payment of $ 57.8 million , principal payments of long-term debt of $ 2.8 million and capital leases of $ 1.5 million , offset by proceeds from the exercise of stock options and employee stock purchase plan of $ 2.7 million . net cash used by financing activities was $ 2.3 million in fiscal 2003 , which was the result of principal payments of long-term debt of $ 2.3 million and capital leases of $ 0.7 million , offset by proceeds from the exercise of stock options and employee stock purchase plan of $ 0.7 million . as of march 31 , 2005 , we had $ 0.5 million in outstanding letters of credit , which are secured by certificates of deposits . on june 3 , 2005 , subsequent to the close of our fiscal 2005 year end , we completed the sale of substantially all of our assets to mimix under the terms of a definitive asset purchase agreement entered into on march 14 , 2005. assets excluded from the transaction included our cash , cash-equivalents and certain other non-operating
| the key features of our plan of dissolution are to : ( 1 ) cease our business operations , except as may be necessary to wind up our business affairs ; ( 2 ) pay or make adequate provision for all of our liabilities ; and ( 3 ) distribute our remaining assets to our shareholders in one or more liquidating distributions . on june 3 , 2005 we also announced that our board of directors had declared an extraordinary cash dividend on our common stock of $ 0.62 per share , or approximately $ 8.3 million in the aggregate , payable on june 24 , 2005 , to shareholders of record on june 10 , 2005. most employees of the company accepted employment with mimix . as part of the dissolution plan , tamer husseini , president and chief executive officer and margaret smith , chief financial officer , were terminated . because the sale to mimix was a change of control event as defined by the change of control agreements , mr. husseini and ms. smith received payments as required by the agreements . mr. husseini received a payment of approximately $ 1.0 million and ms. smith received a payment of approximately $ 0.4 million . as these $ 1.4 million in obligations were triggered on june 3 , 2005 , upon shareholder approval of the asset purchase agreement ( and resulting change of control event ) , these obligations will be recognized by the company subsequent to march 31 , 2005 during the first quarter ended june 30 , 2005. at a board meeting on june 10 , 2005 , robert gallagher , lloyd miller , tamer husseini and charles waite resigned from the board of directors . j. michael gullard and bryant r. riley remained on the board of directors with mr. gullard named president and treasurer and assuming responsibility for managing our dissolution plan . ms. smith , the former chief financial officer , has been retained on a consulting basis to aid in the ongoing management of our liquidation . compensation under this agreement is based on actual hours of service at a fixed hourly rate . the agreement does not provide for a minimum retainer payment or termination fee . on july
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” these provisions , among other things , require enhanced customer protections , risk management programs , internal monitoring and controls , capital and liquidity standards , customer disclosures , and auditing and examination programs for fcms . these rules are effective january 13 , 2014 , however , certain provisions have alternative compliance dates which extend through december 31 , 2018. fiscal 2013 highlights record operating revenues and adjusted operating revenues of $ 478.4 million and $ 467.3 million , respectively . completed expansion and renewal of a three-year syndicated committed loan facility for $ 140.0 million . completed our first debt offering with a $ 45.5 million offering of senior notes due in july 2020. successfully registered intl fcstone markets , llc as a swap dealer . increased capacity of global payments business with a successful migration to a new technology platform . successfully transferred the accounts and integrated the operations of tradewire securities , llc . reached an agreement to transfer the accounts of first american capital and trading corp. which is expected to close in the first quarter of fiscal 2014 , which will add correspondent clearing service capabilities to our securities segment . executive summary we experienced growth in both operating revenues and adjusted operating revenues during fiscal 2013 compared to fiscal 2012. net operating revenues , which represent operating revenues net of transaction-based clearing expenses , introducing broker commissions and interest expense , increased $ 9.1 million to $ 315.3 million in fiscal 2013. however , adjusted net operating revenues declined $ 8.8 million primarily resulting from an increase in transaction-based clearing expenses in the securities 31 segment as well as an increase in introducing broker commissions in both the securities and clearing and execution services ( “ ces ” ) segments . all of our segments , with the exception of the commodity and risk management services ( “ c & rm ” ) segment experienced operating revenue growth over both the prior year three-month and year-to-date periods . the c & rm and ces segments continue to be constrained by historically low interest rates . interest income earned on customer deposits declined 14 % to $ 5.5 million , even though average customer assets on deposit , which generate interest income for us increased $ 66.7 million over the prior fiscal year to $ 1.7 billion . the decrease in our core c & rm operating revenues was primarily a result of declines in both exchange-traded and otc transactional volumes in our soft commodities product line , which was constrained by the lingering effects of the consecutive droughts in the united states during 2011 and 2012 on the agricultural commodity markets . during the quarter ended march 31 , 2013 , as a result of a change in management strategy in our base metals product line , we elected to pursue an exit of our physical base metals business through the sale and or orderly liquidation of current open positions . during the following six months ended september 30 , 2013 , we completed a sale of a portion of the physical base metals open contract positions and the liquidation of the majority of the remaining physical base metals inventory , as well as all but two of the remaining open contract positions . the two remaining open contract positions will be fulfilled during january 2014 , at which time we will reflect the physical base metals activities in the financial statements as discontinued operations . the liquidation of these outstanding positions in the six months ended september 30 , 2013 , as well as the performance of the physical base metals for fiscal 2013 , contributed to a the decline in c & rm segment adjusted operating revenues . additionally , on july 31 , 2013 , we elected to allow the $ 100.0 million credit facility , which supported this business , to expire without renewal , and the amount outstanding was repaid in full . the declines in c & rm revenues have been partially offset by the continued growth in operating revenues generated by the lme metals team , acquired during the first quarter of fiscal 2012. we will continue to operate this component of our base metal business , which assists our commercial customers in the execution of hedging strategies in the financial base metals markets . operating revenues in our foreign exchange segment continued to increase , as the global payments product line added additional commercial banks and multi-national clients and successfully implemented a new technology platform which enables us to process increased volumes automatically , including smaller notional payments , without requiring the hiring of additional support personnel . the securities segment continued to show strong growth following the acquisition of the accounts of tradewire securities , llc ( “ tradewire securities ” ) in the first quarter of fiscal 2013 , as well as revenue growth in the argentina and latin american debt trading businesses . operating revenues in our other segment continued to increase , as revenues in both commodity financing and physical commodity origination business grew compared to fiscal 2012. overall , net income in fiscal 2013 increased compared to the prior year , primarily as a result of the effect of realized gains on the sale of precious and base metals inventories which were carried at cost at september 30 , 2012 , which was below market value . story_separator_special_tag adjusted net income declined in fiscal 2013 compared to the prior year , primarily as a result of the decline in soft commodity product line revenues , the execution of the exit plan in the physical base metals business , as well as the increase in costs associated with the implementation of the dodd-frank act legislation and other regulatory reform , primarily in the form of increased employee-related costs , which was partially offset by the $ 9.2 million gain recognized during the first quarter of fiscal 2013 on the sale of our shares in the lme and the board of trade of kansas city , missouri , inc. ( “ kcbt ” ) , following their acquisitions by the hong kong exchanges & clearing limited and the chicago mercantile exchange ( “ cme ” ) , respectively . the performance of the physical base metals activities resulted in pre-tax income of $ 1.4 million in fiscal 2013 , including $ 1.9 million in contract termination costs incurred since march 31 , 2013. on an adjusted , non-gaap basis , the performance of the physical base metals activities , including the aforementioned contract termination costs , resulted in an adjusted , non-gaap pre-tax loss of $ 10.0 million in fiscal 2013. while two open contract positions remain , which run off through january 2014 , the exit of the physical base metals business was substantially completed by the end of fiscal 2013 , including the elimination of the physical base metals trading team and certain operational support personnel . during the fourth quarter of fiscal 2013 , we successfully completed an offering of $ 45.5 million aggregate principal amount of our 8.5 % senior notes due in july 2020. this note offering , which was the first public debt offering in our history , provided a more diversified capital structure by adding medium term debt instruments to the company 's publicly traded common shares and committed bank credit facilities . 32 story_separator_special_tag operating revenues , driven by $ 9.0 million in revenue contributed by the transfer of accounts from tradewire securities in the first quarter of fiscal 2013. in addition , debt capital markets operating revenues increased $ 7.2 million as a result of increased business activity with our latin and south american customers as well as increased investment banking activity . an increase in the average commission rate per contract in the ces segment drove a $ 7.0 million increase in operating revenues in the ces segment on relatively flat volumes , however interest income earned on customer margin deposits in this segment continues to be constrained by historically low short-term interest rates . operating revenues and adjusted operating revenues in the other segment increased by $ 5.1 million and $ 6.6 million , driven by continued growth in our grain financing and physical commodity origination product lines as well as increased asset management revenues . see segment information below for additional information on activity in each of the operating segments . in fiscal 2013 , operating revenues include realized gains of $ 1.4 million and unrealized losses of $ 1.3 million on interest rate swap derivative contracts used to manage a portion of our aggregate interest rate position . in fiscal 2012 , operating revenues included realized gains of $ 2.5 million and unrealized losses of $ 1.1 million on interest rate swap derivative contracts . these interest rate swaps were not designated for hedge accounting treatment , and changes in the fair values of the interest rate swaps , which can be volatile and can fluctuate from period to period , are recorded in earnings on a quarterly basis . the last remaining interest rate swap expired in the fourth quarter of fiscal 2013. year ended september 30 , 2012 compared to year ended september 30 , 2011 our operating revenues under u.s. gaap for fiscal 2012 and fiscal 2011 were $ 454.2 million and $ 419.1 million , respectively . this 8 % increase in operating revenue was primarily driven by 42 % and 31 % increases in the ces and securities segments , respectively . in addition , there were increases in operating revenues of 6 % in the foreign exchange segment and 9 % in the other segment , which were partially offset by a 2 % decrease in the operating revenues in the c & rm segment compared to the prior year . our adjusted operating revenues were $ 461.0 million in fiscal 2012 , compared with $ 410.7 million in fiscal 2011 , an increase of $ 50.3 million , or 12 % . the only difference between operating revenues and adjusted operating revenues , a non-gaap measure , is the gross marked-to-market adjustment of $ 6.8 million and $ ( 8.4 ) million for fiscal 2012 and fiscal 2011 , respectively . the gross marked-to-market adjustment only affects the adjusted operating revenues in the c & rm and other segments . adjusted operating revenues increased 3 % and 15 % in the c & rm and other segments , respectively , compared to the prior year . adjusted operating revenues are identical to operating revenues in all other segments . 34 operating revenues decreased slightly in the c & rm segment in fiscal 2012 , primarily due to $ 14.4 million decrease in operating revenues in the precious metals product line due to a tightening of spreads and a decrease in the number of ounces traded caused by low market volatility . adjusted operating revenues in the precious metals product line decreased $ 7.3 million in fiscal 2012 compared to the prior year .
| a $ 20.8 million decline in c & rm segment operating revenues was nearly offset by a $ 7.0 million increase in the ces segment , a $ 5.1 million increase in the other segment , a $ 4.3 million increase in the foreign exchange segment as well as a $ 9.2 million realized gain on the sale of shares of the lme and kcbt in the first quarter of fiscal 2013. our adjusted operating revenues were $ 467.3 million in fiscal 2013 compared with $ 461.0 million in fiscal 2012 , an increase of $ 6.3 million , or 1 % . the only difference between operating revenues and adjusted operating revenues , a non-gaap measure , is 33 the gross marked-to-market adjustment of $ ( 11.1 ) million and $ 6.8 million for fiscal 2013 and fiscal 2012 , respectively . the gross marked-to-market adjustment only affects the adjusted operating revenues in the c & rm and other segments . adjusted operating revenues decreased by $ 40.2 million in the c & rm segment , while other segment adjusted operating revenues increased $ 6.6 million as compared to the prior year . adjusted operating revenues are identical to operating revenues in all other segments . operating revenues declined in the c & rm segment , primarily as a result of a 26 % decline in otc contract volumes in the soft commodities product line , primarily in brazil , mexico and latin america , which contributed to a $ 35.8 million decrease in otc revenues , while exchange-traded revenues declined only $ 0.6 million despite a 9 % decrease in exchange-traded volumes , as the prior year was affected by lost revenues from customers introduced to mf global . this decline in soft commodities operating revenues was partially offset by increases in precious metals and physical base metals of $ 3.8 million and $ 4.2 million , respectively , driven by higher metals prices . in addition , operating revenues in the ongoing lme metals team increased $ 7.7 million compared to the prior year . while operating revenues in the precious metals and physical base metals businesses increased over the prior year , adjusted operating revenues in those product lines declined $ 1.3 million and $ 10.1
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12 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 . 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 12 of the notes to consolidated financial statements for discount rates used in determining the net periodic pension cost for the years ended december 31 , 2019 and 2018 , and the funded status of the plans at december 31 , 2019 and 2018. 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 $ 4.4 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 % for both 2019 and 2018. 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 $ 198,000. the company 's unfunded benefit obligation was $ 28.0 million and $ 23.5 million at december 31 , 2019 and 2018 , 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 both 2019 and 2018 , and found no impairment . there has never been an impairment recorded on this goodwill . 13 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 of the trademarks exceeded their fair values . the company conducted its annual impairment tests of trademarks as of december 31 , 2019 and 2018. in 2019 , no impairments were recorded story_separator_special_tag 12 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 . 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 12 of the notes to consolidated financial statements for discount rates used in determining the net periodic pension cost for the years ended december 31 , 2019 and 2018 , and the funded status of the plans at december 31 , 2019 and 2018. 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 $ 4.4 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 % for both 2019 and 2018. 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 $ 198,000. the company 's unfunded benefit obligation was $ 28.0 million and $ 23.5 million at december 31 , 2019 and 2018 , 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 both 2019 and 2018 , and found no impairment . there has never been an impairment recorded on this goodwill . 13 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 of the trademarks exceeded their fair values . the company conducted its annual impairment tests of trademarks as of december 31 , 2019 and 2018. in 2019 , no impairments were recorded
| management has focused on increasing business in other categories , resulting in increased business with e-commerce retailers this year . net sales of the florsheim and bogs/rafters brands were up this year , with increases across most major distribution channels . licensing revenues consist of royalties earned on sales of branded apparel , accessories and specialty footwear in the united states and on branded footwear in mexico and certain overseas markets . earnings from operations wholesale gross earnings as a percent of net sales were 36.6 % in 2019 versus 35.6 % in 2018. the company 's cost of sales does not include distribution costs ( e.g. , receiving , inspection , warehousing , shipping , and handling costs ) . wholesale distribution costs were $ 13.1 million and $ 12.8 million in the years ended december 31 , 2019 and 2018 , respectively . these costs were included in selling and administrative expenses . the company 's gross earnings may not be comparable to other companies , as some companies may include distribution costs in cost of sales . the north american wholesale segment 's selling and administrative expenses include , and primarily consist of : distribution costs , salaries and commissions , advertising costs , employee benefit costs , and depreciation . wholesale selling and administrative expenses were $ 61.0 million in 2019 , up 2 % compared to $ 59.9 million in 2018. wholesale selling and administrative expenses as a percent of net sales were 25 % in 2019 and 26 % in 2018. earnings from operations in the north american wholesale segment increased 20 % to $ 27.8 million in 2019 , from $ 23.1 million in 2018 , due mainly to higher sales and gross margins . north american retail segment net sales net sales in the company 's north american retail segment were $ 25.2 million in 2019 , up 11 % compared to $ 22.7 million in 2018. same store sales , which include u.s. e-commerce sales , were up 10 % for the year , due mainly to higher sales on
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the increase in revenues from our environmental and health segment was due to an increase in billable hours and an increase in billing rates partially offset by fiscal 2020 having one less week of activity than fiscal 2019. during 2020 , billable hours for this segment increased by 2 % to 297,000 as compared to 292,000 during 2019. the increase in billable hours was due to growth in our chemical regulation & food safety practice where we expanded our proactive services . the increase in billable hours was partially offset by fiscal 2020 having one less week of activity than fiscal 2019. this segment also experienced delays in litigation related projects due to business restrictions associated with the covid-19 pandemic . utilization for this segment increased to 69 % during 2020 as compared to 68 % during 2019. technical full-time equivalents increased 3 % to 208 during 2020 as compared to 202 for 2019 due to our recruiting and retention efforts . revenues are primarily derived from services provided in response to client requests or events that occur without notice and engagements are generally terminable or subject to postponement or delay at any time by our clients . as a result , backlog at any particular time is small in relation to our quarterly or annual revenues and is not a reliable indicator of revenues for any future periods . compensation and related expenses ( in thousands except percentages ) fiscal years percent 2020 2019 change compensation and related expenses $ 250,041 $ 252,197 ( 0.9 ) % percentage of total revenues 62.5 % 60.5 % 27 the decrease in compensation and related expenses during 2020 was due to a change in the value of assets associated with our deferred compensation plan and a decrease in bonus expense , partially offset by an increase in payroll expense . during 2020 , deferred compensation expense decreased $ 4,806,000 with a corresponding decrease to other income , net , as compared to the prior year due to the change in value of assets associated with our deferred compensation plan . this decrease consisted of an increase in the value of the plan assets of $ 8,028,000 during 2020 as compared to an increase in the value of the plan assets of $ 12,834,000 during 2019. during 2020 , bonus expense decreased by $ 3,710,000 due to a corresponding decrease in the bonus pool , which is 33 % of income before income taxes , interest income , bonus expense , and stock-based compensation . payroll expense increased $ 6,187,000 during 2020 due to the increase in technical full-time equivalent employees and the impact of our annual salary increase , partially offset by fiscal 2020 having one less week of activity than fiscal 2019 . we expect our compensation expense , excluding the change in value of deferred compensation plan assets , to increase as we selectively add new talent and adjust compensation to market conditions . other operating expenses ( in thousands except percentages ) fiscal years percent 2020 2019 change other operating expenses $ 32,234 $ 33,562 ( 4.0 ) % percentage of total revenues 8.1 % 8.0 % other operating expenses include facilities-related costs , technical materials , computer-related expenses and depreciation and amortization of property , equipment and leasehold improvements . the decrease in other operating expenses was primarily due to a decrease in occupancy expense of $ 978,000 and a decrease in technical materials of $ 487,000. the decrease in occupancy expenses and technical materials were primarily due to covid-19 pandemic-related business restrictions and fiscal 2020 having one less week of activity than fiscal 2019. we expect other operating expense to grow as we selectively add new talent and make additional investments in our corporate infrastructure . reimbursable expenses ( in thousands except percentages ) fiscal years percent 2020 2019 change reimbursable expenses $ 21,488 $ 25,809 ( 16.7 ) % percentage of total revenues 5.4 % 6.2 % the amount of reimbursable expenses will vary from year to year depending on the nature of our projects . the decrease during 2020 was primarily due to covid-19 pandemic-related business and travel restrictions . general and administrative expenses ( in thousands except percentages ) fiscal years percent 2020 2019 change general and administrative expenses $ 12,888 $ 20,520 ( 37.2 ) % percentage of total revenues 3.2 % 4.9 % 28 the decrease in general and administrative expenses during 2020 was primarily due to decreases in travel and meals of $ 5 , 969 ,000 and a decrease in personnel expenses of $ 1,348,000. the decrease was also due to fiscal 2020 having one less week of activity than fiscal 2019. the decrease in travel and meals and personnel expenses were primarily due to covid-19 pandemic-related business and travel restrictions . we expect general and administrative expenses to increase as we selectively add new talent , expand our business development efforts , and pursue staff development initiatives . operating income replace_table_token_4_th the decrease in operating income for our engineering and other scientific segment during 2020 as compared to 2019 was due to a decrease in revenues . the decrease in revenues was due to a decrease in billable hours , partially offset by an increase in billing rates . business restrictions associated with the covid-19 pandemic caused project delays across multiple practices within this segment . the most substantial impact was on our litigation support work with many projects paused due to court-related delays . the business restrictions associated with the covid-19 pandemic also delayed our human participant studies . the decrease in billable hours was also due to fiscal 2020 having one less week of activity than fiscal 2019. we continued to see strength in the integrity management advisory services for the utilities sector . the impact of the decrease in revenues to operating income for this segment was partially offset by a decrease in operating expenses primarily due to the business and travel restrictions associated with the covid-19 pandemic . story_separator_special_tag the slight increase in operating income for our environmental and health segment during 2020 as compared to 2019 was due to an increase in revenues . the increase in revenues was due to an increase in billable hours and an increase in billing rates , partially offset by fiscal 2020 having one less week of activity than fiscal 2019. the increase in billable hours was due to growth in our chemical regulation & food safety practice where we expanded our proactive services . certain operating expenses are excluded from the company 's measure of segment operating income . these expenses include the costs associated with our human resources , finance , information technology , and business development groups ; the deferred compensation expense/benefit due to the change in value of assets associated with our deferred compensation plan ; stock-based compensation associated with restricted stock unit and stock option awards ; and the change in our allowance for contract losses and doubtful accounts . the decrease in corporate operating expenses during 2020 as compared to 2019 was primarily due to a decrease in deferred compensation expense . during 2020 , deferred compensation expense decreased $ 4,806,000 , with a corresponding decrease to other income , net , as compared to the prior year , due to the change in value of assets associated with our deferred compensation plan . this decrease consisted of an increase in the value of plan assets of $ 8,028,000 during 2020 as compared to an increase in the value of plan assets of $ 12,834,000 during 2019. the decrease in corporate operating expenses was also due to a decrease in travel and meals and personnel expenses primarily due to covid-19 pandemic-related business and travel restrictions . the decrease was also due to fiscal 2020 having one less week of activity than fiscal 2019. other income ( in thousands except percentages ) fiscal years percent 2020 2019 change other income $ 13,687 $ 19,079 ( 28.3 ) % percentage of total revenues 3.4 % 4.6 % 29 other income consists primarily of interest income earned on available cash , cash equivalents and short-term investments , changes in the value of assets associated with our deferred compensation plan and rental income from leasing excess space in our silicon valley facility . the decrease in other income was primarily due to the change in value of assets associated with our deferred compensation plan and a decrease in interest income of $ 2,20 7 ,000 , partially offset by an increase in the realized gain on foreign exchange of $ 1,43 2 ,000 and an increase in rental income of $ 210,000 . during 2020 , other income decreased $ 4 , 806 ,000 with a corresponding decrease to deferred compensation expense as compared to 201 9 , due to the change in value of assets associated with our deferred compensation plan . this change consisted of an increase in the value of the plan assets of $ 8 , 028 ,000 during 2020 as compared to a n increase in the value of the plan assets of $ 12 , 834 ,000 during 2019 . the decrease in interest income was due to lower interest rates for our cash equivalents and short-term investments . the increase in the realized gain on foreign exchange was due to an increase in the value of monetary assets denominated in non-functional currencies during 2020 and the recognition of a foreign currency exchange loss of $ 601,000 during 2019 associated with the divestiture of our german subsidiary . income taxes replace_table_token_5_th the decrease in our effective tax rate was due to an increase in the excess tax benefit associated with stock-based awards and a 2019 tax charge associated with the divestiture of our german subsidiary . the excess tax benefit associated with stock-based awards increased to $ 12,258,000 during 2020 as compared to $ 8,067,000 during 2019. during 2019 we recognized a tax charge of $ 956,000 associated with the divestiture of our german subsidiary . fiscal years ended january 3 , 2020 , and december 28 , 2018 revenues replace_table_token_6_th the increase in revenues for our engineering and other scientific segment was due to an increase in billable hours and an increase in billing rates . during 2019 , billable hours for this segment increased by 9.3 % to 1,084,000 as compared to 992,000 during 2018. this segment had strong growth in its biomedical engineering , buildings & structures , construction consulting , human factors , materials & corrosion engineering , thermal sciences , and polymer science & materials chemistry practices . we continued to see strong demand from multinational companies for our scientific expertise and advice regarding their products . safety concerns regarding energy storage systems drove increased demand for risk assessments in the consumer products , transportation , utility and medical device industries . the increase in billable hours was also due to fiscal 2019 having one additional week of activity than fiscal 2018. utilization decreased to 73 % for 2019 as compared to 75 % for 2018. the decrease in utilization was due to the completion of a large human factors ' assessment in the third quarter of 2018. technical full-time equivalents increased 9.2 % to 699 for 2019 as compared to 640 for 2018 due to our recruiting and retention efforts . 30 the increase in revenues from our environmental and health segment was due to an increase in billable hours and an increase in billing rates . during 2019 , billable hours for this segment increased by 3.5 % to 2 9 2,000 as compared to 2 82 ,000 during 201 8 . the increase in billable hours was due to growth in our chemical regulation and food safety practice where we expanded our proactive services . the increase in billable hours was also due to fiscal 2019 having one additional week of activity than fiscal 2018. utilization was 68 % for both 2019 and 201 8 .
| net income was $ 82,552,000 during 2020 as compared to $ 82,460,000 during 2019. diluted earnings per share increased to $ 1.55 for 2020 as compared to $ 1.53 for 2019. net income and diluted earnings per share for 2020 benefited from a decrease in our effective tax rate due to an increase in the excess tax benefit associated with stock-based awards . the excess tax benefit associated with stock-based awards increased to $ 12,258,000 during 2020 as compared to $ 8,067,000 during 2019. we remain focused on selectively adding top talent and developing the skills necessary to expand upon our market position , providing clients with in-depth scientific research and analysis to determine what happened and how to prevent failures or exposures in the future . we also remain focused on capitalizing on emerging growth areas , managing other operating expenses , generating cash from operations , maintaining a strong balance sheet and undertaking activities such as share repurchases and dividends to enhance shareholder value . 25 covid-19 update we responded quickly and carefully to address the unprecedented challenges created by the pandemic . we have successfully adapted and will continue to evolve our business development , recruiting and operational approaches , yielding benefits both during and after this crisis . we have accelerated our sharing of in-depth scientific and regulatory knowledge through webinars and thought leadership pieces , which has fostered new client relationships and projects . we have shifted all recruiting activities online , allowing us to reach a more geographically expansive set of candidates . the health and safety of our team remain top priorities , and therefore we have leveraged our internal expertise to establish protocols that allow us to safely continue laboratory activities and resume human participant studies . our business continuity plan and robust infrastructure have empowered productive remote work , and employees continue to work from home unless they are performing laboratory testing or inspections . our leadership team has responded with enhanced internal communications to encourage increased connectivity across the firm . we are pleased that the company has been able to address the majority of our clients ' needs with a mostly remote workforce . the relaxation of business restrictions in
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in the second half of 2010 , we entered into a firm fixed price contract for the development of proof of concept fuel cells for technical testing with a united states department of defense ( dod ) agency . additionally , during the first quarter of 2011 , we completed the work required under the united states department of energy ( doe ) grant awarded for the period january 8 , 2009 through march 30 , 2011. the objective of the grant was to demonstrate and field test a commercially viable one watt dmfc charger for consumer electronic devices . as part of this objective , mti micro field tested 75 units to various users , including 17 oem 's , 33 individuals , 21 military agencies and four governmental agencies . we have achieved all technical performance targets required by the doe under this grant ; this field testing has concluded and the final report to the doe may be found at http : //www.mtimicrofuelcells.com/news/events.asp . additional experimental testing was conducted at the dod since the fourth quarter of 2010 that resulted in product improvements in the third quarter of 2011. further testing by the dod of our mobion ® fuel cell charger commenced in october 2011. if approval is granted , this may result in the signing of a commercialization contract or purchase orders for final production . to date , no such approval has been granted and there is no clear indication as to when mti micro will be notified . 21 recent developments material agreements on february 9 , 2011 , amendment no . 1 to the common stock and warrant purchase agreement ( the purchase agreement ) was entered into between mti micro and counter point . the total $ 450 thousand of amendment no . 1 was drawn down as of september 30 , 2011. in exchange , counter point received 6,428,574 shares of mti micro common stock and 1,285,715 mti micro warrants . see note 10 in the consolidated financial statements for further discussion of this transaction . on september 23 , 2011 , amendment no . 2 to the purchase agreement was entered into between mti micro and counter point . the total $ 84 thousand of amendment no . 2 has been drawn down as of december 31 , 2011. in exchange , counter point received 1,200,000 shares of mti micro common stock and 240,000 mti micro warrants . see note 10 in the consolidated financial statements for further discussion of this transaction . 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 is subject to a review date of june 30 , 2012. 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 . as of december 31 , 2011 , there were no amounts outstanding under the line of credit . story_separator_special_tag 23 income tax benefit ( expense ) : income tax benefit for the year ended december 3 , 2011 was $ 1.5 million compared to income tax expense of $ 4 thousand for the same period in 2010. our income tax rate for the years ended december 31 , 2011 and 2010 was 1,548 % and 0 % , respectively . the 2011 tax rate was primarily the result of the reversal of a portion of the valuation allowance to reflect the portion of the company 's deferred tax asset that management has estimated is more likely than not to be realized . the 2010 tax rate was primarily the result of losses generated by operations , changes in the valuation allowance , state true-ups upon tax return filings , and permanent deductible differences for the derivative valuation . the valuation allowance against our deferred tax assets at december 31 , 2011 and at december 31 , 2010 was $ 19.8 million and $ 27.8 million , respectively . net losses attributed to non-controlling interests ( of mti micro ) : the net loss attributed to non-controlling interests for the year ended december 31 , 2011 decreased by $ 900 thousand , or 55.0 % , to $ 738 thousand in 2011 from $ 1.6 million in 2010. this is the result of a decrease in the net loss of mti micro from $ 3.6 million in 2010 to $ 1.5 million in 2011 , offset in part , by an increase in the percentage of ownership of the non-controlling interest of mti micro in 2011. net income ( loss ) : net income for the year ended december 31 , 2011 was $ 2.4 million compared to a net loss of $ 1.8 million for the same period in 2010. the increase in net income of $ 4.1 million for the year ended december 31 , 2011 as compared to the same period in 2010 is primarily attributed to the reversal of a portion of the deferred tax asset 's valuation reserve of $ 1.5 million , representing the portion of the company 's deferred tax asset that management has estimated is more likely than not to be realized , an increase of mti instruments yearly net income of $ 1.6 million , a reduction of the yearly net loss of mti micro of $ 2.2 million , and a reduction in the net loss attributed to non-controlling interests of $ 900 thousand . these are a result of the factors discussed above . story_separator_special_tag results of operations for the year ended december 31 , 2010 compared to december 31 , 2009. test and measurement instrumentation segment product revenue : product revenue in our test and measurement instrumentation segment for the year ended december 31 , 2010 increased by $ 915 thousand , or 14.6 % , in comparison to 2009 , to $ 7.2 million . as with the prior year , the us air force was the top customer for the segment ; accounting for $ 1.6 million , or 22.0 % , of the total year revenue , as compared to $ 1.2 million , or 19.0 % , of the total revenue in 2009. the segment 's top commercial customer in 2010 accounted for $ 560 thousand , or 7.8 % , of the annual revenue , as compared to the top commercial customer last year accounting for $ 618 thousand , or 9.9 % , of the total 2009 revenue . information regarding government contracts included in product revenue is as follows : replace_table_token_6_th ( 1 ) contract values represent maximum potential values and may not be representative of actual results . ( 2 ) date represents expiration of contract , including all three potential option extensions . ( 3 ) the contract expiration date has passed ; however , one delivery order remains open under the contract . ( 4 ) date represents expiration of contract , including all four potential option extensions . cost of product revenue : cost of product revenue in our test and measurement instrumentation segment for the year ended december 31 , 2010 increased in comparison to 2009 by $ 265 thousand , or 9.9 % , to $ 2.9 million in conjunction with the aforementioned 14.6 % increase in product revenue . gross profit , as a percentage of product revenue , rose two points to 59 % in 2010 due to a reduction in expense for potentially obsolete and slow-moving inventory . unfunded research and product development expenses : unfunded research and product development expenses in our test and measurement segment for the year ended december 31 , 2010 decreased by $ 6 thousand , or 0.6 % , to $ 959 thousand from $ 965 thousand in 2009. this decrease is attributable to lower personnel costs in the segment 's engineering department during the year , which were partially offset by increases in material spending for new product development and existing product support . selling , general and administrative expenses : selling , general and administrative expenses in our test and measurement segment increased for the year ended december 31 , 2010 by $ 162 thousand , or 8.2 % , to $ 1.98 million from $ 1.82 million for 2009. this increase is primarily the result of additional staffing in the segment 's sales and business development departments . 24 new energy segment funded research and development revenue : funded research and development revenue in our new energy segment decreased by $ 810 thousand , or 40 % , to $ 1.23 million for the year ended december 31 , 2010 from $ 2.04 million for the year ended december 31 , 2009. the decrease in revenue was primarily the result of the research and development performed under the doe contract in 2009 for the commercialization of our fuel cell product , while billing in 2010 has been substantially less as we entered into the market test phase of the commercialization . information regarding our contracts included in funded research and development revenue is as follows : replace_table_token_7_th ( 1 ) dates represent expiration of contract , not date of final billing . ( 2 ) the doe contract was initially awarded for $ 2.4 million , effective for january 2009 through march 31 , 2010. an extension to this was granted in april 2010 , increasing total funding to $ 2.99 million and an expiration date of 3/31/2011 . the doe contract is a cost share contract . funded research and product development expenses : funded research and product development expenses in our new energy segment for the year ended december 31 , 2010 decreased by $ 1.56 million or 38 % to $ 2.54 million from $ 4.1 million in 2009. this is a result of the majority of the work being performed in 2009 for the doe contract , as discussed in funded research and development revenue above . unfunded research and product development expenses : unfunded research and product development in our new energy segment decreased by $ 26 thousand , or 7 % , to $ 358 thousand for the year ended december 31 , 2010 compared to 2009. this decrease from the prior year was due to staff reductions and substantial cut backs in external development spending . selling , general and administrative expenses : selling , general and administrative expenses in our new energy segment for the year ended december 31 , 2010 increased by $ 1.85 million , or 1,758 % , to $ 1.95 million in 2010 from $ 105 thousand in 2009. this increase was primarily the result of stock option expense on mti and mti micro options awarded to employees increasing from $ 428 thousand in 2009 to $ 1.4 million in 2010 and a decrease in the allocation of costs to research and development . results of consolidated operations operating loss : operating loss for the year ended december 31 , 2010 compared with the operating loss for the year ended december 31 , 2009 increased by $ 305 thousand to $ 3.4 million , a 10 % increase , as a result of the factors noted above .
| million in 2011 from $ 2.9 million in 2010 in conjunction with the aforementioned 43.2 % increase in product revenue . gross profit , as a percentage of product revenue , increased to 63.2 % , compared to 59.2 % for the same period in 2010 due to reductions in material component costs and warranty repairs . 22 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 , 2011 increased by $ 284 thousand , or 29.6 % , to $ 1.2 million in 2011 from $ 959 thousand in 2010. this increase is attributable to higher material spending on current development projects throughout the year , along with additional personnel costs in the segment 's engineering department . selling , general and administrative expenses : selling , general and administrative expenses in our test and measurement instrumentation segment for the year ended december 31 , 2011 increased by $ 322 thousand , or 16.2 % , to $ 2.3 million in 2011 from $ 2.0 million in 2010. this increase is the result of additional staffing in the segment 's sales and business development departments along with higher consultant costs . new energy segment funded research and development revenue : funded research and development revenue in our new energy segment for the year ended december 31 , 2011 decreased $ 1.2 million , or 99.0 % , to $ 13 thousand in 2011 from $ 1.2 million in 2010. the decrease in funded research and development revenue was primarily the result of the work performed under the doe and nyserda contracts being substantially completed in 2010 for the commercialization of our fuel cell product . final billings for these grants occurred in the first quarter of 2011 , and no further grants have been received . information regarding government contracts included in funded research and development revenue is as follows : replace_table_token_5_th ( 1 ) dates represent expiration of contract , not date of final
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our ability to expand our business and reach new customers is influenced by the opening of additional stores in both new and existing markets . the success of our new stores is indicative of our brand appeal and the efficacy of our site selection and operating models . during fiscal 2017 , we opened fourteen new stores . non-gaap financial measures in addition to the results provided in accordance with generally accepted accounting principles ( gaap ) , we provide non-gaap measures which present operating results on an adjusted basis . these are supplemental measures of performance that are not required by or presented in accordance with gaap and include adjusted ebitda , adjusted ebitda margin , store operating income before depreciation and amortization and store operating income before depreciation and amortization margin ( defined below ) . these non-gaap measures do not represent and should not be considered as an alternative to net income or cash flows from operations , as determined in accordance with gaap , and our calculations thereof may not be comparable to similarly entitled measures reported by other companies and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with gaap . although we use these non-gaap measures to assess the operating performance of our business , they have significant limitations as an analytical tool because they exclude certain material costs . for example , adjusted ebitda does not take into account a number of significant items , including our interest expense and depreciation and amortization expense . in addition , adjusted ebitda excludes pre-opening and other costs which may be important in analyzing our gaap results . because adjusted ebitda does not account for these expenses , its utility as a measure of our operating performance has material limitations . our calculations of adjusted ebitda adjust for these amounts because they vary from period to period and do not directly relate to the ongoing operations of the currently underlying business of our stores and therefore complicate comparison of underlying business between periods . nevertheless , because of the limitations described above , management does not view adjusted ebitda or store operating income before depreciation and amortization in isolation and also uses other measures , such as revenues , gross margin , operating income and net income to measure operating performance . adjusted ebitda and adjusted ebitda margin . we define adjusted ebitda as net income plus interest expense , net , loss on debt refinancing , provision for income taxes , depreciation and amortization 32 expense , loss on asset disposal , share-based compensation , pre-opening costs , capital markets transaction costs , currency transaction ( gains ) losses and other costs . adjusted ebitda margin is defined as adjusted ebitda divided by total revenues . adjusted ebitda is presented because we believe that it provides useful information to investors and analysts regarding our operating performance . by reporting adjusted ebitda , we provide a basis for comparison of our business operations between current , past and future periods by excluding items that we do not believe are indicative of our core operating performance . store operating income before depreciation and amortization and store operating income before depreciation and amortization margin . we define store operating income before depreciation and amortization as operating income plus depreciation and amortization expense , general and administrative expenses and pre-opening costs . store operating income before depreciation and amortization margin is defined as store operating income before depreciation and amortization divided by total revenues . store operating income before depreciation and amortization margin allows us to evaluate operating performance of each store across stores of varying size and volume . we believe that store operating income before depreciation and amortization is another useful measure in evaluating our operating performance because it removes the impact of general and administrative expenses , which are not incurred at the store-level , and the costs of opening new stores , which are non-recurring at the store-level , and thereby enables the comparability of the operating performance of our stores for the periods presented . we also believe that store operating income before depreciation and amortization is a useful measure in evaluating our operating performance within the entertainment and dining industry because it permits the evaluation of store-level productivity , efficiency and performance , and we use store operating income before depreciation and amortization as a means of evaluating store financial performance compared with our competitors . however , because this measure excludes significant items such as general and administrative expenses and pre-opening costs , as well as our interest expense , net and depreciation and amortization expense , which are important in evaluating our consolidated financial performance from period to period , the value of this measure is limited as a measure of our consolidated financial performance . presentation of operating results the company 's fiscal year consists of 52 or 53 weeks ending on the sunday after the saturday closest to january 31. each quarterly period has 13 weeks , except in a 53 week year when the fourth quarter has 14 weeks . fiscal 2017 , which ended on february 4 , 2018 , contained 53 weeks . fiscal 2016 and 2015 , which ended on january 29 , 2017 and january 31 , 2016 , respectively , each contained 52 weeks . all dollar amounts are presented in thousands , unless otherwise noted , except share and per share amounts . overview total revenues increased 13.4 % to $ 1,139,791 in fiscal 2017 compared to $ 1,005,158 in fiscal 2016. excluding an estimated $ 19,685 related to the 53 rd week of fiscal 2017 , net revenues grew 11.4 % . our revenue growth was primarily influenced by the number of new store openings . comparable store sales decreased 0.9 % , excluding the impact of the 53 rd week in fiscal 2017 , driven by lower customer volumes . story_separator_special_tag operating income increased to $ 165,772 in fiscal 2017 compared to operating income of $ 150,516 in fiscal 2016. fiscal 2017 operating margin was 14.5 % compared to 15.0 % in fiscal 2016. the slight decrease in operating margin in fiscal 2017 was primarily driven by the increased margin pressure on occupancy costs associated with our recent store openings and higher pre-opening costs , partially offset by lower cost of products and lower operating payroll and benefits , as a percentage of sales . 33 earnings per share ( eps ) for fiscal 2017 increased to $ 2.84 per diluted share , compared to eps of $ 2.10 per diluted share in fiscal 2016 , which benefited about equally from improved operating results and reduced tax expense . cash flows from operations were $ 264,672 in fiscal 2017 compared to $ 231,329 in fiscal 2016. the increase was primarily due to increased cash flows from additional non-comparable store sales and an additional week of operations . capital expenditures were $ 219,901 in fiscal 2017 compared to $ 180,577 in fiscal 2016. during fiscal 2017 , we opened fourteen stores . liquidity and cash flows the primary source of cash flow is from our operating activities and availability under the revolving credit facility . store-level variability , quarterly fluctuations , seasonality and inflation we have historically operated stores varying in size and have experienced significant variability among stores in volumes , operating results and net investment costs . our new stores typically open with sales volumes in excess of their expected long term run-rate levels , which we refer to as a honeymoon effect . we expect our new store sales volumes in year two to be 10 % to 20 % lower than our year one targets , and to grow in line with the rest of our comparable store base thereafter . as a result of the substantial revenues associated with each new store , the number and timing of new store openings will result in significant fluctuations in quarterly results . in the first year of operation new store operating margins ( excluding pre-opening expenses ) typically benefit from honeymoon sales leverage on occupancy , management labor and other fixed costs . this benefit is partially offset by normal inefficiencies in hourly labor and other costs associated with establishing a new store . in year two , operating margins may decline due to the loss of honeymoon sales leverage on fixed costs which is partially offset by improvements in store operating efficiency . furthermore , rents in our new stores are typically higher than our comparable store base . our operating results fluctuate significantly from quarter to quarter as a result of seasonal factors . typically , we have higher first and fourth quarter revenues associated with the spring and year-end holidays . these quarters will continue to be susceptible to the impact of severe or unseasonably mild weather on customer traffic and sales during that period . our third quarter , which encompasses the back-to-school fall season , has historically had lower revenues as compared to the other quarters . we expect that economic and environmental conditions and changes in regulatory legislation will continue to exert pressure on both supplier pricing and consumer spending related to entertainment and dining alternatives . although there is no assurance that our cost of products will remain stable or that federal , state or local minimum wage rates will not increase beyond amounts currently legislated , the effects of any supplier price increases or wage rate increases are expected to be partially offset by selected menu price increases where competitively appropriate . 34 fiscal 2017 compared to fiscal 2016 story_separator_special_tag loss on debt refinancing in connection with the august 17 , 2017 , debt refinancing ( see note 5 of notes to audited consolidated financial statements for further discussion ) , the company recorded a charge of $ 718 during the third quarter of fiscal 2017. provision for income taxes the effective income tax rate decreased to 22.7 % in fiscal 2017 compared to 36.7 % in fiscal 2016. this decrease in the effective tax rate primarily reflects a favorable 7.3 % impact from the implementation of new accounting guidance in fiscal 2017 that requires the excess tax benefit from exercised stock options and vested restricted stock to be recorded in the income tax provision instead of additional paid-in-capital , and a favorable 6.4 % impact from the tax cuts and jobs act enacted on december 22 , 2017. other differences from the statutory rate are due to the fica tip credits , state income taxes and the impact of certain income and expense items which are not recognized for income tax purposes . refer to note 1 of notes to audited consolidated financial statements , for further discussion of the accounting change , and refer to note 6 of notes to audited consolidated financial statements , for further information on our income tax provision . 39 fiscal 2016 compared to fiscal 2015 results of operations . the following table sets forth selected data , in thousands of dollars and as a percentage of total revenues ( unless otherwise noted ) for the periods indicated . all information is derived from the accompanying consolidated statements of comprehensive income . replace_table_token_11_th ( 1 ) the number of new store openings during the last two fiscal years were as follows : replace_table_token_12_th 40 reconciliations of non-gaap financial measures adjusted ebitda the following table reconciles ( in dollars and as a percent of total revenues ) net income to adjusted ebitda for the periods indicated : replace_table_token_13_th ( 1 ) primarily represents costs related to currency transaction ( gains ) or losses , capital market transactions and store closure costs . ( 2 ) beginning in the fourth quarter of 2016 we revised our calculation of adjusted ebitda to exclude adjustments for changes in deferred amusement revenue and ticket liabilities . this change has been applied retrospectively to all periods presented .
| for the year ended january 29 , 2017 , we derived 30.4 % of our total revenue from food sales , 14.6 % from beverage sales , 54.2 % from amusement sales and 0.8 % from other sources . the increased revenues in fiscal 2017 were from the following sources : comparable stores - excluding impact of 53rd week $ ( 7,962 ) comparable stores - 53rd week impact 14,268 non-comparable stores 128,616 other ( 289 ) total $ 134,633 the following discussion on comparable store sales has been prepared by comparing fiscal 2017 revenues on a 52 week basis to fiscal 2016 revenues . comparable store revenue decreased $ 7,962 , or 0.9 % , in fiscal 2017 compared to fiscal 2016. comparable store revenue compared to the prior fiscal year was , in part , negatively impacted by decreases in our food and beverage unit sales throughout the year , increased pressure from competition , cannibalization of sales from our new store openings and weather related sales interruptions in the third and fourth quarter . comparable walk-in revenues , which accounted for 89.2 % of comparable store revenue for fiscal 2017 , decreased $ 6,572 , or 0.8 % compared to fiscal 2016. comparable store special events revenues , which accounted for 10.8 % of consolidated comparable store revenue for fiscal 2017 , decreased $ 1,390 , or 1.4 % compared to fiscal 2016. food sales at comparable stores decreased by $ 11,632 , or 4.3 % , to $ 257,727 for fiscal 2017 from $ 269,359 in fiscal 2016. beverage sales at comparable stores decreased by $ 6,654 , or 5.1 % , to $ 122,710 for fiscal 2017 from $ 129,364 in fiscal 2016. the decrease in food and beverage sales at comparable stores is attributed to lower customer volumes and was partially offset by an overall increase in menu prices . comparable store amusement and other revenues in fiscal 2017 increased by $ 10,324 , or 2.1 % , to $ 499,638 from $ 489,314 in fiscal 2016 , due to an increase in the revenue per power card sold . revenue at our 30 non-comparable stores increased $ 128,616 for fiscal 2017 compared to fiscal
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non-gaap financial measures in addition to providing financial measurements based on generally accepted accounting principles in the united states of america , or gaap , we provide additional financial metrics that are not prepared in accordance with gaap , or non-gaap financial measures . management uses non-gaap financial measures , in addition to gaap financial measures , to understand and compare operating results across accounting periods , for financial and operational decision making , for planning and forecasting purposes and to evaluate our financial performance . management believes that these non-gaap financial measures reflect our ongoing business in a manner that allows for meaningful comparisons and analysis of trends in our business , as they exclude expenses and gains that are not reflective of our ongoing operating results . management also believes that these non-gaap financial measures provide useful information to investors in understanding and evaluating our operating results and future prospects in the same manner as management and in comparing financial results across accounting periods and to those of peer companies . the non-gaap financial measures do not replace the presentation of our gaap financial results and should only be used as a supplement to , not as a substitute for , our financial results presented in accordance with gaap . 24 the non-gaap adjustments , and the basis for excluding them from non-gaap financial measures , are outlined below : ● amortization of acquired intangible assets - we are required to amortize the intangible assets , included in our gaap financial statements , related to the acquisition and the transaction . the amount of an acquisition 's purchase price allocated to intangible assets and term of its related amortization are unique to these transactions . the amortization of acquired intangible assets are non-cash charges . we believe that such changes do not reflect our operational performance . therefore , we exclude amortization of acquired intangible assets to provide investors with a consistent basis for comparing pre- and post-transaction operating results . ● amortization of note discount - these expenses are non-cash and are related to amortization of discount of the note purchase agreements with ya ii pn . such expenses do not reflect our on-going operations . ● stock-based compensation is share based awards granted to certain individuals . they are non-cash and affected by our historical stock prices which are irrelevant to forward-looking analyses and are not necessarily linked to our operational performance . the following table reconciles , for the periods presented , gaap net loss attributable to micronet enertec to non-gaap net income attributable to micronet enertec and gaap loss per diluted share attributable to micronet enertec to non-gaap net income per diluted share attributable to micronet enertec : replace_table_token_3_th story_separator_special_tag our net loss attributable to micronet enertec was $ 5,807,000 , or 26 % as a percentage of sales , in the year ended december 31 , 2016 compared to net loss attributable to micronet enertec of $ 2,467,000 , or 10 % as a percentage of sales , in the year ended december 31 , 2015. this represents an increase in net loss of $ 3,340,000 , or 135 % , as compared with the year ended december 31 , 2015. the change is mainly a result of the decrease in revenues and the changes in gross profit and operating expenses as described above . 26 liquidity and capital resources the company finances its operations through current revenues , loans and securities offerings . the loans are divided into bank loans and a loan from meydan family trust no 3 , or meydan , as described below . as of december 31 , 2016 , our total cash and cash equivalents and restricted cash and marketable securities balance was $ 8,134,000 ( of which marketable securities amounted to $ 2,978,000 ) , as compared to $ 12,139,000 ( of which marketable securities amounted to $ 5,643,000 ) as of december 31 , 2015. this reflects a significant decrease of $ 4,005,000 in cash and cash equivalents and restricted cash and marketable securities . the decrease in cash and cash equivalents is primarily a result of the net loss . on june 30 , 2016 , the company and enertec , collectively , the borrowers , entered into a note purchase agreement with ya ii , whereby ya ii purchased $ 600,000 of notes from the borrowers , or the notes . the outstanding principal balance of the notes bears interest at 7 % per annum . on a quarterly basis commencing on october 10 , 2016 , the borrowers are required to make payments of $ 150,000 of principal plus accrued interest . all amounts payable are due on july 10 , 2017. upon the occurrence of an event of default under the notes , all amounts payable may be due immediately . on october 28 , 2016 , the borrowers entered into an additional note purchase agreement with ya ii whereby ya ii loaned an additional $ 500,000 to the borrowers pursuant to an additional secured promissory note . the outstanding principal balance of the additional note bears interest at 7 % per annum . the additional note matures on november 20 , 2017. the borrowers have agreed to make payments of $ 125,000 from the principal balance of the additional note plus all accrued and unpaid interest on each of march 20 , 2017 , june 20 , 2017 , september 20 , 2017 and november 20 , 2017. upon the occurrence of an event of default under the additional note , all amounts payable may be due immediately . on december 22 , 2016 the borrowers entered into a supplemental agreement with ya ii , whereby ya ii agreed to lend the company an additional $ 1,000,000 pursuant to a secured promissory note . the outstanding principal balance of the this note bears interest at 7 % per annum . story_separator_special_tag the note matures on december 20 , 2017. the borrowers have agreed to use 50 % of the net proceeds of any cash raised from financing transactions completed while the note is outstanding to repay the principal and interest on the note . upon the occurrence of an event of default , all amounts payable may be due immediately . the note , along with the other notes held by ya ii , are secured by a pledge of shares of micronet owned by enertec . pursuant to the supplemental agreement , ya ii agreed to revise the payment schedule of the june 2016 note such that the company shall be required to make payments of $ 150,000 from the principal balance of such note plus all accrued and unpaid interest on each of october 10 , 2016 , may 1 , 2017 and september 1 , 2017. in addition , pursuant to the supplemental agreement , ya ii agreed to revise the payment schedule of the october 2016 note such that the company shall be required to make payments of $ 150,000 from the principal balance of the such note plus all accrued and unpaid interest on each of may 1 , 2017 and september 1 , 2017. the borrowers agreed to pay to ya global ii spv llc ( as designee of ya ii ) a commitment fee in the amount of $ 100,000 , with $ 50,000 of such commitment fee due and payable in cash upon the closing of the note , and the remaining balance of $ 50,000 of the commitment fee paid in cash or in freely tradable shares of the company 's common stock as follows : ( i ) $ 25,000 on or before july 1 , 2017 , and ( ii ) $ 25,000 on or before december 31 , 2017 , provided that these remaining portions shall be waived if the borrowers have repaid at least $ 500,000 of the principal amount of the note on or before july 1 , 2017. in connection with the supplemental agreement and issuance of the note , the company issued to ya ii a five-year warrant , or the warrant , to purchase 120,000 shares of the company 's common stock at an exercise price of $ 3.00 per share . on september 2 , 2015 , enertec entered into a credit line agreement with a financing firm , or the financing firm , pursuant to which the financing firm agreed to grant enertec a credit line . the maximum aggregate amount of the credit line agreement is $ 675,000 and up to 85 % of open trade receivables invoices . the annual interest rate is prime plus 1.75 % . the credit line agreement will expire on april 30 , 2017. as of december 31 , 2016 , enertec had financed $ 669,000 pursuant to the credit line agreement . 27 on december 30 , 2015 , the company entered into a loan agreement , or the meydan loan , with meydan , pursuant to which meydan agreed to loan the company $ 750,000 on certain terms and conditions . the proceeds of the meydan loan have been used by the company for working capital and general corporate needs . the meydan loan bears interest at the rate of libor plus 8 % per annum and is due and payable in 4 equal installments beginning on july 10 , 2016. on october 9 , 2016 the company amended the meydan loan pursuant to which meydan agreed to revise the payment schedule of an existing loan with a principal balance of $ 814,000 as of december 31 , 2016 and such that the company shall be required to make payments of $ 187,000 from the principal balance of the december 31 , 2016 the meydan loan plus all accrued and unpaid interest on each of april 10 , 2017 , july 10 , 2017 , october 10 , 2017 and january 10 , 2018. in connection with our acquisition of the vehicle business , micronet entered into a loan agreement , or the fibi loan agreement , with the first international bank of israel , or fibi . under this agreement , fibi loaned micronet $ 4.85 million for the financing of this acquisition . pursuant to the terms of the fibi loan agreement , $ 2.425 million of the loan bears interest at a quarterly adjustable rate of prime plus 1.5 percent ( 3.75 % percent as of the date of the loan ) , or the long term portion . the long term portion plus interest is due and payable in twelve equal consecutive quarterly installments beginning on august 29 , 2014. the balance of the loan in the amount of $ 2.425 million bears interest at a quarterly adjustable rate of prime plus 1.2 % ( 3.45 % as of the date of the loan ) , or the short term portion . the short term portion is due and payable within one year from the date of the loan , and the interest on the short term portion is due and payable every quarter beginning on august 29 , 2014. the loan is secured mainly by a floating charge against micronet 's assets and a mortgage on a building owned by micronet . the loan is subject to customary covenants , terms , conditions , events of default and certain pre-payment provisions .
| micronet 's gross profit decreased from 32 % in the year ended december 31 , 2015 to 20 % for the same period in 2016 , mainly due to inventory write offs mostly attributed to microneto old product line combined with increased customer support cost associated with the introduction of the company 's new product line . selling and marketing selling and marketing costs are part of operating expenses . selling and marketing costs for the year ended december 31 , 2016 were $ 1,941,000 , as compared to $ 1,530,000 for the year ended december 31 , 2015. this represents an increase of $ 411,000 , or 27 % for the year 2016. the increase is primarily due to a increase in the mrm segment as a result of an increase in the sales force . general and administrative general and administrative costs are part of operating expenses . general and administrative costs for the year ended december 31 , 2016 were $ 5,933,000 as compared to $ 4,723,000 for the year ended december 31 , 2015. this represents an increase of $ 1,210,000 , or 26 % , for the year ended december 31 , 2016. the increase is mainly due to a $ 150,000 payment relating to a settlement agreement pursuant to the company 's termination of a potential acquisition , in addition to an increase in professional consultants and increase of $ 260,000 in doubtful debt related to the mrm division . research and development costs research and development costs are part of operating expenses . research and development costs , which include mainly wages , materials and sub-contractors , for the year ended december 31 , 2016 , were $ 2,320,000 compared to $ 2,453,000 for the year ended december 31 , 2015. this represents a decrease of $ 133,000 , or 5 % for the year ended december 31 , 2016. net loss from operations our net loss from operations for the year ended december 31 , 2016 was $ 6,970,000 , or 31 % as a percentage of sales , compared to an operating loss of $ 2,521,000or 11 % as a percentage of sales , for the year ended december 31 , 2015. the increase in net loss is mainly a
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the fair market value of options granted under the company 's stock option plans was estimated on the date of grant using the black-scholes option-pricing model using assumptions for inputs such as interest rates , expected dividends , volatility measures and specific employee exercise behavior patterns based on statistical data . some of the inputs used are not market-observable and have to be estimated or derived from available data . use of different estimates would produce different option values , which in turn would result in higher or lower compensation expense recognized . to value options , several recognized valuation models exist . none of these models can be singled out as being the best or most correct one . the model applied by the company is able to handle some of the specific features included in the options granted , which is the reason for its use . if a different model were used , the option values could differ despite using the same inputs . accordingly , using different assumptions coupled with using a different valuation model could have a significant impact on the fair value of employee stock options . fair value could be either higher or lower than the ones produced by the model applied and the inputs used . further information on the company 's equity compensation plans , including inputs used to determine fair value of options , is disclosed in notes 1 and 5 to the consolidated financial statements . income taxes the company accounts for income taxes using the asset and liability method . under this method , deferred income tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and for tax credit carry forwards and are measured using the enacted tax rates in effect for the years in which the differences are expected to reverse . deferred income tax expense represents the change in net deferred income tax assets and liabilities during the year . the company 's foreign subsidiaries are comprised of neogen europe ( wholly-owned subsidiary ) , neogen latinoamerica ( 90 % owned subsidiary ) , neogen do brasil ( 90 % owned subsidiary ) and neogen china ( wholly-owned subsidiary ) . based on historical experience , as well as the company 's future plans , earnings from these subsidiaries are expected to be re-invested indefinitely for future expansion and working capital needs . furthermore , the company 's domestic operations have historically produced sufficient operating cash flow to mitigate the need to remit foreign earnings . on an annual basis , the company evaluates the current business environment and whether any new events or other external changes might require a re-evaluation of the decision to indefinitely re-invest foreign earnings . at may 31 , 2015 , unremitted earnings of the foreign subsidiaries were $ 24,423,000 . 22 story_separator_special_tag category benefitted from revenues from the syrvet and prima tech acquisitions from fiscal 2014 ; these product lines were almost entirely veterinary instruments . excluding these revenues , organic growth in this category was 8 % for fiscal 2015 , led by sales of detectable needles , which continued to be a strong product line with growth of 29 % in fiscal 2015. partially offsetting some of this growth was the transfer of customers and revenue in mexico and central america to neogen latinoamerica , in order to more directly serve those customers . 24 sales of animal care and other products were relatively flat in fiscal 2015 ; on an organic basis , these sales were down 6 % , partially due to the transfer of some customers to neogen latinoamerica . within this category in fiscal 2014 , the company recorded strong sales of a wound care product caused by a supply disruption in the market . this product was available for sale from all competitors in fiscal 2015 , and revenues for this product declined . additionally , sales of a distributed antibiotic declined due to supplier discontinuance of the product . small animal supplements rose by $ 1.7 million in fiscal 2015 , due to strong sales of the company 's thyroid replacement offering for the canine market . rodenticides , insecticides and disinfectants sales increased 25 % in fiscal 2015 , largely the result of revenues gained from the chem-tech insecticide business acquisition in january 2014. excluding the contribution from this acquisition , the organic increase in this category was 4 % . rodenticide sales increased 21 % , primarily due to rodent infestations in the northwestern us and the capture of new business . partially offsetting this growth was a 12 % decrease in sales of cleaners and disinfectants , due to unusually high sales in the prior year caused by the porcine virus outbreak , primarily in international markets . dna testing revenues , excluding sales through neogen europe , neogen do brasil and neogen china , which are reported elsewhere , increased 21 % in fiscal 2015 as compared to the prior year . continuing improvements to a number of proprietary service offerings , primarily targeted at dairy and beef cattle markets , helped the company increase sales to existing customers and gain market share . additionally , there were strong sales to a new poultry customer in the current fiscal year . year ended may 31 , 2014 compared to year ended may 31 , 2013 the company 's food safety segment revenues were $ 116.3 million in fiscal 2014 , up 10 % compared to fiscal 2013 , with increases in each major product category . sales of natural toxins , allergens and drug residues increased 5 % in fiscal 2014 compared to the prior year . allergen sales , including meat speciation kits , increased 18 % , as food product recalls caused by mislabeled products containing allergenic components helped drive increased testing . story_separator_special_tag sales of test kits in the drug residue product line , which are used to detect the presence of antibiotics in dairy milk , rose by 8 % compared to the prior year , driven by increases in europe and brazil . sales of natural toxins test kits declined 3 % as strong sales of test kits , readers and accessories in the prior year resulting from significant aflatoxin and don outbreaks in both the u.s. and europe did not repeat in fiscal 2014 , as crops in the u.s. were relatively clean . bacterial and general sanitation revenues increased 13 % in the current fiscal year compared to the prior year . within this category , ampoule media and filter sales increased 32 % over the prior year as the company increased market share in this product line particularly in the beverage industry . the soleris product line , which detects spoilage organisms such as yeast and mold , increased 17 % , primarily due to gains in europe , mexico and the domestic beverage market , while the accupoint line , designed to measure environmental cleanliness , increased 18 % , both compared to the prior year , due to focused marketing programs . offsetting these gains , pathogen sales were down 4 % in fiscal 2014 compared to fiscal 2013 , due primarily to lower ansr equipment sales . dehydrated culture media and other revenues increased 16 % over the prior year . genomics service revenues and life sciences products sold through neogen europe to european customers led the growth in this category . sales of dehydrated culture media to food safety customers increased by 20 % compared to the prior year , led by strong performance in the u.s. commercial labs market as the company secured new business at the corporate level with several large labs . however , sales of acumedia products to international distributors and domestic industrial customers only increased 2 % , with both sales groups having large revenue increases in the prior year . the company 's animal safety segment revenues were $ 131.1 million for the year ended may 31 , 2014 , an increase of $ 29.7 million , or 29 % , compared to the same period in the prior year . the segment benefitted from three acquisitions the company completed during fiscal 2014 ; these acquisitions and the two acquisitions completed in fiscal 2013 contributed $ 23.7 million in revenues in fiscal 2014. organic growth for the segment was 6 % in fiscal 2014. life sciences product revenue declined by 3 % in fiscal 2014 compared to fiscal 2013 , primarily due to continuing weakness in racing kits revenues , the result of fewer racetracks in the u.s. , and consolidation of state testing labs . additionally , approximately $ 700,000 in substrate business was transferred to neogen europe in fiscal 2014 , which reports through the food safety segment , to better support the customer base in europe with the company 's sales and support staff located there . offsetting these declines was a 21 % increase in forensic kit sales , the result of new business and increased volume from existing customers . 25 veterinary instruments and disposables revenues were $ 28.4 million in fiscal 2014 , an increase of 70 % compared to fiscal 2013. this line benefitted from the acquisitions of syrvet in july 2013 , and prima tech in november 2013 ; both of these businesses were focused on veterinary instruments . growth in this line excluding acquisitions was 4 % . the company 's patented line of detectable needles continued its consistent growth history with an organic increase of 11 % . sales of shoulder gloves increased 17 % organically , as the syrvet acquisition helped the company to gain market share with a more robust product line . sales of disposable syringes were down due to order timing from a large international customer . also , specialty needle sales were down 29 % , due to a customer 's change in protocol which led to lower volumes of needle use . growth in animal care and other products was 20 % in fiscal 2014 ; organic growth was 4 % , the remainder from acquisitions , primarily animal marking products from prima tech , hoof and leg care items from syrvet and veterinary antibiotics from macleod . within this product line , sales of joint supplements for horses and dogs increased 94 % due to market supply disruptions , while wound dressing revenues rose 28 % as the company increased private label sales and gained market share . vaccine sales for equine botulism type b increased 10 % , reversing two years of declining sales as the equine market rebounded in fiscal 2014. these increases offset a 14 % decline in sales of the company 's canine thyroid replacement products ; the decline was the result of a difficult comparative year , as fiscal 2013 sales were extraordinarily high due to competitor shutdowns . while the company retained a portion of its increased market share from fiscal 2013 , all competitors of this product line were operating for the entire year in fiscal 2014. sales of rodenticides , insecticides and disinfectants , the company 's biosecurity product offerings , rose 35 % for the year . the company 's purchase of chem-tech , a manufacturer and marketer of insecticides in january 2014 provided $ 7.2 million of the $ 9.6 million increase . organic growth was 9 % in this product line , with particular strength in the company 's cleaners and disinfectants , up 22 % for the year . these increases resulted from a number of disease outbreaks during the year , such as avian influenza and porcine virus , which raised awareness of the necessity of cleaning and disinfecting animal facilities . offsetting these increases was a 4 % decline in rodenticides , primarily due to adverse weather conditions in the sugar cane industry in puerto rico , one of the company 's key markets .
| neogen europe had an increase of 9 % for fiscal 2015 ( 11 % in local currency ) , compared to the prior year , while neogen do brasil revenues declined 3 % for the year ( but increased 12 % in local currency ) . neogen china increased revenues significantly in fiscal 2015 , albeit off of a small base . neogen latinoamerica recorded a revenue increase of 151 % for the year ( 175 % in local currency ) , benefitting from the transfer of certain animal safety customers and revenues in mexico and central america from the company 's sales personnel based in the u.s. , in an effort to better serve customers located in those geographic areas . after adjusting for the impact of the revenue transfer from animal safety to food safety at neogen latinoamerica , overall organic sales growth for fiscal 2015 was 4 % for the food safety segment and 10 % for the animal safety segment . expressed as a percentage of total sales , international sales in fiscal 2015 were 36.7 % compared to 38.8 % in fiscal 2014. this decline as a percentage of sales was due in part to the strength of the u.s. dollar , which reduced comparative revenues in the local currency when converted to dollars ; international sales were negatively impacted by $ 3.6 million for fiscal 2015. the chem-tech acquisition , which was entirely domestic sales , and lower volumes of drug residue test kits into eastern europe due to product launch delays , also reduced the overall proportion of international revenues . service revenue was $ 35.1 million in fiscal 2015 , an increase of 27 % compared to prior year revenues of $ 27.7 million . the increase for the year was primarily due to increased sales of new proprietary genomic offerings developed for the beef and dairy cattle and pork industries for both domestic and international customers , with particular strength in europe . geneseek also benefitted from new ongoing business with a large customer in the poultry industry
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as of december 31 , 2020 , the largest industry represented 22.2 % of our total investment portfolio based on fair value . investment structuring . we focus on investing at the top of the capital structure and protecting that position . as of december 31 , 2020 , approximately 95.8 % of our portfolio was invested in secured debt , including 95.6 % in first-lien debt investments . we carefully perform diligence and structure investments to include strong investor covenants . as a result , we structure investments with a view to creating opportunities for early intervention in the event of non-performance or stress . in addition , we seek to retain effective voting control in investments over the loans or particular class of securities in which we invest through maintaining affirmative voting positions or negotiating consent rights that allow us to retain a blocking position . we also aim for our loans to mature on a medium term , between two to six years after origination . for the year ended december 31 , 2020 , the weighted average term on new investment commitments in new portfolio companies was 4.6 years . deal dynamics . we focus on , among other deal dynamics , direct origination of investments , where we identify and lead the investment transaction . a substantial majority of our portfolio investments are sourced through our direct or proprietary relationships . risk mitigation . we seek to mitigate non-credit-related risk on our returns in several ways , including call protection provisions to protect future interest income . as of december 31 , 2020 , we had call protection on 82.0 % of our debt investments based on fair value , with weighted average call prices of 107.0 % for the first year , 104.3 % for the second year and 101.4 % for the third year , in each case from the date of the initial investment . as of december 31 , 2020 , 99.1 % of our debt investments based on fair value bore interest at floating rates ( when including investment specific hedges ) , with 99.2 % of these subject to interest rate floors , which we believe helps act as a portfolio-wide hedge against inflation . relationship with our adviser and sixth street our adviser is a delaware limited liability company . our adviser acts as our investment adviser and administrator and is a registered investment adviser with the sec under the advisers act . our adviser sources and manages our portfolio through a dedicated team of investment professionals predominately focused on us . our investment team is led by our chairman and chief executive officer and our adviser 's co-chief investment officer joshua easterly and our adviser 's co-chief investment officer alan waxman , both of whom have substantial experience in credit origination , underwriting and asset management . our investment decisions are made by our investment review committee , which includes senior personnel of our adviser and sixth street partners , llc , or “ sixth street. ” sixth street is a global investment business with approximately $ 50 billion of assets under management . sixth street 's core platforms include sixth street specialty lending , sixth street specialty lending europe , which is aimed at european middle-market 61 loan originations , sixth street tao , which has the flexibility to invest across all of sixth street 's private credit market investments , sixth street opportunities , which focuses on actively managed opportunistic investments across the credit cycle , sixth street credit market strategies , which is the firm 's “ public-side ” credit investment platform focused on investment opportunities in broadly syndicated leveraged loan markets , sixth street growth , which provides financing solutions to growing companies , sixth street fundamental strategies , which primarily invests in secondary credit , and sixth street agriculture , which invests in niche agricultural opportunities . sixth street has a long-term oriented , highly flexible capital base that allows it to invest across industries , geographies , capital structures and asset classes . sixth street has extensive experience with highly complex , global public and private investments executed through primary originations , secondary market purchases and restructurings , and has a team of over 320 investment and operating professionals . as of december 31 , 2020 , thirty two ( 3 2 ) of these personnel are dedicated to our business , including twenty four ( 2 4 ) investment professionals . our adviser consults with sixth street in connection with a substantial number of our investments . the sixth street platform provides us with a breadth of large and scalable investment resources . we believe we benefit from sixth street 's market expertise , insights into industry , sector and macroeconomic trends and intensive due diligence capabilities , which help us discern market conditions that vary across industries and credit cycles , identify favorable investment opportunities and manage our portfolio of investments . sixth street and its affiliates will refer all middle-market loan origination activities for companies domiciled in the united states to us and conduct those activities through us . the adviser will determine whether it would be permissible , advisable or otherwise appropriate for us to pursue a particular investment opportunity allocated to us . on december 16 , 2014 , we were granted an exemptive order from the sec that allows us to co-invest , subject to certain conditions and to the extent the size of an investment opportunity exceeds the amount our adviser has independently determined is appropriate to invest , with certain of our affiliates ( including affiliates of sixth street ) in middle-market loan origination activities for companies domiciled in the united states and certain “ follow-on ” investments in companies in which we have already co-invested pursuant to the order and remain invested . on january 16 , 2020 , we filed a further application for co-investment exemptive relief with the sec to better align our existing co-investment relief with more recent sec exemptive orders . story_separator_special_tag there can be no assurance when or if the sec will grant a further order in response to our application . until such time a new order is granted , we will continue to operate under the terms of our current exemptive order . we believe our ability to co-invest with sixth street affiliates is particularly useful where we identify larger capital commitments than otherwise would be appropriate for us . we expect that with the ability to co-invest with sixth street affiliates we will continue to be able to provide “ one-stop ” financing to a potential portfolio company in these circumstances , which may allow us to capture opportunities where we alone could not commit the full amount of required capital or would have to spend additional time to locate unaffiliated co-investors . under the terms of the investment advisory agreement and administration agreement , the adviser 's services are not exclusive , and the adviser is free to furnish similar or other services to others , so long as its services to us are not impaired . under the terms of the investment advisory agreement , we will pay the adviser the base management fee , or the management fee , and may also pay certain incentive fees , or the incentive fees . under the terms of the administration agreement , the adviser also provides administrative services to us . these services include providing office space , equipment and office services , maintaining financial records , preparing reports to stockholders and reports filed with the sec , and managing the payment of expenses and the oversight of the performance of administrative and professional services rendered by others . certain of these services are reimbursable to the adviser under the terms of the administration agreement . key components of our results of operations investments we focus primarily on the direct origination of loans to middle-market companies domiciled in the united states . our level of investment activity ( both the number of investments and the size of each investment ) can and does vary substantially from period to period depending on many factors , including the amount of debt and equity capital generally available to middle-market companies , the level of merger and acquisition activity for such companies , the general economic environment and the competitive environment for the types of investments we make . in addition , as part of our risk strategy on investments , we may reduce certain levels of investments through partial sales or syndication to additional investors . 62 revenues we generate revenues primarily in the form of interest income from the investments we hold . in addition , we may generate income from dividends on direct equity investments , capital gains on the sale of investments and various loan origination and other fees . our debt investments typically have a term of two to six years , and , as of december 31 , 2020 , 99.1 % of these investments based on fair value bore interest at a floating rate ( when including investment specific hedges ) , with 99.2 % of these subject to interest rate floors . interest on debt investments is generally payable quarterly or semiannually . some of our investments provide for deferred interest payments or pik interest . for the year ended december 31 , 2020 , 3.2 % of our total investment income was comprised of pik interest . changes in our net investment income are primarily driven by the spread between the payments we receive from our investments in our portfolio companies against our cost of funding , rather than by changes in interest rates . our investment portfolio primarily consists of floating rate loans , and our credit facilities , 2022 convertible notes , 2023 notes and 2024 notes , after taking into account the effect of the interest rate swaps we have entered into in connection with these securities , all bear interest at floating rates . macro trends in base interest rates like libor or other alternate reference rates may affect our net investment income over the long term . however , because we generally originate loans to a small number of portfolio companies each quarter , and those investments also vary in size , our results in any given period—including the interest rate on investments that were sold or repaid in a period compared to the interest rate of new investments made during that period—often are idiosyncratic , and reflect the characteristics of the particular portfolio companies that we invested in or exited during the period and not necessarily any trends in our business . in addition to interest income , our net investment income is also driven by prepayment and other fees , which also can vary significantly from quarter to quarter . the level of prepayment fees is generally correlated to the movement in credit spreads and risk premiums , but also will vary based on corporate events that may take place at an individual portfolio company in a given period—e.g. , merger and acquisition activity , initial public offerings and restructurings . as noted above , generally a small but varied number of portfolio companies may make prepayments in any quarter , meaning that changes in the amount of prepayment fees received can vary significantly between periods and can vary without regard to underlying credit trends . loan origination fees , original issue discount and market discount or premium are capitalized , and we accrete or amortize such amounts as interest income using the effective interest method for term instruments and the straight-line method for revolving or delayed draw instruments . repayments of our debt investments can reduce interest income from period to period . we record prepayment premiums on loans as interest income when earned . we also may generate revenue in the form of commitment , amendment , structuring , syndication or due diligence fees , fees for providing managerial assistance and consulting fees . the frequency or volume of these items of revenue may fluctuate significantly .
| 9 million for the year ended december 31 , 2019 to $ 22 . 5 million for the year ended december 31 , 2020 , primarily due to higher a gency , syndication and miscellaneous fees earned during 2020 . interest from investments , which includes amortization of upfront fees and prepayment fees , decreased from $ 249.9 million for the year ended december 31 , 2018 to $ 237.2 million for the year ended december 31 , 2019 , primarily due to a decrease in accelerated amortization of upfront fees and prepayment fees due to fewer paydowns which was partially offset by an increase in the average portfolio size for the year ended december 31 , 2019. accelerated amortization of upfront fees , primarily from unscheduled paydowns , decreased from $ 13.4 million for the year ended december 31 , 2018 to $ 6.7 million for the year ended december 31 , 2019 , and prepayment fees decreased from $ 25.6 million for the year ended december 31 , 2018 to $ 12.0 million for the year ended december 31 , 2019. the accelerated amortization and prepayment fees primarily resulted from full paydowns on 16 portfolio investments , partial paydowns on three portfolio investments , partial realizations on two portfolio investments and prepayment fees on 15 portfolio investments during the year ended december 31 , 2018 , and full paydowns on 13 portfolio investments , partial paydowns on five portfolio investments , and prepayment fees on 11 portfolio investments during the year ended december 31 , 2019. dividend income increased from $ 0.2 million for the year ended december 31 , 2018 to $ 0.4 million for the year ended december 31 , 2019 due to increased investment in dividend yielding securities in 2019. other income increased from $ 11.8 million for the year ended december 31 , 2018 to $ 13.9 million for the year ended december 31 , 2019 , primarily due to higher amendment fees earned during 2019 .
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in addition , our net losses and cash flows may fluctuate significantly from period to period depending on , among other things , variations in the level of our expenses and the execution of any additional collaboration , licensing or similar arrangements , and the timing of payments we may make or receive under these types of arrangements . as a result of these anticipated expenditures , we will need substantial additional funding to support our operating activities as we advance our product candidates through clinical development , seek regulatory approval and prepare for and , if any of our product candidates are approved , proceed to commercialization . until such time as we can generate significant revenue from product sales , if ever , we expect to finance our operating activities through a combination of equity offerings , debt offerings , reimbursements and potential milestones earned under our existing collaboration agreements and potential license and development agreements with third parties , including but not limited to our existing collaboration partners . adequate funding may not be available to us on acceptable terms , or at all . covid-19 the impact of the covid-19 coronavirus outbreak on our financial performance will depend on future developments , including the duration and spread of the outbreak and related governmental advisories and restrictions . there are multiple causes of these delays , including laboratory closures , reluctance of patients to enroll or continue in trials for fear of exposure to covid-19 , local and regional shelter-in-place and work from home orders and regulations that discourage , hamper or prohibit patient visits , healthcare providers and health systems shifting away from clinical trials toward the acute care of covid-19 patients and the fda and other regulators making product candidates for the treatment of covid-19 a priority over product candidates unrelated to the pandemic . in terms of the impact on our operations , we have seen increased risk of delays in production of components used to manufacture our lead degrader candidates due to previous delays at one of our china-based manufacturers , periodic shipping delays and resourcing constraints and , therefore , somewhat higher costs to compete our discovery activities on one or more of our lead projects , and one of our contract research organizations , or cros , in india was forced to temporarily shut down due to local lockdown orders . in addition , we temporarily closed the office and laboratory spaces at our corporate headquarters in watertown , massachusetts , and we transitioned our employees to work from home . we are working closely with our cros , manufacturers , investigators and preclinical and clinical trial sites to assess the full impact of the covid-19 pandemic on the timelines and expected costs for each of our programs . while the ongoing impact of the pandemic is uncertain , we believe our cro redundancies in china , india and boston and the transition of the majority of our employees to remote work arrangements have helped mitigate the impact of these types of disruptions on our business . given the breadth and duration of the global covid-19 pandemic , it is possible that our directors or employees could , at any time , have been or become infected with this novel coronavirus , especially since methods and availability of testing are continuing to evolve . to date , we have not experienced or had to impose any material shutdowns as a result of positive test results for this novel coronavirus . we note the high level of difficulty in projecting the effects of covid-19 on our programs and our company , given the rapid and dramatic evolution in the course and impact of the pandemic and the societal and governmental response to it . financial operations overview revenues as previously discussed , to date , we have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products for the foreseeable future . our revenues to date have been generated through research collaboration and license agreements . we recognize revenue over our expected performance period under each agreement . we expect that our revenue for the next several years will be derived primarily from our current collaboration agreements and any additional collaborations that we may enter into in the future . to date , we have not received any royalties under any of our existing collaboration agreements . roche collaboration and license agreement in march 2016 , we entered into the original roche agreement with roche , whereby roche provided us with a non-refundable upfront payment of $ 15.0 million , which was creditable against our target initiation fees of either $ 1.0 million or 87 $ 4.0 million , depending on the compound selected . pursuant to the terms of the original roche agreement , we collaborated on research activities to develop novel treatments in the field of targeted protein degradation using our degrader technology . we initially developed therapeutics that utilize degrader technology for up to ten target proteins . on a target-by-target basis , after successful completion of a defined preclinical development phase , roche had an exclusive option to pursue a license from us for further clinical development and commercialization . on december 22 , 2018 , we amended and restated the original roche agreement , or the roche agreement . under the roche agreement , we have a more active role in the manufacturing and commercialization of the targets included in the collaboration , whereby if we opt into certain co-development and co-detailing rights , the parties will split future development costs in return for our having rights to a larger share of future earnings from commercialization of the relevant target . story_separator_special_tag the target structure was revised to six potential targets , three of which had been nominated as of the execution of the roche agreement and represent continuations of the initial preclinical research and development efforts begun under the original roche agreement , and three additional targets that were not nominated as of the date of execution of the roche agreement . at the time of entry into the roche agreement , roche maintained its option rights to license and commercialize these six targets . under the roche agreement , we received additional upfront consideration of $ 40.0 million from roche . roche will make annual research plan payments of $ 1.0 million for each active research plan . finally , adjustments were made to the option exercise fees , whereby targets that have progressed through glp toxicology studies at the time of exercise now have option exercise fees of $ 7.0 million to $ 12.0 million and those progressed through phase 1 trials have option exercise fees of $ 20.0 million . for certain targets , roche is required to pay us fees of $ 2.0 million and $ 3.0 million upon the identification of a lead series and the commencement of glp toxicology studies , respectively . for each target option exercised by roche , we are eligible to receive up to $ 275 million in research , development and commercial milestone payments per target . roche is also required to pay us up to $ 150 million per target in one-time sales-based payments if the target achieves certain levels of net sales . roche is also required to pay us royalties , at percentages from the mid-single digits to the low double-digits , on a licensed product-by licensed product basis , on worldwide net product sales . in november 2020 , we signed a further amendment to the roche agreement that provides a mechanism through which we and roche can mutually agree to terminate the roche agreement on a target-by-target basis by the entry into a mutual target termination agreement . upon a termination of this nature , the roche agreement , as amended , provides that all rights in know-how and intellectual property in support of products that use inhibition as their mode of action , referred to as the roche field , will revert to roche and all rights in respect of know-how and intellectual property in support of products that use degradation as their mode of action , referred to as the c4t field , will revert to us . further , this amendment states that , following the entry into a mutual target termination agreement , roche will have rights in and responsibility for any know-how and intellectual property generated as a result of the collaboration that fits within the roche field and we will have rights in and responsibility for any know-how and intellectual property generated as a result of the collaboration that fits within the c4t field . in support of this allocation of rights , under the amendment , roche provided us , and we provided roche , with a perpetual , irrevocable , fully paid up , exclusive ( even as to party granting the license ) , sublicensable ( including in multiple tiers ) license to the patents that are allocated to a party under the mutual target termination agreement and a perpetual , irrevocable fully paid up , non-exclusive , sublicensable ( including in multiple tiers ) license to the know-how that is allocable to a party under the mutual termination agreement . finally , through the entry into this amendment , we and roche mutually agreed to terminate the roche agreement as to the target egfr . as a result , roche is now free to pursue the target egfr in the roche field and we are free to pursue the target egfr in the c4t field and all rights in and responsibility for know-how and intellectual property related to egfr in the roche field reverted to the roche parties and all rights in and responsibility for know-how and intellectual property related to egfr in the c4t field reverted to us , with roche assigning the relevant patents in the c4t field to us . biogen collaboration research and license agreement on december 28 , 2018 , we entered into the biogen agreement , with biogen , whereby we agreed to collaborate on research and development efforts for up to five targets to discover and develop potential new treatments for neurological conditions , such as alzheimer 's disease and parkinson 's disease . the biogen agreement also has an option for biogen to nominate additional targets and extend the biogen agreement . in february 2020 , we entered into an amendment to the biogen agreement that provided further clarity around biogen 's ownership of target binding moieties , which are portions of molecules , and any related intellectual property that are directed at or bind to collaboration targets . this amendment further provides that biogen licenses to us rights to use these biogen target binding moieties and any related intellectual property as needed in order to conduct the research and development activities contemplated under the biogen agreement . we granted biogen a non-exclusive research license under our intellectual property to perform research activities , select and optimize degraders and develop products including the degraders , as well as a commercial license to manufacture and 88 commercialize the targets once the initial research and development work is complete . the research under the biogen agreement will take place over a 54-month research term with biogen having an option to extend the biogen agreement for up to four additional years . if biogen elects to extend the term of the biogen agreement , biogen would be required to make an additional payment of $ 62.5 million and would be entitled to nominate up to five additional targets . the biogen agreement provides for three initial targets , with biogen having the right to initiate up to an additional two targets and to control all post-discovery activities .
| research and development expenses the following table summarizes our research and development expenses for the years ended december 31 , 2020 , 2019 , and 2018 ( in thousands ) : replace_table_token_2_th the $ 30.4 million increase in research and development expense in the year ended december 31 , 2020 from the year ended december 31 , 2019 is primarily driven by : a $ 19.8 million increase in preclinical and development costs , consisting of $ 11.9 million increase in external ftes used in preclinical development of our various programs , and $ 9.1 million of costs related to the ind submission for our cft7455 and cft8634 programs ; 91 a $ 6.1 million increase in personnel expenses , representing salary and benefit costs , including a $ 0.6 million increase in stock -based compensation expense , primarily due to the buildout of our clinical development team ; and a $ 3.2 million increase in professional fees , which primarily consists of consulting costs for our development activities . the $ 19.5 million increase in research and development expense for the year ended december 31 , 2019 from the year ended december 31 , 2018 was primarily due to : a $ 13.7 million increase in preclinical and development costs , driven primarily by an $ 8.3 million increase in external fte resources used in preclinical development of our various programs , and a $ 5.7 million increase in external preclinical studies for our product candidates ; and a $ 4.4 million increase in personnel expenses , related to personnel costs attributable to an increase in headcount . general and administrative expenses the following table summarizes our general and administrative expenses for the years ended december 31 , 2020 , 2019 , and 2018 ( in thousands ) : replace_table_token_3_th the $ 6.4 million increase in general and administrative expense in the year ended december 31 , 2020 as compared to the year ended december 31 , 2019
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we record current period changes in fair value of investments and secured borrowings within net change in unrealized appreciation ( depreciation ) on investments and net change in unrealized ( appreciation ) depreciation on secured borrowings , respectively , in the consolidated statements of operations . portfolio and investment activity during the year ended december 31 , 2015 , we invested $ 144.8 million in 24 new portfolio companies and $ 48.8 million in 16 existing portfolio companies and had $ 88.4 million in aggregate amount of principal repayments , resulting in net investment acquisitions of $ 105.2 million for the period . during the year ended december 31 , 2014 , we invested $ 120.4 million in 25 new portfolio companies and $ 11.8 million in six existing portfolio companies and had $ 107.1 million in aggregate amount of principal repayments , resulting in net investment acquisitions of $ 25.1 million for the period . during the year ended december 31 , 2013 , we made $ 138.8 million on investments in portfolio companies and had $ 65.2 million in aggregate amount of principal repayments resulting in net investment acquisitions of $ 73.6 million for the period . 65 the following table shows the composition of the investment portfolio ( in thousands ) and associated yield data : replace_table_token_10_th replace_table_token_11_th ( 1 ) based upon the par value of our debt investments and the cost basis of our preferred equity investments . n/a not applicable the shift in portfolio composition from december 31 , 2014 primarily reflects our investment of a portion of the capital from our public offering into more liquid junior secured loan investments . we expect to optimize certain of these investments into directly originated investments in the upcoming quarters , which should result in an increase in the percentage of the portfolio comprised of first lien loan assets . the decline in effective rate reflects the general market yield pressure on new loans originated and acquired during the year ended december 31 , 2015. the following table shows the portfolio composition by industry grouping at fair value ( dollars in thousands ) : replace_table_token_12_th 66 replace_table_token_13_th portfolio asset quality mc advisors ' portfolio management staff closely monitors all credits , with senior portfolio managers covering agented and more complex investments . mc advisors segregates our capital markets investments by industry . the mc advisors ' monitoring process and projections developed by monroe capital both have daily , weekly , monthly and quarterly components and related reports , each to evaluate performance against historical , budget and underwriting expectations . mc advisors ' analysts will monitor performance using standard industry software tools to provide consistent disclosure of performance . mc advisors also monitors our investment exposure using a proprietary trend analysis tool . when necessary , mc advisors will update our internal risk ratings , borrowing base criteria and covenant compliance reports . as part of the monitoring process , mc advisors regularly assesses the risk profile of each of our investments and rates each of them based on an internal proprietary system that uses the categories listed below , which we refer to as mc advisors ' investment performance rating . for any investment rated in grades 3 , 4 or 5 , mc advisors will increase its monitoring intensity and prepare regular updates for the investment committee , summarizing current operating results and material impending events and suggesting recommended actions . mc advisors monitors and , when appropriate , changes the investment ratings assigned to each investment in our portfolio . in connection with our valuation process , mc advisors reviews these investment ratings on a quarterly basis , and our board of directors ( the board ) reviews and affirms such ratings . a definition of the rating system follows : investment performance risk rating summary description grade 1 includes investments exhibiting the least amount of risk in our portfolio . the issuer is performing above expectations or the issuer 's operating trends and risk factors are generally positive . grade 2 includes investments exhibiting an acceptable level of risk that is similar to the risk at the time of origination . the issuer is generally performing as expected or the risk factors are neutral to positive . grade 3 includes investments performing below expectations and indicates that the investment 's risk has increased somewhat since origination . the issuer may be out of compliance with debt covenants ; however , scheduled loan payments are generally not past due . grade 4 includes an issuer performing materially below expectations and indicates that the issuer 's risk has increased materially since origination . in addition to the issuer being generally out of compliance with debt covenants , scheduled loan payments may be past due ( but generally not more than six months past due ) . for grade 4 investments , we intend to increase monitoring of the issuer . 67 investment performance risk rating story_separator_special_tag text-indent:0px ; text-align : center ; font-family : times new roman , times , serif ; font-size : 10pt ; line-height : 12pt ; font-style : normal ; font-variant : normal ; font-weight : normal ; color : black ; text-transform : none ; text-decoration : none ; padding-top : 12pt ; padding-right : 0pt ; padding-left : 0pt ; padding-bottom : 3pt ; margin-top : 0pt ; margin-right : 0pt ; margin-left : 0pt ; margin-bottom : 0pt '' > 70 principally from net proceeds from our capital raises during the period , net borrowings on our revolving credit facility and sba-guaranteed debenture borrowings , partially offset by distributions to stockholders and decreases in secured borrowings . for the year ended december 31 , 2014 , we experienced a net decrease in cash of $ 9.7 million . during the same period we used $ 11.5 million in operating activities , primarily as a result of purchases of portfolio investments , partially offset by sales of and principal repayments on portfolio investments . story_separator_special_tag during the year ended december 31 , 2014 , investing activities utilized $ 0.8 million due to changes in the restricted cash balance at mrcc sbic . during the same period , we generated $ 2.6 million from financing activities , principally from net borrowings on our revolving credit facility and sba-guaranteed debenture borrowings , partially offset by distributions to stockholders , repurchases of our common stock and decreases in secured borrowings . for the year ended december 31 , 2013 , we experienced a net increase in cash of $ 10.2 million . during the same period we used $ 62.9 million in operating activities , primarily as a result of purchases of portfolio investments , partially offset by sales of and principal repayments on portfolio investments . during the year ended december 31 , 2013 , investing activities utilized $ 0.4 million due to changes in the restricted cash balance at mrcc sbic . during the same period , we generated $ 73.4 million from financing activities , principally from proceeds from capital raises during the period and net borrowings on our revolving credit facility , partially offset by distributions to stockholders . capital resources as a bdc , we distribute substantially all of our net income to our stockholders and have an ongoing need to raise additional capital for investment purposes . we intend to generate additional cash primarily from future offerings of securities , future borrowings and cash flows from operations , including income earned from investments in our portfolio companies . on both a short-term and long-term basis , our primary use of funds will be to invest in portfolio companies and make cash distributions to our stockholders . as a bdc , we are generally not permitted to issue and sell our common stock at a price below net asset value per share . we may , however , sell our common stock , or warrants , options or rights to acquire our common stock , at a price below the then-current net asset value per share of our common stock if our board , including independent directors , determines that such sale is in the best interests of us and our stockholders , and if our stockholders approved such sales . on june 24 , 2015 , our stockholders voted to allow us to sell or otherwise issue common stock at a price below net asset value per share for a period of one year , subject to certain limitations . as of december 31 , 2015 and 2014 , we had 13,008,007 and 9,517,910 shares outstanding , respectively . on june 24 , 2015 , our stockholders approved a proposal to authorize us to issue warrants , options or rights to subscribe to , convert to , or purchase our common stock in one or more offerings . this is a standing authorization and does not require annual re-approval by our stockholders . stock issuances : on july 22 , 2013 , we completed a public offering of 4,000,000 shares of common stock , priced at $ 14.05 per share , before underwriting discounts and commissions . on august 20 , 2013 , our underwriters exercised their over-allotment option of 225,000 shares of our common stock , priced at $ 14.05 per share , before underwriting discounts and commissions . these issuances during the year ended december 31 , 2013 provided us with proceeds , net of offering and underwriting costs , of $ 56.0 million . on february 6 , 2015 , we entered into an at-the-market ( atm ) securities offering program with mlv & co. llc and jmp securities llc through which we may sell , by means of atm offerings from time to time , up to $ 50.0 million of our common stock . during the year ended december 31 , 2015 , we sold 672,597 shares at an average price of $ 14.68 per share for aggregate proceeds ( including transaction and offering costs ) of $ 9.8 million . on april 20 , 2015 , we closed a public offering of 2,450,000 shares of its common stock at a public offering price of $ 14.85 per share , raising approximately $ 36.4 million in gross proceeds . on may 18 , 2015 , we sold an additional 367,500 shares of our common stock , at a public offering price of $ 14.85 per share , raising approximately $ 5.5 million in gross proceeds pursuant to the underwriters ' exercise of the 71 over-allotment option . these non-atm program issuances during the year ended december 31 , 2015 provided the company with proceeds , net of offering and underwriting costs , of $ 39.9 million . borrowings revolving credit facility : as of december 31 , 2015 and 2014 , we had $ 123.7 million and $ 82.3 million outstanding , respectively , under our revolving credit facility with ing capital llc , as agent , to finance the purchase of our assets . as of december 31 , 2015 , the maximum amount we were able to borrow under the revolving credit facility is $ 160.0 million and this maximum borrowing can be increased to $ 300.0 million pursuant to an accordion feature ( subject to maintaining 200 % asset coverage , as defined by the 1940 act ) . on july 31 , 2015 , we closed a $ 25.0 million upsize to our revolving credit facility , from $ 110.0 million to $ 135.0 million in accordance with the facility 's accordion feature . on december 14 , 2015 , we closed an amendment and extension of our revolving credit facility . the amended facility included a $ 25.0 million increase in the size of our current revolver commitments , from $ 135.0 million to $ 160.0 million , and an expansion of the accordion feature to $ 300.0 million ( from the then existing $ 200.0 million ) to support our future growth . the amended facility immediately reduced pricing by 25 basis points to libor plus 3.00 % per annum .
| the following table shows the distribution of our investments on the 1 to 5 investment performance rating scale at fair value as of december 31 , 2015 ( dollars in thousands ) : replace_table_token_14_th the following table shows the distribution of our investments on the 1 to 5 investment performance rating scale at fair value as of december 31 , 2014 ( dollars in thousands ) : replace_table_token_15_th 68 results of operations operating results are as follows ( dollars in thousands ) : replace_table_token_16_th investment income the composition of our investment income was as follows ( dollars in thousands ) : replace_table_token_17_th the increase in investment income of $ 7.0 million during the year ended december 31 , 2015 is primarily due to an increase in average outstanding loan balances . the increase in investment income of $ 11.7 million during the year ended december 31 , 2014 is primarily due to an increase in average outstanding loan balances and an optimization of the portfolio into higher yielding assets during the year then ended . operating expenses the composition of our operating expenses was as follows ( dollars in thousands ) : replace_table_token_18_th 69 the composition of our interest and other debt financing expenses was as follows ( dollars in thousands ) : replace_table_token_19_th the increase in expenses of $ 3.3 million during the year ended december 31 , 2015 is primarily due to an increase in base management fees due to the growth in invested assets and increased incentive fees resulting from improvement in performance . increases in interest expense also contributed to the increase in expenses during the year ended december 31 , 2015 as a result of additional borrowings ( including sba-guaranteed debentures ) required to support the growth of the portfolio . the increase in expenses of $ 5.3 million during the year ended december 31 , 2014 is primarily due to an increase in interest expense as a result of additional borrowings required to support the growth of the portfolio , an increase in base management fees due to the growth in invested assets and increased incentive fees resulting from improvement in performance . net realized gain ( loss ) on investments during the years ended
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in the case of our new products and services , which involve the active daily processing of the secret numbers on our servers or servers managed by others in a hosted environment , we believe a cyber incident could have a material impact on our future business . we also believe that these products may be more susceptible to cyber attacks than our traditional products since it involves the active processing of transactions using the secret numbers . while we do not have a significant amount of revenue from these products today , we believe that these products have the potential to provide substantial future growth . a cyber incident involving these products in the future could substantially impair our ability to grow the business and we could suffer significant monetary and other losses and significant reputational harm . to minimize the risk , we review our security procedures on a regular basis . our reviews include the processes and software programs we are currently using as well as new forms of cyber incidents and new or updated software programs that may be available in the market that would help mitigate the risk of incidents . certain insurance coverages may apply to certain cyber incidents . overall , we expect the cost of securing our networks will increase in future periods , whether through increased staff , systems or insurance coverage . while we did not experience any cyber incident in 2017 , 2016 , or 2015 that had a significant impact on our business , it is possible that we could experience an incident in 2018 or future years , which could result in unanticipated costs . currency fluctuations in 2017 , approximately 72 % of our revenue and approximately 76 % of our operating expenses were generated/incurred outside of the u.s. in 2016 , approximately 88 % of our revenue and approximately 73 % of our operating expenses were generated/incurred outside of the u.s. while the majority of our revenue is generated outside of the u.s. , the majority of our revenue is billed in u.s. dollars . in 2017 , approximately 66 % of our revenue was denominated in u.s. dollars , 29 % was denominated in euros and 5 % was denominated in other currencies . in 2016 , approximately 69 % of our revenue was denominated in u.s. dollars , 26 % was denominated in euros , and 5 % was denominated in other currencies . 30 in general , to minimize the net impact of currency fluctuations on operating income , we attempt to denominate an amount of billings in a currency such that it would provide a hedge against the operating expenses being incurred in that currency . we expect that changes in currency rates may also impact our future results if we are unable to match amounts of revenue with our operating expenses in the same currency . if the amount of our revenue in europe denominated in euros continues as it is now or declines , we may not be able to balance fully the exposures of currency exchange rates on revenue and operating expenses . the financial position and the results of operations of our foreign subsidiaries , with the exception of our subsidiaries in switzerland , singapore and canada , are measured using the local currency as the functional currency . accordingly , assets and liabilities are translated into u.s. dollars using current exchange rates as of the balance sheet date . revenues and expenses are translated at average exchange rates prevailing during the year . translation adjustments arising from differences in exchange rates generated comprehensive income of $ 4.0 million in 2017 , and comprehensive losses of $ 2.5 million and $ 3.3 million , in 2016 , and 2015 , respectively . these amounts are included as a separate component of stockholders ' equity . the functional currency of our subsidiaries in switzerland , canada , and singapore is the u.s. dollar . gains and losses resulting from foreign currency transactions are included in the consolidated statements of operations as other non-operating income/expense . we reported foreign exchange transaction losses of $ 0.5 million in 2017 , foreign exchange transaction gains of $ 0.1 million in 2016 , and foreign exchange transaction losses of $ 1.2 million in 2015 , respectively . components of operating results revenue we generate revenue from the sale of our hardware products , software licenses , subscriptions and services . we believe comparison of revenues between periods is heavily influenced by the timing of orders and shipments reflecting the transactional nature of our business . · product and license revenue . product and license revenue includes hardware products and software licenses . · service and other revenue . service and other revenue includes software as a service ( “ saas ” ) solutions , maintenance and support , and professional services . cost of goods sold our total cost of goods sold consists of cost of product and license revenue and cost of service and other revenue . we expect our cost of goods sold to increase in absolute dollars as our business grows , although it may fluctuate as a percentage of total revenue from period to period . · cost of product and license revenue . cost of product and license revenue primarily consists of direct product costs . · cost of service and other revenue . cost of service and other revenue primarily consists of costs related to saas solutions , including personnel and equipment costs , and personnel costs of employees providing professional services and maintenance and support . gross profit gross profit as a percentage of total revenue , or gross margin , has been and will continue to be affected by a variety of factors , including our average selling price , manufacturing costs , the mix of products sold , and the mix of revenue among products , subscriptions and services . we expect our gross margins to fluctuate over time depending on these factors . story_separator_special_tag 31 operating expenses our operating expenses are generally based on anticipated revenue levels and fixed over short periods of time . as a result , small variations in revenue may cause significant variations in the period-to-period comparisons of operating income or operating income as a percentage of revenue . generally , the most significant factor driving our operating expenses is headcount . direct compensation and benefit plan expenses generally represent between 55 % and 65 % of our operating expenses . in addition , a number of other expense categories are directly related to headcount . we attempt to manage our headcount within the context of the economic environments in which we operate and the investments we believe we need to make for our infrastructure to support future growth and for our products to remain competitive . in november 2015 , with the acquisition of esignlive , our headcount increased by 156. average headcount for the full-year 2017 , 2016 , and 2015 was 614 , 595 , and 412 , respectively . historically , operating expenses have been impacted by changes in foreign exchange rates . we estimate the change in currency rates in 2017 compared to 2016 resulted in an increase in operating expenses of approximately $ 0.4 million in 2017. the comparison of operating expenses can also be impacted significantly by costs related to our stock-based and long-term incentive plans . for full-year 2017 , 2016 , and 2015 , operating expenses included $ 5.4 million , $ 4.9 million , and $ 5.7 million , respectively , related to stock-based and long-term incentive plans . generally , performance awards granted at the beginning of 2016 were not earned . long-term incentive awards granted at the beginning of 2015 were earned . long-term incentive plan compensation expense includes both cash and stock-based incentives . · sales and marketing . sales and marketing expenses consist primarily of personnel costs , commissions and bonuses , trade shows , marketing programs and other marketing activities , travel , outside consulting costs , and long-term incentive compensation . we expect sales and marketing expenses to increase in absolute dollars as we continue to invest in sales resources in key focus areas , although our sales and marketing expenses may fluctuate as a percentage of total revenue . · research and development . research and development expenses consist primarily of personnel costs and long-term incentive compensation . we expect research and development expenses to increase in absolute dollars as we continue to invest in our future solutions , although our research and development expenses may fluctuate as a percentage of total revenue . · general and administrative . general and administrative expenses consist primarily of personnel costs , legal and other professional fees , and long term incentive compensation . we expect general and administrative expenses to increase in absolute dollars although our general and administrative expenses may fluctuate as a percentage of total revenue . · amortization of purchased intangible assets . acquired intangible assets are amortized over their respective amortization periods . interest income interest income consists of income earned on our cash equivalents and short term investments . our cash equivalents and short term investments are invested in short-term instruments at current market rates . other income ( expense ) , net other income ( expense ) , net primarily includes exchange gains ( losses ) on transactions that are denominated in currencies other than our subsidiaries ' functional currencies , subsidies received from foreign governments in support of our research and development in those countries and other miscellaneous non-operational expenses . 32 income taxes our effective tax rate reflects our global structure related to the ownership of our intellectual property ( “ ip ” ) . all our ip in our traditional authentication business is owned by two subsidiaries , one in the u.s. and one in switzerland . these two subsidiaries have entered into agreements with most of the other vasco entities under which those other entities provide services to our u.s. and swiss subsidiaries on either a percentage of revenue or on a cost plus basis or both . under this structure , the earnings of our service provider subsidiaries are relatively constant . these service provider companies tend to be in jurisdictions with higher effective tax rates . fluctuations in earnings tend to flow to the u.s. company and swiss company . in 2018 , earnings flowing to the u.s. company are expected to be taxed at a rate of 21 % to 25 % , while earnings flowing to the swiss company are expected to be taxed at a rate ranging from 11 % to 12 % . our canadian subsidiary currently sells and services global customers directly . as the majority of our revenues are generated outside of the u.s. , our consolidated effective tax rate is strongly influenced by the effective tax rate of our foreign operations . changes in the effective rate related to foreign operations reflect changes in the geographic mix of earnings and the tax rates in each of the countries in which it is earned . the statutory tax rate for the primary foreign tax jurisdictions ranges from 11 % to 35 % . the geographic mix of earnings of our foreign subsidiaries primarily depends on the level of pretax income of our service provider subsidiaries and the benefit realized in switzerland through the sales of product . the level of pretax income in our service provider subsidiaries is expected to vary based on : 1. the staff , programs and services offered on a yearly basis by the various subsidiaries as determined by management , or 2. the changes in exchange rates related to the currencies in the service provider subsidiaries , or 3. the amount of revenues that the service provider subsidiaries generate . for items 1 and 2 above , there is a direct impact in the opposite direction on earnings of the u.s. and swiss entities .
| 34 cost of goods sold and gross margin replace_table_token_4_th the cost of product and license revenue decreased $ 4.9 million , or 9 % during the year ended december 31 , 2017 compared to the year ended december 31 , 2016. the decrease in cost of product and license revenue was primarily driven by a decline in our hardware revenue . the cost of services and other revenue increased $ 2.0 million , or 24 % , during the year ended december 31 , 2017 compared to the year ended december 31 , 2016. the increase in cost of services and other revenue was primarily due to increased services and other revenues and increased saas hosting fees . gross profit increased $ 3.9 million , or 3 % , during the year ended december 31 , 2017 compared to the year ended december 31 , 2016. gross margin was 70 % for the year ended december 31 , 2017 and 68 % for the year ended december 31 , 2016. the increase in gross margin primarily reflects an increase in software solutions as a percentage of total revenues . the majority of our inventory purchases are denominated in u.s. dollars . our sales are denominated in various currencies including the euro . for the year ended december 31 , 2017 , as the u.s. dollar weakened against the euro compared to the year ended december 31 , 2016 , revenue from sales in euros , as measured in u. s. dollars , increased , without a corresponding change in the cost of goods sold . the impact of changes in currency rates are estimated to have increased revenue by approximately $ 1.2 million for the full year of 2017. had currency rates in the full year of 2017 been equal to rates in the same period in 2016 , the gross profit margin would have been approximately 0.2 percentage points lower for the full year of 2017. operating expenses replace_table_token_5_th 35 sales and marketing expenses increased $ 1.6 million , or 3 % during the year ended december 31 , 2017 compared to the year ended december 31 , 2016 , primarily due to headcount and increased marketing investments . average full-time sales , marketing , support , and operating employee
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the aggregate net proceeds from the issuance of the 6.125 % senior secured notes were approximately $ 831,100 after deducting offering expenses . we used the net proceeds of the issuance , together with the proceeds from the sale of 2,000,000 common shares , to redeem all of our outstanding 7.75 % senior secured notes due 2021 and to satisfy and discharge the indenture governing the existing notes . issuance of 2,000,000 common shares . on january 27 , 2017 , we sold 2,000,000 shares of our common stock for approximately $ 43.2 million . redemption of senior secured notes due 2021 . on february 26 , 2017 , we retired $ 835,000 of our 7.75 % senior secured notes at a premium of 103.875 % , plus accrued and unpaid interest . we will incur a loss on the extinguishment of the debt of $ 34,110 for the three months ended march 31 , 2017 , which is comprised of $ 32,356 of redemption premium and tender offer costs as well as net non-cash interest expense of $ 1,754. new valley real estate ventures : wynn las vegas retail . in december 2016 , new valley invested $ 10,000 for an approximate 2.1 % in wynn/ca jv , llc . the purpose of the joint venture is to own and operate retail space in the wynn resort in las vegas , nevada . the investment is a variable interest entity ; however , new valley is not the primary beneficiary . new valley accounts for this investment under the equity method of accounting . new valley 's maximum exposure to loss as a result of its investment in wynn las vegas retail was $ 10,000 at december 31 , 2016 . recent developments in smoking-related litigation the cigarette industry continues to be challenged on numerous fronts . new cases continue to be commenced against liggett and other cigarette manufacturers . liggett could be subjected to substantial liabilities and bonding requirements from litigation relating to cigarette products . adverse litigation outcomes could have a negative impact on our ability to operate due to their impact on cash flows . it is possible that there could be adverse developments in pending cases including the certification of additional class actions . an unfavorable outcome or settlement of pending tobacco-related litigation could encourage the commencement of additional litigation . in addition , an unfavorable outcome in any tobacco-related litigation could have a material adverse effect on our consolidated financial position , results of operations or cash flows . liggett could face difficulties in obtaining a bond to stay execution of a judgment pending appeal . critical accounting policies general . the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses . significant estimates subject to material changes in the near term include impairment charges , inventory valuation , deferred tax assets , allowance for doubtful accounts , promotional accruals , sales returns and allowances , actuarial assumptions of pension plans , the estimated fair value of embedded derivative liabilities , settlement accruals , long-term investments and impairments , accounting for investments in equity securities , and litigation and defense costs . actual results could differ from those estimates . revenue recognition . revenues from sales of cigarettes and e-cigarettes are recognized upon the shipment of finished goods when title and risk of loss have passed to the customer , there is persuasive evidence of an arrangement , the sale price is fixed or determinable and collectibility is reasonably assured . we provide an allowance for expected sales returns , net of any related inventory cost recoveries . in accordance with authoritative guidance on how taxes collected from customers and remitted to governmental authorities should be presented in the income statement ( that is , gross versus net presentation ) , we include federal 32 excise taxes on cigarettes in revenues and cost of goods sold . such revenues and cost of sales totaled $ 425,980 , $ 439,647 , and $ 446,086 for the years ended december 31 , 2016 , 2015 and 2014 , respectively . since our primary line of business is tobacco , our financial position and our results of operations and cash flows have been and could continue to be materially adversely affected by significant unit sales volume declines , regulation , litigation and defense costs , increased tobacco costs or reductions in the selling price of cigarettes in the near term . revenue is recognized only when persuasive evidence of an arrangement exists , the price is fixed or determinable , the transaction has been completed and collectibility of the resulting receivable is reasonably assured . real estate commissions earned by the company 's real estate brokerage businesses are recorded as revenue on a gross basis upon the closing of a real estate transaction as evidenced when the escrow or similar account is closed , the transaction documents have been recorded and funds are distributed to all appropriate parties . commissions expenses are recognized concurrently with related revenues . property management fees and rental commissions earned are recorded as revenue when the related services are performed . contingencies . we record liggett 's product liability legal expenses and other litigation costs as operating , selling , administrative and general expenses as those costs are incurred . as discussed in note 15 to our consolidated financial statements , legal proceedings regarding liggett 's tobacco products are pending or threatened in various jurisdictions against liggett and us . we record provisions in our consolidated financial statements for pending litigation when we determine that an unfavorable outcome is probable and the amount of loss can be reasonably estimated . story_separator_special_tag at the present time , while it is reasonably possible that an unfavorable outcome in a case may occur , except as disclosed in note 15 to our consolidated financial statements and discussed below related to the 15 cases where an adverse verdict was entered against liggett : ( i ) management has concluded that it is not probable that a loss has been incurred in any of the pending tobacco-related cases ; or ( ii ) management is unable to estimate the possible loss or range of loss that could result from an unfavorable outcome of any of the pending tobacco-related cases and , therefore , management has not provided any amounts in the consolidated financial statements for unfavorable outcomes , if any . legal defense costs are expensed as incurred . although liggett has generally been successful in managing litigation in the past , litigation is subject to uncertainty and significant challenges remain , particularly with respect to the engle progeny cases . adverse verdicts have been entered against liggett in 15 state court engle progeny cases ( see note 15 to our consolidated financial statements ) , and several of these verdicts have been affirmed on appeal and satisfied by liggett . except as discussed in note 15 regarding the cases where an adverse verdict was entered against liggett and that remain on appeal , management is unable to estimate the possible loss or range of loss from the remaining engle progeny cases as there are currently multiple defendants in each case and , in most cases , discovery has not occurred or is limited . as a result , the company lacks information about whether plaintiffs are in fact engle class members ( non-class members ' claims are generally time-barred ) , the relevant smoking history , the nature of the alleged injury and the availability of various defenses , among other things . further , plaintiffs typically do not specify their demand for damages . there is other tobacco-related litigation pending against liggett , which is discussed in note 15 to our consolidated financial statements . management is not able to predict the outcome of any of the other tobacco-related litigation pending or threatened against liggett . a reader should not infer from the absence of any reserve in our consolidated financial statements that we will not be subject to significant tobacco-related liabilities in the future . litigation is subject to many uncertainties , and it is possible that our consolidated financial position , results of operations or cash flows could be materially adversely affected by an unfavorable outcome in any such tobacco-related litigation . there may be several other proceedings , lawsuits and claims pending against us and certain of our consolidated subsidiaries unrelated to tobacco or tobacco product liability . we are of the opinion that the liabilities , if any , ultimately resulting from such other proceedings , lawsuits and claims should not materially affect our financial position , results of operations or cash flows . settlement agreements . as discussed in note 15 to our consolidated financial statements , liggett and vector tobacco are participants in the msa . liggett and vector tobacco have no payment obligations under the msa except to the extent their market shares exceed approximately 1.65 % and 0.28 % , respectively , of total cigarettes sold in the united states . their obligations , and the related expense charges under the msa , are subject to adjustments based upon , among other things , the volume of cigarettes sold by liggett and vector tobacco , their relative market shares and inflation . since relative market shares are based on cigarette shipments , the best estimate of the allocation of charges under the msa is recorded in cost of goods sold as the products are shipped . settlement expenses under the msa recorded in the accompanying consolidated statements of operations were $ 110,486 for 2016 , $ 113,919 for 2015 and $ 116,650 for 2014 . adjustments to these estimates are recorded in the period that the change becomes probable and the amount can be reasonably estimated . embedded derivatives and beneficial conversion feature . we measure all derivatives , including certain derivatives embedded in other contracts , at fair value and recognize them in the consolidated balance sheet as an asset or a liability , depending 33 on our rights and obligations under the applicable derivative contract . we have issued variable interest senior convertible debt in a series of private placements where a portion of the total interest payable on the debt is computed by reference to the cash dividends paid on our common stock . this portion of the interest payment is considered an embedded derivative within the convertible debt , which we are required to separately value . as a result , we have bifurcated this embedded derivative and estimated the fair value of the embedded derivative liability . the resulting discount created by allocating a portion of the issuance proceeds to the embedded derivative is then amortized to interest expense over the term of the debt using the effective interest method . as of december 31 , 2016 and 2015 , the fair value of derivative liabilities was estimated at $ 112,332 and $ 144,042 , respectively . the decrease is due to the gains on the changes in fair value of convertible debt and the conversion of the vector 6.75 % variable interest senior convertible note due 2015 ( as amended ) . changes to the fair value of these embedded derivatives are reflected on our consolidated statements of operations as “ changes in fair value of derivatives embedded within convertible debt. ” the value of the embedded derivative is contingent on changes in interest rates of debt instruments maturing over the duration of the convertible debt as well as projections of future cash and stock dividends over the term of the debt .
