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north america off-highway end market net sales were down 44 % for the year ended december 31 , 2012 compared to the year ended december 31 , 2011. the decrease was principally driven by lower demand from hydraulic fracturing applications due to weakness in natural gas pricing . military end market net sales were flat for the year ended december 31 , 2012 compared to the year ended december 31 , 2011 due to higher wheeled product requirements being offset by lower tracked product requirements . outside north america on-highway end market net sales were up 5 % for the year ended december 31 , 2012 compared to the year ended december 31 , 2011 reflecting strength in china , partially offset by weaker demand in europe and latin america . outside north america off-highway end market net sales were up 31 % for the year ended december 31 , 2012 compared to the year ended december 31 , 2011 principally driven by increased demand in the mining and energy sectors . service parts , support equipment & other end market net sales were down 2 % for the year ended december 31 , 2012 compared to the year ended december 31 , 2011. the decrease was principally driven by lower demand for global off-highway service parts , partially offset by increased support equipment sales commensurate with increased transmission unit volumes . 36 key components of our results of operations net sales we generate our net sales primarily from the sale of transmissions , transmission parts , support equipment , military kits , engineering services and extended transmission coverage to a wide array of oems , distributors and the u.s. government . sales are recorded net of provisions for customer allowances and other rebates . engineering services are recorded as net sales in accordance with the terms of the contract . the associated costs are recorded in cost of sales . we also have royalty agreements with third parties that provide net sales as a result of joint efforts in developing marketable products . cost of sales our most significant components of cost of sales are purchased parts , the overhead expense related to our manufacturing operations and direct labor associated with the manufacture and assembly of transmissions and parts . for the year ended december 31 , 2012 , direct material costs were approximately 70 % , overhead costs were approximately 24 % , and direct labor costs were approximately 6 % of total cost of sales . we are subject to changes in our cost of sales caused by movements in underlying commodity prices . we seek to hedge against this risk by using commodity swap contracts and ltsas . see part ii , item 7a , quantitative and qualitative disclosures about market riskcommodity price risk included in this annual report on form 10-k. selling , general and administrative expenses the principal components of our selling , general and administrative expenses are salaries and benefits for our office personnel , advertising and promotional expenses , product warranty expense , expenses relating to certain information technology systems and amortization of our intangibles . engineering research and development we incur costs in connection with research and development programs that are expected to contribute to future earnings . such costs are expensed as incurred . in 2009 , we were notified by the doe that we were selected to receive matching funds up to $ 62.8 million from a cost-share grant program funded by the american recovery and reinvestment act for the development of hybrid-propulsion system manufacturing capacity in the u.s. ( the grant program ) . applicable costs associated with the grant program have been charged to engineering research and development . the doe 's matching reimbursement is recorded to other ( expense ) income , net in the consolidated statements of comprehensive income ( loss ) included in part ii , item 8 , of this annual report on form 10-k , or in the case of capital expenditure , as a reduction in the cost basis of the capital asset . critical accounting policies and significant accounting estimates the preparation of the consolidated financial statements in accordance with gaap requires management to make estimates and assumptions that affect the reported amounts of some assets and liabilities and , in some instances , the reported amounts of net sales and expenses during the applicable reporting period . differences between actual amounts and estimates are recorded in the period identified . management believes the accounting estimates discussed below represent those accounting estimates that require the exercise of judgment where a different set of judgments could result in changes to our reported results . revenue recognition we record sales when title has transferred to the customer , there is evidence of an agreement , the sales price is fixed and determinable and the collection of the related accounts receivable is reasonably assured . we sell etc for which sales are deferred . etc sales are recognized ratably over the period of the etc , which typically ranges from three to five years after initial sale . distributor and customer sales incentives , consisting of allowances and other rebates , are estimated at the time of sale based upon our history and experience and are recorded as a reduction to net sales . incentive programs are generally product specific or region specific . some factors used in estimating the cost of incentives include the number of transmissions that will be affected by the incentive program and rate of acceptance of any incentive program . if the actual number of affected transmissions differs from this estimate , or if a different mix of incentives is actually paid , the impact on net sales would be recorded in the period that the change was identified . sales under u.s. government production contracts are recorded when the product is accepted and title has transferred to the u.s. government . story_separator_special_tag under the terms of the u.s. government contracts , there are certain price reduction clauses and provisions for potential price reductions which are estimated at the time of sale based upon our history and experience and are recorded as a reduction to net sales . potential reductions may be attributed to a change in projected sales volumes or plant efficiencies which impact overall costs . 37 inventory we value our inventory using the first-in , first-out method , and state our inventories at the lower of cost or net realizable value . in order to determine net realizable value , we analyze our inventory on a periodic basis to determine the amount of excess or obsolete inventory . any decline in carrying value of estimated excess or obsolete inventory is recorded as a reduction of inventory and as an expense included in cost of sales in the period it is identified . impairment of goodwill and other intangibles goodwill represents the excess of purchase price paid over the fair value of net assets acquired . in accordance with the financial accounting standards board 's ( fasb ) authoritative accounting guidance on goodwill , we do not amortize goodwill but rather evaluate it for impairment on an annual basis , or more often if events or circumstances change that could cause goodwill to become impaired . there is one reporting unit which is the same as our one operating and reportable segment . we have elected to perform our annual impairment test on october 31 of every year . a multi-step impairment test is performed on goodwill . in step 0 , we evaluate various qualitative factors to determine the likelihood of impairment . if determined that the fair value is more likely than not less than the carrying value , then we are required to perform step 1. in step 1 , we perform a quantitative analysis to compare the fair value of our reporting unit to its carrying value including goodwill . if the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit , goodwill is not considered 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 step 2 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 would record an impairment loss equal to the difference . after reviewing various qualitative factors , our 2012 annual goodwill impairment test indicated that the fair value of the reporting unit more likely than not exceeded its carrying value , indicating no impairment . our qualitative review included an assessment of various key assumptions and factors including , among others , an assessment of business changes , economic outlooks , financial trends and forecasts , credit ratings , equity ratings and discount rates . events or circumstances that could unfavorably impact the key assumptions include lower net sales driven by market conditions , our inability to execute on marketing programs and or delay in the introduction of new products , lower gross margins as a result of market conditions or failure to obtain forecasted cost reductions , or a higher discount rate as a result of market conditions . while unpredictable and inherently uncertain , we believe our forecast estimates were reasonable and incorporate assumptions that similar market participants would use in their estimates of fair value . other intangible assets have both indefinite and finite useful lives . intangible assets with indefinite useful lives , such as our trade name , are not amortized but are tested annually for impairment . we have elected to perform our annual trade name impairment test on october 31 of every year and follow a similar multi-step impairment test that is performed on goodwill . after reviewing various qualitative factors , our 2012 annual trade name impairment test indicated that the fair value of the trade name more likely than not exceeded its carrying value , indicating no impairment . our qualitative review included an assessment of various key assumptions and factors including , among others , an assessment of business changes , economic outlooks , financial trends and forecasts , royalty savings rates , credit ratings , equity ratings and discount rates . events or circumstances that could unfavorably impact the key assumptions include lower net sales driven by market conditions , our inability to execute on marketing programs and or delay in introduction of new products , and higher discount rate as a result of market conditions . while unpredictable and inherently uncertain , we believe the forecast estimates are reasonable and incorporate those assumptions that similar market participants would use in their estimates of fair value . intangible assets with finite lives are amortized over their estimated useful lives and reviewed for impairment when circumstances change that would create a triggering event . customer relationships are amortized over the life in which expected benefits are to be consumed . the other remaining finite useful life intangibles are amortized on a straight-line basis over their useful lives . we evaluate the remaining useful life of the other intangible assets on a periodic basis to determine whether events or circumstances warrant a revision to the remaining useful life . assumptions and estimates about future values and remaining useful lives of our intangible and other long-lived assets are complex and subjective . they can be affected by a variety of factors , including external factors , such as industry and economic trends , and internal factors such as changes in our business strategy and our internal forecasts . although we believe the historical assumptions and estimates we have made are reasonable and appropriate , different assumptions and estimates could materially impact our reported financial results .
| gross profit gross profit for the year ended december 31 , 2012 was $ 954.3 million compared to $ 954.5 million for the year ended december 31 , 2011. the decrease was principally driven by $ 29.0 million related to decreased sales and $ 7.7 million related to the fourth quarter 2012 uaw local 933 contract signing bonus , partially offset by $ 20.0 million of price increases on certain products , $ 13.0 million of favorable material costs and $ 3.5 million attributable to improved manufacturing performance . selling , general and administrative expenses selling , general and administrative expenses for the year ended december 31 , 2012 were $ 419.0 million compared to $ 409.1 million for the year ended december 31 , 2011 , an increase of 2.4 % . the increase was principally driven by $ 9.4 million related to the dpim extended coverage program , $ 8.0 million of unfavorable product warranty adjustments from prior period estimates , $ 7.2 million of higher product warranty expense and $ 1.0 million related to the fourth quarter 2012 uaw local 933 contract signing bonus , partially offset by $ 9.0 million of lower incentive compensation expense and reduced global commercial spending activities . engineeringresearch and development engineering expenses for the year ended december 31 , 2012 were $ 115.1 million compared to $ 116.4 million for the year ended december 31 , 2011 , a decrease of 1.1 % . the decrease was principally driven by lower product initiatives spending , partially offset by an increase of $ 2.1 million related to certain technology-related license expenses and $ 0.1 million related to the fourth quarter 2012 uaw local 933 contract signing bonus . 43 interest expense , net interest expense , net for the year ended december 31 , 2012 was $ 151.2 million compared to $ 217.3 million for the year ended december 31 , 2011 , a decrease of 30.4 % . the decrease was principally driven by $ 52.4 million of lower interest expense as a result of debt repayments and purchases , and a $ 32.5 million decrease in mark-to-market expense for our interest rate derivatives , partially offset by $ 10.0 million of higher interest expense primarily due to the effectiveness of $ 700.0 million of new interest rate swaps at higher interest rates , and $ 8.3 million of higher interest expense primarily driven by higher interest
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replace_table_token_6_th net revenue of $ 3,189 million for the year ended october 31 , 2017 increased 9 percent when compared to 2016. foreign currency movements had a negligible impact on the year-over-year comparison . revenue associated with acquisitions accounted for 7 percentage points of revenue growth for the year ended october 31 , 2017 when compared to 2016. net revenue of $ 2,918 million for the year ended october 31 , 2016 increased 2 percent when compared to 2015. foreign currency movements 36 had a negligible impact on the year-over-year comparison . revenue associated with acquisitions accounted for 5 percentage points of revenue growth for the year ended october 31 , 2016 when compared to 2015. revenue from the communications solutions group represented approximately 54 percent of total revenue in 2017 and was flat when compared to 2016. the communications solutions group contribution to total revenue growth was negligible in 2017 , with growth in japan and asia pacific excluding japan offset by declines in the americas and europe when compared to 2016. the communications solutions group revenue remained flat as strength in 5g technologies and data center technologies was offset by decline in the aerospace , defense and government market . in 2016 , the communications solutions group represented approximately 60 percent of total revenue and increased 3 percent when compared to 2015. the communications solutions group contributed 1 percentage point to total revenue growth in 2016 , with growth in europe , japan and asia pacific excluding japan , while the americas revenue was flat when compared to 2015. excluding revenue from anite , the communications solutions group revenue declined year-over-year as weakness in the smartphone supply chain and restructuring and consolidation activities in the industry offset strength in 5g technologies and data center expansion . revenue from the electronic industrial solutions group represented approximately 27 percent of total revenue in 2017 and grew 8 percent year-over-year when compared to the same period last year , driven by strong growth in semiconductor measurement and automotive and energy markets . the electronic industrial solutions group contributed 2 percentage points to total revenue growth in 2017 , with growth in asia pacific excluding japan and europe , partially offset by declines in japan , while revenue from the americas remained flat . revenue from the electronic industrial solutions group represented approximately 26 percent of total revenue in 2016 and grew 2 percent year-over-year when compared to the same period last year . the electronic industrial solutions group contributed 1 percentage point to total revenue growth in 2016 , with growth in asia pacific excluding japan and japan , partially offset by declines in europe and the americas . revenue from the ixia solutions group represented approximately 6 percent of total revenue in 2017. revenue from the ixia solutions group contributed 7 percentage points to total revenue growth in 2017. revenue from the services solutions group represented approximately 13 percent of total revenue in 2017 and grew 4 percent when compared year-over-year . the services solutions group contribution to the total revenue growth was negligible in 2017 , with growth in all regions . revenue from the services solutions group represented approximately 14 percent of total revenue in 2016 and was flat when compared year-over-year . the services solutions group contribution to total revenue growth was negligible in 2016 , with growth in the americas and japan , partially offset by decline in asia pacific excluding japan , while europe was flat . backlog backlog represents the amount of revenue expected from orders that have already been booked , including orders for goods and services that have not been delivered to customers , orders invoiced but not yet recognized as revenue , and orders for goods that were shipped but not invoiced , awaiting acceptance by customers . at october 31 , 2017 , our unfilled backlog was approximately $ 950 million as compared to approximately $ 807 million at october 31 , 2016. consistent with our strategy , we are seeing an increase in solution sales , which have a longer order-to-revenue conversion cycle ; however , we expect that a majority of the unfilled backlog will be recognized as revenue within six months . we believe backlog on any particular date , while indicative of short-term revenue performance , is not necessarily a reliable indicator of medium or long-term revenue performance . 37 costs and expenses replace_table_token_7_th replace_table_token_8_th gross margin declined 2 percentage points in 2017 compared to 2016 , primarily driven by the unfavorable impacts from amortization of acquisition-related assets , fire-related costs at our corporate headquarters , an increase in people-related costs and an increase in warranty expense due to a lower compare as a result of a one-time reduction in the standard warranty accrual during the three months ended july 31 , 2016. gross margin remained flat in 2016 compared to 2015 as the favorable impacts from a higher percentage of revenue from software and r & d solutions , lower inventory and warranty charges were offset by unfavorable impacts from acquisition-related intangible amortization . excess and obsolete inventory charges were $ 16 million in 2017 , $ 17 million in 2016 and $ 28 million in 2015. sales of previously written-down inventory were $ 1 million in 2017 , $ 2 million in 2016 and $ 2 million in 2015. research and development expense increased 17 percent in 2017 compared to 2016 primarily driven by the addition of ixia to the cost structure , an increase in people-related costs , acquisition-related compensation costs and our continued investment in research and development programs . as a percentage of total revenue , research and development expenses increased 1 percentage point to 16 percent in 2017 from 15 percent in 2016. research and development expense increased 10 percent in 2016 compared to 2015 due to increased expenses associated with acquired companies and our continued investment in research and development programs . story_separator_special_tag as a percentage of total revenue , research and development expenses increased 1 percentage point to 15 percent in 2016 from 14 percent in 2015. we expect investment in research and development to continue at current levels and have focused our development efforts on strategic growth opportunities . selling , general and administrative expenses increased 28 percent for 2017 , compared to the same period last year , primarily driven by the addition of ixia to our cost structure , increases in amortization of acquisition-related assets , acquisition and integration costs , acquisition-related compensation costs , investments in sales resources , people-related costs and the unfavorable impact from fire-related costs at our corporate headquarters and restructuring-related costs . selling , general and administrative expenses increased 4 percent for 2016 , compared to the same period last year , primarily driven by increased expenses associated with acquired companies , higher field selling costs , higher intangible amortization and higher separation-related costs , partially offset by the favorable impact from foreign currency movements and lower share-based compensation expense . other operating expense ( income ) , net for 2017 was income of $ 84 million , which primarily includes a $ 68 million gain from a settlement related to our japan pension fund and rental income . other operating expense ( income ) , net for 2016 was income of $ 25 million , which primarily includes rental income . operating margin decreased 6 percentage points in 2017 when compared to 2016 , primarily driven by increases in amortization of acquisition-related assets , acquisition and integration costs , investments in sales resources and people-related costs , partially offset by favorable impact from higher revenue and revenue mix . operating margin decreased 1 percentage point in 2016 when compared to 2015 , primarily driven by the impacts of acquisition-related intangible amortization , higher integration costs and the addition of the anite cost structure , partially offset by favorable impacts from foreign currency movements and lower share-based compensation expense . as of october 31 , 2017 , our headcount was approximately 12,600 compared to 10,300 in 2016. the increase is primarily driven by acquisition of ixia . 38 interest expense interest expense for the year ended october 31 , 2017 and 2016 was $ 80 million and $ 47 million , respectively , and relates to interest on our senior notes issued in october 2014 and april 2017. the increase in interest expense for the year ended october 31 , 2017 is primarily due to costs related to a bridge loan facility that expired in april , interest expense and amortization of debt issuance costs on $ 700 million of senior notes issued in april 2017 , and new borrowings under a senior unsecured term loan and revolving credit facility . the new debt issuances provided partial funding for the acquisition of ixia . income taxes replace_table_token_9_th for 2017 , the effective tax rate was 43 percent , which is higher than the u.s. statutory rate primarily due to the payment of a prior year malaysia tax assessment of $ 68 million , including tax and penalties , which we are currently in the process of appealing to the special commissioners of income tax ( “ scit ” ) in malaysia . for 2016 , the effective tax rate was 8 percent , which is lower than the u.s. statutory rate primarily due to a higher percentage of earnings in the non-u.s. jurisdictions taxed at lower statutory tax rates . also , the tax rate was lower than the u.s. statutory rate due to the net tax benefit of $ 45 million resulting from the repatriation of earnings from japan , which includes a u.s. tax expense of $ 27 million offset by $ 72 million of foreign tax credits recorded in connection with the repatriation . for 2015 , the effective tax rate was a benefit of 32 percent , which is lower than the u.s. statutory rate primarily due to the retroactive benefit of two tax incentives in singapore approved during 2015. also , the tax rate was lower than the u.s. statutory rate due to a higher percentage of earnings in the non-u.s. jurisdictions taxed at lower statutory tax rates . we benefit from tax incentives in several different jurisdictions , most significantly in singapore , and several jurisdictions have granted tax incentives that require renewal at various times in the future . the tax incentives provide lower rates of taxation on certain classes of income and require various thresholds of investment and employment or specific types of income in those jurisdictions . the tax incentives are due for renewal between 2024 and 2025. the impact of the tax incentives decreased income taxes by $ 49 million , $ 34 million and $ 250 million in 2017 , 2016 , and 2015 , respectively . in accordance with the guidance on the accounting for uncertainty in income taxes , for all u.s. and other tax jurisdictions , we recognize potential liabilities for anticipated tax audit issues based on our estimate of whether , and the extent to which , additional taxes and interest will be due . if our estimate of income tax liabilities proves to be less than the ultimate assessment , a further charge to expense would be required . if events occur and the payment of these amounts ultimately proves to be unnecessary , the reversal of the liabilities would result in tax benefits being recognized in the period when we determine the liabilities are no longer necessary . we include interest and penalties related to unrecognized tax benefits within the provision for income taxes in the consolidated statements of operations . accrued interest and penalties are included on the related tax liability line in the consolidated balance sheet . for the majority of our entities , the open tax years for the irs , state and most foreign audit authorities are from august 1 , 2014 through the current tax year .
| the services solutions group provides repair , calibration and consulting services , and remarkets used keysight equipment . on april 18 , 2017 , we completed the acquisition of ixia , which became our fourth reportable segment , the ixia solutions group ( “ isg ” ) . the group provides testing , visibility and security solutions , strengthening applications across physical and virtual networks for enterprises , service providers and network equipment manufacturers . in addition , our global team of experts provides startup assistance , consulting , optimization and application support across all of our end markets . years ended october 31 , 2017 , 2016 and 2015 keysight 's total orders in 2017 were $ 3,406 million , an increase of 15 percent when compared to 2016. foreign currency movements had a negligible impact on the year-over-year comparison . orders associated with acquisitions accounted for 9 percentage points of order growth for the year ended october 31 , 2017 when compared to 2016. total orders in 2016 were $ 2,953 million , an increase of 3 percent when compared to 2015. foreign currency movements had an unfavorable impact of 1 percent on the year-over-year comparison . orders associated with acquisitions accounted for 5 percentage points of order growth for the year ended october 31 , 2016 when compared to 2015. net revenue of $ 3,189 million for the year ended october 31 , 2017 increased 9 percent when compared to 2016. foreign currency movements had a negligible impact on the year-over-year comparison . revenue associated with acquisitions accounted for 7 percentage points of revenue growth for the year ended october 31 , 2017 when compared to 2016. excluding acquisitions , revenue grew year-over-year with growth in the electronic industrial solutions group , driven by semiconductor measurement and automotive and energy markets and growth in the services solutions group . the communications solution group revenue was 33 flat as gains in the commercial communications market were offset by declines in the aerospace , defense and government market . net revenue of $ 2,918 million in 2016 increased 2 percent when compared to 2015. foreign currency movements
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· 100,000 common shares were issued for cash proceeds of $ 100,000 · 528,322 common shares were issued to convert convertible notes totaling $ 605,000 · 86,114 common shares with a fair value of $ 123,375 were issued for services · 993,842 common shares were issued to convert 165,640 shares of series a convertible preferred stock 421,266 common shares were issued for cashless exercise of warrants . · 466,844 common shares were cancelled . the company had the following equity transactions during 2011 : · convertible notes totaling $ 817,122 were converted into 441,997 common shares . · 10,324 common shares with a fair value of $ 9,759 were issued as payments of interest on convertible notes · 307,510 common shares with a fair value of $ 307,510 were issued for services · 5,535,165 common shares were issued for cash proceeds of $ 143,655 . warrants during 2012 and 2011 , the company issued warrants to certain officers and members of the board of directors totaling to 67,405 and 79,734 , respectively which vested immediately . these warrants have exercise prices of $ 0.10 per share and terms of 3 and 5 years , respectively . the fair values of the warrants were determined to be $ 115,190 and $ 186,531 , respectively . during 2012 and 2011 , the company issued 346,500 and 362,955 common stock warrants to a related party and consultant , respectively . these warrants vested immediately , have exercise prices of $ 0.10 per share and terms of 3 and 5 years , respectively . the fair values of the warrants were determined to be $ 138,755 and $ 440,161 , respectively . the fair values of the warrants , at their respective grant dates , were determined using the black-scholes pricing model . significant assumptions used in the valuation included the following : replace_table_token_18_th warrant expense of $ 253,945 and $ 626,692 was recognized during 2012 and 2011 , respectively . a summary of the company 's warrant activity during december 31 , 2012 is presented below : replace_table_token_19_th note 15 – commitments and contingencies the company may be involved from time to time in claims , lawsuits , and disputes with third parties , actions involving allegations or discrimination or breach of contract actions incidental in the normal operations of the business . in the opinion of management ; no pending or known threatened claims , actions or proceedings against the company are expected to have a material adverse effect on avt 's financial position , results of operations or cash flows . avt can not predict with certainty , however , the outcome or effect of any of the litigation or investigatory matters specifically described above or any other pending litigation or claims . there can be no assurance as to the ultimate outcome of any lawsuits and investigations . the company leases its office , manufacturing and warehouse story_separator_special_tag forward looking statements this report contains certain forward- looking statements regarding , among other things , the anticipated financial and operating results of the company . for this purpose , forward- looking statements are any statements contained herein that are not statements of historical fact and include , but are not limited to , those preceded by or that include the words , “ estimate ” , “ could ” , “ should ” , “ would ” , “ likely ” , “ may ” , “ will ” , “ plan ” , “ intend ” , “ believes ” , “ expects ” , “ anticipates ” , “ projected ” , or similar expressions . those statements are subject to known and unknown risks , uncertainties and other factors that could cause actual results to differ materially from those contemplated by the statements . the forward looking information is based on various factors and was derived using numerous assumptions . for these statements , we claim the protection of the “ bespeaks caution ” doctrine . all forward-looking statements in this document are based on information currently available to us as of the date of this report , and we assume no obligation to update any forward-looking statements . story_separator_special_tag inline ; font-family : times new roman ; font-size : 10pt ; font-weight : bold '' > financing activities during the fiscal year ended december 31 , 2012 , financing activities provided $ 2,266,153 in cash . we received $ 2,509,558 in proceeds from long-term notes and convertible notes . financing activities provided $ 1,208,814 to us during the fiscal year ended december 31 , 2011. we repaid $ 12,509 long-term note payable , and $ 350,422 in note payable . critical accounting policies and estimates use of estimates the preparation of the financial statements in conformity with accounting principles generally accepted in the united states requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities , and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period . actual results could differ from those estimates . fair value of financial instruments the carrying value of cash and cash equivalents , accounts receivable , accounts payable and accrued liabilities , and debt approximate their fair values because of the short-term nature of these instruments . long-term convertible notes approximate fair value since the related rates of interest approximate current market rates . management believes the company is not exposed to significant interest or credit risks arising from these financial instruments . cash and cash equivalents the company considers all highly liquid investments with maturities of three months or less when purchased , to be cash equivalents . revenue recognition the company derives revenues primarily from pilot programs , sales of customized vending machines and sales of vending goods . the company recognizes revenues in accordance with sec staff accounting bulletin no . 