| the $ 33,752 ( 2.0 % ) increase in revenues was due to a $ 38,699 increase in real estate revenues , primarily related to increases in douglas elliman 's commissions , and a $ 1,194 decline in e-cigarettes negative revenues , associated with an adjustment to the allowance for customer sales returns , offset by a $ 6,141 decline in tobacco revenues . cost of sales . total cost of sales were $ 1,097,344 for the year ended december 31 , 2016 compared to $ 1,109,727 for the year ended december 31 , 2015 . the $ 12,383 ( 1.1 % ) decline in cost of sales was due to a $ 25,469 decline in tobacco cost of sales due to lower sales volume and lower per unit manufacturing and msa expense and a $ 1,456 decline in e-cigarettes cost of sales due to lower sales volume offset by a $ 14,542 increase in real estate cost of sales , primarily related to an increase in douglas elliman 's commissions expense . expenses . operating , selling , general and administrative expenses were $ 340,567 for the year ended december 31 , 2016 compared to $ 320,221 for the year ended december 31 , 2015 . the $ 20,346 ( 6.4 % ) increase in operating , selling and administrative expenses is due to a $ 25,243 increase in real estate operating , selling and administrative expenses primarily related to the douglas elliman brokerage expenses and a $ 6,371 increase in corporate and other expenses primarily due to an increase in stock-based compensation expense , senior executive pension expense , and increased professional fees . this was offset by a $ 2,284 decline in tobacco expenses and a $ 8,984 decline in e-cigarette expenses . operating income . operating income was $ 232,997 for the year ended december 31 , 2016 compared to $ 199,920 for the same period last year , an increase of $ 33,077 ( 16.5 % ) . tobacco operating income increased by $ 28,900 , real estate operating income declined by $ 1,086 , primarily related to
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the majority of our consulting engagements are billed on a time and materials basis , and revenues are typically recognized as the services are performed . we offer a number of training options intended to support our customers in configuring , using and administering our services . in some cases , we supplement our consulting teams by subcontracting resources from our service partners and deploying them on customer engagements . as workday 's professional services organization and the workday-related consulting practices of our partner firms continue to develop , we expect the partners to increasingly contract directly with our subscription customers . as a result of this trend , and the increase of our subscription services revenues , we expect professional services revenues as a percentage of total revenues to decline over time . costs and expenses costs of subscription services revenues . costs of subscription services revenues consist primarily of employee-related expenses related to hosting our applications and providing customer support , the costs of data center capacity , and depreciation of computer equipment and software . costs of professional services revenues . costs of professional services revenues consist primarily of employee-related expenses associated with these services , the cost of subcontractors and travel . the percentage of total revenues derived from professional services was 18 % in fiscal 2017 . the cost of providing professional services is significantly higher as a percentage of the related revenues than for our subscription services . product development . product development expenses consist primarily of employee-related costs . we continue to focus our product development efforts on adding new features and applications , increasing the functionality and enhancing the ease of use of our cloud applications . sales and marketing . sales and marketing expenses consist primarily of employee-related costs , sales commissions , marketing programs and travel . marketing programs consist of advertising , events , corporate communications , brand building and product marketing activities . commissions earned by our sales force that can be associated specifically with a non-cancelable subscription contract are generally deferred and amortized over the same period that revenues are recognized for the related non-cancelable contract . general and administrative . general and administrative expenses consist of employee-related costs for finance and accounting , legal , human resources and management information systems personnel , professional fees and other corporate expenses . story_separator_special_tag href= '' https : //www.sec.gov/archives/edgar/data/0001327811/000132781117000008/ # s66b743ee63043a657448da5c466b9a92 '' style= '' font-family : inherit ; font-size:10pt ; '' > replace_table_token_9_th replace_table_token_10_th ( 1 ) share-based compensation expenses were $ 379 million , $ 250 million and $ 156 million for fiscal 2017 , 2016 and 2015 , respectively . the increase in share-based compensation expenses was primarily due to grants of rsus to existing and new employees . during fiscal 2017 , 2016 and 2015 , the realized excess tax benefits related to share-based compensation were immaterial . ( 2 ) other operating expenses include employer payroll tax-related items on employee stock transactions of $ 14 million , $ 9 million and $ 5 million for fiscal 2017 , 2016 and 2015 , respectively . in addition , other operating expenses include amortization of acquisition-related intangible assets of $ 13 million , $ 3 million and $ 1 million for fiscal 2017 , 2016 and 2015 , respectively . amortization of acquisition-related intangible assets is recorded as part of product development expenses and sales and marketing expenses . ( 3 ) see “ non-gaap financial measures ” below for further information . costs of subscription services gaap operating expenses in costs of subscription services were $ 213 million for fiscal 2017 , compared to $ 150 million for fiscal 2016 , an increase of $ 63 million , or 42 % . the increase was primarily due to increases of $ 30 million in employee-related costs driven by higher headcount , $ 12 million in service contracts expense to expand data center capacity , $ 12 million in depreciation expense related to our data centers and $ 6 million in facility and it-related expenses . gaap operating expenses in costs of subscription services were $ 150 million for fiscal 2016 , compared to $ 102 million for fiscal 2015 , an increase of $ 48 million , or 47 % . the increase was primarily due to increases of $ 20 million in employee-related costs driven by higher headcount , $ 12 million in depreciation expense related to our data centers , $ 7 million in service contracts expense to expand data center capacity and $ 6 million in facility and it-related expenses . non-gaap operating expenses in costs of subscription services were $ 192 million for fiscal 2017 , compared to $ 137 million for fiscal 2016 , an increase of $ 55 million , or 40 % . the increase was primarily due to increases of $ 21 million in employee-related costs driven by higher headcount , $ 12 million in service contracts expense to expand data center capacity , and $ 12 million in depreciation expense related to our data centers and $ 6 million in facility and it-related expenses . non-gaap operating expenses in costs of subscription services were $ 137 million for fiscal 2016 , compared to $ 96 million for fiscal 2015 , an increase of $ 41 million , or 43 % . the increase was primarily due to increases of $ 13 million in employee-related costs driven by higher headcount , $ 12 million in depreciation expense related to our data centers , $ 7 million in service contracts expense to expand data center capacity and $ 6 million in facility and it-related expenses . we expect that gaap and non-gaap operating expenses in costs of subscription services will continue to increase in absolute dollars as we improve and expand our data center capacity and operations . 29 costs of professional services gaap operating expenses in costs of professional services were $ 270 million for fiscal 2017 , compared to $ 225 million for fiscal 2016 , an increase of $ 45 million , or 20 % . story_separator_special_tag this increase was primarily due to increases of $ 45 million to staff our deployment and integration engagements . gaap operating expenses in costs of professional services were $ 225 million for fiscal 2016 , compared to $ 162 million for fiscal 2015 , an increase of $ 63 million , or 39 % . this increase was primarily due to increases of $ 51 million to staff our deployment and integration engagements and $ 6 million in facility and it-related expenses . non-gaap operating expenses in costs of professional services were $ 242 million for fiscal 2017 , compared to $ 204 million for fiscal 2016 , an increase of $ 38 million , or 19 % . this increase was primarily due to increases of $ 38 million to staff our deployment and integration engagements . non-gaap operating expenses in costs of professional services were $ 204 million for fiscal 2016 , compared to $ 149 million for fiscal 2015 , an increase of $ 55 million , or 37 % . this increase was primarily due to increases of $ 37 million to staff our deployment and integration engagements and $ 6 million in facility and it-related expenses . going forward , we expect gaap and non-gaap costs of professional services as a percentage of total revenues to continue to decline as we increasingly rely on our service partners to deploy our applications and as the number of our customers continues to grow . for fiscal 2018 , we anticipate gaap and non-gaap professional services margins to be lower than fiscal 2017 as we invest in programs to ensure ongoing customer success . product development gaap operating expenses in product development were $ 681 million for fiscal 2017 , compared to $ 470 million for fiscal 2016 , an increase of $ 211 million , or 45 % . the increase was primarily due to increases of $ 166 million in employee-related costs due to higher headcount , $ 24 million in facility and it-related expenses , $ 10 million in amortization expense for our acquisition-related intangible assets and $ 6 million in third party costs for hardware maintenance and data center capacity . gaap operating expenses in product development were $ 470 million for fiscal 2016 , compared to $ 317 million for fiscal 2015 , an increase of $ 153 million , or 48 % . the increase was primarily due to increases of $ 129 million in employee-related costs due to higher headcount , $ 20 million in facility and it-related expenses and $ 4 million in third party costs for hardware maintenance and data center capacity . non-gaap operating expenses in product development were $ 495 million for fiscal 2017 , compared to $ 353 million for fiscal 2016 , an increase of $ 142 million , or 40 % . the increase was primarily due to increases of $ 108 million in employee-related costs due to higher headcount , $ 24 million in facility and it-related expenses and $ 6 million in third party costs for hardware maintenance and data center capacity . non-gaap operating expenses in product development were $ 353 million for fiscal 2016 , compared to $ 250 million for fiscal 2015 , an increase of $ 103 million , or 41 % . the increase was primarily due to increases of $ 73 million in employee-related costs due to higher headcount , $ 20 million in facility and it-related expenses and $ 4 million in third party costs for hardware maintenance and data center capacity . we expect that gaap and non-gaap product development expenses will continue to increase in absolute dollars as we improve and extend our applications and develop new technologies . sales and marketing gaap operating expenses in sales and marketing were $ 584 million for fiscal 2017 , compared to $ 434 million for fiscal 2016 , an increase of $ 150 million , or 35 % . the increase was primarily due to increases of $ 119 million in employee-related costs due to higher headcount and higher commissionable sales volume , $ 12 million in advertising , marketing and event costs , $ 10 million in facility and it-related expenses and $ 7 million in travel . gaap operating expenses in sales and marketing were $ 434 million for fiscal 2016 , compared to $ 316 million for fiscal 2015 , an increase of $ 118 million , or 37 % . the increase was primarily due to increases of $ 87 million in employee-related costs due to higher headcount and higher commissionable sales volume , $ 15 million in advertising , marketing and event costs , $ 10 million in facility and it-related expenses and $ 6 million in travel . non-gaap operating expenses in sales and marketing were $ 494 million for fiscal 2017 , compared to $ 381 million for fiscal 2016 , an increase of $ 113 million , or 30 % . the increase was primarily due to increases of $ 83 million in employee-related costs due to higher headcount and higher commissionable sales volume , $ 12 million in advertising , marketing and event costs , $ 10 million in facility and it-related expenses and $ 7 million in travel . 30 non-gaap operating expenses in sales and marketing were $ 381 million for fiscal 2016 , compared to $ 285 million for fiscal 2015 , an increase of $ 96 million , or 34 % . the increase was primarily due to increases of $ 60 million in employee-related costs due to higher headcount and higher commissionable sales volume , $ 15 million in advertising , marketing and event costs , $ 10 million in facility and it-related expenses and $ 6 million in travel . we expect that gaap and non-gaap sales and marketing expenses will continue to increase in absolute dollars as we continue to invest in the expansion of our domestic and international selling and marketing activities to build brand awareness and attract new customers .
| the increases were primarily due to an increase of $ 0.4 billion in employee-related costs driven by higher headcount and $ 0.1 billion in expenses related to facilities , it , depreciation , amortization and service contracts to expand data center capacity . gaap operating expenses were $ 1.4 billion for fiscal 2016 , compared to $ 1.0 billion for fiscal 2015 , an increase of $ 0.4 billion , or 42 % . the increases were primarily due to an increase of $ 0.3 billion in employee-related costs driven by higher headcount and $ 0.1 billion in expenses related to facilities , it , depreciation and amortization . we use the non-gaap financial measure of non-gaap operating expenses to understand and compare operating results across accounting periods , for internal budgeting and forecasting purposes , for short- and long-term operating plans , and to evaluate our financial performance and the ability of operations to generate cash . we believe that non-gaap operating expenses reflect our ongoing business in a manner that allows for meaningful period-to-period comparisons and analysis of trends in our business , as they exclude expenses that are not reflective of ongoing operating results . we also believe that non-gaap operating expenses provide useful information to investors and others in understanding and evaluating our operating results and future prospects in the same manner as management and in comparing financial results across accounting periods and to those of peer companies . non-gaap operating expenses are calculated by excluding share-based compensation expenses , and certain other expenses , which consist of employer payroll tax-related items on employee stock transactions and amortization of acquisition-related intangible assets . non-gaap operating expenses were $ 1.5 billion for fiscal 2017 , compared to $ 1.2 billion for fiscal 2016 , an increase of $ 0.3 billion , or 32 % , primarily due to an increase in employee-related costs driven by higher headcount . non-gaap operating expenses were $ 1.2 billion for fiscal 2016 , compared to $ 0.8 billion for fiscal 2015 , an
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see note 1 - assets and liabilities associated with assets held for sale . in order to make period to period comparisons more meaningful , adjusted earnings also exc lude the items discussed above , as well as costs incurred in 2016 and 2015 associated with the terminated hei merger agreement ( see note 1 - merger termination ) , costs incurred in 2016 associated with the efh merger agreement and related transactions ( see note 7 - pending oncor-related transactions ) , the resolution of contingencies related to a previous asset sale , the pretax amount of which totaled $ 9 million and was recorded in 2016 as gains on disposal of investments and other property - net in nee 's consolidated statements of income , and , for all periods , the operating results associated with the solar projects in spain . 38 the following table provides details of the after-tax adjustments to net income considered in computing nee 's adjusted earnings discussed above . replace_table_token_9_th ( a ) for 2016 , 2015 and 2014 , approximately $ 233 million of losses , $ 175 million of gains and $ 171 million of gains , respectively , are included in neer 's net income ; the balance is included in corporate and other . ( b ) for 2016 , 2015 and 2014 , approximately $ 2 million of losses , $ 14 million of losses and $ 1 million of income , respectively , are included in neer 's net income ; the balance is included in corporate and other . ( c ) approximately $ 276 million of the gains is included in neer 's net income ; the balance is included in corporate and other . see note 1 - assets and liabilities associated with assets held for sale and note 5. the change in unrealized mark-to-market activity from non-qualifying hedges is primarily attributable to changes in forward power and natural gas prices , interest rates and foreign currency exchange rates , as well as the reversal of previously recognized unrealized mark-to-market gains or losses as the underlying transactions were realized . 2016 summary net income attributable to nee for 2016 was higher than 2015 by $ 160 million , or $ 0.19 per share , assuming dilution , due to higher results at fpl , neer and corporate and other . fpl 's increase in net income in 2016 was primarily driven by continued investments in plant in service while earning an 11.50 % regulatory roe on its retail rate base . neer 's results increased in 2016 primarily reflecting earnings from new investments , gains from the sales of natural gas generation facilities and fair value adjustments related to contingent consideration , partly offset by net unrealized losses from non-qualifying hedge activity compared to gains from such hedges in 2015 , higher growth-related interest and general and administrative expenses and lower earnings on gas infrastructure and existing assets . in 2016 , neer added approximately 1,465 mw of wind capacity and 980 mw of solar capacity in the u.s. , completed the sales of its ownership interests in certain natural gas generation facilities with total generating capacity of 3,724 mw and increased its backlog of contracted renewable development projects . corporate and other 's results in 2016 increased primarily reflecting net unrealized gains from non-qualifying hedge activity primarily associated with interest rate and foreign currency derivative instruments , partly offset by higher merger-related expenses and unfavorable consolidating income tax adjustments . nee and its subsidiaries require funds to support and grow their businesses . these funds are primarily provided by cash flow from operations , borrowings or issuances of short- and long-term debt and proceeds from differential membership investors and , from time to time , issuances of equity securities . see liquidity and capital resources - liquidity . story_separator_special_tag style= '' line-height:120 % ; text-align : justify ; font-size:9pt ; '' > declines in 2016 revenues from other cost recovery clauses and pass-through costs were largely due to reductions in purchased power and capacity expenses associated with the capacity clause . the declines in 2015 revenues from other cost recovery clauses and pass-through costs were largely due to reductions in expenses associated with energy conservation programs and the capacity clause . in 2016 , 2015 and 2014 , cost recovery clauses contributed $ 112 million , $ 103 million and $ 93 million , respectively , to fpl 's net income . the increase in 2016 primarily relates to the acquisition of the cedar bay generation facility . the increase in 2015 primarily relates to gains associated with the incentive mechanism , investments in gas reserves and the acquisition of the cedar bay generation facility . in september 2015 , fpl assumed ownership of the cedar bay generation facility and terminated its long-term purchased power agreement for substantially all of the facility 's capacity and energy for a purchase price of approximately $ 521 million . fpl will recover the purchase price and associated income tax gross-up as a regulatory asset which will be amortized over approximately nine years . see note 1 - rate regulation for further discussion . additionally , in january 2017 , fpl purchased the indiantown generation facility ( see note 13 - contracts ) . woodford shale investment in march 2015 , after receiving fpsc approval , a wholly owned subsidiary of fpl partnered with a third party to develop up to 38 natural gas production wells in the woodford shale region in southeastern oklahoma and in return began receiving its ownership share of the natural gas produced from these wells . in may 2016 , the florida supreme court ( court ) reversed the fpsc 's order approving fpl 's investment in the woodford shale wells concluding that the fpsc exceeded its statutory authority when approving recovery of fpl 's costs and investment in these wells . during 2016 , fpl recorded a provision for refund of approximately $ 13 million ( after tax ) associated with the court 's decision . story_separator_special_tag fpl 's wholly owned subsidiary , which is not subject to fpsc authority , sells its share of the natural gas produced from the woodford shale wells to third parties at market prices . also , in response to the court 's 41 decision on the woodford shale order , the fpsc vacated its july 2015 order approving a set of guidelines under which fpl could participate in additional natural gas production projects . other the increase in other revenues for 2016 is primarily due to revenues related to sales of natural gas produced from the woodford shale wells discussed above . the increase in other revenues for 2015 , which did not result in a significant contribution to earnings , primarily reflects higher wholesale and transmission service revenues along with other miscellaneous service revenues . other items impacting fpl 's consolidated statements of income fuel , purchased power and interchange expense the major components of fpl 's fuel , purchased power and interchange expense are as follows : replace_table_token_12_th the decrease in fuel and energy charges in 2016 primarily reflects approximately $ 453 million of lower fuel and energy prices and $ 27 million related to lower energy sales . the decrease in fuel and energy charges in 2015 was due to lower fuel and energy prices of approximately $ 491 million and a decrease of $ 68 million in costs related to the incentive mechanism , partly offset by higher energy sales of approximately $ 201 million . in addition , fpl deferred approximately $ 11 million and $ 109 million of retail fuel costs in 2016 and 2014 , respectively , compared to the recognition of deferred retail fuel costs of $ 220 million in 2015. the decrease in other in both periods is primarily due to lower capacity fees in part related to the termination of the cedar bay generation facility long-term purchased power agreement after fpl assumed ownership of the cedar bay generation facility in september 2015. depreciation and amortization expense the major components of fpl 's depreciation and amortization expense are as follows : replace_table_token_13_th the reserve amortization , or reversal of such amortization , reflects adjustments to the depreciation and fossil dismantlement reserve provided under the 2012 rate agreement in order to achieve the targeted regulatory roe . reserve amortization is recorded as a reduction to ( or when reversed as an increase to ) accrued asset removal costs which is reflected in noncurrent regulatory liabilities on the consolidated balance sheets . see note 1 - rate regulation regarding a $ 30 million reduction in the reserve available for amortization under the 2012 rate agreement . subject to certain conditions , fpl may amortize , over the term of the 2016 rate agreement , up to $ 1.0 billion of depreciation reserve surplus plus the reserve amount remaining under fpl 's 2012 rate agreement ( approximately $ 250 million at december 31 , 2016 ) . the increase in other depreciation and amortization expense recovered under base rates in 2016 primarily relates to higher plant in service balances , including investments in transmission and distribution assets and the modernized port everglades clean energy center that was placed in service in april 2016 , partly offset by the absence of 2015 amortization expenses associated with analog meters . the increase in other depreciation and amortization expense recovered under base rates in 2015 is due to higher amortization expenses primarily associated with analog meters and higher plant in service balances . the increase in depreciation and amortization primarily recovered under cost recovery clauses and securitized storm-recovery cost amortization in 2016 primarily relates to amortization of a regulatory asset associated with the september 2015 acquisition of the cedar bay generation facility . 42 taxes other than income taxes and other taxe s other than income taxes and other decreased $ 16 million in 2016 primarily due to lower franchise and revenue taxes , neither of which impacts net income , partly offset by higher property taxes reflecting growth in plant in service balances . the increase in 2015 of $ 39 million was primarily due to higher property taxes reflecting growth in plant in service balances . interest expense the increase in interest expense in 2016 and 2015 primarily reflects higher average debt balances , partly offset by lower average interest rates . interest expense on storm-recovery bonds , as well as certain other interest expense on clause-recoverable investments ( collectively , clause interest ) , do not significantly affect net income , as the clause interest is recovered either under cost recovery clause mechanisms or through a storm-recovery bond surcharge . clause interest for 2016 , 2015 and 2014 amounted to approximately $ 41 million , $ 41 million and $ 42 million , respective ly . afudc - equity the increase in afudc - equity in 2016 is primarily due to additional afudc - equity recorded on construction expenditures associated with the replacement of certain gas turbines with high efficiency , low-emission turbines ( peaker upgrade project ) and a solar pv project constructed on three sites , partly offset by lower afudc - equity associated with the port everglades clean energy center which was placed in service in april 2016. the increase in afudc - equity in 2015 is primarily due to additional afudc - equity recorded on construction expenditures associated with the modernization project at the port everglades clean energy center , the investments in new compressor parts technology at select combined-cycle units and the peaker upgrade project , partly offset by lower afudc - equity associated with the modernized riviera beach clean energy center which was placed in service in april 2014. capital initiatives fpl plans to add approximately 1,750 mw of capacity in mid-2019 when the okeechobee clean energy center is expected to be placed in service , to add up to 300 mw annually in each of 2017 through 2020 of new solar generation and to continue to strengthen its transmission and distribution infrastructure .
| fpl 's net income for 2016 , 2015 and 2014 was $ 1,727 million , $ 1,648 million and $ 1,517 million , respectively , representing an increase in 2016 of $ 79 million and an increase in 2015 of $ 131 million . the primary drivers , on an after-tax basis , of these changes are in the following table . replace_table_token_10_th ( a ) investment in plant in service grew fpl 's average retail rate base by approximately $ 2.4 billion and $ 1.0 billion in 2016 and 2015 , respectively . for 2016 , the increase primarily reflects the modernized port everglades clean energy center that was placed in service in april 2016 and ongoing transmission and distribution additions . for 2015 , the increase primarily reflects ongoing transmission and distribution additions and the modernized riviera beach clean energy center placed in service in april 2014. the use of reserve amortization was permitted under the 2012 rate agreement and continues during the term of the 2016 rate agreement . see item 1. business - fpl - fpl regulation - fpl rate regulation - base rates for additional information on the 2012 and 2016 rate agreements . in order to earn a targeted regulatory roe , subject to limitations associated with the 2012 and 2016 rate agreements , reserve amortization is calculated using a trailing thirteen-month average of retail rate base and capital structure in conjunction with the trailing twelve months regulatory retail base net operating income , which primarily includes the retail base portion of base and other revenues , net of o & m , depreciation and amortization , interest and tax expenses . in general , the net impact of these income statement line items must be adjusted , in part , by reserve amortization to earn a targeted regulatory roe . in certain periods , reserve amortization is reversed so as not to exceed the targeted regulatory roe . the drivers of fpl ' s net income not reflected
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patrick enright jr. president and chief executive officer patrick enright jr. september 12 , 2018 david o'neil principal financial officer and executive vice president david o'neil september 12 , 2018 katrina sparano assistant treasurer katrina sparano september 12 , 2018 howard pinsley chairman of the board howard pinsley september 12 , 2018 barry pinsley director barry pinsley september 12 , 2018 michael w. wool director michael w. wool september 12 , 2018 paul j. corr director paul j. corr september 12 , 2018 carl helmetag director carl helmetag september 12 , 2018 roger sexauer director roger sexauer september 12 , 2018 alvin sabo director alvin sabo september 12 , 2018 32 story_separator_special_tag business outlook management expects revenues in fiscal year 2019 to be higher than revenues during fiscal year 2018 but expects the gross profit margin to be lower in fiscal year 2019 than the gross profit margin during fiscal year 2018. this expectation is driven primarily by orders already in our backlog that will be shipped in fiscal year 2019. as market factors including competition and product costs impact gross profit margins , management will continue to evaluate our sales strategy , employment levels , and facility costs . during fiscal year 2018 the company received approximately $ 37.5 million in new orders . our total backlog at june 30 , 2018 was approximately $ 48.1 million , as compared to $ 43.1 million at june 30 , 2017. currently , we expect a minimum of $ 40.6 million of orders comprising the june 30 , 2018 backlog will be filled during the fiscal year ending june 30 , 2019. this $ 40.6 million will be supplemented by shipments which may be made against orders received during the fiscal year . successful conversion of engineering program backlog into sales is largely dependent on the execution and completion of our engineering design efforts . it is not uncommon to experience technical or scheduling delays which arise from time to time as a result of , among other reasons , design complexity , the availability of personnel with the requisite expertise , and the requirements to obtain customer approval at various milestones . cost overruns which may arise from technical and schedule delays could negatively impact the timing of the conversion of backlog into sales , or the profitability of such sales . while recently , we have been experiencing some technical and schedule delays with our major development programs , these delays have been resolved as they arise and we do not currently expect any negative impact on our customer order fulfillment projections for fiscal year 2019. engineering programs in both the funded and unfunded portions of the current backlog aggregate $ 8.8 million . in addition to the backlog , the company currently has outstanding opportunities representing in excess of $ 69.6 million in the aggregate as of august 31 , 2018 , for both repeat and new programs . the outstanding quotations encompass various new and previously manufactured power supplies , transformers , and subassemblies . however , there can be no assurance that the company will acquire any of the anticipated orders described above , many of which are subject to allocations of the united states defense spending and factors affecting the defense industry . two significant customers represented 60 % of the company 's total sales in fiscal year 2018 and two significant customers represented 45 % of the company 's total sales in fiscal year 2017. these sales are in connection with multiyear programs in which the company is a significant contractor . the june 30 , 2018 backlog of $ 48.1 million included orders from three customers that represent 23 % , 16 % , and 10 % , respectively , of the total backlog . the june 30 , 2017 backlog of $ 43.1 million includes orders from three customers that represent 23 % , 20 % and 18 % , respectively , of the total backlog . although improvement has been made in customer concentrations , this high customer concentration level continues to present significant risk . a loss of one of these customers or programs related to these customers , or customer requested deferrals of product delivery could significantly impact the company . historically , a small number of customers have accounted for a large percentage of the company 's total sales in any given fiscal year . management continues to pursue opportunities with current and new customers with an overall objective of lowering the concentration of sales , mitigating excessive reliance upon a single major product of a particular program and minimizing the impact of the loss of a single significant customer . we continue to evaluate the company 's business development functions and the implementation of potential alternative courses of action in order to diversify the company 's customer base . the quotations for non-repeat programs referred to above include several new customers . management , along with the board of directors , continues to evaluate the need and use of the company 's working capital . capital expenditures , primarily for machinery and equipment , are expected to be approximately $ 500,000 for fiscal year 2019. a majority of these expenditures will be made to stay competitive in the marketplace and to meet the needs of current contracts . expectations are that the working capital will be required to fund orders , dividend payments , and general operations of the business . from time to time , management along with the mergers and acquisitions committee of the board of directors examine opportunities involving acquisitions or other strategic options , including buying certain products or product lines . the criteria for consideration are synergies with the company 's existing product base and accretion to earnings . story_separator_special_tag from higher sales in the current period . net cash used in investing activities decreased in the twelve months of fiscal year 2018 as compared to the same period in fiscal year story_separator_special_tag patrick enright jr. president and chief executive officer patrick enright jr. september 12 , 2018 david o'neil principal financial officer and executive vice president david o'neil september 12 , 2018 katrina sparano assistant treasurer katrina sparano september 12 , 2018 howard pinsley chairman of the board howard pinsley september 12 , 2018 barry pinsley director barry pinsley september 12 , 2018 michael w. wool director michael w. wool september 12 , 2018 paul j. corr director paul j. corr september 12 , 2018 carl helmetag director carl helmetag september 12 , 2018 roger sexauer director roger sexauer september 12 , 2018 alvin sabo director alvin sabo september 12 , 2018 32 story_separator_special_tag business outlook management expects revenues in fiscal year 2019 to be higher than revenues during fiscal year 2018 but expects the gross profit margin to be lower in fiscal year 2019 than the gross profit margin during fiscal year 2018. this expectation is driven primarily by orders already in our backlog that will be shipped in fiscal year 2019. as market factors including competition and product costs impact gross profit margins , management will continue to evaluate our sales strategy , employment levels , and facility costs . during fiscal year 2018 the company received approximately $ 37.5 million in new orders . our total backlog at june 30 , 2018 was approximately $ 48.1 million , as compared to $ 43.1 million at june 30 , 2017. currently , we expect a minimum of $ 40.6 million of orders comprising the june 30 , 2018 backlog will be filled during the fiscal year ending june 30 , 2019. this $ 40.6 million will be supplemented by shipments which may be made against orders received during the fiscal year . successful conversion of engineering program backlog into sales is largely dependent on the execution and completion of our engineering design efforts . it is not uncommon to experience technical or scheduling delays which arise from time to time as a result of , among other reasons , design complexity , the availability of personnel with the requisite expertise , and the requirements to obtain customer approval at various milestones . cost overruns which may arise from technical and schedule delays could negatively impact the timing of the conversion of backlog into sales , or the profitability of such sales . while recently , we have been experiencing some technical and schedule delays with our major development programs , these delays have been resolved as they arise and we do not currently expect any negative impact on our customer order fulfillment projections for fiscal year 2019. engineering programs in both the funded and unfunded portions of the current backlog aggregate $ 8.8 million . in addition to the backlog , the company currently has outstanding opportunities representing in excess of $ 69.6 million in the aggregate as of august 31 , 2018 , for both repeat and new programs . the outstanding quotations encompass various new and previously manufactured power supplies , transformers , and subassemblies . however , there can be no assurance that the company will acquire any of the anticipated orders described above , many of which are subject to allocations of the united states defense spending and factors affecting the defense industry . two significant customers represented 60 % of the company 's total sales in fiscal year 2018 and two significant customers represented 45 % of the company 's total sales in fiscal year 2017. these sales are in connection with multiyear programs in which the company is a significant contractor . the june 30 , 2018 backlog of $ 48.1 million included orders from three customers that represent 23 % , 16 % , and 10 % , respectively , of the total backlog . the june 30 , 2017 backlog of $ 43.1 million includes orders from three customers that represent 23 % , 20 % and 18 % , respectively , of the total backlog . although improvement has been made in customer concentrations , this high customer concentration level continues to present significant risk . a loss of one of these customers or programs related to these customers , or customer requested deferrals of product delivery could significantly impact the company . historically , a small number of customers have accounted for a large percentage of the company 's total sales in any given fiscal year . management continues to pursue opportunities with current and new customers with an overall objective of lowering the concentration of sales , mitigating excessive reliance upon a single major product of a particular program and minimizing the impact of the loss of a single significant customer . we continue to evaluate the company 's business development functions and the implementation of potential alternative courses of action in order to diversify the company 's customer base . the quotations for non-repeat programs referred to above include several new customers . management , along with the board of directors , continues to evaluate the need and use of the company 's working capital . capital expenditures , primarily for machinery and equipment , are expected to be approximately $ 500,000 for fiscal year 2019. a majority of these expenditures will be made to stay competitive in the marketplace and to meet the needs of current contracts . expectations are that the working capital will be required to fund orders , dividend payments , and general operations of the business . from time to time , management along with the mergers and acquisitions committee of the board of directors examine opportunities involving acquisitions or other strategic options , including buying certain products or product lines . the criteria for consideration are synergies with the company 's existing product base and accretion to earnings . story_separator_special_tag from higher sales in the current period . net cash used in investing activities decreased in the twelve months of fiscal year 2018 as compared to the same period in fiscal year
| the gross profit percentage increased in the twelve months ended june 30 , 2018 as compared to the same period in 2017 primarily due to an increase in sales while expenditures incurred related to engineering design investments remained comparable to those incurred in the same period in 2017. selling , general and administrative expenses were $ 3,808,395 for the fiscal year ended june 30 , 2018 , an increase of $ 620,283 , or 19.5 % as compared to the prior year . the increase for fiscal year 2018 relates primarily to the increase in employee compensation costs , professional services , outside selling expenses incurred for outside sales representatives , and freight due to an increase in shipments . employment of full time equivalents at june 30 , 2018 was 153 people compared with 136 people at june 30 , 2017. the increase in headcount is primarily due to an increase in engineering and program management personnel in support of the company 's sales backlog . other income for the fiscal years ended june 30 , 2018 and 2017 was $ 215,219 and $ 124,949 , respectively . the increase is primarily due to an increase in interest income resulting from the increase in investment securities and investment returns . interest income is a function of the level of investments and investment strategies which generally tend to be conservative . the company 's effective income tax rate was 24.4 % in fiscal year 2018 and 31.2 % in fiscal year 2017. the effective tax rate is less than the statutory tax rate mainly due to the benefit the company receives on its “ qualified production activities ” under the american jobs creation act of 2004 and the benefit derived from the esop dividends paid on allocated shares . the company 's effective tax rate for the fiscal year ended june 30 , 2018 uses a blended statutory tax rate which factors the reduction in the corporate statutory tax rate authorized under the tax cuts and jobs act ( the “ tax act ” ) effective on january 1 , 2018. the company re-measured certain u.s. deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future , which is generally 21 % , and provisionally recorded a net income tax expense of $ 35,200 related
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the fluid reactor is enabled by a novel reactor core element which allows the efficient transfer of gases into and out of liquids . the market adoption of this technology could supplant existing hollow fiber membrane technology for applications including filtration and liquid gasification or degasification . one application is blood oxygenation cartridges known as an extra corporeal membrane oxygenator which is typically used during cardio pulmonary bypass ( cpb ) surgery and is essential for life support . our mesoscribe direct write technology continues to make progress in specialized applications for temperature sensors , conformal antennas , flexible electronics and heaters for applications in aerospace and electronics where standard solutions have been unable to meet the physical constraints that need to be addressed . mesoscribe has been notified that they have been selected for three ( 3 ) government sponsored awards , two of which were received in the first quarter of 2019 , and one is anticipated to be received in the second quarter 2019. investments in our application laboratory and cvd materials are necessary and not related to our quarterly revenue fluctuations . we continue to believe that expansion and innovation in key markets like aerospace , medical , mems , semiconductors is the key to securing our growth over the long-term . we continue to dedicate significant portions of our technical and manufacturing resources to new materials development and opening of the new cvd materials facility . they pave the way for future expansion across our portfolio and to improve and streamline revenue growth and profitability over the longer term . 30 constant investment in expansion and innovation is necessary , even during times of reduced order levels , to strengthen and secure our competitive position and open up new opportunities in the markets we serve . we believe we are well capitalized and will continue to work to produce increased yet stable revenue , productivity and profitability over the long-term . r evenue replace_table_token_3_th our revenue for the year ended december 31 , 2018 was $ 24.3 million compared to $ 41.1 million for the year ended december 31 , 2017 , resulting in a decrease of 40.8 % which was primarily attributable to the completion of orders received from our largest customer . this customer , in the aerospace industry from which we have secured multiple orders , represented $ 9.3 million or approximately 38.2 % of our revenue for the twelve months ended december 31 , 2018 compared to $ 27.2 million or approximately 66.1 % of our revenue for the year ended december 31 , 2017. we continue to receive additional orders and opportunities with new and current customers , and exclusive of our largest customer , sales increased $ .8 million from $ 7.8 million to $ 8.6 million at december 31 , 2018. the revenue contributed for the year ended december 31 , 2018 , by the cvd equipment segment , of $ 17.8 million , which totaled 73.4 % of our overall revenue , was 48.9 % or $ 17.1 million less than the segment 's $ 34.9 million contribution made in the prior year , which totaled 85 % of our overall revenue . annual revenue for our sdc segment decreased to $ 4.7 million in 2018 as compared to $ 5.6 million in 2017 , a decrease of 15.9 % . the decrease is primarily attributable to a higher sales activity level from one customer in the prior year . the sdc segment represented 19.4 % and 13.7 % of our total revenue during the years ended december 31 , 2018 and december 31 , 2017 , respectively . revenues for our cvd materials segment were $ 1.7 million in the year ended december 31 , 2018 as compared to $ .5 million for 2017. the increase of $ 1.2 million was comprised of a $ .9 million increase from mesoscribe , due to a full year of revenue since the acquisition on october 31 , 2017 , as well as an increase in sales from tantaline of $ .3 million . gross profit gross profit for the year ended december 31 , 2018 amounted to $ 5.2 million , with a gross profit margin of 21.3 % , compared to a gross profit of $ 17.6 million and a gross profit margin of 42.8 % for the year ended december 31 , 2017. the decreased gross profit and gross profit margin were the result of the reduction in sales from our largest customer and delays in receiving new orders , while costs principally remained at levels to support our anticipated expansion of the cvd materials segment and future growth . 31 research and development , selling and general and administrative expenses research and development : due to the technical development required on our custom orders , our research and development team and their expenses are charged to costs of goods sold when they are working directly on a customer project . when they are not working on a customer project , they work in our application laboratory and their costs are charged to research and development . in 2018 and 2017 , we incurred $ 0.6 million and $ 0.4 million respectively of internal research and development costs . selling : selling expenses were $ 1.6 million or 6.7 % of the revenue for the year ended december 31 , 2018 as compared to $ 1.4 million or 3.4 % for the year ended december 31 , 2017. the increase was a result of additional employees and trade show related expenses in the current period as well as increased expenses related to cvd materials , including its recently established subsidiaries cvd tantaline aps and cve mesoscribe technologies effective with the october 31 , 2017 acquisition . general and administrative : general and administrative expenses for the year ended december 31 , 2018 were $ 8.2 story_separator_special_tag million or 33.7 % of revenue compared to $ 8.5 million or 20.8 % during the year ended december 31 , 2017 , a decrease of $ .3 million . the decrease attributable to the cvd equipment segment was primarily the result of $ 1.2 million reduction in salary and related costs as a result of the overall lower sales demand , offset in part by $ .4 million increased consulting costs related to systems implementation and accounting services . cvd materials incurred increased costs of $ .4 million from its new facility purchased on november 30 , 2017 related to real estate taxes , insurance and other operating costs , as well as $ .2 million increased costs at its recently established subsidiaries cvd tantaline aps and cvd mesoscribe technologies . operating income/ ( loss ) as a result of the decreased revenues and gross margins , we recorded an operating loss of $ 5.3 million for the year ended december 31 , 2018 as compared to operating income of $ 7.2 million for the year ended december 31 , 2017 , which was driven primarily by the reduced revenue from our largest customer . other ( expenses ) /income other expenses were $ 303,000 and $ 24,000 for the years ended december 31 , 2018 and 2017 , respectively . this increase was the result of higher interest expense of $ 463,000 in 2018 from our building purchased for our cvd materials group on november 30 , 2017 , offset partially by increased interest income . 32 income taxes for the year ended december 31 , 2018 , we recorded an income tax benefit of $ 357,000 as compared to an income tax expense of $ 1.9 million in the year ended december 31 , 2017. during 2018 , our corporate tax rate was reduced to 21 % as a result of the tax cuts and jobs act ( “ tcja ” ) enacted december 22 , 2017. this rate was partially offset by permanent differences related to fixed and intangible assets , stock-based compensation and other items resulting in an effective tax rate of 6.4 % . during 2017 , our corporate tax rate was 34 % . this rate was partially offset by the utilization of net operating losses . in addition , we were required by tcja to remeasure our deferred tax assets , primarily related to r & d tax credits and stock-based compensation , and incurred an additional expense in the amount of $ 689,000. this resulted in an effective tax rate of 26.9 % . net income/ ( loss ) as a result of the foregoing factors , for the year ended december 31 , 2018 , we had a net loss of $ 5.2 million or $ .80 per diluted share compared to a net income of $ 5.3 million or $ 0.82 per diluted share for the year ended december 31 , 2017. inflation inflation has not materially impacted our operations . liquidity and capital resources as of december 31 , 2018 , we had aggregate working capital of $ 15.4 million compared to aggregate working capital of $ 22.4 million at december 31 , 2017. our cash and cash equivalents of at december 31 , 2018 and 2017 were $ 11.4 million and $ 14.2 million , respectively . at march 22 , 2019 our cash and cash equivalents were approximately $ 11.2 million . the decrease in working capital of $ 7 million is primarily attributable to the overall sales reductions and resulting operating loss for the year and debt service payments of approximately $ 1.2 million , including payments on our investment in the cvd materials building on november 30 , 2017. we have continued to invest in activities primarily related to preparing cvd materials for operations which we anticipate will commence in the second or third quarter of 2019. our total capital invested in 2018 was $ 2.5 million , primarily related to building improvements and machinery for the cvd materials operations and we also incurred operating costs of approximately $ .4 million , exclusive of interest expense . further , there were decreases in contract assets of $ 7 million , cash of $ 2.8 million , inventories $ 1.1 million , offset in part by increases in accounts receivable of $ 2 million and decreases in accounts payable and accrued expenses of 1.7 million . accounts receivable , net of allowance for doubtful accounts , increased by $ 2 million or 97.5 % at december 31 , 2018 to $ 4.1 million compared to $ 2.1 million at december 31 , 2017. this increase is principally due to the timing of shipments and customer payments . inventories as of december 31 , 2018 were approximately $ 1.9 million representing a decrease of approximately $ 1.1 million or a decrease of 37.2 % compared to the balance of approximately $ 3.0 million as of december 31 , 2017. the decrease was driven primarily by management 's efforts to better utilize existing inventories . 33 as previously reported , our revolving line of credit expired on september 1 , 2018. we have elected not to renew our credit line at this time because ( a ) renewal terms were not acceptable to us , ( b ) we have not borrowed on our line of credit in the past 10 years , and ( c ) we have sufficient cash and cash equivalents to meet our working capital and capital expenditure requirements over the next twelve months . we have a loan agreement with hsbc which is secured by a mortgage against our central islip facility at 355 south technology drive .
| historically , we manufactured products for research and development on a custom one-at-a-time basis to meet an individual customer 's specific research requirements . our proprietary systems leverage the technological expertise that we have developed through designing these custom systems onto a standardized basic core . this core is easily adapted through a broad array of available options to meet the diverse product and budgetary requirements of the research community . by manufacturing the basic core of these systems in higher volumes , we are able to reduce both the cost and delivery time for our systems . these systems , which we market and sell under the easytube® and cvd product lines , are sold to researchers at universities , research laboratories , and startup companies in the united states and throughout the world . sales of our proprietary standard , custom systems and process solutions have been driven by our installed customer base , which includes several fortune 500 companies . the strong performance and success of our products has historically driven repeat orders from existing customers as well as business from new customers . however , with our proprietary solutions and expanded focus on “ accelerating the commercialization of tomorrow 's technologies ” tm we have been developing a new customer base in addition to growing with our existing customers . we have generally gained new customers through word of mouth , limited print advertising and trade show attendance . we are now also gaining new customers by their awareness of our company in the marketplace with results from our application laboratory , relationships with startup companies , increased participation in trade shows and expanded internet advertising . the core competencies we have developed in equipment and software design , as well as in systems manufacturing and process solutions , are used to engineer our finished products and to accelerate the commercialization path of our customer base . our proprietary-real-time , software allows for rapid configuration , and provides our customers with powerful tools to understand , optimize and repeatedly control their processes . our vertically integrated structure
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at the same time , increased interest expense from the transaction negatively impacted tsr in 2019. as we pay down the acquisition debt , the corresponding reduction in interest expense should have a positive impact on tsr . the stock buyback component is expected to be slightly negative to tsr due to the temporary limiting of share repurchases while we focus on deleveraging . longer-term , the ecs acquisition is expected to benefit all four tsr sources through profitable growth and strong operating cash flow . senior executives participate in an incentive program with a three-year performance period based on two equal measures : ( i ) our tsr performance compared to the performance of a group of approximately 300 peers , and ( ii ) the company or segment earnings before interest and taxes ( ebit ) compound annual growth rate ( cagr ) . customers we serve a broad suite of customers , with our largest customer representing approximately 5 % of our sales in 2019. many are companies whose names are widely recognized . they include bedding , residential and office furniture producers , automotive oem and tier 1 manufacturers , and a variety of other companies . organic sales this report contains the sales metric organic sales which we calculate identically to same location sales as used in our prior reports . we calculate organic sales as net sales excluding sales attributable to acquisitions and divestitures 29 part ii consummated within the last twelve months . management uses the metric , and it is useful to investors , as supplemental information to analyze our underlying sales performance from period to period in our legacy businesses . major factors that impact our business many factors impact our business , but those that generally have the greatest impact are market demand , raw material cost trends , and competition . market demand market demand ( including product mix ) is impacted by several economic factors , with consumer confidence being the most significant . other important factors include disposable income levels , employment levels , housing turnover , and interest rates . all of these factors influence consumer spending on durable goods , and therefore affect demand for our products and components . some of these factors also influence business spending on facilities and equipment , which impacts approximately one quarter of our sales . raw material costs o ur costs can vary significantly as market prices for raw materials ( many of which are commodities ) fluctuate . we typically have short-term commitments from our suppliers ; accordingly , our raw material costs generally move with the market . our ability to recover higher costs ( through selling price increases ) is crucial . when we experience significant increases in raw material costs , we typically implement price increases to recover the higher costs . conversely , when costs decrease significantly , we generally pass those lower costs through to our customers . the timing of our price increases or decreases is important ; we typically experience a lag in recovering higher costs , and we also realize a lag as costs decline . steel is our principal raw material . at various times in past years , we have experienced significant cost fluctuations in this commodity . in most cases , the major changes ( both increases and decreases ) were passed through to customers with selling price adjustments . over the past few years we have seen varying degrees of inflation and deflation in u.s. steel pricing . in 2017 and through the first half of 2018 s teel costs inflated , then became relatively stable in the back half of 2018. in 2019 , steel costs decreased through most of the year . as a producer of steel rod , we are also impacted by changes in metal margins ( the difference in the cost of steel scrap and the market price for steel rod ) . metal margins within the steel industry expanded in the first half of 2018. although steel scrap costs increased early in 2018 , rod prices increased to a much larger degree . both stabilized by mid-2018 . in 2019 , although steel prices decreased through the year , a wider than usual metal margin persisted . because of these factors , our steel rod mill experienced enhanced profitability in 2018 and 2019. with the acquisition of ecs , we now have greater exposure to the cost of chemicals , including tdi , mdi , and polyol . the cost of these chemicals has fluctuated at times , but ecs has generally passed the changes through to its customers , with a lag that varies based on customer contract terms . in 2019 , ecs experienced a negative effect on sales due to chemical deflation . our other raw materials include woven and non-woven fabrics and foam scrap . we have experienced changes in the cost of these materials in past years and generally , have been able to pass them through to our customers . when we raise our prices to recover higher raw material costs , this sometimes causes customers to modify their product designs and replace higher cost components with lower cost components . we must continue providing product options to our customers that enable them to improve the functionality of their products and manage their costs , while providing higher profits for our operations . competition many of our markets are highly competitive , with the number of competitors varying by product line . in general , our competitors tend to be smaller , private companies . many of our competitors , both domestic and foreign , compete primarily on the basis of price . our success has stemmed from the ability to remain price competitive , while delivering innovation , better product quality , and customer service . 30 part ii we continue to face pressure from foreign competitors as some of our customers source a portion of their components and finished products offshore . story_separator_special_tag in addition to lower labor rates , foreign competitors benefit ( at times ) from lower raw material costs . they may also benefit from currency factors and more lenient regulatory climates . we typically remain price competitive in most of our business units , even versus many foreign manufacturers , as a result of our highly efficient operations , automation , vertical integration in steel and wire , logistics and distribution efficiencies , and large scale purchasing of raw materials and commodities . however , we have also reacted to foreign competition in certain cases by selectively adjusting prices , developing new proprietary products that help our customers reduce total costs and shifting production offshore to take advantage of lower input costs . since 2009 , there have been antidumping duty orders on innerspring imports from china , south africa and vietnam , ranging from 116 % to 234 % . in september 2019 , the department of commerce ( doc ) and the international trade commission ( itc ) concluded a second sunset review , and determined the orders should be extended for an additional five years , through october 2024 ; at which time , the doc and itc will conduct a third sunset review to determine whether to extend the orders for an additional five years . antidumping and countervailing duty cases filed by major u.s. steel wire rod producers have resulted in the imposition of antidumping duties on imports of steel wire rod from brazil , china , belarus , indonesia , italy , korea , mexico , moldova , russia , south africa , spain , trinidad & tobago , turkey , ukraine , united arab emirates , and the united kingdom , ranging from 1 % to 757 % , and countervailing duties on imports of steel wire rod from brazil , china , italy and turkey , ranging from 3 % to 193 % . in june 2019 , the itc and doc initiated a third sunset review to determine whether to extend the orders on brazil , indonesia , mexico , moldova , and trinidad & tobago for an additional five years , and , in december 2019 , the itc and doc initiated a first sunset review to determine whether to extend the orders on china for an additional five years . duties will continue through december 2022 for belarus , italy , korea , russia , south africa , spain , turkey , ukraine , united arab emirates , and the united kingdom . at that time the doc and the itc will conduct a sunset review to determine whether to extend those orders for an additional five years . in september 2018 , the company , along with other domestic mattress producers , filed petitions with the doc and the itc alleging that manufacturers of mattresses in china were unfairly selling their products in the united states at less than fair value ( dumping ) and seeking the imposition of duties on mattresses imported from china . in october 2019 , the doc made a final determination assigning duty rates between 57 % to 1,732 % . in november 2019 , the itc made a unanimous final determination that domestic mattress producers were materially injured by reason of the unfairly priced imported mattresses . an antidumping order on imports of chinese mattresses will remain in effect for five years , through december 2024 , at which time the doc and itc will conduct a sunset review to determine whether to extend the order for an additional five years . see item 3 legal proceedings on page 24 for more information . acquisition of ecs on january 16 , 2019 , we acquired ecs for a cash purchase price of approximately $ 1.25 billion . ecs , headquartered in newnan , georgia , is a leader in specialized foam technology , primarily for the bedding and furniture industries . with 16 facilities across the united states , ecs operates a vertically-integrated model , developing many of the chemicals and additives used in foam production , producing specialty foam , and manufacturing private-label finished products . these innovative specialty foam products include finished mattresses sold through both traditional and online channels , mattress components , mattress toppers and pillows , and furniture foams . ecs has a diversified customer mix and a strong position in the high-growth compressed mattress market segment . ecs formed a separate business unit and reported within the residential products segment in 2019. for information on the financing of the ecs acquisition , please see the commercial paper program on page 46 . change in segment reporting in 2020 our reportable segments are the same as our operating segments , which also correspond with our management organizational structure . to reflect how we manage our newly aligned businesses and in conjunction with the change in executive officer leadership , our management organizational structure and all related internal reporting changed effective 31 part ii january 1 , 2020. as a result , the composition of our segments also changed to reflect the new structure . for information on the change in our segment reporting structure , please see item 1 business , revised segment structure on page 8 . results of operations— 2019 vs. 2018 sales increased 11 % in 2019. acquisitions , primarily ecs , added 14 % to sales . organic sales were down 3 % , on 3 % lower volume . raw material-related selling price increases added 1 % to sales , offset by a 1 % negative currency impact . sales growth in most businesses , including u.s. spring , automotive , work furniture , and aerospace , was offset primarily by the planned exit of business in fashion bed and home furniture which reduced sales 3 % and weak trade demand for steel rod and wire . earnings increased from the non-recurrence of a note impairment charge in 2018 and lower restructuring-related and acquisition-related transaction costs .
| furniture products total sales in furniture products grew 4 % . volume increased 2 % , with growth in adjustable bed and work furniture , partially offset by declines in home furniture and fashion bed . raw material-related selling price increases and currency impact added 2 % to sales growth . ebit decreased $ 31 million , $ 15 million from restructuring-related charges and the remainder primarily from higher steel costs ( including lifo expense ) , promotional activity , and lower overhead recovery . specialized products in specialized products , total sales grew 12 % . organic sales increased 6 % from volume gains in automotive and aerospace , and currency benefits . the phc acquisition added 9 % and was partially offset ( 3 % ) by 2017 's cvp divestiture . ebit decreased $ 7 million despite higher sales because of the non-recurrence of a $ 23 million gain on the sale of real estate offset by a $ 3 million loss from the cvp divestiture in 2017. results from discontinued operations there was no significant discontinued operations activity in 2018 or 2017 . for further information about discontinued operations , see note c to the consolidated financial statements on page 80 . liquidity and capitalization in 2019 , we generated $ 668 million in cash from operations , a $ 228 million increase over 2018. our operations provided more than enough cash to fund both capital expenditures and dividend payments , something we have accomplished each year for over 30 years . we expect this to again be the case in 2020. we continued investing capital to support organic growth opportunities . total capital expenditures in 2019 were $ 143 million , 10 % lower than 2018 , reflecting a balance of investing for the future and controlling our spending . we raised the quarterly dividend by 5 % and extended our record of consecutive annual increases to 48 years . in keeping with our deleveraging plan , we repurchased only 700,000 shares of our stock during the year , primarily
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on september 26 , 2014 , we completed the acquisition of graystone crossing , a 21,997 square foot shopping center located in tega cay , south carolina ( `` graystone crossing '' ) for a contract price of $ 5.4 million , paid through a combination of cash and debt . graystone crossing is 100 % leased and is anchored by t-mobile , tropical smoothie cafe , and edible arrangements . on october 2 , 2014 , we completed the acquisition of bryan station , an 54,397 square foot retail center located in lexington , kentucky ( “ bryan station ” ) for a contract price of $ 6.10 million , paid through a combination of cash and debt . bryan station is currently 100 % leased and its major tenants include planet fitness and shoe carnival . on october 24 , 2014 , the operating partnership entered into a membership interest contribution agreement ( `` contribution agreement '' ) with mr. wheeler for the contribution of mr. wheeler 's membership interests in wheeler interests , llc , wheeler real estate , llc and whlr management , llc ( collectively known as the `` operating companies '' ) . these entities were wholly owned by mr. wheeler at the time of the contribution agreement . the purpose of the contribution agreement was to internalize the management of the trust . pursuant to the terms of the contribution agreement , mr. wheeler received 1,516,853 common units of the operating partnership worth $ 6.75 million at the time of issuance . on november 5 , 2014 , we completed the acquisition of crockett square , a 107,122 square foot retail center located in morristown , tennessee ( `` crockett square '' ) for a contract price of $ 9.75 million , paid through a combination of cash and debt . crockett square is currently 100 % leased and its major tenants include hobby lobby , dollar tree , pier 1 imports and ross dress for less . on november 21 , 2014 , we completed the acquisition of harbor point associates , llc ( `` harbor point '' ) , consisting of a 7.2 acre parcel of undeveloped real estate located in grove , oklahoma , for a contract price of $ 2.4 million . we believe that this parcel can accommodate a 45,700 square foot facility . there are currently no development plans for harbor point , but we believe that it could support a retail facility that would be complementary to our existing portfolio . on december 1 , 2014 , we completed the acquisition of df i-berkley , llc ( `` df i-berkley '' ) , a parcel of approximately 1.0 acre of undeveloped real estate located in norfolk , virginia , for a contract price of $ 250,000 . we believe that this parcel can accommodate a 6,500 square foot facility . there are currently no development plans for df i-berkley , but we believe that it could support a retail facility that would be complementary to our existing portfolio . financing activities the riversedge north loan matured on april 16 , 2013 , and was subsequently extended to january 16 , 2014. on january 16 , 2014 , we renewed the loan until january 16 , 2019. the loan requires monthly principal and interest payments based on a 15 year amortization with a fixed interest rate of 6.00 % . on march 11 , 2013 , we entered into a promissory note for $ 4.0 million to refinance the shoppes at eagle harbor loan that matured in february 2013. the new loan matures on march 11 , 2018 and requires monthly principal and interest payments based on a 20 year amortization and a 4.34 % interest rate . 19 on april 19 , 2013 , we entered in a promissory note for $ 6.5 million to refinance the shoppes at tj maxx loan that matured on that date . the new loan matures on may 1 , 2020 and requires monthly principal and interest payments based on a 25 year amortization and a 3.88 % fixed interest rate . on june 3 , 2013 , we entered into a promissory note with monarch bank for a $ 2.0 million line of credit . the line of credit matured on may 12 , 2014 , provided for an interest rate of 4.5 % per annum and was guaranteed by a deed of trust and assignment of rents on real property . on july 2 , 2014 , we entered into a promissory note for $ 660,000 to refinance the starbucks/verizon loan . the new loan matures on july 2 , 2019 and requires monthly principal and interest payments based on a 20 year amortization and a 5.00 % fixed interest rate . the walnut hill loan matured on april 11 , 2014 , and was subsequently extended until july 31 , 2014. on july 31 , 2014 , we entered into a promissory note for $ 3.65 million to refinance the note that matured . the new loan matures on july 30 , 2017 and requires monthly principal and interest payments based on a 20 year amortization and a 5.50 % fixed interest rate . on september 16 , 2014 , we entered into a promissory note for a $ 3.0 million line of credit . the line of credit matures on september 16 , 2015 , provides for an interest rate of 4.25 % per annum and is guaranteed by a deed of trust and assignment of rents on real property . concurrently with this transaction , we paid off our $ 2.0 million monarch bank line of credit . certain debt agreements into which we have entered have covenants with which we must comply . as of december 31 , 2014 , we believe we are in compliance with the applicable covenants . on december 16 , 2013 , we completed a $ 10.0 million private placement transaction with eight accredited investors ( the “ buyers ” ) . story_separator_special_tag pursuant to the securities purchase agreement , dated as of december 16 , 2013 ( the “ december 2013 securities purchase agreement ” ) , we sold convertible and nonconvertible 9 % senior notes and warrants to purchase shares of our common stock totaling $ 10.0 million dollars . we completed the financings in two concurrent tranches . the first tranche consisted of $ 6.0 million in convertible senior notes due december 15 , 2018. during the first two years , the convertible notes will only be available for conversion upon the completion of a secondary offering of common stock in excess of $ 20 million at a conversion rate of the lesser of 95 % of the secondary offering 's per share price or $ 5.50. after two years , holders of the convertible notes can convert at their discretion at a conversion rate of the lesser of 90 % of the market price of our common stock or $ 5.50. the maximum number of shares of stock issuable upon conversion of the convertible notes is 1,417,079 shares . the second tranche consisted of $ 4.0 million in nonconvertible senior notes due december 15 , 2015. in addition to the non-convertible notes , we issued 421,053 warrants with an exercise price of $ 4.75. the warrants were subject to obtaining shareholder approval for the transaction and the issuance of the common stock underlying the warrants which occurred in june 2014. in connection with the private placement transaction , we and the buyers entered into a registration rights agreement , dated as of december 16 , 2013 ( the “ december 2013 registration rights agreement ” ) . pursuant to the december 2013 registration rights agreement , we agreed to file and maintain a registration statement with the securities and exchange commission for the resale of the shares of common stock underlying the convertible notes and the warrants . interest on the convertible and nonconvertible senior notes of 9 % per annum will be payable monthly . pursuant to a first amendment to the december 2013 securities purchase agreement , dated as of january 31 , 2014 ( the “ first amendment ” ) , we and the initial investors amended the december 2013 securities purchase agreement solely to increase the maximum size of the offering to an aggregate of $ 12.16 million . in accordance with the terms of the december 2013 securities purchase agreement , as amended by the first amendment , as of january 31 , 2014 , we completed a second closing ( the “ second closing ” ) consisting of the private placement of $ 2.160 million of non-convertible notes and warrants to purchase shares of our common stock with fourteen accredited investors ( the “ secondary investors ” ) . the non-convertible senior notes have an interest rate of 9.0 % ( which will be paid monthly ) and mature on january 31 , 2016. the warrants issued permit the secondary investors to purchase an aggregate 227,372 shares of our common stock , have an exercise price of $ 4.75 per share , expire on january 31 , 2019 and were subject to obtaining shareholder approval for this transaction and the issuance of the common stock underlying the warrants which occurred in june 2014 . 20 new leases , leasing renewals and expirations new leases during the year ended december 31 , 2014 were comprised of sixteen deals totaling 37,596 square feet with a weighted average rate of $ 12.43 per square foot . the commission rate per square foot equated to $ 5.44 . renewals during the year ended december 31 , 2014 were comprised of thirty-three deals totaling 139,053 square feet with a weighted average increase of $ 0.23 per square foot , representing an increase of 6.6 % over prior rates . the rates on negotiated renewals resulted in a weighted average increase of $ 1.03 per square foot on twenty-nine renewals and a $ 5.19 per square foot decrease on four renewals . fifteen of these renewals represented options being exercised . we also had a lease assignment for a 4,100 square foot space with all lease terms remaining the same . approximately 10.14 % of our gross leasable area is subject to leases that expire during the twelve months ending december 31 , 2015 that have not already been renewed . based on recent market trends , we believe that these leases will be renewed at amounts and terms comparable to existing lease agreements . funds from operations we use funds from operations ( “ ffo ” ) as an alternative measure of our operating performance , specifically as it relates to results of operations and liquidity . we compute ffo in accordance with standards established by the board of governors of the national association of real estate investment trusts ( “ nareit ” ) in its march 1995 white paper ( as amended in november 1999 and april 2002 ) . as defined by nareit , ffo represents net income ( computed in accordance with accounting principles generally accepted in the united states , or “ gaap ” ) , excluding gains ( or losses ) from sales of property , plus real estate related depreciation and amortization ( excluding amortization of loan origination costs ) and after adjustments for unconsolidated partnerships and joint ventures . most industry analysts and equity reits , including us , consider ffo to be an appropriate supplemental measure of operating performance because , by excluding gains or losses on dispositions and excluding depreciation , ffo is a helpful tool that can assist in the comparison of the operating performance of a company 's real estate between periods , or as compared to different companies . management uses ffo as a supplemental measure to conduct and evaluate our business because there are certain limitations associated with using gaap net income alone as the primary measure of our operating performance .
| , 2013 ) westland square ( acquired december 23 , 2013 ) same store and new store operating income the following table provides same store and new store financial information : replace_table_token_17_th 30 property revenues total same store property revenues for the year ended december 31 , 2013 were $ 1,988,710 , compared to $ 2,008,460 for the year ended december 31 , 2012 , representing a decrease of $ 19,750 , or 0.98 % . same store revenues fluctuated primarily due to the amount and timing of prior year tenant reimbursement reconciliation adjustments , contractual rent adjustments , and a nominal reduction in occupancy due to a 1,286 square foot vacancy arising at one of our centers . four of the five centers representing same stores are 100 % leased and the fifth center is 94.48 % leased , resulting in nominal fluctuations in revenues at these centers . the year ended december 31 , 2013 represents a full year of operations reported for the properties acquired as part of the our november 2012 formation and those acquired during december 2012 , and a partial year of operations for the twelve acquisitions made in 2013. the 2013 acquisitions contributed $ 6.7 million in revenues for the year ended december 31 , 2013 . going forward we believe these properties will generate a significant amount of revenue for our company and we will benefit from future contractual rent increases . property expenses total same store operating expenses for the year ended december 31 , 2013 were $ 419,101 , compared to $ 425,660 for the year ended december 31 , 2012 , respectively . the decrease was primarily due to decreases in repairs and maintenance and utility expenses which typically fluctuate from period to period depending on timing and weather . three of the five same store centers are free-standing buildings , with the other two consisting of a center built in 2009 and a center that was significantly renovated during 2008. accordingly , those centers require minimal maintenance . additionally , two of the
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25 story_separator_special_tag with the increase in revenue . the increase in gross profit was due primarily to 4.6 % increase in average spread . professional gross profit : professional gross profit increased approximately $ 1.0 million ( 3.1 % ) due to the decrease in cost of services which was offset by a 7.0 % decrease in average spread . the zycron acquisition contributed $ 1.4 million . the smart acquisition contributed $ 3.1 million . light industrial gross profit : light industrial gross profit increased approximately $ 1.4 million ( 13.5 % ) from an increase of 6.3 % in the average spread . selling , general and administrative expenses : selling , general and administrative expenses increased approximately $ 6.5 million ( 14.6 % ) related to various costs associated with our revenue growth and geographic expansion including increased headcount , commissions and bonuses as detailed in the following table . replace_table_token_15_th depreciation and amortization : depreciation and amortization charges decreased approximately $ 1.2 million ( 19.8 % ) . the decrease in depreciation and amortization is primarily due to professional segment fully amortized intangible assets related to the 2012 american partners acquisition of $ 1.7 million that was partially offset by an increase in the professional segment intangible assets acquired in the 2017 zycron and smart acquisitions of $ 0.6 million . 30 interest expense , net : interest expense , net decreased $ 0.4 million primarily due to the decrease in the interest of $ 0.6 million related to the amortization of contingent consideration discounts from the 2015 vts acquisition which was offset by the increase of $ 0.2 million in amortization of the deferred financing fees related to the amended credit agreement ( as defined below ) . income taxes : income tax expense decreased approximately $ 4.8 million primarily due to the rate change impact of the tcja , the option cancellation agreement , and share-based compensation exercises that are deductible for tax purposes , which resulted in a decrease in the effective rate , offset by higher pre-tax income of $ 6.9 million . non-gaap same day revenues : same day revenues are defined as a fifty-three week fiscal year ended december 31 , 2017 ( fiscal 2017 ) revenues less five revenue days . the fiscal 2017 revenues of $ 272.6 million would be less $ 5.7 million for five revenue days resulting in same day revenues of $ 266.9 million . same day revenues increased $ 20.0 million ( 7 % ) to $ 286.9 million in fiscal 2018. same day revenues and gaap revenues were equal for fiscal 2018. non-gaap same day gross profit : same day gross profit is defined as a fifty-three week fiscal year ended december 31 , 2017 ( fiscal 2017 ) gross profit less five gross profit days . the fiscal 2017 gross profit of $ 68.4 million would be less $ 1.4 million for five gross profit days resulting in same day gross profit of $ 67.0 million . same day gross profit increased $ 9.6 million ( 14 % ) to $ 76.6 million in fiscal 2018. same day gross profit and gaap gross profit were equal for fiscal 2018. liquidity and capital resources our working capital requirements are primarily driven by field talent payments , tax payments and client partner accounts receivable receipts . since receipts from client partners lag payments to field talent , working capital requirements increase substantially in periods of growth . our primary sources of liquidity are cash generated from operations and borrowings under our credit agreement with bmo harris bank , n.a . ( “ bmo ” ) , that provides for a revolving credit facility maturing july 16 , 2024 ( the “ revolving facility ” ) . our primary uses of cash are payments to field talent , team members , related payroll liabilities , operating expenses , capital expenditures , cash interest , cash taxes , dividends and contingent consideration and debt payments . we believe that the cash generated from operations , together with the borrowing availability under our revolving facility , will be sufficient to meet our normal working capital needs for at least the next twelve months , including investments made , and expenses incurred , in connection with opening new branches throughout the next year . our ability to continue to fund these items may be affected by general economic , competitive and other factors , many of which are outside of our control . if our future cash flow from operations and other capital resources are insufficient to fund our liquidity needs , we may be forced to obtain additional debt or equity capital or refinance all or a portion of our debt . while we believe we have sufficient liquidity and capital resources to meet our current operating requirements and expansion plans , we may elect to pursue additional growth opportunities within the next year that could require additional debt or equity financing . if we are unable to secure additional financing at favorable terms in order to pursue such additional growth opportunities , our ability to pursue such opportunities could be materially adversely affected . the company has an effective form s-3 shelf registration statement allowing for the offer and sale of up to approximately $ 13 million of common stock . there is no guarantee that we will be able to consummate any offering on terms we consider acceptable or at all . 31 a summary of our working capital , operating , investing and financing activities are shown in the following table : replace_table_token_16_th operating activities cash provided by operating activities consists of net income adjusted for non-cash items , including depreciation and amortization , share-based compensation expense , interest expense on contingent consideration payable , and the effect of working capital changes . the primary drivers of cash inflows and outflows are accounts receivable and accrued payroll and expenses . story_separator_special_tag during fiscal 2019 , net cash provided by operating activities was $ 18.0 million , a de crease of $ 0.5 million compared with $ 18.4 million for fiscal 2018 . this de crease is primarily attributable to lower net income , the timing of payments on operating assets and liabilities , net deferred tax assets , which was partially offset by contingent consideration adjustments . during fiscal 2018 , net cash provided by operating activities was $ 18.4 million , a n in crease of $ 0.4 million compared with $ 18.1 million for fiscal 2017 . this in crease is primarily attributable to higher net income , which was partially offset by contingent consideration adjustments , the timing of payments on operating assets and liabilities , amortization expense , and net deferred tax assets . investing activities cash used in investing activities consists primarily of cash paid for businesses acquired and capital expenditures . in fiscal 2019 , we paid $ 7.5 million in connection with the ljk acquisition and we made capital expenditures of $ 2.2 million mainly related to software and computer equipment purchased in the ordinary course of business and for the it roadmap project . in fiscal 2018 , we made capital expenditures of $ 0.9 million mainly related to furniture and fixtures and computer equipment purchased in the ordinary course of business . in fiscal 2017 , we paid $ 18.5 million in connection with the zycron acquisition , $ 6.0 million in connection with the smart acquisition and we made capital expenditures of $ 1.1 million mainly related to computer equipment and software purchased in the ordinary course of business . financing activities cash flows from financing activities consisted principally of borrowings and payments under our credit agreements , dividends and contingent consideration paid . for fiscal 2019 , we paid $ 12.3 million in cash dividends on our common stock , paid down $ 10.1 million on the term loan with texas capital bank , national association ( “ tcb ” ) , and we paid $ 2.7 million of contingent consideration related to the zycron acquisition . we borrowed $ 9.7 million on our revolving credit facility and borrowed $ 7.5 million on our term loan in connection with the ljk acquisition . for fiscal 2018 , we paid $ 13.8 million in principal payments on the term loan with tcb , paid $ 10.9 million in cash dividends on our common stock , reduced our revolving credit facility by $ 10.7 million , paid $ 3.3 million related to option cancellation agreement , and paid $ 1.0 million of contingent consideration related to the vts and zycron acquisitions . we received net proceeds from the issuance of the common stock of $ 22.2 million and used the net proceeds to reduce outstanding indebtedness under our credit agreement with tcb and cancel outstanding options pursuant to the option cancellation agreement , as noted above . 32 for fiscal 2017 , we received proceeds from the issuance of the $ 25.0 million term loan mainly to fund the zycron acquisition . we paid $ 8.7 million in cash dividends on our common stock , paid $ 4.0 million of contingent consideration related to the vts acquisition , we reduced our revolving credit facility by $ 2.5 million , paid $ 1.1 million in principal payments on the term loan with tcb , and paid $ 1.1 million in deferred financing costs related to the credit agreement with tcb . credit agreements on july 16 , 2019 , we entered into a credit agreement ( the “ credit agreement ” ) , maturing july 16 , 2024 , with bmo harris bank , n.a . ( “ bmo ” ) , as lead administrative agent , lender , letters of credit issuer , and swing line lender . the credit agreement provides for a revolving credit facility ( the “ revolving facility ” ) permitting us to borrow funds from time to time in an aggregate amount up to $ 35 million . the credit agreement also provides for a term loan commitment ( the “ term loan ” ) permitting us to borrow funds from time to time in an aggregate amount not to exceed $ 30 million with principal payable quarterly , based on an annual percentage of the original principal amount as defined in the credit agreement . we may from time to time , with a maximum of two , request an increase in the aggregate term loan commitment by $ 40 million , with minimum increases of $ 10 million . our obligations under the credit agreement are secured by a first priority security interest in substantially all our tangible and intangible property . the credit agreement bears interest either at the base rate plus the applicable margin or libor plus the applicable margin ( as such terms are defined in the credit agreement ) . we also pay an unused commitment fee on the daily average unused amount of revolving facility and term loan . the credit agreement contains customary affirmative covenants and negative covenants , including certain limitations on our ability to pay cash dividends . we are subject to a maximum leverage ratio and a minimum fixed charge coverage ratio as defined in the credit agreement . on december 13 , 2019 , we borrowed $ 7.5 million on the term loan in conjunction with the closing of the ljk acquisition . on february 3 , 2020 , we borrowed $ 18.5 million on the term loan in conjunction with the closing of the edgerock acquisition , as described in note 19 in the notes to consolidated financial statements . we borrowed $ 20 million under the revolving facility to pay off our existing indebtedness with tcb and such agreement ( and related ancillary documentation ) was terminated on july 16 , 2019 in connection with such repayment .
| as a percentage of revenue , gross profit has in creased to 27.4 % from 26.7 % , primarily due to higher gross profits across our real estate and professional segments . we determine spread as the difference between bill rate and pay rate . real estate gross profit : real estate gross profit in creased approximately $ 4.0 million ( 12.1 % ) consistent with the in crease in revenue . the in crease in gross profit was due primarily to 5.0 % in crease in average spread . professional gross profit : professional gross profit in creased approximately $ 1.3 million ( 4.2 % ) consistent with the increase in revenue . the increase in gross profit was due to 9.3 % in crease in average spread . light industrial gross profit : light industrial gross profit de creased approximately $ 1.2 million ( 10.1 % ) consistent with the de crease in revenue which was offset by a n in crease of 2.2 % in the average spread . selling , general and administrative expenses : selling , general and administrative expenses in creased approximately $ 5.1 million ( 10.1 % ) primarily related to various costs associated with our revenue growth and geographic expansion including increased headcount , commissions and bonuses as detailed in the following table . replace_table_token_11_th depreciation and amortization : depreciation and amortization charges de creased approximately $ 0.2 million ( 4.4 % ) . the de crease in depreciation and amortization is primarily due to fully amortized intangible assets in the light industrial segment related to the 2013 instaff acquisition and in the professional segment related to the 2015 d & w acquisition . interest expense , net : interest expense , net de creased $ 1.3 million ( 44.9 % ) primarily due to the may 2018 offering of common stock which proceeds were used to pay down on the existing indebtedness of the company and the decrease in contingent consideration discounts related to the 2017 zycron and smart acquisitions . income taxes : income tax expense in creased $ 0.4 million ( 11.5 % ) primarily due to the 2018 option cancellation agreement
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the increase in revenue from fiscal 2017 included record annual revenue in our tungsten slurries , dielectrics slurries , and polishing pads , which grew 14.3 % , 16.1 % and 21.0 % , respectively , from last year . in addition , results benefited from record revenue in esf , which includes qed technologies . gross margin , representing gross profit as a percentage of revenue , for fiscal 2018 was 53.2 % , compared to 50.1 % in fiscal 2017. the increase in gross margin from last year was primarily due to higher sales volume and a higher value product mix , partially offset by higher fixed manufacturing costs , including higher staffing-related expense . we currently expect our gross margin for full fiscal year 2019 to be between 53 % and 54 % , which includes approximately 80 basis points of nexplanar amortization expense and does not take into account expected expenses related to the pending acquisition of kmg . we may continue to experience fluctuations in our gross margin due to a number of factors , including changes in our product mix and the extent to which we utilize our manufacturing capacity , which may cause our annual and quarterly gross margin to be above or below this annual guidance range . operating expenses , which include research , development and technical , selling and marketing , and general and administrative expenses , were $ 154.0 million in fiscal 2018 compared to $ 142.1 million in fiscal 2017. the increase in operating expenses of 8.3 % , or $ 11.8 million , from fiscal 2017 was primarily due to executive officer transition costs , costs related to the proposed acquisition of kmg , as well as higher staffing-related expense . we currently expect total operating expenses for our full fiscal year 2019 to be between $ 154.0 million and $ 158.0 million . this includes approximately $ 1.9 million of nexplanar amortization expense , but does not include any expenses related to kmg acquisition . diluted earnings per share in fiscal 2018 were a record level of $ 4.19 , and represented an increase of 23.2 % , or $ 0.79 , from $ 3.40 in fiscal 2017. the increase was primarily due to higher revenue and a higher gross margin , partially offset by higher operating expenses and the unfavorable impact of the enactment of the tax act in december 2017. critical accounting policies and estimates this md & a , as well as disclosures included elsewhere in this report on form 10-k , are based upon our audited consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingencies . on an ongoing basis , we evaluate the estimates used , including those related to bad debt expense , inventory valuation , impairment of long-lived assets and investments , business combinations , goodwill , other intangible assets , share-based compensation , income taxes and contingencies . we base our estimates on historical experience , current conditions and on various other assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources , as well as for identifying and assessing our accounting treatment with respect to commitments and contingencies . actual results may differ from these estimates under different assumptions or conditions . we believe the following critical accounting policies involve significant judgments and estimates used in the preparation of our consolidated financial statements . allowance for doubtful accounts we maintain an allowance for doubtful accounts for estimated losses resulting from the potential inability of our customers to make required payments . our allowance for doubtful accounts is based on historical collection experience , adjusted for any specific known conditions or circumstances . while historical experience may provide a reasonable estimate of uncollectible accounts , actual results may differ from what was recorded . we will continue to monitor the financial solvency of our customers and , if global economic , or individual customer , conditions weaken , we may have to record additional increases to our allowance for doubtful accounts . as of september 30 , 2018 , our allowance for doubtful accounts represented 2.4 % of gross accounts receivable . if we had increased our estimate of bad debts by 100 basis points to 3.4 % of gross accounts receivable , our general and administrative expenses would have increased by $ 0.7 million . 27 index inventory valuation we value inventory at the lower of cost or market and write down the value of inventory for estimated obsolescence or if inventory is deemed unmarketable . an inventory reserve is maintained based upon a historical percentage of actual inventories written off applied against the inventory value at the end of the period , adjusted for known conditions and circumstances . we exercise judgment in estimating the amount of inventory that is obsolete . should actual product marketability be affected by conditions that are different from those projected by management , revisions to the estimated inventory reserve may be required . if we had increased our reserve for obsolete inventory at september 30 , 2018 by 10 % , our cost of goods sold would have increased by $ 0.3 million . impairment of long-lived assets and investments we assess the recoverability of the carrying value of long-lived assets , including finite-lived intangible assets , whenever events or changes in circumstances indicate that the assets may be impaired . we perform a periodic review of our long-lived assets to determine if such impairment indicators exist . we must exercise judgment in assessing whether an event of impairment has occurred . story_separator_special_tag for purposes of recognition and measurement of an impairment loss , long-lived assets are either individually identified or grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities . we must exercise judgment in this grouping . if the sum of the undiscounted future cash flows expected to result from the identified asset group is less than the carrying value of the asset group , an impairment provision may be required . the amount of the impairment to be recognized is calculated by subtracting the fair value of the asset group from the net book value of the asset group . determining future cash flows and estimating fair values require significant judgment and are highly susceptible to change from period to period because they require management to make assumptions about future sales and cost of sales generally over a long-term period . we did not record any impairment expense in fiscal 2018 and 2016. we recorded impairment expense on long-lived assets of $ 0.9 million in fiscal 2017 related to surplus research and development equipment , which was subsequently sold for a gain . we evaluate the estimated fair value of investments annually , or more frequently if indicators of potential impairment exist , to determine if an other-than-temporary impairment in the value of the investment has taken place . business combinations we account for our acquisitions under the current standards of accounting for business combinations . these standards require assets and liabilities of an acquired business to be recognized at their estimated fair value . we engage independent third-party appraisal firms to assist us in determining the fair values of assets and liabilities acquired . this valuation requires management to make significant estimates and assumptions , especially with respect to long-lived and intangible assets . goodwill represents the residual value of the purchase price over the fair value of net assets acquired , including identifiable intangible assets . critical estimates in valuing certain of the intangible assets include but are not limited to : future expected cash flows related to acquired developed technologies and patents and assumptions about the period of time the technologies will continue to be used in the company 's product portfolio ; expected costs to develop the in-process technology into commercially viable products and estimated cash flows from the products when completed ; and discount rates . management 's estimates of value are based upon assumptions believed to be reasonable , but which are inherently uncertain and unpredictable . assumptions may be incomplete or inaccurate , and unanticipated events and circumstances may occur which may cause actual realized values to be different from management 's estimates . as described elsewhere in this report on form 10-k , in august 2018 , we entered into a merger agreement pursuant to which we will acquire kmg , which we expect to close in approximately mid-november 2018 , subject to customary closing conditions , including the adoption of the merger agreement by kmg 's shareholders . we intend to account for the merger using the business combination standard , and we will be treated as the acquirer for accounting purposes . in fiscal 2016 , we recorded $ 58.4 million of goodwill and $ 55.0 million of intangible assets related to our acquisition of nexplanar . the intangible assets included $ 50.0 million with finite lives and $ 5.0 million of in-process technology . in the fourth quarter of fiscal 2016 , we determined that one of the products under development was unlikely to meet our original cash flow projections based on information received subsequent to the date of acquisition . consequently , we recorded a $ 1.0 million impairment of this intangible asset . the remaining $ 4.0 million was subsequently reclassified to developed technology and we began amortizing this intangible asset in fiscal 2018 . 28 index goodwill and intangible assets purchased intangible assets with finite lives are amortized over their estimated useful lives and are evaluated for impairment using a process similar to that used to evaluate other long-lived assets . goodwill and indefinite lived intangible assets are not amortized and are tested annually in our fourth fiscal quarter or more frequently if indicators of potential impairment exist , using a fair-value-based approach . the recoverability of goodwill is measured at the reporting unit level , which is defined as either an operating segment or one level below an operating segment . a component is a reporting unit when the component constitutes a business for which discrete financial information is available and segment management regularly reviews the operating results of the component . components may be combined into one reporting unit when they have similar economic characteristics . we have three reporting units , all of which had goodwill as of september 30 , 2018 , the date of our annual impairment test . two of the reporting units , cmp slurries and cmp pads , represent 95 % of the goodwill balance on our consolidated balance sheet as of september 30 , 2018. the goodwill related to cmp pads resulted from our acquisition of nexplanar . accounting guidance provides an entity the option to assess the fair value of a reporting unit either using a qualitative analysis ( `` step zero '' ) or a quantitative analysis ( `` step one '' ) . similarly , an entity has the option to use a step zero or step one approach to determine the recoverability of indefinite-lived intangible assets . in fiscal 2016 , 2017 and 2018 , we chose to use a step one analysis for both goodwill impairment and for the recoverability of indefinite-lived intangible assets , with the exception of our cmp slurries reporting unit , for which we chose to use a step zero analysis for fiscal 2018. factors requiring significant judgment include the selection of valuation approach and assumptions related to future revenue and gross margin growth rates , discount factors and royalty rates , among others .
| fixed manufacturing costs included $ 5.2 million of nexplanar amortization expense compared to $ 4.8 million in the same period of fiscal 2017. gross margin our gross margin was 53.2 % in fiscal 2018 compared to 50.1 % for fiscal 2017. the increase in gross margin from last year was primarily due to higher sales volume and a higher value product mix , partially offset by higher fixed manufacturing costs , including higher staffing-related expenses . research , development and technical total research , development and technical expenses were $ 52.0 million in fiscal 2018 , which represented a decrease of 6.7 % , or $ 3.7 million , from fiscal 2017. the decrease was primarily due to lower professional expenses of $ 1.3 million , lower staffing-related costs of $ 1.0 million , the absence of an impairment charge of $ 0.9 million that occurred in fiscal 2017 , and lower depreciation and amortization expense of $ 0.7 million , partially offset by the absence of a gain on equipment disposal of $ 1.8 million that occurred in fiscal 2017. our research , development and technical efforts are focused on the following main areas : ● research related to fundamental cmp technology ; ● development of new and enhanced cmp consumable products , including collaboration on joint development projects with technology-leading customers and suppliers ; ● process development to support rapid and effective commercialization of new products ; ● technical support of cmp products in our customers ' research , development and manufacturing facilities ; and , ● development of polishing and metrology applications outside of the semiconductor industry . selling and marketing selling and marketing expenses were $ 25.0 million in fiscal 2018 , which represented a decrease of 18.8 % , or $ 5.8 million , from fiscal 2017. the decrease was primarily due to lower staffing-related costs of $ 4.1 million , lower information technology expenses of $ 0.8 million , and the absence of amortization expense of $ 0.6 million resulting from intangible assets becoming fully amortized during fiscal 2018 . 32 index general and administrative general and administrative expenses were $ 77.0 million in fiscal 2018 , which represented an increase of 38.4 % , or $ 21.4 million , from fiscal 2017. the increase was primarily due to higher staffing-related
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in addition , while we do not sell maintenance and support separately , because we have historically included it free of charge in many of our arrangements , we attribute a portion of our systems revenues to this implied post-contract customer support ( “ pcs ” ) . we classify our revenues into two primary product categories , service provider technology and enterprise technology . 39 service provider technology includes our airmax , edgemax and airfiber platforms , as well as embedded radio products and other 802.11 standard products including base stations , radios , backhaul equipment and customer premise equipment ( “ cpe ” ) . additionally , service provider technology includes antennas and other products in the 0.9 to 6.0ghz spectrum and miscellaneous products such as mounting brackets , cables and power over ethernet adapters . enterprise technology includes our unifi and mfi platforms , including unifi enterprise wi-fi products , unifi video products , unifi switching and routing solutions , and amplifi enterprise technology also includes revenues that are attributable to pcs . we sell our products and solutions globally to service providers and enterprises primarily through our extensive network of distributors , and , to a lesser extent , direct customers . sales to distributors accounted for 99 % of our revenues in the year ended june 30 , 2017 . other channel partners , such as resellers , largely accounted for the balance of our revenues . cost of revenues our cost of revenues is comprised primarily of the costs of procuring finished goods from our contract manufacturers and chipsets that we consign to certain of our contract manufacturers . in addition , cost of revenues includes tooling , labor and other costs associated with engineering , testing and quality assurance , warranty costs , stock-based compensation , logistics related fees and excess and obsolete inventory . in addition to utilizing contract manufacturers , we outsource most of our logistics warehousing and order fulfillment functions , which are located primarily in china , and to a lesser extent , taiwan and united states . 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 , 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 . 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 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 . business e-mail compromise fraud ( recovery ) loss - in june 2015 , we determined that we were the victim of criminal fraud known to law enforcement authorities as business e-mail compromise fraud which involved employee impersonation and fraudulent requests targeting our finance department . the fraud resulted in transfers of funds aggregating $ 46.7 million held by a company subsidiary incorporated in hong kong to other overseas accounts held by 40 third parties , of which we recovered $ 8.1 million in fiscal 2015. as a result , we recorded a charge of $ 39.1 million in the fourth quarter of 2015 , including additional expenses consisting of professional service fees associated with the fraud loss . in fiscal 2016 , the company recorded a net recovery of an additional $ 8.3 million , comprised of an $ 8.6 million recovery less $ 0.3 million of professional service fees associated with the recovery . the company is continuing to pursue the recovery of the remaining $ 30.0 million and is cooperating with u.s. federal and numerous overseas law enforcement authorities who are actively pursuing a multi-agency criminal investigation . however , any additional recoveries are likely remote and , therefore , can not be assured . 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 . story_separator_special_tag 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 perform in the future . as of june 30 , 2017 , and 2016 , we had deferred revenues of $ 7.9 million and $ 4.2 million , respectively , related mainly to future pcs obligations . 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 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 ” ) . ( 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 . 41 ( 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 . our process for determining besp for deliverables involves multiple factors that may vary depending upon the unique facts and circumstances related to each deliverable .
| the year-over-year increase was due to increased adoption of both our service provider and enterprise technology products . south america revenues in south america increased $ 20.5 million , or 24 % , from $ 85.0 million in fiscal 2016 to $ 105.5 million in fiscal 2017 . the year-over-year increase was due to increased adoption of both service our provider technology and enterprise technology products . europe , the middle east , and africa ( `` emea '' ) revenues in emea increased $ 70.1 million , or 27 % , from $ 264.4 million in fiscal 2016 to $ 334.5 million in fiscal 2017 . the year-over-year increase was primarily due to increased adoption of our enterprise technology products , offset , in part , by a decline in service provider products . asia pacific revenues in the asia pacific region increased $ 16.4 million , or 21 % , from $ 77.4 million in fiscal 2016 to $ 93.8 million in fiscal 2017 . the year-over-year increase was primarily due to increased adoption of our enterprise technology products . cost of revenues and gross profit cost of revenues increased $ 128.0 million , or 37 % , from $ 341.6 million in fiscal 2016 to $ 469.6 million in fiscal 2017 . the increase in fiscal 2017 was primarily due to our overall increase in revenue and to a lesser extent , an increase in cost associated with fulfillment operations , warranty accruals and inventory reserves . gross profit margin decreased to 46 % in fiscal 2017 compared to 49 % in fiscal 2016 , which was primarily due to change in mix of products sold , increased costs associated with fulfillment operations , increased inventory obsolescence charges and warranty accruals . operating expenses research and development research and development expenses increased $ 11.3 million , or 20 % , from $ 57.8 million in fiscal 2016 to $ 69.1 million in fiscal 2017 . as a percentage of revenues ,
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resubmitted bla and fda accepted for review continue patient enrollment in phase 2 study in pcjia fda approved kevzara for the treatment of adult patients with ra initiate phase 3 study in giant cell arteritis european commission granted marketing authorization for kevzara for the treatment of adult patients with ra initiate phase 3 study in polymyalgia rheumatica mhlw in japan approved kevzara for the treatment of adult patients with ra suptavumab ( rsv-f antibody ) completed patient enrollment in phase 3 study reported results from phase 3 study , and discontinued further clinical development cemiplimab ( regn2810 ; pd-1 antibody ) continued patient enrollment in phase 1 and phase 2 studies complete rolling submission of bla for cscc and fda decision on bla reported positive preliminary results from phase 1 study in patients with advanced cscc submit for regulatory approval in cscc in the eu fda granted breakthrough therapy designation for the treatment of adults with metastatic cscc and adults with locally advanced and unresectable cscc initiate additional studies in non-small cell lung cancer and various other indications continue patient enrollment in various studies reported positive top-line results from pivotal phase 2 cscc study commenced rolling submission of bla for cscc initiated phase 3 study in first-line treatment for non-small cell lung cancer initiated potentially pivotal phase 2 study in bcc initiated phase 3 study in cervical cancer fasinumab ( ngf antibody ) continued patient enrollment in phase 3 long-term safety study in osteoarthritis continue patient enrollment in phase 3 osteoarthritis studies initiated phase 3 efficacy studies in osteoarthritis report data from first phase 3 efficacy study in osteoarthritis initiated phase 3 study in chronic low back pain in patients with concomitant osteoarthritis of the knee and hip advance phase 3 program in chronic low back pain 68 antibody-based clinical programs ( continued ) : 2017 and 2018 events to date 2018 plans evinacumab ( angptl3 antibody ) fda granted breakthrough therapy designation for the treatment of hypercholesterolemia in patients with hofh initiate phase 2 study in severe hypertriglyceridemia reported positive phase 2 results at medical conferences data and analysis from genetics , preclinical , and clinical study published in the new england journal of medicine initiated phase 2 study in refractory hypercholesterolemia ( both hefh and non-fh ) initiated phase 3 study in hofh nesvacumab/aflibercept ( ang2 antibody co-formulated with aflibercept ) completed patient enrollment in phase 2 onyx study in wet amd reported results from phase 2 onyx and ruby studies , which did not provide sufficient differentiation to warrant phase 3 studies trevogrumab ( gdf8 antibody ) initiated phase 1 combination therapy study with regn2477 complete phase 1 combination study and report results completed patient enrollment in phase 1 combination therapy study regn1908-1909 ( feld1 antibody ) continue early stage development regn1979 ( cd20 and cd3 antibody ) continued patient enrollment in phase 1 study continue evaluation in non-hodgkin lymphomas fda granted orphan drug designation in diffuse large b-cell lymphoma regn3470-3471-3479 ( multi-antibody therapy to ebola virus ) completed phase 1 study in healthy volunteers initiate additional healthy volunteer study regn2477 ( activin a antibody ) fda granted orphan drug designation for the treatment of fop initiate phase 2 study in patients with fop fda granted fast track designation for the prevention and treatment of heterotopic ossification in patients with fop regn3500 ( il-33 antibody ) initiated phase 1 studies in patients with asthma initiate phase 2 programs in asthma , copd , and atopic dermatitis completed phase 1 study in healthy volunteers regn3767 ( lag-3 antibody ) continued patient enrollment in phase 1 study open monotherapy expansion cohorts as well as in combination with cemiplimab in multiple indications regn3918 ( c5 antibody ) initiated phase 1 study in healthy volunteers complete phase 1 study in healthy volunteers developing and commercializing new medicines entails significant risk and expense . before significant revenues from the commercialization of our antibody candidates or new indications for our marketed products can be realized , we ( or our collaborators ) must overcome a number of hurdles which include successfully completing research and development and obtaining regulatory approval from the fda and regulatory authorities in other countries . in addition , the biotechnology and pharmaceutical industries are rapidly evolving and highly competitive , and new developments may render our products and technologies uncompetitive or obsolete . 69 our ability to continue to generate profits and to generate positive cash flow from operations over the next several years depends significantly on our continued success in commercializing eylea . we expect to continue to incur substantial expenses related to our research and development activities , a significant portion of which we expect to be reimbursed by our collaborators . also , our research and development activities outside our collaborations , the costs of which are not reimbursed , are expected to expand and require additional resources . we also expect to incur substantial costs related to the commercialization of eylea , dupixent , praluent , and kevzara , as well as preparation for potential commercialization of cemiplimab and other indications of dupilumab . story_separator_special_tag our financial results may fluctuate from quarter to quarter and will depend on , among other factors , the net sales of our marketed products , the scope and progress of our research and development efforts , the timing of certain expenses , the continuation of our collaborations , in particular with sanofi and bayer , including our share of collaboration profits or losses from sales of commercialized products and the amount of reimbursement of our research and development expenses that we receive from collaborators , and the amount of income tax expense we incur , which is partly dependent on the profits or losses we earn in each of the countries in which we operate . we can not predict whether or when new products or new indications for marketed products will receive regulatory approval or , if any such approval is received , whether we will be able to successfully commercialize such product ( s ) and whether or when they may become profitable . critical accounting policies and use of estimates a summary of the significant accounting policies that impact us is provided in note 1 to our consolidated financial statements . the preparation of financial statements in accordance with accounting principles generally accepted in the united states of america ( gaap ) requires management to make estimates and assumptions that affect reported amounts and related disclosures in the financial statements . management considers an accounting estimate to be critical if : it requires an assumption ( or assumptions ) regarding a future outcome ; and changes in the estimate or the use of different assumptions to prepare the estimate could have a material effect on our results of operations or financial condition . management believes the current assumptions used to estimate amounts reflected in our consolidated financial statements are appropriate . however , if actual experience differs from the assumptions used in estimating amounts reflected in our consolidated financial statements , the resulting changes could have a material adverse effect on our results of operations , and in certain situations , could have a material adverse effect on our liquidity and financial condition . the critical accounting estimates that impact our consolidated financial statements are described below . revenue recognition product revenue product sales consist of u.s. sales of eylea and arcalyst . revenue from product sales is recognized when persuasive evidence of an arrangement exists , title to product and associated risk of loss have passed to the customer , the price is fixed or determinable , collection from the customer is reasonably assured , we have no further performance obligations , and returns can be reasonably estimated . we record revenue from product sales upon delivery to our distributors and specialty pharmacies ( collectively , our customers ) . revenue from product sales is recorded net of applicable provisions for rebates and chargebacks under governmental and other programs , such as medicaid and veterans ' administration ( va ) , distribution-related fees , and other sales-related deductions . we estimate reductions to product sales based upon contracts with customers and government agencies , statutorily-defined discounts applicable to government-funded programs , historical experience , estimated payer mix , inventory levels in the distribution channel , shelf life of the product , and other relevant factors . calculating these provisions involves estimates and judgments . we review our estimates of rebates , chargebacks , and other applicable provisions each period and record any necessary adjustments in the current period 's net product sales . the following table summarizes the provisions , and credits/payments , for sales-related deductions . 70 replace_table_token_5_th collaboration revenue we earn collaboration revenue in connection with collaboration agreements to develop and commercialize product candidates and utilize our technology platforms . these arrangements may require us to deliver various rights , services , and or goods across the entire life cycle of a product or product candidate . the terms of these agreements typically include that consideration be provided to us in the form of non-refundable up-front payments , research progress ( milestone ) payments , payments for development and commercialization activities , and sharing of profits or losses arising from the commercialization of products . in arrangements involving multiple deliverables , we must determine whether each deliverable qualifies as a separate unit of accounting , whether the deliverables have value to the collaborator on a standalone basis , and how the consideration should be allocated to each separate unit of accounting based on the relative selling price of each deliverable . payments which are based on achieving a specific substantive performance milestone , involving a degree of risk , are recognized as revenue when the milestone is achieved and the related payment is due and non-refundable , provided there is no future service obligation associated with that milestone . in determining whether a payment is deemed to be a substantive performance milestone , we take into consideration ( i ) the enhancement in value to the related development product candidate , ( ii ) our performance and the relative level of effort required to achieve the milestone , ( iii ) whether the milestone relates solely to past performance , and ( iv ) whether the milestone payment is considered reasonable relative to all of the deliverables and payment terms . payments for achieving milestones which are not considered substantive are deferred and recognized over the related performance period . in connection with non-refundable licensing payments , our performance period estimates are principally based on projections of the scope , progress , and results of our research and development activities . due to the variability in the scope of activities and length of time necessary to develop a drug product , changes to development plans as programs progress , and uncertainty in the ultimate requirements to obtain governmental approval for commercialization , revisions to performance period estimates are likely to occur periodically , and could result in material changes to the amount of revenue recognized each year in the future .
| in 2016 , sanofi collaboration revenues were negatively impacted , compared to 2015 , by higher commercialization expenses in connection with the launch of praluent , and higher expenses in connection with preparing to commercialize kevzara and dupixent . the following table summarizes global net product sales recorded by sanofi : 75 replace_table_token_9_th in march 2017 , the fda approved dupixent for the treatment of adult patients with moderate-to-severe atopic dermatitis , and in september 2017 , the european commission granted marketing authorization for dupixent for use in adults with moderate-to-severe atopic dermatitis who are candidates for systemic therapy . in may 2017 , the fda approved kevzara for the treatment of rheumatoid arthritis in adult patients , and in june 2017 , the european commission granted marketing authorization for kevzara for the treatment of rheumatoid arthritis in adult patients . the sales of dupixent and kevzara in 2017 primarily consist of u.s. sales . during 2017 , other sanofi antibody revenue included ( i ) reimbursements by sanofi in connection with commercial manufacturing activities under the terms of our collaboration agreement and ( ii ) an acceleration of the recognition of deferred revenue from an $ 85.0 million up-front payment and other payments in connection with sanofi 's decision to end our antibody discovery agreement on december 31 , 2017 without any extension . in july 2015 , we and sanofi entered into a global strategic collaboration to discover , develop , and commercialize antibody-based cancer treatments in the field of immuno-oncology . sanofi 's reimbursement of immuno-oncology research and development costs under our io discovery agreement increased in 2017 , compared to 2016 and 2015 , primarily due to an increase in pre-clinical research activities for additional product candidates . sanofi 's reimbursement of immuno-oncology research and development costs under our io license and collaboration agreement increased in 2017 , compared to 2016 and 2015 , as we advanced the cemiplimab clinical program into late-stage clinical development . other sanofi immuno-oncology revenue includes recognition of deferred revenue from $ 640.0 million of up-front payments received in
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selling expenses also include share-based compensation , salary-related expenses , product marketing and sales operations costs , and other costs incurred to support our sales efforts . general and administrative expenses also include our core corporate support functions such as human resources , finance and legal , external costs to support our core business such as insurance premiums , legal fees and other professional service fees . 64 share-based compensation historically , we granted stock options under our amended and restated equity incentive plan ( the 1999 plan ) and awards under our share tracking awards plans ( stap ) . issuance of awards under these plans was discontinued in 2015. currently , we grant stock options and restricted stock units under the united therapeutics corporation amended and restated 2015 stock incentive plan ( as amended to date , the 2015 plan ) , which provides for the issuance of up to 9,500,000 shares of our common stock , including the 450,000 shares added pursuant to an amendment and restatement of the 2015 plan approved by our shareholders in june 2019. in february 2019 , our board of directors approved the 2019 inducement stock incentive plan ( the 2019 inducement plan ) , which provides for the issuance of up to 99,000 shares of our common stock pursuant to awards granted to newly-hired employees . currently , we grant equity-based awards to employees and members of our board of directors in the form of stock options and restricted stock units under the 2015 plan , and we granted restricted stock units to newly-hired employees under the 2019 inducement plan . the grant date fair values of stock options and restricted stock units are recognized as share-based compensation expense ratably over their vesting periods . the fair value of stap awards and stock options is measured using inputs and assumptions under the black-scholes-merton model . the fair value of restricted stock units is measured using our stock price on the date of grant . although we no longer grant stap awards , we still had approximately 2.6 million stap awards outstanding as of december 31 , 2019. we account for stap awards as liabilities because they are settled in cash . as such , we must re-measure the fair value of stap awards at the end of each financial reporting period until the awards are no longer outstanding . changes in our stap liability resulting from such re-measurements are recorded as adjustments to share-based compensation expense ( benefit ) and can create substantial volatility within our operating expenses from period to period . the following factors , among others , have a significant impact on the amount of share-based compensation expense ( benefit ) recognized in connection with stap awards from period to period : ( 1 ) volatility in the price of our common stock ( specifically , increases in the price of our common stock will generally result in an increase in our stap liability and related compensation expense , while decreases in our stock price will generally result in a reduction in our stap liability and related compensation expense ) ; and ( 2 ) changes in the number of outstanding awards . future prospects we anticipate revenue growth in 2020 compared to 2019 , driven by : ( a ) continued growth in the number of patients prescribed with our treprostinil-based products , including growing orenitram revenues following the recent label expansion for orenitram to reflect the results of the freedom-ev study ; and ( b ) modest price increases ; partially offset by further generic erosion for adcirca and additional generic launches in europe . after 2020 , we do not expect to generate any revenue from sales of adcirca ( which accounted for $ 107.2 million of our revenue in 2019 ) , unless we and lilly agree to extend the term of our license agreement related to adcirca beyond its current expiration date of december 31 , 2020. we believe our pipeline of new products and potential label expansions for existing products should result in a return to revenue growth potentially as early as 2021 , although the precise timing depends on a number of factors , including factors that we can not control . refer to the risks identified in part i , item 1a—risk factors , included in this report . 65 we believe additional revenue growth beyond 2020 will be driven by commercializing six key therapeutic platforms in our pipeline , which are comprised of the enabling technologies described below : platform enabling technologies remodulin ( parenteral treprostinil ) remunity , implantable system for remodulin , trevyent , remolife , remopro tyvaso ( inhaled treprostinil ) increase study , perfect study , treprostinil technosphere orenitram ( oral treprostinil ) orenipro unituxin ( dinutuximab ) humanized dinutuximab , additional gd2-expressing tumors new chemical entities and new biologics ralinepag , lng01 , sapphire study ( gene therapy ) , unexisome organ manufacturing and transplantation xenotransplantation , three-dimensional organ printing , regenerative medicine , ex-vivo lung perfusion for further details regarding our research and development initiatives , please see item 1—business—research and development . our ability to achieve these objectives , grow our business and maintain profitability will depend on many factors , including among others : ( 1 ) the timing and outcome of preclinical research , clinical trials and regulatory approvals for products we develop ; ( 2 ) the timing and degree of our success in commercially launching new products ; ( 3 ) the demand for our products ; ( 4 ) the price of our products and the reimbursement of our products by public and private health insurance organizations ; ( 5 ) the competition we face within our industry , including competition from generic companies and new pah therapies ; ( 6 ) our ability to effectively manage our business in an increasingly complex legal and regulatory environment ; ( 7 ) our ability to defend against challenges to our patents ; and ( 8 ) the risks identified in part i , item 1a—risk factors , included in this report . story_separator_special_tag we operate in a highly competitive market in which a small number of large pharmaceutical companies control a majority of available pah therapies . these pharmaceutical companies are well established in the market and possess greater financial , technical and marketing resources than we do . in addition , there are a number of investigational products in late-stage development that , if approved , may erode the market share of our existing commercial therapies and make market acceptance more difficult to achieve for any therapies we attempt to market in the future . story_separator_special_tag allowance for sales returns ; and ( 4 ) distributor fees . these are referred to as gross-to-net deductions and are primarily based on estimates reflecting historical experiences as well as contractual and statutory requirements . we currently estimate our allowance for sales returns using reports from our distributors and available industry data , including our estimate of inventory remaining in the distribution channel . the tables below include a reconciliation of the liability accounts associated with these deductions ( in millions ) : replace_table_token_4_th 68 replace_table_token_5_th replace_table_token_6_th cost of product sales the table below summarizes cost of product sales by major category ( dollars in millions ) : replace_table_token_7_th ( 1 ) refer to share-based compensation section below for discussion . 69 cost of product sales , excluding share-based compensation . the decrease in cost of product sales of $ 84.5 million for the year ended december 31 , 2019 , as compared to the same period in 2018 , was primarily attributable to a $ 91.9 million decrease in royalty expense for adcirca as fewer bottles were sold following the onset of generic competition for adcirca beginning in august 2018. research and development the table below summarizes research and development expense by major category ( dollars in millions ) : replace_table_token_8_th ( 1 ) refer to share-based compensation section below for discussion . research and development , excluding share-based compensation . the increase in research and development project expenses of $ 812.2 million for the year ended december 31 , 2019 , as compared to the same period in 2018 , was driven by continued investment in our product pipeline , which includes multiple phase iii clinical trials in cardiopulmonary diseases and oncology as well as programs in regenerative medicine and organ manufacturing . research and development expense for the treatment of cardiopulmonary diseases increased by $ 804.4 million for the year ended december 31 , 2019 , as compared to the same period in 2018 , due to : ( 1 ) an $ 800.0 million up-front payment to arena under our licensing agreement related to ralinepag ; and ( 2 ) $ 40.3 million of expenditures associated with the phase iii advance studies of ralinepag , partially offset by a $ 30.0 million decrease in spending related to one-time payments under our licensing and research agreements with mannkind . research and development expenses for organ manufacturing projects increased by $ 14.2 million for the year ended december 31 , 2019 , as compared to the same period in 2018 , due to increased preclinical work on technologies designed to increase the supply and distribution of transplantable organs and tissues . research and development expense for cancer-related projects decreased by $ 10.9 million for the year ended december 31 , 2019 , as compared to the same period in 2018 , due to a decrease in spending on the distinct study once the study was fully enrolled in late 2018. selling , general and administrative the table below summarizes selling , general and administrative expense by major category ( dollars in millions ) : replace_table_token_9_th ( 1 ) refer to share-based compensation section below for discussion . 70 general and administrative . the increase in general and administrative expenses of $ 12.9 million for the year ended december 31 , 2019 , as compared to the same period in 2018 , primarily resulted from : ( 1 ) a $ 6.7 million increase in compensation due to an increase in staffing ; and ( 2 ) a $ 5.6 million increase in consulting expenses . share-based compensation the table below summarizes share-based compensation expense ( benefit ) by major category ( dollars in millions ) : replace_table_token_10_th the table below summarizes share-based compensation expense ( benefit ) by line item on our consolidated statements of operations ( dollars in millions ) : replace_table_token_11_th the increase in share-based compensation expense of $ 71.8 million for the year ended december 31 , 2019 , as compared to the same period in 2018 , was primarily due to : ( 1 ) a $ 53.7 million decrease in stap benefit driven by a more significant decrease in our stock price during 2018 as compared to 2019 and fewer stap awards outstanding in 2019 ; ( 2 ) a $ 12.0 million increase in stock option expense due to additional awards of options granted and outstanding in 2019 ; and ( 3 ) a $ 6.0 million increase in restricted stock unit expense due to additional awards of restricted stock units granted and outstanding in 2019. refer to note 9 —share-based compensation , to our consolidated financial statements for more information . settlement of loss contingency in december 2017 , we entered into a civil settlement agreement with the u.s. government to resolve a doj investigation related to our support of 501 ( c ) ( 3 ) organizations that provide financial assistance to patients . during the second quarter of 2017 , we recorded a $ 210.0 million accrual related to this matter , and ultimately paid this amount , plus interest , to the u.s. government upon settlement . this matter is described in more detail in note 16 —litigation—department of justice subpoena , to our consolidated financial statements .
| a small percentage of higher dose remodulin patients transitioned to generic treprostinil when the first generic version became available in 2019 , but these transitions declined to a negligible amount in the fourth quarter . after these initial transitions to generic treprostinil , u.s. patient demand for remodulin remained consistent across the second , third and fourth quarters . as new patients who started remodulin in 2019 titrate to their effective dose , and assuming the rate of patient transitions from remodulin to generic treprostinil does not materially change , we expect to see a corresponding increase in our u.s. remodulin revenues in 2020. during the fourth quarter of 2019 , one of our u.s. distributors identified a mistake in its utilization data , which caused the distributor to order more product than normal , primarily in the third quarter of 2019. specifically , we estimate that the distributor 's excess orders of remodulin , tyvaso and orenitram generated additional net sales for these products totaling $ 15.6 million , $ 10.6 million and $ 5.2 million , respectively , or $ 31.4 million in total , during the third quarter of 2019. upon the distributor 's correction of its utilization data in the fourth quarter of 2019 , the distributor reduced its purchases of our products in order to normalize its inventory levels . we estimate that this correction reduced our net sales of remodulin , tyvaso and orenitram during the fourth quarter of 2019 by $ 21.9 million , $ 14.4 million and $ 7.3 million , respectively , or $ 43.6 million in total . we believe this distributor 's inventory levels have returned to normal , and anticipate more traditional ordering patterns going forward . while this inventory fluctuation had a significant impact on our net sales during the third and fourth quarters of 2019 , the effect on full-year net revenues was negligible . 67 remodulin net product sales decreased by $ 12.0 million in 2019 as compared to 2018. u.s. remodulin net product sales decreased by $ 37.5 million , primarily due
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2019 significant transactions on june 29 , 2018 , we entered into a securities purchase agreement ( the “ spa ” ) , with jgb partners , lp , jgb capital , lp and jgb ( cayman ) finlaggan ltd. ( each , a “ purchaser ” and collectively , the “ purchasers ” ) pursuant to which we sold , in a private placement transaction ( the “ financing ” ) , for an aggregate cash purchase price of $ 10.0 million , $ 10.64 million in aggregate principal amount , of our 12.75 % original issue discount senior secured convertible debentures due june 29 , 2021 ( the “ debentures ” ) . in conjunction with the financing , we ( i ) recorded issuance costs of $ 1.0 million against the liability and ( ii ) used $ 3.5 million of the proceeds to pay off 100 % of our revolving line of credit . in february 2019 , we modified our financing with the purchasers pursuant to which we sold an additional aggregate cash purchase price of $ 3.0 million , $ 3.2 million in aggregate principal amount , of our debentures ( the “ february 2019 financing ” ) . including the february 2019 financing , we sold a cumulative cash purchase price of $ 13.0 million , $ 13.8 million in the aggregate principal amount , of our debentures to the purchasers . in june 2018 , we issued 375,835 shares of our common stock in exchange for the conversion of $ 1.1 million of our 6 % unsecured convertible notes and related accrued interest . in july 2018 , we issued 17,735 shares of our common stock in exchange for the conversion of $ 0.1 million of our 6 % unsecured convertible note and related accrued interest . in december 2018 , we expanded our scale and capabilities at the rolling loud - los angeles festival , one of the world 's largest hip-hop festivals , including ( i ) the launch of livezone , our live music news program , hosted by 8 correspondents and featured over 75 interviews with artists , ( ii ) development of new brand partnerships with kia and samsung , and ( iii ) shooting over 10 episodes of original , short-form content to be streamed on our livexlive platform . in march 2019 , we extended the maturity date of approximately $ 4.8 million of principal and accrued unsecured notes with trinad capital master fund ltd to may 31 , 2021. we ended the march 31 , 2019 year with approximately 680,000 paid subscribers on our music platform , up from approximately 450,000 at march 31 , 2018 , representing 51 % year-over-year growth since march 31 , 2018 , with slacker having over 1,300,000 maus . for the year ended march 31 , 2019 , we successfully produced and livestreamed twenty-four ( 24 ) live festivals and events , generating over 50.0 million views , 400 artists livestreamed and 350 hours of live programming . 51 2018 significant transactions during the year ended march 31 , 2018 , we issued an aggregate 0.8 million shares of our common stock in exchange for the surrender of warrants exercisable for approximately 0.8 million shares of our common stock . in march 2018 , we issued 0.7 million shares of our common stock in exchange for the conversion of $ 2.2 million of our debt and accrued interest . in may 2017 , lxl tickets entered into an asset purchase agreement with wantickets rdm , llc ( “ wantickets ” ) and certain other parties for total consideration of 0.7 million shares of our common stock valued at $ 3.3 million on the transaction date . certain assets of wantickets were acquired to strengthen and increase the scope of our music service offerings , including acquisition of customer lists . during the quarter ended december 31 , 2017 , we made the decision to shut down and discontinue the operations of lxl tickets . as a result , we recorded a loss from discontinued operations of $ 4.3 million during the fiscal year ended march 31 , 2018 . in december 2017 , we acquired slacker , inc. ( “ slacker ” ) for total purchase consideration of $ 50.1 million through ( i ) the issuance of 6.1 million shares of our common stock , valued at $ 20.1 million on the transaction date , ( ii ) 1.7 million shares of the our common stock issued to payoff certain debt of slacker as of the transaction date , valued at $ 5.5 million on the transaction date , ( iii ) cash payment of $ 2.5 million and issuance of 0.2 million shares of the company 's common stock valued at $ 0.6 million on the transaction date to slacker and its designees and ( iv ) the assumption of slacker 's liabilities of approximately $ 21.5 million . slacker was acquired to augment and diversify our music services offering . in december 2017 and january 2018 , we issued an aggregate 5.5 million shares of our common stock in an underwritten public offering ( the “ public offering ” ) for gross cash proceeds of $ 21.8 million , less direct issuance fees and costs of $ 3.3 million . in february 25 , 2018 , we entered into a five-year agreement with insomniac , the global leader in electronic dance music events , for exclusive global digital broadcast rights across all insomniac events , including up to 20 major festivals around the world and over 100 events annually . basis of presentation this following discussion and analysis of our business and results of operations and our financial conditions is presented on a consolidated basis . in addition , a brief description is provided of significant transactions and events that have an impact on the comparability of the results being analyzed . story_separator_special_tag due to our specific situation , the presented financial information for the year ended march 31 , 2019 is only partially comparable to the financial information for the year ended march 31 , 2018. the presented financial information for the year ended march 31 , 2019 includes the financial information and activities of slacker for the entire fiscal year . the presented financial information for the year ended march 31 , 2018 includes the financial information and activities of slacker for the period december 29 , 2017 to march 31 , 2018 ( 92 days ) as well as the financial information and activities of other acquisitions made in fiscal year 2018 , which included the acquisition of certain assets of wantickets by lxl tickets for the period from may 5 , 2017 to december 31 , 2017 ( 240 days ) . as of december 31 , 2017 , we elected to abandon lxl tickets operations , and the financial information herein reflects lxl tickets as discontinued operations . this lack of comparability should be taken into account when reading the discussion and analysis of our results of operations and cash flows . 52 opportunities , challenges and risks in 2019 , we derived the majority of our revenue through music subscription services , and secondarily from advertising . for the year ended march 31 , 2019 ( “ fiscal year 2019 ” ) , approximately 10 % and 90 % of our revenue was from advertising and paid customers ' subscriptions , respectively , largely from slacker . beyond fiscal year 2019 , we plan to grow our advertising revenue across our live music programming , and as a result we expect the percentage mix of advertising versus subscription revenue to be higher beginning in mid-year ending march 31 , 2020 ( “ fiscal year 2020 ” ) versus fiscal year 2019. we believe there is substantial near and long-term value in our live music content . we also believe that the monetary value of broadcasting live music follows a similar evolution to sporting events such as the national football league , major league baseball and the national basketball association , whereby sports broadcasting rights became more valuable as the demand for live sporting events increased over the past 20 years . as the thought leader in live music , we plan to acquire the broadcasting rights to as many of the top live music events and festivals that are available to us . during fiscal year ended march 31 , 2019 , we livestreamed 24 major festivals and live music events . as of may 31 , 2019 , we now have over 40 festivals and live events under agreement with terms ranging in duration from 1 to 7 years . moreover , in year ended march 31 , 2018 ( “ fiscal year 2018 ” ) we entered into a five-year agreement with insomniac , the global leader in electronic dance music events , for exclusive global digital broadcast rights across all insomniac events , including up to 20 major festivals around the world and over 100 events annually . in the near term , we will continue aggregating our digital traffic across these festivals and monetizing the live broadcasting of these events through advertising , brand sponsorships and licensing of certain broadcasting rights outside of north america . in the long term , we also plan to package , produce and broadcast our live music content on a 24/7/365 basis across our music platform and grow our paid subscribers . the long-term economics of any future agreement involving festivals , programming , production , broadcasting , streaming , advertising , sponsorships , and licensing could positively or negatively impact our liquidity , growth , margins , relationships , and ability to deploy and grow our future services with current or future customers . we believe our operating results and performance are , and will continue to be , driven by various factors that affect the music industry . our ability to attract , grow and retain users to our platform is highly sensitive to rapidly changing public music preferences and technology and is dependent on our ability to maintain the attractiveness of our platform , content and reputation to our customers . beyond fiscal year 2019 , the future revenue and operating growth across our music platform will rely heavily on our ability to grow our subscriber base , continue to develop quality music services , provide unique and attractive content to our customers , continue to grow the number of listeners on our platform and live music festivals we stream , grow and retain customers and secure sponsorships to facilitate future revenue growth from advertising and e-commerce across our platform . as our music platform continues to evolve , we believe that there are opportunities to expand our services by adding more content in a greater variety of formats , extending our distribution to include pay television and social channels , deploying new services for our subscribers such as artist merchandise and live music event ticket sales , and licensing user data across our platform . as of march 31 , 2019 , our slacker audio and livexlive video services operated on separate platforms ; however , in may 2019 we combined these services into a single platform – livexlive powered by slacker , including offering a greater variety of exclusive and unique music content across our platform . for example , we acquired slacker in december 2017 to accelerate our paid subscription platform , and secondarily to gain synergies across product development initiatives . in 2018 , we integrated resources and launched our live music streaming app across apple tv , roku and amazon fire platforms . conversely , the evolution of technology presents an inherent risk to our business . today , we see large opportunities to expand our music services within north america and other parts of the world where we will need to make substantial investments to improve our current service offerings .
| subscription revenue subscription revenue increased $ 23.9 million , or 371 % , to $ 30.4 million for the year ended march 31 , 2019 , as compared to $ 6.5 million for the year ended march 31 , 2018 due to the acquisition of slacker in the third quarter of fiscal year 2018 , which contributed a full year of activity in fiscal year 2019. cost of sales cost of sales was as follows ( in thousands ) : replace_table_token_9_th production production cost of sales increased $ 7.0 million , or 541 % , to $ 8.3 million for the year ended march 31 , 2019 , as compared to $ 1.3 million for the year ended march 31 , 2018. the increase was largely due to the number of festivals we streamed in fiscal year 2019 ( 24 ) versus fiscal year 2018 ( 5 ) , coupled with slightly higher overall cost of production as we began to add more resources and expand our production capabilities in fiscal year 2019 versus fiscal year 2018. subscription and advertising subscription cost of sales increased $ 17.5 million , or 324 % , to $ 22.9 million for the year ended march 31 , 2019 , as compared to $ 5.4 million for the year ended march 31 , 2018. the increase was due to the acquisition of slacker in the third quarter of fiscal year 2018 , which contributed a full year of activity in fiscal year 2019. other operating expenses other operating expenses were as follows ( in thousands ) : replace_table_token_10_th sales and marketing expenses sales and marketing expenses increased $ 3.9 million , or 585 % , to $ 4.5 million for the year ended march 31 , 2019 as compared to $ 0.7 million for the year ended march 31 , 2018. the increase was largely due to a $ 0.8 million increase from the acquisition of slacker in the third quarter of fiscal year 2018 , which contributed a full year of activity in fiscal year 2019 , a $ 1.9 million increase in marketing costs to support more festivals year-over-year and a $ 1.2 million increase in non-cash stock-based compensation to certain employees and non-employees . 63 product development product development expenses increased $ 6.4 million , or 405 % , to $ 8.0 million for the year ended march 31 , 2019 , as compared to $ 1.6 million for the year ended march 31 , 2018. the increase was primarily due to the acquisition of slacker in the third quarter of fiscal year 2018 , which contributed an additional $ 2.7 million during a full year of activity in fiscal year 2019 , a $ 2.2 million increase
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the all access pass allows our clients to : purchase unlimited access to our collection of best-in-class content to address their most important performance needs ; assemble , integrate , and deliver that content through any of a broad combination of delivery modalities ; have the help of our implementation specialists to design customized impact journeys ; and do so at a very attractive price per person trained . clients may utilize complete offerings such as the 7 habits of highly effective people and the 5 choices to extraordinary productivity , or use individual concepts from any of our well-known offerings to create a custom solution to fit their organizational or individual training needs . during fiscal 2017 , we invested significant capital to further develop the aap offering and increase its functionality and usefulness to our clients . we are currently translating aap materials into 15 languages and completing significant upgrades of the aap portal . these enhancements to the all access pass are expected to be launched in mid-fiscal 2018. while we anticipated that the introduction of the aap would be disruptive to our current business , especially during the transition to this new business model , we believe that the aap will provide long-term benefits to our clients and to our financial results . during the first quarter of fiscal 2017 , we decided to allow new aap agreements to receive updated content throughout the contracted period . as a result of this decision , we are required to defer substantially all all access pass revenues at the inception of the arrangements and recognize the revenue over the lives of the corresponding contracts . this decision had a significant impact on our fiscal 2017 financial statements , especially reported revenue , as we deferred significant aap contract revenues . however , we anticipate that the recognition of deferred aap sales will benefit future periods and reduce seasonal revenue fluctuations . business acquisitions in may 2017 , we acquired the assets of robert gregory partners , llc ( rgp ) , a corporate coaching firm with expertise in executive coaching , transition acceleration coaching , leadership development coaching , implementation coaching , and consulting . we recognized $ 1.2 million of sales from rgp in fiscal 2017 , and we anticipate that rgp services and methodologies will become key offerings in our training and consulting business in future periods . in july 2017 , we acquired the stock of jhana education ( jhana ) , a company that specializes in the creation and dissemination of relevant , bite-sized content and learning tools for leaders and managers . while our fiscal 2017 sales were not significantly impacted by the jhana acquisition , we anticipate that the acquired jhana content and delivery methodologies will become key features of our aap offering . 27 new china direct offices on september 1 , 2016 we opened three new sales offices in china . these offices are located in beijing , shanghai , and guangzhou . during fiscal 2017 , we recognized $ 11.0 million in sales from these new offices and we expect to see growth in fiscal 2018 and beyond as we develop our business in the china marketplace . subsequent to august 31 , 2017 , we opened another sales office in shenzhen , china . prior to fiscal 2017 , our sales operations in china were managed by an independent licensee partner . acquisition of intellectual property license rights during fiscal 2017 , we acquired the license rights for certain intellectual property owned by higher moment , llc . the intellectual property is in part based on works authored and developed by dr. clayton christensen , a well-known author and lecturer , who is a member of our board of directors . as we seek to expand the content and offerings available on the all access pass , we anticipate additional purchases of intellectual property licenses in future periods . the following is a description of the impact that these developments had on our financial results for the fiscal year ended august 31 , 2017. financial overview as previously mentioned , the decision to allow new aap contracts to receive updated content over the lives of the arrangements had a significant impact on our fiscal 2017 financial results as we were required to defer substantially all aap revenues at the inception of the contracts and recognize the revenue over the lives of the arrangements . this change resulted in less recognized sales during fiscal 2017 compared with fiscal 2016 and increased deferred revenue on our balance sheet . since its introduction in the first quarter of fiscal 2016 , aap and aap add-on amounts invoiced have grown steadily on a year-over-year basis , from $ 23.2 million in fiscal 2016 to $ 63.1 million in fiscal 2017 , including unbilled deferred revenue from multi-year contracts as described below . at times we may invoice our clients in advance of the renewal service period , and depending upon the timing of aap expansions and upgrades , renewal invoices may occur in a different quarter than the original invoice . we believe that the transition to the all access pass will provide significant future benefits to us as the average client sales size is expected to increase , the retention rate of our clients improves , the ability to reach additional customers expands , and clients realize greater value to their organizations through access to expanded content and purchase additional services and training materials . however , the change to the aap-focused business model has required a significant transition both operationally , as our sales force adapts its sales strategy , and from an accounting and reporting point of view . operationally , the aap sales cycle is typically longer than previous transactional type sales for revenues such as facilitator and onsite contracts . we believe this change reflects the strategic nature of the aap sale and the need for additional approvals at our clients . story_separator_special_tag during fiscal 2017 , we also restructured our sales force in the united states and canada into teams that are designed to focus on the sale and support of aap arrangements . we believe that fiscal 2018 will provide an inflection point in our financial operations when compared with fiscal 2017 results . as we recognize previously deferred aap sales , continue to realize a similar dollar value of aap renewals , and attract new clients , we believe that our financial results will improve over fiscal 2017 results . during the fourth quarter of fiscal 2017 , we also introduced the opportunity for clients to purchase multi-year aap contracts . at august 31 , 2017 we had $ 16.5 million of unbilled deferred revenue , which represents business that is contracted but unbilled and excluded from our balance sheet . we believe that multi-year contractual arrangements will provide value to our clients and a more predictable revenue stream for the company . 28 including the factors noted above , our net sales in fiscal 2017 were $ 185.3 million compared with $ 200.1 million in fiscal 2016 , and $ 209.9 million in fiscal 2015. deferred revenues on our balance sheet increased $ 20.7 million from august 31 , 2016 , to a total of $ 41.5 million at august 31 , 2017. our fiscal 2017 fourth-quarter sales remained strong and totaled $ 59.5 million , which excludes a significant deferral of invoiced aap contracts and multi-year contracts as described above . the following table sets forth consolidated sales data by category and by our primary delivery channels ( in thousands ) : replace_table_token_3_th our gross profit in fiscal 2017 totaled $ 122.7 million , compared with $ 135.2 million in the prior year . the decrease in gross profit was primarily due to sales activity as described above , and our decision to exit the publishing business in japan during the third quarter of fiscal 2017. our gross margin , which is gross profit as a percent of sales , was 66.2 percent compared with 67.6 percent in fiscal 2016. excluding the impact of the charge to exit the japan publishing business , which totaled $ 2.1 million , our gross margin was 67.4 percent for the fiscal year ended august 31 , 2017. our operating expenses increased $ 10.2 million compared with fiscal 2016 , primarily due to a $ 7.6 million increase in selling , general , and administrative ( sg & a ) expenses ; $ 1.5 million of contract termination costs ; $ 0.7 million of increased restructuring costs ; and $ 0.5 million of increased depreciation and amortization expense . the increase in sg & a expenses was primarily related to opening three new sales offices in china ; the addition of new sales and sales support personnel and increased travel to promote the aap and new china offices ; increased computer software costs primarily related the installation of a new enterprise resource planning ( erp ) system ; and increased non-cash stock-based compensation expense . these increases were partially offset by a $ 1.9 million decrease in contingent consideration costs resulting from a prior period business acquisition . as a result of the factors noted above , our loss from operations in fiscal 2017 was $ ( 8.9 ) million , compared with income of $ 13.8 million in the prior year . pre-tax loss for fiscal 2017 was $ ( 10.9 ) million compared with pre-tax income of $ 11.9 million in fiscal 2016. our effective income tax benefit rate was approximately 34 percent in fiscal 2017 compared with an income tax rate of approximately 41 percent in fiscal 2016. our income tax benefit was $ 3.7 million in fiscal 2017 compared with an income tax provision of $ 4.9 million in fiscal 2016. net loss for fiscal 2017 was $ ( 7.2 ) million in fiscal 2017 , or $ ( .52 ) per share , compared with $ 7.0 million of net income , or $ .47 per diluted share , in fiscal 2016. further details regarding these items can be found in the comparative analysis of fiscal 2017 with fiscal 2016 as discussed within this management 's discussion and analysis . during fiscal 2017 , we invested our available cash and proceeds from our secured credit facility to make substantial and significant investments in our business that we believe will drive results and provide benefits in future periods . we invested $ 7.3 million of cash to acquire rgp and jhana during the last half of fiscal 2017 ; we used $ 7.2 million of cash to purchase property and equipment , which was primarily comprised of software for our new erp system and a significant upgrade to our aap portal ; and we invested $ 6.5 million in new curriculum development , including the translation of aap content into 15 languages . we currently anticipate that the new erp system and upgraded aap portal will be completed and placed into service in fiscal 2018 . 29 our liquidity position remained healthy during fiscal 2017 and we had $ 8.9 million of cash and cash equivalents at august 31 , 2017 , with $ 25.6 million of remaining credit available on our revolving credit facility , compared with $ 10.5 million of cash at august 31 , 2016. during fiscal 2017 we also converted $ 10.0 million of borrowings on our revolving credit facility into term loans . at august 31 , 2017 , we had $ 19.1 million payable on term loans to the lender on our secured credit facility . our primary source of cash is our ongoing business operations . historically , we have funded our operations , business acquisitions , capital purchases , curriculum development , and share repurchases from our operating activities and from our long-term revolving line of credit facility .
| we spent $ 7.3 million of cash to acquire the businesses of robert gregory partners , llc , and jhana education during the last half of fiscal 2017. we used $ 7.2 million of cash for purchases of property and equipment in fiscal 2017 , primarily for software and hardware related to our new erp system and significantly upgraded all access pass portal . the new erp system and aap portal are expected to be completed and launched during fiscal 2018. we also spent $ 6.5 million of cash to develop additional offerings primarily related to the aap , including the translation of aap materials into additional languages , and the leader in me courses offered through our education 38 segment . in addition to these uses of cash for investing activities , we also spent $ 5.4 million to purchase shares of our common stock on both the open market and from shares withheld on vested stock-based incentive awards . for further information on these investments in our business during fiscal 2017 , refer to the discussions under `` cash flows from investing activities '' and `` cash flows from financing activities '' found later in this analysis of liquidity and capital resources . our cash balance at august 31 , 2017 was $ 8.9 million , with $ 25.6 million of available credit on our secured credit agreement , compared with $ 10.5 million of cash at august 31 , 2016. during fiscal 2017 we also converted $ 10.0 million of borrowings on our secured credit facility into term loans . at august 31 , 2017 , we had $ 19.1 million payable on term loans to the lender on our secured credit facility . our net working capital ( current assets less current liabilities ) was $ 11.2 million at august 31 , 2017 compared with $ 35.7 million at august 31 , 2016. the reduction in our net working capital was primarily due to a $ 20.7 million increase in deferred revenues resulting primarily from increased aap sales , and borrowings used in fiscal 2017 to invest in our business as described above . of our $ 8.9 million in cash
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we have also entered into distribution agreements with respect to calvin klein luggage in a limited number of countries in asia , europe and north america . commencing april 1 , 2012 , we have operated under an expanded five year license agreement with the national football league to manufacture and market men 's and women 's outerwear , sportswear , and swimwear products in the united states under a variety of nfl trademarks . in may 2011 , we entered into two new agreements with the camuto group , expanding our relationship with camuto to include licenses for dresses and men 's outerwear . dresses under the camuto label begin shipping for spring 2012. in june 2011 , we also expanded our product categories with tommy hilfiger to include luggage , which began shipping in august 2011. in november 2011 , we entered into a license agreement to develop sportswear , dresses , tailored clothing , active wear and sweaters under the kensie and mac & jac brands for the u.s. and canadian markets . in december 2011 , we added licenses under these brands for women 's handbags and women 's cold weather accessories . we began shipping kensie sportswear in the first quarter of fiscal 2013 and began shipping kensie dresses in july 2012. in december 2011 , we entered into a license agreement that expanded our jessica simpson products to include women 's outerwear . we began shipping jessica simpson outerwear for the fall 2012 season . in december 2012 , we entered into a license agreement covering a broad range of women 's apparel under the ivanka trump brand . we expect to begin shipping ivanka trump apparel by the fourth quarter of fiscal 2014. in april 2013 , we entered into a license agreement for men 's and women 's swimwear under the calvin klein brand . this license agreement is effective as of december 1 , 2013 and we expect to begin shipping swimwear under this agreement for the spring 2014 season . we believe that consumers prefer to buy brands they know and we have continually sought licenses that would increase the portfolio of name brands we can offer through different tiers of retail distribution , for a wide array of products and at a variety of price points . we believe that brand owners will look to consolidate the number of licensees they engage to develop product and they will seek licensees with a successful track record of expanding brands into new categories . it is our objective to continue to expand our product offerings and we are continually discussing new licensing opportunities with brand owners . our retail operations segment consists almost entirely of our wilsons retail store business , substantially all of which are operated as outlet stores . we believe that operation of the wilsons stores is part of our core competency , as outerwear comprised about one-half of our net sales at wilsons in fiscal 2013. during fiscal 2013 , we increased the number of our wilson stores by 5 and , as of january 31 , 2013 , operated 145 wilsons stores and 4 andrew marc stores . we expect to add approximately 20 new stores in fiscal 2014 . 32 in november 2011 , we entered into a license agreement granting us the retail rights to distribute and market calvin klein women 's performance apparel in the united states and china . we opened our first calvin klein performance store in scottsdale , arizona in february 2012 and opened a second store in san francisco , california in may 2012. in march 2012 , we entered into a joint venture agreement , in which we own 51 % , with finity apparel retail limited to open and operate calvin klein performance retail stores in mainland china and hong kong . the joint venture began operating retail locations in major chinese markets in fall 2012. we consolidate the results of operations of this joint venture in our financial statements . in october 2012 , we sold back our 50 % interest in the joint venture that had operated 11 outlet stores under the vince camuto name to the camuto group for an amount approximating our carrying cost . our interest in this joint venture was accounted for by the equity method . trends significant trends that affect the apparel industry include increases in raw material , manufacturing and transportation costs , the continued consolidation of retail chains and the desire on the part of retailers to consolidate vendors supplying them . during fiscal 2012 , we and other apparel manufacturers experienced increases in raw material prices and other costs . these conditions moderated during fiscal 2013. retailers are seeking to expand the differentiation of their offerings by devoting more resources to the development of exclusive products , whether by focusing on their own private label products or on products produced exclusively for a retailer by a national brand manufacturer . retailers are placing more emphasis on building strong images for their private label and exclusive merchandise . exclusive brands are only made available to a specific retailer , and thus customers loyal to their brands can only find them in the stores of that retailer . a number of retailers are experiencing financial difficulties , which in some cases has resulted in bankruptcies , liquidations and or store closings . the financial difficulties of a retail customer of ours could result in reduced business with that customer . we may also assume higher credit risk relating to receivables of a retail customer experiencing financial difficulty that could result in higher reserves for doubtful accounts or increased write-offs of accounts receivable . we attempt to lower credit risk from our customers by closely monitoring accounts receivable balances and shipping levels , as well as the ongoing financial performance and credit standing of customers . story_separator_special_tag we have attempted to respond to these trends by continuing to focus on selling products with recognized brand equity , by attention to design , quality and value and by improving our sourcing capabilities . we have also responded with the strategic acquisitions made by us and new license agreements entered into by us that have added additional licensed and proprietary brands and helped diversify our business by adding new product lines , additional distribution channels and a retail component to our business . we believe that our broad distribution capabilities help us to respond to the various shifts by consumers between distribution channels and that our operational capabilities will enable us to continue to be a vendor of choice for our retail partners . use of estimates and critical accounting policies the preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period . significant accounting policies employed by us , including the use of estimates , are presented in the notes to our consolidated financial statements . critical accounting policies are those that are most important to the portrayal of our financial condition and our results of operations , and require management 's most difficult , subjective and complex judgments , as a result of the need to make estimates about the effect of matters that are inherently uncertain . our most critical accounting estimates , discussed below , pertain to revenue recognition , accounts receivable , inventories , income taxes , goodwill and intangible assets and equity awards . in determining these estimates , management must use amounts that are based upon its informed judgments and best estimates . on an on-going basis , we evaluate our estimates , 33 including those related to customer allowances and discounts , product returns , bad debts and inventories , and carrying values of intangible assets . we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances . the results of these estimates form the basis for 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 and conditions . revenue recognition goods are shipped to retailers in accordance with specific customer orders . we recognize wholesale sales when the risks and rewards of ownership have transferred to the customer , determined by us to be when title to the merchandise passes to the customer . in addition , we act as an agent in brokering sales between customers and overseas factories . on these transactions , we recognize commission fee income on sales that are financed by and shipped directly to our customers . title to goods shipped by overseas vendors , transfers to customers when the goods have been delivered to the customer . we recognize commission income upon the completion of the delivery by our vendors to the customer . we recognize retail sales upon customer receipt of our merchandise , generally at the point of sale . our sales are recorded net of applicable sales tax . net sales take into account reserves for returns and allowances . we estimate the amount of reserves and allowances based on current and historical information and trends . sales are reported net of returns , discounts and allowances . discounts , allowances and estimates of future returns are recognized when the related revenues are recognized . accounts receivable in the normal course of business , we extend credit to our wholesale customers based on pre-defined credit criteria . accounts receivable , as shown on our consolidated balance sheet , are net of allowances and anticipated discounts . in circumstances where we are aware of a specific customer 's inability to meet its financial obligation ( such as in the case of bankruptcy filings , extensive delay in payment or substantial downgrading by credit sources ) , a specific reserve for bad debts is recorded against amounts due to reduce the net recognized receivable to the amount reasonably expected to be collected . for all other wholesale customers , an allowance for doubtful accounts is determined through analysis of the aging of accounts receivable at the date of the financial statements , assessments of collectability based on historical trends and an evaluation of the impact of economic conditions . an allowance for discounts is based on reviews of open invoices where concessions have been extended to customers . costs associated with allowable deductions for customer advertising expenses are charged to advertising expenses in the selling , general and administrative section of our consolidated statements of income . costs associated with markdowns and other operational charge backs , net of historical recoveries , are included as a reduction of net sales . all of these are part of the allowances included in accounts receivable . we reserve against known charge backs , as well as for an estimate of potential future deductions by customers . these provisions result from seasonal negotiations with our customers as well as historical deduction trends , net of historical recoveries and the evaluation of current market conditions . inventories wholesale inventories are stated at lower of cost ( determined by the first-in , first-out method ) or market . the cost elements included in inventory consist of all direct costs of merchandise , inbound freight and merchandise acquisition costs such as commissions and import fees . retail inventories are valued at the lower of cost or market as determined by the retail inventory method . retail inventory cost includes the cost of merchandise , inbound freight , duty and other merchandise-specific charges . vilebrequin inventories are stated at the lower of cost ( determined by the weighted average method ) or market .
| the gross profit percentage in our licensed products segment improved due to our new kensie division which realized higher than average gross margins , as well as increased penetration of our calvin klein women 's suits and sportswear in higher margin department stores . the gross profit percentage in our non-licensed products segment was 27.8 % in fiscal 2013 compared to 26.0 % in the prior year . the gross profit percentage in our non-licensed products segment improved due to our new vilebrequin business which realized higher gross margins than other portions of our non-licensed business . the gross profit percentage for our retail operations segment was 47.8 % for fiscal 2013 compared to 46.0 % for the prior year . gross profit percentage for the retail operations segment was positively impacted by less promotional activity and a higher margin product mix . selling , general and administrative expenses increased to $ 341.2 million , or 24.4 % of net sales , in fiscal 2013 from $ 277.0 million , or 22.5 % of net sales , in the prior year . the increase in these expenses is primarily a 36 result of increases in personnel costs ( $ 28.2 million ) , advertising and promotion expenses ( $ 10.6 million ) , third party warehousing ( $ 7.5 million ) and professional fees ( $ 5.9 million ) . personnel costs increased primarily as a result of the addition of our new vilebrequin business , an increase in staffing to support growth in our calvin klein businesses , and an increase in personnel to staff additional retail stores in our retail segment . advertising costs increased due to increased cooperative advertising with our customers , as well as increased cooperative advertising directly purchased by us . third party warehousing costs increased as a result of our increased shipping volume , as well as storage costs resulting from our higher inventory levels compared to the same period last year . professional fees increased primarily due to expenses associated with the acquisition of vilebrequin . depreciation and amortization increased to $ 9.9 million in fiscal 2013 from $ 7.5 million in the prior year primarily as a result of depreciation and amortization related
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we believe our product launch process attracts new customers and sales leaders to our business , increases consumer trial and provides important marketing and forecasting information about the products to our company . income statement presentation we report revenue in seven segments , and we translate revenue from each market 's local currency into u.s. dollars using weighted-average exchange rates . the following table sets forth revenue information by segment for the periods indicated . this table should be reviewed in connection with the information presented under “ results of operations , ” which describes selling expenses and other costs associated with generating the aggregate revenue presented . -53- revenue by segment replace_table_token_6_th cost of sales primarily consists of : cost of products purchased from third-party vendors ; costs of self-manufactured products ; cost of adjustments to inventory carrying value ; freight cost of shipping products to our sales force and import duties for the products ; and royalties and related expenses for licensed technologies . we source the majority of our products from third-party vendors . under direct selling regulations in mainland china , we are required to manufacture the products we distribute through independent direct sellers in mainland china . we also recently acquired three companies in the united states that are producing some of our products . cost of sales and gross profit , on a consolidated basis , may fluctuate as a result of changes in the ratio between self-manufactured products and products sourced from third-party vendors . in addition , because we purchase a significant amount of our goods in u.s. dollars and recognize revenue in local currencies , our gross margin is subject to exchange rate risks . because our gross margins vary from product to product and due to higher pricing in some markets , changes in product mix and geographic revenue mix can impact our gross margin on a consolidated basis . selling expenses are our most significant expense and are classified as operating expenses . selling expenses include sales commissions paid to our sales force , special incentives , costs for incentive trips and other rewards , as well as wages , benefits , bonuses and other labor and unemployment expenses we pay to our sales force in mainland china . selling expenses do not include amounts we pay to our sales force based on their personal purchases ; rather , such amounts are reflected as reductions to revenue . our global sales compensation plan , which we employ in all our markets except mainland china , is an important factor in our ability to attract and retain our sales leaders . under our global sales compensation plan , sales leaders can earn “ multi-level ” compensation , where they earn commissions for product sales to their consumer groups as well as the product sales made through the sales network they have developed and trained . we do not pay commissions on sales materials . fluctuations occur in the amount of commissions paid as the customers and sales leaders change from month to month , but the fluctuation in the overall payout as a percentage of revenue tends to be relatively small . selling expenses as a percentage of revenue typically increase in connection with a significant product offering due to growth in the number of sales leaders qualifying for increased sales compensation and promotional incentives . from time to time , we make modifications and enhancements to our global sales compensation plan in an effort to help motivate our sales force and develop leadership characteristics , which can have an impact on selling expenses . for example , in the fourth quarter of 2017 , we began to implement significant enhancements to our global sales compensation plan , which we have now rolled out across most of our markets . one of the changes is a new bonus program for our sales force , which has an increasing effect on our selling expenses as a percentage of revenue . -54- outside of mainland china , distributors also have the opportunity to make profits by purchasing products from us at a discount and selling them to consumers with a mark-up . we do not account for , nor pay , additional commissions on these mark-ups received by distributors . in many markets , we also allow individuals who are not part of our sales force , whom we refer to as “ preferred customers , ” to buy products directly from us at a discount . we pay commissions on preferred customer purchases to the referring member of our sales force . general and administrative expenses include : wages and benefits ; rents and utilities ; depreciation and amortization ; promotion and advertising ; professional fees ; travel ; research and development ; and other operating expenses . labor expenses are the most significant portion of our general and administrative expenses . promotion and advertising expenses include costs of sales force conventions held in various markets worldwide , which we generally expense in the period in which they are incurred . because our various sales force conventions are not held during each fiscal year , or in the same period each year , their impact on our general and administrative expenses may vary from year to year and from quarter to quarter . for example , we held our global convention in october 2017 and will have another global convention in the fall of 2019 as we currently plan to hold a global convention every other year . in addition , we hold regional conventions and conventions in our major markets at different times during the year . these conventions have significant expenses associated with them . because we have not incurred expenses for these conventions during every fiscal year or in comparable interim periods , year-over-year comparisons have been impacted accordingly . provision for income taxes depends on the statutory tax rates in each of the jurisdictions in which we operate . story_separator_special_tag for example , statutory tax rates in 2018 were approximately 16.5 % in hong kong , 20.0 % in taiwan , 22.35 % in south korea , 35.88 % in japan and 25 % in mainland china . we are subject to taxation in the united states at the statutory corporate federal tax rate of 21 % in 2018 , and we pay taxes in multiple states within the united states at various tax rates . our overall effective tax rate was 44.5 % for the year ended december 31 , 2018 . -55- critical accounting policies the following critical accounting policies and estimates should be read in conjunction with our audited consolidated financial statements and related notes thereto . management considers our critical accounting policies to be the recognition of revenue , accounting for income taxes and accounting for intangible assets . in each of these areas , management makes estimates based on historical results , current trends and future projections . revenue . revenue is measured as the amount of consideration we expect to receive in exchange for transferring products . all revenue is recognized when we satisfy our performance obligations under the contract . we recognize revenue by transferring the promised products to the customer , with revenue recognized at shipping point , the point in time the customer obtains control of the products . we recognize revenue for shipping and handling charges at the time the products are delivered to or picked up by the customer . in most markets , we offer a return policy that allows our sales force to return unopened and unused product for up to 12 months subject to a 10 % restocking fee . reported revenue is net of returns , which have historically been less than 5 % of annual revenue . the majority of the company 's contracts have a single performance obligation and are short term in nature . sales taxes and value added taxes in foreign jurisdictions that are collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from net sales . through our product subscription and loyalty programs , which vary from market to market , participants who commit to purchase on a monthly basis receive a discount from suggested retail or wholesale prices , as applicable . we account for this discount as a reduction in the transaction price . participants may cancel their commitment at any time , however some markets charge a one-time early cancellation fee . all purchases under these programs are subject to our standard product payment and return policies . income taxes . we account for income taxes in accordance with the income taxes topic of the financial accounting standards codification . this topic establishes financial accounting and reporting standards for the effects of income taxes that result from an enterprise 's activities during the current and preceding years . we take an asset and liability approach for financial accounting and reporting of income taxes . we pay income taxes in many foreign jurisdictions based on the profits realized in those jurisdictions , which can be significantly impacted by terms of intercompany transactions between nu skin affiliates around the world . deferred tax assets and liabilities are created in this process . as of december 31 , 2018 , we had net deferred tax assets of $ 19.1 million . we net these deferred tax assets and deferred tax liabilities by jurisdiction . valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be ultimately realized . these deferred tax assets assume sufficient future earnings will exist for their realization , and are calculated using anticipated tax rates . in certain jurisdictions , valuation allowances have been recorded against the deferred tax assets specifically related to use of foreign tax credits , research and development credits , interest expense limitations , and net operating losses . when we determine that there is sufficient taxable income to utilize the foreign tax credits , the research and development credits , the interest expense limitation , or the net operating losses , the valuation allowances will be released . in the event we were to determine that we would not be able to realize all or part of our deferred tax assets in the future , an adjustment to the deferred tax assets would be charged to earnings in the period such determination was made . we evaluate our indefinite reinvestment assertions with respect to foreign earnings for each period . other than earnings we intend to reinvest indefinitely , we accrue for the u.s. federal and state income taxes applicable to the earnings . for all foreign earnings , we accrue the applicable foreign income taxes . we intend to utilize the offshore earnings to fund foreign investments , specifically capital expenditures . undistributed earnings that we have indefinitely reinvested aggregate to $ 60.0 million as of december 31 , 2018. if this amount were repatriated to the united states , the amount of incremental taxes would be approximately $ 6.0 million . -56- the company files income tax returns in the u.s. federal jurisdiction , and in various state and foreign jurisdictions . the company is no longer subject to tax examinations from the irs for all years for which tax returns have been filed before 2015. with a few exceptions , we are no longer subject to state and local income tax examination by tax authorities for the years before 2016. in 2009 , we entered into a voluntary program with the irs called compliance assurance process ( “ cap ” ) . the objective of cap is to contemporaneously work with the irs to achieve federal tax compliance and resolve all or most of the issues prior to filing of the tax return . we have elected to participate in the cap program for 2019 and may elect to continue participating in cap for future tax years ; we may withdraw from the program at any time .
| general and administrative expenses general and administrative expenses increased to $ 564.5 million in 2017 , compared to $ 554.2 million in 2016. as a percentage of revenue , this represents a small decrease to 24.8 % compared to 25.1 % in 2016. other income ( expense ) , net other income ( expense ) , net for 2017 was $ 8.9 million of expense compared to $ 18.3 million of expense in 2016. this decrease in expense reflects a 2016 foreign currency translation expense of $ 11.1 million that resulted primarily from the strengthening of the japanese yen against the u.s. dollar and its impact on our japanese yen-denominated debt and liabilities . the year-over-year decrease caused by this 2016 expense was partially offset by a $ 6.6 million increase in interest expense in 2017 , primarily due to the convertible notes that we issued in june 2016. provision for income taxes provision for income taxes increased to $ 136.1 million in 2017 from $ 69.8 million in 2016. the effective tax rate increased to 51.3 % of pre-tax income in 2017 from 32.8 % in 2016. the increase in the effective tax rate primarily reflects the impact of the tax cuts and jobs act ( the “ tax reform act ” ) , which was enacted in the united states in december 2017. the tax reform act contains significant changes to corporate taxation , including reduction of the united states corporate tax rate from 35 % to 21 % . as a result of the tax reform act , we recorded a $ 52.0 million valuation allowance on our foreign tax credit carryover . in addition , we recognized $ 7.3 million in additional tax expense for previously indefinitely reinvested earnings . the valuation allowance and additional expense was partially offset by an $ 11.6 million benefit due to the write-off and remeasurement of net deferred tax liabilities . net income as a result of the foregoing factors , net income in 2017 decreased to $ 129.4 million , compared to $ 143.1 million in 2016 . -68- liquidity and capital resources historically , our principal uses of cash have included operating expenses ( particularly selling expenses ) and working capital ( principally inventory purchases ) , as well as capital expenditures , stock repurchases , dividends , debt repayment and the development of operations in new markets . we have at times incurred long-term debt , or drawn on our revolving line of credit , to fund strategic transactions and stock repurchases . we
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we continue to monitor the impact of the outbreak of covid-19 on our business , including how it may impact our customers , employees , supply chain and distribution network and to take action , as appropriate , to address these circumstances . in some areas around the world , government mandates have been lifted and economic conditions have improved in certain sectors of the economy relative to 2020. meanwhile , some regions have experienced increasing numbers of covid-19 cases , and if this continues and if public authorities intensify efforts to contain the spread of covid-19 , normal business activity may be further disrupted , and economic conditions could weaken . foreign currency rates may continue to be volatile through 2021 and changes in interest rates could adversely impact reported results . we expect cash flow from operating activities to continue to be positive for 2021. ferro is well-positioned with existing products and technology expertise and continues to invest in r & d to support our customers . factors that could adversely affect our future performance include those described under the heading “ risk factors ” in item 1a of part i of this annual report on form 10-k for the year ended december 31 , 20 20 . 22 results of operations - consolidated comparison of the years ended december 31 , 2020 and 2019 for the year ended december 31 , 2020 , net income from continuing operations was $ 30.0 million , compared with $ 34.8 million in 2019. for the year ended december 31 , 2020 , net income attributable to common shareholders was $ 42.8 million , or $ 0.52 earnings per share , compared with $ 6.0 million , or $ 0.07 earnings per share in 2019. the increase in net income attributable to shareholders is primarily due to impairment charges of $ 42.5 million associated with the tile coatings business , recorded within net income ( loss ) from discontinued operations , during the prior year . net sales replace_table_token_3_th net sales decreased by $ 55.5 million , or 5.5 % , in the year ended december 31 , 2020 , compared with 2019 , with decreased sales in functional coatings and color solutions of $ 36.6 million and $ 18.9 million , respectively . gross profit gross profit decreased $ 14.2 million , or 4.6 % , in 2020 to $ 293.8 million , compared with $ 308.0 million in 2019 and , as a percentage of net sales , it increased 20 basis points to 30.6 % . the decrease in gross profit was attributable to a decrease in functional coatings of $ 17.1 million , partially mitigated by an increase in color solutions of $ 4.1 million . the decrease in gross profit was primarily attributable to lower sales volumes and mix of $ 30.8 million , unfavorable foreign currency impacts of $ 2.1 million and higher manufacturing and product costs of $ 1.1 million , partially mitigated by lower raw material costs of $ 15.7 million and favorable product pricing of $ 4.1 million . geographic revenues the following table presents our sales on the basis of where sales originated . replace_table_token_4_th the decrease in net sales of $ 55.5 million , compared with 2019 , was driven by lower sales in the emea , united states and latin america regions , partially mitigated by higher sales in the asia pacific region . the decrease in sales from emea was attributable to lower sales in functional coatings and color solutions of $ 28.1 million and $ 7.7 million , respectively . the decrease in sales from the united states was attributable to lower sales in color solutions and functional coatings of $ 15.3 million and $ 2.5 million , respectively . the decrease in sales from latin america was attributable to lower sales in functional coatings of $ 5.2 million , partially mitigated by higher sales in color solutions of $ 1.4 million . the increase in sales from asia pacific was attributable to higher sales in color solutions of $ 2.7 million , partially offset by lower sales in functional coatings of $ 0.8 million . 23 selling , general and administrative expense the following table includes sg & a components with significant changes between 2020 and 2019 : replace_table_token_5_th sg & a expenses were $ 10.0 million lower in 2020 compared with 2019. as a percentage of net sales , sg & a expenses increased 20 basis points from 20.9 % in 2019 to 21.1 % in 2020. the lower sg & a expenses compared with the prior year were primarily driven by lower personnel and research and development expenses , partially offset by higher incentive compensation and business development expenses . the following table presents sg & a expenses attributable to sales , research and development , and operations costs as strategic services and presents other sg & a costs as functional services . replace_table_token_6_th restructuring and impairment charges replace_table_token_7_th restructuring and impairment charges increased $ 6.5 million in 2020 , compared with 2019. the increase primarily relates to costs associated with our global optimization and organizational optimization plans , compared with the prior-year same period . refer to note 15 to the consolidated financial statements under item 8 of this annual report on form 10-k for a discussion of our optimization plans and related costs . interest expense replace_table_token_8_th interest expense in 2020 decreased $ 2.4 million compared with 2019. the decrease in interest expense was primarily due to a decrease in the average interest rate , partially offset by an increase in the average long-term debt balance during 2020 . story_separator_special_tag 24 income tax expense in 2020 , we recorded an income tax expense of $ 14.9 million , or 33.1 % of income before income taxes , compared to an income tax expense of $ 8.0 million , or 18.6 % of income before income taxes in 2019. the 2020 effective tax rate is greater than the statutory income tax rate of 21 % primarily as a result of the net effect of a $ 3.2 million expense related to foreign tax rate differences and a $ 2.0 million expense related to disallowed expenses . the 2019 effective tax rate is less than the statutory income tax rate of 21 % primarily as a result of a net effect of a $ 7.6 million net benefit related to the release of valuation allowances related to deferred tax assets that were utilized in the current year and which are deemed no longer necessary based upon changes in the current and expected future years of operating profits and a $ 4.3 million net expense related to foreign tax rate differences . comparison of the years ended december 31 , 2019 and 2018 for the year ended december 31 , 2019 , net income from continuing operations was $ 34.8 million , compared with $ 56.1 million in 2018. for the year ended december 31 , 2019 , net income attributable to common shareholders was $ 6.0 million , or $ 0.07 earnings per share , compared with $ 80.1 million , or $ 0.95 earnings per share in 2018. net sales replace_table_token_9_th net sales decreased by $ 60.2 million , or 5.6 % , in the year ended december 31 , 2019 , compared with 2018 , with decreased sales in functional coatings and color solutions of $ 38.9 million and $ 21.3 million , respectively . gross profit gross profit decreased $ 30.4 million , or 9.0 % , in 2019 to $ 308.0 million , compared with $ 338.4 million in 2018 and , as a percentage of net sales , it decreased 110 basis points to 30.4 % . the decrease in gross profit was attributable to decreases in both of our segments , with decreases in functional coatings and color solutions of $ 18.4 million and $ 9.9 million , respectively . the decrease in gross profit was primarily attributable to lower sales volumes and mix of $ 31.4 million , higher manufacturing and product costs of $ 15.7 million and unfavorable foreign currency impacts of $ 8.9 million , partially offset by lower raw material costs of $ 13.5 million , gross profit from acquisitions of $ 6.6 million and favorable product pricing of $ 5.5 million . geographic revenues the following table presents our sales on the basis of where sales originated . replace_table_token_10_th the decrease in net sales of $ 60.2 million , compared with 2018 , was driven by lower sales across all regions . the decrease in sales from emea was attributable to lower sales in functional coatings and color solutions of $ 28.9 million and $ 5.2 million , respectively . the decrease in sales from the united states was attributable to lower sales in color solutions and functional coatings of $ 11.1 million and $ 9.5 million , respectively . the decrease in sales from asia pacific was attributable to lower sales in color solutions of $ 4.1 million , which was partially mitigated by higher sales in functional coatings of $ 1.2 million . the decrease in sales from latin america was attributable to lower sales in functional coatings and color solutions of $ 1.7 million and $ 0.9 million , respectively . 25 selling , general and administrative expense the following table includes sg & a components with significant changes between 2019 and 2018. replace_table_token_11_th sg & a expenses were $ 7.3 million lower in 2019 compared with 2018. as a percentage of net sales , sg & a expenses increased 50 basis points from 20.4 % in 2018 to 20.9 % in 2019. the lower sg & a expenses compared with the prior year were primarily driven by lower incentive and stock-based compensation . the decrease in incentive compensation is the result of the company 's performance relative to targets for certain awards compared to 2018 and the decrease in stock-based compensation expense of $ 1.0 million is the result of the company 's performance relative to targets for certain awards compared with the prior year , as well as decreases in the company 's stock price . the following table presents sg & a expenses attributable to sales , research and development , and operations costs as strategic services and presents other sg & a costs as functional services . replace_table_token_12_th restructuring and impairment charges replace_table_token_13_th restructuring and impairment charges increased $ 3.8 million in 2019 , compared with 2018. the increase primarily relates to higher employee costs associated with our recent optimization programs in 2019. during the second and third quarters of 2019 , the company recorded $ 9.0 million of goodwill impairment charges related to our tile coatings business , which was historically recorded within our performance coatings reportable segment . the goodwill impairment charge recorded was a result of the finalization of purchase accounting of the recent quimicer , fmu , and gardenia acquisitions that changed the carrying amount of net assets attributable to the reporting unit that represented an impairment indicator . based on our 2019 annual impairment test performed as of october 31 , 2019 , the company recorded additional goodwill impairment charges of $ 33.5 million associated with the tile coatings business . the impairment charge and related assets are recorded within discontinued operations and as assets held-for-sale , respectively , in our consolidated financial statements as of december 31 , 2019 .
| reductions in actual or projected growth or profitability at our reporting units due to unfavorable market conditions or significant increases in cost structure could lead to the impairment of any related goodwill . additionally , an increase in inflation , interest rates or the risk-adjusted , weighted-average cost of capital could also lead to a reduction in the fair value of one or more of our reporting units and therefore lead to the impairment of goodwill . during the second and third quarters of 2019 , the company recorded $ 9.0 million of goodwill impairment charges related to our tile coatings business , which was historically recorded within our performance coatings reportable segment . the goodwill impairment charge recorded was a result of the finalization of purchase accounting of the recent quimicer , fmu , and gardenia acquisitions that changed the carrying amount of net assets attributable to the reporting unit that represented an impairment indicator . based on our 2019 annual impairment test performed as of october 31 , 2019 , the company recorded additional goodwill impairment charges of $ 33.5 million associated with a reporting unit within the tile coatings business . the impairment charge and related assets are recorded within discontinued operations and as assets held-for-sale , respectively , in our consolidated financial statements as of december 31 , 2019 . 33 future potential impairments are possible for any of the company 's remaining reporting units if actual results are materially less than forecasted results . some of the factors that could negatively affect our cash flows and , as a result , not support the carrying values of our reporting units are : new environmental regulations or legal restrictions on the use of our products that would either reduce our product revenues or add substantial costs to the manufacturing process , thereby reducing operating margins ; new technologies that could make our products less competitive or require substantial capital investment in new equipment or manufacturing processes ; and substantial downturns in economic conditions . long-lived asset impairment the company 's long-lived assets include property , plant and equipment , and intangible assets .
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income recognized on finance receivables , net , is shown net of changes in valuation allowances which are recorded for significant decreases in expected cash flows or a change in timing of cash flows which would otherwise require a reduction in the stated yield on a pool of accounts . for the year ended december 31 , 2016 , we recorded net allowance charges of $ 98.5 million . on our domestic core portfolios , we recorded allowance charges of $ 89.3 million on portfolios purchased between 2005 and 2016 , offset by allowance reversals of $ 0.8 million on portfolios primarily purchased between 2010 and 2011. during 2016 , we made downward adjustments to projections of future cash collections and we adjusted amortization periods for many of our core portfolios . this was done in response to recent trends of cash collections being lower than expected . we have attributed this under-performance to a variety of regulatory and operational factors that we believe adversely impacted our calling efforts and therefore cash collected . we also recorded net allowance charges of $ 9.4 million on our foreign portfolios , primarily on certain spanish , uk and italian portfolios . on our insolvency portfolios , we recorded net allowance charges of $ 0.6 million on our domestic portfolios . for the year ended december 31 , 2015 , we recorded net allowance charges of $ 29.4 million . on our domestic core portfolios , we recorded net allowance charges of $ 23.3 million on portfolios purchased between 2010 and 2013 , offset by allowance reversals of $ 1.4 million on portfolios primarily purchased between 2005 and 2008. we also recorded a net allowance charge of $ 7.5 million on our portfolios in the uk and $ 0.1 million on our denmark portfolios . on our insolvency portfolios , we recorded net allowance reversals of $ 0.2 million on our domestic portfolios . fee income fee income was $ 77.4 million for the year ended december 31 , 2016 , an increase of $ 13.0 million or 20.2 % compared to fee income of $ 64.4 million for the year ended december 31 , 2015 . fee income increase d primarily due to an increase in revenues generated by pls , pgs , ccb , rmsc and rcb . this was offset by a decrease in fee income from pra europe , due primarily to an expected decline in the amount of contingent fee services provided by us for debt owners . 26 other revenue other revenue was $ 8.1 million for the year ended december 31 , 2016 , a decrease of $ 4.4 million or 35.2 % compared to $ 12.5 million for the year ended december 31 , 2015 . the decrease is primarily due to a decrease in revenue earned on our investments . operating expenses total operating expenses were $ 612.4 million for the year ended december 31 , 2016 , a decrease of $ 19.3 million or 3.1 % compared to total operating expenses of $ 631.7 million for the year ended december 31 , 2015 . total operating expenses were 39.0 % of cash receipts for the year ended december 31 , 2016 compared with 39.4 % for the year ended december 31 , 2015 . compensation and employee services compensation and employee service expenses were $ 258.8 million for the year ended december 31 , 2016 , a decrease of $ 9.5 million or 3.5 % compared to compensation and employee service expenses of $ 268.3 million for the year ended december 31 , 2015 . compensation and employee services expenses decrease d primarily due to a decrease in discretionary bonus and other incentive compensation expenses , including share-based compensation expenses offset by increases in normal salary expenses caused by an increase in employee headcount . total full-time equivalents increased 5.8 % to 4,019 as of december 31 , 2016 from 3,799 as of december 31 , 2015 . legal collection expenses legal collection expenses represent costs paid to courts where a lawsuit is filed , contingent fees incurred for the cash collections generated by our independent third-party attorney network , and the cost of documents paid to sellers of nonperforming loans . legal collection expenses were $ 132.2 million for the year ended december 31 , 2016 , an increase of $ 2.7 million or 2.1 % compared to $ 129.5 million for the year ended december 31 , 2015 . the increase was primarily due to additional court costs related to the expansion of the number of accounts brought into the legal channel in europe during the year ended december 31 , 2016. our costs paid to courts were $ 79.8 million for the year ended december 31 , 2016 , an increase of $ 9.0 million or 12.7 % compared to $ 70.8 million for the year ended december 31 , 2015. this was partially offset by a decrease in legal collection expenses paid to third-party attorneys , primarily as a result of a decrease in domestic external legal collections . our costs paid to third-party attorneys were $ 47.7 million for the year ended december 31 , 2016 , a decrease of $ 5.7 million or 10.7 % compared to $ 53.4 million for the year ended december 31 , 2015. our costs paid to sellers of nonperforming loans for documents were $ 4.7 million for the year ended december 31 , 2016 , a decrease of $ 0.5 million or 9.6 % compared to $ 5.2 million for the year ended december 31 , 2015. agency fees agency fees primarily represent third-party collection fees and also include costs paid to repossession agents to repossess vehicles . story_separator_special_tag agency fees were $ 44.9 million for the year ended december 31 , 2016 , compared to $ 32.2 million for the year ended and december 31 , 2015 , an increase of $ 12.7 million or 39.4 % . this increase was mainly attributable to third-party collection fees incurred by our international operations where we utilize third-party agencies . outside fees and services outside fees and services expenses were $ 63.1 million for the year ended december 31 , 2016 , a decrease of $ 2.1 million or 3.2 % compared to outside fees and services expenses of $ 65.2 million for the year ended december 31 , 2015 . the decrease was primarily due to a $ 6.6 million decrease in corporate legal expenses during the year ended december 31 , 2016 , mainly as a result of increased corporate legal expenses incurred in 2015 as a result of outstanding litigation and regulatory matters . this was partially offset by an increase of $ 4.1 million in consulting fees during the year ended december 31 , 2016 , as compared to the prior year period . communication communication expenses were $ 33.8 million for the year ended december 31 , 2016 , an increase of $ 0.7 million or 2.1 % compared to communication expenses of $ 33.1 million for the year ended december 31 , 2015 . none of the increase was attributable to any significant identifiable items . rent and occupancy rent and occupancy expenses were $ 15.7 million for the year ended december 31 , 2016 , an increase of $ 1.0 million or 6.8 % compared to rent and occupancy expenses of $ 14.7 million for the year ended december 31 , 2015 . the increase was primarily 27 due to additional rental expenses incurred as a result of our acquisitions of rcb , rmsc and dtp as well as the additional rent expense associated with the expansion of our headquarters in norfolk , virginia . depreciation and amortization depreciation and amortization expense was $ 24.4 million for the year ended december 31 , 2016 , an increase of $ 4.5 million or 22.6 % compared to depreciation and amortization expenses of $ 19.9 million for the year ended december 31 , 2015 . the increase was primarily due to the amortization expense incurred on intangible assets acquired in connection with the acquisitions of rcb and rmsc . other operating expenses other operating expenses were $ 39.5 million for the year ended december 31 , 2016 , a decrease of $ 29.3 million or 42.6 % compared to other operating expenses of $ 68.8 million for the year ended december 31 , 2015 . the decrease was primarily due to the $ 28.8 million in expenses incurred during 2015 relating to the consent order entered into with the cfpb . interest expense interest expense was $ 80.9 million for the year ended december 31 , 2016 , an increase of $ 20.6 million or 34.2 % compared to interest expense of $ 60.3 million for the year ended december 31 , 2015 . the increase was primarily the result of higher average borrowings outstanding during 2016 compared to 2015 , as well as an increase in the interest rates charged on our variable rate borrowings . impairment of investments impairment of investments were $ 5.8 million for the year ended december 31 , 2016 , compared to $ 0.0 million for the year ended december 31 , 2015 . during 2016 , the net portfolio collections on our investments in a closed-end polish investment fund significantly underperformed expectations . as a result , in 2016 we recorded an other-than-temporary impairment charge $ 5.8 million . for more information , refer to note 3 to our consolidated financial statements included in item 8 of this form 10-k ( `` note 3 '' ) . net foreign currency transaction gain net foreign currency transaction gains were $ 2.6 million and $ 7.5 million for the years ended december 31 , 2016 and 2015 , respectively . in any given period , we are exposed to foreign currency transactions gains or losses from transactions in currencies other than the functional currency . provision for income taxes income tax expense was $ 43.2 million for the year ended december 31 , 2016 , a decrease of $ 46.2 million or 51.7 % compared to income tax expense of $ 89.4 million for the year ended december 31 , 2015 . the decrease was due to a decrease of 47.9 % in income before taxes . in addition , the effective tax rate decreased to 32.2 % for the year ended december 31 , 2016 compared to 34.7 % for the year ended december 31 , 2015 . the decrease was caused by a variety of factors , including changes in the mix of earnings , provision-to-return adjustments , and non-deductible penalties incurred during 2016 , all of which caused the rate to decrease . the impact of these factors was partially offset by tax rate changes in europe and tax expense on a one-time intercompany transaction in 2016. our effective tax rate will vary from period to period due to these types of items . 28 year ended december 31 , 2015 compared to year ended december 31 , 2014 revenues total revenues were $ 942.0 million for the year ended december 31 , 2015 , an increase of $ 61.0 million or 6.9 % compared to total revenues of $ 881.0 million for the year ended december 31 , 2014 .
| fee income increase d from $ 64.4 million for the year ended december 31 , 2015 to $ 77.4 million in 2016 , primarily due to an increase in revenues generated by pls , pgs , recovery management systems corporation ( `` rmsc '' ) , ccb and rcb . this was offset by a decrease in fee income from pra europe , due primarily to an expected decline in the amount of contingent fee services provided by us for debt owners . a summary of how our revenue was generated during the years ended december 31 , 2016 , 2015 and 2014 is as follows ( amounts in thousands ) : replace_table_token_7_th operating expenses were $ 612.4 million for the year ended december 31 , 2016 , a decrease of $ 19.3 million or 3.1 % from the year ended december 31 , 2015 . the decrease was due in part to $ 28.8 million in other operating expenses incurred during the year ended december 31 , 2015 relating to the consent order entered into with the cfpb . as a result of expanding our international footprint into many countries with various currencies throughout europe and the americas , we are exposed to foreign currency fluctuations between and among the u.s. dollar and each of the other currencies in which we operate . as a result , for the year ended december 31 , 2016 , we recorded a net foreign currency transaction gain of $ 2.6 million in our consolidated income statement , as compared to a gain of $ 7.5 million in the prior year , and we recorded a foreign currency translation adjustment of $ ( 23.1 ) million for the year ended december 31 , 2016 , as compared to an adjustment of $ ( 112.9 ) million for the year ended december 31 , 2015. during the years ended december 31 , 2016 , 2015 and 2014 , we acquired finance receivables portfolios at an approximate cost of $ 947.3 million , $ 963.8 million and $ 1,432.8 million , respectively . the figures for 2014 include the acquisition-date fair value of the aktiv
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under the spa , an interim analysis was conducted in the p301 trial . the purpose of the interim analysis was to assess the efficacy of the doses being tested and allow for optimization of the trial design of both trials . the interim analysis was completed and as a result we discontinued the 18 mg dose arm . moving forward , all patients in each of the two trials are randomized to either the 36 mg dose arm or placebo , with the second phase iii trial , also conducted in children , using the same design and novel measurement scale . the first phase iii trial ( p301 ) has reached its original enrollment target with data originally scheduled to be released in the first quarter of 2019. however , given that the data readout from the second trial ( p302 ) is now expected in the second half of 2019 , we have decided to keep enrolling in the p301 trial until data from both trials can be released concurrently instead of sequentially . we believe this change in the plan has no impact on the timing of the nda filing . the completion of the second phase iii trial ( p302 ) and the generation of data from the adolescent patient population ( p503 ) are now rate-limiting for the nda filing . we expect to submit a nda for spn-810 in the second half of 2020 , and to launch it , pending fda approval , in the second half of 2021. in addition , patient enrollment began in december 2018 in a phase iii trial for spn-810 ( p503 ) treating ia in adolescents who have adhd . 71 spn-817 ( huperzine a ) spn-817 will utilize a novel synthetic form of huperzine a , whose mechanism of action includes potent acetyl cholinesterase inhibition with pharmacological activities in cns conditions such as epilepsy . spn-817 will have new chemical entity status ( nce ) in the u.s. market . spn-817 represents a novel mechanism of action for an anticonvulsant . development will initially focus on the drug 's anticonvulsant activity that has been demonstrated in preclinical models for partial seizures and dravet syndrome . we plan on studying spn-817 initially in severe pediatric epilepsy disorders . a phase i proof-of-concept trial is currently underway , using a non-synthetic form of huperzine a in adult patients with refractory complex partial seizures to study the safety and pharmacokinetics profile of a new extended release formulation . spn-809 ( viloxazine hydrochloride ) spn-809 is a novel once-daily product candidate for the treatment of depression . spn-809 incorporates the same active ingredient as spn-812 . we currently have an open investigational new drug application ( ind ) for spn-809 as a treatment for depression , the indication for which the active ingredient in spn-809 was approved and marketed in europe for many years . it was never approved in the u.s. for this indication . because spn-809 contains the same active ingredient as spn-812 , we expect that many of our activities related to the development of spn-812 will also benefit the development of spn-809 . spn-604 ( extended release oxcarbazepine for bipolar ) we continue to progress our plans to initiate pivotal phase iii studies for the treatment of bipolar disorder in the second half of 2019. if approved , this would represent the first approval for treatment of bipolar patients with oxcarbazepine in the u.s. recently , we completed certain activities , including market research and claims database analysis on the use of oxcarbazepine in bipolar patients . we will be using information generated from these activities to finalize plans for the pivotal phase iii trials . we expect to incur significant research and development expenses related to the continued development of each of our product candidates from 2019 through fda approval or until the program terminates . critical accounting policies and the use of estimates the significant accounting policies and bases of presentation for our consolidated financial statements are described in note 2 , summary of significant accounting policies of the notes to consolidated financial statements . the preparation of our consolidated financial statements in accordance with u.s. generally accepted accounting principles ( gaap ) requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues , and expenses and to disclose contingent assets and liabilities . actual results could differ materially from those estimates . we believe the following accounting policies and estimates to be critical : revenue recognition revenue from product sales is recognized when control of our products is transferred to our customers , who are primarily pharmaceutical wholesalers and distributors . net product sales are based on gross revenue from product shipments to our customers , and are recorded net of various forms of variable consideration , including estimated rebates , discounts , allowances , and an estimated liability for product returns ( collectively , `` sales deductions '' ) . we adjust our estimates at the earlier of when the most likely amount of consideration we expect to receive changes or when the consideration becomes fixed . for a 72 complete description of our revenue recognition policy , see part ii , item 8financial statements and supplementary data , note 2 , revenue from product sales of the notes to consolidated financial statements . research and development expenses and related accrued clinical expenses research and development expenditures are expensed as incurred . story_separator_special_tag research and development costs primarily consist of employee-related expenses , including : salaries and benefits ; share-based compensation expense ; expenses incurred under agreements with clinical research organizations ( cros ) , fees paid to investigators who are participating in our clinical trials , consultants and other vendors that assist in the conduct of the company 's clinical trials ; the cost of acquiring and manufacturing clinical trial materials ; the cost of manufacturing materials used in process validation , to the extent that those materials are manufactured prior to receiving regulatory approval for those products and are not expected to be sold commercially ; facilities costs that do not have an alternative future use ; related depreciation and other allocated expenses ; license fees for and milestone payments related to in-licensed products and technologies ; and costs associated with animal testing activities and regulatory approvals . assets acquired that are used for research and development and have no future alternative use are expensed as in-process research and development . clinical trials are inherently complex and often involve multiple service providers . because billing for services often lags by a substantial period of time , we often are required to estimate and accrue a significant portion of our clinical expenses . this process involves reviewing open contracts and communicating with our subject matter expert personnel and the appropriate service provider personnel to identify services that have been performed on our behalf but for which no invoice has been received . we accrue for the estimated but unbilled services performed and the associated cost incurred as of the end of the calendar quarter . payments to service providers can either be based on hourly rates for service or based on performance driven milestones . when accruing clinical expenses , we estimate the time period over which services will be performed during the life of the entire clinical program , the total cost of the program and the level of effort to be expended in each intervening period . to the maximum extent possible , we work with each service provider to obtain an estimate for incurred but unbilled services as of the end of the calendar quarter , including estimates for payments to site investigators . we work diligently to minimize , if not eliminate , estimates based solely on company generated calculations . if the service provider underestimates or overestimates the cost associated with a trial or service at any given point in time , adjustments to research and development expenses may be necessary in the current or subsequent periods . historically , our estimated accrued clinical expenses have closely approximated the actual expenses incurred . 73 story_separator_special_tag size= '' 2 '' > loss on extinguishment of debt . there were no 2023 notes converted for the year ended december 31 , 2018. for the year ended december 31 , 2017 , we recognized a non-cash loss on extinguishment of debt of approximately $ 295,000 related to the conversion of $ 4.6 million aggregate principal amount of our 7.5 % convertible senior secured notes due 2019 ( 2019 notes ) . income tax . for the year ended december 31 , 2018 , we recorded $ 29.2 million of income tax expense , a decrease of $ 14.1 million as compared to the year ended december 31 , 2017. the decrease in income tax expense is primarily due to a decrease in the effective income tax rate , from 43 % in 2017 to 21 % in 2018. the decrease in the effective income tax rate was primarily due to the reduction of the statutory u.s. corporate income tax rate from 35 % to 21 % as a result of the tax cuts and jobs act ( job act ) passed on december 22 , 2017 , coupled with the tax benefit from the exercise of employee stock options in 2018. net earnings . net earnings for the year ended december 31 , 2018 were $ 111.0 million , compared to net earnings of $ 57.3 million for the year ended december 31 , 2017 , an increase of $ 53.7 million . this increase was primarily due to the revenue generated from our two commercial products , trokendi xr and oxtellar xr , partially offset by increased r & d and sg & a spending . 76 comparison of the year ended december 31 , 2017 and december 31 , 2016 replace_table_token_8_th net product sales . the increase in net product sales from 2016 to 2017 was primarily driven by increased prescription volume generated by the launch of the migraine indication for trokendi xr in april 2017. price increases in 2017 and 2016 also contributed to the increase in net product sales , offset by increases in gross to net deductions . the table below lists our net product sales by product , in thousands : replace_table_token_9_th royalty revenue . royalty revenue for the years ended december 31 , 2017 and 2016 was $ 6.4 million and $ 4.7 million , respectively . royalty revenue includes non-cash royalty from the hc royalty agreement and royalty from collaboration partners . the increase , $ 1.7 million , is primarily due to royalty earned from collaboration partners . 77 licensing revenue . total licensing revenue for the years ended december 31 , 2017 and 2016 was $ 1.8 million and $ 0.2 million , respectively . the increase , $ 1.6 million , is primarily due to milestone revenue received during the year . cost of product sales . cost of product sales during the year ended december 31 , 2017 was $ 15.2 million , an increase of $ 3.2 million or 27 % , as compared to $ 12.0 million for the year ended december 31 , 2016. the year over year increase is attributable primarily to increased unit volume . research and development expense . r & d expenses during the year ended december 31 , 2017 were $ 49.6 million as compared to $ 42.8 million in 2016 , an increase of $ 6.8 million or 16 % .
| royalty revenue includes royalty from net product sales of shire plc 's product , mydayis , and non-cash royalty revenue consequent to the healthcare royalty partners iii , l.p. ( hc royalty ) agreement , wherein hc royalty receives royalty otherwise payable to us from sale of united therapeutic 's product , orenitram . non-cash royalty revenue for the years ended december 31 , 2018 and 2017 were $ 5.9 million and $ 5.3 million , respectively . the increase is primarily due to increased sales of orenitram . licensing revenue . licensing revenue includes milestone revenue for the years ended december 31 , 2018 and 2017 were $ 0.75 million and $ 1.5 million , respectively . the decrease from prior year is primarily due to the adoption of the new revenue recognition standard , accounting standards codification ( asc ) 606 , which resulted in accelerated amortization of previously deferred up-front license revenue . the impact of the adoption was recorded as an adjustment to the opening balance of accumulated deficit in 2018. cost of product sales . cost of product sales for the years ended december 31 , 2018 and 2017 were $ 15.4 million and $ 15.2 million , respectively . the year over year increase of $ 0.2 million is attributable primarily to higher unit volume partially offset by manufacturing efficiencies . research and development expense . research and development ( r & d ) expenses for the year ended december 31 , 2018 were $ 89.2 million as compared to $ 49.6 million an increase of $ 39.6 million . this increase was primarily due to the ongoing four phase iii clinical trials for spn-812 , ongoing patient recruitment for the phase iii trials for spn-810 , the open label extension trials for both spn-810 and spn-812 , and approximately $ 14 million charge related to the biscayne acquisition . selling , general , and administrative expense ( sg & a ) . the table below shows the comparison
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although takung was incorporated in 2012 , it did not commence business operations until late 2013. as a result of the transfer of the excluded assets pursuant to the contribution agreement and the acquisition of all the issued and outstanding shares of takung , we are no longer conducting the business and have now assumed takung 's business operations as it now our only operating wholly-owned subsidiary . takung operates an electronic online platform located at www.takungae.com for artists , art dealers and art investors to offer and trade in valuable artwork . through takung , we offer on-line listing and trading services that allow artists/art dealers/owners to access a much bigger art trading market where they can engage with a wide range of investors that they might not encounter without our platform . our platform also makes investment in high-end and expensive artwork more accessible to ordinary people without substantial financial resources . we generate revenue from our services in connection with the offering and trading of artwork on our system , primarily consisting of listing fees , trading commissions , and management fees . we conduct our business primarily in hong kong , special administrative region , people 's republic of china . our principal executive offices are located at flat/rm 03-04 , 20/f , hutchison house , 10 harcourt road , central hong kong . our revenue is from three categories : ( i ) listing fees , ( ii ) management fees and ( iii ) trade commissions . we collect a listing fee when a piece of artwork is listed and successfully traded on our system . we generally charge 22.5-31 % of the total offering price for calligraphies , paintings and jewelry , which are currently the major types of artwork listed and traded on our system . we charge a trading commission for each purchase and sale of artwork units . the commission is typically 0.3 % of the total amount of each transaction , but as an initial promotion , we currently charge a reduced fee of 0.2 % of the total amount . finally , we charge a management fee of $ 0.0013 ( hk $ 0.01 ) per 100 artwork units per day , which is accounted for as revenue , and immediately deducted from the proceeds of the sale of units when a transaction is completed . listing fee a listing procedure can either be initiated by an offering agent ( “ agent ” ) or an original owner ( “ owner ” ) of the piece . an agent is a reputable entity who is an experienced art dealer . they attempt to offer pieces which will result in a realization of value . they negotiate with the owner and list the piece on our platform . an agent assists the owner with the listing process , such as getting the piece appraised by a third party , assigning an initial value for each trading unit at listing , performing research and preparing the marketing material and promotional activities to attract traders ' interests . in the future an owner may approach us directly for a listing . in such case , we will recommend an agent to assist the owner with the listing process . however , we consider this to be a rare case . for the six sets that we have listed before december 31 , 2014 , the first set , which was a collection of paintings and calligraphies , was listed during 2013 ; two sets were listed during the six months ended june 30 , 2014 ; the fourth set was listed during the third quarter of 2014 ; and the last two sets were listed during the fourth quarter of 2014. besides paintings and calligraphies , four pieces of jewelry have also been listed on the platform on january 16 , 2015. the listings were all initiated by an agent . 30 the listing of artwork is driven by market demand . we gauge the market interest by discussing with art dealers and collectors . we anticipate having five additional listings ( with listing fee of approximately $ 1.9 million ) within the next three months . while current listings are paintings and calligraphy , our listings are not limited to these types of work . we will potentially introduce others , such as sculptures , crafts , jade , ceramics , furniture , and antiques , to list . once the artwork is listed and successfully traded on our system , we charge the listing fee based on the agreed percentage of the total offering price . at this moment , we only accept prc nationals to be our traders . therefore , we are only marketing our platform in prc . one of our biggest marketing efforts is to cooperate with shenzhen qianrong cultural investment development co. , ltd. ( “ qianrong ” ) , an agency specializing in promoting trading in the arts and has a broad network of both amateur and professional art traders and dealers . cooperating with qianrong enables us to access their traders in order to expand our own base of registered members/traders in the prc . at the same time , our trading platform provides qianrong 's art traders an alternative and untraditional way of trading art . qianrong also assists us in market development , maintaining relationships , technical support and education related to art and generating interests in the art dealer community . going forward , we are looking to co-operate with other agencies similar to qianrong to expand our business . besides marketing and promotion , we also recently engaged qianrong to develop software to upgrade the functionality of our platform . we entered into a software development agreement with qianrong in september , 2014 where for a consideration of approximately $ 644,173 ( hk $ 4,995,000 ) , qianrong would develop 8 discrete software modules for us . the listing fee we charge include two components , 1 ) basic listing fee , 2 ) pre-listing premium . story_separator_special_tag we generally charge the basic listing fee of 18-25 % of the total offering price for the artwork . besides , additional listing revenue may be generated by the pre-listing premium process by the agent . pre-listing premium pricing when a listing is oversubscribed , the allotment is generally made by way of balloting based on a predetermined basis . it means a trader may receive a lower allocation than the number of units that he or she has applied for . traders may also be allotted with more or fewer units than others who have applied for the same number of units . it is also possible that traders are not allotted any units at all . the more units that a trader applies for , the more likely a trader is allotted with units . in order to subscribe for units , traders need to set aside money in his/her account with us , which is frozen during the subscription period . after the announcement of the allotment , the money frozen will be released . in certain circumstances , if the offering agent believes that there are traders who are willing to pay a premium to be able to purchase the units without entering the balloting process so they can be certain about purchasing the units , the offering agent can negotiate with the owner and us to “ lock-in ” and purchase the units outright on the listing date at a premium . these units will not be entered into the balloting process . the listing agreement ( between the owner , offering agent and us ) would specify the maximum number of units that can be locked in by the offering agent . the premium , which is in addition to the total listing amount , is recognized as listing income . as of december 31 , 2014 , the pre-listing premium of the six artworks listed thus far was from 3.5 % to 5.5 % of the total offering price . commissions revenue is generated from commissions charged at the time of trading of units . 31 in order to increase trade volumes with more traders on our trading platform , we encourage our traders ( “ referrer ” ) to refer new traders ( “ referee ” ) to our platform by a referral program . as discussed in our revenue recognition policy , for every trade that the referee makes , we make 0.2 % of the gross trade amount as commission income . before august 6 , 2014 , we would rebate 5 % of our commission earned to the referrer . for the year ended december 31 , 2014 , there were 82 referees added to our platform and we rebated approximately $ 116,785 for the year . from inception to december 31 , 2013 , there were 8 referees added to our platform and we rebated approximately $ 13.50 for the period . starting from august 6 , 2014 and effective till december 31 , 2015 , we have revised our referral policy according to the table below : replace_table_token_3_th while the amount of referral rebate was historically low , with the new referral policy in place , we expect to rebate a greater amount in the future . we also participate in art and culture events , such as exhibitions and cocktail parties , to market our trading platform and promote our brand name . for internet advertising , we utilize baidu listing search and key word search services for search engine optimization in order to promote our website and platform . management fee apart from the revenue generated from the listing of units of artwork and commission via the trading of the units , we also charge management fees for covering the insurance , storage , and transportation for a piece and trading management of units , which are calculated at $ 0.0013 ( hk $ 0.01 ) per 100 units per day . the management fee is accounted for as revenue , and immediately deducted from the proceeds from the sale of units when a transaction is completed . management fees revenue were $ 113,243 and $ 2,293 for the years ended december 31 , 2014 and 2013 , respectively . plan of upcoming revenue stream we are working on a project which offers an enhanced trading platform to the traders . with a monthly fee , the enhanced trading platform provides traders with more in-depth information and tools , such as streaming real-time data , advanced charting tools , etc . we entered into a software development agreement with qianrong in 2014 to develop new or upgrade existing functionality of our trading , banking integration and social media platforms . the agreement is divided into eight modules according to different upgrades and new functionalities . as of december 31 , 2014 , six out of the eight modules have been completed and are operational . we expect to see our listing fee revenue grow at a higher pace than commission and management fee . the plan for 2015 is to attract more artwork to list on our platform in order to provide more options for traders . therefore , we may lower the commission and or management fee in order to encourage increase in trading volume on our platform . we believe that this will in turn make our platform more attractive to artwork owners to list their artworks with us . as a result , even though we expect the trading volume to increase , with lower commission rate , management expects the growth of listing fee revenue will outpace the commission and management fee . important factors affecting our results of operations and existing trends 32 dependency on original owners and or offering agents we do not independently source artwork for listing on our platform . instead we are reliant on owners and agents to submit their artwork for listing . accordingly our success is dependent on their willingness to accept our alternative to traditional trading and dealing in art .
| since the depreciation and amortization period was short in 2013 compared to 2014 , our costs of revenue were lower in 2013. additionally , we added new hardware and developed new and upgraded existing functionality of our trading , banking integration and social media platforms in 2014. in the third quarter of 2014 , we entered into an agreement with qianrong to develop software for us with a total contract amount of $ 644,173 ( hk $ 4,995,000 ) . the agreement is divided into eight modules , according to different upgrades and new functionalities . as of december 31 , 2014 , six out of the eight modules have been completed and are operational . we have started to capitalize ( with a total cost of $ 296,011 ( hk $ 2,295,000 ) ) and amortize these costs and such costs would contribute to an increase in in our costs of revenue through 2015. gross profit gross profit was $ 4,285,483 for the year ended december 31 , 2014 , compared to $ 205,687 in 2013. the increase was because operations had not commenced until the fourth quarter of 2013. the increase in both gross profit and gross profit percentage in 2014 is due to an increase in the number of new listings of artwork and the increase of total trading volume . there was only one listing in 2013 and the total trading volume on our platform was comparatively lower because trading was not commenced until the later part of the year . as our trading platform was operating for the whole fiscal year and as we spent more time and money on marketing and promoting our trading platform , the number of listings and total trading volume increased in 2014. the total trading volume in 2013 and 2014 were 42,583,000 units and 1,677,373,600 units respectively . operating expenses operating expenses for the year ended december 31 , 2014 were $ 2,605,985 , compared to $ 205,821 for the year ended december 31 , 2013. there was significant increase in operating expenses in the year ended december 31 , 2014
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in this regard , our customers typically establish the various measures and metrics that are used to monitor a program 's progress , including key deliverables , milestones , timelines , and an overall program budget . the customer is ultimately responsible for deciding whether to continue or terminate a program , and does so based on research results ( relative to the above measures and metrics ) and other factors , including their own strategic and or business priorities . following the pharma sale in the first quarter of fiscal 2012 , customer r & d programs are mainly in our medical device segment . our r & d activities are engaged in the exploration , discovery and application of technology to solve meaningful problems in the diagnosis and treatment of disease . our key r & d activities include efforts that support and expand our core offerings . these efforts include completing development activities associated with our next generation ( gen 5 ) hydrophilic coating platform and completing activities that support the development of our coating technologies that enhance drug-coated balloons . additional planned activities include initiation of surface modification experiments that improve medical device performance and developing chemistries to support molecular diagnostic applications . for our internal r & d programs in our segments , we utilize r & d review committees to prioritize these programs based on a number of factors , including a program 's strategic fit , commercial impact , potential competitive advantage , technical feasibility , and the amount of investment required . the measures and metrics used to monitor a program 's progress vary based on the program , and typically include many of the same factors discussed above with respect to our customer r & d programs . we typically make decisions to continue or terminate a program based on research results ( relative to the above measures and metrics ) and other factors , including our own strategic and or business priorities , and the amount of additional investment required . with respect to cost components , r & d expenses consist of labor , materials and overhead costs ( utilities , depreciation , indirect labor , etc . ) for both customer r & d and internal r & d programs . we manage our r & d organization in a flexible manner , balancing workloads/resources between customer r & d and internal r & d programs primarily based on the level of customer program activity . therefore , costs incurred for customer r & d and internal r & d can shift as customer activity increases or decreases . critical accounting policies the discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the u.s. ( gaap ) . the preparation of these financial statements is based in part on the application of significant accounting policies , many of which require management to make estimates and assumptions ( see note 2 to the consolidated financial statements in item 8. financial statements and supplementary data in this annual report on form 10-k ) . actual results may differ from these estimates under different assumptions or conditions and could materially impact our results of operations . critical accounting policies are those policies that require the application of management 's most challenging subjective or complex judgment , often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods . critical accounting policies involve judgments and uncertainties that are sufficiently likely to result in materially different results under different assumptions and conditions . we believe the following are critical areas in the application of our accounting policies that currently affect our financial condition and results of operations . revenue recognition . in accordance with accounting guidance , revenue is recognized when all of the following criteria are met : ( 1 ) persuasive evidence of an arrangement exists ; ( 2 ) shipment has occurred or delivery has occurred if the terms specify destination ; ( 3 ) the sales price is fixed or determinable ; and ( 4 ) collectability is reasonably assured . when there are additional performance requirements , revenue is recognized when all such requirements have been satisfied . under revenue arrangements with multiple deliverables , the company recognizes each separable deliverable as it is earned . the company licenses technology to third parties and collects 32 royalties . royalty revenue is generated when a customer sells products incorporating the company 's licensed technologies . royalty revenue is recognized as our licensees report it to us , and payment is typically submitted concurrently with the report . for stand-alone license agreements , up-front license fees are recognized over the term of the related licensing agreement . minimum royalty fees are recognized in the period earned . revenue related to a performance milestone is recognized upon the achievement of the milestone and meeting specific revenue recognition criteria . product sales to third parties are recognized at the time of shipment , provided that an order has been received , the price is fixed or determinable , collectability of the resulting receivable is reasonably assured and returns can be reasonably estimated . our sales terms provide no right of return outside of our standard warranty policy . payment terms are generally set at 30-45 days . generally , revenue for research and development is recorded as performance progresses under the applicable contract . revenue arrangements with multiple deliverables have been accounted for based on accounting guidance in existence at the time the arrangement commences . prior to october 1 , 2009 , arrangements such as license and development agreements were analyzed to determine whether the deliverables , which often include a license and performance obligations such as research and development , could be separated , or whether they must be accounted for as a single unit of accounting in accordance with accounting guidance . story_separator_special_tag in october 2009 , the fasb amended the accounting standards for multiple deliverable revenue arrangements to : ( i ) provide updated guidance on whether multiple deliverables exist , how the deliverables in an arrangement should be separated , and how the consideration should be allocated ; ( ii ) require an entity to allocate revenue in an arrangement using estimated selling prices ( esp ) of deliverables if a vendor does not have vendor-specific objective evidence of selling price ( vsoe ) or third-party evidence of selling price ( tpe ) ; and ( iii ) eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method . we elected to early adopt this accounting guidance at the beginning of our first quarter of fiscal 2010 , on a prospective basis , for applicable transactions originating or materially modified on or after october 1 , 2009. in connection with the adoption of the amended accounting standard we also changed our policy prospectively for multiple element arrangements , whereby we account for revenue using a multiple attribution model in which consideration allocated to r & d activities is recognized as performed , and milestone payments are recognized when the milestone events are achieved , when such activities and milestones are deemed substantive . accordingly , in situations where a unit of accounting includes both a license and r & d activities , and when a license does not have stand-alone value , the company applies a multiple attribution model in which consideration allocated to the license is recognized ratably , consideration allocated to r & d activities is recognized as performed and milestone payments are recognized when the milestone events are achieved , when such activities and milestones are deemed substantive . the company enters into license and development arrangements that may consist of multiple deliverables which could include a license ( s ) to surmodics ' technology , r & d activities , manufacturing services , and product sales based on the needs of its customers . for example , a customer may enter into an arrangement to obtain a license to surmodics ' intellectual property which may also include r & d activities , and supply of products manufactured by surmodics . for these services provided , surmodics could receive upfront license fees upon signing of an agreement and granting the license , fees for r & d activities as such activities are performed , milestone payments contingent upon advancement of the product through development and clinical stages to successful commercialization , fees for manufacturing services and supply of product , and royalty payments based on customer sales of product incorporating surmodics ' technology . our license and development arrangements generally do not have refund provisions if the customer cancels or terminates the agreement . typically all payments made are non-refundable . 33 under the accounting guidance , we are still required to evaluate each deliverable in a multiple element arrangement for separability . we are then required to allocate revenue to each separate deliverable using a hierarchy of vsoe , tpe , or esp . in many instances , we are not able to establish vsoe for all deliverables in an arrangement with multiple elements . this may be a result of surmodics infrequently selling each element separately or having a limited history with multiple element arrangements . when vsoe can not be established , surmodics attempts to establish a selling price of each element based on tpe . tpe is determined based on competitor prices for similar deliverables when sold separately . when we are unable to establish a selling price using vsoe or tpe , we use esp in our allocation of arrangement consideration . the objective of esp is to determine the price at which surmodics would transact a sale if the product or service were sold on a stand-alone basis . esp is generally used for highly customized offerings . surmodics determines esp for undelivered elements by considering multiple factors including , but not limited to , market conditions , competitive landscape and past pricing arrangements with similar features . the determination of esp is made through consultation with the company 's management , taking into consideration the marketing strategies for each business unit . customer advances are accounted for as a liability until all criteria for revenue recognition have been met . valuation of long-lived assets . accounting guidance requires us to evaluate periodically whether events and circumstances have occurred that may affect the estimated useful life or the recoverability of the remaining balance of long-lived assets , such as property and equipment and intangibles with finite lives . if such events or circumstances were to indicate that the carrying amount of these assets may not be recoverable , we would estimate the future cash flows expected to result from the use of the assets and their eventual disposition . if the sum of the expected future cash flows ( undiscounted and without interest charges ) were less than the carrying amount of the assets , we would recognize an impairment charge to reduce such assets to their fair value . in fiscal 2012 there were no impairment charges relating to our long-lived assets as there were no events or circumstances that occurred that affected the recoverability of such assets . in the fourth quarter of fiscal 2011 , we recognized asset impairment charges totaling $ 28.1 million associated with our pharmaceuticals segment which is presented in the operating results of discontinued operations . we wrote down long-lived assets ( fixed assets of $ 23.3 million and intangibles of $ 4.8 million ) , associated with our pharmaceuticals segment , based on the valuation of the assets relative to their carrying value . the company had been exploring strategic alternatives for the pharmaceuticals segment , including a potential sale . the assets of the pharmaceuticals segment did not qualify as held-for-sale as of september 30 , 2011 , because we had not committed to a plan to sell at that time .
| working capital decreased $ 10.4 million from the september 30 , 2011 level , resulting primarily from a use of $ 55.0 million of cash related to our common stock repurchases under the modified dutch auction tender offer in september 2012 which was partially offset by an increase in cash of $ 30.0 million from the pharma sale in november 2011 and cash generated from fiscal 2012 operations . our cash , cash equivalents , available-for-sale securities and held-to-maturity securities totaled $ 58.1 million at september 30 , 2012 , a decrease of $ 10.1 million from $ 68.2 million at september 30 , 2011. as noted above , the decrease in cash resulted principally from the $ 55.0 million of common stock repurchases under the tender offer offset partially by an increase of $ 30.0 million in cash from the pharma sale . our investments consist principally of u.s. government and government agency obligations , mortgage-backed securities and investment grade , interest-bearing corporate and municipal debt securities with varying maturity dates , the majority of which are five years or less . the company 's investment policy requires that no more than 5 % of investments be held in any one credit or issue , excluding u.s. government and government agency obligations . the primary investment objective of the portfolio is to provide for the safety of principal and appropriate liquidity while meeting or exceeding a benchmark ( merrill lynch 1-3 year government-corporate index ) total rate of return . management plans to continue to direct its investment advisors to manage the company 's securities investments primarily for the safety of principal for the foreseeable future as it assesses other investment opportunities and uses of its cash and securities investments , including those described below . 44 the company generated cash flows from operating activities from continuing operations of approximately $ 17.6 million in fiscal 2012 , compared with $ 22.9 million in fiscal 2011. the following table depicts our
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selling , general and administrative ( “ sg & a ” ) expenses increased 4 % , or $ 0.7 million , to $ 18.7 million for the year ended december 31 , 2016 , compared to $ 18.1 million in the prior year . net income increased 1 % , or $ 0.1 million , to $ 5.9 million for the year ended december 31 , 2016 , compared to $ 5.8 million in the prior year . weighted average diluted shares outstanding decreased by 3 % from the prior year , primarily due to the company 's share buyback program . income per share diluted increased 5 % to $ 1.31 for the year ended december 31 , 2016 , compared to $ 1.25 for the same period in 2015. critical accounting policies and estimates management 's discussion and analysis of the company 's financial condition and results of operations are based upon the company 's consolidated financial statements that have been prepared in accordance with us gaap . the preparation of these financial statements requires the company to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . revenues from the sales of hardware products , software products , licenses , maintenance and subscription agreements are recognized on a gross basis upon delivery or fulfillment , with the selling price to the customer recorded as sales and the acquisition cost of the product recorded as cost of sales . on an on-going basis , the company evaluates its estimates , including those related to product returns , bad debts , inventories , investments , intangible assets , income taxes , stock-based compensation , contingencies and litigation . the company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates . the company believes the following critical accounting policies used in the preparation of its consolidated financial statements affect its more significant judgments and estimates . allowance for accounts receivable the company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments . management determines the estimate of the allowance for uncollectible accounts receivable by considering a number of factors , including : historical experience , aging of the accounts receivable , and specific information obtained by the company on the financial condition and the current creditworthiness of its customers . if the financial condition of the company 's customers were to deteriorate , resulting in an impairment of their ability to make payments , additional allowances may be required . at the time of sale , we record an estimate for sales 15 returns based on historical experience . if actual sales returns are greater than estimated by management , additional expense may be incurred . accounts receivable – long term the company 's accounts receivable long-term are discounted to their present value at prevailing market rates at the time of sale based on prevailing rates . in doing so , the company considers competitive market rates and other factors . inventory allowances the company writes down its inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions . if actual market conditions are less favorable than those projected by management , additional inventory write-offs may be required . income taxes the company has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance related to deferred tax assets . in the event the company were to determine that it would not be able to realize all or part of its net deferred tax assets in the future , an adjustment to the deferred tax assets would be charged to income in the period such determination was made . share-based payments under the fair value recognition provision , stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the requisite service period , which is the vesting period . we make certain assumptions in order to value and expense our various share-based payment awards . in connection with valuing stock options , we use the black-scholes model , which requires us to estimate certain subjective assumptions . the key assumptions we make are : the expected volatility of our stock ; the expected term of the award ; and the expected forfeiture rate . in connection with our restricted stock programs we make assumptions principally related to the forfeiture rate . we review our valuation assumptions periodically and , as a result , we may change our valuation assumptions used to value stock based awards granted in future periods . such changes may lead to a significant change in the expense we recognize in connection with share-based payments . recently issued accounting pronouncements in may 2014 , the financial accounting standards board ( “ fasb ” ) issued guidance for revenue recognition for contracts , superseding the previous revenue recognition requirements , along with most existing industry-specific guidance . the guidance requires an entity to review contracts in five steps : 1 ) identify the contract , 2 ) identify performance obligations , 3 ) determine the transaction price , 4 ) allocate the transaction price , and 5 ) recognize revenue . the new standard will result in enhanced disclosures regarding the nature , amount , timing and uncertainty of revenue arising from contracts with customers . in august 2015 , the fasb issued accounting standards update asu 2015-14 ( “ asu 2015-14 ” ) which deferred the effective date of the new standard by one year . story_separator_special_tag along with the deferral of the effective date , asu no . 2015-14 allows early application as of the original effective date . entities are allowed to transition to the new standard by either recasting prior periods or recognizing the cumulative effect as of the beginning of the period of adoption . the standard and related amendments will be effective for the company for its annual reporting period beginning january 1 , 2018 , including interim periods within that reporting period . the company is in the process of developing its conclusions on several aspects of the standard including principal versus agent considerations , identification of performance obligations , the determination of when control of goods and services transfers to the company 's customer , which transition approach will be applied and the estimated impact it will have on our consolidated financial statements . 16 in july 2015 , the fasb issued accounting standards update no . 2015-11 , `` simplifying the measurement of inventory ( topic 330 ) '' , ( `` asu 2015-11 '' ) . topic 330 , inventory , currently requires an entity to measure inventory at the lower of cost or market , with market value represented by replacement cost , net realizable value or net realizable value less a normal profit margin . the amendments in asu 2015-11 require an entity to measure inventory at the lower of cost or net realizable value . asu 2015-11 is effective for reporting periods beginning after december 15 , 2016. we do not expect the adoption of this new accounting pronouncement , will have a significant impact on our consolidated financial statements . in march 2016 , the fasb issued accounting standards update ( `` asu '' ) 2016-09 , improvements to employee share-based payment accounting ( `` asu 2016-09 '' ) . asu 2016-09 simplifies several aspects of the accounting for share-based payment transactions , including the income tax consequences , classification of awards as either equity or liabilities and classification on the statement of cash flows . this asu is effective for fiscal years , and interim periods within those years , beginning after december 15 , 2016. early adoption is permitted . we do not expect the adoption of this new accounting pronouncement to have a significant impact on our consolidated financial statements . in february 2016 , the fasb issued asu 2016-02 , leases ( `` asu 2016-02 '' ) . asu 2016-02 supersedes the lease guidance under fasb accounting standards codification ( `` asc '' ) topic 840 , leases , resulting in the creation of fasb asc topic 842 , leases . asu 2016-02 requires a lessee to recognize in the statement of financial position a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term for both finance and operating leases . this asu is effective for fiscal years , and interim periods within those years , beginning after december 15 , 2018. early adoption is permitted . the company is currently assessing the potential impact of adopting asu 2016-02 on its consolidated financial statements . in june 2016 , the fasb issued accounting standards update no . 2016-13 , financial instruments - credit losses ( topic 326 ) ( `` asu no . 2016-13 '' ) . asu no . 2016-13 revises the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded . asu no . 2016-13 is effective for the company in the first quarter of 2020 , with early adoption permitted , and is to be applied using a modified retrospective approach . the company is currently evaluating the potential effects of adopting the provisions of asu no . 2016-13 on it consolidated financial statements . in august 2016 , the fasb issued asu 2016-15 , statement of cash flows ( “ asu 2016-15 ” ) asu 2016-15 which reduces diversity in practice in how certain transactions are classified in the statement of cash flows . the new standard will become effective for the company beginning with the first quarter of 2018 , with early adoption permitted . the adoption of this guidance will not have a material impact on the company 's consolidated financial statements . in october 2016 , the fasb issued asu 2016-16 , “ income taxes ( topic 740 ) : intra-entity transfers of assets other than inventory. ” this amendment is intended to improve accounting for the income tax consequences of intra-entity transfers of assets other than inventory . in accordance with this guidance , an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs . the asu is effective for the company beginning in fiscal 2019. early adoption is permitted in fiscal 2018 with modified retrospective application . the company is continuing to evaluate the impact of the adoption of this guidance on its consolidated financial statements . 17 story_separator_special_tag and marketing , while monitoring our sales and general and administrative expenses closely . income taxes for the year ended december 31 , 2016 , the company recorded a provision for income taxes of $ 3.0 million which consists of a provision of $ 2.5 million for u.s. federal income taxes , as well as a $ 0.1 million provision for state taxes , and a provision for foreign taxes of $ 0.4 million . as of december 31 , 2016 , the company had a u.s. deferred tax asset of approximately $ 0.4 million . for the year ended december 31 , 2015 , the company recorded a provision for income taxes of $ 3.0 million which consists of a provision of $ 2.7 million for u.s. federal income taxes , as well as a $ 0.1 million provision for state taxes , and a provision for foreign taxes of $ 0.2 million . as of december 31 , 2015 , the company had a u.s. deferred tax asset of approximately $ 0.5 million .
| we reduced our number of sales people late in 2015 to streamline and focus our operations on opportunities with the highest financial return . gross profit gross profit for the year ended december 31 , 2016 increased 3 % or $ 0.8 million , to $ 27.3 million , compared to $ 26.6 million for the same period in 2015. lifeboat distribution segment gross profit increased 4 % to $ 22.3 million for the year ended december 31 , 2016 compared to $ 21.5 million for the same period in the prior year . techxtend segment gross profit remained flat at $ 5.0 million for each of 2016 and 2015. gross profit amounts reflect increased sales volumes and competitive pressures on gross profit margins discussed below . gross profit margin ( gross profit as a percentage of net sales ) for the year ended december 31 , 2016 was 6.5 % compared to 7.0 % in 2015. lifeboat distribution segment gross profit margin was 6.0 % for the year ended december 31 , 2016 compared to 6.3 % in 2015. the decrease in gross profit margin for the lifeboat distribution segment was primarily caused by competitive pricing pressure and product mix . we operate in a competitive environment where the 18 trend has been for gross profit margins to decline for the past several years . we attribute some of the decline to an increasing portion of our revenues coming from the sale of licenses , maintenance and service agreements that are not associated with a physical product . while our gross profit margin has declined on these products , we have been able to maintain our profitability through efficiencies gained in electronic ordering and distribution through the use of edi and other automation . techxtend segment gross profit margin for the year ended december 31 , 2016 was 10.2 % compared to 11.9 % in 2015. the decrease in gross profit margin was due to competitive market pricing , particularly on
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films released during the year ended december 31 , 2020 included bad boys for life , sonic the hedgehog , birds of prey , dolittle , the invisible man and the call of the wild . the carryover of late 2019 releases such as 1917 , jumanji : the next level and star wars : the rise of skywalker also contributed to industry box office during early 2020. due to the temporary closure of many theatres since march , movie studios delayed the release of many films originally planned for 2020 or released them directly on streaming platforms or , in some instances , simultaneously with theatrical release . upon reopening its domestic theatres , the company offered patrons primarily library content , bringing back many classics to the big screen . as more theatres reopened and safety protocols were implemented , studios began releasing new content , which included wonder woman 1984 , tenet , the croods : a new age , the new mutants , unhinged , the war with grandpa and honest thief . currently , films scheduled for release in 2021 include the sequel to marvel 's spider-man far from home , top gun maverick , black widow , f9 , luca , eternals , mission : impossible 7 , no time to die , cruella , and minions : the rise of gru , among others . as the industry navigates the continued impact of the covid-19 pandemic and resulting various regulations and restrictions , film release schedules may continue to change . film rental costs are variable in nature and fluctuate with our admissions revenues . film rental costs as a percentage of revenues are generally higher for periods in which more blockbuster films are released . the company also receives virtual print fees from studios for certain of its international locations , which are included as a contra-expense in film rentals and advertising costs ; however , these costs are expected to be fully recovered during 2021. advertising costs , which are expensed as incurred , are primarily related to campaigns for new and remodeled theatres , loyalty and membership programs and brand advertising that vary depending on the timing of such campaigns . concession supplies expense is variable in nature and fluctuates with our concession revenues and product mix . we negotiate prices for concession supplies directly with concession vendors and manufacturers to obtain volume rates . although salaries and wages include a fixed cost component ( i.e . the minimum staffing costs to operate a theatre facility during non-peak periods ) , salaries and wages tend to move in relation to revenues as theatre staffing is adjusted to respond to changes in attendance . staffing levels may vary based on the amenities offered at a location , such as full service restaurants , bars or expanded food and beverage options . in certain locations , staffing levels are also subject to local regulations . facility lease expense is primarily a fixed cost at the theatre level as most of our facility leases require a fixed monthly minimum rent payment . certain leases are subject to percentage rent only , while others are subject to percentage rent in addition to their fixed monthly rent if a target annual performance level is achieved . facility lease expense as a percentage of revenues is also affected by the number of theatres under operating leases , the number of theatres under finance leases and the number of owned theatres . utilities and other costs include both fixed and variable costs and primarily consist of utilities , property taxes , janitorial costs , credit card fees , third party ticket sales commissions , repairs and maintenance expenses , security services and expenses for the maintenance and monitoring of projection and sound equipment . general and administrative expenses are primarily fixed in nature and consist of the costs to support the overall management of the company . fixed expenses include salaries and wages and benefit costs for our corporate 28 office personnel , facility expenses for our corporate and other offices , software maintenance costs and audit fees . some variable expenses may include incentive compensation , consulting and legal fees , supplies and other costs that are not specifically associated with the operations of our theatres . critical accounting policies we prepare our consolidated financial statements in conformity with generally accepted accounting principles in the u.s. , or u.s. gaap . as such , we are required to make certain estimates and assumptions that we believe are reasonable based upon the information available . these estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented . the significant accounting policies , which we believe are the most critical to aid in fully understanding and evaluating our reported consolidated financial results , include the following : revenue and expense recognition our patrons have the option to purchase movie tickets well in advance of a movie showtime or right before the movie showtime , or at any point in between those two timeframes depending on when tickets are put on sale and seat availability . we recognize such admissions revenues when the showtime for a purchased movie ticket has passed . concession revenues are recognized when products are sold to the consumer , or if pre-ordered , after the associated pick-up date has passed . other revenues primarily consist of screen advertising and screen rental revenues , promotional income , studio trailer placements and transactional fees . we sell gift cards and discount ticket vouchers , the proceeds from which are recorded as deferred revenues . deferred revenues for gift cards and discount ticket vouchers are recognized when they are redeemed for movie tickets or concession items . we offer a subscription program in the u.s. whereby patrons can pay a monthly fee to receive a monthly credit for use towards a future movie ticket purchase . story_separator_special_tag we record the monthly subscription program fees as deferred revenues and record admissions revenues when the showtime for a movie ticket purchased with a credit has passed . we have loyalty programs in the u.s. and many of our international locations that either have a prepaid annual membership fee or award points to customers as purchases are made . for those loyalty programs that have an annual membership fee , we recognize the fee collected as other revenues on a straight-line basis over the term of the membership . for those loyalty programs that award points to customers based on their purchases , we record a portion of the original transaction proceeds as deferred revenues based on the number of reward points issued to customers and we recognize the deferred revenues when the customer redeems such points . the value of loyalty points issued is based on the estimated fair value of the rewards offered . we record breakage revenue on gift cards and discount ticket vouchers based on redemption activity and historical experience with unused balances . we generally record breakage revenue upon the expiration of loyalty points and subscription credits . advances collected on concession and other contracts are deferred and recognized during the period in which we satisfy the related performance obligations , which may differ from the period in which the advances are collected . these advances are recognized on either a straight-line basis over the term of the contracts or as we meet our performance obligations in accordance with the terms of the contracts . film rental costs are subject to the film licensing arrangement and accrued based on the applicable box office receipts and either ; 1 ) a sliding scale formula , which is generally established prior to the opening of the film , 2 ) firm terms or 3 ) estimates of the final settlement rate , which occurs at the conclusion of the film run . under a sliding scale formula , we pay a percentage of box office revenues using a pre-determined matrix that is based upon box office performance of the film for its full run . under a firm terms formula , we pay the distributor a percentage of box office receipts , which reflects either an aggregate rate for the life of the film or rates that decline over the term of the run . the settlement process allows for negotiation of film rental fees upon the conclusion of the film run based upon how the film performs . estimates are based on the expected success of a film . the success of a film can generally be determined a few weeks after a film is released when the initial box office performance of the film is known . if actual settlements are different than those estimates , film rental costs are adjusted at that time . facility lease expense is primarily a fixed cost at the theatre level as most of our facility leases require a fixed monthly minimum rent payment . certain of our leases are subject to monthly percentage rent only , which is accrued each month based on actual revenues . certain of our other theatres require payment of percentage rent in addition to fixed monthly rent if an annual target revenue level is achieved . percentage rent expense is estimated and recorded for these theatres on a monthly basis if the theatre 's historical performance or forecasted performance indicates that 29 the annual target revenue level will be reached . once annual revenues are known , the timing of which is based on the lease agreement , percentage rent expense is adjusted at that time . theatre properties and equipment are depreciated using the straight-line method over their estimated useful lives . in estimating the useful lives of our theatre properties and equipment , we have relied upon our experience with such assets and our historical replacement period . we periodically evaluate these estimates and assumptions and adjust them as necessary . leasehold improvements for which we pay , and to which we have title , are amortized over the lesser of their useful life or the remaining lease term . impairment of long-lived assets we review long-lived assets for impairment indicators on a quarterly basis or whenever events or changes in circumstances indicate the carrying amount of the assets may not be fully recoverable . we also perform a full quantitative impairment evaluation on an annual basis . we assess many factors including the following to determine whether to impair individual theatre assets : actual theatre level cash flows ; budgeted or forecast theatre level cash flows ; theatre property and equipment carrying values ; operating lease right-of-use asset carrying values ; amortizing intangible asset carrying values ; the age of a recently built theatre ; competitive theatres in the marketplace ; the impact of recent ticket price changes ; the impact of recent theatre remodels or other substantial improvements ; available lease renewal options ; and other factors considered relevant in our assessment of impairment of individual theatre assets . long-lived assets are evaluated for impairment on a theatre basis , which we believe is the lowest applicable level for which there are identifiable cash flows . the impairment evaluation is based on the estimated undiscounted cash flows from continuing use through the remainder of the theatre 's useful life . the remainder of the theatre 's useful life correlates with the remaining lease period , which includes the probability of the exercise of available renewal periods for leased properties , and the lesser of twenty years or the building 's remaining useful life for owned properties . if the estimated undiscounted cash flows are not sufficient to recover a long-lived asset 's carrying value , we then compare the carrying value of the asset group ( theatre ) with its estimated fair value .
| concession revenues per patron is calculated as concession revenues divided by attendance . ( 2 ) u.s. operating segment revenues include eliminations of intercompany transactions with the international operating segment . see note 21 to our consolidated financial statements . ( 3 ) constant currency revenue amounts , which are non-gaap measurements , were calculated using the average exchange rates for the corresponding months for 2019. we translate the results of our international operating segment from local currencies into u.s. dollars using currency rates in effect at different points in time . significant changes in foreign exchange rates from one period to the next can result in meaningful variations in reported results . we are providing constant currency amounts for our international operating segment to present a period-to-period comparison of business performance without the impact of foreign currency fluctuations . u.s . admissions , concession and other revenues decreased as a result of the 80.2 % decrease in attendance due to our theatres being temporarily closed for an extended period of time beginning march 2020. we began reopening theatres in the u.s. in late june 2020 , showing library content and limited new releases with limited capacities and reduced operating hours . we offered library content at promotional prices , and also offered private watch parties to our patrons at many of our theatres . we continue to offer a limited menu of concession items in essentially all locations , and at promotional prices for much of the reopening phase . average ticket price increased due to price increases and the impact of the deferral of admissions revenues for loyalty points issued , partially offset by the impact of promotional pricing during our reopening period . concession revenues per patron grew primarily due to incremental sales of traditional concession products , the impact of the deferral of concessions revenues for loyalty points issued and price increases prior to the temporary closure of our theatres , partially offset by the impact of promotional pricing during our
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the amendment , among other things , modified certain definitions and provisions of the collaboration agreement to make them consistent with the joint development agreement ( “ jda ” ) and clarified how many options are exercised ( or deemed exercised ) in connection with certain targets specified under the collaboration agreement . the amendment also amended other provisions of the collaboration agreement , including the expiration terms of the collaboration agreement . in december 2017 , we entered into the jda with vertex for the development and commercialization of ctx001 . the initial focus of the jda centers on developing ctx001 for beta thalassemia and scd . ctx001 is an investigational autologous gene-edited hematopoietic stem cell therapy for patients suffering from severe hemoglobinopathies . the net profits and net losses , as applicable , incurred under the jda will be shared equally between us and vertex . we and vertex are planning to conduct clinical trials for ctx001 in multiple countries for both beta thalassemia and severe sickle cell disease ( scd ) trials and we and vertex continue to work closely with various global regulatory authorities in these and other countries . we and vertex are investigating ctx001 in a phase 1/2 open-label clinical trial designed to assess the safety and efficacy of a single dose of ctx001 in patients ages 18 to 35 with tdt , non-beta zero/beta zero subtypes . the first two patients in the trial will be treated sequentially and , pending data from these initial two patients , the trial will open for broader concurrent enrollment . the first patient has been treated with ctx001 in this trial . the study is currently being conducted at multiple clinical trial sites in canada and europe . in addition , crispr therapeutics and vertex plan to expand this trial to include sites in the united states . we and vertex are also investigating ctx001 in a phase 1/2 open-label clinical trial designed to assess the safety and efficacy of a single dose of ctx001 in patients ages 18 to 35 with severe scd . in april 2018 , we and vertex submitted an investigational new drug application ( “ ind ” ) for ctx001 to the u.s. food and drug administration ( the “ fda ” ) to support the planned initiation of a phase 1/2 trial in the u.s. in adult patients with scd . in may 2018 , the fda placed a clinical hold on the ind for ctx001 for the treatment of scd pending the resolution of certain questions as part of its review of the ind . on october 10 , 2018 , we and vertex announced that the fda has lifted the clinical hold and accepted the ind for ctx001 for the treatment of sickle cell disease . in addition , we and vertex have obtained approvals of clinical trial applications ( ctas ) for ctx001 for scd in canada and additional countries in europe . similar to the trial in beta thalassemia , the first two patients in this trial will be treated sequentially prior to broader concurrent enrollment and , pending data from these initial two patients , the trial will open for broader concurrent enrollment . the trial is currently being conducted at clinical trial sites in the united states and the first patient in this trial has been enrolled . ctx001 was granted fast track designation by the u.s. food and drug administration for the treatment of scd . joint venture agreement- casebia in december 2015 , we entered into an agreement , ( the “ jv agreement ” ) , with bayer to create a joint venture , casebia therapeutics llp , ( “ casebia ” or the “ jv ” ) , to discover , develop and commercialize crispr/cas9 gene-editing therapeutics to treat the genetic causes of bleeding disorders , autoimmune disease , blindness , hearing loss and heart disease . we and bayer each have a 50 % interest in the jv . under the jv agreement , bayer is making available its protein engineering expertise and relevant disease know-how and we are contributing our proprietary crispr/cas9 gene editing technology and intellectual property . bayer will also provide up to $ 300.0 million in research and development investments to the jv over the first five years , subject to specified conditions . in connection with the jv agreement , the jv was required to pay us an aggregate amount of $ 35.0 million technology access fee , consisting of an upfront payment of $ 20.0 million , which was paid at the closing of the jv agreement in march 2016 , and another payment of $ 15.0 million for specified intellectual property rights relating to our gene-editing technology outside of the united states , which was paid in december 2016. in january 2016 , we also issued the bayer convertible loan to bayer bv for gross proceeds of $ 35.0 million which was immediately converted to series b preferred shares at a conversion price of $ 13.43 per share . concurrent with our initial public offering in october 2016 , we issued and sold 2,500,000 common shares to bayer bv , at the public offering price of $ 14.00 per share resulting in aggregate net proceeds of $ 35.0 million . 87 collaboration agreement- viacyte on september 17 , 2018 , we entered into a research collaboration agreement ( `` viacyte collaboration agreement '' ) with viacyte , inc. ( “ viacyte ” ) focused on the discovery , development , and commercialization of gene-edited allogeneic stem cell therapies for the treatment of diabetes . under the terms of the viacyte collaboration agreement , we and viacyte will jointly seek to develop an immune-evasive stem cell line as a first step on the path to an allogeneic stem-cell derived product . upon successful completion of these studies and identification of a product candidate , we and viacyte will jointly assume responsibility for further development and commercialization worldwide . story_separator_special_tag upon execution of the agreement , viacyte was entitled to receive $ 15.0 million from us that was owed in two installments , payable either in cash or in common shares at the company 's option . the agreement included certain provisions such that in the event viacyte sold shares received from us for less than $ 15.0 million in combined net proceeds , we would owe viacyte the deficient amount . in the event viacyte sold shares received from us for greater than $ 15.0 million in combined net proceeds , viacyte would owe us the surplus amount . on september 24 , 2018 , we issued 165,636 common shares to viacyte which had a fair value of $ 7.5 million . these shares were subsequently sold for $ 6.9 million , resulting in a deficient amount of $ 0.6 million . on november 15 , 2018 , we issued 214,512 common shares to viacyte , which had a fair value of $ 8.1 million . these shares were subsequently sold for $ 7.5 million , resulting in a deficient amount of $ 0.6 million , which was paid in cash on december 18 , 2018. at the time of the agreement , viacyte had the option , under certain circumstances , to receive an additional $ 10.0 million from us in the form of a convertible promissory note at fair value . as of november 2018 , these circumstances no longer provide viacyte with that option . the viacyte collaboration agreement may remain in force for up to six years . financial overview revenue recognition we have not generated any revenue to date from product sales and do not expect to do so in the near future . during the years ended december 31 , 2018 , 2017 and 2016 we recognized $ 3.1 million , $ 41.0 million and $ 5.2 million , respectively , of revenue related to our collaboration agreements with vertex and casebia . as of december 31 , 2018 , we had not received any milestone or royalty payments under the vertex collaboration agreement . for additional information about our revenue recognition policy , see the “ critical accounting policies and estimates— revenue . ” 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 : employee-related expenses , including salaries , benefits and equity-based compensation expense ; costs of services performed by third parties that conduct research and development and preclinical activities on our behalf ; costs of purchasing lab supplies and non-capital equipment used in our preclinical activities and in manufacturing preclinical study materials ; consultant fees ; facility costs , including rent , depreciation and maintenance expenses ; and fees and other payments related to acquiring and maintaining licenses under our third-party licensing agreements . research and development costs are expensed as incurred . nonrefundable advance payments for research and development goods or services to be received in the future are deferred and capitalized . the capitalized amounts are expensed as the related goods are delivered or the services are performed . at this time , we can not reasonably estimate or know the nature , timing or estimated costs of the efforts that will be necessary to complete the development of any product candidates we may identify and develop . this is due to the numerous risks and uncertainties associated with developing such product candidates , including the uncertainty of : successful completion of preclinical studies and investigational new drug-enabling studies ; successful enrollment in , and completion of , clinical trials ; receipt of marketing approvals from applicable regulatory authorities ; establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers ; 88 obtaining and maintaining patent and trade secret protection and non-patent exclusivity ; launching commercial sales of the product , if and when approved , whether alone or in collaboration with others ; acceptance of the product , if and when approved , by patients , the medical community and third-party payors ; effectively competing with other therapies and treatment options ; a continued acceptable safety profile following approval ; enforcing and defending intellectual property and proprietary rights and claims ; and achieving desirable medicinal properties for the intended indications . a change in the outcome of any of these variables with respect to the development of any product candidates we may develop could significantly change the costs , timing and viability associated with the development of that product candidate . except for activities we perform in connection with our collaborations with vertex and casebia , we do not track research and development costs on a program-by-program basis . research and development activities are central to our business model . we expect research and development costs to increase significantly for the foreseeable future as our current development programs progress and new programs are added . general and administrative expenses general and administrative expenses consist primarily of employee related expenses , including salaries , benefits , and equity-based compensation , for personnel in executive , finance , accounting , business development and human resources functions . other significant costs include facility costs not otherwise included in research and development expenses , legal fees relating to patent and corporate matters , and fees for accounting and consulting services . we anticipate that our general and administrative expenses will increase in the future to support continued research and development activities , potential commercialization of our product candidates and increased costs of operating as a public company . we anticipate increased costs associated with being a public company , including expenses related to services associated with maintaining compliance with exchange listing and sec requirements , insurance costs and investor relations costs , the hiring of additional personnel and fees to outside consultants , lawyers and accountants , among other expenses .
| other ( expense ) income other expense , net , was $ 5.5 million for the year ended december 31 , 2018 , compared to $ 2.0 million for the year ended december 31 , 2017. the increase was primarily due to an increase in the loss from equity method investment from stock-based compensation awards granted to employees of casebia of $ 2.5 million and other expenses of $ 1.2 million related to the change in fair value of the derivative liability issued under the viacyte collaboration agreement . the increases were offset by $ 0.2 million of investment income for the year ended december 31 , 2018. comparison of years ended december 31 , 2017 , and 2016 the following table summarizes our results of operations for the years ended december 31 , 2017 and 2016 , together with the dollar change in those items : replace_table_token_4_th collaboration revenue collaboration revenue for the year ended december 31 , 2017 was $ 41.0 million , compared to $ 5.2 million for the year ended december 31 , 2016. the increase of $ 35.8 million was primarily due to $ 30.3 million of revenue recognized in conjunction with the delivery of co-exclusive licenses to develop and commercialize various hemoglobinopathy targets under the collaboration agreement with vertex and in connection with the execution of the jda with vertex , an increase in research and development service revenue from the collaboration with vertex of $ 32.2 million , and an increase in research and development service revenue of $ 3.6 million from a collaboration agreement with casebia . during the year ended december 31 , 2016 , we recognized $ 4.0 million and $ 1.2 million of research and development service revenue related to the collaboration with vertex and casebia , respectively . 90 research and development expenses research and development expenses for the year ended december 31 , 2017 was $ 69.8 million , compared to $ 42.2 million for the year ended december 31 ,
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subsequent to initial recognition , the fdic loss-sharing asset is reviewed quarterly and adjusted for any changes in expected cash flows . these adjustments are measured on the same basis as the related covered assets . any decrease in expected cash flows due to an increase in expected credit losses will increase the fdic loss-sharing asset and any increase in expected future cash flows due to a decrease in expected credit losses will decrease the fdic loss-sharing asset . increases and decreases to the fdic loss-sharing asset are recorded as adjustments to noninterest income . valuation and recoverability of goodwill goodwill represented $ 115.6 million of our $ 4.79 billion in total assets and $ 759.3 million in total shareholders ' equity as of december 31 , 2011. the company has one , single reporting unit . we review goodwill for impairment annually , on september 30th and also test for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of our reporting unit below its carrying amount . such events and circumstances may include among others : a significant adverse change in legal factors or in the general business climate ; significant decline in our stock price and market capitalization ; unanticipated competition ; the testing for recoverability of a significant asset group within the reporting unit ; and an adverse action or assessment by a regulator . any adverse change in these factors could have a significant impact on the recoverability of goodwill and could have a material impact on our consolidated financial statements . when required , the goodwill impairment test involves a two-step process . we first test goodwill for impairment by comparing the fair value of the reporting unit with its carrying amount . if the fair value of the reporting unit exceeds the carrying amount of the reporting unit , goodwill is not deemed to be impaired , and no further testing is necessary . if the carrying amount of the reporting unit were to exceed the fair value of the reporting unit , we would perform a second test to measure the amount of impairment loss , if any . to measure the amount of any impairment loss , we would determine the implied fair value of goodwill in the same manner as if the reporting unit were being acquired in a business combination . specifically , we would allocate the fair value of the reporting unit to all of the assets and liabilities of the reporting unit in a hypothetical calculation that would determine the implied fair value of goodwill . if the implied fair value of goodwill is less than the recorded goodwill , we would record an impairment charge for the difference . the accounting estimates related to our goodwill require us to make considerable assumptions about fair values . our assumptions regarding fair values require significant judgment about economic factors , industry factors and technology considerations , as well as our views regarding the growth and earnings prospects of the retail banking unit . changes in these judgments , either individually or collectively , may have a significant effect on the estimated fair values . based on the results of the annual goodwill impairment test , we determined that no goodwill impairment charges were required at september 30 , 2011. as of december 31 , 2011 we determined there were no events or circumstances which would more likely than not reduce the fair value of our reporting unit below its carrying amount . even though we determined that there was no goodwill impairment during 2011 , additional adverse changes in the operating environment for the financial services industry may result in a future impairment charge . please refer to note 10 to the consolidated financial statements in “ item 8. financial statements and supplementary data ” of this report for further discussion . 2011 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; color : # 000000 ; text-decoration : none ; '' > $ 3.82 billion at december 31 , 2011 compared to $ 3.33 billion at december 31 , 2010 . core deposits totaled $ 3.51 billion at december 31 , 2011 , comprising 92 % of total deposits compared to $ 3.00 billion , or 90 % , of total deposits at december 31 , 2010 . the company is well capitalized with a total risk-based capital ratio of 21.05 % at december 31 , 2011 compared to 24.47 % at december 31 , 2010 . these ratios reflect the $ 26.0 million payoff of the company 's long-term subordinated debt in july 2011. these ratios also reflect net proceeds to the company of $ 229.1 million from an underwritten public offering of common shares completed in may , 2010 as well as the payment of $ 76.9 million for the retirement of the preferred shares issued under the u.s. department of the treasury 's capital purchase program and $ 3.3 million paid by the company to retire the warrants associated with the preferred shares . 26 business combinations on august 5 , 2011 , the bank acquired certain assets and assumed certain liabilities of the bank of whitman from the fdic in an fdic-assisted transaction . the bank and the fdic entered into a modified whole bank purchase and assumption agreement without loss share . the bank acquired approximately $ 437.5 million in assets , including $ 200.0 million in loans , and approximately $ 401.1 million in deposits located in nine branches in eastern washington . the bank participated in a competitive bid process in which the accepted bid included no deposit premium on non-brokered deposits and a negative bid of $ 30.0 million on net assets acquired . on may 27 , 2011 , the bank acquired certain assets and assumed certain liabilities of first heritage bank from the fdic in an fdic-assisted transaction . story_separator_special_tag the bank acquired approximately $ 165.0 million in assets and approximately $ 159.5 million in deposits located in five branches in the king and snohomish counties of washington . first heritage bank 's loans and other real estate assets acquired of approximately $ 89.7 million are subject to a loss-sharing agreement with the fdic . the bank participated in a competitive bid process in which the accepted bid included a 0.75 % deposit premium on non-brokered deposits and a negative bid of $ 10.5 million on net assets acquired . on may 20 , 2011 , the bank acquired certain assets and assumed certain liabilities of summit bank from the fdic , in an fdic-assisted transaction . the bank acquired approximately $ 131.1 million in assets and approximately $ 123.3 million in deposits located in three branches in in the northern puget sound region of washington . summit bank 's loans and other real estate assets acquired of approximately $ 71.9 million are subject to a loss-sharing agreement with the fdic . the bank participated in a competitive bid process in which the accepted bid included a 0.75 % deposit premium on non-brokered deposits and a negative bid of $ 9.5 million on net assets acquired . on january 29 , 2010 , the bank acquired substantially all of the deposits and assets of american marine bank from the fdic , which was appointed receiver of american marine bank . the bank acquired approximately $ 307.8 million in assets and approximately $ 254.0 million in deposits located in 11 branches in the western puget sound region . american marine bank 's loans and other real estate assets acquired of approximately $ 257.5 million are subject to a loss-sharing agreement with the fdic . in addition , columbia state bank will continue to operate the trust division of american marine bank . the bank participated in a competitive bid process in which the accepted bid included a 1 % deposit premium on non-brokered deposits and a negative bid of $ 23.0 million on net assets acquired . on january 22 , 2010 , the bank acquired all of the deposits and certain assets of columbia river bank from the fdic , in an fdic-assisted transaction . the bank acquired approximately $ 912.9 million in assets and approximately $ 893.4 million in deposits located in 21 branches in oregon and washington . columbia river bank 's loans and other real estate assets acquired of approximately $ 696.1 million are subject to a loss-sharing agreement with the fdic . the bank participated in a competitive bid process in which the accepted bid included a 1 % deposit premium on non-brokered deposits and a negative bid of $ 43.9 million on net assets acquired . 27 results of operations summary a summary of the company 's results of operations for each of the last five years ended december 31 follows : replace_table_token_6_th net interest income net interest income is the difference between interest income and interest expense . net interest income on a fully taxable-equivalent basis expressed as a percentage of average total interest-earning assets is referred to as the net interest margin , which represents the average net effective yield on interest-earning assets . 28 the following table sets forth the average balances of all major categories of interest-earning assets and interest-bearing liabilities , the total dollar amounts of interest income on interest-earning assets and interest expense on interest-bearing liabilities , the average yield earned on interest-earning assets and average rate paid on interest-bearing liabilities by category and in total , net interest income , net interest spread , net interest margin and the ratio of average interest-earning assets to interest-earning liabilities : net interest income summary replace_table_token_7_th ( 1 ) nonaccrual loans were included in loans . amortized net deferred loan fees and net unearned discounts on certain acquired loans were included in the interest income calculations . the amortization of net deferred loan fees was $ 1.3 million in 2011 $ 2.1 million in 2010 , $ 2.8 million in 2009 . the amortization of net unearned discounts on certain acquired loans was $ 14.3 million in 2011 . there was no amortization of net unearned discounts in 2010 or 2009 . ( 2 ) yields on fully taxable equivalent basis , based on a marginal tax rate of 35 % . 29 net interest income is impacted by the volume ( changes in volume multiplied by prior rate ) , interest rate ( changes in rate multiplied by prior volume ) and the mix of interest-earning assets and interest-bearing liabilities . the following table shows changes in net interest income on a fully taxable-equivalent basis between 2011 and 2010 , as well as between 2010 and 2009 broken down between volume and rate . changes attributable to the combined effect of volume and interest rates have been allocated proportionately to the changes due to volume and the changes due to interest rates : changes in net interest income replace_table_token_8_th comparison of 2011 with 2010 taxable-equivalent net interest income totaled $ 242.9 million in 2011 , compared with $ 170.5 million for 2010 . the significant increase in net interest income during 2011 resulted from income accretion on the acquired loan portfolios . the incremental accretion income represents the amount of income recorded on the acquired loans above the contractual rate stated in the individual loan rates . the additional income stems from the discount established at the time these loan portfolios were acquired , and increases net interest income and the net interest margin . the incremental accretion income had a positive impact of approximately 174 basis points on the 2011 net interest margin .
| the increase was due to accretion income related to loans acquired through fdic-assisted transactions as well as increased organic and acquired loan volumes . the company recorded $ 14.3 million of net discount accretion income for loans acquired in the bank of whitman transaction in 2011 . interest expense decreased $ 6.6 million due to the average cost of interest-bearing deposits falling 27 basis points . provision expense on noncovered loans was $ 7.4 million in 2011 , compared to $ 41.3 million in 2010 , a decrease of 82 % . noninterest income was a loss of $ 9.3 million for 2011 , a decrease from income of $ 52.8 million for 2010 . the decrease was primarily due to the $ 49.5 million change in the fdic loss-sharing asset and the $ 3.0 million impairment charge on investment securities . in addition , the company recognized a net of tax bargain purchase gain through noninterest income of $ 1.8 million related to the bank of whitman transaction in 2011 compared to a net of tax bargain purchase gain of $ 9.8 million related to the american marine bank transaction in 2010. noninterest expense increased 14 % to $ 155.8 million for 2011 due to increases in staffing and occupancy costs related to the three fdic-assisted transactions in 2011. total assets at december 31 , 2011 were $ 4.79 billion , up 12 % from $ 4.26 billion at the end of 2010 . the increase from december 31 , 2010 reflects the company 's three fdic-assisted acquisitions in may and august 2011. loans , excluding covered loans , were $ 2.35 billion , up 23 % from $ 1.92 billion at the end of 2010 . the increase from december 31 , 2010 reflects additional loan volume arising from the company 's three fdic-assisted acquisitions as well as organic loan growth . organic loan growth during 2011 was approximately $ 281.4 million and was centered mainly in commercial business and
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we generate our revenue from the sale of our durable cgm systems and disposable sensors . our durable systems include a reusable transmitter and receiver . disposable sensors are sold separately . we also provide free-of-charge software and mobile applications for use with our durable systems and disposable sensors . the initial durable system price is generally not dependent upon the subsequent purchase of any amount of disposable sensors . we generally recognize revenue when control is transferred to our customers in an amount that reflects the net consideration to which we expect to be entitled . transaction price is typically based on contracted rates less any estimates of claim denials and historical reimbursement experience , which would include current and future expectations regarding reimbursement contracts , guidelines and payor mix , and less estimated variable consideration adjustments including rebates . the amount of variable consideration that is included in the transaction price is included in revenue only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period . we estimate reductions to our revenues for rebates paid to payors and healthcare providers in the united states . rebates are based on contractual arrangements or statutory requirements , which may vary by product , payor and individual payor plans . our estimates are based on products sold , historical payor mix and , as available , known market events or trends and channel inventory data . for more information , see “ revenue recognition ” in note 1 to the financial statements in part ii , item 8 of this annual report . recognizing revenue requires us to exercise judgment and use estimates that can have a significant impact on the amount and timing of revenue we report . we exercise significant judgment when we determine the transaction price , including variable consideration adjustments . if the actual amounts of consideration that we receive differ from our estimates , we would adjust our estimates and that would affect reported revenue in the period that such variances become known . disaggregation of revenue . we disaggregate revenue by geographic region and by major sales channel . we have determined that disaggregating revenue into these categories achieves the asc topic 606 disclosure objectives of depicting how the nature , amount , timing and uncertainty of revenue and cash flows are affected by economic factors . reconciliations of revenue disaggregated by geographic location and by major sales channel to total revenue are provided in note 10 to the financial statements in part ii , item 8 of this annual report . share-based compensation share-based compensation expense is measured at the grant date based on the estimated fair value of the award and is recognized straight-line over the requisite service period of the individual grants , which typically equals the vesting period . shared-based compensation arrangements include time-based and performance/market-based restricted stock units ( “ rsus ” ) and purchases of common stock at a discount under our employee stock purchase plan , or espp . we estimate the fair value of time-based rsus based on the market price of our common stock on the date of grant ( the intrinsic value method ) . we estimate the fair value of performance/market-based rsus using a monte carlo simulation model . we adjust share-based compensation expense quarterly for performance/market-based rsus based on the expected achievement of the related performance conditions , which requires significant judgment . we estimate the fair value of espp purchase rights using the black-scholes option pricing model . the model requires us to make assumptions that include expected volatility , expected term , dividends , and the risk-free interest rate . we account for forfeitures as they occur by reversing any share-based compensation expense related to awards that will not vest . we recorded $ 101.9 million , $ 106.2 million and $ 110.8 million in share-based compensation expense during the twelve months ended december 31 , 2018 , 2017 and 2016 , respectively . at december 31 , 2018 , unrecognized estimated compensation costs related to unvested restricted stock units totaled $ 126.5 million and are expected to be recognized through 2021 . fair value of financial instruments the authoritative guidance establishes a fair value hierarchy that is based on the extent and level of judgment used to estimate the fair value of assets and liabilities . in general , the authoritative guidance requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value . an asset or liability 's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the measurement of its fair value . the three levels of input defined by the authoritative guidance are as follows : level 1—unadjusted quoted prices that are available in active markets for identical assets or liabilities . level 2—inputs other than quoted prices included in level 1 that are observable , either directly or indirectly , through correlation with market data . these include quoted prices in active markets for similar assets or liabilities ; quoted prices for identical or similar assets or liabilities in markets that are not active ; and inputs to valuation models or other pricing 64 methodologies that do not require significant judgment because the inputs used in the model , such as interest rates and volatility , can be corroborated by readily observable market data for substantially the full term of the assets or liabilities . level 3—unobservable inputs that are supported by little or no market activity and that are significant to the determination of fair value . level 3 assets and liabilities include those whose fair values are determined using pricing models , discounted cash flow methodologies , or similar valuation techniques and significant judgment or estimation . we estimate the fair value of most of our cash equivalents using level 1 inputs . story_separator_special_tag we estimate the fair value of our marketable equity securities using level 1 inputs and we estimate the fair value of our marketable debt securities using level 2 inputs . we carry our other financial instruments , such as cash , accounts receivable , prepaid expenses and other current assets , accounts payable and accrued liabilities , at cost , which approximates the related fair values due to the short-term maturities of these instruments . see note 1 and note 3 to the financial statements in part ii , item 8 of this annual report for more information about fair value measurements . accounts receivable and related valuation accounts we maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments . we evaluate the collectability of our accounts receivable based on a combination of factors . we regularly analyze customer accounts , review the length of time receivables are outstanding , review historical loss rates and assess current economic trends that may impact the level of credit losses in the future . our allowance for doubtful accounts has generally been adequate to cover our actual credit losses . however , since we can not reliably predict future changes in the financial stability of our customers , we may need to increase our reserves if the financial conditions of our customers deteriorate . excess and obsolete inventory inventory is valued at the lower of cost or net realizable value . we record adjustments to inventory for potentially excess , obsolete , or scrapped goods in order to state inventory at net realizable value . factors influencing these adjustments include inventories on hand and on order compared to estimated future usage and sales for existing and new products , as well as judgments regarding quality control testing data and assumptions about the likelihood of scrap and obsolescence . historically , our inventory reserves have been adequate to cover our actual losses . however , if actual product life cycles , product quality or market conditions differ from our assumptions , additional inventory adjustments that would increase cost of goods sold could be required . income taxes we estimate our income taxes based on the various jurisdictions where we conduct business . significant judgment is required in determining our worldwide income tax provision . the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations and the potential for future adjustment of our uncertain tax positions by the internal revenue service or other taxing jurisdictions . while we believe we have appropriate support for the positions taken on our tax returns , we regularly assess the potential outcomes of examinations by tax authorities in determining the adequacy of our provision for income taxes . we continually assess the likelihood and amount of potential adjustments and adjust the income tax provision , income taxes payable , and deferred taxes in the period in which the facts that give rise to a revision become known . we use the asset and liability approach to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities . deferred tax assets and liabilities are determined using the enacted tax rates in effect for the years in which those tax assets are expected to be realized . significant judgement is required to evaluate the need for a valuation allowance against deferred tax assets . we review all available positive and negative evidence , including projections of pre-tax book income , earnings history , and reliability of forecasting . a valuation allowance is established when it is more likely than not that some or all of the deferred tax assets will not be realized . as of december 31 , 2018 , we have maintained a full valuation allowance on our deferred tax assets since inception based on our historical losses and the uncertainty of generating future taxable income to utilize our loss and credit carryforwards . a future release of our valuation allowance will result in a material tax benefit recognized in the quarter of the release . we recognize and measure benefits for uncertain tax positions using a two-step approach . the first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained upon audit , including resolution of any related appeals or litigation processes . for tax positions that are more likely than not of being sustained upon audit , the second step is to measure the tax benefit as the largest amount that is more than 50 % likely of being realized upon settlement . significant judgment is required to evaluate uncertain tax positions and is based upon a number of factors , including changes in facts or circumstances , changes in 65 tax law , correspondence with tax authorities during the course of audits and effective settlement of audit issues . changes in the recognition or measurement of uncertain tax positions could result in material increases or decreases in our income tax expense in the period in which we make the change , which could have a material impact on our effective tax rate and operating results . loss contingencies we are subject to certain legal proceedings , as well as demands , claims and threatened litigation that arise in the normal course of our business . we review the status of each significant matter quarterly and assess our potential financial exposure . if the potential loss from a claim or legal proceeding is considered probable and the amount can be reasonably estimated , we record a liability and an expense for the estimated loss and disclose it in our financial statements if it is significant .