104 “ revenue recognition in financial statements ( sab story_separator_special_tag · 100,000 common shares were issued for cash proceeds of $ 100,000 · 528,322 common shares were issued to convert convertible notes totaling $ 605,000 · 86,114 common shares with a fair value of $ 123,375 were issued for services · 993,842 common shares were issued to convert 165,640 shares of series a convertible preferred stock 421,266 common shares were issued for cashless exercise of warrants . · 466,844 common shares were cancelled . the company had the following equity transactions during 2011 : · convertible notes totaling $ 817,122 were converted into 441,997 common shares . · 10,324 common shares with a fair value of $ 9,759 were issued as payments of interest on convertible notes · 307,510 common shares with a fair value of $ 307,510 were issued for services · 5,535,165 common shares were issued for cash proceeds of $ 143,655 . warrants during 2012 and 2011 , the company issued warrants to certain officers and members of the board of directors totaling to 67,405 and 79,734 , respectively which vested immediately . these warrants have exercise prices of $ 0.10 per share and terms of 3 and 5 years , respectively . the fair values of the warrants were determined to be $ 115,190 and $ 186,531 , respectively . during 2012 and 2011 , the company issued 346,500 and 362,955 common stock warrants to a related party and consultant , respectively . these warrants vested immediately , have exercise prices of $ 0.10 per share and terms of 3 and 5 years , respectively . the fair values of the warrants were determined to be $ 138,755 and $ 440,161 , respectively . the fair values of the warrants , at their respective grant dates , were determined using the black-scholes pricing model . significant assumptions used in the valuation included the following : replace_table_token_18_th warrant expense of $ 253,945 and $ 626,692 was recognized during 2012 and 2011 , respectively . a summary of the company 's warrant activity during december 31 , 2012 is presented below : replace_table_token_19_th note 15 – commitments and contingencies the company may be involved from time to time in claims , lawsuits , and disputes with third parties , actions involving allegations or discrimination or breach of contract actions incidental in the normal operations of the business . in the opinion of management ; no pending or known threatened claims , actions or proceedings against the company are expected to have a material adverse effect on avt 's financial position , results of operations or cash flows . avt can not predict with certainty , however , the outcome or effect of any of the litigation or investigatory matters specifically described above or any other pending litigation or claims . there can be no assurance as to the ultimate outcome of any lawsuits and investigations . the company leases its office , manufacturing and warehouse story_separator_special_tag forward looking statements this report contains certain forward- looking statements regarding , among other things , the anticipated financial and operating results of the company . for this purpose , forward- looking statements are any statements contained herein that are not statements of historical fact and include , but are not limited to , those preceded by or that include the words , “ estimate ” , “ could ” , “ should ” , “ would ” , “ likely ” , “ may ” , “ will ” , “ plan ” , “ intend ” , “ believes ” , “ expects ” , “ anticipates ” , “ projected ” , or similar expressions . those statements are subject to known and unknown risks , uncertainties and other factors that could cause actual results to differ materially from those contemplated by the statements . the forward looking information is based on various factors and was derived using numerous assumptions . for these statements , we claim the protection of the “ bespeaks caution ” doctrine . all forward-looking statements in this document are based on information currently available to us as of the date of this report , and we assume no obligation to update any forward-looking statements . story_separator_special_tag inline ; font-family : times new roman ; font-size : 10pt ; font-weight : bold '' > financing activities during the fiscal year ended december 31 , 2012 , financing activities provided $ 2,266,153 in cash . we received $ 2,509,558 in proceeds from long-term notes and convertible notes . financing activities provided $ 1,208,814 to us during the fiscal year ended december 31 , 2011. we repaid $ 12,509 long-term note payable , and $ 350,422 in note payable . critical accounting policies and estimates use of estimates the preparation of the financial statements in conformity with accounting principles generally accepted in the united states requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities , and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period . actual results could differ from those estimates . fair value of financial instruments the carrying value of cash and cash equivalents , accounts receivable , accounts payable and accrued liabilities , and debt approximate their fair values because of the short-term nature of these instruments . long-term convertible notes approximate fair value since the related rates of interest approximate current market rates . management believes the company is not exposed to significant interest or credit risks arising from these financial instruments . cash and cash equivalents the company considers all highly liquid investments with maturities of three months or less when purchased , to be cash equivalents . revenue recognition the company derives revenues primarily from pilot programs , sales of customized vending machines and sales of vending goods . the company recognizes revenues in accordance with sec staff accounting bulletin no . 104 “ revenue recognition in financial statements ( sab
| general and administrative expenses were $ 5,297,199 for the period ended december 31 , 2012 , compared to $ 4,155,244 for the fiscal year ended december 31 , 2011 , an increase of $ 1,141,955. other expenses other expense totaled $ 2,410,427 during the fiscal year ended december 31 , 2012 , an increase of $ 1,814,359 from the fiscal year ended december 31 , 2011. interest expense was $ 745,442 for the period ended december 31 , 2012 , compared to $ 580,409 for the fiscal year ended december 31 , 2011 , an increase of $ 165,033. we incurred loss on derivative liabilities of $ 664,985 during the fiscal year ended december 31 , 2012 as compared to a loss on derivative liabilities of $ 15,659 in 2011. net loss as a result of the foregoing , during the fiscal year ended december 31 , 2012 , we recorded a net loss of $ 6,945,637 compared to $ 1,885,793 for the fiscal year ended december 31 , 2011. liquidity and capital resources as of december 31 , 2012 , we had $ 1,059,708 cash on hand . we believe that we have sufficient available cash and cash flow from operations to satisfy our working capital and capital expenditure requirements during the next 12 months . we have been able to support the cash flow demands caused by additional expenses and the reduced revenue by aggressive collection procedures to ensure no slow receivables or bad debts , and borrowed an additional $ 1.7m with approximately 2 year terms to support our changes . we had cash and equivalents of $ 1,059,708 and $ 177,400 at december 31 , 2012 and december 31 , 2011 , respectively . operating activities during the fiscal year ended december 31 , 2012 , we used $ 605,209 of cash in operating activities . non-cash adjustments included $ 995,616 related to the depreciation and amortization , $ 664,985 related to change in derivative liability , and
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we expect to continue to pursue acquisitions in fiscal 2012. we believe that existing cash balances , together with funds generated from operations and amounts available under a revolving credit line we entered into in fiscal 2011 , will be sufficient to finance our operations and meet our foreseeable cash requirements ( including planned capital expenditures , lease commitments , debt payments and other long-term obligations ) through at least the next twelve months . to the extent that we complete any future acquisitions , our cash position could be reduced . story_separator_special_tag finance , human resources , legal , information systems and administrative departments . general and administrative expenses increased 20 % from $ 51.8 million in fiscal 2010 to $ 62.1 million in fiscal 2011 , and increased as a percentage of revenue from 10 % to 12 % . the increase was primarily due to increased litigation costs and the employee separation costs of $ 7.1 million related to the amended separation arrangements we entered into with richard d. reidy , our former president and chief executive officer , in july 2011. the separation costs included a charge of $ 4.6 million of stock-based compensation and $ 2.5 million of future cash payments . amortization of acquired intangibles . amortization of acquired intangibles included in operating expenses primarily represents the amortization of value assigned to intangible assets obtained in business combinations other than assets identified as purchased technology . amortization of these acquired intangibles decreased 23 % from $ 10.4 million in fiscal 2010 to $ 8.0 million in fiscal 2011. the decrease was due to the completion of amortization of certain intangible assets acquired in prior years . restructuring expenses . we incurred total restructuring expenses of $ 4.6 million in fiscal 2011 as compared to $ 40.0 million in fiscal 2010. restructuring expense in fiscal 2011 included ongoing costs related to the decisions from our q3 2010 restructuring activities . restructuring expense in fiscal 2010 included employee severance costs , excess facilities costs for unused space and termination costs of automobile leases for terminated employees in connection with the large workforce reductions undertaken in fiscal 2010. acquisition-related expenses . acquisition-related expenses in fiscal 2011 are transaction related costs , primarily professional services fees , employee severance and facility closing costs associated with the acquisition of corticon . income from operations . income from operations increased 30 % from $ 67.7 million in fiscal 2010 to $ 88.2 million in fiscal 2011 and increased as a percentage of total revenue from 13 % to 17 % . the increase in fiscal 2011 as compared to fiscal 2010 was primarily the result of higher revenue and costs savings associated with our restructuring activities , partially offset by the restructuring charges that occurred in the first and third quarters of 2010. on a segment basis , operating income from our application development platforms segment decreased 10 % from $ 209.6 million in fiscal 2010 to $ 189.4 million in fiscal 2011. the operating loss from our enterprise business solutions segment increased from $ 40.1 million in fiscal 2010 to $ 52.0 million in fiscal 2011. the operating income ( loss ) from our enterprise data solutions segment increased from a loss of $ 12.9 million in fiscal 2010 to income of $ 7.0 million in fiscal 2011. for an understanding of how our internal measure of segment income from operations is determined , see note 14 of the consolidated financial statements appearing in this annual report on form 10-k. other ( expense ) income . other ( expense ) income decreased from income of $ 3.8 million in fiscal 2010 to expense of $ 0.5 million in fiscal 2011. the income in 2010 was primarily attributable to an increase in the value of our foreign currency average rate option contracts , which do not qualify for hedge accounting treatment and are marked-to-market each period , and an insurance settlement gain related to a pre-acquisition matter . provision for income taxes . our effective tax rate increased from 32 % in fiscal 2010 to 33 % in fiscal 2011. the increase in the effective tax rate was partially due to a nonrecurring benefit of $ 2.5 million recognized in fiscal 2010. the nonrecurring tax benefit related to a change in estimate of our foreign earnings and profits utilized to determine the tax characterization of certain international cash repatriation , partially offset by resolution of certain of our uncertain tax positions related to netting of intercompany balances . the increase was also due to the mix of profit within our various tax jurisdictions , and was offset by a $ 1.8 million benefit related to our research and development credit for the period from january 2010 to november 2010 , which was reinstated in the tax code in december 2010 with a retroactive effective date of january 1 , 2010. fiscal 2010 compared to fiscal 2009 revenue . our total revenue increased 7 % from $ 494.1 million in fiscal 2009 to $ 529.1 million in fiscal 2010. total revenue would have increased by 6 % if exchange rates had been constant in fiscal 2010 as compared to exchange rates in effect in fiscal 2009. excluding the impact of changes in exchange rates , our revenue increased principally due to revenue from our enterprise business solutions segment , partially offset by lower growth in our application development platform products and a decline in our enterprise data solutions segment . changes in prices in fiscal 2010 from fiscal 2009 did not have a significant impact on our revenue . on a segment basis , revenue from our application development platforms segment increased 1 % from $ 328.6 million in fiscal 2009 to $ 333.2 million in fiscal 2010. revenue from our enterprise business solutions segment increased 43 % from $ 85.1 million in fiscal 2009 to $ 122.1 million in fiscal 2010. revenue for the enterprise business solutions segment in fiscal 2010 included $ 19.5 million of revenue from savvion products . story_separator_special_tag organic growth for the enterprise business solutions segment , 20 absent the acquisition , was 21 % in fiscal 2010 driven primarily by the apama and fusesource product sets . revenue from our enterprise data solutions segment decreased 10 % from $ 83.1 million in fiscal 2009 to $ 75.0 million in fiscal 2010. for an understanding of how our internal measure of segment revenue is determined , see note 14 of the consolidated financial statements appearing in this annual report on form 10-k. software license revenue increased 10 % from $ 175.6 million in fiscal 2009 to $ 192.6 million in fiscal 2010. software license revenue would have increased by 8 % if exchange rates had been constant in fiscal 2010 as compared to exchange rates in effect in fiscal 2009. excluding the impact of changes in exchange rates , the increase in software license revenue was due to an increase in the enterprise business solutions and application development platforms segments partially offset by a decrease in our enterprise data solutions segment . software license revenue from both direct end users and indirect channels , primarily openedge application partners , increased in fiscal 2010 as compared to fiscal 2009. maintenance and services revenue increased 6 % from $ 318.6 million in fiscal 2009 to $ 336.6 million in fiscal 2010. maintenance and services revenue would have increased by 5 % if exchange rates had been constant in fiscal 2010 as compared to exchange rates in effect in fiscal 2009. excluding the impact of changes in exchange rates , the increase in maintenance and services revenue was primarily the result of a slight increase in our installed customer base for maintenance renewals and growth in our professional services revenue , including projects related to savvion . maintenance revenue increased 3 % or $ 7.1 million over the previous fiscal year and professional services increased 28 % or $ 10.9 million over the previous fiscal year . total revenue generated in north america increased 11 % from $ 221.2 million in fiscal 2009 to $ 244.7 million in fiscal 2010 and represented 45 % of total revenue in fiscal 2009 and 46 % of total revenue in fiscal 2010. total revenue generated in markets outside north america increased 4 % from $ 272.9 million in fiscal 2009 to $ 284.5 million in fiscal 2010 and represented 55 % of total revenue in fiscal 2009 compared to 54 % of total revenue in fiscal 2010. revenue from the asia pacific and latin america regions each increased in fiscal 2010 as compared to fiscal 2009 , but such increase was partially offset by a decrease in revenue from the emea region . revenue in emea would have been essentially the same if exchange rates had been constant in fiscal 2010 as compared to the exchange rates in effect in fiscal 2009. total revenue generated in markets outside north america would have represented 53 % of total revenue if exchange rates had been constant in fiscal 2010 as compared to the exchange rates in effect in fiscal 2009. cost of software licenses . cost of software licenses consists primarily of costs of royalties , electronic software distribution costs , duplication and packaging . cost of software licenses increased 2 % from $ 7.8 million in fiscal 2009 to $ 7.9 million in fiscal 2010 and remained the same as a percentage of software license revenue at 4 % . the dollar increase was primarily due to higher royalty expense for products and technologies licensed or resold from third parties . cost of software licenses as a percentage of software license revenue varies from period to period depending upon the relative product mix . cost of maintenance and services . cost of maintenance and services consists primarily of costs of providing customer support , education and consulting . cost of maintenance and services increased 8 % from $ 66.0 million in fiscal 2009 to $ 71.3 million in fiscal 2010 and remained the same percentage of maintenance and services revenue at 21 % . the total dollar amount of expense in fiscal 2010 increased due to higher usage of third-party contractors for service engagements , partially offset by lower headcount related costs . our customer support , education and consulting headcount decreased by 2 % from the end of fiscal 2009 to the end of fiscal 2010. amortization of acquired intangibles . amortization of acquired intangibles included in costs of revenue primarily represents the amortization of the value assigned to intangible assets for technology obtained in business combinations . amortization of acquired intangibles increased 3 % from $ 19.5 million in fiscal 2009 to $ 20.1 million in fiscal 2010. the increase was due to amortization expense associated with the acquisition of savvion . gross profit . our gross profit increased 7 % from $ 400.9 million in fiscal 2009 to $ 429.8 million in fiscal 2010. our gross profit as a percentage of total revenue remained the same at 81 % in each fiscal year . the dollar increase in our gross profit was due to the increase in total revenue as our overall gross profit percentage remained the same . sales and marketing . sales and marketing expenses decreased 7 % from $ 182.2 million in fiscal 2009 to $ 168.8 million in fiscal 2010 , and decreased as a percentage of total revenue from 37 % to 32 % . the decrease in sales and marketing expenses was due to the impact of our restructuring activities in fiscal 2010. product development . product development expenses decreased 3 % from $ 93.3 million in fiscal 2009 to $ 90.6 million in fiscal 2010 , and decreased as a percentage of revenue from 19 % to 17 % . the decrease was primarily due to the impact of our restructuring activities in 2010 , partially offset by an increase associated with the product development team acquired in the savvion transaction .