| the 2018 revenue increase was primarily driven by increased sales volume of our disposable sensors and durable systems due to the continued growth of our installed base of customers , both in the united states and outside the united states . disposable sensor and other revenue comprised approximately 75 % of total revenue and durable systems revenue comprised approximately 25 % of total revenue for the twelve months ended december 31 , 2018 . disposable sensor and other revenue comprised approximately 70 % of total revenue and durable systems revenue comprised approximately 30 % of total revenue for the twelve months ended december 31 , 2017 . total distributor revenue for the twelve months ended december 31 , 2018 was approximately $ 652.9 million or 63 % of our total revenue , compared to $ 538.0 million or 75 % of our total revenue for the same period in 2017 . cost of sales increased $ 141.3 million or 62 % for the twelve months ended december 31 , 2018 compared to the twelve months ended december 31 , 2017 primarily due to increased sales volume . the gross profit of $ 663.9 million or 64 % of total revenue for the twelve months ended december 31 , 2018 increased $ 171.8 million compared to $ 492.1 million or 68 % of total revenue for the same period in 2017 . the 2018 increase in gross profit dollars was driven primarily by increased revenue and decreased warranty costs , partially offset by a $ 7.3 million excess and obsolete inventory charge that was related to the approval and launch of our g6 system and the continuous improvement and innovation of our products , as well as royalty-related cost of sales charges . the 2018 decrease in gross margin percentage is a function of channel strategy and product mix through our new product launches and international expansion . 2017 compared to 2016 total revenue increased $ 145.2 million or 25 % for the twelve months ended december 31 , 2017 compared to the twelve months ended december 31 , 2016. the 2017 revenue increase was primarily driven by increased sales volume of our
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liquidity and capital resources at december 31 , 2014 , we had cash and cash equivalents of $ 1,101,651 and total assets of $ 1,333,198 , as compared to $ 2,513,861 and $ 2,839,576 , respectively , at december 31 , 2013. working capital totaled $ 1,038,472 at december 31 , 2014 , compared to $ 2,385,990 at december 31 , 2013. sources and uses of cash we have funded our activities to date primarily from government grants and clinical trial assistance , and from sales of our equity securities . due to our significant research and development expenditures , we have not been profitable and have generated operating losses since our inception in 2001. we will continue to require substantial funds to continue these activities . our primary sources of cash are from sales of our equity securities and from government grant funding . we believe that our existing cash resources , combined with the proceeds from the nih grants discussed below will be sufficient to fund our planned operations through the first quarter of 2016. we will require additional funds to continue our planned operations beyond that date . we are currently seeking sources of non-dilutive capital through government grant programs and clinical trial support , and we may also conduct additional offerings of our equity securities . however , additional funding may not be available on favorable terms or at all and if we fail to obtain additional capital when needed , we may be required to delay , scale back , or eliminate some or all of our research and development programs as well as reduce our general and administrative expenses . cash flows from operating activities net cash used in operating activities was $ 2,250,107 , $ 1,694,592 , and $ 2,441,247 for the years ended december 31 , 2014 , 2013 and 2012 , respectively . generally , the differences between periods are due to fluctuations in our net losses , offset by non-cash charges such as depreciation and stock-based compensation expense , and by net changes in our assets and liabilities . our net losses generally fluctuate based on expenditures for our research activities , offset by government grant revenues . 27 the nih has funded the costs of conducting all of our human clinical trials ( phase 1 and phase 2a ) to date for our preventive hiv vaccines , with geovax incurring costs associated with manufacturing the clinical vaccine supplies and other study support . we are actively engaged in discussions with the hvtn and niaid regarding the design of our next clinical study and various trial designs are being considered . our vaccine is currently the only vaccine being contemplated for efficacy trials for prevention of clade b hiv infection . however , the hvtn believes the best path forward will be to test our vaccines in combination with a protein boost . protein boosts may augment antibody responses that can block virus infections ( neutralizing antibody ) and cause antibody dependent cellular cytotoxicity ( adcc antibody ) . protein added to hiv vaccines have shown some success in other trials . the hvtn believes this “ dual-action ” approach will be a prudent and cost-effective path forward for supporting large clinical trials . our current expectation is that the next clinical trial will begin in late 2015 and will be a follow-on study to the hvtn 205 trial , in which those trial participants are given a protein boost to evaluate their immune responses . information from this trial would then inform the design of future , larger clinical trials . the hvtn and nih are continuing to consider future efficacy studies , and members are working to develop collaborative clinical development plans , as well as initiating regulatory planning . the plans for large-scale clinical trials may change as researchers continue to gather information from our earlier studies and are influenced by results from other vaccine trials . trial start dates are dependent on many factors and are likely to change . during 2014 , we completed a phase 1 clinical trial ( gv-th-01 ) investigating the therapeutic use of our govx-b11 vaccine in hiv-infected patients . we received no federal assistance in conducting this study . observations from a pilot phase 1 clinical trial of our hiv vaccines ( gv-th-01 – discussed below ) have led us to postulate that our dna vaccines may be effective as a shock agent and that a subsequent , precisely timed mva inoculation may reduce viral reservoirs . the company is currently considering the best course of action for advancing its hiv immunotherapy program . future therapeutic studies of geovax 's vaccine may investigate vaccine 's ability to act as a “ shock agent ” in a shock and kill therapy in combination with standard of care antiretroviral drug therapy to seek a cure . the timetable and specific clinical plans will be dependent upon the company 's ability to secure external funding for the program , and on the nature of any potential collaborations geovax may establish . in addition to clinical trial support from the nih for our preventive hiv vaccines , our operations have been partially funded by nih research grants . we record the funding we receive pursuant to these grants as revenue at the time the related expenditures are incurred . as of december 31 , 2014 , there was an aggregate of approximately $ 229,000 of unused grant funds available for use during 2015. we intend to pursue additional grants from the federal government but can not be assured of success . as we progress to the later stages of our vaccine development activities , government financial support may be more difficult to obtain , or may not be available at all . therefore , it will be necessary for us to look to other sources of funding in order to finance our clinical trials and other vaccine development activities . cash flows from investing activities our investing activities have consisted predominantly of capital expenditures . story_separator_special_tag capital expenditures for the years ended december 31 , 2014 , 2013 and 2012 , were $ 35,503 , $ 86,603 , and $ -0- , respectively . cash flows from financing activities net cash provided by financing activities was $ 873,400 , $ 3,259,131 , and $ 2,309,192 for the years ended december 31 , 2014 , 2013 and 2012 , respectively . the cash generated by our financing activities during 2011 relates to the sale of our common stock to individual accredited investors in a private placement offering initiated during december 2011. during january 2012 , we received an additional $ 310,160 from stock sales pursuant to this offering ( including $ 36,800 received in payment of a stock subscription receivable from december 2011 ) . in march 2012 , we sold 2,200 shares of our series a convertible preferred stock , as well as accompanying warrants to purchase 8,799,999 shares of common stock , to a group of institutional investors for an aggregate purchase price of $ 2.2 million . net proceeds to the company , after deduction of placement agent fees and other expenses , were approximately $ 2.0 million . the cash generated by our financing activities during 2012 also includes $ 310,160 received in january 2012 related to the sale of our common stock to individual accredited investors in a private placement offering which was initiated during december 2011 . 28 in january 2013 , we reduced the exercise price of 2,933,333 of certain stock purchase warrants from $ 0.75 to $ 0.60 per share . in consideration for the reduction of the exercise price , the holders of the warrants immediately exercised 1,766,667 of the warrants for cash , resulting in total proceeds to the company of $ 1,060,000. we also extended the expiration date of the 1,166,666 unexercised warrants from march 21 , 2013 to may 21 , 2013. in may 2013 , we reduced the exercise price of the 1,166,666 remaining warrants from $ 0.60 to $ 0.50 per share . in consideration for the reduction of the exercise price , the holders of the warrants immediately exercised all of the remaining warrants for cash , resulting in total proceeds to the company of $ 583,333. in december 2013 , we sold 1,650 shares of our series b convertible preferred stock to a group of institutional investors for an aggregate purchase price of $ 1.65 million . net proceeds to the company , after deduction of transaction expenses , were approximately $ 1.6 million . no warrants were issued in connection with the transaction . in october 2014 , we entered into an agreement with certain warrant holders to purchase shares of our common stock with respect to the payment to them of a warrant exercise fee of $ 0.075 per share for each share purchased upon exercise of warrants held by them . in exchange for the fee , they immediately exercised warrants for an aggregate of 3,176,000 shares of our common stock , resulting in proceeds to us of $ 873,400 ( net of the exercise fee ) . our capital requirements , particularly as they relate to our research and development activities , have been and will continue to be significant . we anticipate incurring additional losses for several years as we expand our clinical programs and proceed into higher cost human clinical trials . conducting clinical trials for our vaccine candidates in development is a lengthy , time-consuming and expensive process . we will not generate revenues from the sale of our technology or products for at least several years , if at all . for the foreseeable future , we will be dependent on obtaining financing from third parties in order to maintain our operations , including our clinical program . such capital may not be available on terms acceptable to the company or at all . if we fail to obtain additional funding when needed , we would be forced to scale back or terminate our operations , or to seek to merge with or to be acquired by another company . in february 2015 , we sold shares of series c convertible preferred stock to certain institutional investors for an aggregate purchase price of $ 3.0 million , and five-year series d warrants to purchase an aggregate of 16,666,666 shares of our common stock at $ 0.22 per share . net proceeds to the company , after deduction of placement agent fees and other expenses , were approximately $ 2.7 million . the preferred stock is convertible at any time into shares of our common stock at $ 0.18 per share , subject to adjustment as provided in the certificate of designation . we also granted to the investors an additional purchase right , evidenced in the form of one-year series e warrants to purchase up to 16,666,666 of our common stock with an exercise price of $ 0.18 per share , and five-year series f warrants to purchase up to 16,666,666 shares of our common stock at $ 0.22 per share . the series e warrants are immediately exercisable . the series f warrants only become exercisable at the time , and to the extent , that the series e warrants are exercised . we expect that our current working capital ( including the net proceeds from the february 2015 financing event discussed above ) combined with the remaining available funds from the nih grants will be sufficient to support our planned level of operations through the first quarter of 2016. we will require additional funds to continue our planned operations beyond that date . we are currently seeking sources of non-dilutive capital through government grant programs and clinical trial support , and we may also conduct additional offerings of our equity securities , although there can be no assurance that we will be able to do so .
| we recorded grant revenues of $ -0- , $ 1,429,597 , and $ 429,403 for the years ended december 31 , 2014 , 2013 and 2012 , respectively , related to this grant , and all funding pursuant to this grant has been utilized as of december 31 , 2014. in july 2013 , the nih awarded us a small business innovative research ( sbir ) grant entitled “ enhancing protective antibody responses for a gm-csf adjuvanted hiv vaccine. ” the initial grant award was approximately $ 277,000 for the first year of a two year project period beginning august 1 , 2013. in july 2014 , the nih awarded us approximately $ 290,000 for the second year of the project period . we recorded grant revenues of $ 258,267 , $ 154,563 , and $ -0- for the years ended december 31 , 2014 , 2013 and 2012 , respectively , related to this grant , and there is $ 153,501 of unrecognized grant funds remaining and available for use pursuant to this grant as of december 31 , 2014. research and development our research and development expenses were $ 1,812,969 , $ 2,914,878 , and $ 3,043,522 for the years ended december 31 , 2014 , 2013 and 2012 , respectively . research and development expense for these periods includes stock-based compensation expense of $ 32,134 , $ 41,539 , and $ 78,140 for 2014 , 2013 and 2012 , respectively ( see discussion under “ stock-based compensation expense ” below ) . since our inception , all of our research and development efforts have been focused on development of human vaccines – initially with a focus on hiv/aids vaccines , and with a recent expansion to vaccines for ebola and marburg . our research activities conducted pursuant to our nih grants are also focused solely on the development of human vaccines . our research and development expenses can fluctuate considerably on a period-to-period basis , depending on our need for vaccine manufacturing by third parties , the timing of expenditures related to our
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pursuant to the agreement entered into on september 21 , 2017 , both parties have agreed to establish a new company , namely , xinjiang shineco taihe agriculture technology ltd. to hold and operate the apocynum industrial park , with a total investment of rmb 50 million ( approximately us $ 7.57 million ) , of which the company will invest rmb 47.5 million and mr. wang will invest rmb 2.5 million . upon the closing of the agreement , shineco owns 95 % of the equity interest of xinjiang taihe . on september 30 , 2017 , tenet-jove established xinjiang shineco taihe agriculture technology ltd. ( “ xinjiang taihe ” ) with registered capital of rmb 10.0 million ( us $ 1,502,650 ) . on september 30 , 2017 , tenet-jove established xinjiang tianyi runze bioengineering co. , ltd. ( “ runze ” ) with registered capital of rmb 10.0 million ( us $ 1,502,650 ) . xinjiang taihe and runze became wholly-owned subsidiaries of tenet-jove . on december 10 , 2016 , tenet-jove entered into a purchase agreement with tianjin tajite , an online e-commerce company based in tianjin , china , specializing in distributing luobuma related products and branded products of daiso 100-yen shops , pursuant to which tenet-jove would acquire a 51 % equity interest in tianjin tajite e-commerce co. , ltd. ( “ tianjin tajite ” ) , a professional e-commerce company distributing luobuma fabric commodities and branded products of daiso 100-yen shops , based in tianjin , china , for cash consideration of rmb 14,000,000 ( approximately us $ 2.1 million ) . on december 25 , 2016 , the company paid the full amount as the deposit to secure the deal . in may , 2017 , the company amended the agreement that required tianjin tajite to satisfy certain preconditions related to product introductions into china . on october 26 , 2017 , the company completed the acquisition for 51 % of the equity interest in tianjin tajite . 32 on october 27 , 2017 , the company , through its subsidiary tianjin tajite e-commerce co. , ltd. ( “ tianjin tajite ” ) , obtained contractual rights to distribute branded products of daiso industries co. , ltd. ( “ daiso ” ) , a large franchise of 100-yen shops founded in japan , via jd.com ( “ jd ” ) , one of the largest e-commerce companies and one of the largest retailers in china . on november 3 , 2017 , the company further developed the cooperation with daiso by entering into a supply and purchase agreement ( the “ daiso agreement ” ) for the purpose of establishing a continuous supply and sale of daiso 's products in china . pursuant to the daiso agreement , the company planned to purchase daiso products in the amount of approximately rmb 20 million by august , 2018 and add orders as circumstance requires . the term of the daiso agreement is for one year , and it renews for an additional one-year at the end of each term unless terminated by written notice by either tianjin tajite or daiso . due to the policy of china customs , many of the bestselling products of daiso are not allowed to be imported through the general form of trade model , but only through cross-border e-commence business model . as a result , the company and daiso agreed to suspend the cooperation temporarily and waits for the opening of the china-japan-south korea free trade zone . on november 1 , 2017 , the company established the apocynum industrial park in xinjiang , china . we ceased the business operation of tenet-jove xuzhou branch in november 2017. on march 13 , 2019 , tenet-jove established beijing tenjove newhemp biotechnology co. , ltd. ( “ tnb ” ) with registered capital of rmb 10.0 million ( us $ 1,502,650 ) . tnb became wholly-owned subsidiaries of the company . we ceased the business operation of tiankunrunze and its wholly owned subsidiaries in july 2019. the company , through its subsidiary , xinjiang taihe has entered into a definitive share exchange and acquisition agreement ( the “ xinjiang tiansheng agreement ” ) with western xinjiang tiansheng agricultural development co. , ltd ( “ xinjiang tiansheng ” ) . pursuant to the xinjiang tiansheng agreement , xinjiang taihe will receive 51 % equity ownership in xinjiang tiansheng for further investment in apocynum business expansion in xinjiang , china , in exchange for a combination of 14 % equity ownership in xinjiang taihe and cash payments in three separate installments ( the “ acquisition consideration ” ) . the first installment in the amount of rmb 810,000 ( approximately us $ 117,933 ) was paid to xinjiang tiansheng ( the “ xinjiang tiansheng deposit ” ) . the acquisition consideration in the aggregate is valued at rmb 23.8 million ( approximately us $ 3.5 million ) contingent upon certain milestones in the next years . the company and xinjiang tiansheng terminated the xinjiang tiansheng agreement on july 10 , 2018 and xinjiang tiansheng returned the full xinjiang tiansheng deposit following such termination by the end of july 2018. currently , we have three main business segments : ( i ) tenet-jove is engaged in developing , manufacturing and selling of bluish dogbane and related products , also known in chinese as “ luobuma , ” including therapeutic clothing and textile products made from luobuma , as well as purchasing luoboma raw materials processing ; ( ii ) zhisheng group is engaged in the business of planting , processing and distributing of green agricultural produce as well as providing domestic and international logistic services for agricultural products ( “ agricultural products ” ) ; and , ( iii ) ankang longevity manufactures traditional chinese medicinal herbal products as well as other retail pharmaceutical products . these different business activities and products can potentially be integrated and benefit from one another . story_separator_special_tag 33 financing activities on january 23 , 2018 , the company entered into a common stock purchase agreement ( the “ purchase agreement ” ) with ifg opportunity fund llc ( “ ifg fund ” ) whereby , the company had the right , from time to time in its sole discretion during the 24-month term of the purchase agreement , to direct ifg fund to purchase up to a total of us $ 15,000,000 of shares of common stock and an additional 200,000 shares of common stock ( the “ commitment shares ” ) as consideration for ifg to enter into the purchase agreement . the company and ifg fund , on january 23 , 2018 , entered into a registration rights agreement for certain registration rights in connection with the purchase agreement ( the “ registration rights agreement ” ) . the ifg fund offering was made pursuant to a prospectus supplement dated and filed with the securities and exchange commission ( “ sec ” ) on january 26 , 2018 ( the “ prospectus supplement ” ) and an accompanying prospectus dated november 21 , 2017 , under the company 's shelf registration statement on form s-3 declared effective by the sec on december 19 , 2017 ( file no . 333-221711 ) ( the “ registration statement ” ) . on january 23 , 2018 , the company issued the commitment shares to ifg fund . on july 3 , 2018 , the company and ifg fund entered into a termination agreement , dated july 3 , 2018 ( the “ termination agreement ” ) effective as of july 3 , 2018 , to terminate the purchase agreement and the registration rights agreement . ifg retained the 200,000 commitment shares which were valued at us $ 434,000 and written off during the nine months ended march 31 , 2019. on september 27 , 2018 , the company entered into a securities purchase agreement with select investors pursuant to which the company sold 1,637,700 shares of common stock at a purchase price of us $ 1 per share , for gross proceeds to the company of approximately us $ 1,637,700 ( the “ 2018 offering ” ) . after deducting the offering expenses , the net proceeds that the company received was us $ 1,589,892. the 2018 offering closed on september 28 , 2018. the 2018 offering was made pursuant to the company 's effective registration statement on form s-3 ( registration statement no . 333-221711 ) previously filed with the securities and exchange commission and a prospectus supplement thereunder . on may 8 , 2019 , tnb , filed with the united states securities and exchange commission a notice of exempt offering of securities on form d regarding an offering ( “ offering ” ) of tokens that tenet-jove plans to raise up to $ 20,000,000 in the offering , and up to an additional $ 20,000,000 in an offering under regulation s of the securities act . tenet-jove intends to use the net proceeds from sales of the tokens to develop land and facilities for cultivating industrial hemp in china under a newly formed wholly owned subsidiary ( the “ operations ” ) . the tokens represent shares of preferred stock of tenet-jove . on an annual basis , tenet-jove will distribute to token holders the greater of ( a ) 5 % of the total amount of proceeds raised by tenet-jove in the offerings , or ( b ) 40 % of net profits generated from the operations . the company will guarantee tenet-jove 's obligations to distribute such amount . token holders shall also have the option to convert the tokens into shares of common stock of the company . as the date of this report , the offering of tokens is in process , and none of the tokens has been sold . factors affecting financial performance we believe that the following factors will affect our financial performance : increasing demand for our products - the increasing demand for our agricultural products will have a positive impact on our financial position . we plan to develop new products and expand our distribution network as well as to grow our business through possible mergers and acquisitions of similar or synergetic businesses , all aimed at increasing awareness of our brand , developing customer loyalty , meeting customer demands in various markets and providing solid foundations for our continuous growth . as of the date of this report however , we do not have any agreements , undertakings or understandings to acquire any such entities and there can be no guarantee that we ever will . expansion of our sources of supply , production capacity and sales network - to meet the increasing demand for our products , we need to expand our sources of supply and production capacity . we plan to make capital improvements in our existing production facilities which would improve both their efficiency and capacity . in the short-run , we intend to increase our investment in our reliable supply network , personnel training , information technology applications and logistic system upgrades . we also participate in two non-equity investment opportunities through a vie , both of which we expect to provide us with new networks and platforms . 34 maintaining effective control of our costs and expenses - successful cost control depends upon our ability to obtain and maintain adequate material supplies as required by our operations at competitive prices . we will focus on improving our long-term cost control strategies including establishing long-term alliances with certain suppliers to ensure adequate supply is maintained . we will carry forward the economies of scale and advantages from our nationwide distribution network and diversified offerings . moreover , we will step up our efforts in higher value added products of luobuma by using an exclusive and patented technology , to optimize quality management , procurement processes and cost control , and give full play to the strong production capacity and trustworthy sales teams to maximize our profit and bring better long-term return for our shareholders . economic and political risks our operations are conducted primarily in the prc .
| in fiscal year 2019 , the company only managed to obtain the permit in the end of december 2018. the management estimated that it is unlikely to obtain new permit in the future , hence , the management decided to cease the wild apocynum venetum in xinjiang province , and changed the company 's strategy to develop industrial apocynum venetum business in shanxi province instead . as a result , no revenue was generated by xinjiang taihe during the year ended june 30 , 2019. the decrease was also due to the decrease in revenue from tenet-jove xuzhou branch of us $ 1,340,357 as the business operation of this branch ceased in november 2017. for the years ended june 30 , 2019 and 2018 , revenue from sales of chinese medicinal herbal products was us $ 13,708,166 and us $ 14,179,603 , respectively , representing a slight decrease of us $ 471,437 or 3.32 % . the sales of chinese medicinal herbal products were comparatively stable during the year ended june 30 , 2019 as compared to the same period in 2018. the decrease was due to the depreciation of rmb against us $ . the average translation rate for the year ended june 30 , 2019 and 2018 were at 1 rmb to 0.1466 usd and at 1 rmb to 0.1537 usd , respectively , which represented a decrease of 4.65 % . for the years ended june 30 , 2019 and 2018 , revenue from sales of other agricultural products was us $ 16,850,096 and us $ 18,833,114 , respectively , representing a decrease of us $ 1,983,018 or 10.53 % . the decrease was mainly due to the decrease in sales volume of yew trees for the year ended june 30 , 2019 as compared to the same period in 2018. the main reason of the decrease was that the company sold us $ 2,240,431 in november 2017 to fulfill a one-time large order from one of the company 's customers , qingdao ship owners association . 38 cost of revenue and related tax the following table sets forth the breakdown of the company 's cost of revenue for each of our three segments , for the years ended june 30 , 2019 and 2018 , respectively : replace_table_token_6_th for the years ended june 30 , 2019 and 2018 , cost of
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seismic product sales were down from prior year peak levels , although they improved sequentially throughout fiscal year 2010. overall gross margin of 53.7 percent for fiscal year 2010 reflected a decrease from fiscal year 2009 margin of 55.6 percent due to the recent growth in sales of portable audio products , as well as a mix change to lower margin products in our energy product line driven primarily by a reduction in seismic product sales in fiscal year 2010. the company achieved net income of $ 38.4 million in fiscal year 2010 , which included an $ 11.9 million recognition of deferred tax assets . the $ 38.4 million of net income in fiscal year 2010 represented an increase of $ 34.9 million over fiscal year 2009 net income of $ 3.5 million . finally , the company 's cash , cash equivalents and investments balances as of march 27 , 2010 , of $ 141.6 million reflects an increase of $ 21.4 million over the ending balances from the prior fiscal year . fiscal year 2009 for fiscal year 2009 , net sales were down approximately 4 percent from the preceding year . however , our strength in revenue from new products and prudent expense management were key drivers in the company maintaining bottom-line profitability for the year as a whole while establishing a solid base for future growth . story_separator_special_tag background : transparent '' > fiscal year 2010 research and development expenses of $ 51.4 million reflect an increase of $ 7.1 million , or 16 percent , from fiscal year 2009. the increase was primarily due to $ 3.5 million in salary and benefit costs associated with research and development personnel , whose headcount increased 12 percent in fiscal year 2010 as compared to fiscal year 2009. additionally , product development expenses increased $ 2.8 million , primarily due to higher photo-mask expenses . these increases in research and development expenses were partially offset by non-recurring engineering work performed and billed to third parties , which resulted in a $ 0.6 million reduction in research and development expenses . selling , general and administrative expenses fiscal year 2011 selling , general and administrative expenses of $ 58.1 million reflect an increase of $ 12.1 million , or 26 percent , compared to fiscal year 2010. the $ 12.1 million increase was primarily attributable to increased variable compensation costs driven by improved operating profit , as well as to higher stock option expenses and external sales representative commissions . the number of employees in the selling , general , and administrative expense category remained essentially unchanged from the end of fiscal year 2010. fiscal year 2010 selling , general and administrative expenses of $ 45.9 million reflect an increase of $ 0.6 million , or 1 percent , compared to fiscal year 2009 as an increase in salaries and benefits costs was offset by decreased expenses across several expense categories . a $ 2.3 million increase in salaries and benefits costs was primarily attributable to increased headcount , and also due to higher sales commissions brought on by increased product sales and fluctuations in commissionable product mix in fiscal year 2010 versus fiscal year 2009. offsetting this increase was a $ 0.6 million reduction in net rent expenses , a $ 0.6 decrease in marketing expenses , and a $ 0.5 million reduction in professional expenses . restructuring costs and other , net during fiscal year 2010 , we recorded net restructuring charges of $ 0.5 million as a separate line item on the statement of operations in operating expenses under the caption restructuring costs and other , net. the restructuring charge was primarily due to revised sublease assumptions for lease space within our corporate headquarters building . as of march 26 , 2011 , we have a remaining restructuring accrual for all of our past restructurings of $ 0.4 million , primarily related to future lease payments net of anticipated subleases that will be paid over the respective lease terms through the summer of calendar year 2012. we have classified $ 0.1 million of this restructuring accrual as long-term . impairment of ( proceeds from ) non-marketable securities in the second quarter of the current fiscal year , the company recognized a loss on the impairment of an equity investment in the amount of $ 0.5 million . our original investment was in the form of a note receivable , which was then converted into an equity security during the second quarter of the current fiscal year . after the conversion , we determined that an impairment indicator existed related to our cost method investment . we performed a fair value analysis of our cost method investment in accordance with fasb asc topic 320 investments debt and equity securities. based on the results of this analysis as of september 25 , 2010 , we recognized an impairment of $ 0.5 million to reduce the carrying value of the cost method investment to zero . the impairment was recorded as a separate line item on the consolidated statement of operations in operating expenses under the caption impairment of ( proceeds from ) non-marketable securities. page 26 of 71 in the third quarter of fiscal year 2010 , as part of a convertible note financing round for magnum semiconductor , inc. ( magnum ) , a company that we had previously had an investment in , we received proceeds of $ 500 thousand from magnum as consideration for our ownership interest in magnum securities , which in fiscal year 2008 had previously been fully impaired . the proceeds were recorded as a separate line item on the consolidated statement of operations in operating expenses under the caption impairment of ( proceeds from ) non-marketable securities. provision ( benefit ) for litigation expenses and settlements during the fourth quarter of the current fiscal year , in response to certain patent infringement allegations , the company incurred $ 57 thousand as part of the execution of a settlement and license agreement . story_separator_special_tag during the third quarter of fiscal year 2011 , the company received proceeds of $ 113 thousand reflecting the final resolution of litigation with silvaco data systems . of this amount , $ 30 thousand represented the settlement awarded to the company , and the balance represented recoveries of certain litigation expenses and interest . finally , during the first quarter of fiscal year 2011 , the company incurred $ 135 thousand in settlement costs related to a dispute with a former distributor of the company 's products . these transactions , in the cumulative net amount of $ 162 thousand , are reflected as a separate line item on the consolidated statement of operations in operating expenses under the caption provision ( benefit ) for litigation expenses and settlements. on march 23 , 2009 , a lawsuit was filed against the company alleging patent infringement . during the third quarter of fiscal year 2010 , a settlement agreement was concluded which resulted in cirrus logic recognizing a $ 135 thousand charge related to the suit . in a separate matter , on june 17 , 2009 , during the first quarter of fiscal year 2010 , the company received proceeds of a net $ 2.7 million from its insurance carrier as part of the final settlement of litigation where a purported stockholder filed a derivative lawsuit in the state district court in travis county , texas against current and former officers and directors of the company related to certain prior grants of stock options by the company . the proceeds of $ 2.7 million were recorded as a recovery of costs previously incurred in accordance with fasb asc topic 450 , contingencies . the combined net amount of $ 2.6 million from these two fiscal year 2010 transactions are reflected as a separate line item on the consolidated statement of operations in operating expenses under the caption provision ( benefit ) for litigation expenses and settlements. during fiscal year 2009 , we recognized a $ 2.2 million charge related to legal fees and expenses associated with the derivative lawsuits . the charge was recorded as a separate line item on the consolidated statement of operations in operating expenses under the caption provision ( benefit ) for litigation expenses and settlements . patent agreement , net on july 13 , 2010 , we entered into a patent purchase agreement for the sale of certain company owned patents . as a result of this agreement , on august 31 , 2010 , the company received cash consideration of $ 4.0 million from the purchaser . the proceeds were recorded as a recovery of costs previously incurred and are reflected as a separate line item on the consolidated statement of operations in operating expenses under the caption patent agreement , net. on june 11 , 2009 , we entered into a patent purchase agreement for the sale of certain company owned patents and on august 26 , 2009 , the company received cash consideration of $ 1.4 million from the purchaser . the proceeds were recorded as a recovery of costs previously incurred and are reflected as a separate line item on the consolidated statement of operations in operating expenses under the caption patent agreement , net. impairment of intangible assets in the fourth quarter of fiscal year 2009 , we noted several impairment indicators surrounding patents that we acquired in june 2007. we performed an impairment analysis under fasb asc topic 360 property , plant , and equipment , and noted that the undiscounted cash flows estimated to be generated from these patents were less than the carrying amount of the assets . we then compared the estimated fair value of these page 27 of 71 assets to their carrying amount and recognized an impairment loss of $ 2.1 million . the impairment was recorded as a separate line item on the consolidated statement of operations in operating expenses under the caption impairment of intangible assets. interest income interest income in fiscal years 2011 , 2010 , and 2009 , was $ 0.9 million , $ 1.3 million , and $ 2.8 million respectively . the decrease in interest income in fiscal year 2011 compared to fiscal year 2010 , as well as for fiscal year 2010 as compared to fiscal year 2009 , was attributable to lower yields on invested capital . income taxes we recorded an income tax benefit of $ 119.3 million in fiscal year 2011 on a pre-tax income of $ 84.2 million , yielding an effective tax benefit rate of 142 percent . our effective tax rate was lower than the u.s. statutory rate of 35 percent , primarily as a result of the release of a portion of the valuation allowance on certain deferred tax assets that have not yet been utilized . the release of a portion of the valuation allowance generated a $ 120.0 million tax benefit and was based on an evaluation of the net u.s. deferred tax assets that we expect are more likely than not to be utilized in the upcoming years as a result of projected net income . we recorded an income tax benefit of $ 11.7 million in fiscal year 2010 on a pre-tax income of $ 26.7 million , yielding an effective tax benefit rate of 44 percent . our effective tax rate was lower than the u.s. statutory rate of 35 percent , primarily as a result of the realization of deferred tax assets that had been fully reserved and the release of a portion of the valuation allowance on certain deferred tax assets that have not yet been utilized . the release of a portion of the valuation allowance generated an $ 11.8 million tax benefit and was based on an evaluation of the net u.s. deferred tax assets that we expect to utilize in the upcoming year as a result of projected tax basis net income .
| export sales , principally to asia , including sales to u.s.-based customers that manufacture products at plants overseas , were approximately $ 302.7 million in fiscal year 2011 , $ 173.6 million in fiscal year 2010 , and $ 119.5 million in fiscal year 2009. export sales to customers located in asia were 70 percent , 65 percent , and 48 percent of net sales in fiscal years 2011 , 2010 , and 2009 , respectively . all other export sales represented 12 percent , 14 percent , and 20 percent of net sales in fiscal years 2011 , 2010 , and 2009 , respectively . our sales are denominated primarily in u.s. dollars . during fiscal years 2011 , 2010 , and 2009 , we did not enter into any foreign currency hedging contracts . gross margin overall gross margin of 54.7 percent for fiscal year 2011 reflects an increase from fiscal year 2010 margin of 53.7 percent , primarily due to enhanced supply chain management , sales activity within the energy product line , and in particular to the sales of seismic , power meter , and power amplification products . the sale of product written down in prior fiscal years contributed approximately $ 1.5 million , or 0.4 percent , to gross margin compared to approximately $ 1.3 million , or 0.6 percent , in fiscal year 2010. in total , excess and obsolete inventory charges , including scrapped inventory , increased by $ 5.1 million from fiscal year 2010 and resulted in a decrease of gross margin by 1.4 percent . the $ 5.1 million increase in excess and obsolete inventory charges was primarily attributable to a charge of approximately $ 4.2 million in the fourth quarter of the company 's current fiscal year due to a production issue with a new audio device that entered high volume production in march 2011. gross margin was 54 percent in fiscal year 2010 , down from 56 percent in fiscal year 2009. the decrease in margin from fiscal year 2009 was mainly due to changes in both customer and product mix . while the audio product group experienced a slight increase in margin from fiscal year 2009 to fiscal year 2010 and the energy group margins were essentially unchanged for this comparable
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curis royalty will also be entitled to receive up to approximately $ 70.7 million in milestone payments based on sales of erivedge as follows : ( i ) $ 17.2 million if the purchasers and curis royalty receive aggregate royalty payments pursuant to the oberland purchase agreement in excess of $ 18.0 million during the calendar year 2021 , subject to certain exceptions and ( ii ) $ 53.5 million if the purchasers receive payments pursuant to the oberland purchase agreement in excess of $ 117.0 million on or prior to december 31 , 2026. concurrently with the closing of the oberland purchase agreement curis royalty used a portion of the proceeds to terminate and repay in full the loan with healthcare royalty . in connection with such termination , curis royalty paid approximately $ 37.2 million to satisfy its remaining loan obligations to healthcare royalty , including approximately $ 33.8 million in principal balance on the loan and $ 3.4 million in accrued and unpaid interest and prepayment fees . curis royalty also used a portion of the proceeds to pay transaction costs of approximately $ 0.3 million , resulting in net proceeds of approximately $ 27.5 million . for further discussion please refer to “ part ii , item 9b . other information - royalty interest purchase agreement. ” our collaborations and license agreements our current collaborations and license agreements are summarized as follows : 73 aurigene in january 2015 , we entered into an exclusive collaboration agreement with aurigene for the discovery , development and commercialization of small molecule compounds in the areas of immuno-oncology and selected precision oncology targets . under the collaboration agreement , aurigene granted us an option to obtain exclusive , royalty-bearing licenses to relevant aurigene technology to develop , manufacture and commercialize products containing certain of such compounds anywhere in the world , except for india and russia , which are territories retained by aurigene . in connection with the collaboration agreement , we issued to aurigene 3,424,026 shares of our common stock , valued at $ 24.3 million at the time of issuance , in partial consideration for the rights granted to us under the collaboration agreement , which we recognized as expense during the year ended december 31 , 2015. the shares were issued pursuant to a stock purchase agreement with aurigene dated january 18 , 2015 . in september 2016 , we and aurigene entered into an amendment to the collaboration agreement . under the terms of the amendment , in exchange for the issuance by us to aurigene of 2,041,666 shares of our common stock , aurigene waived payment of up to a total of $ 24.5 million in potential milestones and other payments associated with the first four programs in the collaboration that may have become due from us under the collaboration agreement . to the extent any of these waived milestones or other payments are not payable by us , for example in the event one or more of the milestone events do not occur , we will have the right to deduct the unused waived amount from any one or more of the milestone payment obligations tied to achievement of commercial milestone events . the amendment also provides that , in the event supplemental program activities are performed by aurigene , we will provide up to $ 2.0 million of additional funding for each of the third and fourth licensed program . the shares were issued pursuant to a stock purchase agreement with aurigene dated september 7 , 2016 . as of december 31 , 2018 , we have exercised our option to license the following four programs under the collaboration : 1. irak4 program - a precision oncology program of small molecule inhibitors of irak4 . the development candidate is ca-4948 , an orally available small molecule inhibitor of irak4 . 2. pd1/vista program - an immuno-oncology program of small molecule antagonists of pd1 and vista immune checkpoint pathways . the development candidate is ca-170 , an orally available small molecule antagonist of vista and pdl1 . 3. pd1/tim3 program - an immuno-oncology program of small molecule antagonists of pd1 and tim3 immune checkpoint pathways . the development candidate is ca-327 , an orally available small molecule antagonist of pdl1 and tim3 . 4. in march 2018 , we exercised our option to license a fourth program , which is an immuno-oncology program . for each of our licensed programs ( as described above ) we are obligated to use commercially reasonable efforts to develop , obtain regulatory approval for , and commercialize at least one product in each of the u.s. , specified countries in the european union and japan , and aurigene is obligated to use commercially reasonable efforts to perform its obligations under the development plan for such licensed program in an expeditious manner . subject to specified exceptions , we and aurigene agreed to collaborate exclusively with each other on the discovery , research , development and commercialization of programs and compounds within immuno-oncology for an initial period of approximately two years from the effective date of the collaboration agreement . at our option , and subject to specified conditions , we may extend such exclusivity for up to three additional one-year periods by paying to aurigene additional exclusivity option fees on an annual basis . we exercised the first one-year exclusivity option in the first quarter of 2017. the fee for this exclusivity option exercise was $ 7.5 million , which we paid in two equal installments in the first and third quarters of 2017. we have elected not to further exercise our exclusivity option and thus did not make the $ 10.0 million payment required for this additional exclusivity in 2018. as a result of our election to not further exercise our exclusivity option , we are no longer operating under the broad immuno-oncology exclusivity with aurigene . since january 2015 , we have paid $ 14.5 million in research payments , and have waived $ 19.5 million in milestones under the terms of the 2016 amendment . story_separator_special_tag for each of the irak4 , pd1/vista , pd1/tim3 programs , and the fourth immuno-oncology program , we have remaining unpaid or unwaived payment obligations of $ 42.5 million per program , related to regulatory approval and commercial sales milestones , plus specified additional payments for approvals for additional indications , if any . we have agreed to pay aurigene tiered royalties on our and our affiliates ' annual net sales of products at percentage rates ranging from the high single digits up to 10 % , subject to specified reductions . 74 we have agreed to make certain payments to aurigene upon our entry into sublicense agreements on any program ( s ) , including : with respect to amounts that we and our affiliates receive from sublicensees under a licensed program in the u.s. or the european union , a declining percentage of non-royalty sublicense revenues that is dependent on the stage of the most advanced product for such licensed program at the time the sublicense is granted , including , for example 25 % of such amounts following our initiation of a phase 2 clinical study and 15 % of such amounts after initiation of the first pivotal study . this sharing will also extend to royalties that we receive from sublicensees , subject to minimum royalty percentage rates that we are obligated to pay to aurigene , which generally range from mid-to-high single-digit royalty percentage rates up to 10 % ; with respect to sublicensing revenues we and our affiliates receive from sublicensees under a licensed program in asia , 50 % of such sublicensing revenues , including both non-royalty sublicensee revenues and royalties that we receive from sublicensees ; and with respect to non-royalty sublicensing revenues we and our affiliates receive from sublicensees under a licensed program outside of the u.s. , the european union and asia , a percentage of such non-royalty sublicense revenues ranging from 30 % to 50 % . we are also obligated to share 50 % of royalties that we receive from sublicensees that we receive in these territories . our royalty payment obligations ( including those on sales by sublicensees ) under the collaboration agreement with respect to a product in a country will expire on a product-by-product and country-by-country basis on the later of : ( i ) expiration of the last-to-expire valid claim of the aurigene patents covering the manufacture , use or sale of such product in such country ; and ( ii ) 10 years from the first commercial sale of such product in such country . for additional information regarding the terms and termination provisions of this agreement , see “ business—collaborations and license agreements—aurigene agreement. ” genentech hedgehog signaling pathway collaboration agreement in 2003 , we entered into a collaborative research , development and license agreement with genentech , which we refer to as the collaboration agreement . 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 molecules capable of inhibiting the hedgehog signaling pathway ( including small molecules , proteins and antibodies ) for human therapeutic applications , including cancer therapy . genentech subsequently granted a sublicense to roche for non-u.s. rights to erivedge , other than in japan where such rights are held by chugai . genentech and roche are responsible for worldwide clinical development , regulatory affairs , manufacturing and supply , formulation , and sales and marketing . we are eligible to receive up to an aggregate of $ 115.0 million in contingent cash milestone payments , exclusive of royalty payments , in connection with the development of erivedge or another small molecule hedgehog pathway inhibitor , assuming the successful achievement by genentech and roche of specified clinical development and regulatory objectives . of this amount , we have received $ 59.0 million to date . in addition to the contingent cash milestone payments , our wholly-owned subsidiary , curis royalty , is entitled to a royalty on net sales of erivedge that ranges from 5 % to 7.5 % based upon global erivedge sales by roche and genentech . the royalty rate applicable to erivedge may be decreased by 2 % on a country-by-country basis in certain specified circumstances , including when a competing product that binds to the same molecular target as erivedge is approved by the applicable country 's regulatory authority in another country and is being sold in such country by a third party for use in the same indication as erivedge , or , when there is no issued intellectual property covering erivedge in a territory in which sales are recorded . during the third quarter of 2015 , the fda and the chmp , approved another hedgehog signaling pathway inhibitor , odomzo® ( sonidegib ) , which is marketed by sun pharmaceutical industries ltd. , for use in locally advanced bcc . accordingly , genentech reduced royalties to curis royalty on its net sales in the united states of erivedge by 2 % since the fourth quarter of 2015 and we anticipate that genentech will reduce by 2 % royalties on net sales of erivedge outside of the united states on a country-by-country basis to the extent that sonidegib is approved by the applicable country 's regulatory authority and is being sold in such country . however , pursuant to the oberland purchase agreement , curis has retained its rights with respect to the 2 % of royalties that are subject to such reduction in countries where such reduction has not occurred , subject to the terms and conditions of the oberland purchase agreement , which we refer to as the “ retained royalty amounts ” . 75 we recognized $ 10.4 million of royalty revenue from genentech 's net sales of erivedge during the year ended december 31 , 2018 , and have recognized an aggregate of $ 48.3 in royalty revenues since erivedge was approved .
| public offering of common stock on september 18 , 2017 , we entered into an underwriting agreement with baird as underwriter , under which we issued and sold 4,000,000 shares of our common stock . the offering price to the public was $ 9.25 per share , and the underwriter agreed to purchase the shares from us pursuant to the underwriting agreement at a price of $ 8.90 per share . we received net proceeds from the sale of the shares , after deducting the underwriting discounts and commissions and estimated offering expenses , of $ 35.3 million . we incurred offering expenses of $ 0.3 million related to this transaction . placement of equity securities on july 2 , 2015 , we entered into a sales agreement with cowen and company , or cowen , pursuant to which we may sell from time to time up to $ 30.0 million of our common stock through an “ at-the-market ” equity offering program , under which cowen will act as sales agent . subject to the terms and conditions of the sales agreement , cowen may sell the common stock by methods deemed to be an “ at-the-market ” offering as defined in rule 415 promulgated under the securities act of 1933 , as amended , including sales made directly on the nasdaq global market , on any other existing trading market for the common stock , or to or through a market maker other than on an exchange . we are not obligated to sell any of the common stock under this sales agreement . either cowen or we may at any time suspend solicitations and offers under the sales agreement upon notice to the other party . the sales agreement may be terminated at any time by either party upon written notice to the other party , in the manner specified in the sales agreement . the aggregate compensation payable to cowen will be 3 % of the gross sales price of the common stock sold pursuant to the sales agreement . the shares sold under the sales agreement have been issued and sold
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asc 606 supersedes the revenue recognition requirements in accounting standards codification topic 605 , revenue recognition ( “ asc 605 ” ) , and requires entities to recognize revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services . refer to note 3 , `` revenue from contracts with customers '' of our notes to consolidated financial statements included elsewhere in this report for additional information regarding our revenue recognition policies under asc 606. reserves on accounts receivable we maintain reserves for potential sales returns and uncollectible accounts receivable . accounts receivable are reported net of uncollectible accounts receivable our consolidated balance sheets . subsequent to the adoption of asc 606 as of april 1 , 2018 , sales return reserves are classified as other current liabilities on our consolidated balance sheets . our standard contracts generally do not contain provisions for clients to return products or services . however , we historically have accepted sales returns under certain circumstances . accordingly , we estimate sales return reserves , including reserves for returns and other credits , based upon our review of customer-specific facts and circumstances , including aged receivable balances , and recognize revenue , net of an allowance for sales returns . if we are unable to estimate the returns , revenue recognition may be delayed until the rights of return period lapses , provided also , that all other criteria for revenue recognition have been met . if we experience changes in practices related to sales returns or changes in actual return rates that deviate from the historical data on which our reserves had been established , our revenues may be adversely affected . allowances for doubtful accounts and other uncollectible accounts receivable related to estimated losses resulting from our clients ' inability to make required payments are established based on our historical experience of bad debt expense and the aging of our accounts receivable balances , net of deferred revenue and specifically reserved accounts . specific reserves are based on our estimate of the probability of collection for certain troubled accounts . accounts are written off as uncollectible only after we have expended extensive collection efforts . our allowances for doubtful accounts are based on our assessment of the collectability of client accounts . we regularly review the adequacy of these allowances by considering internal factors such as historical experience , credit quality and age of the client receivable balances as well as external factors such as economic conditions that may affect a client 's ability to pay and review of major third-party credit-rating agencies , as needed . if a major client 's creditworthiness or financial condition were to deteriorate , if actual defaults are higher than our historical experience , or if other circumstances arise , our estimates of the recoverability of amounts due to us could be overstated , and additional allowances could be required , which could have an adverse impact on our operating results . although we currently believe that our approach to estimates and judgments as described herein is reasonable , actual results could differ and we may be exposed to increases or decreases in required reserves that could be material . software development costs software development costs , consisting primarily of employee salaries and benefits and certain third party costs , incurred in the research and development of new software products and enhancements to existing software products for external sale are expensed as incurred , and reported as net research and development costs in the consolidated statements of net income and comprehensive income , until technological feasibility has been established . after technological feasibility is established , any additional external software development costs are capitalized . amortization of capitalized software is recorded using the greater of the ratio of current revenues to the total of current and expected revenues of the related product or the straight-line method over the estimated economic life of the related product , which is typically three years . the total of capitalized software costs incurred in the development of products for external sale are reported as capitalized software costs within our consolidated balance sheets . we also incur costs to develop software applications for our internal-use and costs for the development of software-as-a-service ( `` saas '' ) based products sold to our clients . the development costs of our saas-based products are considered internal-use for accounting purposes . our internal-use capitalized costs are stated at cost and amortized using the straight-line method over the estimated useful lives of the assets , which is typically three years . application development stage costs generally include costs associated with internal-use software configuration , coding , installation and testing . costs related to the preliminary project stage and post-implementation activities are expensed as incurred . costs of significant upgrades and enhancements that result in additional functionality are also capitalized , whereas costs incurred for maintenance and minor 29 upgrades and enhancements are expensed as incurred . capitalized software costs for developing saas-based products are reported as capital ized software costs within our consolidated balance sheets and capitalized software costs for developing our internal-use software applications are reported as equipment and improvements within our consolidated balance sheets . we periodically reassess the estimated economic life and the recoverability of our capitalized software costs . if a determination is made that capitalized amounts are not recoverable based on the estimated net cash flows to be generated from sales of the applicable software product , the amount by which the unamortized capitalized costs of a software product exceed the net realizable value is written off as a charge to earnings . the net realizable value is the estimated future gross revenues from that product reduced by the estimated future costs of completing and disposing of that product , including the costs of performing maintenance and client support required to satisfy our responsibility at the time of sale . story_separator_special_tag in addition to the assessment of net realizable value , we routinely review and adjust , if necessary , the remaining estimated lives of our capitalized software costs . additionally , we perform a periodic review of our clients ' usage of our software products and dispose of fully amortized capitalized software costs after such products are determined to be no longer used by our clients . although we currently believe that our approach to estimates and judgments as described herein is reasonable , actual results could differ and we may be exposed to increases or decreases in revenue that could be material . business combinations we completed our acquisitions of entrada , eagledream and inforth during the year ended march 31 , 2018 , all of which were accounted for as purchase business combinations using the acquisition method of accounting . in accordance with the acquisition method of accounting for business combinations , we allocated the purchase price of acquired businesses to the tangible and intangible assets acquired and liabilities assumed based on estimated fair values . our purchase price allocation methodology contains uncertainties because it requires us to make assumptions and to apply judgment to estimate the fair value of acquired assets and liabilities , including , but not limited to , intangible assets , goodwill , and contingent consideration liabilities . we estimate the fair value of assets and liabilities based upon quoted market prices , the carrying value of the acquired assets and widely accepted valuation techniques , including discounted cash flows and market multiple analyses depending on the nature of the assets being sold . we estimate the fair value of the contingent consideration liabilities based on our projection of expected results , as needed . the process for estimating fair values in many cases requires the use of significant estimates , assumptions and judgments , including determining the timing and estimates of future cash flows and developing appropriate discount rates . unanticipated events or circumstances may occur which could affect the accuracy of our fair value estimates , including assumptions regarding industry economic factors and business strategies . we expect to finalize the purchase price allocation as soon as practicable within the measurement period , but not later than one year following the acquisition date . any adjustments to fair value subsequent to the measurement period are reflected in the consolidated statements of net income and comprehensive income . the purchase price allocations of the entrada , eagledream and inforth acquisitions are considered final . goodwill goodwill acquired in a business combination is measured as the excess of the purchase price , or consideration transferred , over the net acquisition date fair values of the assets acquired and the liabilities assumed . goodwill is not amortized as it has been determined to have an indefinite useful life . as part of our annual goodwill impairment test , we first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount . if we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying amount , we conduct a two-step quantitative goodwill impairment test . the first step of the impairment test involves comparing the fair values of the applicable reporting units with their carrying values . if the carrying amount of the reporting unit exceeds the reporting unit 's fair value , we perform the second step of the goodwill impairment test . the second step of the goodwill impairment test involves comparing the implied fair value of the affected reporting unit 's goodwill with the carrying value of that goodwill . the amount by which the carrying value of the goodwill exceeds its implied fair value , if any , is recognized as an impairment loss . application of the goodwill impairment test requires judgment , including the identification of reporting units , assignment of assets and liabilities to reporting units , assignment of goodwill to reporting units , and determination of the fair value of each reporting unit . the fair value of each reporting unit is estimated primarily through the use of a discounted cash flow methodology . this analysis requires significant judgments , including estimation of future cash flows , which is dependent on internal forecasts , estimation of the long-term rate of growth for our business , estimation of the useful life over which cash flows will occur , and determination of our weighted average cost of capital . the estimates used to calculate the fair value of a reporting unit change from year to year based on operating results , market conditions , and other factors . changes in these estimates and assumptions could materially affect the determination of fair value and goodwill impairment for each reporting unit . we test goodwill for impairment annually during our first fiscal quarter , referred to as the annual test date . based on our qualitative assessment for the current fiscal year , we have determined that there was no impairment to our goodwill as of june 30 , 2018. we will also test for impairment between annual test dates if an event occurs or circumstances change that would indicate the carrying amount may be impaired . we currently also do not believe there is a reasonable likelihood that there will 30 be a mater ial change in the future estimates or assumptions we use to test for impairment losses on goodwill . however , if actual results are not consistent with our estimates or assumptions , we may be exposed to future impairment charges that could be material . intangible assets intangible assets consist of trade names and contracts , customer relationships , and software technology , all of which arose in connection with our acquisitions . these intangible assets are recorded at fair value and are stated net of accumulated amortization .
| the adoption of asc 606 resulted in $ 7.5 million higher subscriptio n services revenue and $ 5.3 million higher support and maintenance revenue , which were partially offset by lower revenue due to higher client attrition during the year . edi revenue increased due to higher edi services sold with our nextgen office cloud-bas ed solutions and growth in edi transaction volume due to the addition of new clients and further penetration of our existing client base as well as incremental revenues earned from the sales of certain clinical data . total software , hardware , and other non -recurring revenue increased approximately $ 1.4 million due to the adoption of asc 606 , partially offset by $ 1.0 million lower revenue based on lower demand from our clients for our software products and related implementation services . consolidated revenue for the year ended march 31 , 2018 increased $ 21.4 million compared to the year ended march 31 , 2017 , due to a $ 27.9 million increase in recurring revenues , offset by a $ 6.5 million decrease in non-recurring revenues . the increase in recurring revenues was due to a $ 12.2 million increase in subscription services , $ 6.9 million increase in managed services revenue , $ 5.0 million increase in support and maintenance , and $ 3.8 million increase in edi revenue . subscription revenues increased due to higher sales of our nextgen office cloud-based subscriptions , and incremental sales of our nextgen mobile and nextgen population health cloud-based solutions acquired from entrada in april 2017 and eagledream in august 2017 , respectively . managed services revenue benefit from higher rcm services revenue from the addition of new clients and organic growth achieved through cross selling and ramping up of rcm services provided to our existing clients , which was offset by customer attrition as well as higher sales of our hosting services . the increase in support and maintenance is primarily due to lower sales credits in the current year ,
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our financial performance is based on the following key elements of our business strategy : ( 1 ) concentration in one vessel category : supramax class of handymax dry bulk vessels , which we believe offer size , operational and geographical advantages ( over panamax and capesize vessels ) , ( 2 ) our strategy is to balance between long-term time charters and revenues generated by short-term time charters and voyage charters to maximize our financial performance throughout shipping cycles . we have entered into time charter employment contracts for all the vessels in our operating fleet and a substantial portion of our newbuilding fleet we charter some of our vessels pursuant to one- to three-year time charters to allow us to take advantage of the stable cash flow and high utilization rates that are associated with medium to long-term time charters . several of the newly constructed vessels are on long term charters with an average duration of eight years . the vessels that are on charters whose revenues are linked to the baltic supramax index generally have durations of one-year or less . these index-linked charters and voyage charters provide us with the revenue upside as the market improves . we believe that this structure provides significant visibility to our future financial results and allows us to take advantage of the stable cash flows and high utilization rates that are associated with medium- to long-term time charters , while at the same time providing us with the revenue upside potential from the index-linked or short-term time charters or voyage charters . all the charters provide for fixed semi-monthly payments in advance . 55 while we remain focused on securing charters with fixed base rates , we have also entered into contracts with fixed minimum rates and profit sharing arrangements , enabling us to benefit from an increasing rate environment while still minimizing downside risk . we regularly monitor the dry bulk shipping market and based on market conditions we may consider taking advantage of short-term charter rates . ( 3 ) maintain high quality vessels and improve standards of operation through improved environmental procedures , crew training and maintenance and repair procedures , and ( 4 ) maintain a balance between purchasing vessels as market conditions and opportunities arise and maintaining prudent financial ratios ( e.g . leverage ratio ) . the following are several significant events that occurred during 2010 : · in january 2010 , we took delivery of four newbuilding vessels , thrasher , crane , egret and golden eagle ( this vessel is the fourth of the series of five vessels being built in japan ) . · in february 2010 , we took delivery of two newbuilding vessels , avocet and imperial eagle ( the last vessel of the series of five vessels being built in japan ) . · in april 2010 , we took delivery of our ninth newbuilding vessel from china , gannet bulker . · in may 2010 , we took delivery of our tenth newbuilding vessel from china , grebe bulker . · in june 2010 , we took delivery of our eleventh newbuilding vessel from china , ibis bulker . · in july 2010 , we took delivery of our twelfth and thirteenth newbuilding vessel from china , jay and kingfisher . · in august 2010 , we took delivery of our fourteenth newbuilding vessel from china , martin . · in september 2010 , we launched our freight trading operation . the trading operation will extend the company 's global presence , which includes a new office in singapore . · in september 2010 , we sold the oldest and smallest vessel in its fleet , the griffon a 1995-built handymax and we realized a net gain of $ 291,011 and received net proceeds of $ 21,055,784. the following are several significant events that occurred during 2009 : · in january 2009 , we took delivery of a newbuilding vessel , crested eagle . this vessel is the second of the series of five vessels being built in japan . · in march 2009 , we took delivery of a newbuilding vessel , stellar eagle . this vessel is the third of the series of five vessels being built in japan . · in may - june 2009 , we raised $ 100 million by issuing shares of our common stock . · in august 2009 , we amended and reduced our revolving credit facility to $ 1,200,000,000 . · in september 2009 , we set up our own in-house technical management operation . · we took delivery of our third newbuilding vessel from china , bittern , in october 2009 . · we took delivery of our fourth newbuilding vessel from china , canary , in december 2009 . 56 the following are several significant events that occurred during 2008 : · in may 2008 , we acquired two supramax vessels , goldeneye and redwing , which delivered into our fleet in june 2008 and september 2008 , respectively . · we took delivery of the first of our newbuilding vessels , wren in june 2008. this vessel is the first of the series of 22 vessels being built in china under construction contracts . · we took delivery of our second newbuilding vessel from china , woodstar , in october 2008 . · we took delivery of our third newbuilding vessel , crowned eagle , in november 2008. this vessel is the first of the series of five vessels being built in japan . · in december 2008 , we renegotiated our 30 vessel newbuilding program in china by converting firm construction contracts on eight charter free vessels into options . the contract deposits on these vessels were redirected as progress payments towards vessels being constructed for delivery in 2009. we also deferred delivery of a vessel , thrush , from september 2009 to november 2010. these changes in the newbuilding program resulted in a reduction of the company 's capital expenditure program by a total of $ 363 million . story_separator_special_tag · in december 2008 , we amended and reduced our revolving credit facility to $ 1,350,000,000. we have employed all of our vessels on time and voyage charters . the following table represents certain information about the company 's owned vessel revenue earning charters : the following table represents certain information about our revenue earning charters on our operating fleet as of december 31 , 2010 : replace_table_token_6_th 57 replace_table_token_7_th 58 replace_table_token_8_th ( 1 ) the date range provided represents the earliest and latest date on which the charterer may redeliver the vessel to the company upon the termination of the charter . the time charter hire rates presented are gross daily charter rates before brokerage commissions , ranging from 1.25 % to 6.25 % , to third party ship brokers . ( 2 ) index , an average of the trailing baltic supramax index . ( 3 ) revenue recognition for the avocet is based on an average daily base rate of $ 18,281 . ( 4 ) revenue recognition for the bittern is based on an average daily base rate of $ 18,485 . ( 5 ) revenue recognition for the canary is based on an average daily base rate of $ 18,493 . ( 6 ) revenue recognition for the crane is based on an average daily base rate of $ 18,497 . ( 7 ) the egret bulker , gannet bulker , grebe bulker and ibis bulker have entered into a charter for 33 to 37 months . the charter rate is $ 17,650 per day with a 50 % profit share for earned rates over $ 20,000 per day . the charterer has an option to extend the charter by 2 periods of 11 to 13 months each . ( 8 ) revenue recognition for the jay is based on an average daily rate of $ 18,320 . ( 9 ) revenue recognition for the kingfisher is based on an average daily rate of $ 18,320 . ( 10 ) revenue recognition for the merlin is based on an average daily rate of $ 25,000 . ( 11 ) revenue recognition for the thrasher is based on an average daily base rate of $ 18,280 . ( 12 ) revenue recognition for the woodstar is based on an average daily base rate of $ 18,154 . ( 13 ) revenue recognition for the wren is based on an average daily base rate of $ 20,245 . ( 14 ) upon conclusion of the previous time charter the vessel will commence a short term time charter for up to six months . ( 15 ) upon conclusion of the previous time charter the vessel will commence an index based time charter for two years . the following table , as of december 31 , 2010 , represents certain information about the company 's newbuilding vessels being constructed and their expected employment upon delivery : replace_table_token_9_th 59 replace_table_token_10_th ( 1 ) vessel build and delivery dates are estimates based on guidance received from shipyard . ( 2 ) the date range represents the earliest and latest date on which the charterer may redeliver the vessel to the company upon the termination of the charter . ( 3 ) the time charter hire rate presented are gross daily charter rates before brokerage commissions ranging from 1.25 % to 6.25 % to third party ship brokers . ( 4 ) the thrush was delivered in the first quarter of 2011 and commenced a short term time charter . ( 5 ) the nighthawk was scheduled to delivered to klc , the company and klc have agreed to defer the commencement of this charter to allow eagle to employ the vessel for its own account for the time being . the nighthawk was delivered in the first quarter of 2011 and commenced a short term time charter . ( 6 ) the charterer has an option to extend the charter by 2 periods of 11 to 13 months each . market overview the international shipping industry is highly competitive and fragmented with many market participants . there are approximately 8,233 dry bulk carriers of over 10,000 dwt aggregating approximately 525 million dwt , and the ownership of the world dry bulk fleet remains very fragmented with no single owner accounting for more than 6 % of any one sector . we primarily compete with other owners of dry bulk vessels in the handymax and handysize class and panamax class sectors that are mainly privately owned fleets . competition in virtually all drybulk trades is intense and based primarily on supply and demand . such demand is a function of world economic conditions and the consequent requirement for commodities , production and consumption patterns , as well as events which interrupt production , trade routes and consumption . we compete for charters on the basis of price , vessel location , size , age , and condition of the vessel , as well as on our reputation as an owner and operator . increasingly , major customers are demonstrating a preference for modern vessels based on concerns about the environmental and operational risks associated with older vessels . consequently , owners of large modern fleets have gained a competitive advantage over owners of older fleets . our strategy is to concentrate in one vessel category of the dry bulk segment of the shipping industry – the handymax sector . handymax dry bulk vessels range in size from 35,000 to 60,000 dwt . within the handymax sector , the industry has migrated to a larger size of vessel class called the supramax class of dry bulk vessels which range in size from 50,000 to 60,000 dwt . these vessels have the cargo loading and unloading flexibility of on-board cranes while offering cargo carrying capacities approaching that of panamax dry bulk vessels , which range in size from 60,000 to 100,000 dwt and must rely on port facilities to load and offload their cargoes .
| we drydocked three vessels in 2008 , eight vessels in 2009 and five vessels in 2010 . · operating days : we define operating days as the number of our available days in a period less the aggregate number of days that our vessels are off-hire due to any reason , including unforeseen circumstances . the shipping industry uses operating days to measure the aggregate number of days in a period during which vessels actually generate revenues . · fleet utilization : we calculate fleet utilization by dividing the number of our operating days during a period by the number of our available days during the period . the shipping industry uses fleet utilization to measure a company 's efficiency in finding suitable employment for its vessels and minimizing the amount of days that its vessels are off-hire for reasons other than scheduled repairs or repairs under guarantee , vessel upgrades , special surveys or vessel positioning . our fleet continues to perform at very high utilization rates . · tce rates : we define tce rates as our voyage and time charter revenues less voyage expenses during a period divided by the number of our available days during the period , which is consistent with industry standards . tce rate is a standard shipping industry performance measure used primarily to compare daily earnings generated by vessels on time charters with daily earnings generated by vessels on voyage charters , because charter hire rates for vessels on voyage charters are generally not expressed in per day amounts while charter hire rates for vessels on time charters generally are expressed in such amounts . time charter and voyage revenue shipping revenues are highly sensitive to patterns of supply and demand for vessels of the size and design configurations owned and operated by a company and the trades in which those vessels operate . in the dry bulk sector of the
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billion in cash , subject to downward adjustment as described in the purchase agreement ( the “ acquisition ” ) . following the closing of the pending acquisition , we will own 100 % of the outstanding equity and voting interests of millercoors . the pending acquisition is based on the terms and subject to the conditions set forth in the purchase agreement , as incorporated herein by reference as exhibit 2.4 of part iv item 15. under the agreement , we will retain the rights to all of the brands currently in the millercoors portfolio for the u.s. and puerto rican markets , including import brands such as peroni and pilsner urquell , as well as full ownership of the miller brand portfolio outside of the u.s. and puerto rico . additionally , in consolidating control of millercoors , we will further improve our scale and agility , benefit from significantly enhanced cash flows , and capture substantial operational synergies . the purchase of the miller brand trademarks outside of the u.s. and puerto rico provides a strategic opportunity to leverage the iconic miller trademark globally alongside molson coors ' trademarks for coors and staropramen and presents volume and profit growth opportunities for molson coors in both core markets , as well as emerging markets . the pending acquisition is expected to be funded through cash on hand and financed through a combination of debt and equity security issuances . further , as we plan to elect to treat the acquisition as an asset acquisition for u.s. tax purposes , we expect to receive substantial cash tax benefits for the first 15 years after completion . at this time , we anticipate this acquisition will close in the second half of 2016 , subject to necessary regulatory approvals and contingent on the successful closing of the abi/sabmiller transaction . executive summary we are one of the world 's largest brewers and have a diverse portfolio of owned and partner brands , including core brands carli ng , coors light , molson canadian and staropramen , as well as craft and specialty beers such as blue moon , creemore springs , cobra and doom bar . with centuries of brewing heritage , we have been crafting high-quality , innovative products with the purpose of delighting the world 's beer drinkers and goal to be the first choice for our consumers and customers . our success depends on our ability to make our products available to meet a wide range of consumer segments and occasions . in 2015 , our net income from continuing operations attributable to mcbc , underlying after-tax earnings and ebitda declined versus 2014 due to a number of challenges ; however , we exceeded our targets for cost savings and cash generation and achieved positive net pricing in most of our major markets , excluding the impacts of changes in foreign currency exchange rates . competitive challenges and weak consumer demand continued across some of our largest markets , but we continued to focus on building a stronger brand portfolio , delivering value-added innovation and strengthening our core brand positions through incremental marketing investments . our focus on growing our above-premium segment continued this year as we completed the acquisitions of saint archer brewing company in the u.s. and the rights to the rekorderlig cider brand in the u.k. and repatriated the rights to staropramen in the u.k. we also expanded our global footprint within mci through the acquisition of mount shivalik breweries ltd. ( `` mount shivalik '' ) in india and our recent entrance into the colombian market . we continued to improve our sales execution and revenue management capabilities , increase the efficiency of our operations , implement common systems and focus on generating higher returns for our invested capital , managing our working capital and delivering a greater return on investment for our shareholders . we grew our global above-premium volume , net pricing and sales mix . our craft portfolio drove growth from doom bar in the u.k. , grandville island in canada and blue moon in the u.s. and u.k. our emerging cider portfolio delivered strong growth , led by molson canadian cider and strongbow in canada and smith & forge hard cider in the u.s. volume challenges included coors light performance in canada and the u.s. , however , we continued to see strong performance of coors light in europe and mci . 2015 financial highlights : net income from continuing operations attributable to mcbc of $ 355.6 million , or $ 1.91 per diluted share , decreased 30.7 % and underlying after-tax income of $ 700.4 million , or $ 3.76 per diluted share , decreased 8.9 % from a year ago , primarily due to the impact of unfavorable movements in foreign currency rates and the loss of major business contracts this year . additionally , net income from continuing operations attributable to mcbc was unfavorably impacted by incremental special charges in 2015 driven primarily by our initiatives focused on improving our supply chain network and building efficiencies across the business evidenced by our closure of two bottling lines in canada , as well as the closure of our alton and plovdiv breweries in europe and announced closures of the eden brewery in 35 the u.s. and the vancouver brewery in canada and we entered into a consultation process regarding our proposal to close the burton south brewery in europe . underlying ebitda decreased 9.5 % compared to 2014 , primarily due to a decrease in underlying income in canada and europe . our underlying income excludes special and other non-core gains , losses and expenses that net to a $ 420.9 million pretax charge , as explained below . worldwide beer volume for mcbc in 2015 decreased 1.5 % compared to 2014 , primarily due to lower volumes in the u.s. and canada , partially offset by increased volumes from mci . story_separator_special_tag additionally , consolidated net sales decreased 14.0 % compared to 2014 , driven by negative impacts of changes in foreign currency exchange rates and lower volumes in canada and the loss of the heineken and modelo contracts in europe , partially offset by positive pricing in europe . we generated cash flow from operating activities of $ 696.4 million , representing a 45.3 % decrease from $ 1,272.6 million in 2014 and a 40.4 % decrease from $ 1,168.2 million in 2013 . underlying free cash flow in 2015 was $ 704.3 million , compared to $ 956.7 million in 2014 , representing a decrease of 26.4 % . the decreases in operating cash flow and underlying free cash flow are driven by unfavorable changes in foreign currency exchange rates , increased capital investments , higher cash paid for taxes and decreased distributions from our investment in millercoors , along with lower underlying income , after considering non-cash impairments and other non-cash add-backs . these increases were partially offset by a lower cash paid for interest and favorable impact of changes in net working capital . regional financial highlights : in our canada segment , we drove positive pricing , achieved significant cost savings and invested significantly behind our brands . our income from continuing operations before income taxes in canada decreased in 2015 compared to 2014 by 31.8 % to $ 277.3 million , due to special charges recognized as a result of accelerated depreciation of two of our bottling lines , the impact of the loss of our miller brands agreements , as well as cycling the income received from the termination of our mmi joint venture in 2014. our 2015 underlying pretax income decreased by 16.6 % to $ 304.5 million , primarily due to unfavorable foreign currency movements and incremental brand investments , as well as lower volumes . in the u.s. , millercoors grew net sales per hectoliter with positive pricing and mix , while also working to restore growth to coors light and miller lite , which both grew share of segment versus 2014. we increased our percentage of volume in the above premium segment and experienced continued growth of higher-margin brands like redd 's , blue moon and leinenkugel 's shandy portfolio . our 2015 equity income in millercoors decreased 8.1 % to $ 516.3 million , driven by special charges recognized in 2015 related to the decision to close the eden brewery , as well as the early settlement of a portion of millercoors ' defined benefit pension plan liability . underlying equity income in millercoors of $ 562.5 million for 2015 remained relatively flat to 2014 , as positive pricing and mix and cost savings offset lower volumes and higher marketing investments . in our europe segment , we reported a loss from continuing operations before income taxes of $ 109.7 million , versus a loss of $ 111.9 million in 2014 . the losses are attributable to an impairment charge of $ 275.0 million recognized related to indefinite-lived intangible brand assets , along with charges related to our supply chain initiatives and net termination charges in 2015 , compared to an impairment charge of $ 360.0 million in 2014. underlying income of $ 203.4 million decreased by 16.2 % , compared to $ 242.7 million in 2014 . the decrease in underlying income is entirely attributable to the negative impacts of unfavorable changes in foreign currency rates and the loss of the heineken and modelo contracts in 2015. excluding these factors , our europe segment grew volume , sales mix and gross margins . further , lower supply chain costs and lower spending driven by efficiency in marketing investments partially offset by higher brand amortization expense contributed to positive underlying results . in addition to the core brand performances mentioned below , our above-premium brands performed well , with coors light , doom bar and our wider craft portfolio , including franciscan well , achieving strong growth in the year , as did staropramen outside czech republic . in our mci segment , we drove significant growth in terms of volume , particularly in our latin american markets including our entrance into the colombian market at the end of 2015. we also significantly grew our volume in india and increased our presence in the indian beer market through our acquisition of mount shivalik . our 2015 loss from continuing operations before income taxes increased by 86.5 % to $ 24.8 million driven by special charges and expenses associated with our decision to restructure our china business . underlying pretax loss increased by 38.3 % to $ 18.4 million primarily driven by unfavorable changes in foreign currency exchange rates and expenses related to our china business , partially offset by higher volume and lower marketing investment and general and administrative costs . 36 story_separator_special_tag style= '' line-height:120 % ; padding-bottom:10px ; padding-top:10px ; text-indent:32px ; font-size:10pt ; '' > the following table highlights summarized components of our consolidated statements of operations for the years ended december 31 , 2015 , december 31 , 2014 , and december 31 , 2013 , and provides a reconciliation of `` underlying ebitda '' , a non-gaap measure , to its nearest u.s. gaap measure . see part ii-item 8 financial statements and supplementary data , “ consolidated statements of operations ” for additional details of our u.s. gaap results . replace_table_token_14_th n/m = not meaningful ( 1 ) includes adjustments to non-gaap underlying income within the table above related to mcbc special and non-core items . ( 2 ) represents adjustments to remove amounts related to interest , depreciation and amortization included in the adjustments to non-gaap underlying income above , as these items are added back as adjustments to net income attributable to mcbc from continuing operations .
| replace_table_token_13_th n/m = not meaningful ( 1 ) see part ii—item 8 financial statements and supplementary data , note 7 , `` special items '' of the notes to the consolidated financial statements ( `` notes '' ) for additional information . special items for the year ended december 31 , 2015 includes accelerated depreciation expense of $ 49.4 million , and for the year ended december 31 , 37 2014 , includes accelerated amortization expense of $ 4.9 million and accelerated depreciation expense of $ 4.0 million , which are included in our adjustments to arrive at underlying ebitda in the table below . ( 2 ) see `` results of operations '' , `` united states segment '' under the sub-heading `` special items `` in this section for additional information . the tax effect related to our share of millercoors special items in 2015 was immaterial and there was no tax effect related to our share of these charges in 2014 or 2013 . ( 3 ) in connection with the pending acquisition , we recognized transaction related fees of $ 6.9 million within marketing , general and administrative expenses in 2015. additionally , on december 16 , 2015 we entered into a bridge loan agreement which provides for a 364-day bridge loan facility of up to $ 9.3 billion . in connection with the bridge loan , during the year ended december 31 , 2015 , we paid commitment fees of $ 49.2 million , which have been deferred within other current assets on the consolidated balance sheet as of december 31 , 2015 , and will be amortized to other income ( expense ) within the consolidated statement of operations over the 364-day term . for the year ended december 31 , 2015 , $ 6.9 million was amortized to other expense . further , on december 16 , 2015 , we also entered into a term loan agreement which provides for a 3-year and 5-year tranche of $ 1.5 billion for each loan , for an aggregate principal amount of $ 3.0 billion . in connection with
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the aca will remain in its current form for 2019. we believe the aca will remain in its current form or in modified form that ensures the continuation of coverage for existing members beyond 2019. we have more than three decades of experience , spanning six presidents from both sides of the aisle , in delivering high-quality healthcare services on behalf of states and the federal government to uninsured families , commercial organizations and military families . we continue to believe we have both the capacity and capability to successfully navigate industry changes to the benefit of our members , customers and shareholders . for additional information regarding regulatory trends and uncertainties , see part i , item 1 `` business - regulation '' and item 1a , `` risk factors . '' 2018 story_separator_special_tag maryland . in july 2017 , our specialty solutions subsidiary , envolve , inc. , began providing health plan management services for medicaid operations in maryland . medicare . in january 2018 , we expanded our offerings in medicare . we entered arkansas , indiana , kansas , louisiana , missouri , pennsylvania , south carolina , and washington and expanded our footprint in ohio . missouri . in may 2017 , our missouri subsidiary , home state health , began providing managed care services to mo healthnet managed care beneficiaries under an expanded statewide contract . nebraska . in january 2017 , our nebraska subsidiary , nebraska total care , began operating under a contract with the nebraska department of health and human services ' division of medicaid and long-term care as one of three managed care organizations to administer its new heritage health program for medicaid , abd , chip , foster care and ltss enrollees . nevada . in july 2017 , our nevada subsidiary , silversummit healthplan , began serving medicaid recipients enrolled in nevada 's medicaid managed care program . pennsylvania . in january 2018 , our pennsylvania subsidiary , pennsylvania health & wellness , began serving enrollees in the community healthchoices program . contract commencement dates vary by zone and will be fully implemented statewide by january 2020. rxadvance . in march 2018 , we made a 25 % equity method investment in rxadvance , a full-service pbm , and expect to use its platform to improve health outcomes and reduce avoidable drug-impacted medical and administrative costs . this partnership includes both a customer relationship and a strategic investment in rxadvance . as part of the initial transaction , centene has certain rights to expand its equity investment in the future . in may 2018 , we made an additional investment in rxadvance , bringing the total ownership to 28 % . in september 2018 , we made an additional investment in convertible preferred stock . in 2018 , we began moving our health plans onto the rxadvance pharmacy platform , beginning with the transition of our mississippi health plan in december 2018. washington . in january 2018 , our washington state subsidiary , coordinated care of washington , began providing managed care services to apple health 's fully integrated managed care beneficiaries in the north central region . 39 in addition , we realized the full year benefit in 2017 of acquisitions , investments , and business commenced during 2016 , including the march 2016 acquisition of health net for $ 6.0 billion , including the assumption of debt . the growth items listed above were partially offset by the following items : we were successful in reprocuring our contracts in georgia , indiana , and mississippi . however , the medicaid programs were expanded to include additional insurers , which has reduced our market share . in addition , we are no longer serving ltss members in arizona or medicaid and correctional members in massachusetts . beginning in january 2018 , the state of california no longer includes costs for ihss in its medicaid contracts . effective october 2018 , we no longer provide health care coordination services to veterans under the patient-centered community care and veterans choice programs . we expect the following items to contribute to our revenue or future growth potential : we expect to realize the full year benefit in 2019 of acquisitions , investments , and business commenced during 2018 , as discussed above . in february 2019 , our north carolina joint venture , carolina complete health , was awarded a contract for the medicaid managed care program . under the agreement , carolina complete health will provide medicaid managed care services in regions 3 and 5. pending regulatory approval , the new three-year contract is effective february 1 , 2020. in february 2019 , centurion began operating under a new contract to provide comprehensive healthcare services to detainees of the metropolitan detention center located in albuquerque , new mexico . in january 2019 , centurion was notified by arizona 's department of corrections of the state 's intent to award a contract to provide comprehensive healthcare services to inmates housed in arizona 's state prison system . the contract is expected to commence july 1 , 2019 , subject to customary contract negotiation . in january 2019 , we expanded our offerings in the 2019 health insurance marketplace . we entered north carolina , pennsylvania , south carolina and tennessee , and expanded our footprint in six existing markets : florida , georgia , indiana , kansas , missouri and texas . in january 2019 , our new mexico subsidiary , western sky community care , began operating under a new statewide contract in new mexico for the centennial care 2.0 program . in january 2019 , our pennsylvania subsidiary , pennsylvania health & wellness , began serving enrollees in the community healthchoices program in the southeast region as part of the statewide contract that is expected to be fully implemented by january 2020. in january 2019 , our kansas subsidiary , sunflower health plan , continued providing managed care services to kancare beneficiaries statewide under a new contract . story_separator_special_tag in december 2018 , our spanish subsidiary , primero salud , acquired 89 % of torrejón salud , a public-private partnership in the community of madrid . in december 2018 , our florida subsidiary , sunshine health , began providing physical and behavioral health care services through florida 's statewide medicaid managed care program under its new five year contract which was implemented for all 11 regions by february 2019. in october 2018 , cms published updated medicare star quality ratings for the 2019 rating year . our star ratings returned to a 4.0 star parent rating . the 2019 rating year will positively affect quality bonus payments for medicare advantage plans in 2020. in july 2018 , we announced a joint venture with ascension to establish a medicare advantage plan . the plan is expected to be implemented in multiple geographic markets beginning in 2020 . 40 in july 2018 , our subsidiary , health net federal services , was awarded the next generation military & family life counseling program contract . the awarded contract is up to ten years , including multiple one-year option periods . in july 2018 , centurion began operating under a contract to provide healthcare services for correctional facilities in pima county , arizona . in addition , centurion 's contracts for correctional facilities were reprocured in florida , new hampshire and tennessee . in may 2018 , our iowa subsidiary , iowa total care , inc. , was selected to negotiate a new statewide contract for the ia health link program . the contract is expected to commence on july 1 , 2019. the future growth items listed above are partially offset by the following item : in the first quarter of 2018 , health net of arizona , inc. notified the arizona department of insurance of its decision to discontinue and non-renew all of its employer group plans for small and large business groups in arizona beginning january 1 , 2019. the effective date of coverage termination for existing groups is dependent on remaining renewals ; however , coverage will no longer be provided to any group policyholders and or members after december 31 , 2019. we were successful in reprocuring our contract in washington . however , we expect market share to decrease as a result of the award . membership from december 31 , 2016 to december 31 , 2018 , we increased our managed care membership by 2.6 million , or 23 % . the following table sets forth our membership by line of business : december 31 2018 2017 2016 medicaid : tanf , chip & foster care 7,356,200 5,807,300 5,630,000 abd & ltss 1,002,100 846,200 785,400 behavioral health 36,500 463,700 466,600 total medicaid 8,394,800 7,117,200 6,882,000 commercial 1,978,000 1,558,300 1,239,100 medicare ( 1 ) 416,900 333,700 334,300 correctional 151,300 157,500 139,400 total at-risk membership 10,941,000 9,166,700 8,594,800 tricare eligibles 2,858,900 2,824,100 2,847,000 non-risk membership 219,700 216,300 — total 14,019,600 12,207,100 11,441,800 ( 1 ) membership includes medicare advantage , medicare supplement , special needs plans , and medicare-medicaid plans ( mmp ) . the following table sets forth additional membership statistics , which are included in the membership information above : december 31 2018 2017 2016 dual-eligible ( 2 ) 598,200 474,500 441,400 health insurance marketplace 1,459,100 959,600 537,200 medicaid expansion 1,262,100 1,091,500 1,080,500 ( 2 ) membership includes dual-eligible abd & ltss and dual-eligible medicare membership in the table above . 41 from december 31 , 2017 to december 31 , 2018 , our membership increased as a result of : the fidelis care acquisition ; and membership growth in our health insurance marketplace service areas . these increases were partially offset by a net decrease in our behavioral health membership as many states are combining these services within our physical health contracts in order to integrate physical and behavioral health care to achieve a more holistic care model for our members . from december 31 , 2016 to december 31 , 2017 , our membership increased as a result of : membership growth in our health insurance marketplace service areas ; the commencement of health plan management services for medicaid operations in maryland ; an expanded statewide managed care contract in missouri ; and the commencement of new managed care contracts in nebraska and nevada . 42 results of operations the following discussion and analysis is based on our consolidated statements of operations , which reflect our results of operations for each of the three years ended december 31 , 2018 , prepared in accordance with generally accepted accounting principles in the united states ( $ in millions , except per share data in dollars ) : replace_table_token_6_th n.m. : not meaningful 43 year ended december 31 , 2018 compared to year ended december 31 , 2017 total revenues the following table sets forth supplemental revenue information for the year ended december 31 , ( $ in millions ) : 2018 2017 % change 2017-2018 medicaid $ 39,427 $ 33,048 19 % commercial 12,391 8,207 51 % medicare ( 1 ) 5,093 4,477 14 % other 3,205 2,650 21 % total revenues $ 60,116 $ 48,382 24 % ( 1 ) medicare includes medicare advantage , medicare supplement , special needs plans , and mmp . total revenues increased 24 % in the year ended december 31 , 2018 , over the corresponding period in 2017 , primarily due to the acquisition of fidelis care , growth in the health insurance marketplace business , expansions and new programs in many of our states , and the reinstatement of the health insurer fee in 2018. this was partially offset by lower revenues as a result of the removal of the ihss program from california 's medicaid contract in january 2018. during the twelve months ended december 31 , 2018 , we received medicaid premium rate adjustments which yielded a net 1 % composite change across all of our markets . operating expenses medical costs results of operations depend on our ability to manage expenses associated with health benefits and to accurately estimate costs incurred .
| the 2018 results include the following items , which in the aggregate had no net effect on diluted eps : during the year ended december 31 , 2018 , we received 2014-2017 cost reconciliation information related to the california medicaid in-home support services ( ihss ) program , which ended december 31 , 2017. as a result , our 2018 results include an estimated pre-tax benefit of $ 140 million related to the ihss program reconciliation . the 2014-2016 reconciliation is expected to be finalized by early 2019 , with the final 2017 reconciliation to follow . on september 30 , 2018 , our contract to provide health care coordination services to the u.s. department of veterans affairs under the patient-centered community care and veterans choice programs expired . in connection with the conclusion of the contract , during the year ended december 31 , 2018 , we recorded a pre-tax charge of $ 110 million for negotiated settlements and severance costs . we will continue to provide close out and transition services through 2021. during the year ended december 31 , 2018 , we recorded pre-tax expense of $ 30 million associated with a contribution commitment to our charitable foundation . the following items contributed to our revenue and membership growth in 2018 and 2017 : arizona . in october 2018 , our arizona subsidiary , health net access , began providing physical and behavioral health care services under a new integrated contract through the arizona health care cost containment system complete care program in the central region and the southern region . in january 2017 , we continued our participation as a qualified health plan issuer in the arizona health insurance marketplace and exited the health net preferred provider organization offerings in arizona . arkansas . in february 2018 , our arkansas subsidiary , arkansas total care , began managing a medicaid special needs population comprised of people with high behavioral health needs and individuals with developmental/intellectual disabilities . arkansas total care is expected
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the primary collection risk with regard to patient receivables relates to uninsured patient accounts or patient accounts for which primary insurance has paid , but the portion owed by the patient remains outstanding . we estimate uncollectible accounts and establish an allowance for doubtful accounts in order to adjust accounts receivable to estimated net realizable value . in evaluating the collectability of accounts receivable , we consider a number of factors , including the age of the accounts , historical collection experience , current economic conditions , and other relevant factors . accounts receivable that are determined to be uncollectible based on our policies are written off to the allowance for doubtful accounts . long-lived assets and intangible assets subject to amortization we test our long-lived and intangible assets subject to amortization for impairment whenever events or changes in circumstances indicate that the carrying value of those assets may not be recoverable . the long-lived and intangible assets subject to amortization are tested for impairment at the facility level which represents the lowest level at which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities . if the undiscounted future cash flows from the asset tested are less than the carrying value , a loss equal to the difference between the carrying value and the fair market value of the asset is recorded . fair value is determined using discounted cash flow methods . our impairment analysis requires judgment with respect to many factors , including future cash flows , success at executing business strategy , and future revenue and expense growth rates . it is possible that our estimates of undiscounted cash flows may change in the future resulting in the need to reassess the carrying value of our long-lived and intangible assets subject to amortization for impairment . impairment charges related to long-lived and intangible assets subject to amortization are included in the consolidated statements of operations under asset impairment and loss from discontinued operations . goodwill and intangible assets not subject to amortization we test goodwill for impairment annually , at the beginning of our fourth quarter or more frequently if evidence of possible impairment arises . we perform a two-step impairment test on goodwill . in the first step , we compare the fair value of the reporting unit , defined as an operating segment or one level below an operating segment , being tested to its carrying value . the goodwill impairment test is performed based on the reporting units that we have in place at the time of the test . the reporting units may change over time as our operating segments change , or the component businesses therein change , due to economic conditions , acquisitions , restructuring or otherwise . at the time of these events , we reevaluate our reporting units using the reporting unit determination guidelines . as necessary , goodwill is reassigned between the affected reporting units using a relative fair-value approach . we determine the fair value of our reporting units using a combination of the income approach and the market approach . under the income approach , we calculate the fair value of a reporting unit based on the present value of estimated future cash flows . under the market approach , we estimate fair value based on what investors have paid for similar interests in comparable companies through the development of ratios of market prices to various earnings indications of comparable companies taking into consideration adjustments for growth prospects , debt levels and overall size . if the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit , goodwill is not impaired and we are not required to perform further testing . if the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit , then we must perform the second step of the impairment test in order to determine the implied fair value of the reporting unit 's goodwill . if the carrying value of a reporting unit 's goodwill exceeds its implied fair value , then we record an impairment loss equal to the difference . the process of evaluating the potential impairment of goodwill is subjective and requires significant estimates and assumptions at many points during the analysis . our estimated future cash flows are based on assumptions that reflect our best estimates and incorporate estimated future cash flows consistent with our annual planning process and include estimates for revenue and operating margins and future economic and market conditions . actual future results may differ from those estimates . in addition , we make certain judgments and assumptions in allocating shared assets and liabilities to determine the carrying values for each of our reporting units tested . changes in assumptions or circumstances could result in an additional impairment in the period in which the change occurs and in future years . factors that could cause us to record additional goodwill impairment include , but are not limited to : 1. decreases in revenues or increases in operating costs 2. increases in the company 's borrowing rates or weighted average cost of capital 28 3. increase in the blended tax rate 4. changes in working capital 5. significant alteration of market multiples utilized in the valuation process 6. significant decrease in market value of comparable companies 7. significant changes in perpetuity growth rate our intangible assets not subject to amortization consist of trademarks and trade names , certificates of need , and regulatory licenses . we test intangible assets not subject to amortization for impairment annually , at the beginning of our fourth quarter or more frequently if evidence of possible impairment arises . we apply a fair value-based impairment test to the net book value of other intangible assets not subject to amortization using a combination of income and market approaches . story_separator_special_tag impairment charges related to goodwill and intangible assets not subject to amortization are included in the consolidated statements of operations under goodwill impairment , asset impairment and discontinued operations . revenue recognition revenue is recognized when rehabilitation and treatment services are provided to a patient . client service revenue is reported at the estimated net realizable amounts from clients , third-party payors and others for services rendered . provisions for estimated third-party payor settlements are provided for in the period the related services are rendered and adjusted in future periods as final settlements are determined . revenue for educational services provided by our youth and weight management divisions consists primarily of tuition , enrollment fees , alumni services and ancillary charges . tuition revenue and ancillary charges are recognized based on contracted monthly/daily rates as services are rendered . the enrollment fees for service contracts that are charged upfront are deferred and recognized over the average student length of stay , ranging between 2 and 16 months . we may , from time to time , provide charity care to a limited number of clients . we do not record revenues or receivables for charity care provided . advance billings for client services are deferred and recognized as the related services are performed . stock-based compensation we measure and recognize compensation expense for all stock-based payment awards , including employee stock options based on the grant-date fair value . we estimate grant date fair value of our awards by utilizing a binomial model in conjunction with monte carlo simulation as well as a black scholes model . for awards that are subject to both a performance and market condition , compensation expense is recognized over the longer of the implicit service period associated with the performance condition or the derived service period associated with the market condition . income taxes we account for income taxes under an asset and liability method . under this method , deferred income tax assets and liabilities are determined based upon the difference between the financial statement carrying amounts and tax bases of assets and liabilities using tax rates in effect when the differences are expected to reverse . a valuation allowance is established when necessary to reduce deferred tax assets to the amounts expected to be realized . for u.s. federal tax return purposes , we are part of a consolidated tax return with our parent , crc health group , inc. however , our provision for income taxes is prepared on a stand-alone basis . we establish reserves for tax-related uncertainties based on estimates of whether , and the extent to which , additional taxes will be due . these reserves are established when we believe that certain positions might be challenged despite our belief that our tax return positions are in accordance with applicable tax laws . we adjust these reserves in light of changing facts and circumstances , such as the closing of a tax audit , new tax legislation , or the change of an estimate based on new information . to the extent that the final tax outcome is different than the amounts recorded , such differences will affect the provision for income taxes in the period in which such determination is made . the provision for income taxes includes the effect of reserve provisions and changes to reserves that are considered appropriate , as well as the related net interest and penalties . we recognize a tax benefit from an uncertain tax position when it is more likely than not that the position will be sustained upon examination , including resolutions of any related appeals or litigation processes based on technical merits . recent accounting guidance for a summary of recent accounting guidance , please see note 1 to the consolidated financial statements . 29 story_separator_special_tag primarily due to patients at our eating disorder facilities purchasing lower levels of care . operating expenses increased by $ 2.7 million primarily due to a $ 2.0 million increase to supplies , facilities , and other operating costs , and a $ 0.6 million increase to salaries and benefits . 32 corporate year ended december 31 , 2011 compared to year ended december 31 , 2010 operating expenses increased by $ 2.3 million primarily due to a $ 2.1 million increase in supplies , facilities , and other operating costs and a $ 0.6 million increase in depreciation expenses . supplies , facilities , and other operating costs increased primarily due to an increase in legal fees as a result of the 2010 restatement , an increase in recruitment fees due to costs related to the hiring of new executive officers in 2011 , and costs related to the re-financing of our debt in january 2011. year ended december 31 , 2010 compared to year ended december 31 , 2009 operating expenses remained relatively the same from the prior period . interest expense interest expense , net , includes interest paid on our debt , amortization of debt discount , and capitalized financing costs . during the years ended december 31 , 2011 , 2010 and 2009 , we incurred interest expense of $ 45.3 million , $ 43.3 million , and $ 45.4 million , respectively . interest expense increased during the year ended december 31 , 2011 , as compared to the prior year primarily due to an increase in interest rates on our term loans and revolving credit facility refinanced in 2011. interest expense decreased during the year ended december 31 , 2010 , as compared to the prior year , primarily due to a decrease in outstanding long-term debt . other income during the years ended december 31 , 2011 , 2010 , and 2009 , we recorded other income of $ 0.8 million , $ 0.5 million , and $ 0.1 million , respectively . other income includes interest income on our loan program . the annual increases represent the increase in interest income from the loans outstanding .
| operating results for the facility were negatively impacted in 2011. specifically , revenues and operating profits decreased $ 4.2 million and $ 8.0 million , respectively , relative to 2010. in march 2012 we received notice that the admission suspension would not be extended . we intend to re-open the facility in april 2012 . 31 year ended december 31 , 2010 compared to year ended december 31 , 2009 revenues increased $ 16.1 million due to a $ 10.5 million and $ 5.6 million increase from residential and ctcs , respectively . the increase in recovery residential facilities was primarily due to higher patient days . the increase in ctcs was primarily due to an increase in patient days at our facilities and an increase in net revenue per patient day as a result of price increases . operating expenses increased by $ 5.5 million primarily due to a $ 2.9 million increase in salaries and benefits , and a $ 2.4 million increase in supplies , facilities , and other operating costs . salaries and benefits increased primarily due to an increase in patient days . supplies , facilities , and other operating costs increased primarily due to increases required to support the increase in patient days . youth year ended december 31 , 2011 compared to year ended december 31 , 2010 revenues increased $ 3.1 million primarily due to a $ 4.4 million increase from our outdoor programs , offset by a $ 1.3 million decrease from our residential programs . the increase in outdoor programs was primarily due to an increase in student days and an increase in net revenue per patient day in 2011. the decrease in youth residential facilities was primarily due to decrease in average length of stay offset by higher tuition rates . operating expenses decreased by $ 56.6 million primarily due to a $ 56.3 million decrease in non-cash asset and goodwill impairment charges and a $ 1.4 million decrease in depreciation and amortization expenses , partially offset by a $
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the classification of our products as mias or similar listings may lead to a decline in the demand for and production of food products derived from animals that utilize our products and , in turn , demand for our products . livestock producers may experience decreased demand for their products or reputational harm as a result of evolving consumer views of nutrition and health-related concerns , animal rights , and other concerns . any reputational harm to the livestock industry may also extend to companies in related industries , including us . in addition , campaigns by interest groups , activists and others with respect to perceived risks associated with the use of our products in animals , including position statements by livestock producers and their customers based on non-use of certain medicated products in livestock production , whether or not scientifically-supported , could affect public perceptions and reduce the use of our products . those adverse consumer views related to the use of one or more of our products in animals could have a material adverse effect on our financial condition and results of operations . in april 2016 , the fda began initial steps to withdraw approval of mecadox ( carbadox ) via a regulatory process known as a notice of opportunity for hearing ( “ nooh ” ) , due to concerns that certain residues from the product may persist in tissues for longer than previously determined . the nooh process provided phibro with an opportunity to defend the safety of mecadox prior to the fda taking final steps to remove mecadox from the market . over the next four years , as part of an ongoing process of responding to cvm 's inquiries , we provided extensive and meticulous research and data that confirmed the safety of carbadox . in march 2018 , the fda indefinitely stayed the withdrawal proceedings . in july 2020 , the fda published a notice in the federal register that it does not agree with phibro 's scientific conclusions that carbadox is safe under the current conditions of use . instead of proceeding to a hearing on the scientific concerns raised in the 2016 nooh , as would be the normal regulatory procedure , the fda announced that it was withdrawing the current nooh , and issuing a proposed order to review the regulatory method for carbadox . the approved regulatory method determines if there are residues of carcinogenic concern in animal tissue at the time of slaughter . if the order ( after the 60-day comment period ) is finalized , the fda has indicated it plans to issue a new nooh proposing the withdrawal of carbadox from the market because of lack of an approved regulatory method . the 60-day comment period ends september 18 , 2020. phibro disagrees with the agency 's actions and has submitted a request to the fda office of the commissioner that the agency continue the process it started in 2016 and proceed with a hearing to review the substantial 61 body of data supporting the safety of carbadox . we have complete confidence in the safety of mecadox . mecadox has been approved and sold in the united states for more than 45 years and is a widely used treatment for controlling bacterial diseases including salmonella and swine dysentery . mecadox is not used in human medicine and the class of drug is not considered a medically important antimicrobial . the approved mecadox label requires a 42-day withdrawal period pre-harvesting , and to date we have not seen any hazardous residues of carbadox being detected from pig meat treated in accordance with the approved label . should we be unable to successfully defend the safety of the product , the loss of mecadox sales would have an adverse effect on our financial condition and results of operations . as of the date of this annual report on form 10-k , mecadox continues to be available for use by swine producers . our global sales of antibacterials , anticoccidials and other products were $ 322 million , $ 350 million and $ 337 million for the years ended june 30 , 2020 , 2019 and 2018 , respectively . mecadox sales of $ 17 million are included in the preceding amount disclosed for the year ended june 30 , 2020. competition the animal health industry is highly competitive . we believe many of our competitors are conducting r & d activities in areas served by our products and in areas in which we are developing products . our competitors include the animal health businesses of large pharmaceutical companies and specialty animal health businesses . in addition to competition from established participants , there could be new entrants to the animal health medicines and vaccines industry in the future . principal methods of competition vary depending on the region , species , product category or individual products , including reliability , reputation , quality , price , service and promotion to veterinary professionals and livestock producers . foreign exchange we conduct operations in many areas of the world , involving transactions denominated in a variety of currencies . for the year ended june 30 , 2020 , we generated approximately 41 % of our revenues from operations outside the united states . although a portion of our revenues are denominated in various currencies , the selling prices of the majority of our sales outside the united states are referenced in u.s. dollars , and as a result , our revenues have not been significantly directly affected by currency movements . we are subject to currency risk to the extent that our costs are denominated in currencies other than those in which we earn revenues . we manufacture some of our major products in brazil and israel and production costs are largely denominated in local currencies , while the selling prices of the products are largely set in u.s. dollars . story_separator_special_tag as such , we are exposed to changes in cost of goods sold resulting from currency movements and may not be able to adjust our selling prices to offset such movements . in addition , we incur selling and administrative expenses in various currencies and are exposed to changes in such expenses resulting from currency movements . because our financial statements are reported in u.s. dollars , changes in currency exchange rates between the u.s. dollar and other currencies have had , and will continue to have , an impact on our results of operations . climate the animal health industry and demand for many of our animal health products in a particular region are affected by changing disease pressures and by weather conditions , as usage of our products follows varying weather patterns and weather-related pressures from diseases . as a result , we may experience regional and seasonal fluctuations in our results of operations . in addition , livestock producers depend on the availability of natural resources , including abundant rainfall to sustain large supplies of drinking water , grasslands and grain production . their animals ' health and their ability to operate could be adversely affected if they experience a shortage of fresh water due to human population growth or floods , droughts or other weather conditions . in the event of adverse weather conditions or a shortage of fresh water , livestock producers may purchase less of our products . product development initiatives our future success depends on our existing product portfolio , including additional approvals for new claims for our products , for use of our products in new markets , for use of our products with new species 62 and for cross-clearances enabling the use of our medicated products in conjunction with other products . our future success also depends on our pipeline of new products , including new products that we may develop through joint ventures and products that we are able to obtain through license or acquisition . the majority of our r & d programs focus on product lifecycle development , which is defined as r & d programs that leverage existing animal health products by adding new species or claims , achieving approvals in new markets or creating new combinations and reformulations . we commit substantial effort , funds and other resources to expanding our product approvals and r & d , both through our own dedicated resources and through collaborations with third parties . we also commit significant resources to development of new vaccine technologies . we currently are working to develop a potential vaccine for african swine fever , a virulent disease that is highly lethal in swine . we also have developed an innovative , automated vaccination delivery system that insures vaccination injection accuracy , enables real-time oversight and offers data analytics to optimize the management of the vaccination process . analysis of the consolidated statements of operations story_separator_special_tag text-align : right ; white-space : nowrap ; '' > ( 0 ) % performance products 59,038 62,239 53,333 ( 3,201 ) ( 5 ) % 8,906 17 % total $ 800,354 $ 827,995 $ 819,982 $ ( 27,641 ) ( 3 ) % $ 8,013 1 % 64 replace_table_token_11_th ( 1 ) reflects ratio to total net sales . a reconciliation of net income , as reported under gaap , to adjusted ebitda : replace_table_token_12_th certain amounts and percentages may reflect rounding adjustments . * calculation not meaningful 65 comparison of the years ended june 30 , 2020 and 2019 net sales net sales of $ 800.4 million for the year ended june 30 , 2020 , decreased $ 27.6 million , or 3 % , as compared to the year ended june 30 , 2019. animal health , mineral nutrition and performance products sales declined $ 5.1 million , $ 19.4 million and $ 3.2 million , respectively . animal health net sales of $ 526.9 million for the year ended june 30 , 2020 , decreased $ 5.1 million , or 1 % . net sales of mfas and other declined $ 28.2 million , or 8 % , due to a $ 30.9 million sales decline in china driven by the effects of african swine fever and regulatory changes . net sales of nutritional specialty products grew $ 16.0 million , or 14 % , due to volume growth in poultry and dairy products . the recent osprey acquisition accounted for approximately two-thirds of the nutritional specialty sales growth . net sales of vaccines increased $ 7.0 million , or 10 % , due to international demand and increased market penetration . excluding a domestic distribution arrangement that was terminated in october 2018 , net sales of vaccines would have increased approximately 14 % . we experienced a short-term decline in demand for our products during the quarter ended june 30 , 2020 due to the covid-19 pandemic , primarily in the animal health segment . the animal production industry faced unprecedented demand disruptions , production impacts , price declines and currency volatility in international markets . animal producers rapidly adjusted the number of animals and amount of milk being produced . mineral nutrition net sales of $ 214.4 million for the year ended june 30 , 2020 , decreased $ 19.4 million , or 8 % , primarily driven by lower average selling prices . the decline in average selling prices is correlated with the movement of the underlying raw material costs . performance products net sales of $ 59.0 million for the year ended june 30 , 2020 , decreased $ 3.2 million , or 5 % .
| segment net sales and adjusted ebitda : change for the year ended june 30 2020 2019 2018 2020 / 2019 2019 / 2018 ( in thousands ) net sales mfas and other $ 322,300 $ 350,468 $ 336,666 $ ( 28,168 ) ( 8 ) % $ 13,802 4 % nutritional specialties 129,264 113,215 122,978 16,049 14 % ( 9,763 ) ( 8 ) % vaccines 75,340 68,291 72,083 7,049 10 % ( 3,792 ) ( 5 ) % animal health 526,904 531,974 531,727 ( 5,070 ) ( 1 ) % 247 0 % mineral nutrition 214,412 233,782 234,922 ( 19,370 ) ( 8 ) % ( 1,140 ) < td style= '' padding:3.5pt 0pt 1.5pt 0pt ; min-width:7.5pt ;
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segment operating ( loss ) income segment operating ( loss ) income represents one measure of the pretax profitability of our segments and is derived by subtracting direct segment expenses from direct segment revenues . revenues and expenses are presented in the consolidated statements of operations , but are not subtotaled by segment ; however , this information is available in total and by segment in note 25 , `` segmented information , '' to the consolidated financial statements , regarding reportable segment information . the nearest comparable u.s. gaap measure is loss from continuing operations before income tax ( benefit ) expense which , in addition to segment operating ( loss ) income , includes net investment income , net realized gains , other-than-temporary impairment loss , amortization of intangible assets , contingent consideration benefit , impairment of asset held for sale , interest expense not allocated to segments , other income not allocated to segments , general and administrative expenses , foreign exchange losses , net , ( loss ) gain on change in fair value of debt , loss on disposal of subsidiary , loss on disposal of asset held for sale , gain ( loss ) on deconsolidation of subsidiaries and equity in net loss of investees . a reconciliation of segment operating ( loss ) income to loss from continuing operations before income tax ( benefit ) expense for the years ended december 31 , 2016 , 2015 and 2014 is presented in tables 1 and 2 of the `` results of continuing operations '' section of md & a . gross premiums written while net premiums earned is the related u.s. gaap measure used in the consolidated statements of operations , gross premiums written is the component of net premiums earned that measures insurance business produced before the impact of ceding reinsurance premiums , but without respect to when those premiums will be recognized as actual revenue . we use this measure as an overall gauge of gross business volume in insurance underwriting . net premiums written while net premiums earned is the related u.s. gaap measure used in the consolidated statements of operations , net premiums written is the component of net premiums earned that measures the difference between gross premiums written and the impact of ceding reinsurance premiums , but without respect to when those premiums will be recognized as actual revenue . we use this measure as an indication of retained or net business volume in insurance underwriting . underwriting ratios kingsway , like many insurance companies , analyzes performance based on underwriting ratios such as loss and loss adjustment expense ratio , expense ratio and combined ratio . the loss and loss adjustment expense ratio is derived by dividing the amount of net loss and loss adjustment expenses incurred by net premiums earned . the expense ratio is derived by dividing the sum of commissions and premium taxes ; general and administrative expenses and policy fee income by net premiums earned . the combined ratio is the sum of the loss and loss adjustment expense ratio and the expense ratio . a combined ratio below 100 % demonstrates underwriting profit whereas a combined ratio over 100 % demonstrates an underwriting loss . critical accounting estimates and assumptions the preparation of consolidated financial statements in conformity with u.s. gaap requires management to make estimates and assumptions that affect application of policies and the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the year . actual results could differ from these estimates . estimates and their underlying assumptions are reviewed on an ongoing basis . changes in estimates are recorded in the accounting period in which they are determined . the critical accounting estimates and assumptions in the accompanying consolidated financial statements include the provision for unpaid loss and loss adjustment expenses ; valuation of fixed maturities and equity investments ; impairment assessment of investments ; valuation of limited liability investment at fair value ; valuation of deferred income taxes ; valuation and impairment assessment of intangible assets ; goodwill replace_table_token_40_th kingsway financial services inc. management 's discussion and analysis recoverability ; deferred acquisition costs ; fair value assumptions for derivative financial instruments ; fair value assumptions for subordinated debt obligations ; and contingent consideration . provision for unpaid loss and loss adjustment expenses a significant degree of judgment is required to determine amounts recorded in the consolidated financial statements for the provision for unpaid loss and loss adjustment expenses . the process for establishing the provision for unpaid loss and loss adjustment expenses reflects the uncertainties and significant judgmental factors inherent in predicting future results of both known and unknown loss events . as such , the process is inherently complex and imprecise and estimates are constantly refined . the process of establishing the provision for unpaid loss and loss adjustment expenses relies on the judgment and opinions of a large number of individuals , including the opinions of the company 's actuaries . further information regarding estimates used in determining our provision for unpaid loss and loss adjustment expenses is discussed in the “ unpaid loss and loss adjustment expenses ” section of part i , item 1 of this 2016 annual report and note 14 , `` unpaid loss and loss adjustment expenses , '' to the consolidated financial statements . factors affecting the provision for unpaid loss and loss adjustment expenses include the continually evolving and changing regulatory and legal environment ; actuarial studies ; the professional experience and expertise of the company 's claims personnel and independent adjusters retained to handle individual claims ; the quality of the data used for projection purposes ; existing claims management practices including claims handling and settlement practices ; the effect of inflationary trends on future loss settlement costs ; court decisions ; economic conditions ; and public attitudes . story_separator_special_tag the company utilizes external actuaries to evaluate the adequacy of our provision for unpaid loss and loss adjustment expenses under the terms of our insurance policies and vehicle service agreements . the provision is evaluated by the company 's actuaries with the results then shared with management , which is responsible for establishing the provision recorded in the consolidated balance sheets . in the year-end actuarial review process , an analysis of the provision for unpaid loss and loss adjustment expenses is completed for each insurance subsidiary and iws . unpaid deferred cost containment expenses and unpaid adjusting and other expenses , which are components of the provision for loss adjustment expenses , and unpaid losses are each separately analyzed by line of business and by accident year utilizing a wide range of actuarial methods . these unpaid losses and loss adjustment expenses are further analyzed by looking separately at case reserves , which are specific reserves established for specific claims , and reserves for losses incurred but not reported ( `` ibnr '' ) . because the establishment of the provision for unpaid loss and loss adjustment expenses is an inherently uncertain process involving estimates , current provisions may need to be updated . adjustments to the provision , both favorable and unfavorable , are reflected in the consolidated statements of operations for the periods in which such estimates are updated . the company 's actuaries develop a range of reasonable estimates and a point estimate of unpaid loss and loss adjustment expenses . the actuarial point estimate is intended to represent the actuaries ' best estimate and will not necessarily be at the mid-point of the high and low estimates of the range . valuation of fixed maturities and equity investments our equity investments , including warrants , are recorded at fair value using quoted market values based on latest bid prices , where active markets exist , or models based on significant market observable inputs , where no active markets exist . for fixed maturities , we use observable inputs such as quoted prices in inactive markets , quoted prices in active markets for similar instruments , benchmark interest rates , broker quotes and other relevant inputs . we do not have any fixed maturities and equity investments in our portfolio which require us to use unobservable inputs . gains and losses realized on the disposition of investments are determined on the first-in first-out basis and credited or charged to the consolidated statements of operations . premium and discount on investments are amortized and accredited using the interest method and charged or credited to net investment income . impairment assessment of investments the establishment of an other-than-temporary impairment on an investment requires a number of judgments and estimates . we perform a quarterly analysis of the individual investments to determine if declines in market value are other-than-temporary . the analysis includes some or all of the following procedures , as applicable : identifying all unrealized loss positions that have existed for at least six months ; identifying other circumstances which management believes may impact the recoverability of the unrealized loss positions ; replace_table_token_41_th kingsway financial services inc. management 's discussion and analysis obtaining a valuation analysis from third-party investment managers regarding the intrinsic value of these investments based on their knowledge and experience together with market-based valuation techniques ; reviewing the trading range of certain investments over the preceding calendar period ; assessing if declines in market value are other-than-temporary for debt instruments based on the investment grade credit ratings from third-party rating agencies ; assessing if declines in market value are other-than-temporary for any debt instrument with a non-investment grade credit rating based on the continuity of its debt service record ; determining the necessary provision for declines in market value that are considered other-than-temporary based on the analyses performed ; and assessing the company 's ability and intent to hold these investments at least until the investment impairment is recovered . the risks and uncertainties inherent in the assessment methodology used to determine declines in market value that are other-than-temporary include , but may not be limited to , the following : the opinions of professional investment managers could be incorrect ; the past trading patterns of individual investments may not reflect future valuation trends ; the credit ratings assigned by independent credit rating agencies may be incorrect due to unforeseen or unknown facts related to a company 's financial situation ; and the debt service pattern of non-investment grade instruments may not reflect future debt service capabilities and may not reflect a company 's unknown underlying financial problems . as a result of the analysis performed by the company to determine declines in market value that are other-than-temporary , the company recorded write downs of $ 0.1 million and $ 0.1 million for other-than-temporary impairment related to equity investments and limited liability investments , respectively , for the year ended december 31 , 2016 and $ 0.0 million for other-than-temporary impairment related to fixed maturities for the year ended december 31 , 2015 . the company did not recognize any impairment related to its investments that was considered other-than-temporary for the year ended december 31 , 2014 . valuation of limited liability investment , at fair value in connection with the deconsolidation of 1347 investors llc ( `` 1347 investors '' ) during the third quarter of 2016 , the company retained a minority investment in 1347 investors . the company has made an irrevocable election to account for this investment at fair value with changes in fair value reported in the consolidated statements of operations . the fair value of this investment is calculated based on an internally developed model that distributes the net equity of 1347 investors to all classes of membership interests . the model uses quoted market prices and significant market observable inputs . valuation of deferred income taxes the provision for income taxes is calculated based on the expected tax treatment of transactions recorded in our consolidated financial statements .
| insurance underwriting for the year ended december 31 , 2016 , insurance underwriting gross premiums written were $ 132.7 million compared to $ 116.4 million for the year ended december 31 , 2015 , representing a 14.0 % increase . net premiums written increase d 14.0 % to $ 132.5 replace_table_token_46_th kingsway financial services inc. management 's discussion and analysis million for the year ended december 31 , 2016 compared with $ 116.2 million for the year ended december 31 , 2015 . net premiums earned increase d 8.7 % to $ 127.6 million for the year ended december 31 , 2016 compared with $ 117.4 million for the year ended december 31 , 2015 . the increase in gross premiums written , net premiums written and net premiums earned reflect a change in the mix of business by state resulting from insurance underwriting 's strategic shift to emphasize certain states and de-emphasize others while also reflecting the competitive market dynamics of each state . of particular note , the company has recorded increased premiums written in florida , texas and nevada while reducing premiums written in virginia , a state in which insurance underwriting ceased writing new business beginning in the third quarter of 2015. the insurance underwriting operating loss increased to $ 8.2 million for the year ended december 31 , 2016 compared to $ 1.1 million for the year ended december 31 , 2015 . the increase in operating loss is primarily attributed to an increase in loss and loss adjustment expenses , partially offset by an increase in net premiums earned in 2016 as compared to 2015 . during the fourth quarter of 2016 , the company recorded unfavorable development of approximately $ 9.1 million related to accident years 2015 and prior in the company 's continuing operations , while approximately $ 1.5 million of favorable development was recorded during the fourth quarter related to the continuing run-offs at amigo and mcc . in response to industry trends of increasing frequency and severity , mendota and
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our average daily oil and natural gas liquids net sales volumes for the year ended december 31 , 2012 increased to 3,874 barrels per day ( `` bbl/d '' ) from 3,266 bbl/d in 2011 , which increased our average net liquids percentage from 21 % in 2011 to 28 % in 2012. we drilled a total of 32 gross ( 27.7 net ) horizontal light oil wells at evi . invested $ 162.8 million on capital expenditures including $ 10.3 million on new ventures activity . in february 2012 , we completed a private placement of us $ 200 million aggregate principal amount of 10.375 % senior notes due 2017 ( the `` senior notes '' ) . the net proceeds of $ 192 million were used to partially repay borrowings outstanding under our bank credit facility . in the third and fourth quarters of 2012 , we completed the disposition of non-core natural gas weighted assets for cash proceeds after closing adjustments of approximately $ 97.5 million , as part of our previously announced asset portfolio review process . how we evaluate our operations we use a variety of financial and operational measures to assess our performance , including : volumes of oil , natural gas and ngls produced and sold ; realized commodity prices ; production costs ; and net earnings ( loss ) before interest , income taxes , depreciation , depletion and amortization ( `` dd & a '' ) and other non-cash items ( `` adjusted ebitda '' ) . volumes of oil , natural gas and ngls produced and sold the volumes of oil , natural gas and ngls that we produce and sell are driven by several factors , including : the amount of capital we invest in the exploration , development and acquisition of oil and natural gas properties , including the drilling of new wells and the recompletion of existing wells ; the rate at which production volumes on our wells naturally decline ; the royalty percentage that is levied on our sales volumes by canadian provinces ; and the amount of production volumes associated with oil and natural gas properties we may acquire or divest from time to time . realized commodity prices we market our production to a variety of purchasers based on regional pricing , and the prices that we receive are determined by various factors but are primarily driven by global and regional supply and demand fundamentals . new york mercantile exchange ( `` nymex '' ) west texas intermediate ( `` wti '' ) futures prices are widely-used benchmarks in the pricing of oil and ngls , and nymex henry hub and aeco futures prices are used as benchmarks in the pricing of natural gas . the prices realized for each of our products compared to the nymex and aeco benchmark prices , or differential , will depend on various factors , which are discussed by product below . 55 oil differentials the primary factors influencing our oil differential to the nymex wti price are ( 1 ) the quality of our oil and ( 2 ) the proximity of our oil production to major consuming and refining markets . among other things , there are two characteristics that determine the quality of our oil : ( 1 ) the oil 's american petroleum institute ( `` api '' ) gravity and ( 2 ) the oil 's sulfur content by weight . in general , lighter oil ( with higher api gravity ) sells at a higher price than heavier oil , because lighter oil produces a larger number of lighter liquid products , such as gasoline , that have a higher resale value . on average , the oil that we produce is approximately 39 degrees api . oil with low sulfur content , or `` sweet '' crude oil , such as the oil we produce at evi , is less expensive to refine and , as a result , normally sells at a higher price than high sulfur-content oil , or `` sour '' crude oil . the proximity of our oil production to major consuming and refining markets also impacts our oil differentials . oil that is produced close to major consuming and or refining markets , such as edmonton or hardisty in alberta , is in higher demand than oil that is produced farther from these markets and , consequently , realizes a higher price due to the implied costs that must be incurred by the buyer of the oil at or near the wellhead to transport the oil to the consuming and refining markets . natural gas differentials the primary factors influencing natural gas differentials include the proximity of natural gas production to consuming markets or , in instances when natural gas is produced in remote areas away from consuming markets , the amount of natural gas pipeline `` takeaway capacity '' available to transport natural gas produced to areas with higher demand . generally , natural gas produced in close proximity to areas that consume large quantities of natural gas will command higher prices , as will natural gas produced in areas with adequate takeaway capacity to those consuming markets . the majority of the natural gas that we produce can access adequate takeaway capacity to major consuming markets and is transported to those markets under firm transportation contracts . as of march 8 , 2013 , we had a delivery commitment of approximately 21,000 million british thermal units per day ( `` mmbtu/d '' ) of natural gas , which provides for a price equal to the greater of ( 1 ) the nymex henry hub price less us $ 1.49 per mmbtu and ( 2 ) us $ 1.00 per mmbtu to a buyer through october 31 , 2014 , unless the nymex henry hub price exceeds us $ 6.50 per mmbtu , at which point we share the amount of the excess equally with the buyer . accordingly , when the nymex henry hub price trades above us $ 6.50 per mmbtu , our reported differentials will widen . story_separator_special_tag conversely , the contract guarantees a floor price of us $ 1.00 per mmbtu after deducting us $ 1.49 per mmbtu from the nymex henry hub price and our reported differential would narrow in this case . ngl realizations ngl realizations , which are generally evaluated as a percentage of the nymex wti price , are primarily driven by the relative composition of liquids . ngls are primarily composed of four marketable components , which , ordered from lightest to heaviest , are : ( 1 ) ethane , ( 2 ) propane , ( 3 ) butanes and ( 4 ) pentanes . the heavier liquid components normally realize higher prices than the lighter components . production costs in evaluating our operations , we frequently monitor and assess our production expenses on a per unit of production basis , per thousand cubic feet equivalent , or `` per mcfe '' . this measure allows us to better evaluate our operating efficiency as production levels change . production costs are the costs incurred in the operation of producing our oil , natural gas and ngls and primarily comprise lease operating expenses , production and property taxes , and transportation and processing costs . in general , lease operating expenses , which include the cost of 56 workovers and the trucking of emulsion to batteries , represent the components of production costs over which we have management control , while production and property taxes are primarily driven by the assessed valuation of our property and equipment by the taxing authorities . transportation and processing costs comprise pipeline transportation costs ( primarily incurred to deliver natural gas to consuming regions in order to achieve a higher sales price ) and processing costs , which include the cost of separating ngls from the natural gas stream and compressing the residual natural gas to a pressure adequate to meet pipeline requirements . certain components of lease operating expenses are also impacted by energy and field services costs . for example , we incur power costs in connection with various production-related activities , such as pumping to recover oil and natural gas , and we purchase products , such as methanol , to prevent the freezing of gas lines . although these costs are highly correlated with production volumes , they are also influenced by commodity prices . certain items , however , such as direct labor and materials and supplies , generally remain fixed across broad sales volume ranges , but can fluctuate depending on activities performed during a specific period . for instance , repairs to our pumping equipment or surface facilities result in increased expenses in the periods they are performed . adjusted ebitda we also evaluate our performance using a non-generally accepted accounting principles ( `` non-gaap '' ) measure , adjusted ebitda , which is calculated as net earnings ( loss ) before interest expense , income tax expense ( recovery ) , dd & a expense , impairment of goodwill , impairment of assets , ceiling test write-downs of oil and natural gas properties , accretion of asset retirement obligations ( `` aro '' ) , unrealized losses ( gains ) on derivative instruments and foreign currency exchange ( gains ) losses . adjusted ebitda also excludes the stock-settled portion of stock-based compensation expense , as this amount will be settled in shares of our common stock rather than cash payments . by eliminating these items , we believe the result is a useful measure across time in evaluating our fundamental core performance . our management also uses adjusted ebitda to manage our business , including in preparing our annual operating budget and financial projections . we believe that adjusted ebitda is also useful to investors because similar measures are frequently used by securities analysts , rating agencies , investors and other interested parties in their evaluation of companies in similar industries . as indicated , adjusted ebitda does not include interest expense on borrowed money , dd & a expense on capital assets or the payment of income taxes , which are all necessary elements of our operations . adjusted ebitda does not account for these and other expenses , and therefore its utility as a measure of our performance has material limitations . as a result of these limitations , our management does not view adjusted ebitda in isolation and uses other measurements , such as net earnings ( loss ) and revenues , to measure performance . in the first quarter of 2012 , we revised the calculation of adjusted ebitda to exclude the amortization of deferred costs . adjusted ebitda for 2011 and 2010 has been restated to be consistent with the presentation used in 2012. for a reconciliation of this non-gaap measure to its most directly comparable gaap measure , see `` reconciliation of non-gaap measure '' , which reconciles net earnings ( loss ) to adjusted ebitda . 57 story_separator_special_tag ended december 31 , 2011 compared to $ 151.2 million for the year ended december 31 , 2010. the increase in revenues was due to an increase in oil and natural gas sales volumes as well as higher realized oil prices , partially offset by lower realized natural gas prices . 60 production expense the table below presents the detail of production expense for the periods indicated . replace_table_token_15_th lease operating expenses lease operating expenses for the year ended december 31 , 2012 were $ 51.4 million , or $ 1.69 per mcfe , compared to $ 38.8 million , or $ 1.13 per mcfe , for the year ended december 31 , 2011. the $ 12.6 million increase in lease operating expenses was primarily due to an increase of $ 17.3 million at evi , partially offset by a decrease at other properties .
| net earnings were $ 34.8 million for the year ended december 31 , 2011 compared to $ 32.8 million for the year ended december 31 , 2010. the increase was primarily due to increases in oil and natural gas revenues primarily due to higher production volumes as well as higher oil prices , and an increase in gains on derivative instruments as a result of prices in our commodity derivatives being higher than benchmark prices . the increases were partially offset by higher production expense as a result of an increase in production volumes and workovers , as well as increased costs for maintenance , water hauling , utilities and chemicals . other expenses that were higher in 2011 included dd & a expense , due to higher dd & a per-unit rates , and higher income tax expense due to higher earnings before income taxes . in addition , net earnings were impacted by higher general and administrative costs related to the costs of being a public company as well as incremental costs for our ipo and the distribution . adjusted ebitda increased $ 26.3 million for the year ended december 31 , 2011 compared to the year ended december 31 , 2010 , due to the increase in oil and natural gas revenues , partially offset by the higher production expense . a discussion of the components of the changes in our results of operations follows . 58 oil and natural gas volumes and revenues the table below presents our sales volumes by product for the years ended december 31 , 2012 , 2011 and 2010. replace_table_token_13_th ( 1 ) `` working interest sales volumes '' represents our share of sales volumes before the impact of royalties . ( 2 ) `` net sales volumes '' represents our working interest sales volumes less the volumes attributable to royalties . net sales volumes for the year ended december 31 , 2012 decreased 11 % to 83.3 mmcfe/d from 94.0 mmcfe/d in 2011. however , crude oil net sales volumes for the year ended december 31 , 2012 increased 21 % to 1,347 mbbls ( 3,680 bbls/d ) from 1,110 mbbls ( 3,041 bbls/d ) in 2011. the increase was primarily due to the
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federal corporate income tax rate from 35 % to 21 % , effective january 1 , 2018. we computed our income tax expense for the fiscal 2019 using a u.s. statutory tax rate of 21 % . we computed income tax expense for fiscal 2018 using a u.s. statutory tax rate of 24.5 % . see note 19 of the consolidated financial statements for additional information . for fiscal 2018 , we recorded tax expense of $ 8.6 million related to the remeasurement of deferred tax assets and liabilities . the tax reform also included a mandatory repatriation transition tax on previously untaxed accumulated and current earnings and profits ( “ e & p ” ) of certain of our foreign subsidiaries . for fiscal 2018 , we recorded a transition tax obligation of $ 11.2 million . the accounting for the remeasurement of the deferred tax assets and liabilities , as well as the accounting for the mandatory repatriation transition tax on previously untaxed accumulated and current e & p of certain of our foreign subsidiaries is complete . fiscal 2019 highlights realized records in both operating revenues of $ 1,106.1 million and net income of $ 85.1 million . achieved a return on average stockholders ' equity of 15.5 % , exceeding our internal target of 15 % . executed an asset purchase agreement to acquire the futures and options brokerage and clearing business of uob bullion and futures limited . acquired gmp securities , llc , expanding our institutional fixed-income trading offerings into high yield , convertible and emerging market debt securities , as well as adding new institutional clients to benefit from our full suite of financial services . acquired carl kliem s.a. , an independent inter-dealer broker based in luxembourg , providing us with a strong european client base , and an e.u . based footprint for us , post brexit . acquired coininvest gmbh and european precious metal trading gmbh , expanding our precious metals offering . launched a securities prime brokerage division , offering multi-asset prime brokerage , execution , outsourced trading , custody , and self-clearing and introduced clearing services for hedge funds , mutual funds and family offices . subsequently , expanding this initiative with the acquisition of fillmore advisors , llc , a leading provider of outsourced trading solutions and operational consulting to institutional asset managers . our wholly-owned subsidiary , intl fcstone financial ( canada ) inc. , became a member of the investment industry regulatory organization of canada ( “ iiroc ” ) , allowing us to offer exchange-traded financial products throughout canada . amended our senior secured credit facility , extending the maturity through february 2022 and increasing the size of the facility to its current commitment of $ 393.0 million . executive summary our net income increased $ 29.6 million to $ 85.1 million in fiscal 2019 compared to $ 55.5 million in fiscal 2018 . diluted earnings per share were $ 4.39 for fiscal 2019 compared to $ 2.87 in fiscal 2018 . the calculation of diluted earnings per share is detailed in note 3 of the consolidated financial statements . net income in fiscal 2018 included discrete income tax charges of $ 19.8 million related to the enactment of the tax reform described above . excluding the impact of tax reform , net income in fiscal 2018 , was $ 75.3 million . overall segment income increased $ 43.8 million , or 17 % versus the prior year , with our physical commodities and securities segments adding $ 21.4 million and $ 6.6 million , respectively versus fiscal 2018 . in addition , our global payments and clearing & execution services ( “ ces ” ) added $ 6.3 million and $ 5.8 million , respectively . finally , our commercial hedging segment increased segment income by $ 3.7 million over the prior year period . our largest segment , commercial hedging increased segment income by 4 % , to $ 100.1 million as a result of growth in both exchange-traded and otc revenues as well as a $ 6.3 million increase in interest income . this operating revenue growth was partially offset by a $ 2.0 million increase in non-variable direct expenses . global payments segment income increased 11 % , to $ 66.1 million , primarily as a result of the increase in operating revenues , driven by 8 % growth in the number of payments made and a 4 % increase in the average revenue per trade versus fiscal 2018 . 31 this operating revenue growth was partially offset by a $ 5.3 million increase in non-variable direct expenses related to the acquisition of paycommerce financial solutions , llc , as well as the addition of several new front office employees . segment income in our securities segment increased 16 % , to $ 47.4 million , primarily as a result of the $ 99.1 million increase in operating revenues versus the prior year . this growth was tempered by a $ 60.9 million increase in interest expense related to our securities lending and matched-book repurchase activities , as well as a $ 6.2 million increase in non-variable direct expenses . this non-variable direct expense growth was primarily related to the launch of our securities prime brokerage initiative as well as the acquisition of gmp securities llc . our physical commodities segment increased segment income by 129 % , to $ 38.0 million versus the prior year . this increase was primarily driven by a $ 16.9 million increase in operating revenues , of which $ 13.9 million was attributable to our precious metals activities and $ 3.0 million to our physical ag & energy business . in addition , during fiscal 2019 we recorded $ 12.4 million of recoveries on the bad debt on physical coal as detailed below in “ bad debt and recoveries on physical coal ” . the prior year included $ 1.0 million of bad debt on physical coal related to our exit of the physical coal business . story_separator_special_tag despite a 2 % decline in operating revenues in our ces segment , segment income increased 12 % , to $ 54.1 million , as a $ 21.0 million decline in operating revenues in our exchange-traded futures & options business was more than offset by lower related variable expenses . our correspondent clearing , independent wealth management and derivative voice brokerage businesses each added operating revenues versus the prior year and contributed to the growth in segment income . our fx prime brokerage business added $ 4.3 million in segment income versus the prior year as a result of an increase in operating revenues , as well as a $ 2.7 million settlement received related to the barclays plc ‘ last look ' class action matter . 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 61 % of total expenses in the current period compared to 61 % in the prior year period . non-variable expenses increased $ 28.1 million , or 9 % , year-over-year , primarily the result of our acquisitions of carl kliem s.a. , paycommerce financial solutions , llc , coininvest gmbh , european precious metal trading gmbh and gmp securities llc , as well as the launch of our securities prime brokerage initiative and our expansion efforts in canada . while we view these acquisitions and expansion efforts as long-term strategic decisions , they resulted in a pre-tax net loss in fiscal 2019 of $ 10.3 million . partially offsetting this loss , we recorded $ 5.5 million in ‘ other gains ' , related to bargain purchases among certain acquisitions in fiscal 2019 . these gains are discussed further in note 20 of the consolidated financial statements . economic hedges in place against the effect of the devaluation of the argentine peso on our argentine operations resulted in a loss of operating revenues of $ 1.6 million in fiscal 2019 , while the fiscal 2018 results included a $ 5.5 million gain in operating revenues , each presented in ‘ principal gains , net ' . the argentine peso has historically served as our functional currency in the argentine operations , and as such the revaluation of the net assets of our argentine subsidiaries was recorded as a component of accumulated other comprehensive loss , net in the consolidated balance sheets . in fiscal 2018 , the argentinian economy was determined to be highly inflationary and as such , beginning july 1 , 2018 , the functional currency for our argentine subsidiaries is the u.s. dollar and prospectively the corresponding revaluations of the net assets of these subsidiaries are recorded in earnings each quarter in the consolidated income statements while the highly inflationary designation continues . finally , during fiscal 2018 we recorded a $ 2.0 million gain related to a judgment received in final settlement of our claim in the sentinel management group inc. bankruptcy proceeding . see note 12 of the consolidated financial statements for additional information on the sentinel litigation . bad debt and recoveries on physical coal during fiscal 2017 and fiscal 2018 , we recorded charges to earnings of $ 47.0 million and $ 1.0 million , respectively , to record an allowance for doubtful accounts related to a bad debt incurred in our physical coal business , conducted solely in our singapore subsidiary , intl asia pte . ltd. , with a coal supplier . components of the bad debt on physical coal included allowances on amounts due to us from our supplier related to : coal paid for but not delivered to clients ; reimbursement of demurrage claims , dead freight and other charges paid and payable by intl asia pte . ltd. to its clients ; reimbursement due for deficiencies in the quality of coal delivered to clients ; and losses incurred related to the cancellation of open sales contracts . during fiscal 2018 , we completed our exit of the physical coal business . during fiscal 2019 , we reached settlements with clients , paying $ 8.4 million related to demurrage , dead freight , and other penalty charges regarding coal supplied during fiscal 2017. the settlement amounts paid were less than the accrued liability for the transactions recorded during fiscal 2017 and fiscal 2018 , and accordingly we recorded a recovery on the bad debt on physical coal of $ 2.4 million . additionally , in september 2019 , we received $ 10.0 million through an insurance policy claim related to the physical coal matter , and recorded the insurance proceeds as an additional recovery . we have presented the bad debt on physical coal and subsequent recoveries separately as a component of income before tax in our consolidated income statements . 32 selected summary financial information story_separator_special_tag activity from clients in the domestic grain and energy and renewable fuels markets , as well as an increase in exchange-traded revenues from omnibus relationships introduced by our commercial hedging employees . otc revenues increased as a result of both a 12 % increase in otc volumes and a 10 % increase in the average rate per contract compared to the prior year . these increases were driven by increased activity from brazilian agricultural clients as well as increased activity in food service , dairy and soft commodity markets . in addition , interest income in this segment increased $ 9.5 million , or 71 % , as a result of an increase in short term interest rates on relatively flat average client equity balances . operating revenues in our global payments segment increased 11 % in fiscal 2018 to a record $ 99.2 million , as a result of a 13 % increase in the average revenue per trade . the number of global payments made declined 1 % as certain commercial clients switched from doing individual high volume but low value payments through our platform , to doing aggregated higher value funding payments on our platform .
| these increases were partially offset by lower operating revenues in our argentina and municipal securities businesses . asset management operating revenues declined 5 % , to $ 7.3 million in fiscal 2019 , as the average assets under management in argentina declined 23 % . overall , the securities segment operating revenues benefited from a $ 56.1 million increase in interest income , primarily in our domestic institutional fixed income and conduit securities lending activities . operating revenues in commercial hedging increased 5 % to $ 302.4 million in fiscal 2019 . exchange-traded revenues increased $ 6.1 million as a results of a 1 % increase in exchange-traded volumes as well as a 2 % increase in the average rate per contract as compared to the prior year . otc revenues were increased $ 2.7 million versus the prior year as a result of a 12 % increase in otc volumes , which was partially offset by an 8 % decline in the average rate per contract . interest income increased $ 6.3 million versus the prior year as a result of an increase in short term interest rates , while average client equity increased 1 % over the prior year period . operating revenues in our global payments segment increased 14 % in fiscal 2019 to $ 112.8 million , as a result of an 8 % increase in the number of global payments made as well as a 4 % increase in the average revenue per payment . our physical commodities segment operating revenues increased 30 % to $ 73.8 million in fiscal 2019 , as a result of a $ 13.9 million increase in precious metals operating revenues as well as a $ 3.0 million increase in physical ag & energy operating revenues . operating revenues in our ces segment declined 2 % to $ 326.1 million in fiscal 2019 compared to fiscal 2018 . exchange-traded futures & options operating revenues declined 11 %
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we believe this shift in focus to ecommerce based revenues could be accomplished principally through maximizing resources and assets already held by the company . while we currently receive a royalty through our ownership of the url asseenontv.com , this outlet presents the opportunity to generate revenues from both referrals or the placement and distribution of our own products or products for which we will receive a licensing fee . distribution of third party products through this channel provides us with the opportunity to expand revenues without a costly proportionate expansion of infrastructure , including support personal and inventory purchase and management costs . in furtherance of our shift to focus to ecommerce platforms and to reduce operating expenses , on october 11 , 2013 , the company completed the sale to chefs diet national co. , llc ( chef 's diet ) , a subsidiary of chef 's diet corp. , of certain assets ( the meal delivery assets ) relating to the ediets meal delivery business pursuant to an asset purchase and revenue sharing agreement ( the agreement ) dated august 23 , 1013 between ediets and chef 's diet . the disposed assets consist primarily of a customer database of active and inactive ediets customers . in addition , ediets granted chef 's diet a perpetual royalty-free license to content and certain other intellectual property used in connection with the ediets meal delivery business . as a result of the sale of our meal delivery assets component , the financial statements included in the annual report have been presented in accordance with the provisions of asc 205- 20 discontinued operations for all periods presented . the base sales price of $ 1.1 million consisted of an initial cash payment of $ 200,000 , which was collected prior to march 31 , 2014 , plus deferred cash payments totaling $ 900,000 payable as follows : ( i ) eight quarterly payments beginning january 1 , 2014 , in an amount equal to the greater of $ 56,250 or 7 % of adjusted gross revenue for the immediately preceding period , and ( ii ) eight quarterly payments beginning january 1 , 2016 , in an amount equal to the greater of $ 56,250 or 5 % of adjusted gross revenue for the immediately preceding period . in addition , chef 's diet will make up to four quarterly bonus payments of up to $ 50,000 each if it meets certain customer acquisition and retention targets . the elimination of our meal delivery program , while having a negative effect on revenues in the near term , has had , and is expected to have , a significant reduction in operating expenses . as a result of this divestiture , the meal delivery component of our dietary programs has been recorded as a discontinued operation in our condensed consolidated financial statements . in connection with the agreement , the company retained a perpetual , nonexclusive , worldwide , royalty free right and license to use the meal delivery assets in its business provided that it shall not utilize such assets to promote any fresh , frozen or prepared meal program , as defined . we continue to face a number of challenges during fiscal 2015 , including operating within the highly competitive industries , effectively responding to ever changing consumer preferences and completing our infusion brands and ediets integrations . we may also need additional fundings to provide the resources necessary to continue in business and to realize the expected benefits of our initiatives . in light of the company 's results from operations , the company intends to continue to evaluate various possibilities , including : ( i ) raising additional capital through the issuance of common or preferred stock , securities convertible into common stock , or secured or unsecured debt , ( ii ) selling one or more lines of business , or all or a portion of the company 's assets , ( iii ) entering into a business combination , and ( iv ) aggressively restructuring existing operations , including reducing or eliminating less promising operations or liquidating assets . these possibilities , to the extent available , may be on terms that result in significant dilution to the company 's shareholders or that result in the company 's shareholders losing all of their investment in the company . there can be no assurance that the company will be successful in effecting any of the above possibilities . 18 we reported a net loss of approximately $ 9.3 million for the fiscal year ended march 31 , 2014. at march 31 , 2014 , we had a working capital deficit of approximately $ 2.9 million , an accumulated deficit of approximately $ 22.9 million and cash used in operations for the fiscal year ended march 31 , 2014 of approximately $ 3 million . subsequent to the period covered by this report , pursuant to a senior note purchase agreement dated as of april 3 , 2014 , by and among the company , infusion , ediets.com , inc. , tru hair , inc. , tv goods holding corporation , ronco funding llc ( collectively , the credit parties ) , and mig7 infusion , llc ( mig7 and such agreement , the note purchase agreement ) , the credit parties sold to mig7 a senior secured note having a principal amount of $ 10,180,000 bearing interest at 14 % and having a maturity date of april 3 , 2015 ( the mig7 note ) . the mig7 note is subject to automatic extension for an additional 180-day period in the event that the credit parties have requested such extension in writing at least 60 days prior to the original maturity date , no event of default under the note purchase agreement is then in existence , and the company 's consolidated revenues , as determined in accordance with generally accepted accounting principles , and ebitda for the 12 months immediately preceding the request equal or exceed $ 39,000,000 and $ 6,000,000 , respectively . story_separator_special_tag during such extension the mig7 note would bear interest at a rate of 15.5 % . funding of the amounts borrowed under the mig7 note was made in two tranches , with the first funding of $ 7,400,000 occurring on april 3 , 2014 , and the second funding , which resulted in funding of an aggregate gross amount of $ 10,180,000 under the note purchase agreement , occurring on may 1 , 2014. story_separator_special_tag astv segment product sales include the direct costs of purchasing the products marketed as well as fulfillment costs associated with the taking and shipment of orders , merchant discount fees , royalties , commissions and shipping and freight costs , which can , and as happened in fiscal 2014 did , exceed the related revenues resulting in a loss . the company does not manufacture any products in-house and relies on third-party suppliers , located primarily outside of the united states , for its inventory . accordingly , our cost of products acquired for sale could vary significantly if fuel and transportation costs were to increase in the future . costs associated with the ediets segment sales , reflecting our dietary ecommerce programs , include credit card fees , product costs , fulfillment and shipping costs , as well as costs associated with revenue sharing or royalty costs related to license agreements with third party nutrition and fitness companies , internet access fees and compensation for nutritional professionals . 21 operating expenses operating expenses , consisting of selling and marketing expenses and general and administrative expenses , declined sharply for the fiscal year ending march 31 , 2014 , compared to the comparable periods of the preceding year . the bulk of this decrease is reflected in selling and marketing expenses attributable to the absence of selling and marketing expenses related to the company 's heater sales campaign in the prior year which accounted for 64 % of total revenues for the fiscal year ended march 31 , 2013. there were no comparable heater sales or related costs for the fiscal year march 31 , 2014. general and administrative expenses decreased approximately $ 1,300,000 or 19 % for the fiscal year ended march 31 , 2014 , compared to the preceding year . this decline was due in large part to the shift in sales focus between the periods to a more ecommerce structure as mentioned above . administrative salaries and related cost declined approximately $ 430,000 as a direct result of a reduction in administrative staff as a cost reduction measure . while there can be no assurances , we anticipate administrative salaries as a percentage of revenues to continue to decline in future periods as a result of our acquisition of infusion brands , completed in april 2014. stock based compensation also declined between the periods from $ 1,375,000 in fiscal 2013 to $ 944,000 for fiscal 2014. this decline of approximately $ 431,000 reflects the accelerated vesting of options as part of our termination agreement with our former ceo in march 2013 , which totaled expense recognition of approximately $ 550,000. in both fiscal 2014 and 2013 , the company recognized costs associated with mergers as incurred . for fiscal 2014 we recognized merger related costs associated with the infusion brands transaction , completed in fiscal 2015 , of $ 157,600. during fiscal 2013 , we recognized merger related costs associated with the ediets transaction of $ 277,700. insurance related costs increased between the periods by approximately $ 303,000 due in part to our acquisition of ediets and related coverages . other ( income ) expenses other ( income ) expense primarily consists of the non-cash income or expense recognized on the periodic revaluation of the fair value of financing related warrants outstanding at the end of each period that , based on their provisions , are carried as liabilities on the company 's records . for the fiscal year ended march 31 , 2014 , we reported warrant revaluation income of approximately $ 10,760,000. for the fiscal year ended march 31 , 2013 we reported warrant revaluation income of approximately $ 13,951,000. these periodic revaluations have , and most likely will continue to , result in significant , non-cash income or expense being recognized at the end of any given period depending on fluctuations in the market value of our stock on each remeasurement date . in addition , in may 2014 the company completed a financing with gross proceeds of $ 10,180,000 , which contained a provision requiring the issuance of warrants representing 4.99 % of our total outstanding shares with an exercise price of $ 0.0001 per share . provisions within these warrants will also require fair value recognition of the related liability with income or expense recognition in addition to those outstanding at march 31 , 2014. investors should not place undue emphasis on our other income resulting from our revaluation of warrants outstanding when evaluating our actual operating performance . liquidity and capital resources liquidity is the ability of a company to generate adequate amounts of cash to meet the company 's needs for cash to operate the business . at march 31 , 2014 , we had a working capital deficit of approximately $ 2.9 million as compared to a working capital deficit of approximately $ 9.6 million at march 31 , 2013. at march 31 , 2014 , our current assets decreased 91 % and our current liabilities decreased 78 % , respectively , from march 31 , 2013. the sharp decrease in current liabilities was primarily due to a sharp decline in the company 's warrant liabilities , decreasing from approximately $ 11,700,000 to $ 930,000 between the periods . this decline was attributable to a significant drop in the market price of our common stock , used in determining the fair value of the liability at the respective balance sheet dates .
| see note 4 . 19 the following tables reflect results of operations from our business segments for the years ended march 31 , 2014 and 2013 : replace_table_token_3_th replace_table_token_4_th we measure the profit or loss of our segments or segment operating income ( loss ) . we define segment operating income ( loss ) as income from operations before warrant revaluation income or loss , net interest expenses and income taxes and excludes unallocated corporate overhead . we have no intersegment revenues , profits or losses . the amounts under the caption , corporate and other in this table are unallocated corporate overhead items . loss from discontinued operations for fiscal year ended march 31 , 2014 , reflects the losses from our meal delivery component and impairment of diet related intangibles including $ 5,331,000 in identifiable intangibles and $ 9,300,000 in related goodwill . revenues astv segment we generate revenues in our astv segment from a number of sources . in the fiscal 2014 and fiscal 2013 periods , these sources included : · heater sales ( fiscal 2013 ) , · other product sales , and · royalty fees . while there can be no assurance , management believes that continuing to develop a marketing strategy based upon distributing developed products through our asseenontv.com url , will ultimately prove a successful strategy . 20 astv segment revenues for the fiscal year ended march 31 , 2014 declined 87 % from the comparable period of the preceding year . this very sharp decline was due to the absence of sales of our heater unit during the current year . revenues related to the company 's heater products totaled approximately 64 % of total revenues for the fiscal year ended march 31 , 2013. the suspension of these revenues represents the company 's intentional shift in focus from traditional direct response , inventory intensive model , to an ecommerce based model which we believe requires less capital per revenue dollar and improvement
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we recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors . payments for these activities are based on the terms of the individual agreements , which may differ from the pattern of costs incurred , and are reflected in our financial statements as prepaid or accrued research and development expenses . our primary research and development focus since inception has been the development of our synthetic chemistry drug development platform . we are using our platform to design , develop and commercialize a broad pipeline of nucleic acid therapeutic candidates . our direct research and development expenses consist primarily of certain external costs , consultants and cros in connection with our preclinical studies and regulatory fees . we do not allocate the cost of sponsored research , which includes laboratory supplies and facility-related expenses , including rent , maintenance and other operating costs , because these costs are deployed across multiple product programs under development and , as such , are classified as costs of our research . the table below summarizes our research and development expenses incurred on our platform and by program . replace_table_token_4_th product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later-stage clinical trials . we expect that our research and development expenses will continue to increase in the foreseeable future as we initiate clinical trials for certain product candidates , continue to discover and develop additional product candidates , and pursue later stages of clinical development of product candidates . general and administrative expenses general and administrative expenses consist primarily of salaries , bonuses and other related benefits costs , including share-based compensation , for personnel in our executive , finance , corporate , business development , legal and administrative functions . general and administrative expenses also include legal fees relating to intellectual property and general corporate matters ; expenses associated with being a public company ; professional fees for accounting , auditing , tax and consulting services ; insurance costs ; travel expenses ; other operating costs ; and facility-related expenses . 68 we anticipate that our general and administrative expenses will increase in the future , primarily due to additional compensation , including salaries , benefits , incentive arrangements and share-based compensation awards , a s we increase our employee headcount to support the expected growth in our research and development activities and the potential commercialization of our product candidates . additionally , we expect our facility-related expenses to increase related to the l ease we entered into in 2016 for space in lexington , massachusetts which we intend to use primarily for our cgmp manufacturing , as well as for additional laboratory and office space . other income ( expense ) , net other income ( expense ) , net consists primarily of dividend and interest income earned on cash and cash equivalents balances for the year ended december 31 , 2016. for the year ended december 31 , 2015 , other income ( expense ) consisted primarily of reimbursement of research and development costs extent under a research and development grant awarded by the japanese ministry of economy , trade and industry ( “ meti ” ) . income taxes we are a multi-national company subject to taxation in the united states , japan , ireland and singapore . in 2016 , 2015 , and 2014 our provision for income taxes was $ 0.6 million , less than $ 0.1 million and $ 0.1 million , respectively , on pre-tax loss of $ 54.8 million , $ 19.2 million and $ 5.1 million , respectively . as of december 31 , 2016 , we had zero net operating loss carryforwards in the u.s. as of december 31 , 2016 and 2015 , we had u.s. federal and state research and development tax credit carryforwards of $ 0.2 million and $ 0.3 million , respectively , available to offset future u.s. federal and state income taxes . the u.s. federal and state research and development tax credits will begin to expire in 2031 and 2028 , respectively . as of december 31 , 2016 and 2015 , we had net operating loss carryforwards in japan of $ 5.3 million and $ 4.3 million , respectively , which may be available to offset future income tax liabilities and begin to expire in 2017. as of december 31 , 2016 and 2015 , we also had net operating loss carryforwards in singapore of $ 84.0 million and $ 31.8 million , respectively , which may be available to offset future income tax liabilities and can be carried forward indefinitely . comparison of the year ended december 31 , 2016 to the year ended december 31 , 2015 the following table summarizes our results of operations for 2016 and 2015 : replace_table_token_5_th revenue revenue was $ 1.5 million for the year ended december 31 , 2016 , which related to revenue earned in 2016 under the pfizer collaboration agreement , which was entered into in may 2016 , compared to revenue of $ 0.2 million for the year ended december 31 , 2015 . revenue earned for the year ended december 31 , 2015 was earned for research and development performed under our collaboration agreement with a third party which was entered into in 2014 and terminated in may 2015 . story_separator_special_tag 69 research and development expenses the table below summarizes our research and development expenses incurred for the years ended december 31 , 2016 and 2015 : replace_table_token_6_th research and development expenses were $ 40.8 million for the year ended december 31 , 2016 , compared to approximately $ 9.0 million for the year ended december 31 , 2015. the increase of $ 31.8 million was due , in part , to the following : an increase of $ 5.8 million in preclinical research and development expenses related to our hd programs , wve-120101 and wve-120102 ; an increase of $ 1.7 million preclinical research and development expenses related to our dmd program , wve-210201 ; and an increase of $ 24.3 million in research and development expenses related to other discovery programs , platform development and identification of potential drug discovery candidates , due to an increase of $ 7.8 million in salary , bonus and related benefits costs and an increase of $ 2.7 million in share-based compensation expense , both of which are the result of an increase in employee headcount , and an increase of approximately $ 13.8 million in research and development supplies and services expenses and facility-related expenses . research and development expenses incurred at our japan facility in 2016 and 2015 represented 1.7 % and 6.4 % of the related consolidated expenses for the year ended december 31 , 2016 and 2015 , respectively . the impact of changes in foreign currency did not have a significant impact on changes in our consolidated research and development expenses for the year ended december 31 , 2016 compared to the year ended december 31 , 2015. story_separator_special_tag roman ; font-size:10pt ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > until we can generate significant revenue from product sales , if ever , we expect to finance our operations through a combination of public equity or debt financings or other sources , which may include collaborations with third parties . on january 4 , 2017 , we filed a universal shelf registration statement on form s-3 , which was declared effective by the sec on february 6 , 2017 , on which we registered for sale up to $ 500.0 million of any combination of our ordinary shares , debt securities , warrants , rights , purchase c ontracts and or units from time to time and at prices and on terms that we may determine . this registration statement will remain in effect for up to three years from the date it was declared effective . adequate additional financing may not be available to us when we need it , on acceptable 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 will need to generate significant revenue to achieve profitability , and we may never do so . cash flows the following table summarizes our sources and uses of cash for each of the periods presented : replace_table_token_9_th operating activities during 2016 , operating activities used $ 31.9 million of cash , primarily resulting from our net loss of $ 55.4 million offset by non-cash charges of $ 7.3 million and by cash provided by changes in our operating assets and liabilities of $ 16.2 million . the non-cash charges for 2016 related primarily to share-based compensation expense of $ 6.8 million . net cash provided by changes in our operating assets and liabilities during the year ended december 31 , 2016 was due primarily to an increase in accounts payable due to higher research and development costs , as well as the timing of payments . during 2015 , operating activities used $ 12.5 million of cash , primarily resulting from our net loss of $ 19.2 million offset by non-cash charges of $ 4.7 million and by cash provided by changes in our operating assets and liabilities of $ 1.9 million . the non-cash charges for 2015 related primarily to share-based compensation expense of $ 4.0 million . net cash provided by changes in our operating assets and liabilities during the year ended december 31 , 2015 was due primarily to an increase in accounts payable due to higher research and development costs , as well as the timing of payments . during 2014 , operating activities used $ 4.4 million of cash , primarily resulting from our net loss of $ 5.2 million offset by non-cash charges of $ 0.4 million and by cash provided by changes in our operating assets and liabilities of $ 0.4 million . the non-cash charges for 2014 related primarily to $ 0.3 million of depreciation and amortization associated with our property and equipment . net cash provided by changes in our operating assets and liabilities during 2014 consisted primarily of a $ 0.4 million increase in accrued expenses due to higher accruals for research and development costs . investing activities during 2016 , investing activities used $ 8.2 million of cash , consisting primarily of purchases of property and equipment of $ 5.6 million and an increase in restricted cash of $ 2.6 million related to a letter of credit for our new manufacturing space in lexington , massachusetts . during 2015 , investing activities used $ 2.9 million of cash , consisting of restricted cash of $ 1.0 million primarily placed in favor of a letter of credit for our office and laboratory space in cambridge , massachusetts along with purchases of property and equipment of $ 1.9 million . during 2014 , investing activities used $ 0.3 million of cash , primarily consisting of purchases of property and equipment of $ 0.6 million offset by reimbursements of $ 0.3 million from meti .
| during the years ended december 31 , 2016 and 2015 , we recorded no income tax benefits for the net operating losses incurred in japan and singapore due to uncertainty regarding future taxable income in these jurisdictions . in may 2016 , we established a wholly-owned subsidiary in ireland , however no income tax expense or benefit has been recorded . 70 comparison of the year ended december 31 , 2015 to the year ended december 31 , 2014 the following table summarizes our results of operations for 2015 and 2014 : replace_table_token_7_th revenue revenue was $ 0.2 million for the year ended december 31 , 2015 due to revenue earned for research and development performed under our collaboration agreement with a third party that was entered into in 2014 and which was terminated in may 2015. there was no revenue for the year ended december 31 , 2014. research and development expenses the table below summarizes our research and development expenses incurred on our platform and by program for 2015 and 2014 : replace_table_token_8_th research and development expenses were $ 9.1 million for the year ended december 31 , 2015 , compared to $ 2.4 million for the year ended december 31 , 2014. the increase of $ 6.7 million was due , in part , to the following : an increase of $ 0.4 million in research and development expenses related to our hd programs , wve-120101 and wve-120102 , including costs related to the collaboration with children 's hospital of philadelphia for preclinical research studies ; an increase of $ 0.4 million in research and development expenses related to our dmd program , wve-210201 , including costs related to the collaboration with the university of oxford for preclinical research studies ; and an increase of $ 5.9 million in research and development expenses related to other discovery programs , platform development and identification of potential drug discovery candidates , which includes salary and related benefits costs , as well as costs associated with overall research directed at the identification of additional potential drug candidates . the increase was primarily the result of an increase in salary and related benefits costs of
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adjusted free cash flow is also used in the calculation of management 's incentive compensation program . the most directly comparable gaap measure to adjusted free cash flow is net cash provided by operating activities . the following is a reconciliation of net income to adjusted ebitda and adjusted ebitda margin and a reconciliation of net cash provided by operating activities to adjusted free cash flow : replace_table_token_8_th ( a ) represents a charge associated with the impairment of long-lived assets related to the production of the tc10 transmission and h3000 and h4000 electric hybrid-propulsion systems . ( b ) represents a charge ( recorded in other ( expense ) income , net ) for investments in co-development agreements to expand our position in transmission technologies . ( c ) represents stock-based compensation expense ( recorded in cost of sales , selling , general and administrative , and engineering research and development ) . 33 ( d ) represents a bonus ( recorded in cost of sales , selling , general and administrative , and engineering research and development ) to eligible employees recorded in the fourth quarter of 2017 as a result of uaw local 933 represented employees ratifying a six-year collective bargaining agreement effective through november 2023 . ( e ) represents an adjustment ( recorded in selling , general and administrative ) associated with the dual power inverter module ( dpim ) extended coverage program liability . the dpim liability will continue to be reviewed for any changes in estimates as additional claims data and field information become available . ( f ) represents expenses related to the refinancing of the senior secured credit facility in the third quarter of 2016 and ati 's tender offer and redemption of its 7.125 % senior notes due may 2019 ( 7.125 % senior notes ) in the second quarter of 2015 . ( g ) represents expenses ( recorded in selling , general and administrative ) directly associated with stockholder activism activity including the notice , and subsequent withdrawal , of director nomination and governance proposals by ashe capital management , lp . ( h ) represents unrealized ( gains ) losses ( recorded in other ( expense ) income , net ) on the mark-to-market of our commodity hedge contracts . ( i ) represents losses ( recorded in other ( expense ) income , net ) on intercompany financing transactions related to investments in plant assets for our india facility . ( j ) represents a charge associated with the impairment of our trade name as a result of lower forecasted net sales for certain of our end markets . ( k ) represents environmental remediation expenses for ongoing operating , monitoring and maintenance activities at our indianapolis , indiana manufacturing facilities . ( l ) represents losses ( recorded in other income ( expense ) , net ) realized on the repayments of ati 's long-term debt . ( m ) represents the amount of tax benefit ( recorded in income tax expense ) related to stock-based compensation expense adjusted from cash flows from operating activities to cash flows from financing activities . 34 story_separator_special_tag jobs act enacted into law in 2017 and was principally driven by a $ 157 million decrease in net deferred tax liabilities to reflect the decrease in the corporate income tax rate from 35 % to 21 % , partially offset by a $ 5 million increase in tax liabilities related to the deemed repatriation of accumulated foreign earnings and profits . 36 comparison of years ended december 31 , 2016 and 2015 replace_table_token_10_th net sales net sales for the year ended december 31 , 2016 were $ 1,840 million compared to $ 1,986 million for the year ended december 31 , 2015 , a decrease of 7 % . the decrease was principally driven by a $ 97 million , or 9 % , decrease in net sales in the north america on-highway end market driven by lower demand from rugged duty series and highway series models partially offset by higher demand for pupil transport/shuttle models , a $ 48 million , or 87 % , decrease in net sales in the north american off-highway end market driven by the previously contemplated impact of low energy prices , a $ 23 million , or 66 % , decrease in net sales in the outside north america off-highway end market driven by lower demand in the mining and energy sectors , a $ 12 million , or 16 % , decrease in net sales in the north america hybrid-propulsion systems for transit bus end market driven by lower demand due to engine emissions improvements and other alternative technologies , and an $ 11 million , or 3 % , decrease in net sales in the service parts , support equipment and other end market driven by lower demand for north america off-highway service parts , partially offset by a $ 43 million , or 16 % , increase in net sales in the outside north america on-highway end market driven by higher demand in europe and japan partially offset by lower demand in china and a $ 2 million , or 2 % , increase in net sales in the defense end market principally driven by higher demand for wheeled defense partially offset by lower demand for tracked defense . cost of sales cost of sales for the year ended december 31 , 2016 were $ 976 million compared to $ 1,052 million for the year ended december 31 , 2015 , a decrease of 7 % . the decrease was principally driven by $ 51 million of decreased direct material costs and $ 22 million of lower manufacturing expense , in each case consistent with historical trends and management 's expectations given the respective change in sales volume , and $ 10 million of favorable direct material costs , partially offset by $ 7 million of higher incentive compensation expense . story_separator_special_tag gross profit gross profit for the year ended december 31 , 2016 was $ 864 million compared to $ 934 million for the year ended december 31 , 2015 , a decrease of 7 % . the decrease was principally driven by $ 98 million related to decreased net sales and $ 7 million of higher incentive compensation expense , partially offset by $ 22 million of lower manufacturing expense commensurate with decreased net sales , $ 10 million of favorable direct material costs and $ 3 million resulting from price increases on certain products . gross profit as a percent of net sales was flat for the year compared to 2015 principally driven by favorable direct material costs and price increases on certain products , offset by unfavorable sales volume and higher incentive compensation expense . 37 selling , general and administrative selling , general and administrative for the year ended december 31 , 2016 were $ 324 million compared to $ 317 million for the year ended december 31 , 2015 , an increase of 2 % . the increase was principally driven by $ 15 million of higher incentive compensation expense , $ 4 million of stockholder activism expenses and $ 3 million of unfavorable adjustments related to the dpim extended coverage program , partially offset by $ 5 million of lower product warranty expense , $ 5 million of lower intangible asset amortization , $ 2 million of unfavorable 2015 product warranty adjustments and reduced global commercial spending activities . engineering research and development engineering expenses for the year ended december 31 , 2016 were $ 88 million compared to $ 93 million for the year ended december 31 , 2015 , a decrease of 4 % . the decrease was principally driven by the cadence of certain product initiatives , partially offset by $ 3 million of higher incentive compensation expense . trade name impairment during the fourth quarter of 2015 , we recorded a trade name impairment charge of $ 80 million as a result of lower forecasted net sales for certain of our end markets . refer to note 5 , goodwill and other intangible assets in part ii , item 8 , of this annual report on form 10-k. no trade name impairment charges were recorded in 2016. environmental remediation during the third quarter of 2015 , we recorded approximately $ 14 million for environmental remediation expenses as a result of the epa determining that gm 's environmental remediation activities at our indianapolis , indiana manufacturing facilities were complete , and our assumption of responsibility for future operating , monitoring and maintenance activities . refer to note 16 commitments and contingencies in part ii , item 8 , of this annual report on form 10-k. loss associated with impairment of long-lived assets during the first quarter of 2015 , we recorded approximately $ 1 million of losses associated with impairment of certain of our long-lived assets related to the production of the h3000 and h4000 hybrid-propulsion systems . interest expense , net interest expense , net for the year ended december 31 , 2016 was $ 101 million compared to $ 114 million for the year ended december 31 , 2015 , a decrease of 12 % . the decrease was principally driven by $ 14 million of favorable mark-to-market adjustments for our interest rate derivatives , $ 9 million of lower interest expense as a result of the repurchase and redemption of ati 's 7.125 % senior notes in the second quarter of 2015 , $ 8 million of lower interest expense on ati 's term b-3 loan due primarily to the repayment of $ 1,200 million of principal in the third quarter of 2016 , and $ 1 million of lower amortization of deferred financing fees , partially offset by $ 14 million of interest expense on ati 's 5.0 % senior notes issued in september 2016 and $ 7 million of interest expense for our interest rate derivatives that became effective in august 2016. expenses related to long-term debt refinancing in september 2016 , we refinanced our senior secured credit facility , resulting in expenses of $ 12 million for the year ended december 31 , 2016. in april 2015 , we completed a cash tender offer to purchase any and all of the outstanding 7.125 % senior notes . the tender offer resulted in the repurchase of $ 421 million of the 7.125 % senior notes in april 2015. in may 2015 , we redeemed the remaining $ 50 million of the outstanding 7.125 % senior notes , resulting in premiums and expenses totaling $ 26 million for the year ended december 31 , 2015. other income ( expense ) , net other income ( expense ) , net for the year ended december 31 , 2016 was income of $ 2 million compared to zero for the year ended december 31 , 2015. the change was principally driven by $ 3 million of net gains on derivative contracts and $ 1 million of lower foreign exchange losses on intercompany financing , partially offset by $ 1 million of technology-related investment expense and $ 1 million of miscellaneous expense , net . income tax expense income tax expense for the year ended december 31 , 2016 was $ 126 million compared to $ 107 million for the year ended december 31 , 2015 , resulting in an effective tax rate of 37 % for each of the years ended december 31 , 2016 and 2015 . 38 liquidity and capital resources we generate cash primarily from operations to fund our operating , investing and financing activities . our principal uses of cash are operating expenses , capital expenditures , debt service , stock repurchases , dividends on common stock and working capital needs . we had total available cash and cash equivalents of $ 199 million and $ 205 million as of december 31 , 2017 and 2016 , respectively .
| defense end market principally driven by higher demand . see trends impacting our business above for additional information on net sales by end market . cost of sales cost of sales for the year ended december 31 , 2017 were $ 1,131 million compared to $ 976 million for the year ended december 31 , 2016 , an increase of 16 % . the increase was principally driven by increased material cost and manufacturing expenses commensurate with increased net sales , $ 9 million associated with the ratification of a new collective bargaining agreement with uaw local 933 and $ 6 million of higher incentive compensation expense . 35 gross profit gross profit for the year ended december 31 , 2017 was $ 1,131 million compared to $ 864 million for the year ended december 31 , 2016 , an increase of 31 % . the increase was principally driven by $ 260 million related to increased net sales and $ 38 million of price increases on certain products , partially offset by $ 9 million of expenses associated with the ratification of a new collective bargaining agreement with uaw local 933 , $ 9 million of higher manufacturing expense commensurate with increased net sales , $ 6 million of higher incentive compensation expense and $ 7 million of unfavorable material cost . gross profit as a percent of net sales for the year ended december 31 , 2017 increased 3 % compared to the same period in 2016 principally driven by favorable sales volume and price increases on certain products , partially offset by expense associated with the ratification of a new collective bargaining agreement , higher incentive compensation expense and unfavorable material cost . selling , general and administrative selling , general and administrative expenses for the year ended december 31 , 2017 were $ 342 million compared to $ 324 million for the year ended december 31 , 2016 , an increase of 6 % . the increase
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these revised metrics for the most recent fiscal years were as follows : replace_table_token_9_th average acv per domain-based customer we use average annualized contract value ( “ acv ” ) per domain-based customer to measure customer commitment to our platform and sales force productivity . we define average acv per domain-based customer as total outstanding acv for domain-based subscriptions as of the end of the reporting period divided by the number of domain-based customers as of the same date . 47 dollar-based net retention rate we calculate dollar-based net retention rate as of a period end by starting with the acv from the cohort of all customers as of the 12 months prior to such period end ( “ prior period acv ” ) . we then calculate the acv from these same customers as of the current period end ( “ current period acv ” ) . current period acv includes any upsells and is net of contraction or attrition over the trailing 12 months , but excludes subscription revenue from new customers in the current period . we then divide the total current period acv by the total prior period acv to arrive at the dollar-based net retention rate . the dollar-based net retention rate is used by us to evaluate the long-term value of our customer relationships and is driven by our ability to retain and expand the subscription revenue generated from our existing customers . components of results of operations revenue subscription revenue subscription revenue primarily consists of fees from customers for access to our cloud-based platform . we recognize subscription revenue ratably over the term of the subscription period beginning on the date access to our platform is provided , as no implementation work is required , assuming all other revenue recognition criteria have been met . professional services revenue professional services revenue primarily includes fees for consulting and training services . our consulting services consist of platform configuration and use case optimization , and are primarily invoiced on a time and materials basis , with some smaller engagements being provided for a fixed fee . we recognize revenue for our consulting services as those services are delivered . our training services are delivered either remotely or at the customer site . training services are charged for on a fixed-fee basis and we recognize revenue as the training program is delivered . our consulting and training services are generally considered to be distinct , for accounting purposes , and we recognize revenue as services are performed or upon completion of work . cost of revenue and gross margin cost of subscription revenue cost of subscription revenue primarily consists of expenses related to hosting our services and providing support , including employee-related costs such as salaries , wages , and related benefits , third-party hosting fees and payment processing fees , software and mainten ance costs , allocated overhead , amortization of acquisition-related intangibles , costs of connectors between smartsheet and third-party applications , costs of outside services to supplement our internal teams , and travel-related expenses . we intend to continue to invest in our platform infrastructure and our support organization . we currently utilize a combination of third-party co-location data centers and public cloud service providers . as our platform scales , we may require additional investments in infrastructure to host our platform and support our customers , which may negatively impact our subscription gross margin . cost of professional services revenue cost of professional services revenue consists primarily of employee-related costs for our consulting and training teams , allocated overhead , billable expenses , software-related costs , travel-related costs , and costs of outside services to supplement our internal teams . gross margin gross margin is calculated as gross profit expressed as a percentage of total revenue . our gross margin may fluctuate from period to period as our revenue mix fluctuates , and as a result of the timing and amount of 48 investments to expand our hosting capacity , our continued building of application support and professional services teams , increased share-based compensation expense , as well as the relative proportions of total revenue provided by subscriptions or professional services in a given time period . as we continue to migrate more of our infrastructure to cloud-based hosting providers , we expect our gross margin to decline . operating expenses research and development research and development expenses consist primarily of employee-related costs , hardware- and software-related costs , overhead allocations , costs of outside services used to supplement our internal staff , travel-related costs , and marketing related costs . we consider continued investment in our development talent and our platform to be important for our growth . we expect our research and development expenses to increase in absolute dollars as our business grows and to gradually decrease over the long-term as a percentage of total revenue due to economies of scale . sales and marketing sales and marketing expenses consist primarily of employee-related costs , costs of general marketing and promotional activities , allocated overhead , travel-related expenses , software-related expenses , costs of outside services used to supplement our internal staff , and amortization of acquisition-related intangibles . commissions earned by our sales force that are incremental to each customer contract , along with related fringe benefits and taxes , are capitalized and amortized over an estimated useful life of three years . we expect that sales and marketing expenses will increase in absolute dollars as we expect more of our future revenue to come from our inside and direct sales models , rather than through digital self-service sales . we expect sales and marketing costs to gradually decrease over the long-term as a percentage of total revenue due to economies of scale . general and administrative general and administrative expenses consist primarily of employee-related costs for accounting , finance , legal , it , and human resources personnel . story_separator_special_tag in addition , general and administrative expenses include non-personnel costs , such as legal , accounting , and other professional fe es , allocated overhead , hardware and software costs , certain tax , license and insurance-related expenses , and travel-related expenses . we are incurring additional expenses as a result of operating as a public company , including costs to comply with the rules and regulations applicable to companies listed on a national securities exchange , costs related to compliance and reporting obligations pursuant to the rules and regulations of the sec , and increased expenses for insurance , investor relations , and professional services . we expect our general and administrative expenses to increase in absolute dollars as our business grows , and to gradually decrease over the long term as a percentage of total revenue due to economies of scale . interest income interest income consists of interest income from our investment holdings . other income ( expense ) , net other income ( expense ) , net primarily consists of interest expense associated with our finance leases , and foreign exchange gains and losses . income tax provision ( benefit ) our income tax provision has not been historically significant to our business as we have incurred operating losses to date . we maintain a valuation allowance on our u.s. federal , state and certain foreign deferred tax assets as we have concluded that it is not more likely than not that the deferred assets will be realized . 49 2017 tender offer during the three months ended july 31 , 2017 , we facilitated a tender offer ( “ 2017 tender offer ” ) , in which our current and former employees and directors were able to sell a portion of their vested shares of common stock to certain existing investors . we recorded share-based compensation expense for the amount paid by our existing investors to our current and former employees and directors in excess of the estimated fair value of our common stock . that total amount resulted in $ 15.5 million incremental expense for the three months ended july 31 , 2017 , of which $ 0.1 million was recorded to cost of revenue , $ 5.1 million was recorded to research and development expense , $ 0.6 million was recorded to sales and marketing expense , and $ 9.7 million was recorded to general and administrative expense . in addition , the excess over the estimated fair value of the sale price of the common and convertible preferred stock sold by non-employees , totaling $ 4.6 million , was recorded as a deemed dividend within additional paid-in capital . our quarterly trends in total operating expenses , operating loss , and net loss , were significantly impacted by this transaction , which took place and was completed during the three months ended july 31 , 2017 . 50 story_separator_special_tag style= '' font-family : times new roman ; font-size:10pt ; background-color : # ffffff ; '' > january 31 , 2019 . the increase was primarily due to an increase in employee-related expenses of $ 11.1 million , of which $ 3.7 million related to increased share-based compensation expenses , an increase of $ 3.9 million in costs for audit , accounting , legal , and other professional fe es , an increase of $ 0.9 million in allocated overhead costs , an increase of $ 0.5 million in software-related costs , and an increase of $ 0.2 million in travel-related costs . this was offset by a decrease of $ 0.5 million in taxes , licenses , insurance , and other . interest income replace_table_token_19_th for the year ended january 31 , 2020 compared to the year ended january 31 , 2019 , the increase in interest income of $ 5.1 million was driven by higher monetary value of cash , cash equivalents , and short-term investments held in interest-bearing accounts and instruments . our ability to earn interest in the future is dependent upon the interest rate environment , and our interest income may significantly decrease . other income ( expense ) , net replace_table_token_20_th for the year ended january 31 , 2020 compared to the year ended january 31 , 2019 , the change in other income ( expense ) , net was driven by a decrease of $ 1.3 million in warrant expense and a decrease of $ 0.1 million in interest expense . quarterly results of operations and other data the following tables set forth selected unaudited quarterly statements of operations data for each of the eight fiscal quarters ended january 31 , 2020 , as well as the percentage of total revenue that each line item represents for each quarter . the information for each of these quarters has been prepared on the same basis as the audited annual consolidated financial statements included elsewhere in this annual report and , in the opinion of management , includes all adjustments , which consist only of normal recurring adjustments , necessary for the fair presentation of the results of operations for these periods . this data should be read in conjunction with our audited consolidated financial statements and related notes included elsewhere in this annual report . these quarterly results are not necessarily indicative of our results of operations to be expected for any future period . 55 replace_table_token_21_th ( 1 ) amounts include share-based compensation expense as follows : replace_table_token_22_th 56 all values from the statement of operations , expressed as percentage of total revenue were as follows : replace_table_token_23_th quarterly revenue trends our quarterly revenue increased sequentially in each of the periods presented due primarily to expansion within existing customers , increases in the number of new customers , and sales of new offerings . we believe that our professional services business is subject to negative seasonal trends during the holiday period of our fourth fiscal quarter due to the fewer number of business days during this period .
| 53 our gross margin for subscription revenue was 87 % and 88 % for the years ended january 31 , 2020 and 2019 , respectively . our gross margin for subscription revenue decreased primarily due to increased share-based compensation expenses and amortization of acquisition-related intangibles , partially offset by data center and hosting costs which decreased as a percentage of revenue , year over year , due to economies of scale . as we migrate more of our infrastructure to cloud-based hosting providers , add new functionality , expand internationally , and serve more regulated markets , our gross margin for subscription revenue will likely decline . cost of professional services revenue increased $ 5.6 million , or 39 % , for the year ended january 31 , 2020 compared to the year ended january 31 , 2019 . the increase was primarily due to an increase of $ 4.7 million in employee-related expenses , of which $ 0.8 million was related to share-based compensation expenses , as we continued to grow our professional services offerings and workforce , an increase of $ 0.6 million in allocated overhead costs , an increase of $ 0.2 million in software-related costs , and an increase of $ 0.1 million in travel-related costs . our gross margin for professional services revenue was 25 % and 28 % for the year ended january 31 , 2020 and 2019 , respectively . we expect our gross margin for professional services to decline in the future as we expand our team to support increasing demand . operating expenses research and development expenses replace_table_token_16_th research and development expenses increased $ 36.6 million , or 62 % , for the year ended january 31 , 2020 as compared to the year ended january 31 , 2019 . the increase was primarily due to an increase of $ 29.8 million in employee-related expenses due to increased headcount , of which $ 8.4 million related to increased share-based compensation expenses ,
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we expect that pressure to be partially mitigated by market forces that would tend to result in higher capitalization rates for healthcare assets and higher lease rates indicative of historical levels . our cost of capital has increased over the past year as we transition some of our short term revolving borrowings into debt instruments with longer maturities and fixed interest rates . managing long-term risk involves trade-offs with the competing alternative goal of maximizing short-term profitability . our intention is to strike an appropriate balance between these competing interests within the context of our investor profile . as interest rates rise , our share price may decline as investors adjust prices to reflect a dividend yield that is sufficiently in excess of a risk-free rate . for the year ended december 31 , 2018 , approximately 27 % of our revenue was derived from operators of our skilled nursing facilities that receive a significant portion of their revenue from governmental payors , primarily medicare and medicaid . such revenues are subject annually to statutory and regulatory changes and in recent years have been reduced due to federal and state budgetary pressures . over the past five years , we have selectively diversified our portfolio by directing a significant portion of our investments into properties which do not rely primarily on medicare and medicaid reimbursement , but rather on private pay sources ( assisted living and memory care facilities , senior living campuses , independent living facilities and entrance-fee communities ) . we will occasionally acquire skilled nursing facilities in good physical condition with a proven operator and strong local market fundamentals , because diversification implies a periodic rebalancing , but our recent investment focus has been on acquiring need-driven and discretionary senior housing assets . for individual tenant revenue as a percentage of total lease revenue , bickford is our largest assisted living tenant , an affiliate of holiday is our largest independent living tenant , nhc is our largest skilled nursing tenant and senior living communities is our largest entrance-fee community tenant . our shift toward private payor facilities , as well as our expansion into the discretionary senior housing market , has further resulted in a portfolio whose current composition is relatively balanced between medical facilities , need-driven and discretionary senior housing . we manage our business with a goal of increasing the regular annual dividends paid to shareholders . our board of directors approves a regular quarterly dividend which is reflective of expected taxable income on a recurring basis . our transactions that are infrequent and non-recurring that generate additional taxable income have been distributed to shareholders in the form of special dividends . taxable income is determined in accordance with the internal revenue code and differs from net income for 28 financial statements purposes determined in accordance with u.s. generally accepted accounting principles . our goal of increasing annual dividends requires a careful balance between identification of high-quality lease and mortgage assets in which to invest and the cost of our capital with which to fund such investments . we consider the competing interests of short and long-term debt ( interest rates , maturities and other terms ) versus the higher cost of new equity . we accept some level of risk associated with leveraging our investments . we intend to continue to make new investments that meet our underwriting criteria and where the spreads over our cost of capital will generate sufficient returns to our shareholders . our dividends per share for the last three years are as follows : replace_table_token_12_th our investments in healthcare real estate have been partially accomplished by our ability to effectively leverage our balance sheet . however , we continue to maintain a relatively low-leverage balance sheet compared with many in our peer group . we believe that our fixed charge coverage ratio , which is the ratio of adjusted ebitda ( earnings before interest , taxes , depreciation and amortization , including amounts in discontinued operations , excluding real estate asset impairments and gains on dispositions ) to fixed charges ( interest expense at contractual rates net of capitalized interest and principal payments on debt ) , and the ratio of consolidated net debt to adjusted ebitda are meaningful measures of our ability to service our debt . we use these two measures as a useful basis to compare the strength of our balance sheet with those in our peer group . we also believe this gives us a competitive advantage when accessing debt markets . we calculate our fixed charge coverage ratio as approximately 6.0x for the year ended december 31 , 2018 ( see our discussion of adjusted ebitda and a reconciliation to our net income on page 52 ) . giving effect to our acquisitions and financings on an annualized basis , our consolidated net debt-to adjusted ebitda ratio is approximately 4.5x for the year ended december 31 , 2018 ( in thousands ) : consolidated total debt $ 1,281,675 less : cash and cash equivalents ( 4,659 ) consolidated net debt $ 1,277,016 adjusted ebitda $ 280,190 annualized impact of recent investments 2,175 $ 282,365 consolidated net debt to adjusted ebitda 4.5 x according to the administration on aging ( “ aoa ” ) of the us department of health and human services , in 2016 , the latest year for which data is available , 49.2 million people were age 65 or older in the united states ( a 33 % increase over the last ten years ) . census estimates showed that , by 2040 , those 65 or older are expected to constitute 21.7 % of the population . the population aged 85 and above is projected to rise from 6.4 million in 2016 to 14.6 million in the us by 2040 ( a 129 % increase ) . per the aoa , in 2015 , the median value of homes owned by older homeowners age 75 and over was $ 150,000 ( with a median purchase price of $ 53,000 ) . story_separator_special_tag in comparison , the median home value of all homeowners was $ 180,000. of the 11.9 million households headed by persons age 75 and over in 2015 , 76 % were owners . about 78 % of these older homeowners in 2015 owned their homes free and clear . home ownership provides the elderly with greater freedom to choose their lifestyles . equipped with the basics of financial security , many will be economically able to enter the market for senior housing . these strong demographic trends provide the context for continued growth in senior housing in 2019 and the years ahead . we plan to fund any new real estate and mortgage investments during 2019 using our liquid assets and debt financing . as the weight of additional debt resulting from new acquisitions suggests the need to rebalance our capital structure , we would then expect to access the capital markets through an at-the-market ( “ atm ” ) or other equity offering . our disciplined investment strategy implemented through measured increments of debt and equity sets the stage for access to capital at the lowest possible rates , annual dividend growth , continued low leverage , a portfolio of diversified , high-quality assets , and business relationships with experienced operators whom we make our priority , continue to be the key drivers of our business plan . 29 critical accounting policies estimates we prepare our consolidated financial statements in conformity with accounting principles generally accepted in the united states of america . these accounting principles require us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . actual results could differ from those estimates . if actual experience differs from the assumptions and other considerations used in estimating amounts reflected in our consolidated financial statements , the resulting changes could have a material adverse effect on our consolidated results of operations , liquidity and or financial condition . we consider an accounting estimate or assumption critical if : 1. the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change ; and 2. the impact of the estimates and assumptions on financial condition or operating performance is material . valuations and impairments our tenants and borrowers who operate snfs derive their revenues primarily from medicare , medicaid and other government programs . amounts paid under these government programs are subject to legislative and government budget constraints . from time to time , there may be material changes in government reimbursement . in the past , snfs have experienced material reductions in government reimbursement . the long-term health care industry has experienced significant professional liability claims which have resulted in an increase in the cost of insurance to cover potential claims . in previous years , these factors have combined to cause a number of bankruptcy filings , bankruptcy court rulings and court judgments affecting our lessees and borrowers . in prior years , we have determined that impairment of certain of our loan investments had occurred as a result of these events . we evaluate the recoverability of the carrying values of our properties on a property-by-property basis . on a quarterly basis , we review our properties for recoverability when events or circumstances , including significant physical changes in the property , significant adverse changes in general economic conditions and significant deteriorations of the underlying cash flows of the property , indicate that the carrying amount of the property may not be recoverable . the need to recognize an impairment charge is based on estimated undiscounted future cash flows from a property compared to the carrying value of that property . if recognition of an impairment charge is necessary , it is measured as the amount by which the carrying amount of the property exceeds the fair value of the property . for our mortgage and other notes receivable , we evaluate the estimated collectibility of contractual loan payments and general economic conditions on an instrument-by-instrument basis . on a quarterly basis , we review our notes receivable for ability to realize on such notes when events or circumstances , including the non-receipt of contractual principal and interest payments , significant deteriorations of the financial condition of the borrower and significant adverse changes in general economic conditions , indicate that the carrying amount of the note receivable may not be recoverable . if necessary , impairment is measured as the amount by which the carrying amount exceeds the fair value as measured by the discounted cash flows expected to be received under the note receivable or , if foreclosure is probable , the fair value of the collateral securing the note receivable . the determination of fair value and whether a shortfall in operating revenues or the existence of operating losses is indicative of a loss in value that is other than temporary involves significant judgment . our estimates consider all available evidence including , as appropriate , the present value of the expected future cash flows discounted at market rates , general economic conditions and trends , the duration of the fair value deficiency , and any other relevant factors . while we believe our assumptions are reasonable , changes in these assumptions may have a material impact on our financial results . while we believe that the carrying amounts of our properties are recoverable and our notes receivable and other investments are realizable , it is possible that future events could require us to make significant adjustments or revisions to these estimates . revenue recognition we collect rent and interest from our tenants and borrowers . generally , our policy is to recognize income on an accrual basis as earned .
| on these and future loan development projects , bickford as the borrower is entitled to up to $ 2,000,000 per project in incentive loan draws based upon the achievement of predetermined operational milestones , the funding of which will increase the principal amount , nhi 's future purchase price under option and , upon exercise , eventual lease payment to nhi . our loans to bickford represent a variable interest as do our leases which are considered analogous to financing arrangements . bickford is structured to limit liability for potential claims for damages , is capitalized to achieve that purpose and is considered a vie . ensign on january 12 , 2018 , nhi acquired from a developer a 121 -bed skilled nursing facility in waxahachie , texas for a cash investment of $ 14,404,000 , and in may , we acquired from another developer two 132 -bed skilled nursing facilities in garland and fort worth , texas , for a cash investment totaling $ 29,000,000 . additional consideration of $ 1,275,000 for the waxahachie property and $ 1,250,000 for each of garland and ft. worth were contributed by the lessee , the ensign group ( “ ensign ” ) . we have capitalized the tenant contributions as a component of the cost of the facilities and have recorded the contributions as deferred revenue , which we are amortizing to revenue over the term of the master lease to which these properties have now been added . the remaining term of the master lease extends through april 2031 , plus renewal options . the blended initial lease rate is set at 8.1 % , subject to annual escalators based on prevailing inflation rates . the acquisitions were accounted for as asset purchases and fulfill our original commitment to acquire and lease to ensign four skilled nursing facilities in new braunfels , waxahachie , garland and fort worth , texas . comfort care on may 31 , 2018 , nhi acquired two assisted living facilities comprising a total of 106 units in bridgeport and saginaw ,
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based on our current operating plan , we believe that our available cash and cash equivalents will be sufficient to fund our operating expenses and capital expenditure requirements through 2022. however , our future capital requirements and the period for which we expect our existing resources to support our operations , fund expansion , develop new or enhanced products , or otherwise respond to competitive pressures , may vary significantly from our expectation and we may need to seek additional funds sooner than planned . unless and until we generate sufficient revenue to be profitable , we will seek to fund our operations through public or private equity or debt financings or other sources . if we raise additional funds through the issuance of convertible debt securities , these securities could have rights senior to those of our common stock and could contain covenants that restrict our operations . there can be no assurance that we will be able to obtain additional equity or debt financing on terms acceptable to us , if at all . our failure to obtain sufficient funds on acceptable terms when needed could have a negative impact on our business , results of operations , financial condition , cash flows and future prospects . our future capital requirements will depend on many factors , including : the number and characteristics of any future product candidates we develop or may acquire ; the scope , progress , results and costs of researching and developing our product candidates or any future product candidates , and conducting preclinical studies and clinical trials ; the timing of , and the costs involved in , obtaining regulatory approvals for any future product candidates ; the cost of manufacturing our future product candidates and any products that may achieve regulatory approval ; the cost of commercialization activities if any future product candidates are approved for sale , including marketing , sales and distribution costs ; 53 the timing , receipt and amount of sales of , or royalties on , future approved products , if any ; our ability to establish and maintain strategic collaborations , licensing or other arrangements and the financial terms of such agreements ; any product liability or other lawsuits related to our products ; the expenses needed to attract and retain skilled personnel ; and the costs involved in preparing , filing , prosecuting , maintaining , defending and enforcing patent claims , including litigation costs and the outcome of such litigation . please see item 1a of this annual report titled risk factors for additional risks associated with our substantial capital requirements . contractual obligations and commitments the following is a summary of our long-term contractual cash obligations as of december 31 , 2019 : replace_table_token_8_th 1. we have a lease agreement for approximately 10,946 square feet of office space in canada which was effective on november 1 , 2016 and expires october 31 , 2021 , with the option to extend the lease to october 31 , 2026. the dollar amounts shown in these columns reflect the u.s. dollar equivalent of the obligations . the amounts were converted to u.s. dollars from cad dollars using the december 31 , 2019 daily closing exchange rate of us $ 0.76994. we have a lease agreement for approximately 6,272 square feet of office space in seattle , washington which was commenced on october 1 , 2019 and expires october 31 , 2021. in addition to the basic rent , we are obligated to pay for taxes , operating costs , utilities , additional services and other amounts . 2. on december 23 , 2019 , we entered into a lease agreement for the lease of approximately 33,300 square feet of office space in seattle , washington , for our future principal executive offices , a laboratory for research and development and related uses . the lease was signed on december 23 , 2019 , rent commences on december 1 , 2020 and expires on december 1 , 2028 , with the option to extend the lease for two five-year terms . we will be obligated to pay approximately $ 2.0 million in annual basic rent for the first year of the lease , approximately $ 2.1 million in the second year , approximately $ 2.1 million in the third year , approximately $ 2.2 million in the fourth year , approximately $ 2.2 million in the fifth year and approximately $ 9.1 million in the sixth , seventh and eighth years . we will also be responsible for the payment of additional rent to cover our share of the annual operating and tax expenses and utilities costs for the building . the operating lease obligation related to this office lease agreement is included in the table above as the lease was signed before december 31 , 2019. purchase commitments we have no material non-cancelable purchase commitments with contract manufacturers or service providers as we have generally contracted on a cancelable purchase order basis . milestone , royalty-based and other commitments we have an exclusive license agreement with the university of washington , or uw , under which uw ( on behalf of itself and stanford university ) granted us an exclusive worldwide license under certain patent rights , to make , have made , use , offer to sell , sell , offer to lease or lease , import , export or otherwise offer to dispose of licensed products in all fields of use , and a nonexclusive worldwide license to use certain know-how . the foregoing licenses are sublicensable without uw 's consent , subject to certain limited conditions . as consideration for the licensed rights , former neoleukin issued shares of common stock to uw , which upon the merger were exchanged for 188,974 shares of our common stock and 4,197 shares of our non-voting convertible preferred stock . story_separator_special_tag pursuant to the license agreement , we also granted to uw an assignable right to participate in any of our future sale of equity securities , subject to certain exclusions . 54 furthermore , we are required to pay ; ( i ) an annual maintenance fee starting in january 2022 ( but excluding any year in which minimum annual royalties are paid ) ; ( ii ) up to $ 0.9 million in combined development and regulatory milestone payments with respect to each distinct class of licensed product ; ( iii ) up to $ 10.0 million in combined commercial milestone payments based on cumulative net sales of licensed products within each distinct class of licensed products , beginning when cumulative net sales of the class of licensed products equals or exceeds $ 100.0 million , with the majority payable when cumulative net sales of the class of licensed products equals or exceeds $ 1.0 billion ; ( iv ) a low single-digit royalty on net sales of licensed products sold by us and our sublicensees , which may be subject to reductions , and subject to minimum annual royalty payments following the first commercial sale of a licensed product ; ( v ) a certain percentage of any sublicense consideration ( other than royalties ) we receive from sublicensees , based on the stage of development at the time the sublicense is executed ; and ( vi ) a certain percentage of consideration we receive from an acquisition of us or our assets based on the stage of development at the relevant time . we are obligated to pay royalties on a country-by-country basis until the expiration of the last valid claim within the licensed patent rights in such country . critical accounting policies and significant judgments and estimates the preparation of these consolidated financial statements in accordance with u.s. gaap requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenue and expenses and the disclosure of contingent assets and liabilities . on an ongoing basis , we evaluate our estimates and judgments , including those related to accrued liabilities , stock-based compensation and derivative liabilities . we base our estimates on historical experience , known trends and events and various other factors that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying 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 . while our significant accounting policies are described in the notes to our consolidated financial statements appearing elsewhere in this annual report , we believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our consolidated financial statements . research and development expenses research and development costs are charged to expense as incurred and include , but are not limited to , employee-related expenses , including salaries , benefits and stock based compensation , expenses incurred under agreements with cros and investigative sites that conduct clinical trials and preclinical studies , the cost of acquiring , developing and manufacturing clinical trial materials , costs incurred in relation to purchase of technology licenses and patent rights , facilities and other expenses , which include direct and allocated expenses for rent and maintenance of facilities , and other supplies and costs associated with clinical trials , preclinical activities , and regulatory operations . restructuring costs associated with the termination of research and development programs and related employees are included in research and development costs . development costs are expensed in the period incurred unless we believe a development project meets generally accepted accounting criteria for deferral and amortization . no product development expenditures have been deferred to date . we record costs for certain development activities , such as clinical trials , based on our evaluation of the progress to completion of specific tasks using data such as patient enrollment , clinical site activations , or information provided to us by our vendors on their actual costs incurred . payments for these activities are based on the terms of the individual arrangements , which may differ from the pattern of costs incurred , and are reflected in the consolidated financial statements as prepaid or accrued liabilities , as the case may be . stock-based compensation we measure the cost of services received in exchange for an award of equity instruments based on the grant-date fair value of the award . the cost of such award will be recognized over the period during which services are provided in exchange for the award , generally the vesting period . we account for forfeitures as they occur . all share-based payments to employees are recognized in the consolidated financial statements based upon their respective grant-date fair values . we estimate the fair value of options granted using the black-scholes option pricing model . this approximation uses assumptions regarding a number of inputs that required us to make significant estimates and judgments , including the expected term of the options . we also make decisions regarding the method of calculating the expected stock price volatility and the risk-free interest rate used in the model . the expected volatility assumption is based on industry peer information and the company expects to continue to do so until it has adequate and relevant historical volatility of its common stock . additionally , because we have no significant history to calculate the expected term , the simplified method calculation is used . there is inherent uncertainty in our forecasts and projections and , if we had made different assumptions and estimates than those described previously , the amount of our stock-based compensation expense , net loss and net loss per common stock amounts could have been materially different . 55 asset acquisition we use assumptions and estimates in determining
| research and development expenses for the year ended december 31 , 2019 were $ 4.4 million compared to $ 41.8 million for the year ended december 31 , 2018. the lower research and development costs during the year ended december 31 , 2019 was the result of the suspension of all research and development activities with rosiptor in june 2018 and a $ 1.9 million credit arising from reductions to accrued research and development expenses following confirmation by vendors that final costs were less than contracted . this was partly offset by research and development expenses of nl-201 incurred following the completion of the merger . acquired in-process research and development the acquired in-process research and development that arose from the merger was expensed immediately as management determined that the asset has no alternative future use in accordance with current accounting standards . general and administrative expenses general and administrative expenses consist primarily of personnel related costs ( including severance , stock-based compensation and travel expenses ) , facility-related costs , insurance , public company expenses , professional fees for consulting , legal and accounting services , and restructuring costs . for the year ended december 31 , 2019 , general and administrative expenses were $ 18.8 million compared to $ 15.8 million for the year ended december 31 , 2018. the increase in general and administrative expenses during the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 was primarily due to merger related severance costs and the recognition of stock based compensation expense for certain options that vested as a result of the merger but partly offset by lower personnel and overhead costs as a result of the restructurings in the second half of 2018. other income , net replace_table_token_6_th interest income during the year ended december 31 , 2019 was consistent with 2018 as a result of an increase in interest rates offsetting a reduction in cash and investment balances for the year ended december 31 , 2019. interest income increased during the year ended december 31 , 2018 compared to 2017 as a result of increase in interest rates , partly offset by a reduction in cash and investment balances during the year ended december 31 , 2018. foreign exchange losses for the years ended december 31 , 2019 and 2018 were insignificant
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we record this revenue in other service revenue as third party revenue . in markets where our coverage is fully restored , we have transitioned these subscribers to our network . equipment revenue revenue from duplex equipment sales decreased 21 % in 2015. although there was a 14 % increase in the duplex subscriber base from december 31 , 2014 to december 31 , 2015 , duplex equipment sales revenue declined due to a reduction in the selling price of our phones beginning in early 2015 in advance of the introduction of second-generation products , which we expect in 2016. reduced duplex equipment pricing has contributed to the 48 % increase in the number of phones sold during 2015. revenue from spot equipment sales decreased 19 % in 2015 primarily as a result of the success of our recent rebate programs . the rebates reduced equipment revenue , but contributed to the increase in spot service revenue by increasing our subscriber count . the success of our spot products continues to grow as evidenced in part by improving consumer velocity , which we measure by the number of subscriber activations . revenue from simplex equipment sales decreased 19 % in 2015. this decrease is due to product mix as we sold a larger number of high margin units in 2014 and a larger number of low margin units in 2015. total equipment revenue would have been approximately $ 1.2 million higher during 2015 if there had been no change in foreign exchange rates from 2014. operating expenses : total operating expenses decreased $ 28.9 million , or 16 % , to $ 157.1 million in 2015 from $ 186.0 million in 2014 , due primarily to the reduction in the value of inventory recognized in 2014 , which did not recur during 2015 , and lower depreciation expense . cost of services cost of services increased $ 0.9 million , or 3 % , to $ 30.6 million in 2015 from $ 29.7 million in 2014. the thales in-orbit support contract signed in the fourth quarter of 2014 contributed $ 0.7 million to this increase . research and development costs related to new products were also higher in 2015. these increases were offset partially by decreases from the impact of foreign currency exchange rate changes on contracts , personnel costs and other expenses that are denominated in foreign currencies . we also recognized a decrease in third party costs . as mentioned above in other service revenue , while we were manufacturing and deploying our second-generation constellation , we began purchasing service from other satellite providers that we re-sell to certain loyal customers . we record these costs in other cost of services as third party costs . in markets where our coverage is fully restored , we have transitioned most of these subscribers to our network ; therefore , the costs have decreased . cost of subscriber equipment sales cost of subscriber equipment sales decreased $ 3.0 million , or 20 % , to $ 11.8 million in 2015 from $ 14.9 million in 2014. the decrease in cost of subscriber equipment sales is due to changes in the carrying value , mix , and volume of products sold during the respective years . during the fourth quarter of 2014 , we recorded a reduction in the carrying value of duplex inventory based on evaluating and estimating timing of new product launches . cost of subscriber equipment sales - reduction in the value of inventory we recognized no reduction in the value of inventory during 2015 compared to $ 21.7 million for 2014. the 2014 reduction consisted of the following : during the fourth quarter of 2014 , we recorded a reduction in the value of inventory of $ 14.4 million . we recognized these charges after evaluating our duplex inventory and estimating the timing of new product launches . our assessment indicated that there was an excess of duplex equipment included in inventory on hand based on our current sales run-rate . 31 during the second quarter of 2014 , we recorded a reduction in the value of inventory of $ 7.3 million following cancellation of our contract with qualcomm related to finished goods and raw materials previously accounted for as advances for inventory on our consolidated balance sheet . we cancelled this contract in march 2013 , and we entered into an agreement with qualcomm in july 2014 whereby we paid $ 0.1 million to qualcomm for all remaining finished goods and raw materials held at qualcomm . our future business plan contemplates using hughes-based technology in future product development . as a result , much of the raw material held by qualcomm is not likely to be used in the future production of additional inventory and their value was impaired . marketing , general and administrative marketing , general and administrative expenses increased $ 3.9 million , or 12 % , to $ 37.4 million in 2015 from $ 33.5 million in 2014. higher subscriber acquisition costs resulting from enhanced advertising efforts , increased dealer commissions , broader global expansion , and aggressive rebate promotions comprised 50 % of the increase in marketing , general and administrative expenses for 2015. we also incurred higher bad debt expense , which constituted 28 % of the increase for 2015 due primarily to specific reserves we recorded for certain commercial customer balances . higher personnel costs , which were driven by an expanded employee base and increased healthcare costs , also contributed to the increase . these increases were offset partially by decreases from the impact of foreign currency exchange rate changes on contracts , personnel costs and other expenses that are denominated in foreign currencies . stock compensation expense also decreased $ 0.4 million primarily related to the vesting of a key employee performance grant during 2014 , which did not recur in 2015. depreciation , amortization and accretion depreciation , amortization , and accretion expense decreased $ 8.9 million , or 10 % , to $ 77.2 million in 2015 compared to $ 86.1 story_separator_special_tag million in 2014. this decrease relates primarily to our ending depreciation of our first-generation satellites launched during 2007 , which reached the end of their estimated depreciable lives during 2014. other income ( expense ) : loss on extinguishment of debt we recorded a loss on extinguishment of debt of $ 2.3 million in 2015 compared to $ 39.8 million in 2014. loss on extinguishment of debt during 2015 included : holders of $ 6.5 million principal amount of 8.00 % notes issued in 2013 converted their notes into our common stock , resulting in a loss on extinguishment of debt of $ 2.3 million on the issuance of 10.9 million shares of voting common stock . the fair value of the shares issued to these holders exceeded the derivative liability and principal amount written off due to the conversions , resulting in a loss on extinguishment of debt . loss on extinguishment of debt during 2014 included : holders of our 8.00 % notes issued in 2013 converted approximately $ 24.9 million principal amount of these notes , resulting in the issuance of 46.4 million shares of common stock and a non-cash loss on extinguishment of debt of $ 44.1 million . the fair value of the shares issued to these holders exceeded the derivative liability and principal amount written off due to the conversions , resulting in a loss on extinguishment of debt . on april 15 , 2014 we met the condition for automatic conversion of our 8.00 % notes issued in 2009. during 2014 , as a result of this automatic conversion and other conversions prior to april 15 , 2014 , holders of our 8.00 % notes issued in 2009 converted approximately $ 51.7 million principal amount of these notes into 47.1 million shares of common stock , resulting in a non-cash gain on extinguishment of debt of $ 4.3 million . the derivative liability and principal amount written off exceeded the fair value of shares issued to the holders upon conversion , resulting in a gain on extinguishment of debt . loss on equity issuance loss on equity issuance was $ 6.7 million during 2015 and $ 0.7 million during 2014 . 32 in june 2015 , hughes exercised its right to receive a pre-payment of certain payment milestones in shares of our common stock at a 7 % discount to market value in lieu of cash . in valuing the shares issued to hughes at the 7 % discount , we recorded a non-cash loss of approximately $ 1.2 million in loss on equity issuance in our consolidated statements of operations . in conjunction with this agreement , we also provided hughes downside protection through march 31 , 2016. this agreement generally would require us to issue additional shares to hughes if the market value of our common stock at the end of the downside protection period is less than the price at issuance . we recorded an additional $ 5.5 million loss on equity issuance during 2015 based on an estimate of the value of this option calculated using a black-scholes pricing model . we mark this liability to market at each balance sheet date and through the settlement date . during the second quarter of 2014 , hughes also exercised its right to receive a pre-payment of certain milestone payments in shares of our common stock at a 7 % discount to market value in lieu of cash . we recorded a loss of $ 0.7 million related to this discount in our consolidated statements of operations . interest income and expense interest income and expense , net , decreased $ 7.3 million to an expense of $ 35.9 million for 2015 compared to an expense of $ 43.2 million for 2014. this decrease resulted primarily from interest expense of approximately $ 4.0 million related to make-whole interest we paid to holders who converted 8.00 % notes issued in 2009 and 8.00 % notes issued in 2013 during 2014 , compared to $ 0.6 million of make-whole interest paid to converting holders during 2015. a decrease in our outstanding debt balance and an increase in capitalized interest also contributed to the decrease in interest expense for the year . see note 3 : long-term debt and other financing arrangements to our consolidated financial statements for discussion of the reduction in our outstanding debt balance , including conversions of the remaining 8.00 % notes issued in 2009 in april 2014 and a portion of the 8.00 % notes issued in 2013 at various dates throughout 2014 and 2015. derivative gain ( loss ) derivative gain ( loss ) fluctuated by $ 467.9 million to a gain of $ 181.9 million in 2015 compared to a loss of $ 286.0 million in 2014. we recognize gains or losses due to the change in the value of certain embedded features within our debt instruments that require standalone derivative accounting . fluctuations in our stock price are the most significant cause for the change in value of these derivative instruments . our stock price fluctuated significantly during 2015 and 2014 , resulting in material non-cash derivative gains and losses in these periods . see note 5 : fair value measurements to our consolidated financial statements for further discussion of the fair value computations of our derivatives . other other income decreased by $ 0.6 million to $ 3.2 million in 2015 from $ 3.8 million in 2014. changes in other income ( expense ) are due primarily to foreign currency gains and losses recognized during the respective periods . the u.s. dollar has strengthened significantly since mid-2014 relative to certain other currencies , including the euro and canadian dollar . given the significant financial statement amounts we have denominated in these currencies , the foreign currency gain decreased by $ 0.4 million to $ 3.7 million in 2015 compared to $ 4.1 million in 2014. we recorded a foreign currency gain during 2015 notwithstanding a $ 1.9 million loss related to our venezuelan subsidiary .
| similar charges did not occur in 2014. the decrease in interest expense during 2014 is also due to a decrease in our outstanding debt balance in 2014 as compared to 2013 , which was driven primarily by conversion of a portion of our indebtedness . as discussed in note 3 : long-term debt and other financing arrangements in our consolidated financial statements , this conversion activity included the remaining 5.0 % notes in november 2013 , the remaining 8.00 % notes issued in 2009 in april 2014 , and a portion of the 8.00 % notes issued in 2013 at various dates throughout 2013 and 2014. items that caused an increase to interest expense during 2014 included a reduction in our capitalized interest due to the decline in our construction in progress balance . as we placed satellites into service throughout 2013 , our construction in progress balance related to our second-generation satellites decreased , which reduced the amount of interest we could capitalize under u.s. gaap . as a result of this decrease in our construction in progress balance , we recorded approximately $ 36.9 million in interest expense during 2014 compared to $ 28.2 million in 2013. additionally , beginning on may 20 , 2014 , the first anniversary of the issuance of the 8.00 % notes issued in 2013 , the holders had a right to receive make-whole interest payments upon conversion of these notes into common stock . the note conversions during 2014 resulted in approximately $ 3.1 million of additional interest expense due to make-whole interest payments made upon conversion . 38 derivative gain ( loss ) non-cash derivative losses decreased by $ 20.0 million to a loss of $ 286.0 million in 2014 compared to a non-cash loss of $ 306.0 million in 2013. we recognize gains or losses due to the change in the value of certain embedded features within our debt instruments that require standalone derivative accounting . these fluctuations
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( 8 ) story_separator_special_tag forward-looking statements this annual report on form 10-k includes forward-looking statements within the meaning of the private securities litigation reform act of 1995. this act provides a “ safe harbor ” for forward-looking statements to encourage companies to provide prospective information about themselves as long as they identify these statements as forward-looking and provide meaningful cautionary statements identifying important factors that could cause actual results to differ from the projected results . all statements other than statements of historical fact made in this annual report on form 10-k are forward-looking . in particular , statements herein regarding economic outlook , industry prospects and trends ; industry partnerships ; future results of operations or financial position ; future spending ; breakeven revenue point ; expected market growth ; market acceptance of our newly introduced or upgraded products or services ; the sufficiency of our cash to fund future operations and capital requirements ; development , introduction and shipment of new products or services ; changing foreign operations ; and any other guidance on future periods are forward-looking statements . forward-looking statements reflect management 's current expectations and are inherently uncertain . although we believe that the expectations reflected in these forward-looking statements are reasonable , we can not guarantee future results , levels of activity , performance , achievements , or other future events . moreover , neither data i/o nor anyone else assumes responsibility for the accuracy and completeness of these forward-looking statements . we are under no duty to update any of these forward-looking statements after the date of this annual report . the reader should not place undue reliance on these forward-looking statements . the following discussions and the section entitled “ risk factors – cautionary factors that may affect future results ” describes some , but not all , of the factors that could cause these differences . overview we continued our focus on managing the core programming business for growth and profitability , while developing and enhancing products to drive future revenue and earnings growth . our challenge continues to be operating in a cyclical and rapidly evolving industry environment . we are continuing our efforts to balance industry changes , industry partnerships , business geography shifts , exchange rate volatility , increasing costs and strategic investments in our business with the level of demand and mix of business we expect . we continue to manage our costs carefully and execute strategies for cost reduction . we are focusing our research and development efforts in our strategic growth markets , namely automotive electronics and iot new programming technologies , secure supply chain solutions , automated programming systems and their enhancements for the manufacturing environment and software . we are currently focusing our research and development efforts on strategic growth markets , including automotive electronics and iot . we are developing technology to securely program new categories of semiconductors , including secure elements , authentication chips , and secure microcontrollers . we plan to deliver new programming technology and automated handling systems for managed and secure programming in the manufacturing environment . we continue to focus on extending the capabilities and support for our product lines and supporting the latest semiconductor devices , including nand flash , e-mmc , ufs and microcontrollers on our newer products . our customer focus has been on strategic high volume manufacturers in key market segments like automotive electronics , iot , industrial controls , consumer electronics and wireless as well as programming centers . critical accounting policy judgments and estimates the preparation of financial statements in accordance with accounting principles generally accepted in the united states of america requires that we make estimates and judgments , which affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosures of contingent assets and liabilities . on an on-going basis , we evaluate our estimates , including those related to sales returns , bad debts , inventories , intangible assets , income taxes , warranty obligations , restructuring charges , contingencies such as litigation and contract terms that have multiple elements and other complexities typical in the capital equipment industry . we base our estimates on historical experience and other assumptions that we believe are reasonable under the circumstances . actual results may differ from these estimates under different assumptions or conditions . we believe the following critical accounting policies affect the more significant judgments and estimates used in the preparation of our financial statements : revenue recognition : we recognize revenue at the time the product is shipped or when the service is delivered . we have determined that our programming equipment has reached a point of maturity and stability such that product acceptance can be assured by testing at the factory prior to shipment and that the installation meets the criteria to be considered a separate element . these systems are standard products with published product specifications and are configurable with standard options . the evidence that these systems could be deemed as accepted was based upon having standardized factory production of the units , results from batteries of tests of product performance to our published specifications , quality inspections and installation standardization , as well as past product operation validation with the customer and the history provided by our installed base of products upon which the current versions were based . 20 the revenue related to products requiring installation that is perfunctory is recognized at the time of shipment . installation that is considered perfunctory includes any installation that can be performed by other parties , such as distributors , other vendors , or the customers themselves . this takes into account the complexity , skill and training needed as well as customer expectations regarding installation . story_separator_special_tag we enter into multiple deliverable arrangements that arise during the sale of a system that includes an installation component , a service and support component and a software maintenance component . we allocate the value of each element based on relative selling prices . relative selling price is based on the selling price of the standalone system . for the installation and service and support components , we use the value of the discount given to distributors who perform these components . for software maintenance components , we use what we charge for annual software maintenance renewals after the initial year the system is sold . revenue is recognized on the system sale based on shipping terms , installation revenue is recognized after the installation is performed , and hardware service and support and software maintenance revenue is recognized ratably over the term of the agreement , typically one year . when we sell software separately , we recognize software revenue upon shipment , provided that only inconsequential obligations remain on our part and substantive acceptance conditions , if any , have been met . we recognize revenue when persuasive evidence of an arrangement exists , shipment has occurred , the price is fixed or determinable , the buyer has paid or is obligated to pay , collectability is reasonably assured , substantive acceptance conditions , if any , have been met , the obligation is not contingent on resale of the product , the buyer 's obligation would not be changed in the event of theft , physical destruction or damage to the product , the buyer acquiring the product for resale has economic substance apart from us and we do not have significant obligations for future performance to directly bring about the resale of the product by the buyer . we establish a reserve for sales returns based on historical trends in product returns and estimates for new items . we transfer certain products out of service from their internal use and make them available for sale . the products transferred are our standard products in one of the following areas : service loaners , rental or test units ; engineering test units ; or sales demonstration equipment . once transferred , the equipment is sold by our regular sales channels as used equipment inventory . these product units often involve refurbishing and an equipment warranty , and are conducted as sales in our normal and ordinary course of business . the transfer amount is the product unit 's net book value and the sale transaction is accounted for as revenue and cost of goods sold . our basic revenue recognition is expected to essentially remain the same as current under the new accounting for revenue recognition standard effective january 1 , 2018. however , we will start to capture and defer contract acquisition costs for contracts in excess of one year . allowance for doubtful accounts : we base the allowance for doubtful accounts receivable on our assessment of the collectability of specific customer accounts and the aging of accounts receivable . if there is deterioration of a major customer 's credit worthiness or actual defaults are higher than historical experience , our estimates of the recoverability of amounts due to us could be adversely affected . inventory : inventories are stated at the lower of cost or net realizable value . adjustments are made to standard cost , which approximates actual cost on a first-in , first-out basis . we estimate reductions to inventory for obsolete , slow-moving , excess and non-salable inventory by reviewing current transactions and forecasted product demand . we evaluate our inventories on an item by item basis and record inventory adjustments accordingly . if there is a significant decrease in demand for our products , uncertainty during product line transitions , or a higher risk of inventory obsolescence because of rapidly changing technology and customer requirements , we may be required to increase our inventory adjustments and our gross margin could be adversely affected . warranty accruals : we accrue for warranty costs based on the expected material and labor costs to fulfill our warranty obligations . if we experience an increase in warranty claims , which are higher than our historical experience , our gross margin could be adversely affected . tax valuation allowances : given the uncertainty created by our loss history , as well as the ongoing cyclical uncertain economic outlook for our industry and capital and geographic spending , we expect to continue to limit the recognition of net deferred tax assets and accounting for uncertain tax positions and maintain the tax valuation allowances . tax reform related adjustments were recorded in 2017 , which impacted the tax valuation allowance . at the current time , we expect , therefore , that reversals of the tax valuation allowance will take place only as we are able to take advantage of the underlying tax loss or other attributes in carry forward . the transfer pricing and expense or cost sharing arrangements are complex areas where judgments , such as the determination of arms-length arrangements , can be subject to challenges by different tax jurisdictions . 21 share-based compensation : we account for share-based awards made to our employees and directors , including employee stock option awards and restricted stock unit awards , using the estimated grant date fair value method of accounting . for options , we estimate the fair value using the black-scholes valuation model and an estimated forfeiture rate , which requires the input of highly subjective assumptions , including the option 's expected life and the price volatility of the underlying stock . the expected stock price volatility assumption was determined using the historical volatility of our common stock .
| in addition to product development , a significant part of r & d spending is on creating software and support for new devices introduced by the semiconductor companies . we are currently focusing our research and development efforts on strategic growth markets , including automotive electronics and iot . we are developing technology to securely program new categories of semiconductors , including secure elements , authentication chips , and secure microcontrollers . we delivered new programming technology and automated handling systems for managed and secure programming in the manufacturing environment and extending the capabilities and support for our programmer architecture . our r & d spending fluctuates based on the number , type , and the development stage of our product initiatives and projects . 23 selling , general and administrative replace_table_token_6_th selling , general and administrative ( “ sg & a ” ) expenses increased $ 1.7 million for the year ended december 31 , 2017 compared to 2016. the increase was primarily related to higher employee compensation , incentives commissions and benefits as well as higher trade show and marketing costs , offset in part by lower rent , consulting and accounts receivable reserve . interest replace_table_token_7_th interest income was lower for the year ended december 31 , 2017 compared to 2016 , primarily due to lower invested cash balances . income taxes 2017 change 2016 ( in thousands ) income tax ( expense ) benefit $ 288 * ( $ 36 ) * not meaningful income tax ( expense ) decreased by $ 324,000 for the year ended december 31 , 2017 compared to 2016. the decrease was primarily a result of the tax cuts and jobs act of 2017 , and we recorded the impact as a $ 531,000 net benefit in the fourth quarter of 2017. this was made up of $ 67,000 of additional tax relating to the “ deemed repatriation ” of previously deferred foreign subsidiary “ post 1986 earnings & profits ” , and recognizing a tax benefit of $ 598,000 related to refundable “ alternative minimum tax credits ” in carryforward . this benefit was offset in part by approximately $
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this would involve a re-submission of an nda containing the current data on effectiveness of ataluren with new data to be generated on dystrophin production in nmdmd patients ' muscles . we intend to follow the fda 's recommendation and will collect , using newer technologies via procedures and methods that we designed , such dystrophin data in a new study , study 045 , which we initiated in the fourth quarter of 2018. we expect that a potential re-submission of an nda could occur in 2020. additionally , should a re-submission of an nda receive accelerated approval , the office of new 107 drugs stated that study 041 , which is currently enrolling , could serve as the confirmatory post-approval trial required in connection with the accelerated approval framework . there is substantial risk that study 045 , or any other studies we may use to collect the dystrophin data , will not provide the necessary data to support a marketing approval for translarna for the treatment of nmdmd in the u.s. we have a pipeline of gene therapy product candidates for rare monogenic diseases that affect the central nervous system , or cns , including ptc-aadc for the treatment of aromatic l-amino acid decarboxylase , or aadc , deficiency , or aadc deficiency , a rare cns disorder arising from reductions in the enzyme aadc that result from mutations in the dopa decarboxylase gene . we are preparing a biologics license application , or bla , for ptc-aadc for the treatment of aadc deficiency in the united states , which we anticipate submitting to the u.s. food and drug administration , or fda , in late 2019 , with an anticipated commercial launch in the united states in 2020. we are also preparing a marketing authorization application , or maa , for ptc-aadc for the treatment of aadc deficiency in the european union , or eu , for submission to the european medicines agency , or ema , which will follow our bla submission to the fda . we hold the rights for the commercialization of tegsedi ( inotersen ) and waylivra ( volanesorsen ) for the treatment of rare diseases in countries in latin america and the caribbean pursuant to our collaboration and license agreement with akcea therapeutics , inc. , or akcea . tegsedi has received marketing authorization in the united states , eu and canada for the treatment of stage 1 or stage 2 polyneuropathy in adult patients with hereditary transthyretin amyloidosis , or hattr amyloidosis , and was recently granted priority review by anvisa , the brazilian health regulatory authority . waylivra is currently under regulatory review in the eu for the treatment of familial chylomicronemia syndrome , or fcs . we also have a spinal muscular atrophy , or sma , collaboration with f. hoffman-la roche ltd. and hoffman-la roche inc. , which we refer to collectively as roche , and the spinal muscular atrophy foundation , or sma foundation . currently , our collaboration has two pivotal clinical trials ongoing to evaluate the safety and effectiveness of risdiplam ( rg7916 , ro7034067 ) , the lead compound in the sma program . roche is preparing an nda and a maa for risdiplam for the treatment of sma in the united states and the eu , respectively , which roche anticipates submitting to the fda and the ema in the second half of 2019. in addition , we have a pipeline of product candidates and discovery programs that are in early clinical , pre-clinical and research and development stages focused on the development of new treatments for multiple therapeutic areas , including rare diseases and oncology . overview—funding the success of translarna , emflaza and any other product candidates we may develop , depends largely on obtaining and maintaining reimbursement from governments and third-party insurers . during 2018 , our revenues were generated from sales of translarna for the treatment of nmdmd in territories where we are permitted to distribute translarna under our eap programs and in countries in the eea where we were able to obtain acceptable commercial pricing and reimbursement terms , and from sales of emflaza for the treatment of dmd in the united states . see “ item 1. business—commercial matters—market access considerations ” for additional information and “ item 1a . risk factors— commercialization of translarna has been in , and is expected to continue to take place in , countries that tend to impose strict price controls , which may adversely affect our revenues . failure to obtain and maintain acceptable pricing and reimbursement terms for translarna for the treatment of nmdmd in the eea and other countries where translarna is available would delay or prevent us from marketing our product in such regions , which would adversely affect our business , results of operations , and financial condition . ” on april 20 , 2017 , we completed our acquisition of all rights to emflaza , or the transaction , for total upfront consideration comprised of $ 75.0 million in cash , funded through cash on hand , and 6,683,598 shares of our common stock , which was determined by dividing $ 65.0 million by the volume weighted average price per share of our common stock on the nasdaq stock market for the 15 trading-day period ending on the third trading day immediately preceding the closing . on may 5 , 2017 , we entered into a credit and security agreement , or the credit agreement , with midcap financial trust , or midcap financial , as administrative agent and midcap financial and other certain institutions as lenders thereto , that provides for a senior secured term loan facility of $ 60 million , of which $ 40 million was drawn by us on may 5 , 2017. our ability to draw on the remaining $ 20.0 million under the senior secured term loan facility expired on december 31 , 2018. the maturity date of the credit agreement is may 1 , 2021 , unless terminated earlier . story_separator_special_tag in april 2018 , we closed an underwritten public offering of our common stock pursuant to a registration statement on form s-3 . we issued and sold an aggregate of 4,600,000 shares of common stock under the registration statement at a public offering price of $ 27.04 per share , including 600,000 shares issued upon exercise by the underwriters of their option to purchase 108 additional shares . we received net proceeds of approximately $ 117.9 million after deducting underwriting discounts and commissions and other offering expenses payable by us . on august 23 , 2018 , we completed our acquisition of agilis for total upfront consideration comprised of $ 49.2 million in cash and 3,500,907 shares of our common stock , which was determined by dividing $ 150.0 million by the volume-weighted average price per share of our common stock on the nasdaq global select market for the 10 consecutive trading-day period ending on the second trading-day immediately preceding the closing . in january 2019 , we closed an underwritten public offering of our common stock pursuant to a registration statement on form s-3 . we issued and sold an aggregate of 7,563,725 shares of common stock under the registration statement at a public offering price of $ 30.20 per share , including 843,725 shares issued upon exercise by the underwriter of its option to purchase additional shares in february 2019. we received net proceeds of approximately $ 224.1 million after deducting underwriting discounts and commissions and other offering expenses payable by us . to date , we have financed our operations primarily through our offering of 3.00 % convertible senior notes due august 15 , 2022 , or the convertible notes offering , our public offerings of common stock in february 2014 , in october 2014 , in april 2018 , and in january 2019 , our initial public offering of common stock in june 2013 , private placements of our preferred stock , collaborations , bank debt and convertible debt financings , the credit agreement and grants and clinical trial support from governmental and philanthropic organizations and patient advocacy groups in the disease areas addressed by our product candidates . since 2014 , we have also relied on revenue generated from net sales of translarna for the treatment of nmdmd in territories outside of the united states , and since may 2017 , we have generated revenue from net sales of emflaza for the treatment of dmd in the united states . as of december 31 , 2018 , we had an accumulated deficit of $ 938.9 million . we had a net loss of $ 128.1 million and $ 79.0 million for the fiscal years ended december 31 , 2018 and 2017 , respectively . we anticipate that our expenses will continue to increase in connection with our commercialization efforts in the united states , the eea , latin america and other territories , including the expansion of our infrastructure and corresponding sales and marketing , legal and regulatory , distribution and manufacturing and administrative and employee-based expenses . in addition to the foregoing , we expect to continue to incur significant costs in connection with study 041 and study 045 and our open label extension trials of translarna for the treatment of nmdmd as well as our studies for nonsense mutation aniridia and nonsense mutation dravet syndrome/cdkl5 and our fda post-marketing requirements with respect to emflaza in the united states and studies for limb-girdle 2i . we also expect to incur ongoing research and development expenses for our other product candidates , including our gene therapy . splicing and oncology programs . in addition , we may incur substantial costs in connection with our efforts to advance our regulatory submissions . we have begun seeking and intend to continue to seek marketing authorization for translarna for the treatment of nmdmd in territories outside of the eea and we may also seek marketing authorization for translarna for other indications . in late 2019 , we plan to submit a request for marketing authorization for ptc-aadc with the fda , followed by a request for marketing authorization for ptc-aadc with the ema and we recently submitted a request for marketing authorization for tegsedi with anvisa . these efforts may significantly impact the timing and extent of our commercialization expenses . we may seek to expand and diversify our product pipeline through opportunistically in-licensing or acquiring the rights to products , product candidates or technologies and we may incur expenses , including with respect to transaction costs , subsequent development costs or any upfront , milestone or other payments or other financial obligations associated with any such transaction , which would increase our future capital requirements . with respect to our outstanding convertible notes , cash interest payments are payable on a semi-annual basis in arrears , which require total funding of $ 4.5 million annually . additionally , under the terms of our credit agreement cash interest payments are payable monthly in arrears . furthermore , as a result of our initial public offering in june 2013 , we have incurred and expect to continue to incur additional costs associated with operating as a public company including significant legal , accounting , investor relations and other expenses . see also , “ the price of our common stock may be volatile and fluctuate substantially , which could result in substantial losses for purchasers of our common stock and lawsuits against us and our officers and directors ” under part ii , item 1a . risk factors - risks related to our common stock . we will need to generate significant revenues to achieve and sustain profitability , and we may never do so . accordingly , we may need to obtain substantial additional funding in connection with our continuing operations . adequate additional financing may not be available to us on acceptable terms , or at all .
| the achievement of this milestone triggered a $ 10 million payment to us from roche which we recorded as collaboration revenue for the year ended december 31 , 2014. in october 2017 , we announced that the joint development program in sma with roche and smaf had transitioned into the pivotal second part of its study evaluating the efficacy and safety of rg7916 in pediatric and adult type 2/3 sma patients . the achievement of this milestone triggered a $ 20.0 million payment to us from roche which we recorded as collaboration revenue at time of achievement . grant revenue . from time to time , we receive grant funding from various institutions and governmental bodies . the grants are typically for early discovery research , and generally such grant programs last from two to five years . research and development expense research and development expenses consist of the costs associated with our research activities , as well as the costs associated with our drug discovery efforts , conducting preclinical studies and clinical trials , manufacturing development efforts and activities related to regulatory filings . our research and development expenses consist of : external research and development expenses incurred under agreements with third-party contract research organizations and investigative sites , third-party manufacturing organizations and consultants ; employee-related expenses , which include salaries and benefits , including share-based compensation , for the personnel involved in our drug discovery and development activities ; and facilities , depreciation and other allocated expenses , which include direct and allocated expenses for rent and maintenance of facilities , depreciation of leasehold improvements and equipment , and laboratory and other supplies . we use our employee and infrastructure resources across multiple research projects , including our drug development programs . we track expenses related to our clinical programs and certain preclinical programs on a per project basis . we expect our research and development expenses to fluctuate in connection with our ongoing activities , particularly in connection with study 041 and other studies for translarna for the treatment of nmdmd , our studies of translarna in nonsense
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the allowance for loan losses is a reserve established through a provision for loan losses charged to expense , which represents management 's best estimate of probable losses that have been incurred within the existing portfolio of loans . the allowance , in the judgment of management , is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio . our allowance for loan loss methodology includes allowance allocations calculated in accordance with accounting standards codification ( asc ) topic 310 , “ receivables ” and allowance allocations calculated in accordance with asc topic 450 , “ contingencies. ” the level of the allowance reflects management 's continuing evaluation of industry concentrations , specific credit risks , loan loss experience , current loan portfolio quality , present economic , political and regulatory conditions and unidentified losses inherent in the current loan portfolio , as well as trends in the foregoing . portions of the allowance may be allocated for specific credits ; however , the entire allowance is available for any credit that , in management 's judgment , should be charged off . while management utilizes its best judgment and information available , the ultimate adequacy of the allowance is dependent upon a variety of factors beyond our control , including the performance of our loan portfolio , the economy , changes in interest rates and the view of the regulatory authorities toward loan classifications . see the section captioned “ allowance for loan losses ” elsewhere in this discussion and note 3 - loans in the notes to consolidated financial statements included in item 8. financial statements and supplementary data elsewhere in this report for further details of the risk factors considered by management in estimating the necessary level of the allowance for loan losses . overview the following discussion and analysis presents the more significant factors that affected our financial condition as of december 31 , 2017 and 2016 and results of operations for each of the years in the three-year period ended december 31 , 2017 . this discussion and analysis should be read in conjunction with our consolidated financial statements , notes thereto and other financial information appearing elsewhere in this report . during 2014 , we acquired wnb bancshares , inc. , a privately-held bank holding company headquartered in odessa , texas ( “ wnb ” ) . from time to time , we have also acquired various small businesses through our insurance subsidiary . all of our acquisitions during the reported periods were accounted for using the acquisition method , and as such , their related results of operations are included from the date of acquisition , though none of these acquisitions had a significant impact on our financial statements during their respective reporting periods . taxable-equivalent adjustments are the result of increasing income from tax-free loans and investments by an amount equal to the taxes that would be paid if the income were fully taxable based on a 35 % federal tax rate , thus making tax-exempt yields comparable to taxable asset yields . the tax cuts and jobs act was enacted on december 22 , 2017. among other things , the new law establishes a new , flat corporate federal statutory income tax rate of 21 % beginning in 2018. dollar amounts in tables are stated in thousands , except for per share amounts . 37 story_separator_special_tag deposits . the net interest margin increased 13 basis points from 3.56 % during 2016 to 3.69 % during 2017 . the increase was primarily due to an increase in the average yield on interest earning assets partly offset by an increase in the average rate paid on interest-bearing liabilities . the average yield on interest-earning assets increased 19 basis points to 3.79 % during 2017 from 3.60 % during 2016 while the average rate paid on interest-bearing liabilities increased 8 basis points from 0.08 % during 2016 to 0.16 % during 2017 . the increase in the average yield on interest earning assets during 2017 was mostly due to increases in the average yields on loans and interest-bearing deposits while the increase in the average rate paid on interest-bearing liabilities was primarily due to increases in the rates paid on various deposit products and long-term debt . the average yield on interest-earning assets and the average rate paid on interest-bearing liabilities are primarily impacted by changes in market interest rates as well as changes in the volume and relative mix of the underlying assets and liabilities . taxable-equivalent yields and the net interest margin during the comparable periods are presented based upon a tax rate of 35 % . beginning january 1 , 2018 , taxable-equivalent-yields and the net interest margin will be based upon a tax rate of 21 % . see the section captioned “ income taxes ” elsewhere in this discussion for information regarding the tax cuts and jobs act enacted on december 22 , 2017. assuming a tax rate of 21 % , the net interest margin and the average yield on interest-earning assets on a taxable-equivalent basis for 2017 would have been 3.37 % and 3.47 % , respectively . the net interest margin increased 11 basis points from 3.45 % during 2015 to 3.56 % during 2016. the increase was primarily due to increases in the average yield on interest earning assets . the average yield on interest-earning assets increased 10 basis points to 3.60 % during 2016 from 3.50 % during 2015 while the average rate paid on interest-bearing liabilities decreased 1 basis point from 0.09 % during 2015 to 0.08 % during 2016. the increase in the average yield on interest earning assets during 2016 was due to increases in the average yields on interest-bearing deposits , federal funds sold and resell agreements , loans and total securities . story_separator_special_tag the average yield on loans was 4.36 % during 2017 compared to 4.01 % during 2016 and 3.90 % during 2015 , increasing 35 basis points during 2017 compared to 2016 and 11 basis points during 2016 compared to 2015. these increases were positively impacted by increases in market interest rates during the comparable periods , as discussed above . the average volume of loans increased $ 905.3 million , or 7.8 % , in 2017 compared to 2016 and increased $ 287.4 million , or 2.6 % , in 2016 compared to 2015 . loans made up approximately 43.9 % of average interest-earning assets during 2017 compared to 43.2 % during 2016 and 43.4 % in 2015 . the average yield on securities was 3.99 % in 2017 compared to 4.02 % in 2016 and 3.97 % in 2015 . the average yield on taxable securities was 1.92 % in 2017 compared to 2.01 % in 2016 and 2.11 % in 2015 while the average yield on tax exempt securities was 5.37 % in 2017 compared to 5.57 % in 2016 and 5.59 % in 2015 . despite the fact that the average yield on taxable and tax-exempt securities decreased 9 and 20 basis points , respectively , during 2017 compared to 2016 , the overall average yield on securities in 2017 only decreased 3 basis points compared to 2016 because a larger proportion of average securities was invested in higher yielding tax-exempt securities during 2017 compared to 2016 . similarly , the overall average yield on securities during 2016 increased 5 basis points compared to 2015 despite 10 and 2 basis point decreases in the average yield on taxable and tax-exempt securities , respectively , as a result of a higher average proportion of tax-exempt securities . tax exempt securities made up approximately 60.0 % of total average securities during 2017 , compared to 56.4 % during 2016 and 53.2 % during 2015 . the average volume of securities 40 increased $ 188.5 million , or 1.6 % , during 2017 compared to 2016 and increased $ 442.7 million , or 3.8 % , during 2016 compared to 2015 . these increases were primarily related to the investment of excess liquidity from deposit growth . securities made up approximately 43.2 % of average interest-earning assets in 2017 compared to 45.1 % in 2016 and 44.8 % in 2015 . average federal funds sold , resell agreements and interest-bearing deposits during 2017 increased $ 548.3 million , or 17.7 % , compared to 2016 and increased $ 32.3 million , or 1.1 % , in 2016 compared to 2015 . the increases in average federal funds sold , resell agreements and interest-bearing deposits during the comparable periods were primarily related to growth in average deposits . federal funds sold , resell agreements and interest-bearing deposits made up approximately 12.9 % of average interest-earning assets during 2017 compared to approximately 11.6 % in 2016 and 11.8 % in 2015 . the combined average yield on federal funds sold , resell agreements and interest-bearing deposits was 1.16 % during 2017 , 0.53 % during 2016 , and 0.27 % during 2015 . as discussed above , since december 2015 , there have been five separate 25 basis point increases in the expected federal funds rate . average deposits increased $ 1.4 billion , or 5.7 % , in 2017 compared to 2016 and $ 471.1 million , or 2.0 % , in 2016 compared to 2015 . average interest-bearing deposits increased $ 608.0 million in 2017 compared to 2016 and increased $ 616.6 million in 2016 compared to 2015 , while average non-interest-bearing deposits increased $ 785.1 million in 2017 compared to 2016 and decreased $ 145.5 million in 2016 compared to 2015 . the ratio of average interest-bearing deposits to total average deposits was 58.2 % in 2017 compared to 59.1 % in 2016 and 57.7 % in 2015 . the average cost of deposits is primarily impacted by changes in market interest rates as well as changes in the volume and relative mix of interest-bearing deposits . the average rate paid on interest-bearing deposits and total deposits was 0.11 % and 0.07 % in 2017 compared to 0.05 % and 0.03 % in 2016 and 0.07 % and 0.04 % in 2015 . the increase in the average cost of deposits during 2017 was related to the aforementioned increases in interest rates paid on most of our interest-bearing deposit products during the third quarter . the decrease in the average raid paid on interest-bearing deposits during 2016 compared to 2015 was primarily the result of decreases in interest rates offered on certain deposit products due to decreases in average market interest rates and decreases in renewal interest rates on maturing certificates of deposit given the prevailing low interest rate environment . the relative proportion of higher-cost certificates of deposit to total average interest-bearing deposits decreased to 5.1 % in 2017 from 5.6 % in 2016 and 6.3 % in 2015 . our net interest spread , which represents the difference between the average rate earned on earning assets and the average rate paid on interest-bearing liabilities , was 3.63 % in 2017 compared to 3.52 % in 2016 and 3.41 % in 2015 . the net interest spread , as well as the net interest margin , will be impacted by future changes in short-term and long-term interest rate levels , as well as the impact from the competitive environment . a discussion of the effects of changing interest rates on net interest income is set forth in item 7a . quantitative and qualitative disclosures about market risk included elsewhere in this report . our hedging policies permit the use of various derivative financial instruments , including interest rate swaps , swaptions , caps and floors , to manage exposure to changes in interest rates . details of our derivatives and hedging activities are set forth in note 15 - derivative financial instruments in the accompanying notes to consolidated financial statements included elsewhere in this report .