| revenue from our enterprise data solutions product segment decreased 6 % from $ 75.0 million in fiscal 2010 to $ 70.5 million in fiscal 2011. for an understanding of how our internal measure of segment revenue is determined , see note 14 of the consolidated financial statements appearing in this annual report on form 10-k. software license revenue decreased 4 % from $ 192.6 million in fiscal 2010 to $ 184.2 million in fiscal 2011. software license revenue would have decreased by 6 % if exchange rates had been constant in fiscal 2011 as compared to exchange rates in effect in fiscal 2010. excluding the impact of changes in exchange rates , the decrease in software license revenue was due to a decrease in the application development platforms and enterprise data solutions segments , partially offset by an increase in our enterprise business solutions segment . software license revenue from direct end-users decreased in fiscal 2011 as compared to fiscal 2010 , but increased from indirect channels , primarily from openedge application partners . maintenance and services revenue increased 4 % from $ 336.6 million in fiscal 2010 to $ 349.4 million in fiscal 2011. maintenance and services revenue would have increased by 1 % if exchange rates had been constant in fiscal 2011 as compared to exchange rates in effect in fiscal 2010. excluding the impact of changes in exchange rates , the increase in maintenance and services revenue was primarily the result of an increase in our installed customer base for maintenance renewals and slight growth in our professional services revenue primarily from our enterprise business solutions segment . maintenance revenue increased 4 % or $ 12.2 million over the previous fiscal year and professional services increased 1 % or $ 0.7 million over the previous fiscal year . total revenue generated in north america increased 3 % from $ 244.7 million in fiscal 2010 to $ 251.5 million in fiscal 2011 and represented 46 % of total revenue in fiscal 2010 and 47 % of total revenue in fiscal 2011. total revenue generated in markets outside north america decreased 1 % from $ 284.5 million in fiscal 2010 to $ 282.1 million in fiscal 2011 and represented 54 % of total revenue in fiscal 2010 compared to 53 % of total revenue in fiscal 2011. revenue from the emea and latin america regions decreased in fiscal 2011 as compared to fiscal 2010 , and was partially offset by an increase in revenue
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we recognize revenues in accordance with the provisions of accounting standards codification ( asc ) 605 , revenue recognition and asc 985-605 , software revenue recognition . our revenues are derived from sales of software licenses , subscription-based services , appraisal services , maintenance and support , and services that typically range from installation , training and basic consulting to software modification and customization to meet specific customer needs . for multiple element software arrangements , which do not entail the performance of services that are considered essential to the functionality of the software , we generally record revenue when the delivered products or performed services result in a legally enforceable and non-refundable claim . we maintain allowances for doubtful accounts and sales adjustments , which are provided at the time the revenue is recognized . because most of our customers are governmental entities , we rarely incur a loss resulting from the inability of a customer to make required payments . in a limited number of cases , we encounter a customer who is dissatisfied with some aspect of the software product or our service , and we may offer a concession to such customer . in those limited situations where we grant a concession , we rarely reduce the contract arrangement fee , but alternatively may perform additional services , such as additional training or creating additional custom reports . these amounts have historically been nominal . in connection with our customer contracts and the adequacy of related allowances and measures of progress towards contract completion , our project managers are charged with the responsibility to continually review the status of each customer on a specific contract basis . also , we review , on at least a quarterly basis , significant past due accounts receivable and the adequacy of related reserves . events or changes in circumstances that indicate that the carrying amount for the allowances for doubtful accounts and sales adjustments may require revision , include , but are not limited to , deterioration of a customer 's financial condition , failure to manage our customer 's expectations regarding the scope of the services to be delivered , and defects or errors in new versions or enhancements of our software products . we use contract accounting , primarily the percentage-of-completion method , as discussed in asc 605-35 , construction type and certain production type contracts , for those software arrangements that involve significant production , modification or customization of the software , or where our software services are otherwise considered essential to the functionality of the software . we measure progress-to-completion primarily using labor hours incurred , or value added . in addition , we recognize revenue using the proportional performance method of revenue recognition for our property appraisal projects , some of which can range up to five years . these methods rely on estimates of total expected contract revenue , billings and collections and expected contract costs , as well as measures of progress toward completion . we believe reasonably dependable estimates of revenue and costs and progress applicable to various stages of a contract can be made . at times , we perform additional and or non-contractual services for little to no incremental fee to satisfy customer expectations . if changes occur in delivery , productivity or other factors used in developing our estimates of expected costs or revenues , we revise our cost and revenue estimates , and any revisions are charged to income in the period in which the facts that give rise to that revision first become known . in connection with these and certain other contracts , we may perform the work prior to when the services are billable and or payable pursuant to the contract . the termination clauses in most of our contracts provide for the payment for the value of products delivered and services performed in the event of an early termination . for asp and other hosting arrangements , we evaluate whether the customer has the contractual right to take possession of our software at any time during the hosting period without significant penalty and whether the customer can feasibly maintain the software on the customer 's hardware or enter into another arrangement with a third party to host the software . if we determine that the 23 customer has the contractual right to take possession of our software at any time during the hosting period without significant penalty and can feasibly maintain the software on the customer 's hardware or enter into another arrangement with a third party to host the software , we recognize the license , professional services and hosting services revenues pursuant to asc 985-605 , software revenue recognition . for asp and other hosting arrangements that do not meet the criteria for recognition under asc 985-605 , we account for the elements under asc 605-25 , multiple element arrangements using all applicable facts and circumstances , including whether ( i ) the element has stand-alone value , ( ii ) there is a general right of return and ( iii ) the revenue is contingent on delivery of other elements . we allocate the contract value to each element of the arrangement that qualifies for treatment as a separate element based on vendor-specific objective evidence of fair value ( vsoe ) , and if vsoe is not available , third party evidence , and if third party evidence is unavailable , estimated selling price . for professional services associated with asp and hosting arrangements that we determine do not have stand-alone value to the customer or are contingent on delivery of other elements , we recognize the services revenue ratably over the remaining contractual period once hosting has gone live and we may begin billing for the hosting services . we record amounts that have been invoiced in accounts receivable and in deferred revenue or revenues , depending on whether the revenue recognition criteria have been met . story_separator_special_tag in connection with certain of our contracts , we have recorded retentions receivable or unbilled receivables consisting of costs and estimated profit in excess of billings as of the balance sheet date . many of the contracts which give rise to unbilled receivables at a given balance sheet date are subject to billings in the subsequent accounting period . management reviews unbilled receivables and related contract provisions to ensure we are justified in recognizing revenue prior to billing the customer and that we have objective evidence which allows us to recognize such revenue . in addition , we have a sizable amount of deferred revenue which represents billings in excess of revenue earned . the majority of this liability consists of maintenance billings for which payments are made in advance and the revenue is ratably earned over the maintenance period , generally one year . we also have deferred revenue for those contracts in which we receive a deposit and the conditions in which to record revenue for the service or product has not been met . on a periodic basis , we review by customer the detail components of our deferred revenue to ensure our accounting remains appropriate . intangible assets and goodwill . our business acquisitions typically result in the creation of goodwill and other intangible asset balances , and these balances affect the amount and timing of future period amortization expense , as well as expense we could possibly incur as a result of an impairment charge . the cost of acquired companies is allocated to identifiable tangible and intangible assets based on estimated fair value , with the excess allocated to goodwill . accordingly , we have a significant balance of acquisition date intangible assets , including software , customer related intangibles , trade name and goodwill . in addition , we capitalize software development costs incurred subsequent to the establishment of technological feasibility . these intangible assets ( other than goodwill ) are amortized over their estimated useful lives . we currently have no intangible assets with indefinite lives other than goodwill . we evaluate goodwill for impairment annually as of april , or more frequently if impairment indicators arise . we perform a two-step impairment test on goodwill . in the first step , we compare the fair value of each reporting unit to its carrying value . if the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit , goodwill is not considered 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 the asset 's implied fair value , then we would record an impairment loss equal to the difference . the fair values calculated in our impairment tests are determined using discounted cash flow models involving several assumptions . these assumptions include , but are not limited to , anticipated operating income growth rates , our long-term anticipated operating income growth rate and the discount rate . our cash flow forecasts are based on assumptions that are consistent with the plans and estimates we are using to manage the underlying businesses . the assumptions that are used are based upon what we believe a hypothetical marketplace participant would use in estimating fair value . assets , liabilities and goodwill have been assigned to reporting units based on assets acquired and liabilities assumed as of the date of acquisition . we evaluate the reasonableness of the fair value calculations of our reporting units by comparing the total of the fair value of all of our reporting units to our total market capitalization . we base our fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain . our annual goodwill impairment analysis , which we performed during the second quarter of 2011 , did not result in an impairment charge . during 2011 we did not identify any triggering events which would require an update to our annual impairment review . all intangible assets with definite and indefinite lives are reviewed for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . recoverability of other intangible assets is measured by comparison of the carrying amount to estimated undiscounted future cash flows . the assessment of recoverability or of the estimated useful life for amortization purposes will be affected if the timing or the amount of estimated future operating cash flows is not achieved . such indicators may include , among others : a significant decline in expected future cash flows ; a sustained , significant decline in stock price and market capitalization ; a significant adverse change in legal factors or in the business climate ; 24 unanticipated competition ; and reductions in growth rates . in addition , products , capabilities , or technologies developed by others may render our software products obsolete or non-competitive . any adverse change in these factors could have a significant impact on the recoverability of goodwill or other intangible assets . share-based compensation . we have a stock option plan that provides for the grant of stock options to key employees , directors and non-employee consultants . we estimate the fair value of share-based awards on the date of grant using the black-scholes option valuation model . share-based compensation expense includes the estimated effects of forfeitures , which will be adjusted over the requisite service period to the extent actual forfeitures differ , or are expected to differ from such estimates . changes in estimated forfeitures are recognized in the period of change and will also impact the amount of expense to be recognized in future periods .