| net interest income is our largest source of revenue , representing 72.0 % of total revenue during 2017 . net interest margin is the ratio of taxable-equivalent net interest income to average earning assets for the period . the level of interest rates and the volume and mix of earning assets and interest-bearing liabilities impact net interest income and net interest margin . the federal reserve influences the general market rates of interest , including the deposit and loan rates offered by many financial institutions . our loan portfolio is significantly affected by changes in the prime interest rate . the prime interest rate , which is the rate offered on loans to borrowers with strong credit , remained at 3.25 % during most of 2015. in december 2015 , the prime rate increased 25 basis points to 3.50 % and remained at that level through most of 2016. in december 2016 , the prime rate increased 25 basis points to end the year at 3.75 % . during 2017 , the prime rate increased 75 basis points ( 25 basis points in each of march , june and december ) to end the year at to 4.50 % . our loan portfolio is also significantly impacted , by changes in the london interbank offered rate ( libor ) . at december 31 , 2017 , the one-month and three-month u.s. dollar libor rates were 1.56 % and 1.69 % , respectively , while at december 31 , 2016 , the one-month and three-month u.s. dollar libor rates were 0.77 % and 1.00 % , respectively . 38 the effective federal funds rate , which is the cost of immediately available overnight funds , remained at zero to 0.25 % during most of 2015. in december 2015 , the effective federal funds rate increased 25 basis points to 0.50 % and remained at that level through most of 2016. in december 2016 , the effective federal funds rate increased 25 basis points to end the year
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mr. gaber graduated from the california state university , fullerton in 1991 with a bachelor of science degree in business administration – finance . david n. shafer is an executive vice president , a member of the investment committee , and oversees the new markets tax credit group , of wnc & associates , inc. he is a registered representative with wnc capital corporation . mr. shafer has been active in the real estate industry since 1984. before joining wnc & associates , inc. in 1990 , he was engaged as an attorney in the private practice of law with a specialty in real estate and taxation . story_separator_special_tag forward looking statements with the exception of the discussion regarding historical information , this “ management 's discussion and analysis of financial condition and results of operations ” and other discussions elsewhere in this form 10-k contain forward looking statements . such statements are based on current expectations subject to uncertainties and other factors which may involve known and unknown risks that could cause actual results of operations to differ materially from those projected or implied . further , certain forward-looking statements are based upon assumptions about future events which may not prove to be accurate . risks and uncertainties inherent in forward looking statements include , but are not limited to , the partnership 's future cash flows and ability to obtain sufficient financing , level of operating expenses , conditions in the low income housing tax credits property market and the economy in general , changes in law rules and regulations , and legal proceedings . historical results are not necessarily indicative of the operating results for any future period . subsequent written and oral forward looking statements attributable to the partnership or persons acting on its behalf are expressly qualified in their entirety by cautionary statements in this form 10-k and in other reports filed with the sec . the following discussion should be read in conjunction with the financial statements and the notes thereto included elsewhere in this filing . critical accounting policies and certain risks and uncertainties the partnership believes that the following discussion addresses the partnership 's most significant accounting policies , which are the most critical to aid in fully understanding and evaluating the partnership 's reported financial results , and certain of the partnership 's risks and uncertainties . use of estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements , and the reported amounts of revenues and expenses during the reporting period . actual results could materially differ from those estimates . method of accounting for investments in local limited partnerships the partnership accounts for its investments in local limited partnerships using the equity method of accounting , whereby the partnership adjusts its investment balance for its share of the local limited partnerships ' results of operations and for any contributions made and distributions received . the partnership reviews the carrying amount of an individual investment in a local limited partnership for possible impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of such investment may not be recoverable . recoverability of such investment is measured by the estimated value derived by management , generally consisting of the product of the remaining future low income housing tax credits estimated to be allocable to the partnership and any estimated residual value to the partnership . if an investment is considered to be impaired , the partnership reduces the carrying value of its investment in any such local limited partnership . the accounting policies of the local limited partnerships , generally , are expected to be consistent with those of the partnership . costs incurred by the partnership in acquiring the investments were capitalized as part of the investment account and were being amortized over 30 years . 21 “ equity in losses of local limited partnerships ” for each year ended march 31 has been recorded by the partnership based on the twelve months of reported results provided by the local limited partnerships for each year ended december 31. equity in losses from the local limited partnerships allocated to the partnership is not recognized to the extent that the investment balance would be adjusted below zero . if the local limited partnerships report net income in future years , the partnership will resume applying the equity method only after its share of such net income equals the share of net losses not recognized during the period ( s ) the equity method was suspended . distributions received from the local limited partnerships are accounted for as a reduction of the investment balance . distributions received after the investment has reached zero are recognized as distribution income . in accordance with the accounting guidance for the consolidation of variable interest entities , the partnership determines when it should include the assets , liabilities , and activities of a variable interest entity ( vie ) in its financial statements , and when it should disclose information about its relationship with a vie . the analysis that must be performed to determine which entity should consolidate a vie focuses on control and economic factors . story_separator_special_tag a vie is a legal structure used to conduct activities or hold assets , which must be consolidated by a company if it is the primary beneficiary because it has ( 1 ) the power to direct the activities of the vie that most significantly impact the vie 's economic performance and ( 2 ) the obligation to absorb losses or receive benefits that could potentially be significant to the vie . if multiple unrelated parties share such power , as defined , no party will be required to consolidate the vie . further , the guidance requires continual reconsideration of the primary beneficiary of a vie . based on this guidance , the local limited partnerships in which the partnership invests meet the definition of a vie because the owners of the equity at risk in these entities do not have the power to direct their operations . however , management does not consolidate the partnership 's interests in these vies , as it is not considered to be the primary beneficiary since it does not have the power to direct the activities that are considered most significant to the economic performance of these entities . the partnership currently records the amount of its investment in these local limited partnerships as an asset on its balance sheets , recognizes its share of partnership income or losses in the statements of operations , and discloses how it accounts for material types of these investments in its financial statements . the partnership 's balance in investment in local limited partnerships , plus the risk of recapture of tax credits previously recognized on these investments , represents its maximum exposure to loss . the partnership 's exposure to loss on these local limited partnerships is mitigated by the condition and financial performance of the underlying housing complexes as well as the strength of the local general partners and their guarantee against credit recapture to the investors in the partnership . income taxes the partnership has elected to be treated as a pass-through entity for income tax purposes and , as such , is not subject to income taxes . rather , all items of taxable income , deductions and tax credits are passed through to and are reported by its owners on their respective income tax returns . the partnership 's federal tax status as a pass-through entity is based on its legal status as a partnership . accordingly , the partnership is not required to take any tax positions in order to qualify as a pass-through entity . the partnership is required to file and does file tax returns with the internal revenue service and other taxing authorities . accordingly , these financial statements do not reflect a provision for income taxes and the partnership has no other tax positions which must be considered for disclosure . income tax returns filed by the partnership are subject to examination by the internal revenue service for a period of three years . while no income tax returns are currently being examined by the internal revenue service , tax years since 2015 remain open . 22 impact of recent accounting pronouncements in february 2015 , the fasb issued asu no . 2015-02 , “ consolidation ( topic 810 ) : amendments to the consolidation analysis ” . in addition , in october 2016 , the fasb issued asu no . 2016-17 , “ consolidation ( topic 810 ) : interests held through related parties that are under common control ” , to provide further clarification guidance to asu no . 2015-02. this will improve certain areas of consolidation guidance for reporting organizations that are required to evaluate whether to consolidate certain legal entities such as limited partnerships , limited liability corporations and securitization structures . asu 2015-02 and asu 2016-17 simplify and improve gaap by : eliminating the presumption that a general partner should consolidate a limited partnership , eliminating the indefinite deferral of fasb statement no . 167 , thereby reducing the number of variable interest entity ( vie ) consolidation models from four to two ( including the limited partnership consolidation model ) and clarifying when fees paid to a decision maker should be a factor to include in the consolidation of vies . asu 2015-02 is effective for periods beginning after december 15 , 2015. asu 2016-17 is effective for periods beginning after december 15 , 2016. the adoption of these updates did not materially affect the partnership 's financial statements . certain risks and uncertainties see item 1a for a discussion of risks regarding the partnership . to date , certain local limited partnerships have incurred significant operating losses and have working capital deficiencies . in the event these local limited partnerships continue to incur significant operating losses , additional capital contributions by the partnership and or the local general partners may be required to sustain the operations of such local limited partnerships . if additional capital contributions are not made when they are required , the partnership 's investment in certain of such local limited partnerships could be lost , and the loss and recapture of the related low income housing tax credits could occur . anticipated future and existing cash resources of the partnership are not sufficient to pay existing liabilities of the partnership . however , substantially all of the existing liabilities of the partnership are payable to the general partner and or its affiliates . though the amounts payable to the general partner and or its affiliates are contractually currently payable , the partnership anticipates that the general partner and or its affiliates will not require the payment of these contractual obligations until capital reserves are in excess of the aggregate of then existing contractual obligations and then anticipated future foreseeable obligations of the partnership . the partnership would be adversely affected should the general partner and or its affiliates demand current payment of the existing contractual obligations and or suspend services for this or any
| other expenses decreased by $ 1,000 during the year ended march 31 , 2019 , due to professional expenses incurred during the year ended march 31 , 2019 . 23 year ended march 31 , 2018 compared to year ended march 31 , 2017 the partnership 's net income for the year ended march 31 , 2018 was $ 63,000 reflecting an increase of $ 62,000 from the net income experienced for the year ended march 31 , 2017 of $ 1,000. the change was largely due to gain on sale of a local limited partnership of $ 138,000 during the year ended march 31 , 2018 compared to gain on sale of a local limited partnership of $ 108,000 for the year ended march 31 , 2017. the gain recorded by the partnership can vary depending on the sale prices and the value of the housing complexes that are sold . reporting fees decreased by $ 10,000 for the year ended march 31 , 2018 compared to the year ended march 31 , 2017 , and distribution income decreased by $ 7,000 for the year ended march 31 , 2018 compared to the year ended march 31 , 2017. local limited partnerships pay the reporting fees and distributions to the partnership when the local limited partnerships ' cash flows will allow for the payment . accounting and legal fees increased by $ 2,000 for the year ended march 31 , 2018 due to the timing of the accounting work performed . asset management fees decreased by $ 57,000 during the year ended march 31 , 2018 compared to the year ended march 31 , 2017. the fees are calculated based on the value of invested assets which decreased due to the sale of local limited partnerships . liquidity and capital resources year ended march 31 , 2019 compared to year ended march 31 , 2018 the net decrease in cash and cash equivalents during the year ended march 31 , 2019 was $ 75,000 compared to a net decrease in cash and cash equivalents
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service revenues under these agreements are primarily based on contracted monthly fees under the applicable agreement at rates , which we believe are fair and reasonable to us and our unitholders and are comparable with the rates we charge third parties . agreements for six of the facilities expire in late 2025 , and agreements for the remaining 22 facilities expire on december 31 , 2027. we may not be able to extend , renegotiate or replace these contracts when they expire and the terms of any renegotiated contracts may not be as favorable as the contracts they replace . the board 's conflicts committee reviewed and approved these agreements in accordance with our procedures for approval of related-party transactions and the provisions of the partnership agreement . for the years ended december 31 , 2019 and 2020 , we recognized revenues of $ 36.1 million and $ 44.4 million , respectively , for services provided to ergon under these agreements . results of operations non-gaap financial measures to supplement our financial information presented in accordance with gaap , management uses additional measures that are known as “ non-gaap financial measures ” in its evaluation of past performance and prospects for the future . the primary measure used by management is operating margin excluding depreciation and amortization . management believes that the presentation of this additional financial measure provides useful information to investors regarding our performance and results of operations because this measure , when used in conjunction with related gaap financial measures , ( i ) provides additional information about our core operating performance and ability to generate and distribute cash flow ; ( ii ) provides investors with the financial analytical framework upon which management bases financial , operational , compensation and planning decisions ; and ( iii ) presents measurements that investors , rating agencies and debt holders have indicated are useful in assessing us and our results of operations . this additional financial measure is reconciled to the most directly comparable measures as reported in accordance with gaap , and should be viewed in addition to , and not in lieu of , our consolidated financial statements and footnotes . the table below summarizes our financial results for the years ended december 31 , 2019 and 2020 , and presents a reconciliation of our non-gaap financial measure reconciled to the most directly comparable gaap measure : replace_table_token_2_th 25 revenues . total revenues were consistent with prior year which was expected based on the structure of our contracts , which consist primarily of fixed fees for items such as storage and minimum throughput requirements , with consideration of annual cpi index increases built into a majority of our agreements . we experienced a slight increase in variable throughput and other revenue due to a strong asphalt season that resulted in additional excess throughput . variable reimbursement revenue is driven by certain reimbursable operating expenses , such as utility costs , and therefore have no net impact on operating margin or net income . operating expenses , excluding depreciation and amortization . operating expense , excluding depreciation and amortization increased by 7 % , or $ 3.0 million for 2020 as compared to 2019. significant factors contributing to this change include certain facilities changing from a lease arrangement to an operating arrangement , insurance premiums due to overall market conditions , and maintenance and repair expenses due to the timing of required inspections . depreciation and amortization . depreciation and amortization decreased to $ 13.4 million for 2020 compared to $ 15.2 million for 2019 . the decrease is primarily the result of assets reaching the end of their depreciable lives . general and administrative expense . general and administrative expense was $ 14.2 million for the year ended december 31 , 2020 , compared to $ 13.4 million for 2019 . the increase from 2019 to 2020 is primarily due to legal and professional fees incurred with several different projects in 2020 , including the crude asset sale transactions . asset impairment expense . we incurred an asset impairment expense of $ 2.2 million for the year ended december 31 , 2019 , related to a pipeline project that was cancelled . as this project was never put in service , the impairment was recorded at the corporate level . we had no asset impairment expense related to continuing operations for the year ended december 31 , 2020. gain on sale of assets . gain on disposal of assets was immaterial for 2020 and 2019. other income . other income for the year ended december 31 , 2020 and 2019 , primarily reflects insurance recoveries related to 2019 flood damages at certain asphalt facilities . income from discontinued operations . income from discontinued operations represents the results of our former crude oil trucking , pipeline , and terminalling services segments that were sold in february and march of 2021. the year ended december 31 , 2020 , included $ 39.1 million of losses on disposal and classification as held for sale the crude oil trucking and pipeline services segments based on the net book value of the assets compared to expected net proceeds under the sale agreements . interest expense . interest expense was $ 5.7 million for 2020 compared to $ 7.4 million for 2019 . interest expense represents interest on borrowings under our credit agreement , as well as amortization of debt issuance costs . the following table presents the significant components of interest expense : replace_table_token_3_th the decrease in interest expense was primarily driven by lower floating eurodollar interest rates and continued reductions in borrowings outstanding under the revolving loan facility . 26 income taxes as part of the process of preparing the consolidated financial statements , we are required to estimate the federal and state income taxes in each of the jurisdictions in which our subsidiary that is taxed as a corporation operates . this process involves estimating the actual current tax exposure together with assessing temporary differences resulting from differing treatment of items , such as depreciation , for tax and accounting purposes . story_separator_special_tag these differences result in deferred tax assets and liabilities , which are included in our consolidated balance sheets . we must then assess , using all available positive and negative evidence , the likelihood that the deferred tax assets will be recovered from future taxable income . if we believe that recovery is not likely , we must establish a valuation allowance . to the extent we establish a valuation allowance or increase or decrease this allowance in a period , we must include an expense or reduction of expense within the tax provisions in the consolidated statements of operations . under asc 740 – accounting for income taxes , an enterprise must use judgment in considering the relative impact of negative and positive evidence . the weight given to the potential effect of negative and positive evidence should be commensurate with the extent to which it can be objectively verified . the more negative evidence that exists ( a ) the more positive evidence is necessary and ( b ) the more difficult it is to support a conclusion that a valuation allowance is not needed for some portion , or all of the deferred tax asset . among the more significant types of evidence that we consider are : taxable income projections in future years ; future revenue and operating cost projections that will produce more than enough taxable income to realize the deferred tax asset based on existing service rates and cost structures ; and our earnings history exclusive of the loss that created the future deductible amount coupled with evidence indicating that the loss is an aberration rather than a continuing condition . based on the consideration of the above factors for our subsidiary that is taxed as a corporation for purposes of determining the likelihood of realizing the benefits of the deferred tax assets , we have provided a full valuation allowance against our deferred tax asset as of december 31 , 2020 . effects of inflation in recent years , inflation has been modest and has not had a material impact upon the results of our operations . off-balance sheet arrangements we do not have any off-balance sheet arrangements as defined by item 303 of regulation s-k. 27 liquidity and capital resources cash flows and capital expenditures the following table summarizes our sources and uses of cash for the years ended december 31 , 2019 and 2020 ( in millions ) : replace_table_token_4_th operating activities . net cash provided by operating activities was $ 61.2 million for the year ended december 31 , 2020 , as compared to $ 49.8 million for the year ended december 31 , 2019 . the increase in cash provided by operating activities is primarily the result of improved margins in our pipeline supply and marketing business that is included in the crude oil pipeline services segment discontinued operations , and changes in working capital . investing activities . net cash used in investing activities was $ 22.7 million for the year ended december 31 , 2020 , capital expenditures of $ 16.3 million were offset by $ 5.9 million of proceeds from the sale of assets . capital expenditures included maintenance capital expenditures of $ 10.1 million , net of reimbursable expenditures of $ 2.2 million , and expansion capital expenditures of $ 6.2 million , net of reimbursable expenditures of $ 0.3 million . the year ended december 31 , 2020 , also included a $ 12.2 million payment to ergon related to our purchase of ergon 's devco entity associated with cimarron express . net cash used in investing activities was $ 4.3 million for the year ended december 31 , 2019 . total capital expenditures of $ 12.7 million were offset by proceeds from the sale of assets of $ 8.4 million . of such proceeds , $ 2.6 million related to the december 2018 sale of linefill for which the cash consideration was not received until january 2019. capital expenditures included maintenance capital expenditures of $ 8.9 million , net of reimbursable expenditures of $ 0.2 million , and expansion capital expenditures of $ 3.5 million , net of reimbursable expenditures of $ 0.1 million . financing activities . net cash used in financing activities was $ 38.3 million for the year ended december 31 , 2020 , and included net payments under our credit agreement of $ 3.0 million and distributions to unitholders of $ 32.4 million . net cash used in financing activities was $ 46.4 million for the year ended december 31 , 2019 , and primarily comprised of net payments under our credit agreement of $ 10.0 million and distributions to unitholders of $ 34.0 million . our liquidity and capital resources cash flows from operations and borrowings under our credit agreement are our primary sources of liquidity . our ability to borrow funds under our credit agreement may be limited by financial covenants . at december 31 , 2020 , we had a working capital deficit of $ 11.1 million . this is primarily a function of our approach to cash management . at december 31 , 2020 , we had approximately $ 252.6 million of revolver borrowings and approximately $ 1.7 million of letters of credit outstanding under the credit agreement , leaving us with $ 145.7 million of availability under our revolving loan facility , subject to covenant restrictions , which limited our availability to $ 61.3 million . in conjunction with the closing of our asset sale transactions , our available credit facility was reduced from $ 400.0 million to $ 350.0 million . at march 4 , 2021 , we had approximately $ 99.6 million of revolver borrowings and approximately $ 1.7 million of letters of credit outstanding under the credit agreement , leaving us with $ 248.7 million of availability under our revolving loan facility , which is reflective of the decrease in the total loan facility . the partnership 's ability to borrow such funds may be limited by the financial covenants in the credit agreement .
| speer 's and kanvik 's units will vest on january 1 , 2022. all of the distribution equivalent rights associated with these phantom units are currently payable . ( 4 ) represents phantom units granted in 2018 under our general partner 's ltip . these phantom units vested on january 1 , 2021 . 39 director compensation for fiscal year 2020 replace_table_token_9_th ( 1 ) affiliated with ergon . ( 2 ) these amounts represent the grant date fair value of restricted and unrestricted units awarded under the ltip . the grant date fair value of these awards is computed in accordance with asc 718 - compensation—stock compensation . directors who are not officers or employees of any controlling entity or their affiliates receive compensation for attending meetings of the board and committees thereof . such directors receive the following : ( i ) $ 75,000 per year as an annual retainer fee paid in cash ; ( ii ) $ 5,000 per year for each board committee on which such director serves ( except that the chairperson of each committee will receive $ 10,000 per year for serving as chairperson of such committee ) ; ( iii ) $ 10,000 per year if chairman of the board ; ( iv ) $ 2,000 per diem for each board or committee meeting attended ; ( v ) 5,000 restricted units upon becoming a director , vesting in one-third increments over a three-year period ; ( vi ) 2,500 restricted units per year , vesting in one-third increments over a three-year period ; ( vii ) reimbursement for out-of-pocket expenses associated with attending board or committee meetings ; and ( viii ) director and officer liability insurance coverage . in addition , each director is fully indemnified by us for actions associated with being a director to the fullest extent permitted under delaware law . 40 item 12. security ownership of certain beneficial owners and management and related unitholder matters . security ownership of certain beneficial owners and management the following table sets forth the beneficial ownership of our units as of march 4 , 2021 , held by : each person or group of persons who beneficially own 5 % or
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10.1 amended and restated employment agreement made as of story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes included under item 8 of this annual report on form 10-k. this discussion contains forward-looking statements about our business and operations . our actual results may differ materially from those we currently anticipate as a result of many factors , including those described under part i – forward looking statements and elsewhere in this annual report . overview we manufacture and sell mechanical infusion pumps , and single-use flow rate tubing and needle sets that allow patients to self-administer subcutaneous and intravenous infusion therapy . during 2019 we continued to expand our market presence by executing on the objectives included in our strategic plan which was approved by our board of directors in january 2019. we ended 2019 with record net sales of $ 23.2 million , an increase of 33.5 % compared with the same period last year , driven primarily by higher sales volume in needle sets , tubing and pump sales , and to a lesser extent , price increases . the volume increase was driven by what we believe was a result of growth in diagnosis of primary immunodeficiency diseases ( “ pidd ” ) and expansion into the neurology market with expanded hizentra® indication for chronic inflammatory demyelinating polyneuropathy ( “ cidp ” ) . - 20 - our gross margin percentage , which is gross profit stated as a percentage of net sales , improved to 64 % , up from 62 % in the prior year mostly due to higher volume and to a lesser extent price increases . net income was $ 0.6 million for the year , compared with $ 0.9 million for the previous year , driven by higher net sales , offset by increased legal fees for litigation activity and higher salary and related expenses resulting from the executive management changes and new hires . our cash balance at december 31 , 2019 , was $ 5.9 million up from $ 5.3 million last year . we appointed r. john fletcher as chairman of the board in september 2019 and shareholders elected kathy s. frommer as a new , independent member of our board in april 2019. we received fda 510 ( k ) clearance from the u.s. food and drug administration for our high-flo super26 subcutaneous needle sets , filled key management roles throughout the organization , uplisted to the nasdaq capital market , and rebranded our company to koru medical systems . story_separator_special_tag extensions beginning march 1 , 2019 with the option to renew six times . the company exercised three additional renewal options for september 1 , 2019 , through february 28 , 2021. we believe our current facilities are suitable and adequate for our current business operations . as we execute on our strategic plan , we continue to seek another location with more square footage to provide us room for growth . in addition to the increased costs of occupying a larger space , we expect to incur additional costs in connection with construction and fda compliance with respect to the new location . accounting policies preparation in conformity with accounting principles generally accepted in the united states ( “ gaap ” ) requires us to make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes . these estimates are based on our best knowledge of current events and actions we may undertake in the future . estimates used in accounting are , among other items , allowance for excess and obsolete inventory , useful lives for depreciation and amortization of long lived assets , contingencies and allowances for doubtful accounts . actual results may ultimately differ from our estimates , although we do not generally believe such differences would materially affect the financial statements in any individual year . - 23 - non-gaap financial measures management of the company believes that investors ' understanding of the company 's performance is enhanced by disclosing non-gaap financial measures as a reasonable basis for comparison of the company 's ongoing results of operations . these non-gaap measures should not be considered a substitute for gaap-basis measures and results . our non-gaap measures may not be comparable to non-gaap measures of other companies . the table below provides a disclosure of these non-gaap financial measures to the most closely analogous measure determined in accordance with gaap . non-gaap financial measures should not be considered a substitute for , or superior to , measures of financial performance prepared in accordance with gaap . they are limited in value because they exclude charges that have a material effect on our reported results and , therefore , should not be relied upon as the sole financial measures to evaluate our financial results . the non-gaap financial measures are meant to supplement , and to be viewed in conjunction with , gaap financial results . we disclose and discuss adjusted ebitda as a non-gaap financial measure in our public releases , including quarterly earnings releases , and other filings with the securities and exchange commission . we define adjusted ebitda as earnings ( net income ) before interest , income taxes , depreciation and amortization , reorganization charges , litigation and stock option expenses . story_separator_special_tag we believe that adjusted ebitda is used by investors and other users of our financial statements as a supplemental financial measure that , when viewed with our gaap results and the accompanying reconciliation , we believe provides additional information that is useful to gain an understanding of the factors and trends affecting our business . we also believe the disclosure of adjusted ebitda helps investors meaningfully evaluate and compare our cash flow generating capacity from quarter to quarter and year to year . adjusted ebitda is used by management as a supplemental internal measure for planning and forecasting overall expectations and for evaluating actual results against such expectations . because management uses adjusted ebitda for such purposes , the company uses adjusted ebitda as a significant criterion for determining the amount of annual cash incentive compensation paid to our executive officers and employees . we have historically found that adjusted ebitda is superior to other metrics for our company-wide cash incentive program , as it is more easily explained and understood by our typical employee . a reconciliation of our non-gaap measures is below : replace_table_token_5_th reorganization charges . we have excluded the effect of reorganization charges in calculating our non-gaap adjusted ebitda measure . we incurred significant expenses in connection with the termination and replacement of c-suite executives and senior management which we would not otherwise incur in periods presented as part of our continuing operations . reorganization charges include costs related to the replacement of c-suite executives including a transition bonus and recruiting fees , prior to march 31 , 2019. litigation . we have excluded litigation expenses in calculating our non-gaap adjusted ebitda measure . we continue to evaluate our business performance excluding litigation fees , which we expect will continue in future periods . stock option expense . we have excluded the effect of stock option expenses in calculating our non-gaap adjusted ebitda measure . although stock option compensation is a key incentive offered to our employees , we continue to evaluate our business performance excluding stock option compensation expenses . we record non-cash compensation expense related to grants of options and depending upon the size , timing and the terms of the grants , the non-cash compensation expense may vary significantly but will recur in future periods . - 24 - recently issued accounting pronouncements in june 2016 , the financial accounting standards board ( “ fasb ” ) issued accounting standards update ( “ asu ” ) no . 2016-13—financial instruments – credit losses ( topic 326 ) ; measurement of credit losses on financial instruments , which amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities . for assets held at amortized cost basis , topic 326 eliminates the probable initial recognition threshold in current gaap and , instead , requires an entity to reflect its current estimate of all expected credit losses . the allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected . for available for sale debt securities , credit losses should be measured in a manner similar to current gaap , however topic 326 will require that credit losses be presented as an allowance rather than as a write-down . this asu affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income . the amendments affect loans , debt securities , trade receivables , net investments in leases , off balance sheet credit exposures , reinsurance receivables , and any other financial assets not excluded from the scope that have the contractual right to receive cash . the amendments in this update are effective for fiscal years beginning after december 15 , 2022 , including interim periods within those fiscal years . the company is assessing the impact of the adoption of the asu on its financial statements , disclosure requirements and methods of adoption . in august 2018 , the fasb issued asu no . 2018-13 fair value measurement ( topic 820 ) : disclosure framework – changes to the disclosure for fair value measurement . the amendments in this asu modify the disclosure requirements on fair value measurements in topic 820 based on the concepts in the concepts statement , including the consideration of costs and benefits . the amendments in this asu are effective for all entities for fiscal years , and interim periods within those fiscal years , beginning after december 15 , 2019. the amendments on changes in unrealized gains and losses , the range and weighted average of significant unobservable inputs used to develop level 3 fair value measurements , and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption . all other amendments should be applied retrospectively to all periods presented upon their effective date . early adoption is permitted upon issuance of this asu . an entity is permitted to early adopt any removed or modified disclosures upon issuance of this asu and delay adoption of the additional disclosures until their effective date . the adoption of this asu , effective january 1 , 2020 , is not expected to have a material effect on our financial statement disclosures . in august 2018 , the fasb issued asu no . 2018-15 intangibles – goodwill and other – internal-use software ( subtopic 350-40 ) : customer 's accounting for implementation costs incurred in a cloud computing arrangement that is a service contract . the amendments in this asu align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software ( and hosting arrangements that include an internal use software license ) . the
| higher consulting fees of $ 0.3 million related to strategic initiatives , and higher investor relation expenses and director fees also contributed $ 0.4 million to the increase . partially offsetting these expenses were lower general corporate counsel fees and recruiting fees of $ 0.4 million . litigation fees continued to increase , up $ 2.5 million compared to the same period last year , due to the continued defense and increased activity against our competitor . we have had several favorable rulings in the new york and texas courts dismissing those cases and have filed motions for court costs and attorney fees of which one fee motion has been recommended to be granted by the magistrate judge in new york , and the fee motion in texas is stayed pending appeal of the case . refer to note 9 legal proceedings in the notes to the financial statements . research and development costs increased $ 0.5 million , or 207.1 % , due to an increase in headcount and expanded product development initiatives compared with last year . depreciation and amortization for the year ended december 31 , 2019 , depreciation and amortization expense increased $ 30,966 , or 10.0 % , compared with the same period last year . we continued to invest in capital assets , mostly related to production equipment , computer equipment and leasehold improvements , and in patent applications and their maintenance . net income replace_table_token_3_th our net income for the year ended december 31 , 2019 was $ 0.6 million , as compared to net income of $ 0.9 million for the year ended december 31 , 2018. this decrease was driven by increased selling , general and administrative expenses and litigation fees , as described above . liquidity and capital resources our principal source of liquidity is our cash of $ 5.9 million as of december 31 , 2019. additionally , we have a $ 1.5 million line of credit with no outstanding amounts against it . our principal source of operating cash inflows is from sales of our products to customers . our principal cash
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38 page stock-based compensation we have stock-based compensation plans which allow for the issuance of stock-based awards , including stock options , restricted stock units and restricted stock awards . we account for stock-based compensation expense by amortizing the fair value of each stock-based award expected to vest over the requisite service or performance period . the fair value of restricted stock awards is based on the number of shares granted and the closing price of our common stock on the date of grant . the fair value of each stock option award is calculated on the date of grant using the black-scholes option-pricing model . the black-scholes model requires various assumptions including fair value of the underlying stock , volatility , expected term , risk-free interest rate and expected dividends . we use our historical experience to estimate the expected forfeiture rate of awards , and only recognize expense for those awards expected to vest . to the extent the actual forfeiture rate is different from the estimate , the stock-based compensation expense is adjusted accordingly . if any of the assumptions we use in estimating the fair value of awards change significantly or the actual forfeiture rate is different than the estimate , stock-based compensation expense may differ materially in the future . story_separator_special_tag obligations and commitments on the part of the company that are not included in liabilities : replace_table_token_1_th liquidity and capital resources ; going concern at fye february 29 , 2016 , we had $ 137,944 cash on-hand , a decrease of $ 88,468 from $ 226,412 at the fye february 28 , 2015. the decrease in cash was due primarily to the funds used for operations , investment activities and development costs of the nexttrip website . these expenses and costs exceeded the cash raised through financing activities . 40 page as of february 29 , 2016 , the company had current liabilities of accounts payable of $ 588,513 ( a decrease from $ 2,387,833 as at february 28 , 2015 ) , convertible promissory notes of $ 1,658,908 ( a decrease from $ 7,853,386 as at february 28 , 2015 ) , and notes payable – current portion totaling $ 711,784 versus $ 924,072 as at february 28 , 2015. we anticipate that we will satisfy these amounts from proceeds derived from equity sales , conversions to equity securities and revenue generated from sales . as of february 29 , 2016 , we had $ 2.9 million in total assets , $ 3.0 million in total liabilities , a working capital deficit of $ 2.8 million and a total accumulated deficit of $ 94 million . net cash used in operating activities was $ 2,121,355 for the fye february 29 , 2016 , a decrease of $ 666,042 from cash used in operating of $ 2,787,397 during the fye february 28 , 2015. this change was primarily due to loss on inducement to convert preferred stock , stock compensation , and gain on sale of subsidiary . net cash used in investing activities decreased to $ 32,074 for the fye february 29 , 2016 , a decrease of $ 596,038 from $ 628,112 of cash used in investing activities during the fye february 28 , 2015. the change is due to the isolated website development costs and the purchase of computer equipment and a notes receivable advance from the prior year . net cash provided by financing activities decreased to $ 2,064,961 , for the fye february 29 , 2016 , a decrease of $ 1,458,226 from cash provided by financing activities of $ 3,523,187 for the fye february 28 , 2015. this decrease was primarily due to decreases in the issuance of series b preferred stock shares , series c preferred stock shares , warrants and stock subscriptions . the growth and development of our business will require a significant amount of additional working capital . we currently have limited financial resources and based on our current operating plan , we will need to raise additional capital in order to continue as a going concern . we currently do not have adequate cash to meet our short or long-term objectives . in the event additional capital is raised , it may have a dilutive effect on our existing stockholders . we have very limited financial resources . we currently have a monthly cash requirement of approximately $ 300,000 , exclusive of capital expenditures . we will need to raise substantial additional capital to support the on-going operation and increased market penetration of our products including the development of national advertising relationships , increases in operating costs resulting from additional staff and office space until such time as we generate revenues sufficient to support itself . we believe that in the aggregate , we could require several millions of dollars to support and expand the marketing and development of our travel products , repay debt obligations , provide capital expenditures for additional equipment and development costs , payment obligations , office space and systems for managing the business , and cover other operating costs until our planned revenue streams from travel products are fully-implemented and begin to offset our operating costs . our failure to obtain additional capital to finance our working capital needs on acceptable terms , or at all , will negatively impact our business , financial condition and liquidity . as of february 29 , 2016 , we had approximately $ 3.0 million of current liabilities ( a decrease from the $ 12.2 million of current liabilities as of february 28 , 2015 ) . we currently do not have the resources to satisfy these obligations , and our inability to do so could have a material adverse effect on our business and ability to continue as a going concern . story_separator_special_tag to date , we have funded our operations with the proceeds from the private equity and debt financings and we anticipate we will continue to meet our funding requirements through the sale of equity or debt financing , which funds may not be available on favorable terms , if at all . we anticipate that we would need several millions of dollars to properly market our products and fund the operations for the next 12 months . assuming we are able to raise the funds discussed above , we anticipate that by the fourth fiscal quarter of 2017 , our operations will be self-sustaining and providing the necessary cash flow to enable us to continue to grow the company . 41 page critical accounting policies and estimates our consolidated financial statements are prepared in accordance with u.s. generally accepted accounting principles ( gaap ) . the preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue , costs and expenses , and related disclosures . on an ongoing basis , we evaluate our estimates and assumptions . to the extent there are material differences between these estimates and our actual results , our consolidated financial statements will be affected . our significant accounting policies are described in note 3 - summary of significant accounting policies to the accompanying consolidated financial statements . the methods , estimates and judgments we use in applying our accounting policies have a significant impact on our results of operations . we believe that the policies listed below involve the greatest degree of complexity and judgment by our management and are critical for understanding and evaluating our financial condition and results of operations . if actual results significantly differ from the company 's estimates , the company 's financial condition and results of operations could be materially impacted . revenue recognition we recognize revenue when the customer has purchased the product , the occurrence of the earlier of date of travel or the date of cancellation has expired , the sales price is fixed or determinable and collectability is reasonably assured . we generate our revenues from sales to directly to customers as well as through other distribution channels of tours and activities at destinations throughout the world as well as from customers for online advertising services related to the listing of their properties for rent , primarily on a subscription basis , over a fixed-term . we also generate revenue from commissions on bookings or traveler inquiries on our performance-based listings . additional revenues are derived from the sales of and ancillary products and services . payments for tours or activities and term-based paid subscriptions received in advance of services being rendered are recorded as deferred revenue and recognized ratably on a straight-line basis over the listing period . revenue for performance-based listings is calculated as a percentage of the traveler booking or a fixed fee-per-inquiry stated in the arrangement and recognized when the service has been performed or as the customers ' refund privileges lapse . business combinations the purchase prices of acquired businesses or acquired assets have been allocated to the tangible and intangible assets acquired and liabilities assumed , based upon their estimated fair value at the date control is obtained . the difference between the purchase price and the fair value of the net assets acquired is recorded as goodwill . most of the businesses we have acquired did not have a significant amount of tangible assets . we typically identified the following identifiable intangible assets in each acquisition : trade name , customer relationships and internal software . in making certain assumptions on valuation and useful lives , we considered the unique nature of each acquired asset . determining the estimated fair value of assets involves the use of significant estimates , judgment and assumptions , such as future cash flows and selection of comparable companies . future changes in our assumptions or the interrelationship of those assumptions may negatively impact future valuations and could result in an impairment of goodwill or intangible assets that may have a material effect on our financial condition and operating results . definite-lived intangible assets are recorded at cost and amortized using a method that reflects our best estimate of the pattern in which the economic benefit of the related intangible asset is utilized . goodwill and indefinite-lived intangible assets , such as certain trade names , are not amortized and are subject to annual impairment tests during the fourth quarter , or whenever events or circumstances indicate impairment may have occurred . for goodwill and indefinite lived intangible assets , we complete a quantitative analysis that compares the fair value of our reporting unit or indefinite-lived intangible assets to the carrying amounts , and an impairment loss is recognized equivalent to the excess of the carrying amount over the fair value . 42 page accounts receivable we extend credit to our customers in the normal course of business . further , we regularly reviews outstanding receivables , and provides for estimated losses through an allowance for doubtful accounts . in evaluating the level of established loss reserves , we make judgments regarding its customers ' ability to make required payments , economic events and other factors . as the financial condition of these parties change , circumstances develop or additional information becomes available , adjustments to the allowance for doubtful accounts may be required . we maintain reserves for potential credit losses , and such losses traditionally have been within its expectations . for the years ended february 29 , 2016 and february 28 , 2015 , we did not recognized an allowance for doubtful accounts . impairment of long-lived assets in accordance with accounting standards codification 360-10 , “ property , plant and equipment ” , we periodically review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable .
| 39 page other expenses ● interest expense decreased to $ 384,899 for the fye february 29 , 2016 , compared to $ 1,054,349 for the fye february 28 , 2015 , which was due primarily to conversions of debt into series d preferred stock shares or shares of common stock of realbiz . ● gain on sale of subsidiary increased to $ 1,082,930 for the fye february 29 , 2016 , compared to zero for the fiscal year ended february 28 , 2015 , in connection with the sale of next 1 networks , inc. and alwaysonvacation , inc. on january 23 , 2016 . ● loss on settlement of debt decreased to $ 863,855 for the fye february 29 , 2016 , compared to a gain on settlement of debt of $ 48,564 for the fye february 28 , 2015 . ● gain on the change in fair value of derivatives decreased 62 % to $ 287,149 for the fye february 29 , 2016 , compared to a gain of $ 763,244 for the fye february 28 , 2015 , a decrease of $ 476,095 primarily due to the changes in the deconsolidation of realbiz , the decrease in the stock price of monaker and a reduction in the number of convertible promissory notes containing embedded derivatives for valuation . ● gain on deconsolidation of subsidiary decreased 100 % to $ -0- for the fye february 29 , 2016 , compared to $ 5,569,997 for the fye ended february 28 , 2015 , due to the deconsolidation of realbiz that occurred in 2015 . ● impairment and loss on equity method investee decreased to $ -0- for the fye february 29 , 2016 , compared to $ 872,791 for the fye february 28 , 2015 primarily due to loss in value of the investment in realbiz . values of shares of common stock in realbiz were reduced to the realizable value of $ 0 . ● loss on inducement to convert preferred stock decreased to $ 1,392,666 for the fye february 29 , 2016 , compared to $ 1,492,736
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on an on-going basis , management evaluates its estimates and judgments , including those related to product returns , customer incentives , bad debts , inventories , asset impairment , deferred tax assets , accrued warranty reserves , restructuring costs , contingencies and litigation . management bases its estimates and judgments 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 . management believes the following critical accounting policies , among others , affect our more significant judgments and estimates used in the preparation of our consolidated financial statements . we recognize product revenue upon shipment provided that risk and title have transferred , a purchase order has been received , collection is determined to be reasonably assured and no significant obligations remain . maintenance revenue is deferred and amortized over the period of the maintenance contract . provisions for estimated warranty repairs and returns and allowances are provided for at the time products are shipped . we maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments . if the financial condition of our customers were to deteriorate , resulting in an impairment of their ability to make payments , additional allowances might be required , which could have a material impact on our results of operations . we typically plan our production and inventory levels based on internal forecasts of customer demand , which are highly unpredictable and can fluctuate substantially . we regularly review inventory quantities on hand and record an estimated provision for excess inventory , technical obsolescence and no sale-ability based primarily on our historical sales and expectations for future use . actual demand and market conditions may be different from those projected by our management . this could have a material effect on our operating results and financial position . if we were to make different judgments or utilize different estimates , the amount and timing of our write-down of inventories could be materially different . excess inventory frequently remains saleable . when excess inventory is sold , it yields a gross profit margin of up to 100 % . sales of excess inventory have the effect of increasing the gross profit margin beyond that which would otherwise occur , because of previous write-downs . once we have written down inventory below cost , we do not subsequently write it up . the carrying value of our net deferred tax assets reflects that we have been unable to generate sufficient taxable income in certain tax jurisdictions . a valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before we are able to realize their benefit , or that future deductibility is uncertain . management evaluates the realizability of the deferred tax assets quarterly . at december 31 , 2006 we have recorded valuation allowances against substantially all of our deferred tax assets . the deferred tax assets are still available for us to use in the future to offset taxable income , which would result in the recognition of a tax benefit and a reduction in our effective tax rate . actual operating results and the underlying amount and category of income in future years could render our current assumptions , judgments and estimates of the realizability of deferred tax assets inaccurate , which could have a material impact on our financial position or results of operations . 27 we accrue the estimated cost of product warranties during the period of sale . while we engage in extensive product quality programs and processes , including actively monitoring and evaluating the quality of our component suppliers , our warranty obligation is affected by actual warranty costs , including material usage or service delivery costs incurred in correcting a product failure . if actual material usage or service delivery costs differ from our estimates , revisions to our estimated warranty liability would be required , which could have a material impact on our results of operations . during previous years , we have recorded restructuring charges as we rationalized operations in light of strategic decisions to align our business focus on certain markets . these measures , which included major changes in senior management , workforce reduction , facilities consolidation and the transfer of our production to contract manufacturers , were largely intended to align our capacity and infrastructure to anticipate customer demand and to transition our operations to better cost efficiencies . in connection with plans we have adopted , we recorded estimated expenses for severance and outplacement costs , lease cancellations , asset write-offs and other restructuring costs . statement of financial accounting standard ( sfas ) no . 146 , accounting for costs associated with exit or disposal activities , requires that a liability for a cost associated with an exit or disposal activity initiated after december 31 , 2002 be recognized when the liability is incurred and that the liability be measured at fair value . given the significance of , and the timing of the execution of such activities , this process is complex and involves periodic reassessments of original estimates . we continually evaluate the adequacy of the remaining liabilities under our restructuring initiatives . although we believe that these estimates accurately reflect the costs of our restructuring and other plans , actual results may differ , thereby requiring us to record additional provisions or reverse a portion of such provisions . recent accounting pronouncements in april 2006 , the financial accounting standards board ( fasb ) issued fasb staff position fasb interpretation no . 46 ( r ) -6 ( fsp fin 46 ( r ) -6 ) , which addresses how a reporting enterprise should determine the variability to be considered in applying fasb interpretation no . story_separator_special_tag 46 , consolidation of variable interest entities , as amended ( fin 46 ( r ) ) . the variability that is considered in applying fin 46 ( r ) affects the determination of ( a ) whether the entity is a variable interest entity , ( b ) which interests are variable interests in the entity and ( c ) which party , if any , is the primary beneficiary of the variable interest entity . that variability will affect any calculation of expected losses and expected residual returns , if such a calculation is necessary . fsp fin 46 ( r ) -6 provides additional guidance to consider for determining variability . fsp fin 46 ( r ) -6 is effective beginning the first day of the first reporting period beginning after june 15 , 2006. after evaluating fsp fin 46 ( r ) -6 , we determined that there is no impact to our consolidated financial position , results of operations or cash flows from its adoption . in june 2006 , the fasb ratified emerging issues task force ( eitf ) issue no . 06-03 , how taxes collected from customers and remitted to governmental authorities should be presented in the income statement ( that is , gross versus net presentation ) ( issue no . 06-03 ) . under issue no . 06-03 , a company must disclose its accounting policy regarding the gross or net presentation of certain taxes . if taxes included in gross revenues are significant , a company must disclose the amount of such taxes for each period for which an income statement is presented ( i.e. , both interim and annual periods ) . taxes within the scope of this issue are those that are imposed on and concurrent with a specific revenue-producing transaction . taxes assessed on an entity 's activities over a period of time , such as gross receipts taxes , are not within the scope of the issue . issue no . 06-03 is effective for the first annual or interim reporting period beginning after december 15 , 2006. after evaluating issue no . 06-03 , we determined that there is no impact to our consolidated financial position , results of operations or cash flows from its adoption . in july 2006 , the fasb issued fasb interpretation no . 48 accounting for uncertain tax positions ( fin 48 ) . fin 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise 's financial statements in accordance with fasb statement no . 109 , accounting for income taxes . it prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return . fin 48 also provides guidance on derecognition , classification , interest and penalties , accounting in interim periods , disclosure , and transition . fin 48 is effective for fiscal years beginning after december 15 , 2006. differences between the amounts recognized in the statements of financial position prior to the adoption of fin 48 and the amounts reported after adoption are to be accounted for as an adjustment to the beginning balance of retained earnings . 28 we have completed our initial evaluation of the impact of the january 1 , 2007 , adoption of fin 48 and determined , that such adoption will most likely result in a reduction of our disclosed income taxes payable of $ 1.9 million as of december 31 , 2006. the expected reduction of income taxes payable will be accounted for as an increase to the january 1 , 2007 beginning balance of retained earnings . our expectation of the impact from the adoption of fin 48 is subject to revision as management completes its analysis . in september 2006 , the securities and exchange commission ( sec ) published staff accounting bulletin ( sab ) no 108. sab 108 expresses the staff views regarding the process of quantifying financial statement misstatements . the bulletin prescribes the use of rollover and iron curtain approaches in quantifying misstatements . rollover approach quantifies a misstatement based on the amount of the error originating in the current year income statement . iron curtain approach quantifies a misstatement based on the effects of correcting the misstatement existing in the balance sheet at the end of the year , irrespective of the misstatement 's year ( s ) of origination . the statement is effective immediately . we did not have any misstatements that were determined to be material on the basis of either of the approaches mentioned above . in september 2006 , fasb issued sfas no . 157 , fair value measurements . sfas 157 defines fair value , establishes a framework for measuring fair value in accordance with generally accepted accounting principles , and expands disclosures about fair value measurements . the provisions of sfas 157 are effective for the fiscal year beginning january 1 , 2008. we are currently evaluating the impact of the provisions of sfas 157 on our financial position , results of operations and cash flows and do not believe the impact of the adoption will be material . story_separator_special_tag third quarter , we introduced a new category of digital media reader products designed to be embedded in televisions , which helped us to partially offset this revenue loss and stabilize revenue levels . gross profit the following table sets forth our gross profit and year-to-year change in gross profit by product segment for the fiscal years ended december 31 , 2006 , 2005 and 2004 : replace_table_token_5_th gross profit for 2006 was $ 11.9 million , or 35 % of revenue .
| revenue in this product line is subject to significant variability based on the size and timing of product orders . the majority of product orders are tied to government or corporate security projects that typically deploy our smart card readers in one or more stages , resulting in order volumes that can range from small to very large over a series of months or years . in 2006 , higher revenue levels were primarily the result of higher sales of smart card readers in the united states for u.s. government security projects as well as growth in demand for our products in europe primarily related to e-passport projects . we believe that potential growth in sales of our pc security products has been curtailed by the slow pace at which new smart card programs reach a stage requiring high volumes , which directly drives demand for our readers . revenue from our flash media reader product line decreased 6 % from $ 10.5 million in 2005 to $ 9.9 million in 2006. flash media reader revenue consists of sales of digital media readers and related asic technology used to provide an interface for flash memory cards in computer printers and digital photography kiosks , which are used to download and print digital photos , and in consumer electronics products such as televisions to download and view digital photos . the revenue decrease in 2006 was primarily due to a reduction in the price we were able to charge the primary customer for one of our digital media reader products , as the customer had decided they did not need the advanced functionality provided by components we previously had used in the readers . we therefore began to use simpler and less expensive components and thus the price of the product was lowered . 30 fiscal 2005 revenue compared with fiscal 2004 revenue revenue for the year ended december 31 , 2005 was $ 27.9 million , down 7 % from
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in addition , the acquisition of an additional interest at one property in the third quarter of 2019 resulted in $ 3.2 million increase in real estate taxes during 2020 compared to 2019 ( note 3 ) . the provision for impairment of $ 133.7 million during 2020 is related to impairment charges recorded on two operating properties and the provision of impairment of $ 223.1 million during 2019 is related to impairment charges recorded on two operating properties ( note 2 ) . depreciation and amortization increased $ 140.0 million primarily due to the acquisition of an additional interest in four operating properties in the fourth quarter of 2019. the acquisition resulted in a $ 120.9 million increase in depreciation and amortization during 2020 compared to 2019 ( note 3 ) . loss from changes in control of investment properties of $ 15.4 million during 2020 is related to the acquisition of an additional interest at one property ( note 3 ) . the gain from changes in control of investment properties of $ 720.7 million during 2019 is related to the acquisition of four operating properties which had been unconsolidated real estate affiliates from its former joint venture partners in the properties ( affiliates of jpmorgan chase & co. ( `` jpm '' ) and new york state teachers ' retirement system ( `` nystrs '' ) ) and resulting in the company obtaining control over the entities and consolidating the properties 34 beginning on the transaction date ( `` jpm transaction '' ) in the fourth quarter of 2019 ( note 3 ) and the acquisition of an additional interest at one property in the third quarter of 2019 ( note 3 ) . the gain on extinguishment of debt of $ 14.3 million during 2020 is related to the debt buyback transactions that occurred in second quarter of 2020 ( note 6 ) . the loss on extinguishment of debt of $ 27.5 million during 2019 is due to a pre-payment penalty related to the refinance at one property ( note 6 ) . benefit from income taxes reflects an increase in 2020 of $ 45.1 million compared to 2019 primarily due to an adjustment to our prior year deferred taxes . additionally , there was an increase in income tax benefit driven by the negative impact to operations from the covid-19 pandemic . equity in loss of unconsolidated real estate affiliates of $ 180.6 million during 2020 is primarily related to impairment charges on four unconsolidated operating properties ( note 5 ) and a loss of revenues . unconsolidated real estate affiliates - loss on investment of $ 51.8 million during 2020 is primarily related to the impairment charge on one investment property ( note 2 ) . year ended december 31 , 2019 and 2018 rental revenues decreased by $ 530.3 million primarily due to the joint ventures formed in conjunction with the bpy transaction in the third quarter of 2018. the joint ventures resulted in a $ 503.2 million decrease in rental revenues during 2019 compared to 2018. in addition , the sale of our partial interest at one operating property in the fourth quarter of 2018 resulted in a $ 10.2 million decrease in rental revenues during 2019 as compared to 2018 as the property is now accounted for in unconsolidated real estate affiliates ( note 3 ) . management fees and other corporate revenues increased $ 40.7 million , primarily due to the joint ventures formed in conjunction with the bpy transaction in the third quarter of 2018. the joint ventures resulted in a $ 38.7 million increase in property management and leasing fees during 2019 compared to 2018 ( note 3 ) . real estate taxes decreased $ 50.1 million , primarily due to the joint ventures formed in conjunction with the bpy transaction in the third quarter of 2018. the joint ventures resulted in a $ 54.1 million decrease in real estate taxes during 2019 compared to 2018 ( note 3 ) . other property operating costs decreased $ 73.9 million , primarily due to the joint ventures formed in conjunction with the bpy transaction in the third quarter of 2018. the joint ventures resulted in a $ 78.2 million decrease in other property operating costs during 2019 compared to 2018 ( note 3 ) . property management and other costs increased $ 56.6 million primarily due to an increase in salaries and bonuses , corporate office rent and management fees . the provision for impairment of $ 223.1 million during 2019 is related to impairment charges recorded on two operating properties and the provision of impairment of $ 45.9 million during 2018 is related to impairment charges recorded on one property ( note 2 ) . depreciation and amortization decreased $ 131.4 million primarily due to the joint ventures formed in conjunction with the bpy transaction in the third quarter of 2018. the joint ventures resulted in a $ 160.1 million decrease in depreciation and amortization during 2019 compared to 2018 ( note 3 ) . the development projects related to one operating property resulted in an offsetting $ 13.2 million increase in depreciation expense during 2019 compared to 2018. interest expense increased $ 101.8 million primarily due to a $ 210.6 million increase in interest expense on the new credit agreement entered into during the third quarter of 2018 ( note 6 ) . the acquisition of an additional interest at one operating property from our joint venture partner during the third quarter of 2019 resulted in a $ 16.9 million increase in interest expense during 2019 compared to 2018 ( note 3 ) . this was partially offset by the joint venture transactions related to the bpy transaction in the third quarter of 2018. this resulted in a $ 134.4 million decrease in interest expense during 2019 compared to 2018 ( note 3 ) . story_separator_special_tag in addition , the sale of our partial interest at one operating property in the fourth quarter of 2018 resulted in $ 8.1 million decrease in interest expense during 2019 compared to 2018 as the property is now accounted for as unconsolidated real estate affiliates ( note 3 ) . 35 the gain from changes in control of investment properties and other , net of $ 720.7 million during 2019 is due to the jpm transaction in the fourth quarter of 2019 ( note 3 ) . the loss on extinguishment of debt during 2019 relates to a pre-payment penalty related to the refinance at one property ( note 6 ) . benefit from income taxes reflects a decrease in 2019 of $ 603.9 million as compared to 2018 due to the recognition of deferred taxes related to certain transactions effectuated in the bpy transaction in 2018 ( note 3 ) . equity in income of unconsolidated real estate affiliates decreased by $ 67.0 million primarily due to a decrease in income recognition on condominiums and decrease in income related to joint ventures formed in conjunction with the bpy transaction in the third quarter of 2018 ( note 3 ) . unconsolidated real estate affiliates - gain on investment of $ 240.4 million during 2019 relates to the jpm transaction , the sale of our 12.0 % interest in bayside marketplace and the 49.3 % sale of our interest in authentic brands group llc ( `` abg '' ) ( note 3 ) . liquidity and capital resources our primary source of cash is from the ownership and management of our properties and strategic dispositions . in addition , we will also use financings as a source of capital . we may generate cash from refinancings or borrowings under our revolving credit facility ( the `` facility '' ) . our primary uses of cash include payment of operating expenses , debt service , reinvestment in and redevelopment of properties , tenant allowances , dividends , share repurchases and strategic acquisitions . we anticipate maintaining financial flexibility by managing our future maturities and amortization of debt . we believe that we currently have sufficient liquidity to satisfy all of our commitments in the form of $ 204.5 million of consolidated unrestricted cash and $ 485.0 million of available credit under our revolving credit facility as of december 31 , 2020 , as well as anticipated cash provided by operations . our key financing objectives include : to obtain property-secured debt with laddered maturities ; and to minimize the amount of debt that is cross-collateralized and or recourse to us . we may raise capital through public or private issuances of debt securities , preferred stock , class a stock , units of limited partnership interest in bpr op , lp ( `` bprop '' ) , or other capital raising activities . in addition , we or our affiliates may repurchase our shares or corporate debt and bonds . the future impact of the global economic shutdown on our level of liquidity is uncertain at this time . measures undertaken by governments and companies in our principal markets resulted in the temporary closure of many of our operating assets , with the vast majority of the assets having now reopened . the duration of any such continuing measures or the re-imposition of such measure in the future may impact our ability to collect rental income in our retail assets . the longer-term impact of the shutdown and resulting economic downturn could reduce demand for retail space . consequently , we are reviewing , and where appropriate adjusting , our current capital expenditure and financing assumptions on existing and future projects to reflect any potential shorter- and longer-term impact of the shutdown . we are also reviewing contractual arrangements with our tenants to assess the rights and responsibilities of the company and our tenants in response to the impact of the measures undertaken by governments and or tenants . potential responses may include , but are not limited to , extension of payment terms from tenants , adjustments to the duration of leases , payment holidays , and renegotiation of lease terms . we expect to be able to refinance the majority of debt obligations maturing in the near term or to exercise contractual extension options thereon , although there is no guarantee we will be able to do so . in certain instances , we plan to seek certain modifications to mortgages , including lease restructuring approvals and technical default waivers , and potentially interest deferrals . in addition , certain debt obligations are subject to financial covenants , and in the shorter-term , the shutdown may negatively impact our ability to meet such covenants . we are reviewing the financial covenants of each debt instrument and , where applicable , working with our lenders to address debt instruments which may potentially approach or breach covenant limits . 36 such adjustments may include , but are not limited to , adjustment to the covenant limits , interest payment holidays , and temporary suspension of covenant testing . in order to maintain financial flexibility , we maintain capacity under our facility . as at december 31 , 2020 , the available capacity under such credit facility was $ 485.0 million . we believe we will be able to continue to borrow funds on the facility when and as required . the company is party to a credit agreement ( the `` credit agreement '' ) dated as of august 24 , 2018 consisting the facility , term a-1 and a-2 loans , and a term b loan . the facility provides for revolving loans of up to $ 1.5 billion and borrowings bear interest at a rate equal to libor plus 2.25 % .
| 42 2019 activity acquisition of real estate and property additions , $ ( 877.1 ) million ; loans to joint venture and joint venture partners , $ ( 95.8 ) million ; proceeds from sales of investment properties and unconsolidated real estate affiliates , $ 185.2 million ; development of real estate and property improvements , $ ( 514.3 ) million ; net proceeds from distributions received from unconsolidated real estate affiliates in excess of income , $ 363.2 million ; contributions to unconsolidated real estate affiliates , $ ( 239.4 ) million ; proceeds from loan to affiliates , $ 330.0 million ; and loans to affiliates , $ ( 330.0 ) million . 2018 activity proceeds from sale of investment properties and unconsolidated real estate affiliates , $ 3.1 billion ; development of real estate and property improvements of $ ( 674.5 ) million ; net proceeds from distributions received from unconsolidated real estate affiliates in excess of income , $ 410.6 million ; contributions to unconsolidated real estate affiliates , $ ( 218.0 ) million ; and proceeds from repayment of loans to joint ventures and joint venture partners , $ 204.9 million . cash flows from financing activities net cash provided by ( used in ) financing activities was $ 354.4 million for the year ended december 31 , 2020 , $ 877.6 million for the year ended december 31 , 2019 , and $ ( 3.2 ) billion for the year ended december 31 , 2018. significant components of net cash provided by ( used in ) financing activities include : 2020 activity proceeds from the refinancing or issuance of mortgages , notes and loans payable , $ 906.4 million ; principal payments on mortgages , notes , and loan payable , $ ( 822.0 ) million ; buyback of class a stock , $ ( 168.4 ) million ; issuances of class b-1 stock , $ 532.2 million ; cash distributions to noncontrolling interests in consolidated real estate affiliates , $ 0.0 million ; and cash distributions paid to stockholders , $ ( 68.4 ) million . 2019 activity proceeds from the refinancing or issuance of mortgages , notes and loans payable of $ 6.4 billion ; which includes a $ 1.0 billion bond issuance ; principal payments on mortgages , notes , and loan payable , $ ( 4.5 ) billion ; buyback of class a stock , $ ( 114.9 ) million ; buyback of class b-1 stock , $ ( 224.5 ) million ; issuances of class b-1 stock , $ 293.3 million ; cash distributions to noncontrolling interests in consolidated real estate affiliates , $ ( 99.3 )
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36 toc—financial statements discrete items impacting 2019 four discrete items ( the “ discrete items ” ) impacted 2019 full-year results : refining technologies : an fcc catalysts customer 's bankruptcy following a fire resulting in the closure of its refinery ; specialty catalysts : a customer-specific inventory correction in the second half of 2019 ; specialty catalysts : customer-specific temporary reductions in operating rates and catalyst usage due to reduced feedstock supply following an attack in the middle east ; and materials technologies : an equipment failure in one of our silicas manufacturing lines ( operations fully restored by mid-july ) . these discrete items reduced 2019 full-year net sales by approximately $ 36 million . these discrete items also reduced pretax income and adjusted ebit by approximately $ 36 million . the earnings effect included lost margin on lower sales , the costs of adjusting our manufacturing operations in response to lower demand , costs incurred to serve customers and minimize any impact to their operations , and costs related to the fcc catalysts customer bankruptcy . these effects were partially mitigated by an approximately $ 12 million benefit from cost-reduction activities in response to these events and $ 8 million of business interruption proceeds from the fcc catalyst customer event , resulting in a net reduction to 2019 pretax income of approximately $ 16 million . we received insurance recoveries of an additional $ 16.3 million in the first half of 2020 under our business interruption insurance policy . this claim has been fully resolved . net sales and gross margin sales for 2020 decreased 11.7 % overall and on constant currency compared with the prior year . the decrease was driven by lower sales volumes resulting primarily from the covid-19 pandemic , partially offset by improved pricing in both segments . lower sales volumes in catalysts technologies were primarily due to lower demand for global transportation fuels and refinery operating rates driven by the covid-19 pandemic and recession and a generally weaker manufacturing environment during the 2020 first quarter . in materials technologies , growth in pharma/consumer end markets was offset by weakness in chemical process end markets . gross margin decreased 490 basis points to 35.6 % from 40.5 % for the prior year . adjusted gross margin decreased 370 basis points to 37.7 % from 41.4 % for the prior year . the decreases were primarily driven by under-absorbed fixed costs resulting from lower production volumes and inventory reductions , partially offset by improved product mix and cost mitigation actions . strong sequential improvement in the second half of the year was primarily driven by higher production rates . sales for 2019 increased 1.3 % overall compared with the prior year , up 3.0 % on constant currency . the increase was driven by improved pricing in both segments and all regions . higher sales volumes in catalysts technologies were driven by specialty catalyst growth in emea and asia pacific and the 2018 second quarter 37 toc—financial statements polyolefin catalysts acquisition , partially offset by the discrete items . sales volume in materials technologies were up driven by growth in the americas , partially offset by a decline in asia pacific and emea . gross margin increased 80 basis points to 40.5 % from 39.7 % for the prior year . adjusted gross margin increased 70 basis points to 41.4 % from 40.7 % for the prior year . improved pricing , higher sales volumes , favorable mix , and lower depreciation were partially offset by higher manufacturing costs , including a 20 basis point impact related to higher raw materials and energy costs . the following tables identify the year-over-year increase or decrease in sales attributable to changes in sales volume and or mix , product price , and the impact of currency translation . replace_table_token_11_th replace_table_token_12_th grace net income net income ( loss ) attributable to grace was $ ( 1.8 ) million for 2020 compared with $ 126.3 million for the prior year . the decrease was primarily due to lower gross profit including the write-off of obsolete inventory , a loss on early extinguishment of debt , and a write-off of previously capitalized plant engineering and site costs , partially offset by a lower provision for income taxes including the benefit from income tax attributes and lower operating 38 toc—financial statements expenses in 2020. the prior year included higher costs related to legacy matters , including higher charges related to the libby , montana , dam spillway replacement project ( see below ) and a charge related to probable future payments with respect to our former zai product . during the 2020 third quarter , we completed a review of contractor bids for the replacement of the upper portion of the dam spillway at the former libby , montana , mine site and increased our cost estimate for the total project by $ 27.0 million , to $ 95.0 million . the prior-year period included charges of $ 45.0 million related to these projects . the 2019 fourth quarter included additional charges of $ 23.0 million related to these projects . see note 10 to the consolidated financial statements for further discussion . during the 2020 second quarter , we implemented changes to our refining technologies manufacturing operations and global footprint to drive capital and operating efficiencies as well as support global growth . hydroprocessing catalysts manufacturing operations : in connection with our ongoing operating excellence initiatives , we have accelerated the implementation of the grace manufacturing system at our three hydroprocessing catalyst manufacturing sites , including optimization of plant processes and key organizational changes . over time , these changes are expected to benefit operating margins in our art joint venture . any margin benefits will be recognized through our equity earnings in the joint venture . as a result of these changes , we recorded a pre-tax charge of $ 19.7 million in the 2020 second quarter , which is reflected in cost of goods sold , related to a write-off of inventory now deemed obsolete based on the process changes . story_separator_special_tag the cash costs to dispose of this inventory are approximately $ 1 million . middle east fcc catalysts plant : in agreement with our local joint venture partner , we have discontinued the previously announced project to build a full-scale fcc catalysts plant in the middle east . the decision reflects the rapid advance of fcc catalysts technology and the value of maintaining flexibility in our global manufacturing operations to ensure we can supply the dynamic needs of our customers in a cost- and capital-efficient way . we will continue to invest in our existing manufacturing network to support new technology development and provide the flexibility required to produce advanced catalyst and additive platforms . in the 2020 second quarter , we recorded a pre-tax charge of $ 19.7 million to write off engineering and site costs . the expected cash costs to implement this change are approximately $ 1 million . net income attributable to grace was $ 126.3 million for 2019 compared with $ 167.6 million for the prior year . the decrease was primarily due to a loss recorded for the annual pension mark-to-market adjustment and higher costs related to legacy matters , including charges of $ 68.0 million for the estimated costs of construction of a new dam spillway at our former vermiculite mine site and $ 24.0 million related to probable future payments with respect to our former zai product ( see note 10 to the consolidated financial statements ) , partially offset by lower restructuring and repositioning expenses , higher operating income from our catalysts technologies segment , and a lower provision for income taxes . 39 toc—financial statements adjusted ebit adjusted ebit was $ 312.2 million for 2020 , a decrease of 34.0 % compared with the prior year primarily due to lower sales and gross profit , an approximately $ 19 million impact from hurricane-related costs and lower income from our art joint venture , partially offset by lower operating expenses . adjusted ebit was $ 473.1 million for 2019 , an increase of 3.5 % compared with the prior year primarily due to higher sales and gross profit including the 2019 first quarter benefit of the polyolefin catalysts acquisition , partially offset by the net impact of the discrete items , lower income from our art joint venture , and unfavorable currency transaction effects . adjusted eps the following table reconciles our diluted eps ( gaap ) to our adjusted eps ( non-gaap ) : replace_table_token_13_th 40 toc—financial statements replace_table_token_14_th _ ( 1 ) our historical tax attribute carryforwards ( net operating losses and tax credits ) unfavorably affected our tax expense with respect to certain provisions of the tax cuts and jobs act ( “ tcja ” ) . to normalize the effective tax rate , an adjustment was made to eliminate the tax expense impact associated with the historical tax attributes . replace_table_token_15_th _ ( 1 ) our historical tax attribute carryforwards ( net operating losses and tax credits ) unfavorably affected our tax expense with respect to certain provisions of the tcja . to normalize the effective tax rate , an adjustment was made to eliminate the tax expense impact associated with the historical tax attributes . return on equity and adjusted ebit return on invested capital return on equity for 2020 was ( 0.8 ) % on a trailing four quarters basis , compared with 31.4 % and 49.7 % for 2019 and 2018 , respectively , on the same basis . the declines were due to lower net income in 2020 and 2019 . 41 toc—financial statements adjusted ebit return on invested capital for 2020 was 13.9 % on a trailing four quarters basis , compared with 20.2 % and 20.9 % for 2019 and 2018 , respectively , on the same basis . the decline from 2019 to 2020 is due to lower adjusted ebit . the decline from 2019 to 2018 is primarily due to increased growth capital investments that had not yet been placed into service . these assets were placed in service beginning in mid-2020 and will support volume growth over the next few years . we expect adjusted ebit return on invested capital to improve as we recover from the pandemic . we manage our businesses with the objective of maximizing sales , earnings and cash flow over time . doing so requires that we successfully balance our growth , profitability and working capital and other investments to support sustainable , long-term financial performance . we use adjusted ebit return on invested capital as a performance measure in evaluating operating results , in making operating and investment decisions , and in balancing the growth and profitability of our businesses . segment overview—grace catalysts technologies following is an overview of the financial performance of catalysts technologies for the years ended december 31 , 2020 , 2019 , and 2018. net sales—grace catalysts technologies sales were down 15.1 % in 2020 , or down 15.2 % on constant currency , compared with the prior year . the decrease on a constant currency basis was due to lower sales volumes , partially offset by improved pricing . specialty catalysts sales decreased 11.9 % , primarily due to lower market demand and customer catalyst inventory corrections in response to the covid-19 pandemic as well as order timing in our chemical catalysts business . in 2020 we signed seven new unipol ® polypropylene process technology licenses totaling approximately 2,800 kilotons of annual resin capacity , which will continue to drive long-term catalysts and donor sales . refining technologies sales decreased 17.9 % due to the effects of the pandemic on global transportation fuels demand and refinery operating rates . gross profit was $ 497.9 million for 2020 , a decrease of 22.4 % compared with the prior year .
| we define adjusted ebit ( a non-gaap financial measure ) to be net income attributable to w. r. grace & co. shareholders adjusted for interest income and expense ; income taxes ; costs related to legacy matters ; restructuring and repositioning expenses and asset impairments ; pension costs other than service and interest costs , expected returns on plan assets , and amortization of prior service costs/credits ; gains and losses on sales and exits of businesses , product lines , and certain other investments ; third-party acquisition-related costs and the amortization of acquired inventory fair value adjustment ; gains and losses on modification or extinguishment of debt ; the effects of these items on equity in earnings of unconsolidated affiliate ; and certain other items that are not representative of underlying trends . we define adjusted ebitda ( a non-gaap financial measure ) to be adjusted ebit adjusted for depreciation and amortization , and depreciation and amortization included in equity in earnings of unconsolidated affiliate ( collectively , adjusted depreciation and amortization ) . we define adjusted ebit return on invested capital ( a non-gaap financial measure ) to be adjusted ebit ( on a trailing four quarters basis ) divided by adjusted invested capital , which is defined as equity adjusted for 31 toc—financial statements debt ; underfunded and unfunded defined benefit pension plans ; liabilities related to legacy matters ; cash , cash equivalents , and restricted cash ; net income tax assets ; and certain other assets and liabilities . we define adjusted gross margin ( a non-gaap financial measure ) to be gross margin adjusted for pension-related costs included in cost of goods sold , the amortization of acquired inventory fair value adjustment , and write-offs of inventory related to exits of businesses and product lines and significant manufacturing process changes . we define adjusted earnings per share ( eps ) ( a non-gaap financial measure ) to be diluted eps adjusted for costs related to legacy matters ; restructuring and repositioning expenses and asset impairments ; pension costs other than service and interest
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for the year ended december 31 , 2015 , these pre-tax charges included a loss of $ 15.7 million ( $ 15.7 million after-tax ) primarily related to the disposal of the venezuelan operating entity in the international segment . 25 venezuela currency remeasurement : currency remeasurement in venezuela and the related impact of the devaluation resu lted in a pre-tax loss of $ 30.3 million ( $ 27.5 million after-tax ) for the year ended december 31 , 2015 of which $ 10.5 million was included in loss attributable to noncontrolling interests . net loss on investments : included a pre-tax loss of $ 1.4 million ( $ 1.4 million after-tax ) resulting from the impairment of an equity investment and a pre-tax gain of $ 0.1 million ( $ 0.1 million after-tax ) resulting from the sale of one of the company 's affordable housing investments during the year ended december 31 , 2016. the year ended december 31 , 2015 included a pre-tax gain of $ 3.9 million ( $ 2.4 million after-tax ) resulting from the sale of one of the company 's affordable housing investments , a pre-tax loss of $ 2.8 million ( $ 2.8 million after-tax ) resulting from the impairment of the company 's investment in the brazilian operations of courier and a pre-tax loss of $ 1.3 million ( $ 1.3 million after-tax ) for the impairment of an equity investment . income tax adjustment : included the recognition of a $ 0.4 million deferred income tax benefit related to the company 's investment in lsc . operations : reflected volume declines in the variable print segment , price pressures and wage and other inflation in the international segment , partially offset by lower incentive compensation expense , lower depreciation and amortization expense and cost savings associated with the reorganization of certain operations . outlook vision and strategy rr donnelley works with its customers to create , manage , deliver and optimize their multichannel communications strategies . the company has and will continue to develop its creative and design , content management , digital and print production , supply chain management and distribution services to address its customers ' evolving needs . the company 's global platform provides differentiated solutions for its customers through its broad range of complementary communications services , strong logistics capabilities , and innovative leadership in both conventional print and digital technologies . this platform has enabled rr donnelley to develop strong customer relationships , and the company is focused on expanding these relationships to a broader range of its offerings . the flexibility of our platforms enhances the value the company delivers to its customers and the company intends to expand its capabilities in order to make it easier for customers to manage their full range of communication needs . management believes productivity improvement and cost reductions are critical to the company 's competitiveness . the company continues to implement strategic initiatives across all platforms to reduce its overall cost structure and enhance productivity , including restructuring , consolidation , reorganization and integration of operations and streamlining of administrative and support activities . the company seeks to deploy its capital using a balanced approach in order to ensure financial flexibility and provide returns to stockholders . priorities for capital deployment , over time , include principal and interest payments on debt obligations , distributions to stockholders , targeted acquisitions and capital expenditures . the company believes that a strong financial condition is important to customers focused on establishing or growing long-term relationships . the company also expects to make targeted acquisitions that extend its capabilities , drive cost savings and reduce future capital spending needs . management uses several key indicators to gauge progress toward achieving these objectives . these indicators include organic sales growth , operating margins , cash flow from operations and capital expenditures . the company targets long-term net sales growth , while managing operating margins by achieving productivity improvements that offset the impact of price declines and cost inflation . cash flows from operations are targeted to be stable over time , but in any given year can be significantly impacted by the timing of non-recurring or infrequent receipts and expenditures , the level of required pension and other postretirement benefits plan contributions and the impact of working capital management efforts . the company faces many challenges and risks as a result of competing in highly competitive global markets . refer to item 1a , risk factors , of part i of this annual report on form 10-k for further discussion . 26 2017 outlook in 2017 the company expects net sales to range from a slight decrease to a slight increase as compared to 2016 driven by organic growth across certain product and service offerings primarily in the strategic services segment due to incremental revenues from the commercial agreements entered into in connection with the spinoff . organic net sales growth is also expected in the international segment and from precision dialogue , which we acquired in 2016 , that is reported within the strategic services and variable print segments . these increases are expected to partially offset by the anticipated continuing volume declines in the variable print segment and price pressures in most parts of the business . the highly competitive market conditions and unused industry capacity will continue to put price pressure on both transactional work and contract renewals across all segments . the company 's outlook assumes that the u.s. economy will grow modestly in 2017 , with a decline in growth expected in developing countries . the company will continue to leverage its customer relationships in order to provide a larger share of its customers ' communications needs . in addition , the company expects to continue cost control and productivity initiatives , including selected facility consolidations . the company initiated several restructuring actions in 2016 and 2015 to further reduce the company 's overall cost structure . these restructuring actions included the closures of two manufacturing facilities during 2016 , as well as reorganization of certain operations . story_separator_special_tag these and future cost reduction actions are expected to have a positive impact on operating earnings in 2017 and in future years . in addition , the company expects to identify other cost reduction opportunities and possibly take further actions in 2017 , which may result in significant additional restructuring charges . these restructuring actions will be funded by cash generated from operations and cash on hand or , if necessary , by utilizing the company 's credit facilities . cash flows from operations in 2017 are expected to increase significantly versus 2016 as lower operating income due to the spinoff of lsc and donnelley will be more than offset by lower payments for taxes , interest and spinoff transaction costs as well as targeted working capital improvements . the company expects capital expenditures to be in the range of $ 100.0 million to $ 115.0 million in 2017. the company 's pension and opeb plans were underfunded by $ 99.3 million and $ 134.7 million , respectively , as of december 31 , 2016 , as reported on the company 's consolidated balance sheets and further described in note 12 , retirement plans , to the consolidated financial statements . governmental regulations for measuring pension plan funded status differ from those required under accounting principles generally accepted in the united states of america ( “ gaap ” ) for financial statement preparation . based on the plans ' regulatory funded status , required contributions in 2017 under all pension and other postretirement benefits plans is expected to be approximately $ 17.0 million . significant accounting policies and critical estimates the preparation of financial statements in conformity with gaap requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities , the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . the company 's most critical accounting policies are those that are most important to the portrayal of its financial condition and results of operations , and which require the company to make its most difficult and subjective judgments , often as a result of the need to make estimates of matters that are inherently uncertain . the company has identified the following as its most critical accounting policies and judgments . although management believes that its estimates and assumptions are reasonable , they are based upon information available when they are made , and therefore , actual results may differ from these estimates under different assumptions or conditions . revenue recognition the company recognizes revenue for the majority of its products upon the transfer of title and risk of ownership , which is generally upon shipment to the customer . because substantially all of the company 's products are customized , product returns are not significant ; however , the company accrues for the estimated amount of customer credits at the time of sale . revenue from services is recognized as services are performed . refer to note 1 , basis of presentation and summary of significant accounting policies , to the consolidated financial statements for further discussion . 27 certain revenues earned by the company require significant judgment to determine if revenue should be recorded gross , as a principal , or net of related costs , as an age nt . billings for third-party shipping and handling costs as well as certain postage costs , primarily in the company 's logistics operations , and out-of-pocket expenses are recorded gross . in the company 's global turnkey solutions and sourcing operations , ea ch contract is evaluated using various criteria to determine if revenue for components and other materials should be recognized on a gross or net basis . in general , these revenues are recognized on a gross basis if the company has control over selecting ve ndors and pricing , is the primary obligor in the arrangement and bears credit risk and the risk of loss for inventory in its possession . revenue from contracts that do not meet these criteria is recognized on a net basis . many of the company 's operations p rocess materials , primarily paper , that may be supplied directly by customers or may be purchased by the company and sold to customers . no revenue is recognized for customer-supplied paper , but revenues for company-supplied paper are recognized on a gross basis . as a result , the company 's reported sales and margins may be impacted by the mix of customer-supplied paper and company-supplied paper . goodwill and other long-lived assets the company 's methodology for allocating the purchase price of acquisitions is based on established valuation techniques that reflect the consideration of a number of factors , including valuations performed by third-party appraisers when appropriate . goodwill is measured as the excess of the cost of an acquired entity over the fair value assigned to identifiable assets acquired and liabilities assumed . based on its current organization structure , the company has identified fourteen reporting units for which cash flows are determinable and to which goodwill may be allocated . goodwill is either assigned to a specific reporting unit or allocated between reporting units based on the relative excess fair value of each reporting unit . as a result of the separation , goodwill of approximately $ 657.9 million was distributed with lsc and donnelley financial . the goodwill distributed consisted of substantially all of the goodwill of the former publishing and retail segment and certain portions of the goodwill of the strategic services segment including the entire goodwill of the former financial reporting unit and a portion of each of the digital and creative solutions and logistics reporting units . the portion of the digital and creative solutions ' and logistics ' reporting units goodwill distributed was determined based upon the relative fair value as of october 1 , 2016 of the businesses being disposed of in comparison to the overall fair value of the reporting unit as a whole .
| products cost of sales decreased primarily due to lower volume in the variable print segment and cost controls , partially offset by higher volume in the strategic services segment and wage and other inflation in the international segment . as a percent of sales , products cost of sales increased 0.1 % to 78.8 % due to higher volume in the strategic services segment and wage and other inflation in the international segment . 33 services cost of sales increased $ 1.2 million , or 1.0 % as a percentage of net sal es from services for the year ended december 31 , 2016 versus the same period in the prior year . services cost of sales increased primarily due to higher volume in the strategic services segment driven by unfavorable mix in the logistics reporting unit , par tially offset by lower volume in the international segment and cost control initiatives . products gross profit decreased $ 9.5 million to $ 1,123.7 million for the year ended december 31 , 2016 compared to the same period in 2015 primarily due to volume declines in the variable print segment , price pressures and wage and other inflation in the international segment , partially offset by cost control initiatives . products gross margin decreased slightly from 21.3 % in 2015 to 21.2 % in 2016. services gross profit decreased $ 18.8 million to $ 253.1 million for the year ended december 31 , 2016 versus the same period in 2015 due to lower volume in the international segment and unfavorable mix in the strategic services segment . services gross margin decreased from 16.7 % to 15.7 % , reflecting an unfavorable mix in the strategic services segment . selling , general and administrative expenses increased $ 28.2 million to $ 900.8 million , or 0.5 % as a percentage of net sales , for the year ended december 31 , 2016 versus the same period in 2015 due to pension settlement charges of $ 21.1 million , spinoff-related transaction expenses , an increase in legal expenses and higher acquisition-related expenses , partially offset by
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on september 27 , 2019 , energy capital , llc entered into a securities purchase agreement with other subscribers in which it converted an aggregate of approximately $ 10,563,000 principal and interest outstanding under the loan and security agreement into an aggregate of 4,225,242 units ( wherein a unit consisted of one share of common stock and one-half of one warrant to purchase one share of company common stock ( the “ investor warrant ” ) ) of the company . at the closing of the transaction , the debt owed energy capital under the loan and security agreement was extinguished and the loan terminated pursuant to its terms . see note 8 in the accompanying consolidated financial statements for additional details . key components of our results of operations and financial condition revenues our revenues are derived principally from the sale of our multi-patented fullmax wireless radio system . we also provide a warranty/maintenance program through an annual contract . the warranty/maintenance contract requires payment in full at the time of execution of the contract . revenue from the warranty/maintenance contract is initially recorded as deferred revenue and is subsequently recorded as income spread equitably over the term of the contract . due to the ongoing development and commercialization process of our fullmax solutions , our revenues have historically been generated by equipment trial and pilot programs and related services , in addition to a modest number of full network deployments . we have historically had limited sales and customer service resources to support higher sales volumes . in 2018 and 2019 , we expanded our sales and marketing effort across multiple industries which dramatically increased our sales pipeline and the number of customers and projects we are targeting . we expect this increased customer engagement to lead to a larger number of sales opportunities and revenue in 2020 . 36 cost of sales our cost of sales is comprised primarily of the cost of components included in our fullmax system and other costs associated with the assembly and delivery thereto . we expect our investment in expanding our customer sales and service efforts to lead to increased volume of fullmax equipment sales in future periods , which will lead to higher costs of sales . cost of sales as a percentage of revenue has historically been volatile due to low levels of revenue and can be skewed higher or lower due to the mix of high margin base station units relative to remote units sold . higher unit sales volume will provide scale manufacturing opportunities which could lead to a decline in the cost of sales as a percentage of revenue in future periods . general and administration general and administration expenses primarily include salary and benefit expense , legal and accounting services , professional services , rent and facilities costs , general liability insurances , and travel expenses . we expect these expenses to increase as a result of continued growth in headcount and support of our business and operations . sales and marketing sales and marketing expenses primarily include salary and benefit expense , trade shows , marketing programs and promotional material , travel expenses , and the allocation of certain facility costs . we expect these expenses to increase as a result of continued growth in headcount and support of our business and operations . research and development research and development expenses primarily include salary and benefit expense and costs for contractors engaged in research , design and development activities including intellectual property , travel expenses , and the allocation of certain facility costs . we expect our research and development costs to increase as we continue making investments in developing new products in addition to new versions of fullmax . other income ( expense ) other income ( expense ) primarily includes interest expense and impairment of deferred offering and financing costs . story_separator_special_tag style= '' font-family : times new roman , times , serif ; font-size : 10pt '' > our future capital requirements will depend upon many factors , including progress with developing , manufacturing and marketing our technologies , the time and costs involved in preparing , filing , prosecuting , maintaining and enforcing patent claims and other proprietary rights , our ability to establish collaborative arrangements , marketing activities and competing technological and market developments , including regulatory changes and overall economic conditions in our target markets . our ability to generate revenue and achieve profitability requires us to successfully market and secure purchase orders for our products from customers currently identified in our sales pipeline and to new customers as well . we also will be required to efficiently manufacturer and deliver equipment on those purchase orders . these activities , including our planned research and development efforts , will require significant uses of working capital through the end of 2020 and beyond . based on our current operating plans , we believe that our existing cash at the time of this filing will only be sufficient to meet our anticipated operating needs through march 2020. accounting standards require management to evaluate our ability to continue as a going concern for a period of one year subsequent to the date of the filing of this form 10-k ( “ evaluation period ” ) . as such , we have evaluated if cash on hand and cash generated through operating activities would be sufficient to sustain projected operating activities through march 13 , 2021. we anticipate that our current resources will be insufficient to meet our cash requirements throughout the evaluation period , including funding anticipated losses and scheduled debt maturities . we expect to seek additional funds from a combination of dilutive and or non-dilutive financings in the future . because such transactions have not been finalized , receipt of additional funding is not considered probable under current accounting standards . story_separator_special_tag if we do not generate sufficient cash flows from operations and obtain sufficient funds when needed , we expect that we would scale back our operating plan by deferring or limiting some , or all , of our capital spending , reducing our spending on travel , and or eliminating planned headcount additions , as well as other cost reductions to be determined . because such contingency plans have not been finalized ( the specifics would depend on the situation at the time ) , such actions also are not considered probable for purposes of current accounting standards . because , under current accounting standards , neither future cash generated from operating activities , nor management 's contingency plans to mitigate the risk and extend cash resources through the evaluation period , are considered probable , substantial doubt is deemed to exist about the company 's ability to continue as a going concern . as we continue to incur losses , our transition to profitability is dependent upon achieving a level of revenues adequate to support its cost structure . we may never achieve profitability , and unless and until doing so , we intend to fund future operations through additional dilutive or non-dilutive financings . there can be no assurances , however , that additional funding will be available on terms acceptable to us , if at all . the financial information contained in these financial statements have been prepared on a basis that assumes that we will continue as a going concern , which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business . this financial information and these financial statements do not include any adjustments that may result from the outcome of this uncertainty . 40 off-balance sheet arrangements as of december 31 , 2019 , we had no off-balance sheet arrangements . contractual obligations we are a smaller reporting company as defined by rule 229.10 ( f ) ( 1 ) and are not required to provide information under this item . critical accounting estimates the preparation of financial statements in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) requires management to make estimates and assumptions that affect reported amounts and related disclosures in the financial statements . management considers an accounting estimate to be critical if : ● if requires assumptions to be made that were uncertain at the time the estimate was made , and ● changes in the estimate or different estimates that could have been selected could have a material impact on our results of operations or financial condition . we base our estimates and judgments on our experience , our current knowledge , our beliefs of what could occur in the future , our observation of trends in the industry , information provided by our customers and information available from other sources . actual results may differ from these estimates under different assumptions or conditions . we have identified the following accounting policies and estimates as those that we believe are most critical to our financial condition and results of operations and that require management 's most subjective and complex judgments in estimating the effect of inherent uncertainties : share-based compensation expense , income taxes , and impairment of long-lived assets . share-based compensation expense . we calculate share-based compensation expense for option awards and certain warrant issuances ( “ share-based awards ” ) based on the estimated grant/issue date fair value using the black-scholes-merton option pricing model ( “ black-sholes model ” ) and recognize the expense on a straight-line basis over the vesting period , net of estimated forfeitures . we have not included an estimate for forfeitures due to our limited history and we revise based on actual forfeitures each period . the black-scholes model requires the use of a number of assumptions including volatility of the stock price , the weighted average risk-free interest rate , and the vesting period of the share-based award in determining the fair value of share-based awards . although we believe our assumptions used to calculate share-based compensation expense are reasonable , these assumptions can involve complex judgments about future events , which are open to interpretation and inherent uncertainty . in addition , significant changes to our assumptions could significantly impact the amount of expense recorded in a given period . income taxes . as part of the process of preparing our consolidated financial statements , we are required to estimate income taxes in each of the jurisdictions in which we operate . our provision for income taxes is determined using the asset and liability approach to account for income taxes . a current liability is recorded for the estimated taxes payable for the current year . deferred tax assets and liabilities are recorded for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . deferred tax assets and liabilities are measured using the enacted tax rates in effect for the year in which the timing differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities of changes in tax rates or tax laws are recognized in the provision for income taxes in the period that includes the enactment date . valuation allowances are established , when necessary , to reduce deferred tax assets to the amount more-likely-than-not to be realized . changes in valuation allowances will flow through the statement of operations unless related to deferred tax assets that expire unutilized or are modified through translation , in which case both the deferred tax asset and related valuation allowance are similarly adjusted . 41 the determination of our provision for income taxes requires significant judgment , the use of estimates , and the interpretation and application of complex tax laws . in the ordinary course of our business , there are transactions and calculations for which the ultimate tax determination is uncertain .
| operating expenses changed by approximately $ 7,026,000 ( 82 % ) as a result of the following items : ( 000s ) human resource costs , including benefits $ 3,238 travel and entertainment 262 other general and administration costs : professional fees and consulting costs 1,612 other expense 931 depreciation and amortization 89 other research and deployment costs , excluding human resources and travel and entertainment 479 other sales and marketing costs , excluding human resources and travel and entertainment 415 $ 7,026 operating loss as a result of the foregoing , our operating loss increased approximately $ 6,936,000 , or 82 % , to approximately $ 15,372,000 for the year ended december 31 , 2019 , compared with approximately $ 8,436,000 for the year ended december 31 , 2018 , primarily as a result of increases associated with administrative support and increased spending as we ramp up our sales and marketing and research and development efforts . 38 other income ( expense ) other expense increased by approximately $ 357,000 , or 10 % , to approximately $ 4,018,000 for the year ended december 31 , 2019 compared with approximately $ 3,661,000 for the comparable period in 2018. replace_table_token_3_th net loss because of the net effects of the foregoing , net loss increased approximately $ 7,293,000 , or 60 % , to approximately $ 19,390,000 for the year ended december 31 , 2019 , compared with approximately $ 12,097,000 for the year ended december 31 , 2018. net loss per share of common stock , basic and diluted , was ( $ 0.37 ) for the year ended december 31 , 2019 , compared with ( $ 0.42 ) per share of common stock for the year ended december 31 , 2018. summary of sources and ( uses ) of cash replace_table_token_4_th 39 the principal use of cash in operating activities for the year ended december 31 , 2019 was to fund the company 's current expenses primarily related to sales and marketing and research and development activities necessary to allow us to service and support a higher level of business activity as we expanded into new industry and geographic markets . the increase in cash flows used in operating activities of approximately $ 6,148,000 is primarily a result of the addition of personnel , both employees and third-party consulting services . the decrease in cash flows
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our ability to generate product revenue sufficient to achieve profitability will depend on the successful development and eventual commercialization of one or more of the product candidates we develop . our net loss was $ 6.6 million and $ 45.4 million for the years ended december 31 , 2018 and 2017 , respectively . as of december 31 , 2018 , we had an accumulated deficit of $ 66.8 million . we expect to continue to incur significant expenses and increasing operating losses for at least the next several years . we anticipate that our expenses will increase substantially , particularly as we : pursue the clinical development of product candidates ; leverage our programs to advance product candidates into preclinical and clinical development ; seek regulatory approvals for any product candidates that successfully complete clinical trials ; hire additional clinical , quality control , and scientific personnel ; expand our operational , financial , and management systems and increase personnel , including personnel to support our clinical development , manufacturing , and commercialization efforts , and our operations as a public company ; maintain , expand and protect our intellectual property portfolio ; establish a sales , marketing , medical affairs , and distribution infrastructure to commercialize any products for which we may obtain marketing approval and intend to commercialize on our own or jointly with a commercial partner ; and acquire or in-license other product candidates and technologies . as a result , we will need additional financing to support our continuing operations . until such time as we can generate significant revenue from product sales , if ever , we expect to finance our operations through a combination of public or private equity or debt financings or other sources , which may include collaborations with third parties . we may be unable to raise additional funds or enter into other agreements or arrangements , when needed , on favorable terms , or at all . if we fail to raise capital or enter into such agreements as and when needed , we may have to significantly delay , scale back or discontinue the development or commercialization of one or more of our product candidates . because of the numerous risks and uncertainties associated with product 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 . we believe that our existing cash , cash equivalents and marketable securities , as of december 31 , 2018 will enable us to fund our operating expenses and capital expenditure requirements into 2021 , excluding milestone payments from novartis . we have based this estimate on assumptions that may prove to be wrong , and we could exhaust our available capital resources sooner than we expect . components of our results of operations revenue to date , we have not generated any revenue from product sales and do not expect to do so in the near future . all of our revenue to date has been derived from the collaboration agreement . if our development efforts for our programs are successful and result in regulatory approval or additional license or collaboration agreements with third parties , we may generate revenue in the future from a combination of product sales or payments from additional collaboration or license agreements that we may enter into with third parties . we expect that our revenue for the next several years will be derived primarily from the collaboration agreement as well as any additional collaborations that we may enter into in the future . 78 collaboration agreement with novartis in january 2016 , we entered into the collaboration agreement to develop next-generation cancer therapies . under the collaboration agreement , as amended , we are responsible for performing research on antibodies that bind to cd73 and four other specified targets . we are responsible for all costs and expenses incurred by , or on behalf of , us in connection with the research . novartis also has the right , but not the obligation , to conduct research at its own cost on antibodies that bind to cd73 in accordance with the agreement . pursuant to the collaboration agreement , we granted novartis a worldwide exclusive license to research , develop , manufacture and commercialize antibodies that target cd73 , along with the right to purchase exclusive option rights , each an option , for up to four specified targets , each an option target , to obtain certain development , manufacturing and commercialization rights . if novartis purchases an option , following receipt of the ind acceptance for a candidate with respect to the applicable option target , novartis will be entitled to exercise the option for such option target . pursuant to the collaboration agreement , novartis initially had the right to exercise up to three purchased options . in march 2018 , novartis notified us of its decision to not exercise its previously purchased option for srf231 , our cd47 product candidate . in march 2018 , we and novartis also mutually agreed to cease development of one of the undisclosed programs subject to the collaboration agreement . as a result , as of december 31 , 2018 , novartis had two options remaining eligible for purchase , and potential exercise . at the time we entered into the collaboration agreement in january 2016 , novartis made an upfront payment to us of $ 70.0 million . under the collaboration agreement , novartis will also pay us a fee to purchase each option for each option target and another fee to exercise an option . story_separator_special_tag as of december 31 , 2018 , we had received $ 5.0 million in option purchase payments and we were entitled to an aggregate of up to $ 67.5 million of potential option purchase and option exercise payments . we are also eligible to receive payments on a target-by-target basis upon the achievement of specified development and sales milestones , and tiered royalties on annual net sales by novartis of licensed products ranging from high single-digit to mid-teens percentages upon successful commercialization of any products . under the collaboration agreement , as of december 31 , 2018 , we were entitled to potential option purchase , option exercise , and milestone payments aggregating up to $ 1.17 billion , of which $ 80.0 million had been received as of december 31 , 2018. such amount of potential option purchase , option exercise , and milestone payments assumes that novartis purchases , and exercises both of the remaining options available to it pursuant to the collaboration agreement , as well as the successful clinical development of and achievement of all sales milestones for all targets covered by the collaboration agreement . in addition , we are required to pay novartis tiered royalties on annual net sales by us of regional licensed products in the united states ranging from high single-digit to mid-teens percentages . the royalty payments are subject to reduction under specified conditions set forth in the collaboration agreement . in january 2016 , novartis also purchased $ 13.5 million of our series a-1 preferred stock . the equity investment was made at fair value , and we determined it to be distinct from the collaboration agreement . under asc 606 we account for ( i ) the license conveyed with respect to cd73 and ( ii ) our obligations to perform research on cd73 and other specified targets as a single performance obligation under the collaboration agreement . we recognize revenue using the cost-to-cost method , which we believe best depicts the transfer of control to the customer . under the cost-to-cost method , the extent of progress towards completion is measured based on the ratio of actual costs incurred to the total estimated costs expected upon satisfying the identified performance obligation . under this method , revenue is recorded as a percentage of the estimated transaction price based on the extent of progress towards completion . in february 2018 , we received an additional milestone payment of $ 45.0 million from novartis upon novartis ' receipt and acceptance of the first final audited glp toxicology study report for nzv930 . upon achieving the milestone , we concluded this variable consideration was no longer constrained and included this amount in the transaction price . we recognized $ 27.9 million as collaboration revenue – related party in the year ended december 31 , 2018 , based on the ratio of our actual costs incurred as of the milestone achievement date to our total estimated costs with respect to performing research on antibodies that bind to cd73 and other specified targets under the collaboration agreement . the remaining unrecognized amount was initially recorded as deferred revenue and will subsequently be recognized as revenue over the performance period in proportion to the costs incurred by us under the collaboration agreement . in march 2018 , novartis notified us of its decision not to exercise its option related to cd47 . we recognized the $ 5.0 million exclusive option right payment as collaboration revenue – related party in the first quarter of 2018 because we no longer had any remaining performance obligations related to cd47 . 79 through december 31 , 2018 , we had received an aggregate of $ 150.0 million from novartis in upfront payments , milestone payments , and option purchase payments . during the year ended december 31 , 2018 , 2017 , and 2016 we recognized revenue of $ 59.4 million , $ 12.8 million and $ 6.6 million , respectively , related to the collaboration agreement . in february 2019 , novartis notified us of its decision not to purchase its option related to il-27 ( see note 19 “ subsequent events ” for further discussion ) . accordingly , as of february 4 , 2019 , novartis had one option remaining eligible for purchase and potential exercise . as a result , the maximum aggregate amount of potential option purchase , option exercise and milestone payments that we are entitled to receive under the collaboration agreement was reduced from $ 1.17 billion to $ 750 million . the decision by novartis to terminate the il-27 target under the collaboration agreement will result in our removing all future costs associated with il-27 from the estimated total costs in the cost-to-cost model in the first quarter of 2019. this change in the total estimated costs in the cost-to-cost model will result in our recognizing revenue of approximately $ 13.0 million in the first quarter of 2019. operating expenses research and development expenses research and development expenses are expensed as incurred and consist of costs incurred for our research activities , including our discovery efforts , and the development of our programs . these expenses include : salaries , benefits and other related costs , including stock-based compensation , for personnel engaged in research and development functions ; expenses incurred in connection with the preclinical development of our programs and clinical trials of our product candidates , including under agreements with third parties , such as consultants , contractors , and contract research organizations , or cros ; the cost of manufacturing drug products for use in our preclinical studies and clinical trials , including under agreements with third parties , such as consultants , contractors , and contract manufacturing organizations , or cmos ; laboratory supplies ; facilities , depreciation and other expenses , which include direct and allocated expenses for depreciation and amortization , rent and maintenance of facilities , insurance and supplies ; and third-party license fees .
| 82 research and development expenses replace_table_token_6_th research and development expenses were $ 52.5 million for the year ended december 31 , 2018 , compared to $ 47.8 million for the year ended december 31 , 2017. the increase of $ 4.7 million was primarily due to increases of $ 1.2 million in external costs for our srf388 program , $ 4.8 million in external costs for our srf617 program , and $ 3.5 million for research and discovery and unallocated costs , partially offset by decreases of $ 2.3 million in external costs for our srf231 program , $ 1.3 million in external costs for our srf373 program , and $ 1.1 million in external costs for our other early-stage programs . the increase in research and development expenses for our srf388 program was primarily due to a payment made for an exclusive license to the antibodies related to this program as well as increased contract manufacturing work . the increase in research and development expenses for our srf617 program was primarily due to the commencement of contract manufacturing work . the increase in research and discovery and unallocated expenses was primarily due to the increase of $ 3.4 million in personnel-related costs due to increased headcount . the decrease in research and development expenses for our nzv930 program was primarily due to initiation of the phase 1 clinical trial by novartis in june 2018. novartis has worldwide exclusive rights to this program , and as a result of the initiation of the phase 1 clinical by novartis , we are no longer incurring expenses for this program . the decrease in research and development expenses for our other early-stage programs was primarily a result of costs related to srf617 , which were not tracked as a separate program until 2018. this decrease was offset by increases relating to the advancement and initiation of new early discovery programs . research and development expenses were $ 47.8 million for the year ended december 31 , 2017 , compared to $ 20.5 million for the year ended december 31 , 2016. the increase of $ 27.3 million was primarily due to increases of $ 14.3 million in external costs for our srf231 program , $ 1.0 million in external costs for our nzv930 program ,
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on an ongoing basis , we evaluate our estimates and judgments , including those related to product returns , bad debt , inventories , long-lived asset impairment , impairment of goodwill and trade names , income taxes , warranty costs , hedge accounting , litigation liabilities and stock-based compensation . we base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances . our estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe the following critical accounting policies require the most significant estimates and judgments . product returns . we accept limited returns and may request that a customer return a product if we feel the customer has an excess of any style that we have identified as being a poor performer for that customer or geographic location . we monitor returns and maintain a provision for estimated returns based upon historical experience and any specific issues identified . while returns have historically been within our expectations and the provisions established , future return rates may differ from those experienced in the past . in the event that our products are performing poorly in the retail market and or we experience product damages or defects at a rate significantly higher than our historical rate , the resulting returns could have an adverse impact on the operating results for the period or periods in which such returns occur . if our allowance for product returns were to change by 10 % , the result would have been an approximate $ 2.6 million change to net income , net of taxes . inventories . inventories are stated at the lower of market or average cost , including any applicable duty and freight charges . we account for estimated obsolescence or unmarketable inventory equal to the difference between the average cost of inventory and the estimated market value based upon assumptions about future demand , market conditions and available liquidation channels . if actual future demand or market conditions are less favorable than those projected by management , or if liquidation channels are not readily available , additional inventory valuation reductions may be required . we assess our off-price sales on an ongoing basis and update our estimates accordingly . revenue from sales of our products that are subject to inventory consignment agreements is recognized when title and risk of loss transfers , delivery has occurred , the price to the buyer is determinable and collectability is reasonably assured . long-lived asset impairment . we test for asset impairment of property , plant and equipment and other long-lived assets whenever events or conditions indicate that the carrying value of an asset might not be recoverable based on expected undiscounted cash flows related to the asset . in evaluating long-lived assets for recoverability , we calculate fair value using our best estimate of future cash flows expected to result from the use of the asset and its eventual disposition . when undiscounted cash flows estimated to be generated through the operations of our company-owned retail stores are less than the carrying value of the underlying assets , the assets are impaired . if it is determined that assets are impaired , an impairment loss is recognized for the amount the asset 's book value exceeds its fair value . should actual results or market conditions differ from those anticipated , additional losses may be recorded . we recorded impairment losses in selling , general , and administrative expenses of approximately $ 2.8 million , $ 7.7 million and $ 9.3 million in fiscal years 2016 , 2015 and 2014 , respectively . we recorded impairment losses in restructuring charges of approximately $ 13.5 million and $ 3.4 million in fiscal years 2016 and 2015 . an increase of 100 basis points to the discount rate used in our impairment testing would not have resulted in additional impairment expense . a 10 % decrease in future expected cash flows would have increased impairment expense by $ 0.2 million . we recorded non-impairment restructuring charges related to the write off of property , plant and equipment of approximately $ 1.5 million in fiscal year 2016. impairment of goodwill and trade names . we evaluate goodwill for impairment annually as of the end of the fiscal year by comparing the fair value of the reporting unit to its recorded value . additionally , if events or conditions were to indicate the carrying value of a reporting unit may not be recoverable , we would evaluate goodwill for impairment at that time . we have three reporting units for which we evaluate goodwill for impairment : americas , europe and asia . the fair value of each reporting unit is estimated using market comparable information and discounted cash flows . if the estimated fair value of a reporting unit exceeds its carrying value , no impairment charge is recorded . as of december 31 , 2016 , the fair value of each of these reporting units exceeded their carrying value by over 25 % . we evaluate indefinite-lived trade names by comparing the fair value of the asset to its recorded value annually as of the end of the fiscal year and whenever events or conditions indicate that the carrying value of the trade name may not be recoverable . the fair value of the asset is estimated using discounted cash flow methodologies . the michele trade name represented approximately 21 % of our total trade name balances at the end of fiscal year 2016 , 19 % at the end of fiscal year 2015 and 22 % at the end of fiscal year 2014 . the skagen trade name represented approximately 63 % of our total trade name balance at the end of fiscal year 2016 , 65 % at the end of fiscal year 2015 and 77 % at the end of fiscal year 2014 . story_separator_special_tag we performed 38 the required annual impairment test and recorded no impairment charges in fiscal year 2016 related to the skagen or michele trade names . in fiscal year 2015 , $ 9.1 million in impairment charges were recorded related to the skagen trade name , and no impairment charges were recorded related to the michele trade name . no trade name impairment charges were recorded in fiscal year 2014 . as of december 31 , 2016 , the fair value of the michele trade name approximated its carrying value , and the fair value of the skagen trade name exceeded its carrying value by approximately 5 % . we acquired the misfit trade name on december 22 , 2015. the misfit trade name represented approximately 15 % of our total trade name balance at the end of fiscal year 2016 and 17 % at the end of fiscal year 2015 . the misfit trade name is being amortized over its remaining useful life of 6 years . we monitor finite-lived trade names for events or conditions that indicate the carrying value of an asset might not be recoverable . due to the inherent uncertainties involved in making the estimates and assumptions used in the fair value analysis , actual results may differ , which could alter the fair value of the trade names and possibly cause impairment charges to occur in future periods . judgments and assumptions are inherent in our estimate of future cash flows used to determine the estimate of the reporting unit 's fair value . the most significant assumptions associated with the fair value calculations include net sales growth rates and discount rates . if the actual future sales results do not meet the assumed growth rates , future impairments of goodwill and trade names may be incurred . income taxes . we record valuation allowances against our deferred tax assets , when necessary , in accordance with asc 740 , income taxes ( `` asc 740 '' ) . realization of deferred tax assets is dependent on future taxable earnings and is therefore uncertain . at least quarterly , we assess the likelihood that our deferred tax asset balance will be recovered from future taxable income . to the extent we believe that recovery is not likely , we establish a valuation allowance against our deferred tax asset , increasing our income tax expense in the period such determination is made . in addition , we have not recorded u.s. income tax expense for foreign earnings that we have determined to be indefinitely reinvested outside the u.s. our continuing practice is to recognize interest and penalties related to income tax matters in income tax expense . we accrue an amount for our estimate of additional income tax liability which we believe we are more likely than not to incur as a result of the ultimate resolution of tax audits ( `` uncertain tax positions '' ) . we review and update the estimates used in the accrual for uncertain tax positions as more definitive information becomes available from taxing authorities , upon completion of tax audits , upon expiration of statutes of limitation , or upon occurrence of other events . the results of operations and financial position for future periods could be impacted by changes in assumptions or resolutions of tax audits . warranty costs . our watch products are covered by limited warranties against defects in materials or workmanship . historically , our fossil and relic watch products sold in the u.s. have been covered for warranty periods of 11 years and 12 years , respectively , and our skagen branded watches have been covered by a lifetime warranty . beginning in 2017 , these brands will be moving to a two year warranty . generally , all other products sold in the u.s. and internationally are covered by a comparable one to two year warranty . we determine our warranty liability using historical warranty repair experience . as changes occur in sales volumes and warranty experience , the warranty accrual is adjusted as necessary . the year-end warranty liability for fiscal years 2016 , 2015 and 2014 was $ 15.4 million , $ 13.7 million and $ 13.5 million , respectively . hedge accounting . the company is exposed to certain market risks relating to foreign exchange rates and interest rates . the company actively monitors and attempts to manage these exposures using derivative instruments including foreign exchange forward contracts ( `` forward contracts '' ) and interest rate swaps . the company 's main objective is to hedge the variability in forecasted cash flows due to the foreign currency risks primarily associated with certain anticipated inventory purchases . changes in the fair value of forward contracts designated as cash flow hedges are recorded in the cumulative translation adjustment component of accumulated other comprehensive income ( loss ) within stockholders ' equity , and are recognized in other income ( expense ) - net in the period which the intercompany cash payment for inventory is made . additionally , to the extent that any of these contracts are not considered to be perfectly effective in offsetting the change in the value of the cash flows being hedged , any changes in fair value relating to the ineffective portion of these contracts would be recognized in other income ( expense ) - net on the company 's consolidated statements of income and comprehensive income . also , the company has entered into interest rate swap agreements to effectively convert portions of its variable rate debt obligations to fixed rates . changes in the fair value of the interest rate swaps are recorded as a component of accumulated other comprehensive income ( loss ) within stockholders ' equity , and are recognized in interest expense in the period in which the payment is settled . to reduce exposure to changes in currency exchange rates adversely affecting the company 's investment in foreign currency-denominated subsidiaries , the company periodically enters into forward contracts designated as net investment hedges .
| our fossil and skagen watch performance was favorably impacted by wearables , including the expansion of fossil q product and the launch of skagen connected styles . we remain committed to further growing these brands and believe such growth is a key component to our long-term goal of creating a healthy balance between owned and licensed brands . developing and growing brands today means doing so in a digital-age across e-commerce platforms , mobile platforms and social media channels . having invested in our omni-channel capabilities over the last several years , launching new branded websites and improving the customer experience on our e-commerce platforms , these investments are supporting our growth initiatives . fossil and skagen are succeeding by offering compelling products with unique functionality supported by clearly communicated brand stories that we can bring to the customer , wherever they choose to shop . the following table presents as reported and constant currency net sales percentage change information by brand for the fiscal year 2016 as compared to the fiscal year 2015 : growth percentage brand as reported constant currency fossil 0.1 % 1.5 % skagen 8.0 8.8 40 our multi-brand global watch portfolio decreased 6 % ( 4 % in constant currency ) during fiscal year 2016. we experienced strong sales growth in tory burch and kate spade new york watches , which was offset by sales declines in most other licensed brands in our multi-brand watch portfolio . the wholesale channel continues to be challenging , particularly in the traditional watch market , although we are always in the pursuit of ways to grow our core business . today , we believe that trend is technology and having added a technology platform to our competitive strengths , we believe we are in a position to continue to attract the best brands to our portfolio as well as grow our existing brands beyond their current levels . during fiscal year 2016 , the watch portfolio benefited from the launch of michael kors access , a new line of
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we typically will enter into a master service agreement ( “ msa ” ) with each customer that provides a framework of general terms and conditions of our services that will govern any future transactions or jobs awarded to us . each specific job is obtained through competitive bidding or as a result of negotiations with customers . the rate we charge is determined by location , complexity of the job , operating conditions , duration of the contract and market conditions . in addition to msas , we have entered into a select number of longer-term contracts with certain customers relating to our wireline and cementing services , and we may enter into similar contracts from time to time to the extent beneficial to the operation of our business . these longer-term contracts address pricing and other details concerning our services , but each job is performed on a standalone basis . the principal expenses involved in conducting both our completion solutions and production solutions segments are labor costs , materials and freight , the costs of maintaining our equipment and fuel costs . our direct labor costs vary with the amount of equipment deployed and the utilization of that equipment . another key component of labor costs relates to the ongoing training of our field service employees , which improves safety rates and reduces employee attrition . how we evaluate our operations we manage our operations through two business segments , completion solutions and production solutions , as described above . we evaluate the performance of these segments based on a number of financial and non-financial measures , including the following : revenue : we compare actual revenue achieved each month to the most recent projection for that month and to the annual plan for the month established at the beginning of the year . we monitor our revenue to analyze trends in the performance of each of our segments compared to historical revenue drivers or market metrics applicable to that service . we are particularly interested in identifying positive or negative trends and investigating to understand the root causes . adjusted gross profit ( excluding depreciation and amortization ) and adjusted gross profit margin : adjusted gross profit ( excluding depreciation and amortization ) is a key metric that we use to evaluate segment operating performance and to determine resource allocation between segments . we define segment adjusted gross profit ( excluding depreciation and amortization ) as segment revenues less segment direct and indirect costs of revenues ( excluding depreciation and amortization ) . costs of revenues include direct and indirect labor costs , costs of materials , maintenance of equipment , fuel and transportation freight costs , contract services , crew cost and other miscellaneous expenses . adjusted gross profit margin is calculated by dividing adjusted gross profit ( excluding depreciation and amortization ) by revenue . our management continually evaluates our adjusted gross margin percentage and our adjusted gross margin percentage by segment to determine how each segment is performing . this metric aids management in capital resource allocation and pricing decisions . see item 6 . “ selected financial data. ” adjusted ebitda : adjusted ebitda is a supplemental non-gaap financial measure that is used by management and external users of our financial statements , such as industry analysts , investors , lenders and rating agencies . we define adjusted ebitda as net income ( loss ) before interest expense , taxes and depreciation and amortization , further adjusted for ( i ) impairment of goodwill and other intangible assets , ( ii ) transaction expenses related to acquisitions or the combination ( iii ) loss from discontinued operations , ( iv ) loss or gains from the revaluation of contingent liabilities , ( v ) non-cash stock-based compensation expense , ( vi ) loss or gains on sale of assets , ( vii ) inventory write-down , and ( viii ) adjustment for expenses or charges , to exclude certain items which we believe are not reflective of ongoing performance of our business , such as costs related to our ipo , legal expenses and settlement costs related to litigation outside the ordinary course of business , and restructuring costs . our management believes adjusted ebitda is useful because it allows us to more effectively evaluate our operating performance and compare the results of our operations from period to period without regard to our financing methods or capital structure . see item 6 . “ selected financial data. ” 43 safety : we measure safety by tracking the total recordable incid ent rate ( “ trir ” ) , which is reviewed on a monthly basis . trir is a measure of the rate of recordable workplace injuries , defined below , normalized and stated on the basis of 100 workers for an annual period . the factor is derived by multiplying the number of recordable injuries in a calendar year by 200,000 ( i.e. , the total hours for 100 employees working 2,000 hours per year ) and dividing this value by the total hours actually worked in the year . a recordable injury includes occupational death , nonfatal oc cupational illness and other occupational injuries that involve loss of consciousness , restriction of work or motion , transfer to another job , or medical treatment other than first aid . factors affecting the comparability of our future results of operations to our historical results of operations our future results of operations may not be comparable to our historical results of operations for the periods presented , primarily for the reasons described below : public company expenses : we expect to incur direct , incremental g & a expenses as a result of being a publicly traded company , including , but not limited to , costs associated with hiring new personnel , annual and quarterly reports to stockholders , quarterly tax provision preparation , independent auditor fees , expenses relating to compliance with the rules and regulations of the sec , listing standards of the nyse and the sarbanes-oxley act of 2002 , investor relations activities story_separator_special_tag , registrar and transfer agent fees , incremental director and officer liability insurance costs and independent director compensation . these direct , incremental g & a expenses are not included in our historical results of operations . the combination : the historical financial statements included in this annual report are based on the separate businesses of nine and beckman . as a result , the historical financial data may not give you an accurate indication of what our actual results would have been if the combination , which was completed on february 28 , 2017 , had been completed at the beginning of the periods presented , or of what our future results of operations are likely to be . we anticipate the combination will provide potential benefits , including enhancing our ability to serve customers and our growth potential through broader product lines and basin diversification , enabling us to cross-sell our products and compete with larger companies . decreased leverage : as of december 31 , 2017 , on a pro forma basis giving effect to ( i ) the entry into our credit facility and ( ii ) our ipo and the use of a portion of the net proceeds therefrom , together with term loan borrowings under our credit facility , to fully repay all outstanding borrowings under the former nine credit facility and the former beckman credit facility , we would have had $ 125.0 million of outstanding total indebtedness , compared to the actual outstanding indebtedness of $ 242.0 million as of december 31 , 2017. for more information on our credit facility , under which we made term loan borrowings concurrently with the consummation of our ipo , see “ —our credit facilities—our credit facility. ” industry trends and outlook our business depends to a significant extent on the level of unconventional resource development activity and corresponding capital spending of oil and natural gas companies onshore in north america . these activity and spending levels are strongly influenced by the current and expected oil and natural gas prices . oil and natural gas prices declined significantly between the third quarter of 2014 and the first quarter of 2016. however , oil and natural gas prices have since gradually increased , a positive trend that was bolstered in the fourth quarter of 2016 when members of the organization of petroleum exporting countries and certain other oil-producing nations agreed to reduce their oil output . this price recovery has stimulated an increase in onshore north american completions activity , and if the current price environment holds or continues to improve , we expect a further increase in demand for our services . as the demand for our services and complexity of our jobs increase , we anticipate the ability to increase prices for our services , creating more favorable margins for the services we provide . the increase in high-intensity , high-efficiency completions of oil and gas wells further enhances the demand for our services . we compete with a limited number of service companies for the most complex and technically demanding wells in which we specialize , which are characterized by extended laterals , increased stage spacing and cluster spacing and high proppant loads . these well characteristics lead to increased operating leverage and returns for us , as we are able to complete more jobs and stages with the same number of units and crews . service providers for these projects are selected based on their technical expertise and ability to execute safely and efficiently , rather than only price . 44 story_separator_special_tag for the year ended december 31 , 2016. the increase was partly due to a $ 3.2 million increase in legal , audit and other professional fees incurred in connection with the combination of nine with beckman , and related to preparations for our ipo . compensation and benefits , including stock-based compensation , increased by $ 6.8 million , and other general and administrative expenses increased in order to support the company 's increased level of activity . these increases were partly offset by a $ 1.3 million decline in the revaluation of the contingent liability related to the purchase of scorpion . general and administrative expenses as a percentage of revenue were 9 % for the year ended december 31 , 2017 , compared with 14 % for the year ended december 31 , 2016 . 46 depreci ation depreciation expense for the year ended december 31 , 2017 decreased by $ 1.8 million , to $ 53.4 million , from $ 55.3 million for the year ended december 31 , 2016. the decrease resulted primarily from sales of fixed assets during 2016 and 2017. impairment of goodwill and intangible assets for the year ended december 31 , 2017 , we recognized $ 31.5 million of goodwill impairment and $ 3.8 million of impairment of intangible assets in one of our completions solutions segment operating units , which resulted from declining profitability and deteriorating market conditions . in the year ended december 31 , 2016 , we recognized $ 12.2 million of goodwill impairment in another operating unit in the completion solutions segment due to persistently low completions activity in the market where the unit operates . the december 31 , 2017 goodwill impairment test for the production solutions segment indicated that the estimated fair value calculation provided only 11 % of cushion in relation to carrying value . fair value was determined using both an income and market value approach . in the income approach , discounted cash flows were based on estimated equipment utilization , revenue , operating expenses and capital expenditures . in the market value approach , fair value was estimated using financial information from comparable entities . as a result of the limited cushion , this segment 's goodwill , which totals $ 13.0 million , is susceptible to impairment risk from adverse economic conditions in the future .
| the increase in demand and price for our services resulted from our customers increasing their north american capital expenditures and drilling and completing more new wells in the year ended december 31 , 2017 as compared to the year ended december 31 , 2016. wireline revenue increased 67 % from the year ended december 31 , 2016 to the year ended december 31 , 2017 ; total wireline stages completed increased 65 % due to the increase in 45 overall market activity . completion tools revenue increased 173 % , reflecting a 243 % increase in stages . revenue per stage fell 20 % due to transition from a higher volume of plugs sold from sleeves reflective of the market change . cementing r evenue increased by 154 % on a 75 % increase in job count and improved pricing from the year ended december 31 , 2016 to the year ended december 31 , 2017. coiled tubing services revenue increased 107 % , with total jobs increasing 48 % . production solutions : production solutions segment revenue increased by $ 17.0 million , or 28 % , to $ 77.9 million for the year ended december 31 , 2017 from $ 60.9 million for the year ended december 31 , 2016. hours worked for the production solutions segment increased approximately 26 % . the increases were primarily attributable to our customers ' increase in well maintenance and increased well completions activity , which was in response to the improvement of industry conditions described above . production solutions average pricing increased by 1 % for the year ended december 31 , 2017 compared to the year ended december 31 , 2016. cost of revenues cost of revenues for the year ended december 31 , 2017 increased by $ 202.4 million , or 82 % , compared to the year ended december 31 , 2016. the increase was a result of an increase in revenue-generating activity related to improvement in the oil and gas market . activity-driven costs were primarily responsible for the increase ; materials installed in wells and consumed while performing services increased by $ 94.5 million and other activity-driven costs were $ 43.5 million higher . compensation and benefits increased by $ 60.5 million . completion solutions : completion solutions segment cost of services for the year ended december
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in september 2017 , we entered into an agreement with roche for the right to develop and commercialize one additional exclusive target using our enhanze technology for an upfront payment of $ 30.0 million . in august 2017 , lilly initiated a phase 1 study of an investigational new therapy in combination with rhuph20 . in june 2017 , the fda approved genentech 's rituxan hycela , a combination of rituximab and rhuph20 , for cll and two types of nhl , follicular lymphoma and diffuse large b-cell lymphoma . clinical trials in january 2018 , the phase 1b portion of the study of halaven ( eribulin ) with pegph20 in her2-negative metastatic breast cancer closed enrollment . as a result of an eisai portfolio decision , no further clinical development is planned on the phase 2 portion of the study . data analysis is ongoing and a submission of the results of this study to a scientific forum is expected in the second half of 2018. in october 2017 , genentech initiated a phase 1b/2 clinical trial evaluating pegph20 in combination with tecentriq in patients with gastric cancer . in october 2017 , we initiated the second study in our clinical agreement with genentech , a phase 1b/2 open-label randomized study to assess tecentriq in combination with pegph20 and chemotherapy in patients with cholangiocarcinoma and gall bladder cancer . in july 2017 , genentech initiated a phase 1b/2 clinical trial evaluating pegph20 in combination with tecentriq in patients with previously treated metastatic pda . in june 2017 , results from study halo-202 were presented at the european society for medical oncology ( esmo ) world congress of gastrointestinal cancer and the annual meeting of the american society of clinical oncology ( asco ) . the presentations expanded on the topline results announced in january 2017 with additional data from the study as of december 2016 . 37 in april 2017 , we presented at the annual meeting of the american association of cancer research ( aacr ) that , in preclinical models , pegph20 increases the number of cancer-fighting white blood cells accumulating in the tumor and the effectiveness of immunotherapies , which builds upon prior preclinical findings and continues to support the potential benefits of remodeling the tumor microenvironment . in march 2017 , swog , an independent network of researchers that design and conduct cancer clinical trials , stopped enrollment in a phase 1b/2 trial evaluating pegph20 plus modified folfirinox chemotherapy versus modified folfirinox alone in patients with previously untreated metastatic pancreas cancer . swog 's independent data monitoring committee found , based on preliminary data , that the addition of pegph20 given every two weeks to modified folfirinox would be unlikely to demonstrate a statistically significant improvement in the primary endpoint of overall survival . swog further reported that a higher rate of death was observed in the pegph20 arm versus modified folfirinox alone . in january 2018 , swog presented final overall survival ( os ) and progression-free survival ( pfs ) data from the study at the asco-gi conference , which was consistent with the preliminary data findings . our pegph20 studies and clinical collaborations in combination with agents other than modified folfirinox continue unchanged . in january 2017 , we announced topline results from the combined analysis of stage 1 and stage 2 , and stage 2 alone , of the study 109-202 , based on a december 2016 data cutoff . among the findings , the overall study population showed a statistically significant increase in pfs in the 84 total ha-high patients treated with pegph20 plus abraxane and gemcitabine when compared to ha-high patients receiving abraxane and gemcitabine alone . stage 2 of the study , which completed enrollment in february 2016 , showed a 91 percent improvement in median pfs for ha-high patients in the pegph20 arm , 8.6 months compared to 4.5 months in the control arm , and achieved its primary endpoint to evaluate and demonstrate a reduction in the rate of te events in the pegph20 arm . financing in may 2017 , we completed an underwritten public offering pursuant to which we sold 11.5 million shares of common stock , including 1.5 million shares sold pursuant to the full exercise of an option to purchase additional shares granted to the underwriters . all of the shares were offered at a public offering price of $ 12.50 per share , generating approximately $ 134.9 million in net proceeds , after deducting underwriting discounts and commissions and other offering expenses . we intend to use the net proceeds from this offering to fund continued development of our pegph20 oncology program and for other general corporate purposes . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > in 2015 . the decrease of $ 2.0 million in cost of product sales in 2017 compared to 2016 was mainly due to a decrease in sales of bulk rhuph20 to roche . the increase of $ 4.0 million in cost of product sales in 2016 compared to 2015 was due to a $ 5.8 million increase in cost of product sales of bulk rhuph20 due to an increase in sales to collaboration partners , partially offset by a $ 1.8 million decrease in hylenex recombinant cost of product sales , due to a decrease in manufacturing costs . research and development – research and development expenses consist of external costs , salaries and benefits and allocation of facilities and other overhead expenses related to research manufacturing , clinical trials , preclinical and regulatory activities . research and development expenses incurred were as follows ( in thousands ) : replace_table_token_8_th research and development expenses relating to our pegph20 program increased in 2017 by 15 % compared to 2016 , and increased in 2016 by 43 % compared to 2015 , primarily due to increased clinical trial activities . we expect these expenses to continue to increase in future periods reflecting expected increases in our pegph20 development activities . story_separator_special_tag research and development expenses relating to our enhanze collaborations and our rhuph20 platform in 2017 decreased by 37 % , compared to 2016 , primarily due to a decrease in manufacturing expenses related to roche , due to work associated with bringing on-line a second contract manufacturing facility . as we completed the validation of the new manufacturing facility in the second quarter of 2017 , we expect these expenses to continue to decrease going forward . the rhuph20 platform includes research , development and manufacturing expenses related to our proprietary rhuph20 enzyme . these expenses were not designated to a specific program at the time the expenses were incurred . research and development expenses relating to our enhanze collaborations and our rhuph20 platform in 2016 increased by 189 % compared to 2015 , primarily due to a $ 17.0 million increase in manufacturing expenses related to bringing on-line the new roche manufacturing facility . research and development expenses related to other programs in 2017 decreased by 39 % compared to 2016 primarily due to a decrease in preclinical development of hti-1511 and peg-ada2 . research and development expenses related to other programs in 2016 increased by 74 % compared to 2015 , primarily due to expenses incurred in our preclinical product programs . selling , general and administrative – selling , general and administrative ( sg & a ) expenses increased in 2017 compared to 2016 by $ 8.0 million , or 17 % , and increased in 2016 compared to 2015 by $ 5.8 million , or 15 % , primarily due to increases in compensation expense including stock compensation . we expect sg & a expenses to increase moderately in future periods as our operations expand and we prepare for commercial launch . 40 interest expense – interest expense included interest expense and amortization of the debt discount related to the long-term debt . interest expense increased by $ 2.0 million in 2017 compared to 2016 , and increased by $ 14.8 million in 2016 as compared to 2015 , primarily due to interest expense incurred on the royalty-backed loan we received in january 2016. income taxes – income tax benefit was $ 1.4 million in 2017 compared to income tax expense of $ 1.2 million in 2016 and was primarily comprised of u.s. federal alternative minimum tax expense in the amount of $ 4.1 million offset by a u.s federal alternative minimum tax credit of $ 5.5 million . the u.s. federal amt was eliminated via the tax cuts and jobs act that was enacted on december 22 , 2017. the amt credit carryovers will be used to offset regular tax liability for any taxable year beginning after 2017. if not utilized before 2022 , any remaining amt credit carryforward amount is fully refundable . the amt credit carryforward of $ 5.5 million was recognized as a deferred tax asset at december 31 , 2017 as realization is certain . for the years ended december 31 , 2017 and 2016 , we generated taxable income in the u.s. , which was partially offset by utilizing net operating losses carried forward from earlier years . no income tax expense was recognized during the year ended december 31 , 2015. liquidity and capital resources our principal sources of liquidity are our existing cash , cash equivalents and available-for-sale marketable securities . as of december 31 , 2017 , we had cash , cash equivalents and marketable securities of $ 469.2 million . we will continue to have significant cash requirements to support product development activities . the amount and timing of cash requirements and cash on hand will depend on the progress and success of our clinical development programs , regulatory and market acceptance , the resources we devote to research and commercialization activities and the achievement of various milestones and royalties under our existing collaborative agreements . we believe that our current cash , cash equivalents and marketable securities will be sufficient to fund our operations for at least the next twelve months . we expect to fund our operations going forward with existing cash resources , anticipated revenues from our existing collaborations and cash that we may raise through future transactions . we may raise cash through any one of the following financing vehicles : ( i ) the public offering of securities ; ( ii ) new collaborative agreements ; ( iii ) expansions or revisions to existing collaborative relationships ; ( iv ) private financings ; ( v ) other equity or debt financings ; and or ( vi ) monetizing assets . in february 2017 , we filed an automatic shelf registration statement on form s-3 ( registration no . 333-216315 ) with the sec , which allow us , from time to time , to offer and sell equity , debt securities and warrants to purchase any of such securities , either individually or in units . in may 2017 , we completed an underwritten public offering pursuant to which we sold 11.5 million shares of common stock , generating $ 134.9 million in net proceeds , after deducting underwriting discounts and commissions and other offering expenses . we may , in the future , offer and sell additional equity , debt securities and warrants to purchase any of such securities , either individually or in units to raise capital to fund the continued development of our product candidates , the commercialization of our products or for other general corporate purposes . our existing cash , cash equivalents and marketable securities may not be adequate to fund our operations until we become profitable , if ever . we can not be certain that additional financing will be available when needed or , if available , financing will be obtained on favorable terms . if we are unable to raise sufficient funds , we may need to delay , scale back or eliminate some or all of our research and development programs , delay the launch of our product candidates , if approved , and or restructure our operations .