| 21 we monitor and analyze several key performance indicators in order to manage our business and evaluate our financial and operating performance . these indicators include the following : revenues we derive our revenues from five primary sources : sale of software licenses ; subscription-based services ; software services ; maintenance and support ; and appraisal services . subscription-based services and maintenance and support services are considered recurring revenue sources and comprised approximately 57 % of our revenue in 2011. the number of new subscription-based customers and the number of existing customers who convert from our traditional software arrangements to our subscription-based service arrangements are a significant driver to our business together with new software license sales and maintenance rate increases . in addition , we also monitor our customer base and churn as we historically have experienced very low customer turnover . during 2011 , our customer turnover was approximately 2 % . cost of revenues and gross margins our primary cost component is personnel expenses in connection with providing software implementation , subscription-based services , maintenance and support , and appraisal services to our customers . we can improve gross margins by controlling headcount and related costs and by expanding our revenue base , especially from those products and services that produce incremental revenue with minimal incremental cost , such as software licenses , subscription-based services , and maintenance and support . our appraisal projects are cyclical in nature , and we often employ appraisal personnel on a short-term basis to coincide with the life of a project . as of december 31 , 2011 , our total employee count increased to 2,091 from 2,054 at december 31 , 2010. this increase includes 64 employees added as a result of an acquisition completed in 2011. selling , general and administrative ( sg & a ) expenses the primary components of sg & a expenses are administrative and sales personnel salaries and commissions , marketing expense , share-based compensation expense , rent and professional fees . sales commissions typically fluctuate with revenues and share-based compensation expense generally increases when the
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we expect to enroll approximately 630 patients to show a survival benefit with 85 % power based on a hazard ratio of 0.75. we initiated this phase 3 clinical trial in august 2012. the enspirit trial : the phase 3 clinical trial to evaluate a survival benefit for custirsen in combination with docetaxel treatment as second-line chemotherapy in patients with non-small cell lung cancer , or nsclc . we expect to enroll approximately 1,100 patients in order to show a survival benefit with 90 % power based on a hazard ratio of 0.80. this trial was initiated by teva in september 2012. two formal interim analyses are planned for stopping the trial early based on inadequate evidence of clinical benefit or futility . we will be evaluating both pfs and os during the interim analyses . if both endpoints meet the predefined criteria for inadequate pfs clinical benefit and os futility the trial would be stopped . the trial will not be stopped early in order to claim efficacy . for detailed information regarding our relationship with teva and the collaboration agreement , refer to the discussion under the heading businesslicense and collaboration agreementsteva pharmaceutical industries ltd. custirsen received fast track designation from the fda for the treatment of progressive metastatic prostate cancer in combination with docetaxel . the fda has also agreed on the design of the synergy trial through the special protocol assessment process . we have also received written , scientific advice from the european medicines agency , or ema , on our development plan for custirsen for treating patients with crpc in combination with docetaxel , which aligned with our development plan regarding the proposed preclinical studies and both the study design and analyses for the phase 3 synergy trial . in addition , the committee for medicinal products for human use agreed that the intended safety database would enable a sufficient qualified risk-benefit assessment for market approval . we and collaborating investigators have conducted five phase 2 clinical trials to evaluate the ability of custirsen to enhance the effects of therapy in patients with prostate , non-small cell lung and breast cancers . results have been presented for each of these phase 2 trials . our phase 3 registration trials have been designed based on our phase 2 clinical trials . data from these phase 2 studies demonstrate the potential benefit of adding custirsen , a second generation antisense molecule , to existing cancer therapies . refer to the discussion above under the headings our product candidatescustirsen current custirsen development activities and our product candidatescustirsensummary of results of custirsen phase 2 clinical trials for further details . 54 product candidate ogx-427 ogx-427 is our product candidate that is designed to inhibit production of heat shock protein 27 , or hsp27 , a cell-survival protein expressed in many types of cancers including bladder , prostate , breast and non-small cell lung cancer . hsp27 expression is stress-induced , including by many anti-cancer therapies . for example , hsp27 levels increased four-fold in prostate cancer patients after treatment with chemotherapy or hormone therapy . overexpression of hsp27 is thought to be an important factor leading to the development of treatment resistance and is associated with metastasis , negative clinical outcomes in patients with various tumor types . in 2013 , we initiated the orca ( on-going studies evaluating treatment resistance in cancer ) program which encompasses clinical studies designed to evaluate whether inhibition of hsp27 can lead to improved prognosis and treatment outcomes for cancer patients . our goal is to advance cancer treatment by conducting clinical trials for ogx-427 across multiple cancer indications including , but not limited to bladder cancer and crpc . consistent with the strategy that we have followed for custirsen , we intend to conduct parallel clinical trials to evaluate ogx-427 in several cancer indications and treatment combination to accelerate the development of ogx-427 . in addition to oncogenex-sponsored trials , specific investigator-sponsored trials will be supported to allow assessment of a broader range of clinical indications for future oncogenex-sponsored trials for possible market approval . our current ogx-427 development activities for bladder cancer include the following clinical trials that have been initiated : the bl-01 trial : an investigator-sponsored phase 1 clinical trial to evaluate ogx-427 when administered directly into the bladder in patients with bladder cancer . the trial is currently enrolling 36 patients . it is designed to determine the safety and potential benefit of ogx-427 administered into the bladder using intravesical instillation . in addition , the trial will measure the direct effect of ogx-427 on expression of hsp27 in bladder tumor cells , as well as determine the pharmacokinetics and pharmacodynamics of ogx-427 when delivered by intravesical instillation . this clinical trial is being funded by the national cancer institute of canada . preliminary data were presented at the asco gu symposium in february 2012 . 55 the borealis-1 trial : an oncogenex-sponsored phase 2 clinical trial of ogx-427 in patients with metastatic bladder cancer . borealis-1 is a three-arm , randomized , placebo-controlled phase 2 trial evaluating ogx-427 in combination with first-line gemcitabine and cisplatin treatment in the metastatic setting . each arm is currently enrolling approximately 60 patients ; the trial has been initiated in sites throughout the united states , canada and europe . the trial will be conducted as an event-driven trial such that the final analysis will have 80 % power to show a critical hazard ratio of approximately 0.66 to 0.71. this type of phase 2 trial will allow us to better predict the potential size of and success for a phase 3 trial where a survival benefit will be the primary endpoint . this study is ongoing with an enrollment target of approximately 180 patients . we expect to complete patient accrual in the second half of 2013. the borealis-2 trial : the investigator-sponsored , randomized , controlled phase 2 study evaluating ogx-427 in patients with advanced or metastatic bladder cancer who have disease progression following initial platinum-based chemotherapy . story_separator_special_tag this study is designed to have adequate power to detect a survival benefit in the docetaxel + ogx-427 arm corresponding to a hazard ratio ( docetaxel + ogx-427/ docetaxel ) = 0.667. the primary analysis is to be performed at one-sided 0.10 significance level with 90 % power to detect this os difference . we expect to enroll approximately 200 patients to receive either ogx-427 plus docetaxel treatment or docetaxel treatment alone . patients may also continue weekly ogx-427 infusions as maintenance treatment until disease progression or unacceptable toxicity if they complete all 10 cycles of docetaxel , or are discontinued from docetaxel due to docetaxel toxicity . we expect this trial to be initiated in the first half of 2013. our current ogx-427 development activities for prostate cancer include the following clinical trials that have been initiated : the pr-01 trial : an investigator-sponsored phase 2 clinical trial evaluating ogx-427 when administered with prednisone to patients with crpc . pr-01 has completed enrollment with data collection ongoing . this randomized , controlled phase 2 clinical trial enrolled 74 patients who had minimally symptomatic or asymptomatic advanced prostate cancer and who had not yet received chemotherapy . this trial is measuring the direct effect of ogx-427 on prostate-specific antigen , or psa , levels , time to progression by psa or measurable disease , numbers of circulating tumor cells , or ctcs , and other relevant secondary endpoints . preliminary data were presented at several conferences throughout 2012 , most recently at the european society for medical oncology , or esmo , meeting in september 2012. the pacific trial : an investigator-sponsored , randomized phase 2 study evaluating ogx-427 in men with crpc who are experiencing a rising psa while receiving zytiga ( abiraterone acetate ) . the aim of the study is to determine if adding ogx-427 to zytiga treatment can reverse or delay treatment resistance . approximately 80 patients will be enrolled . the trial was initiated in december 2012. additional phase 2 investigator-sponsored studies evaluating ogx-427 in other malignancies are under development . further details of these studies will be provided when the trials are initiated . results of these studies may direct future company-sponsored trials in indications that show promising clinical benefits . refer to the discussion above under the headings our product candidatesogx-427summary of results of ogx-427 clinical trials for further details . product candidates ogx-225 ogx-225 , an inhibitor of insulin growth factor binding proteins 2 and 5 , is in preclinical development . we are currently evaluating various alternatives , including partnering , which would allow us to further the development of this preclinical asset . we have begun development activities for ogx-225 and we expect to initiate toxicology studies in the second half of 2013. collaboration revenue we recorded $ 20.1 million of collaboration revenue in connection with our collaboration agreement with teva in the year ended december 31 , 2012 , as compared to $ 5.5 million in the year ended december 31 , 2011. at december 31 , 2012 , the $ 30 million upfront collaboration payment was fully expended resulting in a current deferred collaboration revenue balance of zero . teva is required to fund all additional expenses under the amended clinical development plan . we are eligible to receive payments of up to $ 370 million upon the achievement of developmental and commercial milestones set forth in the collaboration agreement . at present , we are unable to predict the timing or likelihood of such milestone payments , although we did not receive any payments from teva resulting from the achievement of developmental or commercial milestones or royalties in 2012 , and we do not expect to receive any such payments from teva in 2013. moreover , isis has disclosed in its securities and exchange commission , or sec , filings that it is entitled to receive 30 % of the up to $ 370 million in milestone payments we may receive from teva as part of the collaboration agreement . we disagree with their assessment but believe there may be some lesser payment obligation . see note 4 of notes to consolidated financial statements included elsewhere in this annual report on form 10-k for further details on our collaboration with teva . research and development expenses research and development , or r & d , expenses consist primarily of costs for clinical trials , contract manufacturing , personnel costs , milestone payments to third parties , facilities , regulatory activities , preclinical studies and allocations of other r & d-related costs . external expenses for clinical trials include fees paid to clinical research organizations , clinical trial site costs and patient treatment costs . 56 currently , we manage our clinical trials through contract research organizations and independent medical investigators at their sites and at hospitals and expect this practice to continue . through our clinical development programs , we are developing each of our product candidates in parallel for multiple disease indications . due to the number of ongoing projects and our ability to utilize resources across several projects , we do not record or maintain information regarding the indirect operating costs incurred for our research and development programs on a program-specific basis . in addition , we believe that allocating costs on the basis of time incurred by our employees does not accurately reflect the actual costs of a project . as of december 31 , 2012 , we had spent the entire $ 30 million related to the development of custirsen , as required under the collaboration agreement . teva is required to fund all additional expenses under the amended clinical development plan . we expect aggregate full-time equivalent reimbursement of between $ 1.2 and $ 2.0 million annually from 2013 to 2014 , which will be reimbursed to us from teva . a majority of our expenditures to date have been related to the development of custirsen .