| in general , we expect royalty revenue to increase in future periods reflecting expected increases in sales of collaboration products , although there may be periods with flat or declining royalty revenue as sales of products under collaborations vary . revenues under collaborative agreements – revenues under collaborative agreements were as follows ( in thousands ) : replace_table_token_7_th revenue from license fees increased in 2017 , compared to 2016 due to $ 171.4 million upfront license revenue for the 2017 roche , bms and alexion agreements , and $ 15.0 million for clinical milestones under the janssen collaboration . in 2016 , we recognized $ 15.5 million in license fee and milestone revenue in connection with the lilly , abbvie and pfizer collaborations . in 2015 , we recognized $ 48.0 million in license fee revenue in connection with the lilly and abbvie collaborations related to upfront payments . revenue from upfront licenses fees , license fees for the election of additional targets , event-based payments , license maintenance fees and amortization of deferred upfront and other license fees vary from period to period based on our enhanze collaboration activity . we expect these revenues to continue to fluctuate in future periods based on our collaborators ' abilities to meet various clinical and regulatory milestones set forth in such agreements and our abilities to obtain new collaborative agreements . 39 revenue from reimbursements for research and development services , including clinical supply of rhuph20 , decreased in 2017 compared to 2016 mainly due to a decrease in services provided to roche related to the validation of a new manufacturing facility , partially offset by an increase in services provided to baxalta and an increase in clinical supply of rhuph20 provided to janssen . the validation of the new roche facility was completed in the second quarter of 2017 and , therefore , we expect to continue to see a decrease in research and development service revenue associated with this project going forward . revenue from reimbursements
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16 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > in the second quarter of 2019 , our board of directors authorized a program in which we may repurchase up to $ 7.5 million of our common stock from time to time in open market transactions , privately negotiated transactions or by other methods . during 2019 we purchased 32,362 shares of our common stock at an average purchase price of $ 38.13 under the repurchase program . 20 credit agreement in october , 2019 , we entered into a credit agreement ( the `` credit agreement '' ) with j.p. morgan chase bank , n.a . as administrative agent , and including cibc bank usa and bank of america , n.a . as other lenders . the credit agreement matures on october 11 , 2024 and provides for $ 100.0 million of revolving commitments . the terms of the credit agreement are more fully detailed in note 12 - credit agreement of the consolidated financial statements included in item 8 of this form 10-k. at december 31 , 2019 , we had $ 2.3 million of borrowings under the credit agreement and had borrowing availability of $ 96.7 million . in addition to other customary representations , warranties and covenants , the credit agreement contains certain financial covenants . the following chart reflects the ebitda to fixed charges ratio and total net leverage ratio covenant : quarterly financial covenants requirement actual ebitda to fixed charges ratio 1.15 : 1.00 10.76 : 1.00 total net leverage ratio 3.25 : 1.00 0.00 : 1.00 the company was in compliance with all covenants as of december 31 , 2019. prior to october 2019 , the company had a credit agreement with cibc bank usa . bolt also had a commitment letter with bmo bank of montreal . on october 11 , 2019 the company paid off its previous loans to cibc usa and bmo . lawson was in compliance with all covenants associated with these borrowing agreements at the time of payoff . no cash dividends have been paid in the three years ended december , 31 2019 . dividends are subject to certain restrictions as detailed in our credit agreement . off-balance sheet arrangements the majority of our operating leases were recognized as right of use assets and lease liabilities on the balance sheet upon the adoption of asu 2016-02 , leases ( `` asu 2016-02 '' ) in the first quarter of 2019. see note 4 - leases for the transition to asu 2016-02. also , as of december 31 , 2019 , we had contractual commitments to purchase approximately $ 10.9 million of product from our suppliers and contractors . critical accounting policies we have disclosed our significant accounting policies in note 2 to the consolidated financial statements . the following provides information on the accounts requiring more significant estimates . allowance for doubtful accounts — we evaluate the collectability of accounts receivable based on a combination of factors . in circumstances where we are aware of a specific customer 's inability to meet its financial obligations ( e.g. , bankruptcy filings , substantial down-grading of credit ratings ) , a specific reserve for bad debts is recorded against amounts due to reduce the receivable to the amount we believe will be collected . for all other customers , we recognize reserves for bad debts based on our historical experience of bad debt write-offs as a percent of accounts receivable outstanding . if circumstances change ( e.g. , higher than expected defaults or an unexpected material adverse change in a major customer 's ability to meet its financial obligations ) , the estimates of the recoverability of amounts due to us could be revised . at december 31 , 2019 , our reserve was 1.5 % of our gross accounts receivable outstanding . a hypothetical change of one percent to our reserve as a percent of our gross accounts receivable would have affected our annual doubtful accounts expense by approximately $ 0.4 million . inventory reserves — inventories consist principally of finished goods and are stated at the lower of cost ( determined using the first-in-first-out method for the lawson segment and weighted average for the bolt segment ) or net realizable value . most of our products are not exposed to the risk of obsolescence due to technology changes . however , some of our products do have a limited shelf life , and from time to time we add and remove items from our catalogs , brochures or website for marketing and other purposes . 21 to reduce our inventory to a lower of cost or market value , we record a reserve for slow-moving and obsolete inventory based on historical experience and monitoring of our current inventory activity . we use estimates to determine the necessity of recording these reserves based on periodic detailed analysis , using both qualitative and quantitative factors . as part of this analysis , we consider several factors including the inventories ' length of time on hand , historical sales , product shelf life , product life cycle , product category and product obsolescence . in general , depending on the product category , we reserve inventory with low turnover at higher rates than inventory with higher turnover . at december 31 , 2019 , our inventory reserve was $ 4.6 million , equal to approximately 7.6 % of our gross inventory . a hypothetical change of one percent to our reserve as a percent of total inventory would have affected our cost of goods sold by $ 0.6 million . income taxes — deferred tax assets or liabilities reflect temporary differences between amounts of assets and liabilities for financial and tax reporting . such amounts are adjusted , as appropriate , to reflect changes in enacted tax rates expected to be in effect when the temporary differences reverse . significant judgment is required in determining income tax provisions story_separator_special_tag 16 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > in the second quarter of 2019 , our board of directors authorized a program in which we may repurchase up to $ 7.5 million of our common stock from time to time in open market transactions , privately negotiated transactions or by other methods . during 2019 we purchased 32,362 shares of our common stock at an average purchase price of $ 38.13 under the repurchase program . 20 credit agreement in october , 2019 , we entered into a credit agreement ( the `` credit agreement '' ) with j.p. morgan chase bank , n.a . as administrative agent , and including cibc bank usa and bank of america , n.a . as other lenders . the credit agreement matures on october 11 , 2024 and provides for $ 100.0 million of revolving commitments . the terms of the credit agreement are more fully detailed in note 12 - credit agreement of the consolidated financial statements included in item 8 of this form 10-k. at december 31 , 2019 , we had $ 2.3 million of borrowings under the credit agreement and had borrowing availability of $ 96.7 million . in addition to other customary representations , warranties and covenants , the credit agreement contains certain financial covenants . the following chart reflects the ebitda to fixed charges ratio and total net leverage ratio covenant : quarterly financial covenants requirement actual ebitda to fixed charges ratio 1.15 : 1.00 10.76 : 1.00 total net leverage ratio 3.25 : 1.00 0.00 : 1.00 the company was in compliance with all covenants as of december 31 , 2019. prior to october 2019 , the company had a credit agreement with cibc bank usa . bolt also had a commitment letter with bmo bank of montreal . on october 11 , 2019 the company paid off its previous loans to cibc usa and bmo . lawson was in compliance with all covenants associated with these borrowing agreements at the time of payoff . no cash dividends have been paid in the three years ended december , 31 2019 . dividends are subject to certain restrictions as detailed in our credit agreement . off-balance sheet arrangements the majority of our operating leases were recognized as right of use assets and lease liabilities on the balance sheet upon the adoption of asu 2016-02 , leases ( `` asu 2016-02 '' ) in the first quarter of 2019. see note 4 - leases for the transition to asu 2016-02. also , as of december 31 , 2019 , we had contractual commitments to purchase approximately $ 10.9 million of product from our suppliers and contractors . critical accounting policies we have disclosed our significant accounting policies in note 2 to the consolidated financial statements . the following provides information on the accounts requiring more significant estimates . allowance for doubtful accounts — we evaluate the collectability of accounts receivable based on a combination of factors . in circumstances where we are aware of a specific customer 's inability to meet its financial obligations ( e.g. , bankruptcy filings , substantial down-grading of credit ratings ) , a specific reserve for bad debts is recorded against amounts due to reduce the receivable to the amount we believe will be collected . for all other customers , we recognize reserves for bad debts based on our historical experience of bad debt write-offs as a percent of accounts receivable outstanding . if circumstances change ( e.g. , higher than expected defaults or an unexpected material adverse change in a major customer 's ability to meet its financial obligations ) , the estimates of the recoverability of amounts due to us could be revised . at december 31 , 2019 , our reserve was 1.5 % of our gross accounts receivable outstanding . a hypothetical change of one percent to our reserve as a percent of our gross accounts receivable would have affected our annual doubtful accounts expense by approximately $ 0.4 million . inventory reserves — inventories consist principally of finished goods and are stated at the lower of cost ( determined using the first-in-first-out method for the lawson segment and weighted average for the bolt segment ) or net realizable value . most of our products are not exposed to the risk of obsolescence due to technology changes . however , some of our products do have a limited shelf life , and from time to time we add and remove items from our catalogs , brochures or website for marketing and other purposes . 21 to reduce our inventory to a lower of cost or market value , we record a reserve for slow-moving and obsolete inventory based on historical experience and monitoring of our current inventory activity . we use estimates to determine the necessity of recording these reserves based on periodic detailed analysis , using both qualitative and quantitative factors . as part of this analysis , we consider several factors including the inventories ' length of time on hand , historical sales , product shelf life , product life cycle , product category and product obsolescence . in general , depending on the product category , we reserve inventory with low turnover at higher rates than inventory with higher turnover . at december 31 , 2019 , our inventory reserve was $ 4.6 million , equal to approximately 7.6 % of our gross inventory . a hypothetical change of one percent to our reserve as a percent of total inventory would have affected our cost of goods sold by $ 0.6 million . income taxes — deferred tax assets or liabilities reflect temporary differences between amounts of assets and liabilities for financial and tax reporting . such amounts are adjusted , as appropriate , to reflect changes in enacted tax rates expected to be in effect when the temporary differences reverse . significant judgment is required in determining income tax provisions
| sales were also positively impacted by a 13.3 % improvement in bolt supply sales spread across multiple product categories and a $ 1.9 million increase in sales contributed by screw products which was acquired in the fourth quarter of 2018. average daily sales improved to $ 1.471 million in 2019 compared to $ 1.393 million in 2018 with one more selling day in 2019. excluding the impact of currency fluctuations of $ 1.9 million , consolidated sales increased 6.6 % year over year . gross profit increased to $ 197.4 million in 2019 from $ 189.5 million in 2018 and decreased as a percent of sales to 53.2 % from 54.2 % a year ago . higher service-related costs and lower gross margin as a percent of sales on both the bolt supply and screw products businesses contributed to the lower consolidated percentage . the lawson gross margin decreased as a percentage of sales primarily due to higher service-related costs included in gross profit . 19 selling , general and administrative expenses replace_table_token_8_th selling expenses decreased to $ 85.3 million in 2019 from $ 87.6 million in 2018 and , as a percent of sales , decreased to 23.0 % in 2019 from 25.1 % in 2018. the decrease in selling expense as a percent of sales was primarily due to leveraging selling expenses over a higher sales base and higher service-related costs included in gross margins . general and administrative expenses increased to $ 102.9 million in 2019 from $ 92.7 million in 2018 primarily due to an increase in stock-based compensation expense of $ 10.3 million , a portion of which varies with the company stock price , and increased severance expense of $ 0.9 million compared to 2018. interest expense interest expenses decreased $ 0.4 million in 2019 over the prior year , due primarily to lower average outstanding balances throughout the year . other income ( expense ) , net other income , net was $ 1.2 million in 2019 compared to other
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we are subject to normal inflationary trends and anticipate that any increased costs would be passed on to our customers . however , inflation has not had a material effect on our business as of december 31 , 2016. our revenue recognition criteria is described in greater detail below and in note 2 ( i ) to the consolidated financial statements in item 8. financial statements and supplementary data . cost of product sales ( excludes amortization and impairment charges of intangible assets ) cost of product sales includes production and packaging materials , contract manufacturer fees , allocated personnel costs ( excluding nominal stock-based compensation expense ) , shipping expenses , and royalty fees . cost of service revenue cost of service revenue includes the allocation of our sales personnel costs that are dedicated to eagle sales activities . selling , general and administrative selling , general and administrative expenses primarily consist of compensation ( including stock-based compensation ) and benefits for our sales force and personnel that support our sales and marketing operations , and our general operations such as information technology , executive management , financial accounting , and human resources . it also includes costs attributable to marketing our products to our customers and prospective customers , patent and legal fees , financial statement audit fees , insurance coverage fees , bad debt expense , personnel recruiting fees , and other professional services . research and development our research and development activities primarily relate to the clinical development and testing of new drugs , and conducting studies in order to gain regulatory approval for the commercialization of our drug products . these expenses consist of compensation ( including stock-based compensation ) and benefits for research and development and clinical and regulatory 48 personnel , materials and supplies , consultants , and regulatory and clinical payments related to studies . in addition , we include within research and development expense , technology transfer costs and manufacture qualification costs – prior to fda approval of the product , its formulation , and or its manufacturing sites . critical accounting policies and estimates the preparation and presentation of financial statements in conformity with generally accepted accounting principles in the united states of america , or gaap , requires management to establish policies and make estimates and assumptions that affect ( i ) the amounts of assets and liabilities as of the date presented on the accompanying consolidated balance sheets and ( ii ) the amounts of revenue and expenses for each year presented in the accompanying consolidated statements of operations . our management believes its estimates and assumptions are supportable , reasonable , and consistently applied . nonetheless , estimates are inherently uncertain . as a result , our financial position and operating results could materially differ from the amounts reported within the accompanying consolidated financial statements if management 's estimates require prospective adjustment . our critical accounting policies and estimates arise in conjunction with the following accounts : revenue recognition inventories – lower of cost or market fair value of acquired assets and assumed liabilities goodwill and intangible assets – impairment evaluations income taxes stock-based compensation litigation accruals ( as required ) revenue recognition product sales : we sell our products to wholesalers/distributors ( i.e. , our customers ) , except for our u.s. sales of zevalin in which case the end-user ( i.e . clinic or hospital ) is our customer . our wholesalers/distributors in turn sell our products directly to clinics , hospitals , and private oncology-based practices . revenue from our product sales is recognized when title and risk of loss have transferred to our customer , and the following additional criteria are met : ( 1 ) appropriate evidence of a binding arrangement exists with our customer ; ( 2 ) price is substantially fixed or determinable ; ( 3 ) collection from our customer is reasonably assured ; ( 4 ) our customer 's obligation to pay us is not contingent on resale of the product ; ( 5 ) we do not have significant continued performance obligations to our customer ; and ( 6 ) we have a reasonable basis to estimate returns . our gross revenue is reduced by our gross-to-net , or gtn , estimates each period , resulting in our reported “ product sales , net ” in the accompanying consolidated statements of operations . we defer revenue recognition in full if these estimates are not reasonably determinable at the time of sale . these estimates are based upon information received from external sources ( such as written or oral information obtained from our customers with respect to their period-end inventory levels , and their sales to end-users during the period ) , in combination with management 's informed judgments . due to the inherent uncertainty of estimates , the actual amount we incur may be materially different than our gtn estimates , and require prospective revenue adjustments in periods after the initial sale was recorded . our gtn estimates are comprised of the following categories : product returns allowances : our fusilev , marqibo , and beleodaq customers are permitted to return purchased product beginning at its expiration date , and within six months thereafter . our evomela customers are permitted to return purchased product beginning at six months prior to its expiration date , and within 12 months following its expiration date ( as 49 well as for overstock inventory , as determined by end-users ) . returned product is generally not resold . returns for expiry of zevalin and folotyn are not contractually , or customarily , allowed . we estimate expected product returns for our allowance based on our historical return rates . government chargebacks : our products are subject to pricing limits under certain federal government programs ( e.g. , medicare and the 340b drug pricing program ) . qualifying entities ( i.e. , end-users ) purchase product from our customers at their qualifying discounted price . story_separator_special_tag the chargeback amount we incur represents the difference between our contractual sales price to our customer , and the end-user 's applicable discounted purchase price under the government program . there may be significant lag time between our reported net product sales and our receipt of corresponding government chargeback claims from our customers . prompt pay discounts : discounts for prompt payment are estimated at the time of sale , based on our eligible customers ' prompt payment history and the contractual discount percentage . commercial rebates : commercial rebates are based on ( i ) our estimates of end-user purchases through a group purchasing organization , or gpo , ( ii ) the corresponding contractual rebate percentage tier we expect each gpo to achieve , and ( iii ) our estimates of the impact of any prospective rebate program changes made by us . medicaid rebates : our products are subject to state government-managed medicaid programs , whereby rebates are issued to participating state governments . these rebates arise when a patient treated with our product is covered under medicaid , resulting in a discounted price for our product under the applicable medicaid program . our medicaid rebate accrual calculations require us to project the magnitude of our sales , by state , that will be subject to these rebates . there is a significant time lag in us receiving rebate notices from each state ( generally several months or longer after our sale is recognized ) . our estimates are based on our historical claim levels by state , as supplemented by management 's judgment . distribution , data , and gpo administrative fees : distribution , data , and gpo administrative fees are paid to authorized wholesalers/distributors of our products ( except for u.s. sales of zevalin ) for various commercial services , including : contract administration , inventory management , delivery of end-user sales data , and product returns processing . these fees are based on a contractually-determined percentage of our applicable sales . license fees : our out-license arrangements may include one or more of the following : ( a ) upfront license fees , ( b ) royalties from our licensees ' sales , and ( c ) lump-sum receipts upon our licensees ' sales or regulatory achievements . we recognize revenue from these categories based on the contractual terms that establish the legal rights and obligations between us and our licensees . service revenue : we receive fees under certain arrangements for ( a ) sales and marketing services , ( b ) supply chain services ( c ) research and development services , and ( d ) clinical trial management services . payment for these services may be triggered by ( i ) an established fixed-fee schedule , ( ii ) the completion of product delivery in our capacity as a procurement agent , ( iii ) the successful completion of a phase of development , ( iv ) favorable results from a clinical trial , and or ( v ) regulatory approval events . inventories – lower of cost or market we adjust our inventory value for estimated amounts of excess , obsolete , or unmarketable items . such assumptions involve projections of future customer demand , as driven by economic and market conditions , and the product 's shelf life . if actual demand , or economic or market conditions are less favorable than those projected by us , incremental inventory write-downs may be required and could be significant . fair value of acquired assets and assumed liabilities the accounting for business combinations and asset acquisitions requires extensive use of estimates and judgments to measure the fair value of the identifiable tangible and intangible assets acquired , including in-process research and development , and liabilities assumed . additionally , we must determine whether the acquisition meets the criteria for business combination accounting ( rather than asset acquisition accounting ) , because in a business combination , the excess of the purchase price over the fair value of net assets acquired can only be recognized as “ goodwill. ” the fair value of acquired tangible and identifiable intangible assets and liabilities assumed , are based on their estimated fair values at the acquisition date and requires extensive use of accounting estimates , judgments , and assumptions , including but not limited to the following : ( i ) the likelihood , timing , and costs to complete the in-process projects ; ( ii ) the probability of 50 achieving regulatory approvals ; ( iii ) the cash flows to be derived from the acquired assets , and ( iv ) the application of appropriate discount rates . for each acquisition , we engage an independent third-party valuation specialist to assist management in determining the fair value of in-process research and development , identifiable intangible assets , and any contingent consideration . in connection with certain of our acquisitions , we must record a contingent consideration liability for cash or stock payments upon the completion of certain future performance milestones . in these cases , a liability is recorded on the acquisition date for an estimate of the acquisition date fair value of the contingent consideration by applying the income approach utilizing variable inputs such as probability of achievement and risk-free adjusted discount rates . any change in the fair value of the contingent consideration subsequent to the acquisition date is recognized in earnings . goodwill and intangible assets – impairment evaluations goodwill and other intangible assets with indefinite lives are not subject to amortization , but are evaluated for impairment annually as of october 1 , or whenever events or changes in circumstance indicate that the asset might be impaired .
| beleodaq revenue increased as a result of an increase in the units sold in the current year , in addition to an increase in our average net sales price per unit . evomela revenue in the current year is a result of our commercial launch of this product in april 2016. we have deferred revenue recognition for evomela shipments that have not been received by end users as of december 31 , 2016 ( see note 3 ( j ) to the accompanying consolidated balance sheets ) . license fees and service revenue . in 2016 , our license fees and service revenue decreased by $ 7.9 million due to ( i ) $ 9.7 million received during 2015 for the out-license of zevalin , marqibo and evomela in the china territory ( see note 11 to the accompanying consolidated financial statements ) , and ( ii ) a one-time payment of $ 15 million for the zevalin out-license agreement with mundipharma ( see note 12 to the accompanying consolidated financial statements ) , both of which did not reoccur in the current year , partially offset by current year amounts including : ( i ) $ 9.1 million of revenues received from our co-promotion arrangement with eagle pharmaceuticals , inc. ( see note 14 to the accompanying consolidated financial statements ) , ( ii ) $ 6 million of upfront payments received from servier canada , inc. ( see note 13 to the accompanying consolidated financial statements ) , and ( iii ) $ 2.7 million received from mundipharma out-license royalties . operating expenses replace_table_token_9_th cost of product sales . cost of product sales increased primarily due to the continued decline of the net sales price for fusilev , in addition to high royalty and material costs for evomela given its recent launch in april 2016. cost of service revenue . cost of service revenue exclusively relates to our allocated commercial and marketing expenses ( from `` selling , general , and administrative '' expenses ) for our promotion and sale of eagle products ( see note 14 to the accompanying consolidated financial statements ) . selling , general and administrative . selling , general and administrative
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we review conditions in the agricultural industry in the areas in which our lands are located and seek to keep as much of our lands as possible under lease to local ranchers . in recent years , we have been successful at keeping over 99 % of our land subject to grazing leases . 9 story_separator_special_tag style= '' font-size : 10pt ; font-family : times new roman , times , serif '' > land sales in 2015 were $ 22,616,635 compared to $ 3,698,312 in 2014 , an increase of $ 18,918,323 , or 511.5 % . a total of approximately 20,941 acres were sold in 2015 at an average price of $ 1,080 per acre , compared to 1,950 acres in 2014 at an average price per acre of $ 1,897. rentals , royalties and other income ( including interest on investments ) were $ 56,825,658 in 2015 compared to $ 51,518,441 in 2014 , an increase of 10.3 % . oil and gas royalty revenue in 2015 was $ 24,860,205 compared to $ 29,346,103 in 2014 , a decrease of 15.3 % . oil royalty revenue was $ 18,607,031 and gas royalty revenue was $ 6,253,174 in 2015. crude oil production subject to the trust 's royalty interest increased 47.2 % in 2015 from 2014. this increase in production was offset by a 44.5 % decrease in the average price per royalty barrel of crude oil during 2015 compared to 2014. total gas production increased 39.4 % , and the average price of gas decreased by 31.9 % in 2015 compared to 2014 . 11 grazing lease income in 2015 was $ 483,989 compared to $ 500,292 in 2014 , a decrease of 3.3 % . this decrease is caused by the reduction in acres available to lease due to land sale activity . interest revenue ( including interest on investments ) was $ 68,306 in 2015 compared to $ 154,814 in 2014 , a decrease of 55.9 % . interest on notes receivable amounted to $ 40,866 in 2015 compared to $ 140,291 in 2014. this decrease is primarily due to principal prepayments received on notes due to the trust . at year end 2015 , notes receivable from land sales were $ 139,114 compared to $ 923,115 at year end 2014. interest on investments amounted to $ 27,440 in 2015 and $ 14,523 in 2014 , respectively . total principal cash payments on notes receivable were $ 784,001 in 2015 including $ 713,062 of prepaid principal . easements and sundry income in 2015 was $ 31,413,158 compared to $ 21,517,232 in 2014 due to a continued increase in drilling and exploration activity on land owned by the trust . this increase resulted primarily from an increase in the amount of pipeline easement income to $ 18,182,259 for 2015 , an increase of $ 8,997,209 , or 98.0 % , from the $ 9,185,050 received in 2014. this increase was partially offset by decreases in sundry lease rental income and seismic easement income . easements and sundry income is unpredictable and may vary significantly from period to period . taxes , other than income taxes , were $ 1,476,576 in 2015 compared to $ 1,692,256 in 2014. oil and gas production taxes were $ 1,324,909 in 2015 compared to $ 1,540,735 in 2014. ad valorem taxes were $ 94,219 in 2015 compared to $ 97,054 in 2014. all other expenses were $ 2,682,695 in 2015 compared to $ 2,092,943 in 2014. this increase resulted primarily from increases in salaries and related employee benefits expense , legal and professional fees expense and a project that began in the third quarter of 2015 to enhance the information systems of the trust . liquidity the trust 's principal sources of liquidity are its revenues from oil and gas royalties , easements and sundry income , and land sales . in the past , these sources have generated more than adequate amounts of cash to meet the trust 's needs and , in the opinion of management , should continue to do so in the foreseeable future . off-balance sheet arrangements the trust has not engaged in any off-balance sheet arrangements . 12 tabular disclosure of contractual obligations the trust executed a ten year extension to its office lease in 2015. the new expiration date of the lease is march 31 , 2025. as of december 31 , 2016 , the trust 's known contractual obligations were as follows : replace_table_token_4_th effects of inflation we do not believe that inflation has had a material impact on our operating results . we can not assure you , however , that future increases in our costs will not occur or that any such increases that may occur will not adversely affect our results of operations . critical accounting policies and estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america ( gaap ) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements . it is our opinion that we fully disclose our significant accounting policies in the notes to the financial statements . consistent with our disclosure policies , we include the following discussion related to what we believe to be our most critical accounting policies that require our most difficult , subjective or complex judgment . valuation of notes receivable - management of the trust monitors delinquencies to assess the propriety of the carrying value of its notes receivable . at the point in time that notes receivable become delinquent , management reviews the operations information of the debtor and the estimated fair value of the collateral held as security to determine whether an allowance for losses is required . any required allowance for losses is recorded in the period of determination . at december 31 , 2016 and 2015 , there were no significant delinquencies and , as story_separator_special_tag we review conditions in the agricultural industry in the areas in which our lands are located and seek to keep as much of our lands as possible under lease to local ranchers . in recent years , we have been successful at keeping over 99 % of our land subject to grazing leases . 9 story_separator_special_tag style= '' font-size : 10pt ; font-family : times new roman , times , serif '' > land sales in 2015 were $ 22,616,635 compared to $ 3,698,312 in 2014 , an increase of $ 18,918,323 , or 511.5 % . a total of approximately 20,941 acres were sold in 2015 at an average price of $ 1,080 per acre , compared to 1,950 acres in 2014 at an average price per acre of $ 1,897. rentals , royalties and other income ( including interest on investments ) were $ 56,825,658 in 2015 compared to $ 51,518,441 in 2014 , an increase of 10.3 % . oil and gas royalty revenue in 2015 was $ 24,860,205 compared to $ 29,346,103 in 2014 , a decrease of 15.3 % . oil royalty revenue was $ 18,607,031 and gas royalty revenue was $ 6,253,174 in 2015. crude oil production subject to the trust 's royalty interest increased 47.2 % in 2015 from 2014. this increase in production was offset by a 44.5 % decrease in the average price per royalty barrel of crude oil during 2015 compared to 2014. total gas production increased 39.4 % , and the average price of gas decreased by 31.9 % in 2015 compared to 2014 . 11 grazing lease income in 2015 was $ 483,989 compared to $ 500,292 in 2014 , a decrease of 3.3 % . this decrease is caused by the reduction in acres available to lease due to land sale activity . interest revenue ( including interest on investments ) was $ 68,306 in 2015 compared to $ 154,814 in 2014 , a decrease of 55.9 % . interest on notes receivable amounted to $ 40,866 in 2015 compared to $ 140,291 in 2014. this decrease is primarily due to principal prepayments received on notes due to the trust . at year end 2015 , notes receivable from land sales were $ 139,114 compared to $ 923,115 at year end 2014. interest on investments amounted to $ 27,440 in 2015 and $ 14,523 in 2014 , respectively . total principal cash payments on notes receivable were $ 784,001 in 2015 including $ 713,062 of prepaid principal . easements and sundry income in 2015 was $ 31,413,158 compared to $ 21,517,232 in 2014 due to a continued increase in drilling and exploration activity on land owned by the trust . this increase resulted primarily from an increase in the amount of pipeline easement income to $ 18,182,259 for 2015 , an increase of $ 8,997,209 , or 98.0 % , from the $ 9,185,050 received in 2014. this increase was partially offset by decreases in sundry lease rental income and seismic easement income . easements and sundry income is unpredictable and may vary significantly from period to period . taxes , other than income taxes , were $ 1,476,576 in 2015 compared to $ 1,692,256 in 2014. oil and gas production taxes were $ 1,324,909 in 2015 compared to $ 1,540,735 in 2014. ad valorem taxes were $ 94,219 in 2015 compared to $ 97,054 in 2014. all other expenses were $ 2,682,695 in 2015 compared to $ 2,092,943 in 2014. this increase resulted primarily from increases in salaries and related employee benefits expense , legal and professional fees expense and a project that began in the third quarter of 2015 to enhance the information systems of the trust . liquidity the trust 's principal sources of liquidity are its revenues from oil and gas royalties , easements and sundry income , and land sales . in the past , these sources have generated more than adequate amounts of cash to meet the trust 's needs and , in the opinion of management , should continue to do so in the foreseeable future . off-balance sheet arrangements the trust has not engaged in any off-balance sheet arrangements . 12 tabular disclosure of contractual obligations the trust executed a ten year extension to its office lease in 2015. the new expiration date of the lease is march 31 , 2025. as of december 31 , 2016 , the trust 's known contractual obligations were as follows : replace_table_token_4_th effects of inflation we do not believe that inflation has had a material impact on our operating results . we can not assure you , however , that future increases in our costs will not occur or that any such increases that may occur will not adversely affect our results of operations . critical accounting policies and estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america ( gaap ) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements . it is our opinion that we fully disclose our significant accounting policies in the notes to the financial statements . consistent with our disclosure policies , we include the following discussion related to what we believe to be our most critical accounting policies that require our most difficult , subjective or complex judgment . valuation of notes receivable - management of the trust monitors delinquencies to assess the propriety of the carrying value of its notes receivable . at the point in time that notes receivable become delinquent , management reviews the operations information of the debtor and the estimated fair value of the collateral held as security to determine whether an allowance for losses is required . any required allowance for losses is recorded in the period of determination . at december 31 , 2016 and 2015 , there were no significant delinquencies and , as
| oil royalty revenue was $ 21,985,829 and gas royalty revenue was $ 8,011,133 in 2016. crude oil production subject to the trust 's royalty interest increased 48.3 % in 2016 from 2015. this increase in production was offset by a 20.3 % decrease in the average price per royalty barrel of crude oil received during 2016 compared to 2015. total gas production subject to the trust 's royalty interest increased 36.8 % , and the average price of gas received decreased by 6.1 % in 2016 compared to 2015. grazing lease income in 2016 was $ 489,982 compared to $ 483,989 in 2015 , an increase of 1.2 % . this increase is primarily caused by an increase in rates for renewing grazing leases partially offset by the reduction in acres available to lease due to land sale activity . interest revenue ( including interest on investments ) was $ 37,349 in 2016 compared to $ 68,306 in 2015 , a decrease of 45.3 % . interest income from notes receivable amounted to $ 8,279 in 2016 compared to $ 40,866 in 2015. this decrease is primarily due to principal prepayments received on notes due to the trust . at year-end 2016 , notes receivable from land sales were $ 94,971 compared to $ 139,114 at year end 2015. interest income earned from investments amounted to $ 29,070 in 2016 and $ 27,440 in 2015 , respectively . total principal cash payments on notes receivable were $ 44,143 in 2016 including $ 15,803 of prepaid principal . 10 easements and sundry income in 2016 was $ 26,470,669 compared to $ 31,413,158 in 2015 , a decrease of 15.7 % . this decrease resulted primarily from a decrease in the amount of pipeline easement income to $ 9,738,342 for 2016 compared to $ 18,182,259 in 2015. the trust is currently moving toward the use of term easements ( in lieu of perpetual easements ) which will require us to gradually recognize the income for easements over the life of the agreement ( the bulk of which are 10-year agreements ) , in lieu of recognizing it all at the beginning of the term of the easement . as a result , $ 7,809,669 of easement income received in 2016 was deferred and therefore not reflected in the statements of income and total comprehensive income in the current year . this was also the primary reason
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as a result of these actions , we incurred $ 6.0 million in `` restructuring expense '' in the consolidated statement of operations during the year ended december 31 , 2018 . income taxes - on december 22 , 2017 , the u.s. government enacted comprehensive tax legislation commonly referred to as the tax cuts and jobs act ( `` tax act '' ) . the tax act made broad and complex changes to the u.s. tax code including , for 2017 , a one-time deemed repatriation transition tax ( `` transition tax '' ) provisional expense of $ 13.5 million on certain unrepatriated earnings of foreign subsidiaries that is payable over eight years , and for 2018 new provisions designed to tax global intangible low-taxed income ( `` gilti '' ) , transactions subject to base erosion anti-abuse tax ( `` beat '' ) , interest disallowance and a tax rate incentive for foreign derived intangible income ( `` fdii '' ) . our accounting for the tax act is complete and in 2018 , we recorded a $ 10.0 million benefit measurement period adjustment to finalize the transition tax . industry and business conditions on a global scale , the demand for affordable dining is expected to continue increasing . market growth is expected to be driven by , among other factors , disposable income , increased employment , investment in new establishments and the underlying trend for increased convenience . overall , we believe that continued growth in demand for foodservice equipment will result from the development of new restaurant concepts in the u.s. , the expansion of u.s. and foreign chains into international markets , the replacement and upgrade of existing equipment , and new equipment requirements resulting from menu changes , waste reduction and footprint reduction . we expect to benefit from these trends and grow market penetration alongside our customers as they expand into new service categories and geographies . we believe we are well-positioned to take advantage of worldwide growth opportunities with global and regional new product introductions , improvement in operational performance and other strategic initiatives . general market conditions , which had slowed in 2017 , have stabilized in 2018 and we expect gradual improvement in 2019. we have focused on pursuing sales that support profitable growth and executing our simplification and right sizing initiatives that include 80/20 pricing , product-line and customer-line simplification , product cost take out , lean manufacturing implementation , strategic sourcing , kitchencare operational improvements , manufacturing capacity reduction and reductions in workforce to further realize margin improvements , as necessary to sustain operational excellence . increased demand from large chain customers , new product rollouts and the initial rollouts of our fitkitchen systems have helped drive increased sales in 2018 . our simplification and right-sizing initiatives , hedging activities , price increases and reductions in discretionary spending have offset , in part , the inflationary impacts from rising material and freight costs , including recently enacted tariffs . in 2019 , we expect sales growth primarily from improvements in general market conditions and the benefit of pricing actions . the growth in sales combined with continued focus on driving our simplification and right sizing initiatives are anticipated to offset inflationary pressures in labor and material costs as well as tariffs . in addition , we are undertaking an operational review of our simplification and right-sizing initiatives to validate our long-term growth and margin targets and refine our execution plans . as a result of the tax act , additional legislative and regulatory guidance will be issued , including final regulations which may be applied retroactively to the date of enactment and could impact our effective tax rate in future periods . in addition , proposed amendments to the income tax regulations under section 163 ( j ) of the u.s. internal revenue code were issued on november 26 , 2018 and are effective for the taxable year 2019 after publication in the federal register , at which time they will be adopted by the company . refer to additional discussion of the impact of the tax act on the consolidated financial statements in the results of operations section of this management 's discussion and analysis of financial condition and results of operations . business strategies we continue to focus on developing new product and system solutions to support future revenues , reducing long-term debt obligations and developing our acquisition pipeline . our specific strategic objectives include : achieve profitable growth ; create innovative products and solutions ; guarantee customer satisfaction ; drive operational excellence ; and develop great people . we intend to achieve sustainable growth globally and drive increased profitability by leveraging our position as a leading commercial foodservice equipment provider , while selectively pursuing strategic acquisitions and partnerships , growing our customer base , expanding the frontiers of foodservice innovation and continuing to attract and grow industry-leading talent . - 31 - accounting basis of presentation and revision of previously issued consolidated financial statements during the periods presented prior to the spin-off on march 4 , 2016 , our consolidated financial statements were prepared on a combined stand-alone basis derived from the consolidated financial statements and accounting records of mtw . we functioned as part of the larger group of companies controlled by mtw . accordingly , mtw performed certain corporate overhead functions for us and certain costs related to us have been allocated from mtw for the period of january 1 , 2016 up to the spin-off on march 4 , 2016 and for the prior periods presented . the financial information included herein may not necessarily reflect our financial condition , results of operations and cash flows in the future or what our financial condition , results of operations and cash flows would have been had welbilt been an independent , publicly-traded company prior to the spin-off . story_separator_special_tag as discussed in note 2 , `` summary of significant accounting policies and basis of presentation , '' and note 25 , `` revision of previously issued consolidated financial statements , '' to our audited consolidated financial statements in part ii , item 8 , `` financial statements and supplementary data '' the consolidated financial statements for the years ended december 31 , 2017 and 2016 have been revised to reflect the correction of certain balance sheet and cash flow errors . accordingly , the information affecting liquidity and capital resources and non-gaap financial measures set forth below reflects the effects of these revisions . story_separator_special_tag style= '' font-family : inherit ; font-size:9pt ; '' > $ 29.8 million , a $ 19.2 million increase from the prior year . the increase was primarily due to the loss of $ 10.0 million on the foreign currency hedge on the crem acquisition purchase price , an increase in foreign currency transaction losses of $ 3.6 million and pension settlement loss of $ 2.4 million . analysis of income taxes income taxes for the year ended december 31 , 2018 were $ 10.8 million , which was an increase of $ 22.3 million compared to the prior year . the statutory rate for 2018 and 2017 was 21.0 % and 35.0 % , respectively . the increase was primarily driven by a net lower benefit from the implementation of the tax act provisions of $ 22.0 million comprised of a $ 10.0 million measurement period adjustment benefit recorded in 2018 to finalize the transition tax compared to the following items recorded in 2017 : ( i ) a $ 45.5 million benefit from revaluation of the u.s. deferred tax assets and liabilities at the reduced enacted rate and ( ii ) transition tax of $ 13.5 million on previously untaxed accumulated and current earnings and profits ( `` e & p '' ) of foreign subsidiaries recorded . in addition , in 2018 , the company recorded a $ 1.3 million income tax provision related to global intangible low-taxed income ( `` gilti '' ) , a $ 1.2 million benefit from foreign derived intangible income ( `` fdii '' ) and a $ 2.3 million discrete tax benefit . in 2017 , a portion of the net income tax benefit resulted from an $ 8.6 million valuation allowance release recorded against the deferred tax assets for certain entities in the united kingdom and a $ 3.5 million net state tax benefit primarily due to revised estimates of our state tax liabilities . our effective tax rate varies from the 21.0 % statutory rate primarily due to the transition tax measurement adjustment benefit of 11.2 % , manufacturing and research incentives of 3.1 % and a 2.6 % discrete tax benefit , which were partially offset by a 7.6 % impact of income earned in foreign jurisdictions including non-deductible crem acquisition costs . domestic loss before income taxes in 2018 represent 9.0 % of total earnings and an unfavorable 7.6 % effective tax rate impact for higher taxes on foreign income , including non-deductible crem acquisition costs , whereas 2017 domestic earnings represent 26.8 % of total earnings and a favorable 3.5 % effective tax rate impact for net lower taxes on foreign income . the 2017 effective tax rates were favorably impacted by income earned in jurisdictions , primarily in canada and china , where the statutory rates are approximately 25.0 % . - 34 - year ended december 31 , 2017 vs. year ended december 31 , 2016 our consolidated results comprised the following for the years ended december 31 , 2017 and 2016 : replace_table_token_7_th analysis of net sales net sales for our reportable segments comprised the following for the years ended december 31 , 2017 and 2016 : replace_table_token_8_th consolidated net sales totaled $ 1,445.4 million for the year ended december 31 , 2017 , representing a $ 10.7 million , or 0.7 % , decrease compared to the prior year . this decrease was primarily driven by lower volumes of $ 33.7 million in part due to 80/20 customer line simplification and partially offset by positive net pricing of $ 24.0 million , which includes $ 14.4 million of pricing realization from our simplification and right-sizing initiatives . prior year net sales for this period included $ 14.5 million from operations in latin america and china that were divested in 2016. in addition , foreign currency translation negatively impacted net sales for the year ended december 31 , 2017 by $ 1.4 million , or 0.1 % . net sales in the americas segment for the year ended december 31 , 2017 decreased $ 19.3 million , or 1.6 % , which consisted of a decrease in third-party net sales of $ 15.5 million and lower intersegment net sales of $ 3.8 million . the third-party net sales decrease was driven by lower sales of both hot-side and cold-side products due in part to 80/20 customer line simplification . foreign currency translation had a positive impact of $ 2.0 million on third-party net sales for the year ended december 31 , 2017 . net sales in the emea segment for the year ended december 31 , 2017 increased by $ 8.9 million , or 3.1 % , primarily driven by an increase in third-party net sales of $ 1.5 million and higher intersegment net sales of $ 7.4 million . third-party net sales increased due to stronger sales of cold-side products and kitchencare sales in the region , partially offset by lost sales from our 80/20 product line simplification . foreign currency translation had a $ 3.4 million negative impact on third-party net sales for the year ended december 31 , 2017 . net sales in the apac segment for the year ended december 31 , 2017 decreased $ 0.7 million , or 0.4 % , which consisted of an increase in third-party net sales of $ 3.3 million , offset by lower intersegment sales of $ 4.0 million .
| third-party net sales increased primarily due to the contribution of incremental net sales from crem products , higher sales volumes of hot-side products resulting from new product rollouts and increased volumes in the general market . foreign currency translation had a positive impact of $ 7.4 million on third-party net sales for the year ended december 31 , 2018 . net sales in the apac segment for the year ended december 31 , 2018 increased $ 38.9 million , or 20.5 % , which consisted of an increase in third-party net sales of $ 25.9 million and intersegment sales of $ 13.0 million . third-party net sales increased primarily due to the contribution of incremental net sales from crem products and higher sales volumes of hot-side products . foreign currency translation had a positive impact of $ 0.8 million on third-party net sales for the year ended december 31 , 2018 . analysis of earnings from operations consolidated earnings from operations for the year ended december 31 , 2018 totaled $ 216.8 million , a decrease of $ 3.8 million , or 1.7 % , compared to the prior year , which was principally driven by : ( i ) $ 39.9 million unfavorable product mix impact , ( ii ) increased material costs of $ 16.2 million , ( iii ) increased compensation costs of $ 19.5 million mainly related to incentive compensation , ( iv ) $ 5.0 million of corporate expenses associated with acquisition-related transaction and integration costs , ( v ) lower gain on fixed asset disposals of $ 3.6 million and ( vi ) an incremental loss of $ 2.8 million from crem operations . the loss from crem operations is inclusive of $ 5.6 million of amortization expense associated with acquisition-related intangible assets , $ 3.4 million of costs associated with a misappropriation of assets and $ 2.1 million of higher costs primarily related to inventory fair value adjustments from purchase accounting . these unfavorable impacts were partially offset by : ( i ) savings from the simplification and right-sizing initiatives of $ 37.0 million , ( ii ) $
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our contract mix varies from year-to-year due to numerous factors , including our business strategies and federal government procurement objectives . the following table shows revenues from each of these types of contracts as a percentage of total revenues for the periods presented . replace_table_token_6_th the amount of risk and potential reward varies under each type of contract . under cost-reimbursable contracts , there is limited financial risk , because we are reimbursed for all allowable direct and indirect costs . however , profit margins on this type of contract tend to be lower than on time-and-materials and fixed-price contracts . under time-and-material contracts , we assume financial risk because our labor costs may exceed the negotiated billing rates . profit margins on well-managed time-and material contracts tend to be higher than profit margins on cost-reimbursable contracts as long as we are able to staff those contracts with people who have an appropriate skill set . fixed-price contracts generally offer higher profit margins opportunities , but generally involve greater financial risk because we bear the impact of any cost overruns . our earnings and profitability may vary depending on changes in our contract mix . over the past several years , our customers have increasingly procured our services under cost-reimbursable contracts . cost of services cost of services primarily includes direct costs incurred to provide our services and solutions to customers . the most significant portion of these costs are direct labor costs , including salaries and wages , plus associated fringe benefits of our employees directly serving customers , in addition to the related management , facilities and infrastructure costs . cost of services also includes other direct costs , such as the costs of subcontractors and outside consultants and third-party materials , including hardware or software that we purchase and provide to the customer as part of an integrated solution . changes in the mix of services and equipment provided under our contracts can result in variability in our contract margins . since we earn higher profits on our own labor services , we expect the ratio of cost of services as a percent of revenues to decline when our labor services mix increases relative to subcontracted labor or third-party materials . conversely , as subcontracted labor or third-party material purchases for customers increase relative to our own labor services , we expect the ratio of cost of services as a percent of revenues to increase . the proportion that costs of services bears to revenues varies in part based on our mix of revenues by contract type . in general , cost-reimbursable contracts are the least profitable of our government contracts but offer the lowest risk of loss . under time-and-materials contracts , to the extent that our actual labor costs are higher or lower than the billing rates under the contract , our profit under the contract may either be greater or less than we anticipated or we may suffer a loss under the contract . in general , we realize a higher profit margin on work performed under time-material contracts than cost-reimbursable contracts . fixed-price contracts generally offer higher profit margins opportunities but involve great financial risk because we bear impact of cost overruns in return for the full benefit of any cost savings . 30 general and administrative expenses general and administrative expenses include the salaries and wages , plus associated fringe benefits of our employees not performing work directly for customers , and associated facilities costs . among the functions covered by these costs are corporate business development , bid and proposal , contracts administration , finance and accounting , legal , corporate governance and executive and senior management . in addition , we included stock-based compensation , as well as depreciation and amortization expense related to the general and administrative function . depreciation and amortization expenses include the depreciation of computers , furniture and other equipment , the amortization of third party software we use internally , leasehold improvements and intangible assets . intangible assets include customer relationships and contract backlogs acquired in business combinations , and are amortized over their estimated useful lives . interest expense interest expense is primarily related to interest expense incurred or accrued under our outstanding borrowings , our 7.25 % senior secured notes and deferred financing charges . interest income interest income is primarily from cash on hand and notes receivable . story_separator_special_tag a case in which the company is the plaintiff and stock-based compensation expenses increased due to higher forfeitures in 2010 resulting from the resignation of the company 's former chief operating officer . as a percentage of revenues , general and administrative expenses decreased due to the leveraging of our general and administrative expense over a larger base . interest expense the increase in interest expense was primarily related to our 7.25 % senior unsecured notes being outstanding for all of 2011 as compared to nine months of 2010 . we incurred $ 15.0 million of interest expense for the year ended december 31 , 2011 related to our 7.25 % senior unsecured notes issued in april 2010 . 33 other income ( expense ) , net the increase in other income ( expense ) , net was due to the sale of our investment in netwitness , which resulted in a gain of $ 3.7 million for the year ended december 31 , 2011 . provision for income taxes our effective income tax rates were 38.1 % and 38.2 % for the years ended december 31 , 2011 and 2010 , respectively . net income the increase in net income was due to higher revenues as well as a gain we recorded due to the sale of an investment . backlog for the years ended december 31 , 2012 , 2011 and 2010 our backlog was $ 6.5 billion , $ 4.7 billion and $ 4.9 billion , respectively , of which $ 1.8 billion , $ 1.3 billion and $ 1.6 billion , respectively , was funded backlog . backlog represents estimates that we calculate on a consistent basis . story_separator_special_tag for additional information on how we compute backlog , see “ backlog ” in item 1 “ business. ” liquidity and capital resources historically , our primary liquidity needs have been the financing of acquisitions , working capital , payment under our cash dividend program and capital expenditures . our primary sources of liquidity are cash provided by operations and our revolving credit facility . on december 31 , 2012 , the company 's cash and cash equivalents balance was $ 134.9 million . at december 31 , 2012 , there was no outstanding balance under our revolving credit facility . at december 31 , 2012 , we were contingently liable under letters of credit totaling $ 0.2 million , which reduces our ability to borrow under our revolving credit facility by that amount . the maximum available borrowings under our revolving credit facility at december 31 , 2012 was $ 499.8 million . at december 31 , 2012 , we had $ 200.0 million outstanding of our 7.25 % senior unsecured notes . generally , cash provided by operating activities is adequate to fund our operations , including payments under our regular cash dividend program . due to fluctuations in our cash flows and level of operations , it is necessary from time-to-time to increase borrowings under our revolving credit facility to meet cash demands . net cash flows from operating activities replace_table_token_9_th our operating cash flow is primarily affected by our ability to invoice and collect from our customers in a timely manner , our ability to manage our vendor payments and the overall profitability of our contracts . we bill most of our customers monthly after services are rendered . cash flow from operations decreased during the year ended december 31 , 2012 compared to the same period in 2011 due to decreased billings in excess , lower net income , increased contractual inventory , timing of salaries payable and an increase in our days sales outstanding ( dso ) , which were partially offset by timing of vendor payables and deferred income taxes . contractual inventory relates to equipment on one of our intelligence contracts that was delivered in 2013. our accounts receivable dso ratio , based on fourth quarter sales , was 79 and 71 at december 31 , 2012 and 2011 , respectively . increased cash flow from operations during the year ended december 31 , 2011 compared to the same period in 2010 was due to increased receivables , depreciation expense and billings in excess of revenue earned primarily related to a contract to provide mobile telecommunication services in afghanistan , and net income , partially offset by the timing of vendor payables and decreased deferred income taxes . 34 net cash flows from investing activities replace_table_token_10_th our cash flow from investing activities consists primarily of business acquisitions and expenditures related to equipment , leasehold improvements and software . cash outflows for the year ended december 31 , 2012 were due to the acquisition of the business of hbgary , inc. for $ 23.8 million and evolvent technologies , inc. for $ 38.9 million net of cash acquired and capital expenditures of $ 14.9 million . cash outflows in 2011 were due to the purchase of property and equipment of $ 54.5 million primarily related to a mobile telecommunication network built for use on one of our contracts in afghanistan and the acquisition of wins for $ 87.1 million and trantech for $ 20.2 million . cash outflows in 2010 were primarily due to the acquisitions of sti , s & is and mtcsc as well as capital expenditures for $ 13.3 million . net cash flows from financing activities replace_table_token_11_th cash outflow from financing activities during 2012 resulted primarily from the dividends paid of $ 31.0 million , offset by the proceeds from the exercise of stock options for $ 1.1 million . cash outflow from financing during 2011 resulted primarily from the dividends paid of $ 30.8 million and debt issuance costs of $ 3.9 million for our revolving credit facility , offset by the proceeds from the exercise of stock options for $ 8.2 million . cash flow from financing during 2010 resulted primarily from the issuance of 7.25 % senior unsecured notes for $ 200.0 million and the proceeds from the exercise of stock options for $ 13.8 million , offset by debt issuance costs of $ 5.0 million . revolving credit facility we maintain a credit agreement with a syndicate of lenders led by bank of america , n.a. , as administrative agent . the credit agreement provides for a $ 500.0 million revolving credit facility , with a $ 25.0 million letter of credit sublimit and a $ 30.0 million swing line loan sublimit . the credit agreement also contains an accordion feature that permits the company to arrange with the lenders for the provision of up to $ 250.0 million in additional commitments . the maturity date for this agreement is october 12 , 2016. borrowings under our credit agreement are collateralized by substantially all the assets of mantech and its material subsidiaries ( as defined in the credit agreement ) and bear interest at one of the following variable rates as selected by the company at the time of borrowing : a london interbank offer rate ( libor ) based rate plus market-rate spreads ( 1.25 % to 2.25 % based on the company 's consolidated total leverage ratio ) or bank of america 's base rate plus market spreads ( 0.25 % to 1.25 % based on the company 's consolidated total leverage ratio ) . the terms of the credit agreement permit prepayment and termination of the loan commitments at any time , subject to certain conditions . the credit agreement requires the company to comply with specified financial covenants , including the maintenance of a certain leverage ratios and a certain fixed charge coverage ratio .
| general and administrative expenses the increase in general and administrative expense was primarily due to our acquisitions and facility related costs from newly leased office space . we expect general and administrative expenses as a percentage of revenues in 2013 to decline slightly compared to 2012 as we have instituted numerous cost reduction initiatives . other income ( expense ) , net the decrease in other income ( expense ) , net was due to the sale of our investment in netwitness in april 2011 , which resulted in a gain of $ 3.7 million for the year ended december 31 , 2011. provision for income taxes our effective income tax rates were 38.7 % and 38.1 % for the years ended december 31 , 2012 and 2011 , respectively . our tax rate is affected by recurring items , such as tax rates and the relative amount of income we earn in jurisdictions , which we expect to be fairly consistent in the near term . it is also affected by discrete items that may occur in any given year , but are not consistent from year to year . the difference between our statutory u.s. federal income tax rate of 35.0 % and our effective tax rate is state income taxes and non-deductible compensation . net income the decrease was due to lower revenues , increased general and administrative expenses and margin pressure on our new contracts , both from the shift in contract type to cost-reimbursable and increased competitive market place . we expect additional pressure on future levels of net income as a percentage of revenues as the trend towards cost-reimbursable contract awards , increased competition and pricing pressures continue to impact our operating margin . 32 year ended december 31 , 2011 compared to year ended december 31 , 2010 consolidated statements of income the following table sets forth certain items from our consolidated statements of income and the relative percentages that certain items of expense and earnings bear to revenues as well as the year-over-year change
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this acquisition is further described in note 3 “ acquisitions ” in the accompanying notes to consolidated financial statements in part ii , item 8 of this 2013 annual report on form 10-k. on january 26 , 2011 , the company purchased remag , ag ( “ remag ” ) of bern , switzerland for $ 4.9 million . remag distributes a line of precision flow measurement products , some of which they manufacture , for the global industrial market . their small turbine meters complement and expand the company 's existing line of industrial flow products . this acquisition is further described in note 3 “ acquisitions ” in the accompanying notes to consolidated financial statements in part ii , item 8 of this 2013 annual report on form 10-k. revenue and product mix prior to the company 's introduction of its own proprietary radio products , for example orion and galaxy , itron water utility-related products were a dominant radio products contributor to the company 's results . itron products are sold under an agreement between the company and itron , inc. that has been renewed multiple times and is in effect until early 2016. the company 's radio products directly compete with itron water radio products . in recent years , many of the company 's customers have selected the company 's proprietary products over itron products . while the company 's proprietary product sales are generally greater than those of the itron licensed products , the company expects that itron products will remain a significant component of sales to water utilities . continuing substantial sales in both product lines underscores the continued acceptance of radio technology by water utilities and affirms the company 's strategy of selling itron products in addition to its own proprietary products . as the industry continues to evolve , the company has been vigilant in anticipating and exceeding customer expectations . in 2011 , the company introduced ama as a hardware and software solution for water and gas utilities , and then in early 2014 launched its new beacon ama system as a managed solution which it believes will help maintain the company 's position as a market leader . the company continues to seek opportunities for additional revenue enhancement . for instance , the company is periodically asked to oversee and perform field installation of its products for certain customers . the company assumes the role of general contractor , hiring installation subcontractors and supervising their work . the company also supports its product and technology sales with the sale of extended service programs that provide additional services beyond the standard warranty . in recent years , the company has sold orion radio technology to natural gas utilities for installation on their gas meters . with the exception of a large sale of gas radios to one particular customer several years ago , the revenues from such products and services are not yet significant and the company is uncertain of the potential growth achievable for such products and services in future periods . 15 story_separator_special_tag style= '' line-height:120 % ; text-align : left ; text-indent:48px ; font-size:10pt ; '' > gross margins as a percentage of sales were 35.0 % , 38.2 % and 34.2 % for 2013 , 2012 and 2011 , respectively . the percentage decline in 2013 from the 2012 rate was due to a higher mix of municipal water sales compared to industrial flow sales which carry higher margins , lower prices charged to the former customers of a competitor that ceased north american production of water meters , higher obsolete inventory charges , higher costs of electronics due to foreign exchange effects , and higher costs of metal alloy as the shift to lead-free brass was completed . the gross margin percentage increase in 2012 over the 2011 rate was due in part to the addition of racine federated 's products , whose margins are generally a higher percentage than the company 's overall weighted margin percentage . margins also increased due to lower costs for castings which fluctuate with the metals market , and higher sales volumes in general which increased overall factory utilization . offsetting these factors was the impact of lower sales of radios to natural gas utilities . operating expenses selling , engineering and administration expenses in 2013 were $ 0.1 million , or 0.1 % higher than these expenses in 2012. the 2012 amounts included a $ 1.0 million charge related to the write down of the company 's investment in an emerging technology company . the 2013 amounts include intangible amortization charges associated with the aquacue acquisition , charges associated with a legal issue and normal inflationary increases . offsetting these increases were lower employee incentives and continuing cost control measures . selling , engineering and administration expenses in 2012 increased $ 15.5 million , or 24.9 % , over these expenses in 2011. the increase was primarily attributable to the acquisition of racine federated and amortization of intangibles acquired , which were not included in the results for 2011. the remainder of the increase was due to higher employee incentives and normal inflationary increases , offset by continuing cost control measures . the 2012 amounts include a $ 1.0 million charge related to the write down of the company 's investment in an emerging technology company and a $ 1.1 million non-cash pension charge as a result of payouts from the pension plan occurring faster than the assumed rate . operating earnings operating earnings in 2013 decreased $ 5.4 million , or 12.1 % , to $ 39.1 million compared to $ 44.5 million in 2012. the decrease was the result of the lower gross margins resulting from the mix of sales , the lower prices charged to customers of a former competitor , higher obsolescence costs and higher alloy costs , all offset somewhat by the higher net sales . story_separator_special_tag operating earnings in 2012 increased $ 17.0 million , or 61.8 % , to $ 44.5 million compared to $ 27.5 million in 2011 , as a net result of the higher sales of municipal water and industrial flow products , offset somewhat by higher selling , engineering and administration expenses . in addition , lower costs of certain raw materials also contributed to the increased operating earnings . interest expense , net interest expense , net was $ 1.1 million in 2013 compared to $ 1.0 million in 2012. the slight increase was due to higher average borrowings due in part to the aquacue acquisition in april 2013. interest expense , net was $ 1.0 million in 2012 compared to $ 0.2 million in 2011. the increase was due primarily to higher borrowings in 2012 associated with the acquisition of racine federated and the company 's stock repurchase program . 17 income taxes income taxes as a percentage of earnings before income taxes were 35.2 % , 35.5 % and 29.9 % for 2013 , 2012 and 2011 , respectively . the 2011 results include recognition of previously unrecognized tax benefits for certain deductions that were taken on prior tax returns . these benefits total approximately $ 1.3 million and were recognized in earnings in 2011 due to the realization that such benefits became more likely than not upon the conclusion of an irs audit of the company 's 2009 federal income tax return . without these benefits , the provision for income taxes as a percentage of earnings before income taxes for 2011 would have been 34.8 % . the variances in all three years presented are due to the changes in state taxes depending on each year 's sales and the relationship of foreign and domestic income which are taxed at different rates . earnings and diluted earnings per share because of the decreased operating earnings , net earnings were $ 24.6 million in 2013 compared to $ 28.0 million in 2012. on a diluted basis , earnings per share were $ 1.70 in 2013 compared to $ 1.95 in 2012. as a result of the increased operating earnings , offset somewhat by a higher effective tax rate , net earnings were $ 28.0 million in 2012 compared to $ 19.2 million in 2011. on a diluted basis , earnings per share were $ 1.95 in 2012 compared to $ 1.27 in 2011. liquidity and capital resources the main sources of liquidity for the company are cash from operations and borrowing capacity . in addition , depending on market conditions , the company may access the capital markets to strengthen its capital position and to provide additional liquidity for general corporate purposes . cash provided by operations in 2013 was $ 34.8 million compared to $ 34.8 million in 2012. the 2013 amount had lower earnings , an increase in receivables and a decrease in certain liabilities from 2012 , while the 2012 amounts contained an increase in inventories and a pension payment that did not recur in 2013. receivables at december 31 , 2013 were $ 50.1 million compared to $ 45.6 million at the end of 2012. the increase was due in part to higher sales in the fourth quarter of 2013 compared to the fourth quarter of 2012. the company believes its net receivables balance is fully collectible . inventories at december 31 , 2013 were $ 60.9 million and substantially unchanged from $ 61.0 million at december 31 , 2012. property , plant and equipment increased as a net result of capital expenditures offset by depreciation expense . capital expenditures totaled $ 14.3 million in 2013 compared to $ 8.2 million in 2012. these amounts vary due to the timing of capital expenditures . the company believes it has adequate capacity to increase production levels with minimal additional capital expenditures . intangible assets decreased to $ 57.3 million at december 31 , 2013 from $ 58.4 million at december 31 , 2012. this is the net impact of a $ 3.9 million increase due to the acquisition of aquacue , more than offset by normal amortization expense . also , as a result of the aquacue acquisition , goodwill increased to $ 44.7 million at december 31 , 2013 compared to $ 35.9 million at december 31 , 2012. due to higher than expected returns for the company 's pension assets , there was a prepaid pension amount of $ 4.3 million at december 31 , 2013. at december 31 , 2012 , a pension liability of $ 4.2 million was included in other accrued employee benefits , which saw a reduction to $ 4.4 million at december 31 , 2013 from $ 8.9 million at december 31 , 2012. short-term debt increased from december 31 , 2012 to december 31 , 2013 as the company borrowed funds for its acquisition of aquacue . at the end of 2013 , debt represented 26.3 % of the company 's total capitalization . none of the debt is secured by the company 's assets . payables increased at december 31 , 2013 to $ 18.6 million compared to $ 15.6 million at december 31 , 2012. the 2012 amount included $ 4.6 million owed to the sellers of racine federated that was paid july 31 , 2013. the 2013 amount includes $ 3.0 million owed to the sellers of aquacue that will be paid in 2014. the remainder of the increase was due to the timing of purchases . accrued compensation and employee benefits decreased $ 2.5 million to $ 7.3 million at december 31 , 2013 from $ 9.8 million at december 31 , 2012 primarily due to lower accrued employee incentives .
| specialty products represented 3.5 % of total net sales in 2013 compared to 4.3 % in 2012. these sales decreased $ 1.9 million in 2013 , or 13.9 % , to $ 11.8 million from $ 13.7 million in 2012. the decline was caused by lower sales of radios into the natural gas market and lower sales of concrete vibrators . international sales for municipal water meters and related technologies are generally made to customers in canada and mexico , which use similar mechanical technology and standards as customers in the u.s. international sales for industrial flow and specialty products are generally made throughout the world . in europe , sales are made primarily in euros . other international sales are made in u.s. dollars or local currencies . international sales decreased 9.3 % to $ 44.1 million in 2013 from $ 48.6 million in 2012 primarily due to the timing of large projects and general economic conditions . net sales in 2012 increased $ 56.8 million , or 21.6 % , to $ 319.7 million from $ 262.9 million in 2011. the overall increase was due to the inclusion of racine federated 's net sales for eleven months of the year and higher municipal water sales , offset somewhat by lower sales of radios to natural gas utilities . racine federated 's sales for the eleven months ended december 31 , 2012 were $ 41.3 million . municipal water sales increased $ 22.9 million , or 12.0 % , to $ 213.2 million in 2012 from $ 190.3 million in 2011. these sales represented 66.7 % of total net sales in 2012 compared to 72.4 % in 2011. the sales increase was due to higher sales of residential meters sold with technology as well as higher commercial meter sales . sales of meters with technology increased 11.6 % for the year due to higher volumes of product sold . sales of manually read residential meters were essentially flat between years .
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$ 0.86 , $ 1.42 and $ 114.6 million , respectively . see the non-gaap financial measures section for a reconciliation to our most directly comparable gaap financial measures . b usiness d evelopments : f iscal 2019 on may 20 , 2019 , we announced the commencement of an underwritten public offering of our common stock , par value $ 0.01 per share . on may 31 , 2019 we closed the offering , including the full over-allotment allocation , selling an aggregate of 6.9 million shares of common stock at a price to the public of $ 69.00 for total net proceeds of $ 454.3 million . on april 18 , 2019 , we acquired the athena group , inc. ( “ athena ” ) and syntonic microwave llc ( “ syntonic ” ) . athena was a privately-held company based in gainesville , florida and a leading provider of cryptographic and countermeasure ip vital to securing defense computing systems . syntonic was a privately held company based in campbell , california and a leading provider of advanced synthesizers , wideband phase coherent tuners and microwave converters optimized for signals intelligence and electronic intelligence applications demanding frequency coverage up to 40 ghz with 2 ghz instantaneous bandwidth . the acquisition and transaction related expenses were funded with borrowings obtained under the revolver . on january 29 , 2019 , we acquired geco avionics , llc ( “ geco ” ) . based in mesa , arizona , geco has over twenty years of experience designing and manufacturing affordable safety-critical avionics and mission computing solutions . the acquisition and transaction related expenses were funded with borrowings obtained under the revolver . on september 28 , 2018 , we amended the revolver to increase and extend the borrowing capacity to a $ 750.0 million , 5-year revolving credit line , with the maturity extended to september 2023. during fiscal 2019 , we drew additional borrowings of $ 129.5 million to facilitate the acquisitions of germane , geco , athena and syntonic in the first , third and fourth quarters of fiscal 2019 , respectively . in conjunction with the net proceeds generated by our follow-on equity offering , we paid down the balance on the revolver during the fourth quarter of fiscal 2019 and terminated our hedge facility . on july 31 , 2018 , we acquired germane systems , lc ( “ germane ” ) . based in chantilly , virginia , germane is an industry leader in the design , development and manufacturing of rugged servers , computers and storage systems for command , control and intelligence ( “ c2i ” ) applications . the acquisition and transaction related expenses were funded with borrowings obtained under the revolver . f iscal 2018 on february 1 , 2018 , we acquired themis computer ( “ themis ” ) . themis is a leading designer , manufacturer and integrator of commercial , swap-optimized rugged servers , computers and storage systems for u.s. and international markets . the acquisition and transaction related expenses were funded with borrowings obtained under the revolver . 36 story_separator_special_tag to added headcount from fiscal 2019 as well as the full year impact of the themis acquisition . our headcount within the organic business also increased during fiscal 2019. selling , general and administrative expenses decreased as a percentage of revenue to 16.9 % during fiscal 2019 from 17.9 % during fiscal 2018 primarily due to improved operating leverage . r esearch and d evelopment research and development expenses increased $ 10.1 million , or 17 % , to $ 68.9 million during fiscal 2019 compared to $ 58.8 million for fiscal 2018 . the increase was primarily due to increased headcount from our recent acquisitions , driving higher compensation related costs partially offset by a higher volume of crad . research and development expenses accounted for 10.5 % and 11.9 % of our revenues during fiscal 2019 and fiscal 2018 , respectively . the decrease was primarily driven due to higher revenues and additional crad in fiscal 2019 compared to fiscal 2018 . a mortization of i ntangible a ssets amortization of intangible assets increased $ 1.9 million to $ 27.9 million during fiscal 2019 compared to $ 26.0 million for fiscal 2018 , primarily due to the full year impact of amortization from the acquisition of themis , as well as the amortization from our fiscal 2019 acquisitions . r estructuring and o ther c harges restructuring and other charges decreased $ 2.6 million , or 82 % , to $ 0.6 million during fiscal 2019 compared to $ 3.2 million in fiscal 2018 . the decrease was primarily driven by higher severance costs related to the separation of 38 employees primarily in r & d and operations functions during fiscal 2018. restructuring and other charges are typically related to acquisitions and organizational redesign programs initiated as part of discrete post-acquisition integration activities . a cquisition c osts and o ther r elated e xpenses we incurred $ 1.5 million of acquisition costs and other related expenses during fiscal 2019 , compared to $ 2.5 million during fiscal 2018 . the acquisition costs and other related expenses we incurred during fiscal 2019 were primarily related to the acquisitions of germane , geco , syntonic and athena . the acquisition costs and other related expenses for the same period in fiscal 2018 were primarily related to the acquisition of themis . we expect to incur acquisition costs and other related expenses periodically in the future as we continue to seek acquisition opportunities to expand our capabilities and new end markets . we announced the execution of a purchase agreement to acquire american panel corporation ( “ apc ” ) . our agreement to acquire apc is for an all cash purchase price of $ 100.0 million , subject to net working capital and net debt adjustments . we expect to incur additional acquisition costs and other related expenses during the first quarter of fiscal 2020. see note r to our consolidated financial statements for further discussion on subsequent events . story_separator_special_tag i nterest i ncome interest income increased to $ 0.9 million in fiscal 2019 due to higher average balances of cash on hand primarily driven by net proceeds of $ 454.3 million from our following offering and a higher interest rate throughout the year . i nterest e xpense interest expense for fiscal 2019 increased $ 6.2 million to $ 9.1 million compared to $ 2.9 million in fiscal 2018. fiscal 2019 included interest expense related to the additional borrowings on the revolver from our recent acquisitions , prior to the pay down on the revolver during the fourth quarter of fiscal 2019. during fiscal 2018 , we incurred $ 2.9 million in cash interest expense on the revolver in order to facilitate the acquisition of themis . o ther e xpense , n et other expense , net increased $ 7.3 million to $ 8.9 million during fiscal 2019 compared to $ 1.6 million in fiscal 2018 . the increase was primarily due to $ 5.4 million in expense associated with the termination of the interest rate swap in conjunction with leveraging the net proceeds generated by our follow-on equity offering to pay down the balance on the revolver during the fourth quarter of fiscal 2019. additionally , the increase was partially driven by $ 0.5 million foreign exchange loss compared to a $ 0.6 38 million gain during the same period in fiscal 2018 as well as $ 0.4 million of additional financing and registration fees incurred during fiscal 2019 compared to fiscal 2018. i ncome t axes we recorded an income tax provision of $ 12.8 million and $ 1.7 million on income before income taxes of $ 59.5 million and $ 42.6 million for our fiscal years ended june 30 , 2019 and 2018 , respectively . we recognized a discrete tax benefit of $ 2.7 million and $ 7.9 million related to excess tax benefits on stock-based compensation for our fiscal years ended june 30 , 2019 and 2018 , respectively . our fiscal year ended june 30 , 2018 also includes a discrete tax benefit of $ 3.7 million derived from new information obtained about net operating loss carry-forwards of the carve-out business . the effective tax rate for the fiscal year ended june 30 , 2019 differed from the federal statutory rate of 21 % primarily due to increases to the rate caused by state taxes , partially offset by decreases to the rate caused by federal research and development credits and excess tax benefits related to stock-based compensation . the effective tax rate for the fiscal year ended june 30 , 2018 differed from the federal statutory rate of 28 % primarily due to increases to the rate caused by state taxes , partially offset by decreases to the rate caused by federal research and development credits , domestic manufacturing deduction , excess tax benefits related to stock-based compensation , and acquired tax attributes . within the calculation of our annual effective tax rate we have used assumptions and estimates that may change as a result of future guidance and interpretation from the internal revenue service . these changes could have a material impact on our future u.s. tax expense . liquidity and capital resources our primary sources of liquidity come from existing cash and cash generated from operations , our revolver and our ability to raise capital under our universal shelf registration statement . our near-term fixed commitments for cash expenditures consist primarily of payments under operating leases and inventory purchase commitments . we plan to invest in improvements to our new facilities during fiscal 2020. based on our current plans and business conditions , we believe that existing cash and cash equivalents , our available revolver , cash generated from operations , and our financing capabilities will be sufficient to satisfy our anticipated cash requirements for at least the next twelve months . shelf registration statement on august 28 , 2017 , we filed a shelf registration statement on form s-3asr with the sec . the shelf registration statement , which was effective upon filing with the sec , registered each of the following securities : debt securities , preferred stock , common stock , warrants and units . we intend to use the proceeds from financings using the shelf registration statement for general corporate purposes , which may include the following : the acquisition of other companies or businesses ; the repayment and refinancing of debt ; capital expenditures ; working capital ; and other purposes as described in the prospectus supplement . we have an unlimited amount available under the shelf registration statement . additionally , as part of the shelf registration statement , we have entered into an equity distribution agreement which allows us to sell an aggregate of up to $ 200.0 million of our common stock from time to time through our agents . the actual dollar amount and number of shares of common stock we sell pursuant to the equity distribution agreement will be dependent on , among other things , market conditions and our fund raising requirements . the agents may sell the common stock by any method deemed to be an “ at the market offering ” as defined in rule 415 of the securities act of 1933 , as amended , including without limitation sales made directly on nasdaq , on any other existing trading market for the common stock or to or through a market maker . in addition , our common stock may be offered and sold by such other methods , including privately negotiated transactions , as we and the agents may agree . as of june 30 , 2019 , we have not sold any stock using our at the market offering feature . follow-on equity offerings on may 20 , 2019 , we announced the commencement of an underwritten public offering of our common stock , par value $ 0.01 per share .
| these increases were partially offset by lower revenues from the aegis and sewip programs . acquired revenues increased $ 53.5 million primarily due to increases in demand for integrated subsystems and components product groupings across the c4i applications , driven predominantly by the win-t and cps programs . see the non-gaap financial measures section for a reconciliation to our most directly comparable gaap financial measures . international revenues , which consist of foreign military sales through the u.s. government , sales to prime defense contractor customers where the end user is known to be outside of the u.s. , and direct sales to non-u.s. based customers , decreased $ 9.3 million to $ 73.8 million during fiscal 2019 compared to $ 83.1 million during fiscal 2018 . international revenues represented 11 % and 17 % of total revenues during fiscal 2019 and 2018 , respectively . g ross m argin gross margin was 43.7 % for fiscal 2019 , a decrease of 210 basis points from 45.8 % in fiscal 2018 . the lower gross margin was primarily driven by acquired business of germane , which historically generated lower gross margins . lower gross margins are also attributed to a higher volume of customer funded research and development ( “ crad ” ) , which primarily represents 37 engineering labor associated with long-term contracts for customized development , production and service activities . these products are predominately grouped within integrated subsystems and , to a lesser extent , modules and sub-assemblies . decreases in gross margin were partially offset by lower inventory step-up amortization associated with our acquired businesses compared to the same period in fiscal 2018 as well as results from the higher margin contributions from the acquisitions of athena and syntonic during the fourth quarter of fiscal 2019. s elling , g eneral and a dministrative selling , general and administrative expenses increased $ 22.4 million , or 25 % , to $ 110.7 million during fiscal 2019 as compared to $ 88.4 million during fiscal 2018 .
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winnings from the competitions ) , end-user incentives accounted for as reduction of revenue and the profit share paid to developers ( the “ take rate ” ) . gmv represents entry fees that may be paid using cash deposits , prior cash winnings that have not been withdrawn , and end-user incentives . cash deposits represented approximately 11 % of total entry fees for the years ended december 31 , 2020 and 2019. prior cash winnings that have not been withdrawn represented approximately 82 % of total entry fees for the years ended december 31 , 2020 and 2019. end-user incentives represented approximately 7 % of total entry fees for the years ended december 31 , 2020 and 2019. our model has allowed us to grow users , developers and revenue steadily while driving meaningful operating leverage . the following are key elements of our financial model : the scale , growth and engagement of the users — as we continue to acquire users , our ability to match comparable players , on both skill level and tournament template , in a fair and timely manner improves . better matching leads to stronger engagement and the ability to create larger tournaments with more profitable take rates . this creates a stickier , more engaging , and continuously improving experience for our players , which in turn attracts more players to our platform , creating a positively reinforcing cycle leading to ever-improving gaming experiences . in the years ended december 31 , 2020 and 2019 , we estimate that paying users spent an average of 60 and 62 minutes per day in game play on our platform 1 . 1 based on the average number of tournament entries per day multiplied by 4 minutes per tournament . skillz tracks the number of games that end users play but does not monitor end user playing time on its platform , and this estimate is based on the time allowed to complete a tournament in the top three games for paying users featured on our platform . accordingly , the actual time paying users spend per day on the platform may be less than such estimate . 40 the scale , growth and partnership of our developers — we have created a platform that drives economic success for our developers . our end-to-end platform allows developers to focus on creating games by automating and optimizing integral parts of their businesses — from user acquisition and monetization to game optimization . our built-in payments , analytics , customer support , and live operations platform enables our developers to consistently learn , grow , earn and share in our success . product-first philosophy and data science capabilities — we have built a culture that puts product first , driving our impact with users and developers and then scaling marketing investment . in 2020 , 46 % of our salary costs were spent on product development . our easy-to-integrate sdk contains over 200 features in a 15-mb package which allows for over-the-air upgrades . our intuitive developer console dashboard enables our developers to rapidly integrate and monitor the performance of their games . our liveops system enables us to manage and optimize the user experience across the thousands of games on our platform . we collect over 300 data points during each gameplay session to feed our big data assets which augment all elements of our platform . our key data science technologies drive our player rating and matching , anti-cheat and anti-fraud , and user experience personalization engine . our unit economics — our proprietary and highly scalable software platform produces revenue at a low direct cost , contributing to our gross margins . once acquired , each user cohort contributes predictably to revenue over its life . a cohort is all the users acquired in the period presented . a user is considered part of a cohort based on the first time they make a deposit and enter a paid tournament . once a user is considered part of a cohort , they are always counted in that cohort . for example , our 2016 cohort contributed $ 6.0 million in revenue in the first year , $ 5.5 million in the second year , $ 5.5 million in the third year , $ 6.6 million in the fourth year , and $ 7.2 million in the fifth year . our 2017 cohort contributed $ 9.9 million in revenue in the first year , $ 10.3 million in the second year . $ 9.6 million in the third year and $ 9.5 million in the fourth year . our 2018 cohort contributed $ 33.2 million in revenue in the first year , $ 36.1 million in the second year , and $ 31.5 million in the third year . our 2019 cohort contributed $ 65.2 million in revenue in the first year and $ 64.3 million in the second year . our 2020 cohort contributed $ 115.8 million in revenue in the first year . we also complement these stable cohort dynamics with disciplined user acquisition spending . we currently expect that the average three-year lifetime value of our 2018 , 2019 and 2020 cohorts will be 3.8x our total user acquisition costs ( and after taking into account the end-user incentives recorded and expected to be recorded in sales and marketing expense is expected to be 2.5x ) . key components of results of operations revenue sk illz provides a service to the game developers aimed at improving the monetization of their game content . the monetization service provided by skillz allows developers to offer multi-player competition to their end-users which increases end-user retention and engagement . story_separator_special_tag by utilizing the skillz monetization services , game developers can enhance the player experience by enabling them to compete in head-to-head matches , live tournaments , leagues , and charity tournaments and increase player retention through referral bonus programs , loyalty perks , on-system achievements and rewarding them with prizes , including bonus cash prizes , a promotional incentive that can not be withdrawn and can only be used by end-users to enter into paid entry fee contests ( “ bonus cash ” ) . skillz provides developers with a sdk that they can download and integrate with their existing games . the sdk serves as a data interface between skillz and the game developers that enables skillz to provide monetization services to the developer . specifically , thes e monetization services include end-user registration services , player matching , fraud and fair play monitoring , and billing and settlement services . the sdk and skillz monetization services provide the following key benefits to the developers : streamlined game and tournament management allowing players to register with the developer to compete in games for prizes while earning skillz loyalty perks ; fair play in each tournament via the skillz suite of fairness tools , including skill-based player matching and fraud monitoring ; 41 improved end-user retention by rewarding the most loyal players with prizes and tickets ( “ ticketz ” ) which can be redeemed in the skillz virtual store . ticketz are earned in every match and can be redeemed for prizes or credits to be used towards future paid entry fee tournaments ; marketing campaigns through main-stream online advertising networks and social media platforms to drive end-user traffic to developers ' games within the skillz ecosystem ; systematic calls to end-user action via push notifications to users with game results , promotional offers , and time-sensitive actions ; and process end-user payments , billings and settlements on behalf of the developer to enable players to connect their preferred payment method to deposit and enter into the game developers ' multi-player competitions for cash prizes . generally , end-users are required to deposit funds into their skillz account in order to be eligible to participate in games for prizes . as part of its monetization services , skillz is responsible for processing all end-user payments , billings and settlements on behalf of the game developer , such that the game developer does not have to collect directly from or make payments directly to the end-users . when the end-users enter into cash games , the end-users pay an entry fee using cash deposits , prior cash winnings in the end-users ' accounts that have not been withdrawn , and end-user incentives ( specifically bonus cash ) . skillz recognizes revenue related to each game regardless of how entry fees are paid . skillz is responsible for distributing the prize money to the winner on behalf of the game developer . skillz typically withholds 16 % – 20 % of the total entry fees when distributing the prize money as a commission . that commission is shared between skillz and the game developers ; however , the game developers ' share is calculated solely based upon entry fees paid by net cash deposits received from end-users , adjusted for certain costs incurred by skillz to provide monetization services . costs and expenses cost of revenue our cost of revenue consists of variable costs . these include mainly ( i ) payment processing fees , ( ii ) customer support costs , ( iii ) direct software costs , ( iv ) amortization of internal use software and ( v ) server costs . we incur payment processing costs on user deposits . we also incur costs directly related to servicing end-user support tickets on behalf of the game developer that are logged by users directly within the skillz sdk . these support costs include an allocation of the facilities expense , such as rent , maintenance and utilities costs according to headcount , needed to service these tickets . we use a third party as our cloud computing service ; we incur server and software costs as a direct result of running our sdk in our developers ' games . research and development research and development expenses consist of software development costs , comprised mainly of product and platform development , server and software costs that support research and development activities , and to a lesser extent , allocation of rent , maintenance and utilities costs according to headcount . personnel related expenses consist of salaries , benefits , and stock-based compensation . we expect research and development expenses will fluctuate both in terms of absolute dollars and as a percentage of revenue in the future . sales and marketing sales and marketing expenses consist primarily of direct advertising costs and end-user incentives that are not recorded as a reduction of revenue . sales and marketing also includes allocations of rent , maintenance and utilities costs according to headcount . personnel related expenses consist of salaries , benefits , and stock-based compensation . we expect sales and marketing expenses will fluctuate both in terms of absolute dollars and as a percentage of revenue in the future . general and administrative general and administrative expenses consist of personnel-related expenses for our corporate , executive , finance , and other administrative functions , expenses for outside professional services , and allocation of rent , maintenance and utilities costs according to headcount . personnel related expenses consist of salaries , benefits , and stock-based compensation . we expect our general and administrative expenses to increase for the foreseeable future as we scale headcount with the growth of our business , and as a result of operating as a public company , including compliance with the rules and regulations of 42 the sec , legal , audit , additional insurance expenses , investor relations activities , and other administrative and professional services .
| cost of revenue as a percentage of revenue increased one percentage point to 5 % in 2019 from 4 % in 2018. research and development replace_table_token_3_th 2020 compared to 2019 research and development costs increased by $ 12.0 million , or 107 % , to $ 23.2 million in 2020 from $ 11.2 million in 2019. the increase was primarily driven by a $ 11.3 million increase in research and development headcount cost , of which $ 5.9 million was related to stock based compensation , a $ 1.7 million increase in server and software costs , and a $ 0.5 million increase in allocation of related overhead costs , partially offset by a $ 1.4 million increase in capitalized internal-use software development costs , as certain projects entered the application development stage . research and development expenses accounted for 10 % of revenues in 2020 compared to 9 % in 2019 . 2019 compared to 2018 research and development expenses increased by $ 3.7 million , or 49 % , to $ 11.2 million in 2019 from $ 7.5 million in 2018. the increase was driven by a $ 3.4 million increase in research and development headcount costs and a $ 1.6 million increase in the allocation of related overhead costs , partially offset by a $ 1.3 million increase in capitalized internal-use software development costs , as certain projects entered the application development stage . research and development expenses accounted for 9 % of revenues in 2019 compared to 15 % in 2018. sales and marketing replace_table_token_4_th 2020 compared to 2019 sales and marketing costs increased by $ 140.6 million , or 126 % , to $ 251.9 million in 2020 from $ 111.4 million in 2019. the increase was attributable primarily to a 160 % increase in spend to acquire new paying users and a 97 % increase in engagement marketing spend . user acquisition marketing costs were $ 136.6 million and $ 52.5 million in 2020 and 2019 , respectively . this increase reflects higher digital advertising costs that resulted in an increase in our acquisition cost per user in 2020 compared to 2019. engagement marketing costs were $ 99.8 million and $ 50.7 million in 2020 and 2019 , respectively . engagement marketing as a percentage of revenue increased to 43 % in 2020 from 42 % in
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the purchase price of the acquisition was approximately $ 6.0 million , plus additional consideration contingent upon growth in gross margins of selected products for five years subsequent to the acquisition . in order to appropriately support the increased wool business , we are realigning certain manufacturing equipment in this facility and infrastructure across our company related to wool products . as our wool production capabilities are being expanded and enhanced , we are developing new products and investing in increased product sampling for these products . until such time that all of these actions have been completed and products are in the field , there will be a negative effect on our results . subsequent to our 2013 year end , on january 20 , 2014 , our board of directors approved a 2014 warehousing/distribution/manufacturing restructuring plan intended to align our warehousing , distribution and manufacturing to support our growth and manufacturing strategy . the plan is intended to create a better cost structure and improve distribution capabilities and customer service . the key element and first major step of this plan is the leasing and occupancy of a 292,000 square foot finished goods warehouse , cut-order and distribution facility in adairsville , georgia ; such lease and occupancy to commence as of may 1 , 2014. we expect the plan to be substantially completed in the second quarter of the fiscal year ending december 26 , 2015. we currently expect the implementation of this plan will result in total restructuring expenses of approximately $ 2.4 million , with approximately $ 1.3 million of such expenses during the fiscal year ending december 27 , 2014 and approximately $ 1.1 million of such expenses during the fiscal year ending december 26 , 2015 , primarily consisting of moving and relocation expenses , information technology expenses and expenses relating to conversion and realignment of equipment . we remain optimistic about conditions that affect the higher-end residential markets we serve and continue to address initiatives in our commercial offerings related to our products , manufacturing processes and distribution alternatives . story_separator_special_tag ( benefit ) . our income tax provision was a benefit of $ 643 thousand in 2013 on positive earnings primarily as a result of the reversal of $ 1.2 million of previously established reserves for state income tax loss and tax credit carryforwards . the reversal of the reserves was based on a number of factors including current and future earnings assumptions by taxing jurisdiction . additionally , 2013 included certain tax credits of approximately $ 520 thousand related to the years 2009 - 2011 determined to be available for utilization and $ 304 thousand of 2012 research and development tax credits that could not be recognized until the extension of the credit was approved by congress in 2013. our effective income tax benefit rate was 38.0 % in 2012. the effective tax rate varied from statutory rates in 2012 primarily as a result of adjustments to 18 estimates used in the 2011 estimated tax calculations versus amounts used in the subsequent tax return filing for the 2011 period , net of the effects of permanent differences on the lower level of pre-tax earnings in the 2012 tax calculations . net income ( loss ) . continuing operations reflected income of $ 5.4 million , or $ 0.40 per diluted share in 2013 , compared with a loss from continuing operations of $ 653 thousand , or $ 0.05 per diluted share in 2012. our discontinued operations reflected a loss of $ 68 thousand , or $ 0.01 per diluted share in 2013 , compared with a loss of $ 274 thousand , or $ 0.02 per diluted share in 2012. including discontinued operations , our net income was $ 5.3 million , or $ 0.39 per diluted share , in 2013 compared with a net loss of $ 927 thousand , or $ 0.07 per diluted share , in 2012. fiscal year ended december 29 , 2012 compared with fiscal year ended december 31 , 2011 net sales . net sales for the year ended december 29 , 2012 were $ 266.4 million compared with $ 270.1 million in the year-earlier period , a decrease of 1.4 % for the year-over-year comparison . net sales in 2012 reflected an increase of 0.4 % compared with 2011 on a `` net sales as adjusted '' basis . the carpet industry reported a percentage increase in the low single digits in net sales in 2012. our 2012 year-over-year carpet sales comparison reflected a decrease of 1.8 % in net sales , or 0.1 % on a `` net sales as adjusted '' basis . sales of residential carpet are up 2.5 % , or 4.3 % on a `` net sales as adjusted '' basis and sales of commercial carpet declined 12.7 % , or 11.1 % on a `` net sales as adjusted '' basis . revenue from carpet yarn processing and carpet dyeing and finishing services increased $ 1.1 million in 2012 compared with 2011. cost of sales . cost of sales , as a percentage of net sales , was basically unchanged ; a decrease of 0.2 percentage points in 2012 compared with 2011. cost of sales included costs of approximately $ 926 thousand in 2012 related to tufting equipment relocations . other manufacturing efficiencies and cost improvements more than offset these relocation costs . gross profit . gross profit was basically unchanged in both total dollars and as a percentage of net sales in 2012 compared with 2011. gross profit on lower sales in 2012 was affected by costs of approximately $ 926 thousand incurred in 2012 related to tufting equipment relocations . however , we experienced more favorable product mix in our residential products in 2012 compared with 2011. selling and administrative expenses . story_separator_special_tag selling and administrative expenses reflected an increase of $ 2.8 million , or 1.3 percentage points as a percentage of sales in 2012 compared with 2011. the increase is primarily a result of an increase of $ 1.7 million related to investment in the development and sampling of new product initiatives , $ 409 thousand for costs related to the two acquisitions and $ 600 thousand of costs related to management changes . other operating ( income ) expense , net . net other operating expense was $ 68 thousand in 2012 compared with net other operating income of $ 266 thousand in 2011. the change was due to a settlement gain of $ 492 thousand recognized in 2011 related to a company-owned insurance policy , net of a decrease in certain retirement related expenses of $ 170 thousand in 2012 compared with 2011. facility consolidation and severance ( benefit ) expense , net . facility consolidation and severance expenses reflected a cost reduction of $ 563 thousand in 2011. the gain in 2011 was a result of the favorable settlement of a lease obligation in 2011 compared with the amount previously reserved under our restructuring plan . operating income ( loss ) . operating income was $ 1.8 million in 2012 compared with operating income of $ 5.7 million in 2011. the decrease in 2012 was primarily a result of the higher selling and administrative expenses and gains in 2011 related to the facilities consolidation and company-owned life insurance of $ 563 thousand and $ 492 thousand , respectively . interest expense . interest expense decreased $ 324 thousand in 2012 principally due to lower interest rates in 2012 compared with 2011. other ( income ) expense , net . other income was $ 277 thousand in 2012 compared with income of $ 75 thousand in 2011 , an improvement of $ 202 thousand . the change was primarily the result of a gain recognized on the sale of a non-operating asset in 2012. refinancing expenses . expenses of $ 317 thousand were recorded in the third quarter of 2011 related to refinancing our senior credit and term loan facility and included the costs associated with the extinguishment or modification of existing debt and the addition of new debt arrangements . income tax provision ( benefit ) . our effective income tax benefit rate was 38.0 % in 2012 , compared with an effective income tax provision rate of 35.0 % in 2011. the effective tax rate varied from statutory rates in 2012 primarily as a result of adjustments to estimates used in the 2011 estimated tax calculations versus amounts used in the subsequent tax return filing for the 2011 period , net of the effects of permanent differences on the lower level of pre-tax earnings in the 2012 tax calculations . net income ( loss ) . continuing operations reflected a loss of $ 653 thousand , or $ 0.05 per diluted share in 2012 , compared with income from continuing operations of $ 1.3 million , or $ 0.10 per diluted share in 2011. our discontinued operations reflected a loss of $ 274 thousand , or $ 0.02 per diluted share in 2012 , compared with a loss of $ 286 thousand , or $ 0.02 per diluted share in 19 2011. including discontinued operations , our net loss was $ 927 thousand , or $ 0.07 per diluted share , in 2012 compared with net income of $ 986 thousand , or $ 0.08 per diluted share , in 2011. liquidity and capital resources we believe our operating cash flows , credit availability under our senior loan and security agreement and other sources of financing are adequate to finance our normal foreseeable liquidity requirements . however , deterioration in our markets or significant additional cash expenditures above our normal liquidity requirements could require supplemental financing or other funding sources . there can be no assurance that such supplemental financing or other sources of funding can be obtained or will be obtained on terms favorable to us . cash sources and uses . during the year ended december 28 , 2013 , cash provided from financing activities was $ 19.2 million . $ 5.9 million was used to fund our operating activities , $ 11.4 million to invest in property , plant and equipment and $ 2.2 million cash paid in business combination . working capital increased $ 18.7 million in 2013 , including an increase in inventories of $ 21.4 million to support higher levels of business activity and an increase of $ 11.6 million in accounts receivable primarily related to the higher level of sales . additionally , other current assets increased approximately $ 2.0 million as a result of deposits related to equipment financing arrangements and the current portion of deferred tax assets . accounts payable increased $ 6.8 million in 2013 compared with 2012 primarily as a result raw material purchases associated with the increased levels of business and accrued expenses increased $ 7.1 million primarily as a result of significant growth in our business during 2013. additionally , the current portion of debt reflected an increase of $ 2.2 million as of the 2013 balance sheet date compared with the 2012 comparative period related to increases in funded debt levels outside of our revolving facility . capital expenditures , excluding assets acquired under business acquisitions , were $ 13.3 million in 2013 ; $ 11.4 million through funded debt and $ 1.9 million of equipment acquired under capital leases , $ 4.1 million in 2012 and $ 6.8 million in 2011. depreciation and amortization were $ 10.3 million in 2013 , $ 9.4 million in 2012 and $ 9.6 million in 2011. a significant portion of capital expenditures in 2013 were directed toward expanding manufacturing capabilities while capital expenditures in 2012 and 2011 were directed to a greater degree toward new and more efficient manufacturing capabilities and , to a lesser extent in each year , computer software enhancements .
| revenue from carpet yarn processing and carpet dyeing and finishing services increased $ 4.1 million in 2013 compared with 2012. we believe our residential and commercial sales were positively affected primarily as a result of the introduction of new products and the expansion of our wool products . cost of sales . cost of sales , as a percentage of net sales , was basically unchanged in 2013 compared with 2012. cost of sales in 2013 included approximately $ 5.1 million of costs associated with acquisitions in late 2012 and 2013 as well as certain process realignment and expansion initiatives undertaken during 2013. cost of sales in 2012 included incremental costs of approximately $ 1.4 million related to tufting equipment relocations and costs related to the transition of products from our beck dyeing operations to our continuous dyeing operations acquired in the fourth quarter of 2012. gross profit . gross profit increased $ 20.3 million in 2013 compared with 2012. the increase in gross profit was primarily attributable to higher sales . gross profit in 2013 and 2012 was negatively affected by the incremental costs discussed above related to costs of sales . selling and administrative expenses . selling and administrative expenses were $ 76.6 million in 2013 compared with $ 63.5 million in 2012 , a decline of 1.6 percentage points as a percentage of sales in 2013 compared with 2012. selling and administrative costs in 2013 included approximately $ 1.8 million of sampling costs incurred to incorporate the new wool products associated with the robertex acquisition and our launch of a new tile product line . 2012 included $ 1.7 million related to investment in the development and sampling of new product initiatives , $ 409 thousand for incremental costs related to the two acquisitions and $ 600 thousand of costs related to management changes . other operating ( income ) expense , net . net other operating ( income ) expense was $ 494 thousand in 2013 compared with $ 68 thousand
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contract producers utilize their facilities to produc e shell eggs from layers owned by us . we own the shell eggs produced under these arrangements . for fiscal 201 5 , approximately 2 5 % of the total number of shell eggs sold by us was purchased from outside producers for resale . our cost of production is materially affected by feed costs , which are highly volatile and subject to wide fluctuation . for fiscal 201 5 , feed costs averaged about 6 2 % of our total farm egg production cost . changes in market prices for corn and soybean meal , the primary ingredients in the feed we use , result in changes in our cost of goods sold . for our last five fiscal years , average feed cost per dozen sold ranged from a low of $ 0.3 9 in fiscal 201 1 to a high of $ 0.54 in fiscal 2013. the cost of our primary feed ingredients , which are commodities , are subject to factors over which we have little or no control such as volatile price changes caused by weather , size of harvest , transportation and storage costs , demand and the agricultural and energy policies of the u.s. and foreign governments . favorable weather conditions and improved yields for the 2014 crop increase d supplies of both corn and soybean meal for fiscal year 2015 ; however , we expect the outlook for feed prices to remain volatile . during the fourth quarter of fiscal 2015 , the company entered into the red river valley egg farm , llc ( “ red river ” ) joint venture with rose acre farms , inc. the joint venture will build and operate a state of the art shell egg production complex near bogata , red river county , texas . the plans for the complex provide capacity for approximately 1.8 million cage-free laying hens . construction of the complex has commenced , and the initial flocks are expected to be placed in november 2015. we did not incur material costs associated with the joint venture in fiscal 2015. the acquisition of our joint venture partner 's 50 % interest in delta egg farm , llc ( “ delta egg ” ) and the purchases of the commercial egg assets of pilgrim 's pride corporation and maxim production co. , inc. as described in note 2 of the notes to the consolidated financial statements are referred to below as the “ acquisitions ” . our fiscal 2015 , 2014 and 2013 financial results include the operations of delta egg beginning march 1 , 2014 , maxim beginning november 15 , 2012 , and pilgrim 's pride beginning august 10 , 2012 . prior to march 1 , 2014 , our 50 % interest in the earnings of delta egg wa s included in equity in earnings of affiliates under the equity method of accounting . we effected a 2-for-1 stock split for share s of our common stock and class a common stock in october 2014 , and all per share amounts in this report have been adjusted as necessary to reflect the split . story_separator_special_tag style= '' display : inline ; font-size:11pt ; '' > . for the thirteen-week period ended may 3 0 , 201 5 , non-specialty shell eggs represented approximately 68.5 % of our shell egg dollar sales , compared to 7 0 .4 % for the thirteen-week period ended may 31 , 2014 . for the t hirteen-week period ended may 30 , 201 5 , non-specialty shell eggs accounted for approximately 77.1 % of the total shell egg dozen volume , compared to 78.4 % for the thirteen-week period ended may 31 , 2014 . specialty eggs , which include nutritionally enhanced , cage free , organic and brown eggs , continued to make up a larger portion of our total shell egg sales dollars and dozens in fiscal 201 5 . for fiscal 201 5 , specialty eggs accounted for 27.2 % of shell egg dollar sales , compared to 24.3 % in fiscal 201 4 , and 19.8 % of shell egg dozens sold in fiscal 201 5 , compared to 1 7.2 % in fiscal 201 4 . additionally , for fiscal 20 15 , specialty eggs sold through co-pack arrangements accounted for 2 .8 % of shell egg dollar sales , compared to 3 . 8 % in fiscal 20 14 , and 2 . 0 % of shell egg dozens sold in fiscal 201 5 , compared to 2 . 7 % in fiscal 201 4 . specialty egg retail prices are less cyclical than non-specialty shell egg prices and are generally higher due to consumer willingness to pay for the increased benefits from these products . for the thirteen-week period ended may 3 0 , 201 5 , specialty shell eggs and specialty shell eggs sold through co-pack arrangements represented approximately 2 8.2 % and 2.6 % , of our shell egg dollar sales , compared to 25.2 % and 3 . 9 % for the thirteen-week period ended may 31 , 2014 , respectively . for the thirteen-week period ended may 3 0 , 201 5 , specialty shell eggs and specialty shell eggs sold through co-pack arrangements accounted for approximately 21.0 % and 1 .9 % of the total shell egg dozen volume , compared to 18.7 % and 2 . 9 % for the thirteen-week period ended may 31 , 2014 , respectively . the shell egg sales classified as “ other ” represent hard cooked eggs , hatching eggs , and /or other egg products , which are included with our shell egg operations . egg products are shell eggs that are broken and sold in liquid , frozen , or dried form . our egg products are sold through our 22 consolidated subsidiaries american egg products , llc ( “ aep ” ) and texas egg products , llc ( “ tep ” ) . story_separator_special_tag for fiscal 201 5 our egg product sales were $ 4 5.4 million , an increase of $ 3.6 million , or 8.6 % , compared to $ 41.8 million for fiscal 201 4 . our volume of egg products sold for fiscal 201 5 was 51.0 million pounds , a n in crease of 2 .1 million pounds , or 4.3 % , compared to 48.9 million pounds for fiscal 201 4 . the increases in sales volume and market prices in the current fiscal year were due to increased industry demand for egg products , driven by the quick serve restaurant industry as well as export sales . in fiscal 201 5 , the price per pound of egg products sold was $ 0.8 91 compared to $ 0 . 855 for fiscal 201 4 , an increase of 4.2 % . cost of sales cost of sales consists of c osts directly related to producing , processing and packing shell eggs , purchases of shell eggs from outside producers , processing and packing of liquid and frozen egg products and other non-egg costs . farm production costs are those costs incurred at the egg production facility , including feed , facility , hen amortization , and other related farm production costs . the following table presents the key variables affecting our cost of sales : replace_table_token_6_th cost of sales for the fiscal year ended may 3 0 , 201 5 was $ 1 , 180.4 million , an increase of $ 42.3 million , or 3.7 % , compared to $ 1 , 138.1 million for fiscal 201 4 . dozens produced increased and dozens purchased from outside shell egg producers increased for fiscal 201 5 while cost of feed ingredients decreased in fiscal 201 5 compared to fiscal 201 4 . this fiscal year we produced 7 5.1 % of the eggs sold by us , as compared to 74 . 0 % for the previous year . feed cost for fiscal 201 5 was $ 0.4 4 per dozen , compared to $ 0.49 per dozen for the prior fiscal year , a decrease of 10.2 % . gross profit increased from 21.0 % of net sales for fiscal 201 4 to 2 5.1 % of net sales for fiscal 201 5 , primarily as a result of lower feed costs and increased egg selling prices . cost of sales for the thirteen-week period ended may 3 0 , 2015 was $ 2 93.6 million , an increase of $ 13.3 million , or 4.8 % , compared to $ 280.3 million for the thirteen-week period ended may 31 , 2014 . feed cost per dozen for the fourth quarter of fiscal 201 5 was $ 0.4 1 , compared to $ 0 . 48 for comparable fiscal 201 4 fourth quarter , a decrease of 14.6 % . 23 selling , general , and administrative expenses replace_table_token_7_th selling , general and administrative expenses , which include costs of marketing , distribution , accounting and corporate overhead , were $ 160.4 million in fiscal 201 5 , an increase of $ 3.7 million , or 2.3 % , compared to $ 156.7 million for fiscal 201 4 . stock compensation expense increased $ 1.2 million for the current fiscal year . stock compensation expense is dependent on the closing price of the company 's common stock . for our stock compensation arrangements classified as equity awards ( e.g . restricted stock ) , we recognized stock compensation expense ratably over the vesting period . for our stock compensation arrangements classified as liability awards , we recognize increases or decreases in the value of such awards as increases or decreases , respectively , to stock compensation expense . for additional information , see note 11 to notes to consolidated financial statements . the increase in specialty egg expense for fiscal 201 5 compared to fiscal 201 4 is attributable to a 20.8 % increase in specialty shell egg dozens sold resulting in an increase in advertising promotions and franchise expense . as a percentage of net sales , payroll and overhead is 2 . 0 % for fiscal 201 5 and fiscal 201 4 . other expenses , which include expenses for repairs , professional fees , and insurance , decreased for fiscal 2015 compared with fiscal 2014 as a result of a 2014 c onfidential legal settlement and related legal fees as well as decreases in other tax expense . during fiscal 201 5 we recognized $ 239,000 in expense resulting from the increase in fair value of contingent consideration applicable to acquisition s , compared to $ 4.4 million in fiscal 201 4 , both of which are reflected in other expenses . see note 16 to notes to consolidated financial statements for additional information . as a percentage of net sales , d elivery expense is 3.0 % for fiscal 2015 and fiscal 2014 . as a percent of net sales , selling , gene ral and administrative expense de creased from 10 . 9 % in fiscal 201 4 to 10 . 2 % in fiscal 201 5 . replace_table_token_8_th selling , general , and administrative expense was $ 4 2 .8 million for the t hirteen-week period ended may 30 , 201 5 , a de crease of $ 919,000 , or 2.1 % , compared to $ 43 .8 million for the thirteen-week period ended may 31 , 2014 . other expenses for the thirteen-week period ended may 30 , 2015 , decreased $ 2.8 million , or 29.7 % , compared to the same period of fiscal 2014 , primarily as a result of the previously discussed decrease in expense resulting from the fair value of contingent consideration on our acquisition of maxim as well as a decrease in other tax expense .
| in fiscal year 2013 , feed costs increase d significantly and our average net selling price increased compared to the prior year . in fiscal 2014 and 2015 , our average net selling price continued to increase , reflecting strong demand for shell eggs across our markets , and feed costs decreased each year over the previous year . ne t income for fiscal 201 5 increased significantly compared to the prior year , primarily due to an increase i n dozens sold and selling prices and a decrease in feed costs . fiscal year ended may 30 , 201 5 compared to fiscal year ended may 31 , 2014 net sales in fiscal 201 5 , a pproximately 9 7 % of our net sales consisted of shell egg s and approximately 3 % was egg products . net sales for the fiscal year ended may 3 0 , 201 5 were $ 1,576.1 million , an increase of $ 1 35.2 million , or 9.4 % , from net sales of $ 1 , 440.9 million for fiscal 201 4 . in fiscal 201 5 total dozens of eggs sold increased and egg selling prices increased as compared to fiscal 201 4 . in fiscal 201 5 total dozens of shell eggs sold were 1,0 63.1 million , an increase of 49.4 million dozen , o r 4 .9 % , compared to 1,013.7 million sold in fiscal 201 4 . our average selling price of shell eggs increased from $ 1.362 per dozen for fiscal 201 4 to $ 1 . 4 2 9 per dozen for fiscal 201 5 , an increase of $ 0.06 7 per dozen , or 4 . 9 % , reflecting strong demand for shell eggs across our markets and a higher percentage of specialty egg sales . our operating results are significantly affected by wholesale shell egg market prices , which are outside of our control . small changes in production or
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this investment is primarily focused in the areas of hiring client partners and relationship personnel with specific industry experience or domain expertise , training our technical staff in a broader range of service offerings , strengthening our business analytics capabilities , strengthening and expanding our portfolio of services ; continuing to expand our geographic presence for both sales and delivery as well as recognizing and rewarding exceptional performance by our employees . in addition , this investment includes maintaining a level of resources , trained in a broad range of service offerings , to be well positioned to respond to our customer requests to take on additional projects . for the year ending december 31 , 2013 , we expect to continue to invest amounts in excess of our targeted operating margin levels back into the business . we finished the year with approximately 156,700 employees , which is an increase of approximately 19,000 over the prior year . the increase in the number of our technical personnel and the related infrastructure costs to meet the demand for our services is the primary driver of the increase in our operating expenses in 2012. annualized turnover , including both voluntary and involuntary , was approximately 10.7 % for 2012. the majority of our turnover occurs in india . as a result , annualized attrition rates on-site at clients are below our global attrition rate . in addition , attrition is weighted towards the more junior members of our staff . we have experienced increases in compensation and benefit costs , including incentive-based compensation costs , in india which may continue in the future ; however , historically , this has not had a material impact on our results of operations as we have been able to absorb such cost increases through price increases or cost management strategies such as managing discretionary costs , the mix of our professional staff as well as utilization levels , and achieving other operating efficiencies . our current india real estate development program includes planned construction of 10.5 million square feet of new space between 2011 and the end of 2015. this program includes the expenditure of over $ 700.0 million during this period on land acquisition , facilities construction and furnishings to build new company-owned state-of-the-art development and delivery centers in regions primarily designated as special economic zones , or sezs , located in india . during 2013 , we expect to spend approximately $ 400 million globally for capital expenditures , including the indian real estate development program . at december 31 , 2012 , we had cash , cash equivalents and short-term investments of $ 2,863.8 million and working capital of $ 3,437.0 million . accordingly , we do not anticipate any near-term liquidity issues . during 2012 , we repurchased approximately $ 486.0 million of our class a common stock under our existing stock repurchase program . stock repurchases were funded from working capital . during 2013 , barring any unforeseen events , we expect the following factors to affect our business and our operating results : continued focus by customers on directing it spending towards cost containment projects , such as application maintenance , infrastructure management and bpo ; demand from our customers to help them achieve their dual mandate of simultaneously achieving cost savings while investing in innovation ; secular changes driven by evolving technologies and regulatory changes ; volatility in foreign currency rates ; and continued uncertainty in the world economy , particularly in europe . 45 in response to this macroeconomic environment , we plan to : continue to invest in our talent base and new service offerings ; partner with our existing customers to garner an increased portion of our customers ' overall it spend by providing innovative solutions ; continue our focus on growing our business in europe , the middle east and the asia pacific region , where we believe there are opportunities to gain market share ; continue to increase our strategic customer base across all of our business segments ; opportunistically look for acquisitions that may improve our overall service delivery capabilities , expand our geographic presence and or enable us to enter new areas of technology ; continue to focus on operating discipline in order to appropriately manage our cost structure ; and continue to locate most of our new development center facilities in tax incentivized areas . story_separator_special_tag selling , general and administrative expenses , including depreciation and amortization , increased by approximately 18.0 % or $ 260.7 million , from $ 1,446.1 million during 2011 , to $ 1,706.7 million during 2012 , and decreased as a percentage of revenue from 23.6 % in 2011 to 23.2 % in 2012. the decrease as a percentage of revenue was due primarily to the favorable impact of the depreciation of the indian rupee versus the u.s. dollar , net of the impact of our cash flow hedge losses , and economies of scale driven by increased revenues that resulted from our expanded sales and marketing activities in the current and prior years that allowed us to leverage our cost structure over a larger organization , partially offset by investments to grow our business and expenses related to the expansion of our infrastructure to support our revenue growth . income from operations . income from operations increased approximately 19.8 % , or $ 225.0 million , from approximately $ 1,136.5 million during 2011 to approximately $ 1,361.5 million during 2012 , representing operating margins of 18.5 % of revenues in 2012 and 18.6 % of revenues in 2011. the slight decrease in operating margin was primarily due to continued investments to grow our business partially offset by the favorable impact of the depreciation of the indian rupee versus the u.s. dollar , net of the impact of our cash flow hedge losses , and economies of scale driven by increased revenues that resulted from our expanded sales and marketing activities in the current and prior years that allowed us to leverage our cost structure over a larger organization . story_separator_special_tag excluding the impact of applicable designated cash flow hedges , the depreciation of the indian rupee against the u.s. dollar positively impacted our operating margin by approximately 355 basis points or 3.55 percentage points . each additional 1.0 % change in the exchange rate between the indian rupee and the u.s. dollar will have the effect of moving our operating margin by approximately 24 basis points or 0.24 percentage points . excluding stock-based compensation expense of $ 107.4 million and $ 90.2 million for 2012 and 2011 , respectively , operating margins for each of the two years were 20.0 % . we entered into foreign exchange forward contracts to hedge certain indian rupee denominated payments in india . these hedges are intended to mitigate the volatility of the changes in the exchange rate between the u.s. dollar and the indian rupee . during 2012 , the settlement of certain cash flow hedges negatively impacted our operating margin by approximately 131 basis points or 1.31 percentage points . 48 other income ( expense ) , net . total other income ( expense ) , net consists primarily of foreign currency exchange gains and ( losses ) and interest income . the following table sets forth , for the periods indicated , total other income ( expense ) , net : ( dollars in thousands ) replace_table_token_10_th the foreign currency exchange losses of approximately $ 11.7 million were primarily attributed to the remeasurement of the indian rupee net monetary assets on cognizant india 's books to the u.s. dollar functional currency . the $ 8.3 million of losses on foreign exchange forward contracts not designated as hedging instruments relate to the realized and unrealized losses on foreign exchange forward contracts entered into primarily to offset foreign currency exposure to indian rupee denominated net monetary assets . at december 31 , 2012 , the notional value of our undesignated hedges was $ 208.6 million . the $ 5.3 million increase in interest income was primarily attributed to higher invested balances . provision for income taxes . the provision for income taxes increased from approximately $ 285.5 million in 2011 to approximately $ 336.3 million in 2012. the effective income tax rate decreased slightly from 24.4 % in 2011 to 24.2 % in 2012. the decrease in our effective income tax rate was primarily attributed to favorable discrete items in 2012 partially offset by the scheduled reduction in 2012 of certain income tax holiday benefits in india . net income . net income increased from approximately $ 883.6 million in 2011 to approximately $ 1,051.3 million in 2012 , representing 14.4 % and 14.3 % of revenues , respectively . year ended december 31 , 2011 compared to year ended december 31 , 2010 revenue . revenue increased by 33.3 % , or approximately $ 1,528.8 million , from approximately $ 4,592.4 million during 2010 to approximately $ 6,121.2 million in 2011. this increase was primarily attributed to greater acceptance of our global delivery model among an increasing number of industries , continued interest in using our global delivery model as a means to reduce overall it costs and increased customer spending on discretionary projects . revenue from customers existing as of december 31 , 2010 increased by approximately $ 1,371.3 million and revenue from new customers added during 2011 was approximately $ 157.5 million or approximately 10.3 % of the year over year revenue increase and 2.6 % of total revenues for the year ended december 31 , 2011. in addition , revenue from our north american and european customers increased in 2011 by $ 1,220.2 million and $ 241.9 million , respectively , as compared to 2010. we had approximately 785 active clients as of december 31 , 2011 as compared to approximately 712 active clients as of december 31 , 2010. in addition , we experienced strong demand across all of our business segments for an increasingly broad range of services . our financial services and healthcare business segments accounted for approximately $ 574.0 million and $ 445.0 million , respectively , of the $ 1,528.8 million increase in revenue . additionally , our consulting and technology services and outsourcing revenues increased by approximately 40.7 % and 26.4 % , respectively , compared to 2010 and represented approximately 50.9 % and 49.1 % , respectively , of total revenues in 2011. no customer accounted for sales in excess of 10 % of revenues during 2011 or 2010 . 49 cost of revenues ( exclusive of depreciation and amortization expense ) . our cost of revenues consists primarily of salaries , incentive-based compensation , stock-based compensation expense , payroll taxes , employees benefits , immigration and project-related travel for technical personnel , subcontracting and sales commissions related to revenues . our cost of revenues increased by approximately 33.3 % or $ 884.0 million from $ 2,654.6 million during 2010 to $ 3,538.6 million in 2011. the increase was due primarily to an increase in compensation and benefits costs of approximately $ 821.8 million , resulting from the increase in the number of our technical personnel necessary to support our revenue growth . selling , general and administrative expenses . selling , general and administrative expenses consist primarily of salaries , incentive-based compensation , stock-based compensation expense , payroll taxes , employee benefits , travel , promotion , communications , management , finance , administrative and occupancy costs . selling , general and administrative expenses , including depreciation and amortization , increased by approximately 34.4 % or $ 370.1 million , from $ 1,076.0 million during 2010 , to $ 1,446.1 million during 2011 , and increased as a percentage of revenue from 23.4 % in 2010 to 23.6 % in 2011. the increase as a percentage of revenue was due primarily to increases in compensation and benefit costs and investments to grow our business , including expanded sales and marketing activities . income from operations .
| for our internal management reporting and budgeting purposes we use financial statements that do not include stock-based compensation expense for financial and operational decision making to evaluate period-to-period comparisons and for making comparisons of our operating results to that of our competitors . moreover , because of varying available valuation methodologies and the variety of award types that companies can use to account for stock-based compensation expense , we believe that providing a non-gaap financial measure that excludes stock-based compensation expense allows investors to make additional comparisons between our operating results and those of other companies . accordingly , we believe that the presentation of non-gaap income from operations when read in conjunction with our reported gaap income from operations can provide useful supplemental information to our management and to investors regarding financial and business trends relating to our financial condition and results of operations . a limitation of using non-gaap income from operations versus income from operations reported in accordance with gaap is that non-gaap income from operations excludes stock-based compensation expense , which is recurring . stock-based compensation expense will continue to be for the foreseeable future a significant recurring expense in our business . in addition , other companies may calculate non-gaap financial measures differently than us , thereby limiting the usefulness of this non-gaap financial measure as a comparative tool . we compensate for these limitations by providing specific information regarding the gaap amounts excluded from non-gaap income from operations to allow investors to evaluate such non-gaap financial measures with financial measures calculated in accordance with gaap . a reconciliation of income from operations as reported and non-gaap income from operations , excluding stock-based compensation expense , is as follows for the years ended december 31 : ( dollars in thousands ) replace_table_token_9_th year ended december 31 , 2012 compared to year ended december 31 , 2011 revenue . revenue increased by 20 % or approximately $ 1,225.3 million , from approximately $ 6,121.2 million during 2011 to approximately $ 7,346.5 million in 2012. this increase was primarily attributed to greater acceptance of our global delivery model among an increasing number of industries , continued interest in using our global delivery model as a means to reduce overall it
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a session is defined as beginning with the first page view from a device and ending at the earliest of when a user closes their browser window , after 30 minutes of inactivity , or at midnight eastern time each night . a session can be made up of multiple page views and visitor actions , such as performing a search , visiting vehicle detail pages , and connecting with a dealer . we believe the volume of sessions in a time period , when considered in conjunction with the number of unique users in that time period , is an indicator of consumer satisfaction and engagement with our marketplace . replace_table_token_5_th number of paying dealers a paying dealer is a dealer , based on a distinct associated inventory feed , that subscribes to our enhanced or featured listing product at the end of a defined period . we believe that the number of paying dealers is indicative of the value proposition of our listing products , and our sales and marketing success , including our ability to retain paying dealers and develop new dealer relationships . replace_table_token_6_th 41 average annual revenue per subscribing dealer ( aarsd ) we measure the average annual revenue we receive from each paying dealer . we define aarsd , which is measured at the end of a defined period , as the total marketplace subscription revenue during the trailing 12 months divided by the average number of paying dealers during the same trailing 12-month period . our ability to grow aarsd is an indicator of the value proposition of our products and the return on investment , or roi , our paying dealers realize from our products . increases in aarsd are driven by our ability to grow the volume of connections to our users and the quality of those connections , effectively illustrate the value of brand exposure to our engaged audience in relation to subscription cost , upsell package levels , and cross-sell additional products to our paying dealers . replace_table_token_7_th * international revenues were not generated before october 2015 and , therefore , sufficient data for the trailing 12‑month calculation is not available . adjusted ebitda we define adjusted ebitda as net income ( loss ) , adjusted to exclude : depreciation and amortization , stock‑based compensation expense , other ( income ) expense , net , the provision for ( benefit from ) income taxes , and certain one‑time , non‑recurring items , if and when applicable . we monitor and have presented adjusted ebitda in this annual report on form 10-k as a non‑gaap financial measure to supplement the financial information we present on a gaap basis to provide investors with additional information regarding our financial results . adjusted ebitda , as a non‑gaap financial measure , should not be considered in isolation from , or as an alternative to , measures prepared in accordance with gaap . we consider , and you should consider , adjusted ebitda together with other operating and financial performance measures presented in accordance with gaap . also , our non‑gaap measure may not necessarily be comparable to similarly titled measures presented by other companies . we believe that adjusted ebitda is a key indicator of our operating results . for further explanation of the uses and limitations of this measure and a reconciliation of our adjusted ebitda to the most directly comparable gaap measure , net income ( loss ) , please see “ selected consolidated financial data — adjusted ebitda. ” components of consolidated statements of operations revenue our revenue is derived from two primary sources : marketplace subscription revenue , which consists of listing and display advertising subscriptions from dealers , and advertising and other revenue , which consists primarily of display advertising revenue from auto manufacturers and other auto‑related brand advertisers . marketplace subscription revenue we offer three types of marketplace listing products to our dealers : basic listing , which is free ; and enhanced or featured listing , which require a paid subscription under a monthly , quarterly , semiannual , or annual subscription basis . subscription pricing is determined based on a dealer 's inventory size , region , and our assessment of the connections and roi our platform will provide them . we also offer listing dealers access to our dealer dashboard , which includes a performance summary , dealer insights tool , user review management platform , pricing tool , and market analysis tool . the pricing tool and market analysis tool are available only to paying dealers . in addition to listing their inventory in our marketplace and providing them access to our dealer dashboard , we offer enhanced and featured listing dealers other subscription advertising and customer acquisition products , including display advertising that appears in our marketplace and on other sites on the internet , which can be targeted by geography , search history , and a number of other factors , and dealer search engine marketing , which helps dealers more effectively acquire customers through paid search , social media , and retargeted advertising . 42 marketplace subscription revenue is recognized on a monthly basis as the service is delivered to the dealer . advertising and other revenue advertising and other revenue consists primarily of non‑dealer display advertising revenue from auto manufacturers and other auto‑related brand advertisers sold on a cost per thousand impressions , or cpm , basis . an impression is an advertisement loaded on a web page . auto manufacturers and other brand advertisers can execute advertising campaigns that are targeted across a wide variety of parameters , including demographic groups , behavioral characteristics , specific auto brands , categories such as certified pre‑owned , and segments such as hybrid vehicles . for a description of our revenue accounting policies , see “ — critical accounting policies and significant estimates. ” cost of revenue cost of revenue primarily consists of costs related to supporting and hosting our product offerings . story_separator_special_tag these costs include salaries , benefits , incentive compensation , and stock‑based compensation expense related to the customer support team and third‑party service provider costs such as data center and networking expenses , allocated overhead , depreciation and amortization expense associated with our property and equipment , and amortization of capitalized website development costs . we allocate overhead costs , such as rent and facility costs , information technology costs , and employee benefit costs , to all departments based on headcount . as such , general overhead expenses are reflected in cost of revenue and each operating expense category . we expect these expenses to increase as we continue to grow our business and introduce new products . operating expenses sales and marketing sales and marketing expenses consist primarily of personnel and related expenses for our sales and marketing staff , including salaries , benefits , incentive compensation , commissions , stock‑based compensation , and travel costs ; costs associated with consumer marketing , such as traffic acquisition , brand building , and public relations activities ; costs associated with dealer marketing , such as content marketing , customer and promotional events , and industry events ; and allocated overhead . we expect sales and marketing expenses to increase as we grow our audience and attempt to strengthen our brand awareness and , as informed by trends in our business and the competitive landscape of our market , fluctuate from quarter to quarter , which will impact our quarterly results of operations . product , technology , and development product , technology , and development expenses , which include research and development costs , consist primarily of personnel costs of our development team , including payroll , benefits , stock‑based compensation expense and allocated overhead costs . other than website development costs that qualify for capitalization , research and development costs are expensed as incurred . we expect product , technology , and development expenses to increase as we develop new solutions and make improvements to our existing platform . general and administrative general and administrative expenses consist of personnel costs and related expenses for executive , finance , legal , human resources , and administrative personnel , including salaries , benefits , incentive compensation , and stock‑based compensation expenses , in addition to the costs associated with professional fees for external legal , accounting and other consulting services , insurance premiums , payment processing and billing costs , and allocated overhead costs . we expect general and administrative expenses to increase as we incur the costs of compliance associated with being a publicly traded company , including legal , audit , and consulting fees . depreciation and amortization depreciation and amortization expenses consist of depreciation on property and equipment and leasehold improvements . 43 other income ( expense ) other income ( expense ) consists primarily of interest income earned on our cash , cash equivalents , and investments , interest expense on lease obligations , and net foreign exchange gains and losses . provision for ( benefit from ) income taxes we are subject to federal and state income taxes in the united states and taxes in foreign jurisdictions in which we operate . we have recorded a provision for income taxes for the periods ended december 31 , 2017 and 2016 as a result of our consolidated taxable income position . we have recognized a benefit from income taxes for the period ended december 31 , 2015 due to our taxable loss position for that period . we recognize deferred tax assets and liabilities based on temporary differences between the financial reporting and income tax bases of assets and liabilities using statutory rates . we regularly assess the need to record a valuation allowance against net deferred tax assets if , based upon the available evidence , it is more likely than not that some or all of the deferred tax assets will not be realized . we have not provided a valuation allowance against our net deferred tax assets at december 31 , 2017 or 2016. story_separator_special_tag style= '' margin-bottom:0pt ; margin-top:0pt ; text-indent:4.86 % ; color : # 000000 ; font-size:10pt ; font-family : times new roman ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > other income , net increased $ 0.2 million , or 51 % , in the year ended december 31 , 2017 compared to the year ended december 31 , 2016 , due primarily to the investment of cash in certificates of deposit and money market funds arising from our increased cash from operations . provision for income taxes replace_table_token_20_th the provision for income taxes increased $ 0.2 million , or 8 % , in the year ended december 31 , 2017 compared to the year ended december 31 , 2016. in 2017 , we recorded a tax provision on earnings with an effective tax rate of 16.7 % compared to 27.4 % in 2016. our lower effective tax rate during 2017 is primarily the result of discrete items recorded including ipo deductible costs and higher excess tax deductions relating to stock-based compensation awards . our lower effective tax rate during 2017 was also driven by higher r & d tax credits . 48 income ( loss ) from operations by segment replace_table_token_21_th nm — not meaningful u.s. income from operations increased $ 14.1 million , or 51 % , in the year ended december 31 , 2017 compared to the year ended december 31 , 2016. this increase was due to an increase in revenue of $ 111.6 million , offset in part by the increases in cost of revenue of $ 6.5 million and operating expenses of $ 91.0 million . international loss from operations increased $ 7.4 million in the year ended december 31 , 2017 compared to the year ended december 31 , 2016. the increase in international loss from operations reflects our continued investment into international markets and expansion into new countries .
| advertising and other revenue increased $ 7.4 million in the year ended december 31 , 2017 compared to the year ended december 31 , 2016 , and represented 11 % of total revenue in 2017 compared to 14 % of total revenue in 2016. the increase in advertising and other revenue was due primarily to a 16 % increase in the number of impressions delivered in 2017 and a 28 % increase in the average price per thousand impressions in 2017 compared to 2016. the increase was also partially offset by a reduction in other advertising revenue . revenue by segment replace_table_token_13_th u.s. revenue increased $ 111.6 million , or 57 % , in the year ended december 31 , 2017 compared to the year ended december 31 , 2016 , due primarily to a 23 % increase in the number of u.s. paying dealers and a 16 % increase in aarsd for u.s. dealers . international revenue increased $ 7.1 million in the year ended december 31 , 2017 compared to the year ended december 31 , 2016 , due primarily to an increase in the number of international paying dealers . international paying dealers grew to 2,548 at december 31 , 2017 from 952 at december 31 , 2016. cost of revenue replace_table_token_14_th 46 cost of revenue increased $ 8.0 million , or 84 % , in the year ended december 31 , 2017 compared to the year ended december 31 , 2016. the increase was due primarily to a $ 2 . 4 million increase in employee-related costs for our customer support team to support the growth in customers , a $ 1 . 9 million increase in fees related to provisioning advertising campaigns on our websites , a $ 1.3 million increase in costs related to connecting consumers with dealers through a variety of methods , including phone calls , email , and managed text and chat , a $ 0.9 million increase in costs to improve the content on our website , a $ 0.8 million increase for data center and hosting costs , and a $ 0.5 million increase in amortization of website deve lopment costs . operating expenses sales and marketing
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allowance for loan losses : we establish the allowance for loan losses through charges to earnings in the form of a provision for loan losses . loan losses are charged against the allowance when we believe that the collection of the principal is unlikely . subsequent recoveries of losses previously charged against the allowance are credited to the allowance . the allowance represents an amount that , in our judgment , will be adequate to absorb probable losses inherent in the loan portfolio . our judgment in determining the level of the allowance is based on evaluations of the collectibility of loans while taking into consideration such factors as trends in delinquencies and charge-offs for relevant periods of time , changes in the nature and volume of the loan portfolio , current economic conditions that may affect a borrower 's ability to repay and the value of collateral , overall portfolio quality and review of specific potential losses . this evaluation is inherently subjective because it requires estimates that are susceptible to significant revision as more information becomes available . for more information see the section titled “ asset quality ” within item 7. allowance for indemnifications : the allowance for indemnifications is established through charges to earnings in the form of a provision for indemnifications , which is included in other noninterest expenses . a loss is charged against the allowance for indemnifications when a purchaser ( investor ) of a loan sold by c & f mortgage incurs a validated indemnified loss due to borrower misrepresentation , fraud , early default , or underwriting error . the allowance represents an amount that , in management 's judgment , will be adequate to absorb any losses arising from valid indemnification requests . management 's judgment in determining the level of the allowance is based on the volume of loans sold , historical experience , current economic conditions and information provided by investors . this evaluation is inherently subjective , as it requires estimates that are susceptible to significant revision as more information becomes available . for more information see the section titled “ off-balance-sheet arrangements ” within item 7 . 29 impairment of loans : we consider a loan impaired when it is probable that the corporation will be unable to collect all interest and principal payments as scheduled in the loan agreement . we do not consider a loan impaired during a period of delay in payment if we expect the ultimate collection of all amounts due . we measure impairment on a loan-by-loan basis for commercial , construction and residential loans in excess of $ 500,000 by either the present value of expected future cash flows discounted at the loan 's effective interest rate , the loan 's obtainable market price , or the fair value of the collateral if the loan is collateral dependent . large groups of smaller balance homogeneous loans are collectively evaluated for impairment . we maintain a valuation allowance to the extent that the measure of the impaired loan is less than the recorded investment . tdrs are also considered impaired loans , even if the loan balance is less than $ 500,000. a tdr occurs when we agree to significantly modify the original terms of a loan by granting a concession due to the deterioration in the financial condition of the borrower . for more information see the section titled “ asset quality ” within item 7. loans acquired in a business combination : loans acquired in the acquisition of cvbk and its subsidiary cvb were segregated between ( i ) purchased credit-impaired ( pci ) loans and ( ii ) purchased performing loans and were recorded at estimated fair value on the date of acquisition without the carryover of the related allowance for loan losses . pci loans are those for which there is evidence of credit deterioration since origination and for which it is probable at the date of acquisition that the corporation will not collect all contractually required principal and interest payments . when determining fair value , pci loans were aggregated into pools of loans based on common risk characteristics as of the date of acquisition such as loan type , date of origination , and evidence of credit quality deterioration such as internal risk grades and past due and nonaccrual status . the difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the “ nonaccretable difference. ” any excess of cash flows expected at acquisition over the estimated fair value is referred to as the “ accretable yield ” and is recognized as interest income over the remaining life of the loan when there is a reasonable expectation about the amount and timing of such cash flows . on a quarterly basis , we evaluate our estimate of cash flows expected to be collected on pci loans . estimates of cash flows for pci loans require significant judgment . subsequent decreases to the expected cash flows will generally result in a provision for loan losses resulting in an increase to the allowance for loan losses . subsequent significant increases in cash flows may result in a reversal of post-acquisition provision for loan losses or a transfer from nonaccretable difference to accretable yield that increases interest income over the remaining life of the loan , or pool ( s ) of loans . disposals of loans , which may include sale of loans to third parties , receipt of payments in full or in part from the borrower or foreclosure of the collateral , result in removal of the loan from the pci loan portfolio at its carrying amount . the corporation 's pci loans currently consist of loans acquired in connection with the acquisition of cvb . pci loans that were classified as nonperforming loans by cvb are no longer classified as nonperforming so long as , at quarterly re-estimation periods , we believe we will fully collect the new carrying value of the pools of loans . story_separator_special_tag the corporation accounts for purchased performing loans using the contractual cash flows method of recognizing discount accretion based on the acquired loans ' contractual cash flows . purchased performing loans are recorded at fair value , including a credit discount . the fair value discount is accreted as an adjustment to yield over the estimated lives of the loans . because there is no allowance for loan losses established at the acquisition date , a provision for loan losses may be required in future periods for any deterioration in these loans subsequent to the acquisition . impairment of securities : impairment of securities occurs when the fair value of a security is less than its amortized cost . for debt securities , impairment is considered other-than-temporary and recognized in its entirety in net income if either ( i ) we intend to sell the security or ( ii ) it is more-likely-than-not that we will be required to sell the security before recovery of its amortized cost basis . if , however , we do not intend to sell the security and it is not more-likely-than-not that we will be required to sell the security before recovery , we must determine what portion of the impairment is attributable to a credit loss , which occurs when the amortized cost basis of the security exceeds the present value of the cash flows expected to be collected from the security . if there is no credit loss , there is no other-than-temporary impairment . if there is a credit loss , other-than-temporary impairment exists , and the credit loss must be recognized in net income and the remaining portion of impairment must be recognized in other comprehensive income . for equity securities , impairment is considered to be other-than-temporary based on our ability and intent to hold the investment until a recovery of fair value . other-than-temporary impairment of an equity security results in a write-down that must be included in net income . 30 we regularly review each investment security for other-than-temporary impairment based on criteria that includes the extent to which cost exceeds market price , the duration of that market decline , the financial health of and specific prospects for the issuer , our best estimate of the present value of cash flows expected to be collected from debt securities , our intention with regard to holding the security to maturity and the likelihood that we would be required to sell the security before recovery . oreo : assets acquired through , or in lieu of , foreclosure are held for sale and are initially recorded at the fair value less estimated costs to sell at the date of foreclosure . subsequent to foreclosure , management periodically performs valuations of the foreclosed assets based on updated appraisals , general market conditions , recent sales of similar properties , length of time the properties have been held , and our ability and intention with regard to continued ownership of the properties . the corporation may incur additional write-downs of foreclosed assets to fair value less estimated costs to sell if valuations indicate a further deterioration in market conditions . goodwill : the corporation 's goodwill was recognized in connection with the corporation 's acquisitions of cvbk in october 2013 and c & f bank 's acquisition of c & f finance company in september 2002. the corporation reviews the carrying value of goodwill at least annually or more frequently if certain impairment indicators exist . in assessing the recoverability of the corporation 's goodwill , major assumptions used in determining impairment are increases in future income , sales multiples in determining terminal value and the discount rate applied to future cash flows . if an impairment test is performed , we will prepare a sensitivity analysis by increasing the discount rate , lowering sales multiples and reducing increases in future income . retirement plan : c & f bank maintains a non-contributory , defined benefit pension plan for eligible full-time employees as specified by the plan . plan assets , which consist primarily of mutual funds invested in marketable equity securities and corporate and government fixed income securities , are valued using market quotations . c & f bank 's actuary determines plan obligations and annual pension expense using a number of key assumptions . key assumptions may include the discount rate , the interest crediting rate , the estimated future return on plan assets and the anticipated rate of future salary increases . changes in these assumptions in the future , if any , or in the method under which benefits are calculated may affect pension assets , liabilities or expense . derivative financial instruments : the corporation uses derivatives primarily to manage risk associated with changing interest rates and to assist customers with their risk management objectives . the corporation 's derivative financial instruments may include ( 1 ) interest rate lock commitments ( irlcs ) on mortgage loans that will be held for sale and related forward sales commitments , ( 2 ) interest rate swaps with certain qualifying commercial loan customers and dealer counterparties and ( 3 ) interest rate swaps that qualify as cash flow hedges of the corporation 's trust preferred capital notes . the corporation recognizes derivative financial instruments at fair value as either an other asset or other liability in the consolidated balance sheet . because the irlcs , forward sales commitments and interest rate swaps with loan customers and dealer counterparties are classified as free standing derivatives , adjustments to reflect unrealized gains and losses resulting from changes in fair value of these instruments are reported in the income statement . the effective portion of the gain or loss on the corporation 's cash flow hedges is reported as a component of other comprehensive income , net of deferred income taxes , and is reclassified into earnings in the same period or periods during which the hedged transactions affect earnings .
| 35 table 1 : average balances , income and expense , yields and rates replace_table_token_3_th interest income and expense are affected by fluctuations in interest rates , by changes in the volume of earning assets and interest-bearing liabilities , and by the interaction of rate and volume factors . the following table shows the direct causes of the year-to-year changes in the components of net interest income on a taxable-equivalent basis . the corporation calculates the rate and volume variances using a formula prescribed by the sec . rate/volume variances , the third element in the calculation , are not shown separately in the table , but are allocated to the rate and volume variances in proportion to the relationship of the absolute dollar amounts of the change in each . 36 table 2 : rate-volume recap replace_table_token_4_th 2017 compared to 2016 net interest income , on a taxable-equivalent basis , for 2017 decreased to $ 81.7 million , compared to $ 82.5 million for 2016. the net interest margin for 2017 decreased 31 basis points to 5.99 percent , compared to 6.30 percent for 2016. the net interest margin decline resulted from declines in the yield on interest-earning assets of 29 basis points and an increase in the cost of funds of five basis points for the year ended december 31 , 2017 , compared to the year ended december 31 , 2016. the decline in yield on interest-earning assets for the year ended december 31 , 2017 was primarily attributable to decreases in the yields on the loan and investment securities portfolios . these decreases were offset in part by earning asset growth of $ 55.3 million for the year ended december 31 , 2017. average loans , which includes both loans held for investment and loans held for sale , increased $ 48.6 million to $ 1.04 billion for the year ended december 31 , 2017 , compared to 2016. average loans held for investment of the retail banking segment increased $ 57.3 million , or 8.8 percent , for the year ended december 31 , 2017 , compared to 2016. average loans at the retail banking segment increased for
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item 14. principal accountant fees and services audit and non-audit fees the following table sets forth the fees for professional audit services and the fees billed for other services rendered by our auditors , haynie & company , in connection with the audit of our financial statements for the years ended june 30 , 2012 and 2011 , and any other fees billed for services rendered by our auditors during these periods . year ended june 30 , 2012 ( $ ) year ended june 30 , 2011 ( $ ) audit fees 12,098 16,027 audit-related fees - - tax fees - - all other fees - - total 12,098 16,027 since our inception , our board of directors , performing the duties of the audit committee , has reviewed all audit and non-audit related fees at least annually . the board , acting as the audit committee , pre-approved all audit related services for the year ended june 30 , 2012 . 25 part iv item 15. exhibits , financial statement schedules ( a ) ( 1 ) financial statements see the “ index to financial statements ” set forth on page 18 of this annual report . ( a ) ( 2 ) financial statement schedules none . the financial statement schedules are omitted because they are inapplicable or the requested information is shown in our financial statements or the notes related thereto . replace_table_token_5_th ( 1 ) included as exhibits to our registration statement on form s-1 filed on july 7 , 2010 . 26 signatures pursuant to the requirements of section 13 or 15 ( d ) of the exchange act , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . date : september 27 , 2012 desert canadians ltd. by : carol callaghan carol callaghan president , chief executive officer , chief financial officer , principal accounting officer , secretary , treasurer , director pursuant to the requirements of the exchange act , this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated . signature title date carol callaghan president , chief executive officer , chief financial officer , principal accounting officer , secretary , treasurer , director september 27 , 2012 carol callaghan 27 story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements , including the notes thereto , appearing elsewhere in this annual report . the discussions of results , causes and trends should not be construed to imply any conclusion that these results or trends will necessarily continue into the future . story_separator_special_tag executive officer , chief financial officer , principal accounting officer , secretary , treasurer and sole director , who will also manage our operations . once we retain the two consultants as described above , they will coordinate our business development in conjunction with ms. callaghan . due to our limited financial resources , there is no guarantee that we will be able to enter into any agreements with advertising partners or create sufficient interest in our website to make it a profitable venture . in any event , we anticipate that any marketing and advertising activities that we undertake will require us to obtain additional financing . even though we plan to raise capital through equity or debt financing , we believe that the latter may not be a viable alternative for funding our operations as we do not have sufficient assets to secure any such financing . we anticipate that any additional funding will be in the form of equity financing from the sale of our common stock . however , we do not have any financing arranged and we can not provide any assurance that we will be able to raise sufficient funds from the sale of our common stock to fund our operations or planned activities . in the absence of such financing , we will not be able to proceed with our plan of operations . if we do not continue to obtain additional financing , we may be forced to abandon our business plan or significantly curtail our operations . going concern our financial statements for the fiscal year ended june 30 , 2012 have been prepared on a going concern basis and contain an additional explanatory paragraph in note 1 which identifies issues that raise substantial doubt about our ability to continue as a going concern . our financial statements do not include any adjustments that might result from the outcome of this uncertainty . off-balance sheet arrangements we have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that are material to our stockholders . 17 critical accounting policies our financial statements are affected by the accounting policies used and the estimates and assumptions made by management during their preparation . a complete summary of these policies is included in note 2 of the notes to our financial statements . we have identified below the accounting policies that are of particular importance in the presentation of our financial position , results of operations and cash flows , and which require the application of significant judgment by management . foreign currency translation our functional and reporting currency is the united states dollar . occasional transactions may occur in canadian dollars and management has adopted asc 740 , foreign currency translation matters . monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date . non-monetary assets and liabilities denominated in foreign currencies are translated at rates of exchange in effect at the date of the transaction . average monthly rates are used to translate revenues and expenses . gains and losses arising on story_separator_special_tag item 14. principal accountant fees and services audit and non-audit fees the following table sets forth the fees for professional audit services and the fees billed for other services rendered by our auditors , haynie & company , in connection with the audit of our financial statements for the years ended june 30 , 2012 and 2011 , and any other fees billed for services rendered by our auditors during these periods . year ended june 30 , 2012 ( $ ) year ended june 30 , 2011 ( $ ) audit fees 12,098 16,027 audit-related fees - - tax fees - - all other fees - - total 12,098 16,027 since our inception , our board of directors , performing the duties of the audit committee , has reviewed all audit and non-audit related fees at least annually . the board , acting as the audit committee , pre-approved all audit related services for the year ended june 30 , 2012 . 25 part iv item 15. exhibits , financial statement schedules ( a ) ( 1 ) financial statements see the “ index to financial statements ” set forth on page 18 of this annual report . ( a ) ( 2 ) financial statement schedules none . the financial statement schedules are omitted because they are inapplicable or the requested information is shown in our financial statements or the notes related thereto . replace_table_token_5_th ( 1 ) included as exhibits to our registration statement on form s-1 filed on july 7 , 2010 . 26 signatures pursuant to the requirements of section 13 or 15 ( d ) of the exchange act , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . date : september 27 , 2012 desert canadians ltd. by : carol callaghan carol callaghan president , chief executive officer , chief financial officer , principal accounting officer , secretary , treasurer , director pursuant to the requirements of the exchange act , this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated . signature title date carol callaghan president , chief executive officer , chief financial officer , principal accounting officer , secretary , treasurer , director september 27 , 2012 carol callaghan 27 story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements , including the notes thereto , appearing elsewhere in this annual report . the discussions of results , causes and trends should not be construed to imply any conclusion that these results or trends will necessarily continue into the future . story_separator_special_tag executive officer , chief financial officer , principal accounting officer , secretary , treasurer and sole director , who will also manage our operations . once we retain the two consultants as described above , they will coordinate our business development in conjunction with ms. callaghan . due to our limited financial resources , there is no guarantee that we will be able to enter into any agreements with advertising partners or create sufficient interest in our website to make it a profitable venture . in any event , we anticipate that any marketing and advertising activities that we undertake will require us to obtain additional financing . even though we plan to raise capital through equity or debt financing , we believe that the latter may not be a viable alternative for funding our operations as we do not have sufficient assets to secure any such financing . we anticipate that any additional funding will be in the form of equity financing from the sale of our common stock . however , we do not have any financing arranged and we can not provide any assurance that we will be able to raise sufficient funds from the sale of our common stock to fund our operations or planned activities . in the absence of such financing , we will not be able to proceed with our plan of operations . if we do not continue to obtain additional financing , we may be forced to abandon our business plan or significantly curtail our operations . going concern our financial statements for the fiscal year ended june 30 , 2012 have been prepared on a going concern basis and contain an additional explanatory paragraph in note 1 which identifies issues that raise substantial doubt about our ability to continue as a going concern . our financial statements do not include any adjustments that might result from the outcome of this uncertainty . off-balance sheet arrangements we have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that are material to our stockholders . 17 critical accounting policies our financial statements are affected by the accounting policies used and the estimates and assumptions made by management during their preparation . a complete summary of these policies is included in note 2 of the notes to our financial statements . we have identified below the accounting policies that are of particular importance in the presentation of our financial position , results of operations and cash flows , and which require the application of significant judgment by management . foreign currency translation our functional and reporting currency is the united states dollar . occasional transactions may occur in canadian dollars and management has adopted asc 740 , foreign currency translation matters . monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date . non-monetary assets and liabilities denominated in foreign currencies are translated at rates of exchange in effect at the date of the transaction . average monthly rates are used to translate revenues and expenses . gains and losses arising on
| from our inception on july 30 , 2008 to june 30 , 2012 we incurred a net loss of $ 153,374. liquidity and capital resources as of june 30 , 2012 we had $ 738 in cash and total assets , $ 92,612 in total liabilities , a working capital deficit of $ 91,874 and an accumulated deficit of $ 153,374. we are solely dependent on funds raised through equity financing . our net loss of $ 153,374 from our inception on july 30 , 2008 to june 30 , 2012 was funded by equity financing and advances from related parties . since our inception on july 30 , 2008 we have raised gross proceeds of $ 61,500 in cash from the sale of our common stock . 15 during the fiscal year ended june 30 , 2012 we spent net cash of $ 21,517 on operating activities , compared to $ 33,216 in net cash spending on operating activities during our prior fiscal year . this decrease was largely due to the decrease in our net loss between the two periods as described above . from our inception on july 30 , 2008 to june 30 , 2012 we spent net cash of $ 125,762 on operating activities , all of which was attributable to our net loss as described above , as offset by changes in our operating assets and liabilities . during the fiscal year ended june 30 , 2012 we received net cash of $ 22,255 from financing activities , substantially all of which was in the form of advances from related parties . during the fiscal year ended june 30 , 2011 we received net cash of $ 32,745 from financing activities , substantially all of which was also in the form of advances from related parties . from our inception on july 30 , 2008 to june 30 , 2012 we received net cash of $ 126,500 from financing activities , including $ 61,500 from the issuance of our common stock and $ 65,000 in advances from related parties . for the next 12 months ( beginning october 2012 ) we intend to : ● retain
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the distribution of home & security common stock was made on october 3 , 2011 , with our former parent stockholders receiving one share of home & security common stock for each share of former parent common stock held on september 20 , 2011. following the separation , our former parent changed its name to beam inc. and retained no ownership interest in home & security . home & security filed a registration statement on form 10 , as amended ( the form 10 ) , describing the separation with the sec and was declared effective on september 2 , 2011. on october 4 , 2011 , our common stock began trading regular-way on the new york stock exchange under the ticker symbol fbhs . 25 basis of presentation the consolidated financial statements and segment information included in this annual report on form 10-k have been derived from the accounts of the company and its majority-owned subsidiaries . prior to the separation , the company was a wholly-owned subsidiary of our former parent . our financial statements from periods prior to the separation were derived from the historical results of operations and the historical basis of assets and liabilities and include allocations of certain corporate expenses of our former parent incurred directly by our former parent totaling $ 23.4 million and $ 32.0 million in the years ended december 31 , 2011 and 2010 , respectively . the 2011 allocation is for nine months only ( january 1 , 2011 through the date of the separation ) because home & security became an independent company on october 3 , 2011. these allocated expenses include costs associated with legal , finance , treasury , accounting , internal audit and general management services and are included in corporate in the accompanying segment information . management believes that the assumptions and methodologies underlying the allocation of these general corporate expenses are reasonable . however , such expenses may not be indicative of the actual level of expense that would have been incurred by the company if it had operated as an independent company . the consolidated financial statements included in this annual report on form 10-k for periods prior to the separation may not necessarily reflect the company 's results of operations , financial condition and cash flows in the future or what its results of operations , financial condition and cash flows would have been had the company been a stand-alone company during such pre-separation periods . results of operations the following discussion of both consolidated results of operations and segment results of operations refers to the year ended december 31 , 2012 compared to the year ended december 31 , 2011 , and the year ended december 31 , 2011 compared to the year ended december 31 , 2010. the discussion of consolidated results of operations should be read in conjunction with the discussion of segment results of operations and our financial statements and notes thereto included in this annual report on form 10-k. years ended december 31 , 2012 , 2011 and 2010 replace_table_token_8_th ( a ) corporate expenses prior to the separation include allocations of certain former parent general corporate expenses incurred directly by our former parent . these allocated expenses include costs associated with legal , finance , treasury , accounting , internal audit and general management services . corporate expenses also include the components of defined benefit plan expense other than service cost which totaled expense ( income ) of $ 38.7 million , $ 74.2 million and $ ( 4.8 ) million for the years ended december 31 , 2012 , 2011 and 2010 , respectively . there are no amounts that represent the elimination or reversal of transactions between reportable segments . 26 certain items had a significant impact on our results in 2012 , 2011 and 2010. these included defined benefit plan recognition of actuarial losses and gains , asset impairment charges , restructuring and other charges and the impact of changes in foreign currency exchange rates . in 2012 , financial results included : > defined benefit plan recognition of actuarial losses , recorded in the corporate segment , of $ 42.2 million ( $ 26.2 million after tax ) compared to losses of $ 80.0 million ( $ 49.9 million after tax ) in 2011 , primarily due to a decrease in the discount rate used to value our pension and other postretirement obligations , > asset impairment charges of $ 15.8 million ( $ 9.7 million after tax ) associated with the tradenames in the advanced material windows & door systems segment ( $ 9.9 million before tax ) and the kitchen & bath cabinetry segment ( $ 5.9 million before tax ) . these charges were primarily the result of an increase in our market-participant cost of capital discount rates . one tradename in the kitchen & bath cabinetry segment was also impacted by reduced revenue growth expectations for high-end discretionary cabinet purchases developed during our annual planning process that was completed in the fourth quarter , > restructuring and other charges of $ 10.0 million before tax ( $ 6.6 million after tax ) , primarily associated with cabinet manufacturing facility closures and > the impact of foreign exchange , which had an unfavorable impact compared to 2011 , of approximately $ 5 million on both net sales and operating income and approximately $ 3 million on net income . the effects of foreign exchange on the company 's results are principally associated with movements in the canadian dollar and the euro . story_separator_special_tag in 2011 , financial results included : > defined benefit plan recognition of actuarial losses , recorded in the corporate segment of $ 80.0 million ( $ 49.9 million after tax ) compared to gains of $ 3.5 million ( $ 2.2 million after tax ) in 2010 , primarily due to a decrease in the discount rate as well as a lower than expected rate of return on pension plan assets , > asset impairment charges of $ 90.0 million before tax ( $ 55.3 million after tax ) associated with the tradenames in the advanced material windows & door systems segment , primarily as the result of reduced revenue growth and profit margin expectations associated with our simonton tradename over the next two to three years . our revenue and profit margin expectations were lowered based upon the results of our annual planning process that was completed in the fourth quarter of 2011 and included consideration of our actual fourth quarter 2011 results , including lower 2011 sales due to the expiration of u.s. tax incentives for purchases of energy-efficient home products , as well as our projection of the recovery of the u.s. home products market , > restructuring and other charges of $ 20.0 million before tax ( $ 12.5 million after tax ) associated with cabinet and window manufacturing facility closures , > business separation costs of $ 2.4 million and > the impact of foreign exchange , which had a favorable impact compared to 2010 , of approximately $ 20 million on net sales , approximately $ 5 million on operating income and approximately $ 1 million on net income . the effects of foreign exchange on the company 's results are principally associated with movements in the canadian dollar and the euro . in 2010 , financial results included : > restructuring and other charges of $ 12.5 million before tax ( $ 8.5 million after tax ) associated with product line integration and facility consolidations and 27 > the impact of foreign exchange , which had a favorable impact compared to 2009 , of approximately $ 40 million on net sales , approximately $ 15 million on operating income and approximately $ 10 million on net income . the effects of foreign exchange on the company 's results are principally associated with movements in the canadian dollar and the euro . 2012 compared to 2011 total home & security net sales net sales increased $ 262.5 million , or 8 % . the increase was due to higher sales volume from improved u.s. market conditions , particularly new construction . net sales also benefited from the impact of price increases to help mitigate raw material and transportation cost increases . these increases were partially offset by unfavorable mix , higher volume-related customer programs costs and approximately $ 5 million of unfavorable foreign exchange . cost of products sold cost of products sold increased $ 89.0 million , or 4 % , due to higher sales volume . in addition , cost of products sold increased due to $ 8.7 million of accelerated depreciation related to the previously announced closure of a cabinet manufacturing facility and higher raw material costs ( mainly for globally sourced products , wood and resins ) . these increases were partially offset by $ 26.8 million of lower expense from actuarial losses related to defined benefit plans ( $ 14.2 million in 2012 compared to $ 41.0 million in 2011 ) . in addition , cost of products sold benefited from productivity improvements , including cost savings from previously announced restructuring actions . selling , general and administrative expenses selling , general and administrative expenses increased $ 76.3 million , or 8 % , primarily due to higher volume-related expenses , higher incentive compensation expense , planned increases in strategic spending to support growth initiatives and new product introductions , and increased transportation costs , as well as $ 15.0 million of higher corporate office administrative expenses associated with operating as a stand-alone company . selling , general and administrative expenses benefited from $ 11.0 million in lower expense from actuarial losses related to defined benefit plans ( $ 28.0 million in 2012 compared to $ 39.0 million in 2011 ) . amortization of intangible assets amortization of intangible assets decreased $ 3.3 million , primarily due to identifiable intangible assets that were fully amortized in 2012. restructuring charges restructuring charges of $ 4.5 million and $ 4.7 million in 2012 and 2011 , respectively , primarily related to supply chain initiatives in our kitchen & bath cabinetry segment . asset impairment charges in the fourth quarter of 2012 , we recorded asset impairment charges of $ 15.8 million related to indefinite-lived tradenames in the advanced material windows & door systems and kitchen & bath cabinetry segments . the impairment charges in our advanced material windows & door systems 28 segment were $ 9.9 million and the impairment charge in our kitchen & bath cabinetry segment was $ 5.9 million . these charges were primarily the result of an increase in our market-participant cost of capital discount rates used to estimate the fair value of these intangible assets . one tradename in the kitchen & bath cabinetry segment was also impacted by reduced revenue growth expectations for high-end discretionary cabinet purchases developed during our annual planning process that was completed in the fourth quarter . in 2011 , we recorded asset impairment charges of $ 90.0 million . for additional information , refer to note 5 , goodwill and other identifiable intangible assets , to the consolidated financial statements in item 8 of this annual report on form 10-k. business separation costs in the third quarter of 2011 , we recorded $ 2.4 million of business separation costs related to non-cash non-recurring costs associated with the modification of outstanding share-based compensation awards as a result of the separation . operating income ( loss ) operating income ( loss ) increased $ 177.3 million to $ 161.7 million , primarily due to higher sales volume .
| million , or 10 % , and sales of window products increased $ 5.3 million , or 2 % . net sales also benefited from price increases implemented to help mitigate higher raw material and transportation costs , as well as new business . operating income improved $ 100.2 million , to a loss of $ 1.0 million , primarily due to $ 80.1 million in lower tradename impairment charges . in addition , operating income benefited from higher sales volume , particularly related to door products , and $ 10.0 million of lower restructuring and other charges . operating income was unfavorably impact by higher incentive compensation expense . 30 security & storage net sales increased $ 20.0 million , or 4 % , due to higher global sales , including new product introductions . net sales of security products increased $ 19.9 million , or 5 % . net sales of storage products were flat . net sales were impacted by approximately $ 5 million of unfavorable foreign exchange . operating income increased $ 12.8 million , or 20 % , due to higher sales volume and productivity improvements , partially offset by strategic growth spending . operating income also benefited by approximately $ 3 million of lower employee benefit costs associated with the reduction of certain retiree medical benefits in our storage product line . price increases offset the impact of higher sourced material costs . corporate corporate expenses decreased $ 18.3 million , primarily due to $ 37.8 million of lower expense from actuarial losses related to defined benefit plans ( $ 42.2 million in 2012 compared to $ 80.0 million in 2011 ) , as well as the absence of $ 2.4 million of business separation costs in 2012. corporate expenses were unfavorably impacted by $ 15.0 million in higher administrative expenses associated with operating as a stand-alone company and increased incentive compensation expense . in the first nine months of 2011 , the company operated as a subsidiary of our former parent .
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the accretable yield is recognized into earnings using the effective yield method over the term of the loans . management separately monitors the acquired loan portfolio and periodically reviews loans contained within this portfolio against the factors and assumptions used in determining the fair value . in assessing the credit quality of the acquired loans , management determined that nine loans met the definition of purchased credit impaired as of the acquisition date of fox river valley , and applied the cost recovery method of accounting to those loans due to the uncertainty of the timing of expected cash flows . this will generally result in the recognition of interest income on these impaired loans only when cash payments received from the borrower exceed the recorded net book value of the related loans . goodwill and core deposit intangible goodwill represents the excess of the purchase price over the fair value of the net identifiable assets acquired and is included as an asset on the consolidated balance sheets . goodwill is not amortized but is subject to impairment tests on at least an annual basis . core deposit base premiums represent the value of the acquired customer core deposit bases and are included in as an asset on the consolidated balance sheets . the core deposit intangible has an estimated finite life , is amortized on an accelerated basis over a 66-month period , and is subject to periodic impairment evaluation . management will periodically review the carrying value of its long-lived and intangible assets to determine if any impairment has occurred or whether changes in circumstances have occurred that would require a revision to the remaining useful life , in which case an impairment charge would be recorded as an expense in the period of impairment . in making such determination , management evaluates whether there are any adverse qualitative factors indicating that an impairment may exist , as well as the performance , on an undiscounted basis , of the underlying operations or assets which give rise to the intangible . given that the fox river valley acquisition took place during the second quarter of 2016 , there was no impairment charge to goodwill or core deposit intangible at december 31 , 2016. the net book value of core deposit intangible was $ 1.4 million and $ 0 at december 31 , 2016 and december 31 , 2015 , respectively and is included on the consolidated balance sheets . allowance for loan losses the allowance for loan losses is established through a provision for loan losses charged to expense , which affects our earnings directly . loans are charged against the allowance for loan losses when management believes that the collectability of all or some of the principal is unlikely . subsequent recoveries are added to the allowance . the allowance is an amount that reflects management 's estimate of the level of probable incurred losses in the loan portfolio . factors considered by management in determining the adequacy of the allowance include , but are not limited to , detailed reviews of individual loans , historical and current trends in loan charge-offs for the various portfolio segments evaluated , the level of the allowance in relation to total loans and to historical loss levels , levels and trends in non-performing and past due loans , volume of and migratory direction of adversely graded loans , external factors including regulatory requirements , reputation , and competition , and management 's assessment of economic conditions . our board of directors reviews the recommendations of management regarding the appropriate level for the allowance for loan losses based upon these factors . the provision for loan losses is the charge to operating earnings necessary to maintain an adequate allowance for loan losses . we have developed policies and procedures for evaluating the overall quality of our loan portfolio and the timely identification of problem credits . management continuously reviews these policies and procedures and makes further improvements as needed . the adequacy of our allowance for loan losses and the effectiveness of our internal policies and procedures are also reviewed periodically by our regulators and our auditors and external loan review personnel . our regulators may advise us to recognize additions to the allowance based upon their judgments about information available to them at the time of their examination . such regulatory guidance is taken under consideration by management , and we may recognize additions to the allowance as a result . 33 we continually refine our methodology for determining the allowance for loan losses by comparing historical loss ratios utilized to actual experience and by classifying loans for analysis based on similar risk characteristics . cash receipts for accruing loans are applied to principal and interest under the contractual terms of the loan agreements ; however , cash receipts on impaired and nonaccrual loans for which the accrual of interest has been d iscontinued are applied to principal and interest income depending upon the overall risk of principal loss to us . other real estate owned assets acquired through or in lieu of loan foreclosure are initially recorded at lower of cost or fair value less estimated costs to sell , establishing a new cost basis . subsequent to foreclosure , independent valuations are performed annually and the assets are carried at the lower of carrying amount or fair value less estimated costs to sell . revenue and expenses from operations and changes in the valuation allowance are included in other non-interest expense . costs related to the development and improvement of other real estate owned is capitalized . fair value of financial instruments a significant portion of the company 's assets are financial instruments carried at fair value . this includes securities available for sale and certain impaired loans . the majority of assets carried at fair value are based on either quoted market prices or market prices for similar instruments . for additional disclosures regarding the fair value of financial instruments , see note 20 . “ fair value measurements ” to our consolidated financial statements . story_separator_special_tag jobs act transition period the jumpstart our business startups ( jobs ) act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards . thus , 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 avail ourselves of this extended transition period . merger transaction on may 13 , 2016 , the company completed its acquisition of fox river valley and its wholly-owned bank subsidiary , the business bank , through the merger of fox river valley into a wholly-owned subsidiary of the company ( which subsequently dissolved ) and the merger of the business bank into the bank . in connection with the merger , county acquired approximately $ 142 million in loans and $ 202 million of deposits . the purpose of the acquisition was for strategic reasons management believes to be beneficial to the company . the acquisition is consistent with its growth plans to expand into the markets of appleton and green bay , wisconsin and diversify its loan portfolio and agricultural concentration . the company believes it is well-positioned to achieve stronger financial performance and enhance shareholder value through synergies of the combined operations . merger consideration . in connection with the merger , county paid aggregate merger consideration of approximately $ 14.45 million in cash and 712,830 shares of the company 's common stock . board of directors . upon completion of the merger , the makeup of the board of directors expanded to include two new directors who previously sat on the board of fox river valley . for additional information on this merger , see note 2 . “ acquisition ” to our consolidated financial statements . comparison of financial condition at december 31 , 2016 , 2015 , and 2014 total assets . total assets increased $ 357.8 million , or 40.4 % , from $ 884.9 million at december 31 , 2015 to $ 1.2 billion at december 31 , 2016. the increase was primarily the result of the acquisition of fox river valley , which was closed on may 13 , 2016 and resulted in the addition of $ 229.7 million in assets . including the impact of the assets acquired through the acquisition , loans increased $ 280.1 million , securities increased $ 40.2 million , and cash and due from banks increased $ 27.8 million , between december 31 , 2015 and december 31 , 2016 . 34 total assets increased $ 113.1 million , or 14.66 % , from $ 771.8 mill ion at december 31 , 2014 to $ 884.9 million at december 31 , 2015. the increase was primarily the result of loan growth of $ 100.1 million , an increase of loans held for sale of $ 5.1 million , and an increase of cash and due from banks of $ 4.4 million between the two dates . net loans . total net loans increased by $ 280.1 million , or 38.0 % , from $ 737.8 million at december 31 , 2015 to $ 1.0 billion at december 31 , 2016. the increase is attributed to a 25.0 % increase in our agricultural portfolio , a 67.2 % increase in our commercial real estate portfolio , a 73.0 % increase in our commercial portfolio , and a 30.7 % increase in our residential real estate portfolio , partially offset by a small decrease in our installment and consumer loans . total net loans increased by $ 100.3 million , or 15.7 % , from $ 637.5 million at december 31 , 2014 to $ 737.8 million at december 31 , 2015. the increase is attributed to a 20.3 % increase in our agricultural portfolio and 17.6 % increase in our commercial real estate loan portfolio , partially offset by decreases in our commercial , residential real estate , and installment and consumer loans . the following table sets forth the composition of our loan portfolio at the dates indicated : replace_table_token_13_th the following table sets forth loan origination activity for the periods indicated : replace_table_token_14_th the majority of our loan participations and sales relate to agricultural customers . when customers request additional funding , generally for expansion of their operations , the existing loan participations are usually repurchased , with the consent of the participating institution , to allow for repackaging of the loans . this allows the new loans , including the additional funding , to be re-participated at a later time . the decision to re-participate a loan is dependent on many factors , including in-house lending limits and longer-term interest rate options provided to the borrower . as reflected by the balances of “ loans sold , net of repayments ” , we increased the amount of loans we participated in 2016 in order to generate liquidity to fund loan growth and manage our ag concentration . loan servicing . as part of our growth and risk management strategy , we have actively developed a loan participation and loan sales network . our ability to sell loan participations and whole loans benefits us by freeing up capital and funding to lend to new customers as well as to increase non-interest income through the recognition of loan sale and servicing revenue . because we continue to service these loans , we are able to maintain a relationship with the customer . additionally , we receive a servicing fee that offsets some of the cost of administering the loan , while maintaining the customer relationship . 35 the loan servicing portfolio is sh own below : replace_table_token_15_th loan maturity . the following table sets forth certain information at december 31 , 2016 regarding scheduled contractual maturities during the periods indicated . the table does not include any estimate of prepayments , which significantly shorten the average life of all loans and may cause our actual repayment experience to differ from that shown below . replace_table_token_16_th securities .
| loans that have been downgraded to special mention or substandard-performing , but are not currently impaired , are considered to have a higher inherent of risk of loss than pass rated loans . management judgment is needed to estimate the additional risk of loss for these types of loans . risk allocations on non-impaired special mention and substandard-performing loans reflect management 's assessment of the increased risk of loss associated with adversely graded loans . the allocated reserve for these loans is based upon management 's assessment of loss history and risk migration analysis . additionally , in determining the allocation , management considers the credit attributes of individual loans , including loan to value ratios , past due status , strength and willingness of the guarantors , and other relevant attributes generally found in these groups of loans . specific component . the specific component of the allowance for loan losses relates to loans that are individually evaluated and determined to be impaired . the allowance for each impaired loan is determined by either the present value of expected future cash flows discounted at the loan 's effective interest rate , the market price reasonably obtainable for the loans or , if the loan is collateral dependent , by the fair value of the collateral less estimated costs to sell . collateral valuations are supported by current appraisals , which are discounted by us based upon a liquidation scenario . impairment for other types of loans is measured using the fair value of the collateral less estimated costs to sell . we identify a loan as impaired when , based upon current information and events , it is probable that we will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement . we consider a number of factors in determining impairment , including payment status , collateral value and the probability of collecting scheduled principal and interest payments when due . loans that experience insignificant payment delays and payment shortfalls generally
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in addition , based on a post-hoc analysis , 18 of the 23 patients , or 78 % , in the active arm of the tria l did not require additional treatments during the three-month trial compared to 7 of the 23 patients , or 30 % , in the control arm , a result that was also statistically significant ( p=0.003 ) . in the same phase 2 trial , patients in the active arm experienced greater improvement in visual acuity than those in the control arm , with patients in the active arm experiencing mean bcva improvements at months one , two and three of 16 , 20 and 19 letters , respectively , compared to improvements of 11 , 12 and 11 letters , respectively , in the control arm at the same time points . we also extended our evaluation of the patients who participated in the trial and did not receive any additional eylea treatment during its initial three-month evaluation period to further assess t he durability of suprachoroidal cls-ta in combination with intravitreal eylea for an additional six months following completion of the trial . of the 32 eligible patients , the medical records of 31 patients were obtained for review . based on combined data from the initial and extended evaluation periods , 17 of the 23 patients in the combination arm , or 74 % , did not receive any additional treatment over the nine-month period , compared to only 4 of 23 patients , or 17 % , in the control arm . based on the results of tanzanite and after incorporating feedback from an end-of-phase 2 meeting with the fda held in late 2016 , we began to enroll patients in a phase 3 clinical trial , which we refer to as sapphire , in the first quarter of 2017.we are continuing to enroll patients in sapphire , a multicenter , randomized , masked , controlled trial , to assess the efficacy and safety of suprachoroidal cls-ta together with intravitreal eylea in patients with rvo . patients in the combination treatment arm will receive suprachoroidal cls-ta together with intravitreal eylea at the beginning of the trial , intravitreal eylea alone at week 4 , and suprachoroidal cls-ta together with intravitreal eylea at weeks 12 and 24. patients in the control arm will receive intravitreal eylea alone at the beginning of the trial and follow-up intravitreal eylea alone every four weeks through and including week 24. after 24 weeks , patients will be followed for approximately an additional six months . the primary objective of this trial will be to determine the proportion of patients in each arm with a bcva improvement of at least 15 letters from baseline at eight weeks after initial treatment . there will be several secondary efficacy and safety endpoints that will also be evaluated . we anticipate total enrollment of approximately 460 patients in the trial . we expect to report preliminary results from sapphire in the fourth quarter of 2018. in addition , in the third quarter of 2017 , we began the start-up activities for a second phase 3 clinical trial in patients with rvo , which we refer to as topaz . we enrolled the first patient in topaz in march 2018. similar to the sapphire trial , topaz is a multicenter , randomized , masked , controlled phase 3 trial , to assess the efficacy and safety of suprachoroidal cls-ta together with an intravitreal anti-vegf agent ( either lucentis or avastin ) in patients with rvo . patients in the combination treatment arm will receive suprachoroidal cls-ta together with an intravitreal anti-vegf agent at the beginning of the trial , intravitreal anti-vegf agent alone at week 4 , and suprachoroidal cls-ta together with intravitreal anti-vegf agent at weeks 12 and 24. patients in the control arm will receive intravitreal anti-vegf agent alone at the beginning of the trial and follow-up intravitreal anti-vegf agent alone every four weeks through and including week 24. after 24 weeks , patients will be followed for approximately an additional six months with patients in each arm having the opportunity to receive treatment as needed based on monthly evaluations . the primary objective of this trial will be to determine the proportion of patients in each arm with a bcva improvement of at least 15 letters from baseline at eight weeks after initial treatment . several secondary efficacy and safety endpoints will also be evaluated . we anticipate total enrollment of approximately 460 patients in the trial . we are also developing suprachoroidal cls-ta for the treatment of diabetic macular edema , or dme . in april 2017 , we completed enrollment of 20 patients with dme in an open-label , multi-center phase 1/2 clinical trial , which we refer to as hulk , to obtain safety data and to observe efficacy outcomes from administering a combination of intravitreal eylea and suprachoroidal cls-ta , as well as suprachoroidal cls-ta alone , over a six-month evaluation period . in november 2017 , we announced preliminary results from the hulk trial . in the trial , we observed a visual benefit for patients receiving suprachoroidal cls-ta , with a greater benefit in treatment naïve eyes . anatomic improvement was observed in all treated eyes , with more than two-thirds of those eyes achieving a greater than 50 % reduction in excess central retinal thickness based on monthly measurements through six months after initial treatment . in the treatment naïve group , 40 % of patients did not require retreatment over the entire six months , with an additional 20 % requiring only one retreatment . suprachoroidal cls-ta , including in patients who received as many as five injections , was well tolerated , with a low incidence of ocular side effects , including iop elevations . story_separator_special_tag in july 2017 , we commenced a phase 2 clinical trial , which we refer to as tybee , to evaluate the safety and efficacy of administering a combination of intravitreal eylea and suprachoroidal cls-ta to patients with dme , as compared to intravitreal eylea alone . we completed enrollment of 71 patients in this trial in october 2017. patient follow-up in tybee is six months after initial treatment and we expect to report preliminary data in the second quarter of 2018. finally , multiple nonclinical studies , both internally and with multiple collaborators , are underway in development areas such as gene therapy for inherited retinal disorders , neovascular age-related macular degeneration , also known as wet amd , and other ocular diseases that may benefit from suprachoroidal administration of medication . if any of our product candidates are approved , we plan to commercialize them with a specialty team of 30 to 40 sales and medical marketing professionals to target the approximately 1,900 uveitis and retina specialists in the united states , and we may also pursue collaborations with third parties to commercialize any of our drugs approved for marketing outside the united states . 61 we have incurred net losses since our inception in may 2011. our operations to date have been limited to organizing and staffing our company , raising capital , undertaking preclinical studies and other research and development initiatives and , beginning in 2013 , conducting clinical trials of our most advanced drug candidates . to date , we have not generated any revenue , other than license and collaboration revenue , and we have primarily financed our operations through public offerings and private placements of our equity sec urities , issuances of convertible promissory notes and loan agreements . as of december 31 , 2017 , we had an accumulated deficit of $ 124.2 million . we recorded net losses of $ 59.0 million , $ 25.9 million and $ 17.6 million for the years ended december 31 , 2017 , 2016 and 2015 , respectively . we anticipate that a substantial portion of our capital resources and efforts in the foreseeable future will be focused on completing the necessary development for and obtaining regulatory approval and preparing for potential commercialization of our product candidates . we expect to continue to incur significant and increasing operating losses at least for the next several years . we do not expect to generate product revenue unless and until we successfully complete necessary development for , and obtain regulatory approval for one or more of our product candidates . our net losses may fluctuate significantly from quarter to quarter and year to year , depending on the timing of our clinical trials and our expenditures on other research and development activities . we anticipate that our expenses will increase substantially as we : complete our ongoing peachtree , sapphire , topaz and tybee clinical trials ; initiate and conduct our planned future clinical trials ; seek to discover , research and develop additional product candidates ; seek regulatory approvals for any product candidates that successfully complete clinical trials and other developmental efforts necessary to seek such approvals ; establish sales , marketing and distribution infrastructure and scale up external manufacturing capabilities to commercialize any product candidates for which we may obtain regulatory approval ; maintain , expand and protect our intellectual property portfolio ; hire additional clinical , manufacturing and scientific personnel ; add operational , financial and management information systems and personnel , including personnel to support our development and potential future commercialization efforts ; and operate as a public company . story_separator_special_tag style= '' page-break-after : always ; width:100 % ; '' / > the countries in which the trials are conducted ; the length of time required to enroll eligible patients ; the number of doses that patients receive ; the drop-out or discontinuation rates of patients ; potential additional safety monitoring or other studies requested by regulatory agencies ; the duration of patient follow-up ; and the efficacy and safety profiles of the product candidates . in addition , the probability of success for each product candidate 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 product candidate , as well as an assessment of each candidate 's commercial potential . general and administrative general and administrative expenses consist primarily of salaries and other related costs , including share-based compensation , for personnel in executive , finance and administrative functions . general and administrative costs include facility related costs not otherwise included in research and development expenses , professional fees for legal , patent , consulting , and accounting and audit services . we anticipate that our general and administrative expenses will increase in the future to support our continued research and development activities and the potential commercialization of our product candidates . additionally , we anticipate increased costs associated with being a public company including expenses related to services associated with maintaining compliance with nasdaq listing rules and sec requirements , director and officer insurance , and investor and public relations costs . other income ( expense ) other income consists of interest income earned on our cash and cash equivalents . interest income is not currently significant to our financial statements .
| the costs for some of our development activities , such as clinical trials , are recognized based on the terms of underlying agreements , as well as an evaluation of the progress to completion of specific tasks using data such as patient enrollment , clinical site activations and additional information provided to us by our vendors about their actual costs occurred . expenses related to activities that are supportive of a product candidate itself , such as manufacturing and stability and toxicology studies , are classified as direct non-clinical costs . expenses related to clinical trials and similar activities , including costs associated with cros , are classified as direct clinical costs . expenses related to activities that support more than one development program or activity , such as salaries , share-based compensation and depreciation , are not classified as direct clinical costs or non-clinical costs and are separately classified as unallocated . for the years ended december 31 , 2017 , 2016 and 2015 , substantially all of our research and development expenses have been related to the non-clinical and clinical development of our product candidates . the following table shows our research and development expenses by type of activity for the years ended december 31 , 2017 , 2016 and 2015. replace_table_token_3_th our expenses related to clinical trials are based on estimates of patient enrollment and related expenses at clinical investigator sites as well as estimates for the services received and efforts expended under contracts with research institutions , consultants and cros that conduct and manage clinical trials on our behalf . we generally accrue expenses related to clinical trials based on contracted amounts applied to the level of patient enrollment and activity according to the protocol . if future timelines or contracts are modified based upon changes in the clinical trial protocol or scope of work to be performed , we would modify our estimates of accrued expenses accordingly on a prospective basis . historically , any such modifications have not been material . research and development activities are central
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highlights of our accomplishments include : advancement of the donlin gold project permitting of the donlin gold project continued to advance : · the notice of intent to prepare an eis was published by the corps in the federal register in december 2012 , commencing the public scoping process . · public scoping meetings were held in 13 villages and communities in western alaska and in anchorage to provide information and insight about the project . · a data gap analysis to address questions and concerns that arose from the scoping meetings was prepared . · eis scoping summary report completed and made available to the public ( www.donlingoldeis.com ) . · strong working relationships were maintained with the agencies and we continue to provide input throughout the permitting process . · ongoing baseline data review was conducted including : ° follow-up technical workshops highlighting core components of baseline environmental and social studies ; and ° completion of 2013 supplemental field studies . · eis alternatives development occurred , including : ° reasonable range of alternatives that are feasible , practicable and permittable to address key issues ( i.e . : power – gas pipeline vs. diesel ) has been defined ; and ° the initial screening of potential alternatives has been completed . · preliminary draft eis preparation was commenced , initial draft chapters are in review by the cooperating agencies . · a strong safety record was maintained . · several villages were engaged in work force development planning . · donlin gold was named “ employer of the year ” by the national association of state workforce agencies . galore creek project the 2013 drilling program was completed under budget and exceeded program objectives with 11,600 meters drilled : · significant intercepts encountered on follow-up drilling from the legacy zone discovery in 2012 , a 700-meter long mineralized zone , adjacent to the central pit . · extensions of the legacy zone mineralization were identified to the south , west and at depth and provided information that will be useful to assess its impact on future mine design . 60 · results from the 2012 and 2013 drilling programs will be incorporated into a capital efficient work plan for 2014 that will advance the project . strengthened our financial position · reduced cash flow used in continuing operations to $ 19.5 million in 2013 from $ 28.6 million in 2012 . · our cash used in operations and funding of the donlin gold and galore creek projects totaled $ 38.3 million , $ 2.7 million lower than our budget of $ 41 million . · received proceeds of $ 54.4 million upon exercise of the remainder of our outstanding warrants . · completed a tender offer for our notes and subsequently purchased additional notes ° reduced the principal obligation of the notes from $ 95.0 million to $ 15.8 million . ° reduced associated interest expense . · we have sufficient cash available to repay the remaining $ 15.8 million of the outstanding notes due in may 2015 and to advance the donlin gold project through the remaining expected permitting process . outlook our goals for 2014 include : · advance permitting of the donlin gold project . · maintain a healthy balance sheet . · undertake galore creek technical studies to build on successful 2012 and 2013 drill results . · evaluate opportunities to monetize the value of galore creek . · maintain an effective corporate social responsibility program . we do not currently generate operating cash flows . at november 30 , 2013 , we had cash and cash equivalents of $ 81.3 million and term deposits of $ 110.0 million . at present , we believe that these balances are sufficient to cover the anticipated funding at the donlin gold and galore creek projects in addition to general and administrative costs through completion of permitting at the donlin gold project . additional capital will be necessary if permits are received at the donlin gold project and a decision to commence construction is reached . future financings to fund construction are anticipated through debt financing , equity financing , project specific debt , or other means . our continued operations are dependent on our ability to obtain additional financing or to generate future cash flows . however , there can be no assurance that we will be successful in our efforts to raise additional capital . for further information , see section item 1a , risk factors - our ability to continue the exploration , permitting , development , and construction of the donlin gold and galore creek projects , and to continue as a going concern , will depend in part on our ability to obtain suitable financing , above . in 2014 , we expect to spend approximately $ 15 million to fund our share of expenditures at the donlin gold and galore creek projects and $ 15 million for general and administrative costs , interest , working capital and other corporate purposes . summary of consolidated financial performance replace_table_token_12_th 61 story_separator_special_tag loss from discontinued operations and a $ 7.7 million deferred income tax recovery in 2012 compared to an expense of $ 15.4 million in 2011 . 62 liquidity , capital resources and capital requirements replace_table_token_13_th as of november 30 , ( $ thousands ) 2013 2012 cash and cash equivalents $ 81,262 $ 254,667 term deposits $ 110,000 $ — cash and cash equivalents decreased by $ 173.4 million to $ 81.3 million at november 30 , 2013 compared to $ 254.7 million at november 30 , 2012. the decrease in cash is primarily related to the investment of $ 110.0 million in term deposits , $ 19.5 million used in operating activities , $18.8 million to fund donlin gold and galore creek and $ 79.2 million to repurchase notes , partially offset by proceeds of $ 54.4 million from warrants exercised . story_separator_special_tag we have sufficient working capital available to repay the remaining $ 15.8 million of outstanding notes due in may 2015 and to advance the donlin gold project through the expected remaining permitting process . 2013 compared to 2012 cash used in continuing operations decreased from $ 28.6 million in 2012 , to $ 19.5 million in 2013. the decrease resulted from the successful reorganization of the company in 2012 encompassing the spin-out of novacopper inc. , the sale of agc , which included rock creek , as well as a reduction in corporate overhead and administrative costs . interest payments were lower due to the $ 79.2 million repurchase of notes in 2013. cash used in discontinued operations in 2012 included $ 25.5 million in 2012 to fund the operations of novacopper inc. and the rock creek project . cash used in investing activities of continuing operations in 2013 included an investment of $ 110.0 million in term deposits with original terms of six to nine months to earn a higher return while maintaining adequate liquidity . the u.s. dollar denominated term deposits are held at two major canadian financial institutions . cash funding of investments in affiliates decreased by $ 14.1 million due to lower project activity during permitting at the donlin gold project and a reduced exploration program at the galore creek project . cash used in financing activities of continuing operations in 2013 included the repurchase of $ 79.2 million of our notes , partially offset by the receipt of $ 54.4 million in net proceeds from the exercise of all outstanding warrants . in 2012 , we received net proceeds of $ 318.0 million from the completion of an equity financing of 35 million common shares at $ 9.50 per share and $ 5.6 million from the exercise of warrants . cash used in financing activities of discontinued operations in 2012 included $ 40 million to fund the spin-out of novacopper inc. 2012 compared to 2011 cash used in continuing operations increased from $ 27.7 million in 2011 , to $ 28.6 million in 2012. the increase resulted from reorganization costs including severance in 2012 , partially offset by the inclusion of 100 % of spending at the galore creek project in the first half of 2011 , prior to deconsolidation . cash used in discontinued operations increased from $ 22.0 million in 2011 to $ 25.5 million in 2012 to fund the operations of novacopper inc. and the remediation of the rock creek project . cash used in investing activities of continuing operations in 2011 included $ 4.1 million for the acquisition of copper canyon . cash funding of investments in affiliates increased by $ 1.7 million due to the expanded drilling program at the galore creek project that resulted in the discovery of the legacy zone , partially offset by lower spending at the donlin gold project as permitting commenced in 2012. cash provided from investing activities of discontinued operations resulted primarily from the sale of equipment at the rock creek project . cash used in financing activities of continuing operations in 2012 included net proceeds of $ 318.0 million from the completion of an equity financing and $ 5.6 million from the exercise of warrants and stock options . in 2011 , we received proceeds of $ 14.2 million from the exercise of warrants and stock options and $ 7.4 million from teck to fund the galore creek project prior to the completion of teck 's earn-in on the project . cash used in financing of discontinued operations included $ 40 million to fund the spin-out of novacopper inc. in 2012 and $ 24.0 million to repay the ambler note in 2011 . 63 contractual obligations our contractual obligations as of november 30 , 2013 were as follows : replace_table_token_14_th off-balance sheet arrangements the company does not have any material off-balance sheet arrangements required to be disclosed in this annual report on form 10-k. outstanding share data as of february 6 , 2014 , we had 317,297,868 common shares issued and outstanding . as of february 6 , 2014 , we had 13,950,134 stock options with a weighted-average exercise price of $ 5.71 , 2,281,692 restricted share units and 134,090 deferred share units outstanding . following the company 's purchases of the notes , $ 15,829 of the principal amount of the notes remain outstanding and due on may 1 , 2015 and 1,639,370 common shares remain issuable upon conversion . related party transactions the company provided exploration and management services to donlin gold for $ 258 in 2013 , $ 236 in 2012 and $ 600 in 2011 ; office rental and services to galore creek for $ 423 in 2013 , $ 796 in 2012 and $ 886 in 2011 ; and management and office administration services to novacopper inc. for $ 168 in 2013 and $ 83 in 2012. as of november 30 , 2013 , the company has accounts receivable from donlin gold of $ 1,750 ( 2012 : $ nil ) and from galore creek galore creek of $ 1,690 ( 2012 : $ 138 ) included in other current assets and a receivable of $ 4,132 ( 2012 : $ 4,417 ) from galore creek included in other long-term assets . fourth quarter results during the fourth quarter of 2013 , we incurred a net loss of $ 20.0 million compared to $ 30.2 milllion for the comparable period in 2012. the decrease in net loss in 2013 compared to 2012 was primarily due to a loss on derivative liabilities in 2012. we also incurred lower general and administrative expenses and interest expense in 2013 , offset by increased defered income tax expense .
| the reconsideration event resulted in a loss of our primary beneficiary status upon teck completing its earn-in obligations under the partnership agreement . prior to the completion of its earn-in , if teck had failed to meet their obligations , we would have had the power to exercise control over the partnership . following the reconsideration event , we share joint control of the galore creek partnership with teck , costs are funded equally between the partners and we equity account for our investment . we determined the fair value of the partnership at the reconsideration date , deconsolidated the galore creek partnership and subsequently equity accounted for our share of the investment . we determined that the fair value of the galore creek project was $ 354.4 million at may 31 , 2011 using estimated discounted future cash flows . as a result , we recognized a gain of $ 154.2 million for the excess value over the book value of $ 200.2 million . the determination of the estimated fair value of the equity investment in the galore creek partnership required management to make estimates and assumptions of future events . these estimates and assumptions affect the reported amount of the investment and the reported amount of the gain recognized upon fair valuing the equity investment in the galore creek partnership . significant assumptions included gold , copper and silver prices of $ 1,100 per ounce , $ 2.66 per pound , and $ 18.50 per ounce , respectively , and a 7 % discount rate . other estimates included future foreign exchange rates , various operational assumptions and metal recovery rates . actual results could differ materially from those reported . loss from operations decreased 31 % from $ 116.0 million in 2011 to $ 79.9 million in 2012. the decrease was primarily due to $ 39.6 million in write-downs related to power transmission rights and mobile equipment at the galore creek project . general and administrative costs increased by $ 12.9 million in 2012 as a result
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if management made different judgments or utilized different estimates , then differences would result in the valuation of the company 's inventories and in the amount and timing of the company 's cost of products sold and resulting net income for the reporting period . 13 on a periodic basis , management reviews its inventory quantities on hand for obsolescence , physical deterioration , changes in price levels and the existence of quantities on hand which may not reasonably be expected to be sold within the company 's normal operating cycle . to the extent that any of these conditions is believed to exist or the market value of the inventory expected to be realized in the ordinary course of business is otherwise no longer as great as its carrying value , an allowance against the inventory value is established . to the extent that this allowance is established or increased during an accounting period , an expense is recorded in cost of products sold in the company 's consolidated statements of income . only when inventory for which an allowance has been established is later sold or is otherwise disposed is the allowance reduced accordingly . significant management judgment is required in determining the amount and adequacy of this allowance . in the event that actual results differ from management 's estimates or these estimates and judgments are revised in future periods , the company may not fully realize the carrying value of its inventory or may need to establish additional allowances , either of which could materially impact the company 's financial position and results of operations . revenue recognitio n : sales are recorded when goods are shipped to customers and are reported net of allowances for estimated returns and allowances in the consolidated statements of income . allowances for returns are estimated based on historical rates . allowances for returns , advertising allowances , warehouse allowances , placement fees and volume rebates are recorded commensurate with sales activity or using the straight-line method , as appropriate , and the cost of such allowances is netted against sales in reporting the results of operations . shipping and handling costs , net of amounts reimbursed by customers , are not material and are included in net sales . allowances against accounts receivable : the company 's allowances against accounts receivable are primarily contractually agreed-upon deductions for items such as cooperative advertising and warehouse allowances , placement fees and volume rebates . these deductions are recorded throughout the year commensurate with sales activity or using the straight-line method , as appropriate . funding of the majority of the company 's allowances occurs on a per-invoice basis . the allowances for customer deductions , which are netted against accounts receivable in the consolidated balance sheets , consist of agreed-upon cooperative advertising support , placement fees , markdowns and warehouse and other allowances . all such allowances are recorded as direct offsets to sales , and such costs are accrued commensurate with sales activities or as a straight-line amortization charge of an agreed-upon fixed amount , as appropriate to the circumstances for each arrangement . when a customer requests deductions , the allowances are reduced to reflect such payments or credits issued against the customer 's account balance . the company analyzes the components of the allowances for customer deductions monthly and adjusts the allowances to the appropriate levels . the timing of the customer-initiated funding requests for advertising support can cause the net balance in the allowance account to fluctuate from period to period . the timing of such funding requests has a minimal impact on the consolidated statements of income since such costs are accrued commensurate with sales activity or using the straight-line method , as appropriate . to reduce its exposure to credit losses , the company assigns the majority of its receivables under factoring agreements with cit . in the event a factored receivable becomes uncollectible due to creditworthiness , cit bears the risk of loss . the company 's management must make estimates of the uncollectiblity of its non-factored accounts receivable when evaluating the adequacy of its allowance for doubtful accounts , which it accomplishes by specifically analyzing accounts receivable , historical bad debts , customer concentrations , customer creditworthiness , current economic trends and changes in its customers ' payment terms . depreciation and amortization : the company 's consolidated balance sheets reflect property , plant and equipment , and certain intangible assets at cost less accumulated depreciation or amortization . the company capitalizes additions and improvements and expenses maintenance and repairs as incurred . depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets , which are three to eight years for property , plant and equipment , and five to twenty years for intangible assets other than goodwill . the company amortizes improvements to its leased facilities over the term of the lease or the estimated useful life of the asset , whichever is shorter . valuation of long-lived assets , identifiable intangible a s sets and goodwill : in addition to the depreciation and amortization procedures set forth above , the company reviews for impairment long-lived assets and certain identifiable intangible assets whenever events or changes in circumstances indicate that the carrying amount of any asset may not be recoverable . in the event of impairment , the asset is written down to its fair market value . assets to be disposed of , if any , are recorded at the lower of net book value or fair market value , less estimated costs to sell at the date management commits to a plan of disposal , and are classified as assets held for sale on the consolidated balance sheets . the company tests the carrying value of its goodwill annually on the first day of the company 's fiscal year . story_separator_special_tag an additional impairment test is performed during the year whenever an event or change in circumstances suggest that the fair value of the goodwill of either of the reporting units of the company has more likely than not fallen below its carrying value . the company considers its wholly-owned subsidiaries , ccip and hamco , to each be a reporting unit of the company for goodwill impairment testing purposes . 14 patent costs : the company incurs certain legal and related costs in connection with applications for patents . the company capitalizes such costs to be amortized over the expected life of the patent to the extent that an economic benefit is anticipated from the resulting patent or alternative future use is available to the company . the company also capitalizes legal and other costs incurred in the protection or defense of the company 's patents when it is believed that the future economic benefit of the patent will be maintained or increased and a successful outcome of the litigation is probable . capitalized patent protection or defense costs are amortized over the remaining expected life of the related patent . the company 's assessment of future economic benefit of its patents involves considerable management judgment , and a different conclusion could result in a material impairment charge up to the carrying value of these assets . royalty payments : the company has entered into agreements that provide for royalty payments based on a percentage of sales with certain minimum guaranteed amounts . these royalty amounts are accrued based upon historical sales rates adjusted for current sales trends by customers . royalty expense is included in cost of products sold and amounted to $ 7.0 million and $ 9.0 million for fiscal years 2017 and 2016 , respectively . provision for income taxes : the company 's provision for income taxes includes all currently payable federal , state , local and foreign taxes that are based on the company 's taxable income and the change during the fiscal year in net deferred income tax assets and liabilities . the company provides for deferred income taxes based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates that will be in effect when the differences are expected to reverse . the company 's policy is to recognize the effect that a change in enacted tax rates would have on net deferred income tax assets and liabilities in the period that the tax rates are changed . management evaluates items of income , deductions and credits reported on the company 's various federal and state income tax returns filed and recognizes the effect of positions taken on those income tax returns only if those positions are more likely than not to be sustained . the company applies the provisions of fasb asc sub-topic 740-10-25 , which requires a minimum recognition threshold that a tax benefit must meet before being recognized in the financial statements . recognized income tax positions are measured at the largest amount that has a greater than 50 % likelihood of being realized . changes in recognition or measurement are reflected in the period in which the change in judgment occurs . during fiscal year 2016 , an evaluation was made of the company 's process regarding the calculation of the state portion of its income tax provision . this evaluation resulted in a tax position that reflects opportunities for the application of more favorable state apportionment percentages for several prior fiscal years . after considering all relevant information , the company believes that the technical merits of this tax position would more likely than not be sustained . however , the company also believes that the ultimate resolution of the tax position will result in a tax benefit that is less than the full amount being sought . therefore , the company 's measurement regarding the tax impact of the revised state apportionment percentages resulted in the company recording during fiscal year 2017 a reserve for unrecognized tax benefits of $ 134,000 in the accompanying consolidated financial statements . during fiscal year 2016 , the company recorded a gross reserve for unrecognized tax benefits of $ 773,000 , less an offset of $ 573,000 to reflect state income tax overpayments net of the federal income tax impact , for a net reserve for unrecognized tax benefits of $ 200,000. the company 's policy is to accrue interest expense and penalties as appropriate on any estimated unrecognized tax benefits as a charge to interest expense in the company 's consolidated statements of income . during fiscal years 2017 and 2016 , the company had accrued $ 65,000 and $ 11,000 , respectively , for interest expense and penalties on the portion of the unrecognized tax benefit that has been refunded to the company but for which the relevant statute of limitations remained unexpired . no interest expense or penalties is accrued with respect to estimated unrecognized tax benefits that are associated with state income tax overpayments that remain receivable . recently issued accounting standards on may 28 , 2014 , the fasb issued asu no . 2014-09 , revenue from contracts wit h customers ( topic 606 ) , which will replace most existing gaap guidance on revenue recognition and which will require the use of more estimates and judgments , as well as additional disclosures . when issued , asu no . 2014-09 was to become effective in the fiscal year beginning after december 15 , 2016 , but on august 12 , 2015 the fasb issued asu no . 2015-14 , revenue from contracts with customers ( topic 606 ) : deferral of the effective date , which provided for a one-year deferral to apply the guidance of asu no . 2014-09. early adoption was originally not permitted in asu no . 2014-09 , but asu no .
| marketing and administrative expenses : marketing and administrative expenses for fiscal year 2017 declined by $ 2.3 million compared with fiscal year 2016. the decrease is primarily related to lower overall compensation costs , which declined in fiscal 2017 by $ 1.4 million as compared with fiscal 2016. in come tax expense : the company 's provision for income taxes increased slightly to 36.7 % during 2017 from 36.4 % in 2016. the company 's effective tax rate for the current year was beneficially impacted by the early adoption of accounting standards update ( “ asu ” ) no . 2016-09 , which resulted in the recognition of discrete income tax benefits amounting to $ 248,000 to reflect the effect of net excess tax benefits arising from the exercise of stock options and the vesting of non-vested stock during the year . the company recorded during the prior year discrete net income tax benefits of approximately $ 260,000 , primarily resulting from the application of more favorable state apportionment percentages to state income tax returns for several prior fiscal years . known trends and uncertainties the company 's financial results are closely tied to sales to the company 's top two customers , which represented approximately 61 % of the company 's gross sales in fiscal year 2017. a significant downturn experienced by either or both of these customers could lead to pressure on the company 's revenues . at times , the company has also faced higher raw material costs , as well as increases in labor and transportation costs associated with the company 's sourcing activities in china . increases in these costs could adversely affect the profitability of the company if it can not pass the cost increases along to its customers in the form of price increases or if the timing of price increases does not closely match the cost increases . for additional discussion of trends , uncertainties and other factors that could impact the company 's operating results , see “ risk
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last but not least , we are taking our commitment to ast to a new level as we have invested in additional resources as part of our operational excellence team . as always , we will continuously utilize ast to improve efficiencies and eliminate waste throughout our company . ast is critical to and helps create the path to success in all regions of the world . 11 story_separator_special_tag position as measured by cash and cash equivalents increased $ 443 during 2013 to a balance of $ 10,171 at december 31 , 2013 , compared to an increase of $ 573 during 2012. during 2013 , operations provided $ 10,779 in cash compared to $ 4,604 provided for 2012. the increase in cash is primarily due to changes in working capital . net cash used in investing activities was $ 94,694 and $ 3,947 for 2013 and 2012 , respectively . the majority of the increase in 2013 is due to the $ 90,000 paid for the acquisition of globe motors in 2013. purchases of property and equipment were $ 3,087 and $ 2,597 in 2013 and 2012 , respectively . net cash provided from financing activities was $ 84,409 in 2013 compared to $ ( 244 ) for 2012. the increase in cash provided in 2013 is primarily due to the borrowings on the new credit agreement ( discussed below ) that were put in place to fund the globe acquisition offset by the payment of debt issuance costs and dividend payments to shareholders . the financing activity in 2012 consists of dividend payments to shareholders , offset by the purchase of company stock by the allied motion employee stock ownership plan ( esop ) . at december 31 , 2013 , we had $ 87,645 in debt obligations , with substantially all incurred in the fourth quarter . we entered into a new credit agreement dated as of october 18 , 2013. the credit agreement provides for a $ 15,000 five-year revolving credit facility and a $ 50,000 five-year term loan ( collectively the `` senior credit facilities '' ) . borrowings under the senior credit facilities are subject to terms defined in the credit agreement . borrowings bear interest at either the base rate plus a margin of 0.25 % to 2.00 % ( currently 1.50 % ) or the eurocurrency rate plus a margin of 1.25 % to 3.00 % , in each case depending on the company 's ratio of total funded indebtedness to consolidated ebitda ( the `` total leverage ratio '' ) . the weighted average interest rate at december 31 , 2013 was 3.08 % . principal installments are payable on the term loan in varying percentages quarterly through september 30 , 2018 with a balloon payment at maturity . the senior credit facilities are secured by substantially all of the company 's assets . the credit agreement contains certain financial covenants related to maximum leverage and minimum fixed charge coverage . we were in compliance with all covenants at december 31 , 2013. the credit agreement also includes other covenants and restrictions , including limits on the amount of certain types of capital expenditures . also in connection with funding the acquisition of globe motors , inc. , we entered into a note agreement , dated as of october 18 , 2013 pursuant to which we sold $ 30,000 of 14.50 % senior subordinated notes due october 18 , 2019 ( the `` notes '' ) to prudential capital partners iv , l.p. and its affiliates in a private placement . the interest rate on the notes is 14.50 % with 13.00 % payable in cash and 1.50 % payable in-kind , quarterly in arrears and the outstanding principal amount of the notes , together with any accrued and unpaid interest is due on october 18 , 2019. we may prepay the notes at any time after october 18 , 2016 , in whole or in part , at 100 % of the principal amount . the notes are unsecured obligations of the company and are fully and unconditionally guaranteed by certain of the company 's subsidiaries . we also have a credit facility in china providing credit of approximately $ 1,600 ( chinese renminbi ( `` rmb '' ) 9,500 ) . this facility is used for working capital and capital equipment needs at our china operations , and will mature in october 2014. the average borrowings for 2013 were $ 766 ( rmb 4,700 ) . at december 31 , 2013 , there was approximately $ 386 ( rmb 2,400 ) available under the facility . 15 as of december 31 , 2013 , the amount available to borrow under our various lines-of-credit was approximately $ 7,700. as part of the company 's quarterly cash dividend program , the board of directors declared a dividend of $ 0.025 per share payable on march 14 , 2014 to shareholders of record on march 3 , 2014. our working capital , capital expenditure and dividend requirements are expected to be funded from cash provided by operations and amounts available under our credit facilities . price levels and the impact of inflation the effect of inflation on the company 's costs of production has been minimized through production efficiencies , lower costs of materials and surcharges passed on to customers . the company anticipates that these factors will continue to minimize the effects of any foreseeable inflation and other price pressures from the industries in which it operates . as the company 's manufacturing activities mainly utilize semi-skilled labor , which is relatively plentiful in the areas surrounding the company 's production facilities , the company does not anticipate substantial inflation-related increases in the wages of the majority of its employees . recent accounting pronouncements during 2013 , the company adopted the new provisions of accounting standards update ( `` asu '' ) no . 2013-02 comprehensive income ( topic 220 ) story_separator_special_tag last but not least , we are taking our commitment to ast to a new level as we have invested in additional resources as part of our operational excellence team . as always , we will continuously utilize ast to improve efficiencies and eliminate waste throughout our company . ast is critical to and helps create the path to success in all regions of the world . 11 story_separator_special_tag position as measured by cash and cash equivalents increased $ 443 during 2013 to a balance of $ 10,171 at december 31 , 2013 , compared to an increase of $ 573 during 2012. during 2013 , operations provided $ 10,779 in cash compared to $ 4,604 provided for 2012. the increase in cash is primarily due to changes in working capital . net cash used in investing activities was $ 94,694 and $ 3,947 for 2013 and 2012 , respectively . the majority of the increase in 2013 is due to the $ 90,000 paid for the acquisition of globe motors in 2013. purchases of property and equipment were $ 3,087 and $ 2,597 in 2013 and 2012 , respectively . net cash provided from financing activities was $ 84,409 in 2013 compared to $ ( 244 ) for 2012. the increase in cash provided in 2013 is primarily due to the borrowings on the new credit agreement ( discussed below ) that were put in place to fund the globe acquisition offset by the payment of debt issuance costs and dividend payments to shareholders . the financing activity in 2012 consists of dividend payments to shareholders , offset by the purchase of company stock by the allied motion employee stock ownership plan ( esop ) . at december 31 , 2013 , we had $ 87,645 in debt obligations , with substantially all incurred in the fourth quarter . we entered into a new credit agreement dated as of october 18 , 2013. the credit agreement provides for a $ 15,000 five-year revolving credit facility and a $ 50,000 five-year term loan ( collectively the `` senior credit facilities '' ) . borrowings under the senior credit facilities are subject to terms defined in the credit agreement . borrowings bear interest at either the base rate plus a margin of 0.25 % to 2.00 % ( currently 1.50 % ) or the eurocurrency rate plus a margin of 1.25 % to 3.00 % , in each case depending on the company 's ratio of total funded indebtedness to consolidated ebitda ( the `` total leverage ratio '' ) . the weighted average interest rate at december 31 , 2013 was 3.08 % . principal installments are payable on the term loan in varying percentages quarterly through september 30 , 2018 with a balloon payment at maturity . the senior credit facilities are secured by substantially all of the company 's assets . the credit agreement contains certain financial covenants related to maximum leverage and minimum fixed charge coverage . we were in compliance with all covenants at december 31 , 2013. the credit agreement also includes other covenants and restrictions , including limits on the amount of certain types of capital expenditures . also in connection with funding the acquisition of globe motors , inc. , we entered into a note agreement , dated as of october 18 , 2013 pursuant to which we sold $ 30,000 of 14.50 % senior subordinated notes due october 18 , 2019 ( the `` notes '' ) to prudential capital partners iv , l.p. and its affiliates in a private placement . the interest rate on the notes is 14.50 % with 13.00 % payable in cash and 1.50 % payable in-kind , quarterly in arrears and the outstanding principal amount of the notes , together with any accrued and unpaid interest is due on october 18 , 2019. we may prepay the notes at any time after october 18 , 2016 , in whole or in part , at 100 % of the principal amount . the notes are unsecured obligations of the company and are fully and unconditionally guaranteed by certain of the company 's subsidiaries . we also have a credit facility in china providing credit of approximately $ 1,600 ( chinese renminbi ( `` rmb '' ) 9,500 ) . this facility is used for working capital and capital equipment needs at our china operations , and will mature in october 2014. the average borrowings for 2013 were $ 766 ( rmb 4,700 ) . at december 31 , 2013 , there was approximately $ 386 ( rmb 2,400 ) available under the facility . 15 as of december 31 , 2013 , the amount available to borrow under our various lines-of-credit was approximately $ 7,700. as part of the company 's quarterly cash dividend program , the board of directors declared a dividend of $ 0.025 per share payable on march 14 , 2014 to shareholders of record on march 3 , 2014. our working capital , capital expenditure and dividend requirements are expected to be funded from cash provided by operations and amounts available under our credit facilities . price levels and the impact of inflation the effect of inflation on the company 's costs of production has been minimized through production efficiencies , lower costs of materials and surcharges passed on to customers . the company anticipates that these factors will continue to minimize the effects of any foreseeable inflation and other price pressures from the industries in which it operates . as the company 's manufacturing activities mainly utilize semi-skilled labor , which is relatively plentiful in the areas surrounding the company 's production facilities , the company does not anticipate substantial inflation-related increases in the wages of the majority of its employees . recent accounting pronouncements during 2013 , the company adopted the new provisions of accounting standards update ( `` asu '' ) no . 2013-02 comprehensive income ( topic 220 )
| backlog as of december 31 , 2013 12 was $ 75,599. using the prior year method , backlog would have been $ 83,694 as of december 31 , 2013 compared to $ 32,915 as of december 31 , 2012 , a 155 % increase . gross margin : gross margin as a percentage of revenues was 29 % for both 2013 and 2012 , respectively . selling expenses : the 8 % increase in 2013 is primarily due to the acquisition of globe . general and administrative expenses : general and administrative expenses increased by 23 % primarily as a result of the addition of globe and consulting and depreciation expenses related to our erp implementation . amortization of intangible assets : the 51 % increase is the result of amortization for globe 's intangible assets . income taxes : the effective income tax rate as a percentage of income before income taxes was 31.6 % and 28.0 % in 2013 and 2012 , respectively . the effective tax rate for 2013 and 2012 is lower than the statutory rate primarily due to differences in state and foreign tax rates . the effective rate for 2013 is lower than 2012 primarily due to foreign tax rate differences and the impact of a one-time receipt of a dividend from a foreign subsidiary . non-gaap measures ebitda and adjusted ebitda are provided for information purposes only and are not measures of financial performance under generally accepted accounting principles . we believe ebitda is often a useful measure of a company 's operating performance and is a significant basis used by our management to measure the operating performance of our business because ebitda excludes charges for depreciation , amortization and interest expense that have resulted from our debt financings , as well as our provision for income tax expense . ebitda is frequently used as one of the bases for comparing businesses in our industry . we also believe that adjusted ebitda provides helpful information about the operating performance of a business . adjusted ebitda excludes stock compensation expense , as well as certain non-recurring items . nonrecurring items
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in october 2016 , we received a satisfactory safety evaluation by our independent data safety monitoring board based on safety data then available from the first 19 patients enrolled in the trial . a subsequent interim analysis of early therapeutic effect is planned after approximately 50 % of patients reach the six-month follow-up milestone , which analysis is expected in late 2017 or early 2018. we entered into a strategic collaboration with sanford research to support the execution of this trial . sanford research is a u.s.-based non-profit research organization that supports an emerging translational research center focused on finding a cure for t1d . on february 23 , 2017 , the california institute for regenerative medicine ( `` cirm '' ) awarded us funds of up to $ 12.2 million to support the t-rex study . the total $ 12.2 million amount will become payable upon the achievement of certain milestones which are still under negotiation . we expect to receive $ 5.7 million in initial funding on april 1 , 2017. clbs03 has been granted fast track and orphan drug designations from the fda as well as advanced therapeutic medicinal product ( `` atmp '' ) classification from the european medicines agency ( `` ema '' ) . ischemic repair ( cd34 cell technology ) our cd34 cell technology has led to the development of therapeutic candidates designed to address diseases and conditions caused by ischemia . ischemia occurs when the supply of oxygenated blood to healthy tissue is restricted . through the administration of cd34 cells , we seek to promote the development and formation of new blood vessels and thereby increase blood flow to the impacted area . we believe that conditions caused by underlying ischemic injury can improve through our cd34 cell technology , including critical limb ischemia ( `` cli '' ) . published reports in circulation cardiovascular interventions , atherosclerosis , stem cells and circulation journal , provide preliminary evidence that cd34 cell therapy is safe and can exert significant therapeutic effects in patients with cli , a condition in which blood flow to the legs is severely impaired , causing pain and non-healing ulcers and , ultimately , potentially resulting in the need for amputation . our clinical trial notification for a pivotal phase 2 trial investigating clbs12 ( a candidate for cli ) was submitted to the japanese pharmaceutical and medical device agency ( `` pmda '' ) and was cleared to proceed . the protocol design was agreed with pmda and if successful , could provide the basis for conditional approval under japan 's favorable regenerative medicine law . we are seeking to collaborate on clbs12 with development and or manufacturing partners . we submitted multiple grant applications in an effort to seek non-dilutive financing to investigate the cd34 technology for additional clinical indications in the united states and expect to learn the results of those applications in the first half of 2017. we intend to develop this platform if capital becomes available through grants , partnerships or licensing , as well as potentially using reasonable amounts of our own capital as it becomes available . additional out-licensing opportunities our broad intellectual property portfolio of cell therapy assets includes notable programs available for out-licensing in order to continue their clinical development . these include additional indications for our treg product , a platform using tumor cell/dendritic cell technology for immuno-oncology and additional indications for our cd34 technology . the immuno-oncology program has the benefit of promising phase 2 clinical data and applicability to multiple indications . this platform is based on our extensive intellectual property portfolio . in 2016 we completed multiple out-licensing agreements for these and other technology platforms in an effort to monetize non-core assets . our long term strategy focuses on advancing cell-based therapies to the market and assisting patients suffering from life-threatening medical conditions . we believe we are positioned to realize potentially meaningful value increases within our own proprietary pipeline based on demonstration of proof-of-concept in man as well as process and manufacturing advancements . cell therapy development and manufacturing pct is a leading cell therapy development and manufacturing provider ( often called a contract development and manufacturing organization , or `` cdmo '' ) , specializing in cell and cell-based gene therapies . pct offers high-quality development and manufacturing capabilities ( e.g. , current good manufacturing practice ( “ cgmp ” ) manufacturing systems and facilities ) , quality systems , cell and tissue processing , logistics , storage and distribution ) and engineering solutions ( e.g. , process and assay development , optimization and automation ) to clients with therapeutic candidates at all stages of development . pct produces clinical supplies and ultimately , intends also to produce commercial product for its clients . pct has worked with over 100 clients and produced over 20,000 cell therapy products since it was founded 18 years ago . pct 's manufacturing services are designed to reduce the capital investment and time required by clients to advance their development programs compared to conducting process development and manufacturing in-house . pct has demonstrated regulatory expertise , including the support of over 50 u.s. and european union ( `` eu '' ) regulatory filings for clients and expertise across multiple cell types and therapeutic applications , including immunotherapy ( e.g . car-t therapies ) , neuro/endocrine therapies , hematopoietic replacement and tissue repair/regeneration . pct offers a complete development pathway for its clients , with services supporting preclinical through commercial phase , all underpinned by timely process optimization and automation support . pct currently operates facilities qualified under cgmps in each of allendale , new jersey and mountain view , california , including eu-compliant production capacity in the allendale 45 index facility . on march 11 , 2016 , pct entered into a strategic collaboration and license agreement with hitachi chemical to accelerate the creation of a global commercial cell therapy development and manufacturing enterprise with deep engineering expertise , at which time we sold 19.9 % of our ownership stake in pct to hitachi america . story_separator_special_tag as discussed above , on march 16 , 2017 , we entered into the purchase agreement to sell our remaining 80.1 % membership interest in pct to hitachi america for the purchase price ( see `` item 1. business-overview- proposed sale of remaining interest in pct to hitachi america '' ) . reverse stock split on july 28 , 2016 , we implemented a one-for-ten reverse split of our issued and outstanding shares of our common stock ( the `` reverse stock split '' ) , as authorized at the annual meeting of stockholder on june 22 , 2016. the reverse stock split became effective on july 27 , 2016 at 5:00 pm and our common stock began trading on the nasdaq capital market on a post-split basis at the open of business on july 28 , 2016. as of july 28 , 2016 , every ten shares of our issued and outstanding common stock were combined into one share of our common stock , except to the extent that the reverse stock split resulted in any of our stockholders owning a fractional share , which was rounded up to the next highest whole share . in connection with the reverse stock split , there was no change in the nominal par value per share of $ 0.001. the reverse stock split was effectuated in order to increase the per share trading price of our common stock to satisfy the $ 1.00 minimum bid price requirement for continued listing on the nasdaq capital market . all references in this annual report on form 10-k to number of shares of common stock , price per share and weighted average shares of common stock have been adjusted to reflect the reverse stock split on a retroactive basis for all periods presented , unless otherwise noted . story_separator_special_tag style= '' line-height:120 % ; padding-bottom:8px ; text-align : justify ; font-size:10pt ; '' > clinical services ( provided by the pct segment ) , representing process development and clinical manufacturing services provided at pct to its various clients , were approximately $ 23.8 million for the year ended december 31 , 2016 , compared 46 index to $ 14.8 million for the year ended december 31 , 2015 , representing an increase of approximately $ 9.0 million or 61 % . the increase was primarily due to $ 6.8 million of higher clinical manufacturing revenue ( which is recognized as services are rendered ) , and $ 2.2 million of higher process development revenue ( such revenue being recognized on a `` completed contract '' basis ) . ◦ clinical manufacturing revenue - clinical manufacturing revenues were approximately $ 17.2 million for the year ended december 31 , 2016 , compared to $ 10.5 million for the year ended december 31 , 2015 . the increase is primarily due to higher enrollment of patients being treated in our customers ' clinical trials . ◦ process development revenue - process development revenues were approximately $ 6.6 million for the year ended december 31 , 2016 , compared to $ 4.4 million for the year ended december 31 , 2015 . during the year ended december 31 , 2016 , the number of process development contracts initiated and completed were higher compared to the prior year period . in accordance with our revenue recognition policy , process development revenue is recognized upon contract completion ( i.e. , when the services under a particular contract are completed ) . as of december 31 , 2016 , approximately $ 4.0 million process development revenue has been deferred to future periods for contracts that have been initiated but not yet completed . this revenue will be recognized in future periods upon completion of those contracts . process development revenue will continue to fluctuate from period to period as a result of this revenue recognition policy . clinical services reimbursables ( provided by the pct segment ) , representing reimbursement of expenses for certain consumables incurred on behalf of our clinical service revenue clients , were approximately $ 6.4 million for the year ended december 31 , 2016 , compared to $ 3.4 million for the year ended december 31 , 2015 , representing an increase of approximately $ 3.0 million or 88 % . generally , clinical services reimbursables correlate with clinical services revenues . however , differences in the cost of supplies to be reimbursed can vary greatly from contract to contract based on the cost of supplies needed for each client 's manufacturing and development process , and may impact this correlation . in addition , our terms for billing reimbursable expenses do not include a significant mark up in the acquisition cost of such consumables , and as a result , changes in this revenue category have little impact on our gross profit and net loss . processing and storage services ( provided by the pct segment ) , primarily representing revenues from our oncology stem cell processing , were approximately $ 4.6 million for the year ended december 31 , 2016 , compared to $ 4.1 million for the year ended december 31 , 2015 , representing an increase of approximately $ 0.5 million or 11 % . the increase is primarily due to increased volume and pricing for the processing services . operating costs and expenses for the year ended december 31 , 2016 , operating expenses totaled $ 66.6 million compared to $ 136.3 million for the year ended december 31 , 2015 , representing a decrease of $ 69.7 million or 51 % . operating expenses were comprised of the following : cost of revenues ( incurred in the pct segment ) were approximately $ 31.1 million for the year ended december 31 , 2016 , compared to $ 20.2 million for the year ended december 31 , 2015 , representing an increase of $ 11.0 million or 54 % . overall , gross margin for the year ended december 31 , 2016 was $ 4.1 million or 12 % , compared to $ 2.3 million or 10 % year ended december 31 , 2015 .
| based on this decision , we determined that in process research and development ( `` ipr & d '' ) valued at $ 9.4 million was fully impaired ( recorded in impairment of intangible assets in our consolidated statement of operations ) , and the associated deferred tax liability of $ 3.7 million was reversed ( recorded in benefit from income taxes in our consolidated statement of operations ) . in addition , the fair value of contingent consideration associated with earn out payments on clbs10 future revenues was reduced from $ 5.6 million to $ 0 as of june 30 , 2015 ( recorded in other income in our consolidated statement of operations ) . in the fourth quarter of 2015 , following a comprehensive review of the clbs20 clinical development program , including current market dynamics and current and expected future competitive therapies , we decided to discontinue the phase 3 clinical trial of clbs20 as a monotherapy for metastatic melanoma . based on this decision , we determined that ipr & d valued at $ 34.3 million was fully impaired ( recorded in impairment of intangible assets in our consolidated statement of operations ) , and the associated deferred tax liability of $ 13.9 million was reversed ( recorded in benefit from income taxes in our consolidated statement of operations ) . in addition , the fair value of contingent consideration associated with future milestone payments on clbs20 future development and follow on therapies was reduced from $ 13.9 million to $ 0 as of december 31 , 2015 ( recorded in other income in our consolidated statement of operations ) . goodwill was also impaired by $ 18.2 million as of december 31 , 2015 , based on the decision to discontinue clbs20 . the overall $ 24.7 million increase in net loss in 2015 resulting from the clbs10 and clbs20 clinical development program discontinuation decisions , and goodwill impairment are summarized as follows ( in thousands ) : replace_table_token_3_th revenues for the year ended december 31 , 2016 , total revenues were approximately $ 35.3 million compared to $ 22.5 million for the year ended december 31 , 2015 , representing an increase of $ 12.8 million , or 57 % . revenues were comprised of the following ( in thousands ) : replace_table_token_4_th
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if this investor was required to make the full amount of its maximum capital commitment as of december 31 , 2011 , our total capital commitments would have increased by $ 14.1 million as of such date . during the year ended december 31 , 2011 , we delivered drawdown notices to our investors relating to the issuance of 176,532 shares of our common stock for aggregate offering proceeds of $ 173 million . see note 8 to our consolidated financial statements for the dates and amounts of our drawdowns . proceeds from the issuances were used to commence our investing activities and for other general corporate purposes . in addition , on june 29 , 2011 , we repurchased 999 shares of our common stock issued as part of our formation from tarrant advisors , inc. , an affiliate of ours and our adviser , for $ 999. the repurchased shares are held in treasury shares , at cost , as of december 31 , 2011. revolving credit facility on september 28 , 2011 , we entered into the initial revolving credit facility with deutsche bank trust company americas ( dbtca ) as administrative agent ( the administrative agent ) , and dbtca and certain 42 of its affiliates as lenders . the maximum principal amount of the initial revolving credit facility was $ 150 million , subject to availability under the borrowing base . on december 22 , 2011 , the initial revolving credit facility was amended and restated ( the revolving credit facility ) . under the revolving credit facility , the maximum principal amount was increased from $ 150 million to $ 250 million , including up to $ 75 million available for standby letters of credit , subject in each case to availability under a borrowing base which is based on unfunded capital commitments and outstanding indebtedness . the maximum principal amount of the revolving credit facility may be increased to up to $ 300 million upon request of the company within twelve months of closing and subject payment of an additional fee . proceeds from the revolving credit facility may be used for investment activities , expenses , working capital requirements and general corporate purposes . the revolving credit facility matures upon the earlier of the date two ( 2 ) years from the closing date and 25 days prior to a qualifying initial public offering of the company . the revolving credit facility is secured by a perfected first priority security interest in the unfunded capital commitments of the company 's private investors , including assignment of the right to make capital calls , receive and apply capital contributions , enforce remedies and claims related thereto , and a pledge of the collateral account into which all capital calls flow . interest rates on obligations under the revolving credit facility are based on prevailing libor or prime lending rate plus an applicable margin . we may elect either the libor or prime rate at the time of draw-down , and loans may be converted from one rate to another at any time , subject to certain conditions . we also pay a fee on undrawn amounts depending on the average usage of the revolving credit facility . in respect of each letter of credit , the company will pay a fee and a fixed rate while the letter of credit is outstanding . the revolving credit facility contains customary covenants on us and our subsidiaries , including requirements to deposit all capital call proceeds into a collateral account , restrict certain distributions , and restrict certain types and amounts of indebtedness . the revolving credit facility includes customary events of default . transfers of interests in the company by investors will require the prior consent of the administrative agent , which shall not be unreasonably withheld or delayed . such transfers may trigger mandatory prepayment obligations . in connection with the closing of the initial revolving credit facility and the revolving credit facility , we paid fees totaling $ 2.1 million . such fees have been capitalized as debt issuance costs included in prepaid expenses and other assets and are being amortized over the life of the revolving credit facility . as of december 31 , 2011 , we had $ 155 million outstanding and we were in compliance with the terms of the revolving credit facility . we intend to continue to utilize the revolving credit facility on a revolving basis to fund investments and for other general corporate purposes . see note 6 to our consolidated financial statements for the year ended december 31 , 2011 , for more detail on the revolving credit facility . off balance sheet arrangements information on our off balance sheet arrangements is contained in note 7 to our consolidated financial statements for the year ended december 31 , 2011 , included in this annual report on form 10-k. contractual obligations a summary of our contractual payment obligations as of december 31 , 2011 , are as follows : replace_table_token_7_th 43 in addition to the contractual payment obligations in the table above , we also have commitments to fund investments . see off balance sheet arrangements. current economic environment the u.s. capital markets have been experiencing extreme volatility and disruption for more than three years , and we believe that the u.s. economy has not fully recovered from a period of recession . disruptions in the capital markets have increased the spread between the yields realized on risk-free and higher risk securities , resulting in illiquidity in parts of the capital markets . we believe these conditions may continue for a prolonged period of time or worsen in the future . a prolonged period of market illiquidity may have an adverse effect on our business , financial condition and results of operations . story_separator_special_tag unfavorable economic conditions could also increase our portfolio companies ' funding costs , limit their access to the capital markets or result in a decision by lenders not to extend credit to them . these conditions could limit our investment originations , limit our ability to grow , negatively impact our operating results , and delay or prevent us from launching or completing an ipo . recent developments on january 31 , 2012 , the company entered into $ 45 million of subscription agreements with several investors providing for the private placement of the company 's common stock which , when combined with increased commitments from existing investors , increased the total committed capital to $ 1.3 billion ( $ 1.1 billion unfunded ) , of which $ 96.2 million ( $ 86.1 million unfunded ) is from the adviser and its affiliates . on february 1 , 2012 , pursuant to the subscription agreements , the company delivered a capital drawdown notice to its investors relating to the issuance of 6,525 shares of the company 's common stock for an aggregate offering price of $ 6.4 million . the shares were issued on february 15 , 2012. on february 8 , 2012 , pursuant to the subscription agreements , the company delivered a capital drawdown notice to its investors relating to the issuance of 35,521 shares of the company 's common stock for an aggregate offering price of $ 35 million . the shares were issued on february 22 , 2012. on march 16 , 2012 , pursuant to the subscription agreements , the company delivered a capital drawdown notice to its investors relating to the issuance of 76,137 shares of the company 's common stock for an aggregate offering price of $ 75 million . the shares are expected to be issued on march 29 , 2012. critical accounting policies the preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues , and expenses . changes in the economic environment , financial markets , and any other parameters used in determining such estimates could cause actual results to differ . our critical accounting policies , including those relating to the valuation of our investment portfolio , are described below . the critical accounting policies should be read in connection with our risk factors as disclosed in item 1a . risk factors . investments at fair value investment transactions purchased on a secondary basis are recorded on the trade date . loan originations are recorded on the funding date which is generally the date of the binding commitment . realized gains or losses are measured by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment without regard to unrealized gains or losses previously recognized , and include investments charged off during the period , net of recoveries . unrealized gains or losses primarily reflect the change in investment values , including the reversal of previously recorded unrealized gains or losses on investments realized during the period . investments for which market quotations are readily available are typically valued at such market quotations . in order to validate market quotations , we look at a number of factors to determine if the quotations 44 are representative of fair value , including the source and nature of the quotations . debt and equity securities that are not publicly traded or whose market prices are not readily available are valued at fair value as determined in good faith by our board , based on , among other things , the input of our adviser , audit committee and an independent third-party valuation firm engaged at the direction of our board . as of december 31 , 2011 , the values of all of our investments are determined by our board . as part of the valuation process , we take into account relevant factors in determining the fair value of our investments , including : the estimated enterprise value of a portfolio company ( i.e. , the total fair value of the portfolio company 's debt and equity ) , the nature and realizable value of any collateral , the portfolio company 's ability to make payments based on its earnings and discounted cash flow , the markets in which the portfolio company does business , a comparison of the portfolio company 's securities to any similar publicly traded securities , overall changes in the interest rate environment and the credit markets that may affect the price at which similar investments may be made in the future . when an external event such as a purchase transaction , public offering or subsequent equity sale occurs , we consider the pricing indicated by the external event to corroborate its valuation . our board undertakes a multi-step valuation process each quarter , as summarized below : the quarterly valuation process begins with each investment being initially valued by the investment professionals responsible for the portfolio investment in conjunction with the portfolio management team . our adviser 's management reviews the preliminary valuations with the investment professionals ; agreed-upon valuation recommendations are presented to the audit committee . the audit committee reviews the valuations presented and recommends values for each investment to our board . our board reviews the recommended valuations and determines the fair value of each investment ; valuations that are not based on readily available market quotations are valued in good faith based on , among other things , the input of our adviser and audit committee and , where applicable , other third parties . in connection with debt and equity securities that are valued at fair value in good faith by the board , the board has engaged an independent third party valuation firm to perform certain limited procedures that the board identified and requested it to perform .
| expenses for the year ended december 31 , 2011 , were $ 6.8 million which consisted of $ 1.5 million of initial organization costs for which we were required to reimburse the adviser in accordance with the administration agreement , $ 0.8 million of interest expense , $ 1.6 million in management fees ( net of waivers ) , $ 0.3 million in incentive fees , $ 1.6 million in professional fees , $ 0.2 million in directors ' fees , and $ 0.8 million in other general and administrative expenses . net unrealized gains/losses we value our investments quarterly and any changes in fair value are recorded as unrealized gains or losses . see critical accounting policiesinvestments at fair value. as of december 31 , 2011 , net unrealized gains and losses on our investment portfolio were comprised of the following : ( $ in millions ) december 31 , 2011 unrealized appreciation $ 2.4 unrealized depreciation ( 0.1 ) net unrealized gains $ 2.3 the changes in unrealized appreciation ( depreciation ) for the year ended december 31 , 2011 , consisted of the following : replace_table_token_6_th 41 hedging we may , but are not required to , enter into interest rate , foreign exchange or other derivative agreements to hedge interest rate , currency , credit or other risks , but we do not generally intend to enter into any such derivative agreements for speculative purposes . any derivative agreements entered into for speculative purposes are not expected to be material to our business or results of operations . these hedging activities , which will be in compliance with applicable legal and regulatory requirements , may include the use of various instruments , including futures , options and forward contracts . we will bear the costs incurred in connection with entering into , administering and settling any such derivative contracts . there can be no assurance any hedging strategy we employ will be successful . we did not enter into any interest rate , foreign exchange or other derivative agreements during the year ended december 31 , 2011. financial condition , liquidity and capital resources at december 31 ,
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in december 2014 , cb pharma closed its initial public offering ( “ ipo ” ) , including an over-allotment exercise , and a private placement raising net proceeds of $ 42.9 million , to be held in trust until such time that a business combination is consummated . in conjunction with the ipo , we purchased 265,000 ordinary shares of cb pharma at $ 10.00 per share for an aggregate purchase price of $ 2.7 million in a private placement . each ordinary share is entitled to a right of one-tenth of a share upon an initial business combination and a warrant of one-half an ordinary share to be exercised at $ 11.50 per share , are non-redeemable , and may be exercised the later of the completion of an initial business combination or 12 months following the prospectus date of december 12 , 2014. none of the shares we purchased have liquidation rights . our investment in cb pharma , at december 31 , 2014 , represents approximately 23 % ownership in cb pharma . we elected the fair value option to record this long-term investment and recorded a change in the fair value of this investment of $ 1.2 million based upon an independent valuation . ( see note 9 of notes to consolidated financial statements ) . in october 2014 , the company formed journey medical corporation ( “ jmc ” ) , a wholly owned subsidiary of the company . jmc will acquire and license dermatology products for acne , steroid responsive dermatoses , pigmentation and antifungals for promotion to dermatologists and pediatricians . jmc is headquartered in scottsdale , az , and as of december 31 , 2014 , had four full-time employees . 38 subsequent to december 31 , 2014 , we have continued to make significant progress implementing our growth strategy , commencing in january 2015 with the in-licensing of a topical product , 1uo , used in the treatment of hand-foot syndrome , by our subsidiary coronado so . in february 2015 we purchased an exclusive license to intravenous formulation of iv tramadol and , in march 2015 , we announced the formation of our subsidiary checkpoint therapeutics , inc. ( “ checkpoint ” ) which will focus on the development of a portfolio of fully human immuno-oncology targeted antibodies generated in the laboratory at the dana-farber cancer institute ( “ dana-farber ” ) . ( note 18 of notes to consolidated financial statements ) . critical accounting policies and use of estimates our discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states , or gaap . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses and the disclosure of contingent assets and liabilities in our financial statements . on an ongoing basis , we evaluate our estimates and judgments , including those related to research and development , accrued expenses , stock-based compensation and fair value of investments . we base our estimates on historical experience , known trends and events and various other factors that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . our significant accounting policies are described in more detail in the notes to our consolidated financial statements appearing elsewhere in this form 10-k. we believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our consolidated financial statements . research and development expenses as part of the process of preparing our consolidated financial statements , we are required to estimate our accrued research and development expenses . this process involves reviewing open contracts and purchase orders , reviewing the terms of our license agreements , communicating with our applicable personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost . the majority of our service providers invoice us monthly in arrears for services performed . we make estimates of our accrued expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to us at that time . we periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary . examples of estimated accrued research and development expenses as of december 31 , 2014 include fees to : contract research organizations , or cros , and other service providers in connection with clinical studies ; investigative sites in connection with clinical studies ; contract manufacturers in connection with production of clinical trial materials ; vendors in connection with the preclinical development activities ; and licensors for the achievement of milestone-related events . we base our expenses related to clinical studies on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and cros that conduct and manage clinical studies on our behalf . the financial terms of these agreements are subject to negotiation , vary from contract to contract and may result in uneven payment flows and expense recognition . payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones . in accruing service fees , we estimate the time period over which services will be performed and the level of effort to be expended in each period . if the actual timing of the performance of services or the level of effort varies from our estimate , we adjust the accrual accordingly . story_separator_special_tag 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 our reporting changes in estimates in any particular period . to date , our estimates have not materially differed from actual costs . expenses related to annual license fees are accrued on a pro rata basis throughout the year . stock-based compensation we expense stock-based compensation to employees over the requisite service period based on the estimated grant-date fair value of the awards and considering estimated pre-vesting forfeiture rates . for stock-based compensation awards to non-employees , we re-measure the fair value of the non-employee awards at each reporting period prior to vesting and finally at the vesting date of the award . changes in the estimated fair value of these non-employee awards are recognized as compensation expense in the period of change . 39 determining the appropriate fair value of stock-based awards requires the use of subjective assumptions . prior to november 17 , 2011 in the absence of a public trading market for our common stock , we conducted periodic assessments of the valuation of our common stock . these valuations were performed concurrently with the achievement of significant milestones or with a significant financing . we use a black-scholes option-pricing model to determine the fair value of stock options . the determination of the grant date fair value of options using an option-pricing model is affected by our estimated common stock fair value as well as assumptions regarding a number of other subjective variables . these variables include the fair value of our common stock , our expected stock price volatility over the expected term of the options , stock option exercise and cancellation behaviors , risk-free interest rates , and expected dividends , which are estimated as follows : we utilized the public trading price of our common stock . expected term . due to the limited exercise history of our own stock options , we determined the expected term based on the stratification of option holder groups . our employee options meet the criteria for the simplified method under sab 107 while the expected term for our non-employees is the remaining contractual life for both options and warrants . volatility . as we have a very limited trading history for our common stock , the expected stock price volatility for our common stock was estimated by incorporating two years of our historical volatility and the average historical price volatility for industry peers based on daily price observations over a period equivalent to the expected term of the stock option grants . industry peers consist of several public companies in the biopharmaceutical industry similar in size , stage of life cycle and financial leverage . our historical volatility is weighted with that of the peer group and that combined historical volatility is weighted 80 % with a 20 % weighting of our implied volatility , which is obtained from traded options of our stock . we intend to continue to consistently apply this process using the same or similar public companies until we have sufficient historical information regarding the volatility of our own common stock that is consistent with the expected life of our options . should circumstances change such that the identified companies are no longer similar to us , more suitable companies whose share prices are publicly available would be utilized in the calculation . risk-free rate . the risk-free interest rate is based on the yields of united states treasury securities with maturities similar to the expected term of the options for each option group . dividend yield . we have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future . consequently , we used an expected dividend yield of zero . the estimation of the number of stock awards that will ultimately vest requires judgment , and to the extent actual results or updated estimates differ from our current estimates , such amounts will be recorded as a cumulative adjustment in the period in which estimates are revised . we consider many factors when estimating expected forfeitures , including types of awards , employee class and historical experience . actual results , and future changes in estimates , may differ substantially from our current estimates . for the years ended december 31 , 2014 , 2013 , and 2012 , stock-based compensation expense was $ 5.5 million , $ 5.9 million , and $ 3.6 million , respectively . as of december 31 , 2014 , we had approximately $ 1.2 million of total unrecognized compensation expense , related to unvested stock options granted to employees and non-employees , which we expect to recognize over a weighted-average period of approximately 0.6 years . if any of the assumptions used in a black-scholes model changes significantly , stock-based compensation for future awards may differ materially compared with the awards granted previously . restricted stock we granted shares of restricted common stock to certain employees and members of our board of directors during 2013 and 2014. these awards vest upon both the passage of time as well as the achievement of certain pre-defined market conditions . for those awards which vest based upon the passage of time , we determined the fair value of the awards using our stock price on the date of grant . for those awards which vest based on pre-defined market conditions , we determined the fair value for these awards using a monte carlo simulation pricing model with the following assumptions : expected term . the contractual life for restricted stock issuance agreements is 5 years , which coincides with the vesting period . 40 volatility .
| since product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later stage clinical trials , our research and development expenses might increase in the future . in addition , if our product development efforts are successful , we expect to incur substantial costs to prepare for potential commercialization of any late-stage product candidates and , in the event one or more of these product candidates receive regulatory approval , to fund the launch of the product . for the years ended december 31 , 2014 , 2013 and 2012 , direct , external development costs incurred for our tso product development program were $ 2.6 million , $ 12.2 million , and $ 10.9 million , respectively . for the years ended december 31 , 2014 , 2013 and 2012 , direct , external development costs incurred for our cndo-109 product development program were $ 2.1 million , $ 2.2 million , and $ 1.9 million , respectively . general and administrative expenses general and administrative expenses consist principally of personnel-related costs , professional fees for legal , consulting , audit and tax services , rent and other general operating expenses not otherwise included in research and development expenses . for the years ended december 31 , 2014 , 2013 , and 2012 , general and administrative expenses were $ 10.4 million , $ 10.1 million , and $ 8.7 million , respectively . noncash , stock-based compensation expense included in general and administrative expenses in 2014 , 2013 and 2012 was $ 4.4 million , $ 2.9 million and $ 2.1 million , respectively . we anticipate general and administrative expenses will increase in future periods , reflecting continued and increasing costs associated with : support of our expanded research and development activities ; support of business development activities ; and an expanding infrastructure and increased professional fees and other costs associated with the regulatory requirements and increased compliance
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