| the increase in 2011 as compared to 2010 was due primarily to higher ogx-427 clinical trial and manufacturing costs , higher employee expenses , including stock based compensation . these increases were largely offset by lower custirsen manufacturing costs , as these costs are being paid directly by teva . certain costs for the custirsen phase 3 clinical trials are applied against the non-refundable upfront payments received from teva in december 2009 , while costs unassociated with the affinity trial , such as manufacturing costs and compensation for work performed by our employees on the synergy trial are reimbursed from teva . we expect r & d expenses to increase as we further develop custirsen and our proprietary product candidates . our research and development expenses for our clinical development programs are as follows ( in thousands ) : replace_table_token_4_th 58 general and administrative expenses g & a expenses for the years ended december 31 , 2012 , 2011 and 2010 increased to $ 7.8 million from $ 6.2 million and from $ 5.8 million , respectively . the increase in 2012 as compared to 2011 was due primarily to higher employee expenses , including stock-based compensation expenses and infrastructure related costs . the increase in 2011 compared with 2010 was due primarily to higher employee expenses , including stock-based compensation expenses . restructuring gain ( expense ) restructuring gain for the year ended december 31 , 2012 was $ 1.7 million , as compared with zero in 2011. restructuring expense was $ 4.0 million in the year ended december 31 , 2010. in december 2012 , we decided to expand our occupancy of the bothell facility and revised our assumptions used to estimate the value of the excess lease facility liability . this change in estimate resulted in a decrease in the value of our excess lease liability and a $ 1.7 million restructuring gain recorded in the fourth quarter of 2012 to reflect this change in estimate . in september 2010 , we revised our sublease income assumptions used to estimate the value of the
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during 2011 , in connection with a restructuring of our components in our domestic company-owned restaurant segment , changes were made in the discrete financial information that was made available to the segment manager of our domestic company-owned restaurant segment , which resulted in the identification of new components in 2011. additionally , because components meet the aggregation provision of accounting standards codification 280 , “ segment reporting , ” we now aggregate the components of our domestic company-owned restaurant segment into one reporting unit . prior to 2011 , the components were treated as individual reporting units . 28 under asu 2011-08 , companies can bypass the qualitative assessment and move directly to the quantitative assessment for any reporting unit in any period if management believes that it is more efficient or there is a risk of impairment . all companies can elect to resume performing the qualitative assessment in any subsequent period . we applied the qualitative assessment for our domestic company-owned restaurants and china reporting units , which is included in our international reporting segment . as a result of our qualitative analysis , we determined that it was more-likely-than-not that the fair value of our domestic company-owned restaurants and china reporting units was greater than the carrying amounts . with respect to our pjuk reporting unit ( which represents $ 14.8 million of goodwill as of december 25 , 2011 ) , we bypassed the qualitative assessment and performed the two-step quantitative goodwill impairment test , which indicated the fair value exceeded the carrying amount by 7 % . the fair value was calculated using an income approach that projected net cash flow over a 10-year discrete period and a terminal value , which were discounted using appropriate rates . the selected discount rate considers the risk and nature of our pjuk reporting unit 's cash flow and the rates of return market participants would require to invest their capital in the pjuk reporting unit . we believe our pjuk reporting unit will continue to improve its operating results through ongoing growth initiatives , by increasing papa john 's brand awareness in the united kingdom , improving sales and profitability for individual franchised restaurants and increasing pjuk franchised net unit openings over the next several years . future impairment charges could be required if adverse economic events occur in the united kingdom . subsequent to completing our annual qualitative and quantitative goodwill impairment tests , no indications of impairment were identified . insurance reserves our insurance programs for workers ' compensation , general liability , owned and non-owned automobiles and health insurance coverage provided to our employees are self-insured up to certain individual and aggregate reinsurance levels . losses are accrued based upon undiscounted estimates of the aggregate retained liability for claims incurred using certain third-party actuarial projections and our claims loss experience . the estimated insurance claims losses could be significantly affected should the frequency or ultimate cost of claims significantly differ from historical trends used to estimate the insurance reserves recorded by the company . deferred income tax accounts and tax reserves papa john 's is subject to income taxes in the united states and several foreign jurisdictions . significant judgment is required in determining papa john 's provision for income taxes and the related assets and liabilities . the provision for income taxes includes income taxes paid , currently payable or receivable and those deferred . we use an estimated annual effective rate based on expected annual income to determine our quarterly provision for income taxes . discrete income tax items are recorded in the quarter in which they occur . deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities , and are measured using enacted tax rates and laws that are expected to be in effect when the differences reverse . deferred tax assets are also recognized for the estimated future effects of tax loss carryforwards . the effect on deferred taxes of changes in tax rates is recognized in the period in which the new tax rate is enacted . as a result , our effective tax rate may fluctuate . valuation allowances are established when necessary on a jurisdictional basis to reduce deferred tax assets to the amounts we expect to realize . as of december 25 , 2011 , we had a net deferred income tax liability of $ 1.5 million . 29 tax authorities periodically audit the company . we record reserves for identified exposures . we evaluate these issues on a quarterly basis to adjust for events , such as court rulings or audit settlements , which may impact our ultimate payment for such exposures . we recognized reductions of $ 1.9 million , $ 550,000 and $ 1.2 million in our income tax expense associated with the finalization of certain income tax issues in 2011 , 2010 and 2009 , respectively ( see “ note 13 ” of “ notes to consolidated financial statements ” ) . consolidation of bibp commodities , inc. ( “ bibp ” ) as a variable interest entity bibp was a franchisee-owned corporation that conducted a cheese-purchasing program on behalf of company-owned and franchised restaurants operating in the united states through february 2011. as the primary beneficiary , we consolidated the operating results of bibp . bibp operated at breakeven for the first two months of 2011 and recognized income before income taxes of $ 21.0 million in 2010 and $ 22.5 million in 2009. income before income taxes in 2010 included a reduction in bibp 's cost of sales of $ 14.2 million associated with pjfs 's agreement to pay to bibp for past cheese purchases an amount equal to its accumulated deficit ( “ bibp settlement ” ) . accordingly , bibp recorded a decrease of $ 14.2 million in cost of sales and pjfs recorded a corresponding increase in cost of sales in 2010. this transaction did not have any impact on the company 's 2010 consolidated income statement results since both pjfs and bibp are fully consolidated . story_separator_special_tag consolidation accounting required the net impact from the consolidation of bibp to be reflected primarily in three separate components of our statement of income . the first component was the portion of bibp operating income or loss attributable to the amount of cheese purchased by company-owned restaurants during the period . this portion of bibp operating income was reflected as a reduction in the “ domestic company-owned restaurant expenses - cost of sales ” line item . this approach effectively reported cost of sales for company-owned restaurants as if the purchasing agreement with bibp did not exist and such restaurants were purchasing cheese at the spot market prices ( i.e. , the impact of bibp is eliminated in consolidation ) . the second component of the net impact from the consolidation of bibp was reflected in the caption “ loss ( income ) from the franchise cheese-purchasing program , net of noncontrolling interest. ” this line item represented bibp 's income or loss from purchasing cheese at the spot market price and selling to franchised restaurants at a fixed monthly price , net of any income or loss attributable to the noncontrolling interest bibp shareholders . the amount of income or loss attributable to the bibp shareholders depended on its cumulative shareholders ' equity balance and the change in such balance during the reporting period . the third component was reflected as interest expense , when bibp was in a net borrowing position during the reporting period . in february 2011 , we terminated the purchasing arrangement with bibp and bibp no longer has operating activities . over 99 % of our domestic franchisees have entered into a cheese purchasing agreement with pjfs . the cheese purchasing agreement requires participating domestic franchisees to purchase cheese through pjfs , or to pay the franchisee 's portion of any accumulated cheese liability upon ceasing to purchase cheese from pjfs when a liability exists . the cheese purchasing agreement specifies that pjfs will charge the franchisees a predetermined price for cheese on a monthly basis . any difference between the amount charged to franchisees and the actual price paid by pjfs for cheese will be recorded as a receivable from or a payable to the franchisees , to be repaid based upon a predetermined formula outlined in the agreement . 30 non-gaap measures the financial measures we present in this report excluding the impact of the consolidation of bibp are not measures defined within accounting principles generally accepted in the united states ( “ gaap ” ) . these non-gaap measures should not be construed as a substitute for or a better indicator of the company 's performance than the company 's gaap measures . we believe the financial information excluding the impact of the consolidation of bibp is important for purposes of comparison to prior periods and development of future projections and earnings growth prospects . we analyze our business performance and trends excluding the impact of the consolidation of bibp because the results of bibp are not indicative of the principal operating activities of the company . in addition , annual cash bonuses and certain long-term incentive programs for various levels of management were based on financial measures that exclude bibp . the presentation of the non-gaap measures in this report is made alongside the most directly comparable gaap measures . in addition , we present free cash flow in this report , which is not a term defined by gaap . free cash flow is defined as net cash provided by operating activities ( from the consolidated statements of cash flows ) excluding the impact of bibp , less the purchases of property and equipment . we view free cash flow as an important measure because it is one factor that management uses in determining the amount of cash available for discretionary investment . free cash flow is not a term defined by gaap and as a result our measure of free cash flow might not be comparable to similarly titled measures used by other companies . free cash flow should not be construed as a substitute for or a better indicator of our performance than the company 's gaap measures . segment reporting change in 2011 , we realigned management responsibility and financial reporting for hawaii , alaska and canada from our international business segment to our domestic franchising segment in order to better leverage existing infrastructure and systems . as a result , we renamed the domestic franchising segment “ north america franchising ” in the first quarter of 2011. certain prior year amounts have been reclassified in our consolidated statements of income , segment information , and restaurant unit progression to conform to the current year presentation . fiscal year the company follows a fiscal year ending on the last sunday of december , generally consisting of 52 weeks made up of four 13-week quarters . the 13-week quarters consist of two four-week periods followed by one five-week period . 31 percentage relationships and restaurant data and unit progression the following tables set forth the percentage relationship to total revenues , unless otherwise indicated , of certain income statement data , and certain restaurant data for the years indicated : replace_table_token_8_th 32 replace_table_token_9_th ( 1 ) we operate on a fiscal year ending on the last sunday of december of each year . ( 2 ) as a percentage of domestic company-owned restaurant sales . ( 3 ) as a percentage of domestic commissary sales and other sales on a combined basis . ( 4 ) as a percentage of total company revenues ; the income is a result of the consolidation of bibp , a vie . the sales reported by bibp are eliminated in consolidation . ( 5 ) as a percentage of international restaurant and commissary sales . ( 6 ) includes only company-owned restaurants open throughout the periods being compared .
| the restaurant operating margin at domestic company-owned units was 20.2 % in 2010 compared to 21.8 % in 2009. excluding the impact of consolidating bibp , restaurant operating margin decreased 0.8 % to 19.9 % for the year ended december 26 , 2010 as compared to the corresponding period in 2009 , consisting of the following differences : ● cost of sales were 1.3 % higher ( excluding the consolidation of bibp ) in 2010 as compared to 2009 due to increased discounting of prices to customers . ● salaries and benefits were 1.6 % lower as a percentage of sales in 2010 compared to 2009 , primarily due to labor efficiencies from implemented initiatives , and a change in pay practices for certain team members . ● advertising and related costs as a percentage of sales were 0.3 % higher in 2010 due to an increase in local marketing initiatives . ● occupancy costs and other operating costs , on a combined basis , as a percentage of sales , were 0.8 % higher in 2010 primarily due to increased reimbursement rates for certain team members , in connection with previously noted labor initiatives . domestic commissary and other margin was 8.6 % in 2010 , compared to 9.8 % in 2009. cost of sales was 75.5 % of revenues in 2010 , compared to 73.8 % in 2009. cost of sales increased primarily due to our commissaries ' absorbing an increase in prices of certain commodities , including increases in vegetable products due to the impact from harsh florida winter weather during 2010. salaries and benefits were relatively consistent for both periods at $ 34.1 million and $ 33.9 million for 2010 and 2009 , respectively . other operating expenses increased approximately $ 3.3 million in 2010 as compared to 2009 , primarily due to higher distribution costs , reflecting increased volumes and an increase in fuel costs . 44 we recorded income before income taxes from the franchise cheese-purchasing program , net of noncontrolling interest , of $ 5.6 million and $ 18.1 million in 2010 and
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while we use available information , including independent appraisals for collateral , to estimate the extent of probable incurred loan losses within the loan portfolio , inherent uncertainties in the estimation process make it reasonably possible that ultimate losses may vary significantly from our original estimates . generally , loans are partially or fully charged off when it is determined that the unpaid principal balance exceeds the current fair value of the collateral with no other likely source of repayment . in addition , the estimates utilized to determine the appropriate allowance for loan losses at december 31 , 2020 may be materially different from actual results due to the covid-19 pandemic . fair value measurement we use estimates of fair value in applying various accounting standards for our consolidated financial statements . fair value is defined as the exit price at which an asset may be sold or a liability may be transferred in an orderly transaction between willing and able market participants . when available , fair value is measured by looking at observable market prices for identical assets and liabilities in an active market . when these are not available , other inputs are used to model fair value such as prices of similar instruments , yield curves , prepayment speeds and credit spreads . depending on the availability of observable inputs and prices , different valuation models could produce materially different fair value estimates . the values presented may not represent future fair values and may not be realizable . changes in the fair value of debt securities available for sale and derivatives designated as effective cash flow hedges are recorded in our consolidated statements of financial condition and comprehensive income ( loss ) while changes in the fair value of equity securities , loans held for sale or other derivatives are recorded in the consolidated statements of financial condition and in the consolidated statements of income . investment securities impairment we assess , on a quarterly basis , whether there have been any events or economic circumstances to indicate that a security in which we have an unrealized loss is impaired on an other than temporary basis . in any instance , we would consider many factors , including the severity and duration of the impairment , the portion of any unrealized loss attributable to a decline in the credit quality of an issuer , our intent and ability to hold the security for a period of time sufficient for a recovery in value , recent events specific to the issuer or industry , and , for debt securities , external credit ratings and recent downgrades . securities with respect to which there is an unrealized loss that is deemed to be other-than-temporary are written down to fair value . non-gaap financial measures some of the financial measures discussed in item 6. selected financial data and item 7. management 's discussion and analysis of financial condition and results of operation are ‘ ‘ non-gaap financial measures . '' in accordance with sec rules , we classify a financial measure as being a non-gaap financial measure if that financial measure excludes or includes amounts , or is subject to adjustments that have the effect of excluding or including amounts , that are included or excluded , as the case may be , in the most directly comparable measure calculated and presented in accordance with gaap as in effect from time to time in the united states in our consolidated statements financial condition , income or cash flows . pre-tax , pre-provision net earnings is defined as net income before taxes and provision for ( reversal of ) loan losses . we believe the most directly comparable gaap financial measure is income before taxes . disclosure of this measure enables you to compare our operations to those of other banking companies before consideration of taxes and provision expense , which some investors may consider to be a more appropriate comparison given our s-corporation status in prior years and recaptures from the allowance for loan losses . prior to january 1 , 2018 , we calculate our pro forma net income , return on average assets , return on average equity and per share amounts by adding back our franchise s-corporation tax to net income , and using a combined c-corporation effective tax rate for federal and california income taxes of 42.0 % . this calculation reflects only the change in our status as an s-corporation and does not give effect to any other transaction . beginning january 1 , 2018 , our pro forma income tax expense is our actual c-corporation tax provision . tangible book value is defined as total assets less goodwill and total liabilities . efficiency ratio is defined as noninterest expenses divided by operating revenue , which is equal to net interest income plus noninterest income . for the year ended december 31 , 2020 , we calculated a pro forma net income and efficiency ratio to reverse the impact of a material non-recurring cost incurred in connection with the prepayment of long-term fhlb borrowings . we believe that these non-gaap financial measures provide useful 31 information to management and investors that is supplementary to our consolidated statements of financial condition , income and cash flows computed in accordance with gaap . however , we acknowledge that our non-gaap financial measures have a number of limitations . as such , you should not view these disclosures as a substitute for results determined in accordance with gaap , and they are not necessarily comparable to non-gaap financial measures that other banking companies use . other banking companies may use names similar to those we use for the non-gaap financial measures we disclose , but may calculate them differently . you should understand how we and other companies each calculate their non-gaap financial measures when making comparisons . story_separator_special_tag the following reconciliation table provides a more detailed analysis of these non-gaap financial measures : replace_table_token_4_th 32 ( dollars in thousands except per share data ) as of or for the years ended december 31 , 2020 2019 2018 2017 2016 tangible book value per share total assets $ 6,906,104 $ 7,045,828 $ 6,937,212 $ 5,704,380 $ 5,063,585 less : goodwill ( 3,297 ) ( 3,297 ) ( 3,297 ) ( 3,297 ) ( 3,297 ) tangible assets 6,902,807 7,042,531 6,933,915 5,701,083 5,060,288 less : total liabilities ( 6,292,413 ) ( 6,431,364 ) ( 6,356,067 ) ( 5,154,635 ) ( 4,659,210 ) tangible stockholders ' equity ( numerator ) $ 610,394 $ 611,167 $ 577,848 $ 546,448 $ 401,078 period end shares outstanding ( denominator ) ( 3 ) 52,220,266 55,999,754 56,379,066 56,422,662 42,000,000 tangible book value per share $ 11.69 $ 10.91 $ 10.25 $ 9.68 $ 9.55 ( 1 ) for the year ended december 31 , 2020 , net income and efficiency ratio are adjusted to reverse the impact of a non-recurring cost incurred in connection with the prepayment of $ 150 million of long-term fhlb advances in december 2020 . ( 2 ) for periods prior to january 1 , 2018 , we calculate our pro forma net income , return on average assets and return on average stockholders ' equity by adding back our franchise s-corporation tax to net income , and using a combined c-corporation effective tax rate for federal and california income taxes of 42.0 % . this calculation reflects only the change in our status as an s-corporation and does not give effect to any other transaction . beginning january 1 , 2018 , our pro forma provision for tax expense is our actual c-corporation provision . ( 3 ) weighted average common shares outstanding - diluted and period end shares outstanding have been adjusted retroactively to reflect a 200-for-1 stock split effective april 27 , 2017. key factors affecting our business interest rates net interest income is the largest contributor to our net income and is the difference between the interest and fees earned on interest-earning assets and the interest expense incurred in connection with interest-bearing liabilities . net interest income is primarily a function of the average balances and yields of these interest-earning assets and interest-bearing liabilities . these factors are influenced by internal considerations such as product mix and risk appetite , as well as external influences such as economic conditions , competition for loans and deposits and market interest rates . the cost of our deposits and short-term wholesale borrowings is primarily based on short-term interest rates , which are largely driven by the federal reserve 's actions and market competition . the yields generated by our loans and securities are typically affected by short-term and long-term interest rates , which are driven by market competition and market rates often impacted by the federal reserve 's actions . the level of net interest income is influenced by movements in such interest rates and the pace at which such movements occur . based on our liability sensitivity as discussed in item 7a . ‘ ‘ quantitative and qualitative disclosures about market risk '' , significant increases in interest rates and or a flatter yield curve could have an adverse impact on our net interest income . conversely , significant decreases in interest rates , particularly at the short end , and or a steepened yield curve would be expected to benefit our net interest income . operating efficiency we have invested significantly in our infrastructure , including our management , lending teams , technology systems and risk management practices . as we have begun to leverage these investments , our efficiency has generally improved . credit quality we have well established loan policies and underwriting practices that have resulted in very low levels of charge-offs and nonperforming assets . we strive to originate quality loans that will maintain the credit quality of our loan portfolio . however , credit trends in the markets in which we operate are largely impacted by economic conditions beyond our control and can adversely impact our financial condition and results of operations . competition the industry and businesses in which we operate are highly competitive . we may see increased competition in different areas including interest rates , underwriting standards and product offerings and loan structure . while we seek to maintain an appropriate return on our investments , we may experience continued pressure on our net 33 interest margin as we operate in this competitive environment . economic conditions our business and financial performance are affected by economic conditions generally in the united states and more directly in the markets of california , washington and oregon where we operate . the significant economic factors that are most relevant to our business and our financial performance include , but are not limited to , real estate values , interest rates and unemployment rates . factors affecting comparability of financial results s-corporation status we terminated our status as a “ subchapter s ” corporation as of december 1 , 2017 , in connection with our ipo . prior to this date , we elected to be taxed for u.s. federal income tax purposes as an s-corporation . as a result , our earnings were not subject to , and we did not pay , u.s. federal income tax , and we were not required to make any provision or recognize any liability for u.s. federal income tax in our financial statements . while we were not subject to and did not pay u.s. federal income tax , we were subject to , and paid , california s-corporation income tax at a rate of 3.50 % . upon the termination of our status as an s-corporation on december 1 , 2017 , we commenced paying u.s. federal income tax and a higher california income tax on our taxable earnings and our financial statements reflect a provision for both u.s. federal income tax and california income tax .
| the decline in our investment yield was generally caused by variable rate securities repricing to lower current interest rates , as well as the accelerated prepayment of securities backed by mortgages . net interest margin for the year ended december 31 , 2020 was 1.97 % , compared to 1.84 % for the prior year . the increase in our margin was primarily related to the decline in the cost of our interest-bearing deposits , partially offset by the decline in the yields of our loan and investment portfolios , as discussed above . over the year , the yield on our interest-earning assets decreased by 39 basis points , while the cost of our interest-bearing liabilities decreased by 56 basis points . our net interest spread for the year ended december 31 , 2020 was 1.83 % , increasing by 17 basis points as compared to last year . average balance sheet , interest and yield/rate analysis . the following table presents average balance sheet information , interest income , interest expense and the corresponding average yield earned and rates paid for the years ended december 31 , 2020 , 2019 and 2018. the average balances are daily averages . 40 replace_table_token_9_th ( 1 ) non-accrual loans are included in total loan balances . no adjustment has been made for these loans in the calculation of yields . interest income on loans includes amortization of deferred loan costs , net of deferred loan fees . net deferred loan cost amortization totaled $ 16.2 million , $ 14.6 million and $ 10.2 million for the years ended december 31 , 2020 , 2019 and 2018 , respectively . ( 2 ) noninterest-earning assets includes the allowance for loan losses . ( 3 ) net interest spread is the average yield on total interest-earning assets minus the average rate on total interest-bearing liabilities . ( 4 ) net interest margin is net interest income divided by total average interest-earning assets . interest rates and operating interest
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in addition , we expect that the integration of our technology into windows 10 , will accelerate the demand for our computer network log-on solutions and fingerprint readers . finally , our entry into the asian market and licensing arrangement with cgg has further expanded our business by opening new markets along with the new and innovative hardware offerings . we expect our sideswipe , ecoid and sidetouch finger readers , and our biometric and bluetooth enabled padlocks , luggage locks , and bicycle locks to continue to drive incremental revenue and growth . we intend to expand our business into the cloud and mobile computing industries . the emergence of cloud computing and mobile computing are primary drivers of commercial and consumer adoption of advanced authentication applications , including biometric and bio-key authentication capabilities . as the value of assets , services and transactions increases on such networks , we expect that security and user authentication demand should rise proportionately . our integration partners include major web and network technology providers , who we believe will deliver our cloud-applicable solutions to interested service-providers . these service-providers could include , but are not limited to , financial institutions , web-service providers , consumer payment service providers , credit reporting services , consumer data service providers , healthcare providers and others . additionally , our integration partners include major technology component providers and oem manufacturers , who we believe will deliver our device-applicable solutions to interested hardware manufacturers . such manufacturers could include cellular handset and smartphone manufacturers , tablet manufacturers , laptop and pc manufacturers , among other hardware manufacturers . our recently introduced saml and open id solutions will create new opportunities for us in 2018. story_separator_special_tag domestic accounts receivable balance to us ( the “ advance amount ” ) , with the remaining balance , less fees , to be forwarded to us once the factor collects the full accounts receivable balance from the customer . in addition , from time to time , we receive over advances from the factor . factoring fees range from 2.75 % to 15 % of the face value of the invoice factored , and are determined by the number of days required for collection of the invoice . we expect to continue to use this factoring arrangement periodically to assist with our general working capital requirements due to contractual requirements . on november 18 , 2016 , we issued to wong kwok fong , a director , executive officer and principal stockholder of the company , 516,667 shares of common stock at a purchase price of $ 3.60 per share for gross cash proceeds of $ 1,860,000. on april 28 , 2017 , we issued to wong kwok fong , a director , executive officer and principal stockholder of the company , 277,778 shares of common stock at a purchase price of $ 3.60 per share for gross cash proceeds of $ 1,000,000. on may 2 , 2017 , we entered into a committed equity facility pursuant to which it may issue and sell up to $ 5.0 million worth of shares of common stock , subject to certain limitations and satisfaction of certain conditions , over a 36-month term following the effectiveness of a registration statement covering the public resale of the shares of common stock issued under the facility . as of the date of this report , the registration statement has not been filed . from time to time over the term of the facility , we may issue requests to the investor to purchase a specified dollar amount of shares up to a maximum of $ 100,000 over a five trading day period based on the daily volume weighted average price of the company 's common stock ( vwap ) to the extent the vwap equals or exceeds the greater of a formula amount or $ 3.83 per share . the per share purchase price for the shares issued under the facility will be equal to 94 % of the lowest vwap that equals or exceeds $ 3.83 per share . aggregate sales under the facility are limited to 19.99 % of the total outstanding shares of the company 's common stock as of may 2 , 2017 , unless stockholder approval is obtained , and sales under the facility are prohibited if such a sale would result in beneficial ownership by the investor of more than 9.99 % of the company 's common stock . on september 22 , 2017 , we issued to wong kwok fong , a director , executive officer and principal stockholder of the company , 427,778 shares of common stock and warrants to purchase 138,889 shares of common stock for an aggregate purchase price of $ 1,540,000 , or $ 3.60 per share . the purchase consisted of a cash payment of $ 1,000,000 and the conversion of accrued dividends payable on the company 's series a-1 convertible preferred stock of $ 540,000. liquidity outlook at december 31 , 201 7 , our total cash and cash equivalents were approximately $ 289,000 , as compared to approximately $ 1,061,000 at december 31 , 2016. as discussed above , we have historically financed our operations through access to the capital markets by issuing secured and convertible debt securities , convertible preferred stock , common stock , and through factoring receivables . we currently require approximately $ 592,000 per month to conduct our operations and pay dividend obligations , a monthly amount that we have been unable to consistently achieve through revenue generation . during 2017 , we generated approximately $ 6,303,000 of revenue , which is below our average monthly requirements . if we are unable to generate sufficient revenue to fund current operations or meet our goals , we will need to obtain additional third-party financing to ( i ) conduct the sales , marketing and technical support necessary to execute our plan to substantially grow operations , increase revenue and serve a significant customer base ; and ( ii ) provide working capital . story_separator_special_tag we may , therefore , need to obtain additional financing through the issuance of debt or equity securities . due to several factors , including our history of losses and limited revenue , our independent registered public accounting firm has included an explanatory paragraph in their opinion related to our annual financial statements as to the substantial doubt about our ability to continue as a going concern . our long-term viability and growth will depend upon the successful commercialization of our technologies and our ability to obtain adequate financing . to the extent that we require such additional financing , no assurance can be given that any form of additional financing will be available on terms acceptable to us , that adequate financing will be obtained to meet our needs , or that such financing would not be dilutive to existing stockholders . if available financing is insufficient or unavailable or we fail to continue to generate sufficient revenue , we may be required to further reduce operating expenses , delay the expansion of operations , be unable to pursue merger or acquisition candidates , or continue as a going concern . 19 off-balance sheet arrangements we do not have any off-balance sheet arrangements that have , or are in the opinion of management reasonably likely to have , a current or future effect on our financial condition or results of operations . critical accounting policies our financial statements are prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances . we evaluate our estimates and assumptions on an ongoing basis . our actual results may differ significantly from these estimates under different assumptions or conditions . there have been no material changes to these estimates for the periods presented in this annual report on form 10-k. we believe that of our significant accounting policies , which are described in note a of the notes to our consolidated financial statements included in this annual report on form 10-k , the following accounting policies involve a greater degree of judgment and complexity . accordingly , these are the policies we believe are the most critical to aid in fully understanding and evaluating our financial condition and results of operations . 1. revenue recognition revenues from software licensing are recognized in accordance with asc 985-605 , “ software revenue recognition . '' accordingly , revenue from software licensing is recognized when all of the following criteria are met : persuasive evidence of an arrangement exists , delivery has occurred , the fee is fixed or determinable , and collectability is probable . we intend to enter into arrangements with end users for items which may include software license fees , and services or various combinations thereof . for each arrangement , revenues will be recognized when evidence of an agreement has been documented , the fees are fixed or determinable , collection of fees is probable , delivery of the product has occurred and no other significant obligations remain . multiple-element arrangements : for multiple-element arrangements , we apply the residual method in accordance with asc 985-605. the residual method requires that the portion of the total arrangement fee attributable to the undelivered elements be deferred based on its vendor specific objective evidence “ vsoe ” of fair value and subsequently recognized as the service is delivered . the difference between the total arrangement fee and the amount deferred for the undelivered elements is recognized as revenue related to the delivered elements , which is generally the software license . vsoe of fair value for all elements in an arrangement is based upon the normal pricing for those products and services when sold separately . vsoe of fair value for support services is additionally determined by the renewal rate in customer contracts . we have established vsoe of fair value for support as well as consulting services . license revenues : amounts allocated to license revenues are recognized at the time of delivery of the software and all other revenue recognition criteria discussed above have been met . revenue from licensing software , which requires significant customization and modification , is recognized using the percentage of completion method , based on the hours of effort incurred by us in relation to the total estimated hours to complete . in instances where third party hardware , software or services form a significant portion of a customer 's contract , we recognize revenue for the element of software customization by the percentage of completion method described above . otherwise , third party hardware , software , and services are recognized upon shipment or acceptance as appropriate . if we make different judgments or utilize different estimates of the total amount of work expected to be required to customize or modify the software , the timing and revenue recognition , from period to period , and the margins on the project in the reporting period , may differ materially from amounts reported . anticipated contract losses are recognized as soon as they become known and are estimable . service revenues : revenues from services are comprised of maintenance and consulting and implementation services . maintenance revenues include providing for unspecified when-and-if available product updates and customer telephone support services , and are recognized ratably over the term of the service period . consulting services are generally sold on a time-and-materials basis and include a range of services including installation of software and assisting in the design of interfaces to allow the software to operate in customized environments .
| fingerprint reader sales increased approximately $ 573,000 , or 59 % , while the introduction of our new line of biometric locks generated revenue of approximately $ 351,000 in 2017. costs of goods sold for the year ended december 31 , 2017 , cost of service increased approximately 103 % to $ 439,291 , due to added resources and reallocated research and development personnel to support the custom services revenue . license , hardware and other costs for the year ended december 31 , 2017 increased approximately 446 % to $ 2,802,860. the increase was primarily attributable to the amortization of the software rights in the approximate amount of $ 1,510,000 as well as costs associated with the hardware mix . selling , general and administrative replace_table_token_5_th selling , general and administrative costs for year ended december 31 , 2017 were $ 5,676,323 representing a 28 % increase from the corresponding period in 2016. the increases included additional expenses related to our hong kong subsidiary , including payroll , non-cash , share-based compensation expenses , commitment fees related to the nasdaq uplisting , and increased commission expenses related to higher revenue . these amounts were offset by a decrease in factoring , legal fees , and contractors . 17 research , development and engineering replace_table_token_6_th for the year ended december 31 , 2017 , research , development and engineering costs were $ 1,659,875 representing a 17 % decrease over the corresponding period in 2016 , as a result of decreased temporary outside services and recruiting expenses , and reallocation of research and development personnel to support the custom services revenue . these amounts were offset by an increase in total personnel and related costs , purchases , costs related to our hong kong subsidiary , and non-cash compensation costs . other income and expense replace_table_token_7_th interest income for the years ended december 31 , 201 7 and 2016 consisted of bank interest . during the fourth quarters of 2013 and 2014 and third quarter of 2015 , we issued various warrants that contained derivative liabilities . such derivative liabilities are required to be marked-to-market each reporting period . in 2016 , we determined the warrant liability
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we believe that the covid-19 pandemic and the resulting societal and economic disruption has negatively impacted and will continue to negatively impact our business and results of operations in a number of ways . demand for our products and services has been and may continue to be negatively impacted by a decline in the rate of it spending and a delay in purchasing decisions as it and security staff focus on addressing the disruption to their businesses , which may impact sales to prospects and existing customers and increase customer attrition . our global sales and marketing operations have been disrupted as we have moved to a remote working environment and canceled many customer and industry events . some customers have requested extended payment terms and we expect that this trend will continue , or potentially accelerate if the economy worsens . the economic disruption may also negatively impact the collectability of our accounts receivables as customers experience extreme distress . we have been closely monitoring the impact of the covid-19 pandemic on all aspects of our business , including how it will impact our operations , and we may take further precautionary and preemptive actions as may be required by the evolving circumstances . at the current time , the extent to which the global covid-19 pandemic may affect our business , results of operations and financial condition is uncertain . see item 1a , “ risk factors - the global covid-19 pandemic , including the related containment efforts , has had , and we expect will continue to have , certain negative impacts on our business and operations , and we are unable to predict with certainty the extent to which it may continue to adversely affect our business , results of operations and financial condition. ” key factors affecting our performance we believe that the growth of our business and our future success are dependent upon a number of key factors , including the following : acquisition of new customers . we employ a sales strategy that focuses on acquiring new customers , through our direct sales force and network of channel partners , and selling additional products to existing customers . acquiring new customers is a key element of our continued success , growth opportunity and future revenue . we have invested in and intend to continue to invest in our direct sales force and channel partners . during the year ended march 31 , 2020 , our customer base increased by approximately 3,700 organizations . further penetration of existing customers . our direct sales force , together with our channel partners and dedicated customer experience team seek to generate additional revenue from our existing customers by adding more of their employees to our services and selling additional services . we continue to believe a significant opportunity exists for us to sell additional services to current customers as they experience the benefits of our services and we address additional business use cases . investment in growth . we are expanding our operations , increasing our headcount and developing software to both enhance our current offerings and build new features and products . we expect our total operating expenses to increase , particularly as we continue to expand our sales operations , marketing activities and research and development team . we intend to continue to invest in our sales , marketing and customer experience organizations to drive additional revenue and support the growth of our customer base . investments we make in our sales and marketing and research and development organizations will occur in advance of experiencing any benefits from such investments . for the year ending march 31 , 2021 , we plan to continue increasing the size of our sales force , investing in the development of additional marketing content and increasing the size of our research and development team . currency fluctuations . we conduct business in the united states and in other countries in north america , the united kingdom and in other countries in europe , south africa and in other countries in africa , australia and the uae . as a result , we are exposed to risks associated with fluctuations in currency exchange rates , particularly between the u.s. dollar , the british pound and the south african rand . in the year ended march 31 , 2020 , 54 % of our revenue was denominated in u.s. dollars , 27 % in british pounds , 12 % in south african rand and 7 % in other currencies . given that the functional currency of our subsidiaries is generally the local currency of each entity , but our reporting currency is the u.s. dollar , devaluations of the british pound , south african rand and other currencies relative to the u.s. dollar impacts our profitability . 41 key performance indicators in addition to traditional financial metrics , such as revenue and revenue growth trends , we monitor several other key performance indicators to help us evaluate growth trends , establish budgets , measure the effectiveness of our sales and marketing efforts and assess operational efficiencies . the key performance indicators that we monitor are as follows : replace_table_token_8_th ( 1 ) adjusted ebitda and revenue constant currency growth rates are non-gaap financial measures . for a reconciliation of adjusted ebitda and revenue constant currency growth rates to the nearest comparable gaap measures , see item 6 , “ selected financial data. ” ( 2 ) reflects the customer count on the last day of the period rounded to the nearest hundred customers . we define a customer as an entity with an active subscription contract as of the measurement date . a customer is typically a parent company or , in a few cases , a significant subsidiary that works with us directly . in determining the number of customers , we do not include customers we acquired from dmarc analyzer that transact with us on a credit card basis . revenue constant currency growth rate . story_separator_special_tag we believe revenue constant currency growth rate is a key indicator of our performance as it measures how we are executing on our strategy exclusive of currency fluctuations , which are beyond our control . we calculate revenue constant currency growth rate by translating revenue from entities reporting in foreign currencies into u.s. dollars using the comparable foreign currency exchange rates from the prior fiscal period . for further explanation of the uses and limitations of this non-gaap measure and a reconciliation of our revenue constant currency growth rate to revenue , as reported , the most directly comparable gaap measure , see item 6 , “ selected financial data. ” as our total revenue grows , we expect our constant currency growth rate will decline as the incremental growth from period to period is expected to represent a smaller percentage of total revenue as compared to the prior period . revenue retention rate . we believe that our ability to retain customers is an indicator of the stability of our revenue base and the long-term value of our customer relationships . our revenue retention rate is driven by our customer renewals and upsells . we calculate our revenue retention rate by annualizing constant currency revenue recorded on the last day of the measurement period for only those customers in place throughout the entire measurement period . this revenue includes renewed revenue contracts as well as additional revenue derived from the sale of additional seat licenses as well as additional services sold to these existing customers . we divide the result by revenue on a constant currency basis on the first day of the measurement period for all customers in place at the beginning of the measurement period . the measurement period is the trailing twelve months . the revenue on a constant currency basis is based on the average exchange rates in effect during the respective period . total customers . we believe the total number of customers is a key indicator of our financial success and future revenue potential . we define a customer as an entity with an active subscription contract as of the measurement date . a customer is typically a parent company or , in a few cases , a significant subsidiary that works with us directly . in determining the number of customers , we do not include customers we acquired from dmarc analyzer that transact with us on a credit card basis . we expect to continue to grow our customer base through the addition of new customers in each of our markets . gross profit percentage . we believe gross profit percentage is a key indicator of our efficiency in offering our services to our customers . gross profit percentage is calculated as gross profit divided by revenue . our gross profit percentage has been relatively consistent over the past three years ; however , it has fluctuated and will continue to fluctuate on a quarterly basis due to timing of the addition of hardware and employees to serve our growing customer base . gross profit also includes amortization of intangible assets related to acquired businesses . we provide our services in each of the regions in which we operate . costs related to supporting and hosting our product offerings and delivering our services are incurred in the region in which the related revenue is recognized . as a result , our gross profit percentage in actual terms is consistent with gross profit on a constant currency basis . adjusted ebitda . we believe that adjusted ebitda is a key indicator of our operating results . we define adjusted ebitda as net loss , adjusted to exclude : depreciation , amortization , disposals and impairment of long-lived assets , acquisition-related gains and expenses , litigation-related expenses , share-based compensation expense , restructuring expense , interest income and interest expense , the provision for income taxes and foreign exchange ( expense ) income . prior to the adoption of asc 842 on april 1 , 2019 , adjusted ebitda also included rent paid in the period related to locations which had been accounted for as build-to-suit facilities . for further explanation of the uses and limitations of this non-gaap measure and a reconciliation of our adjusted ebitda to the 42 most directly comparable gaap measure , net loss , see item 6 , “ selected financial data. ” we expect that our adjusted ebitda will continue to increase ; however , we expe ct that our operating expenses will also increase in absolute dollars as we focus on expanding our sales and marketing teams and growing our research and development capabilities . components of consolidated statements of operations revenue we generate substantially all of our revenue from subscription fees paid by customers accessing our cloud services and by customers purchasing additional support beyond the standard support that is included in our basic subscription fees . a small portion of our revenue consists of related professional services and other revenue , which consists primarily of performance obligations related to set-up , ingestion , and training fees . we generally license our services on a price per employee basis under annual contracts . in some instances , we receive upfront payments , which are determined to be material rights to a discount upon renewal . in these instances , we recognize revenue related to the upfront payment over the estimated customer benefit period , which has been determined to be six years . we serve approximately 38,100 customers in multiple industries , and our revenue is not concentrated with any single customer or industry . for each of the years ended march 31 , 2020 , 2019 and 2018 , no single customer accounted for more than 1 % of our revenue , and our largest ten customers accounted for less than 10 % of our revenue in aggregate . amounts that have been invoiced are recorded in accounts receivable and in deferred revenue or revenue , depending on whether the revenue recognition criteria have been met .
| 46 cost of revenue year ended march 31 , period-to-period change 2020 2019 amount % change < p style= '' margin-bottom:0pt ; margin-top:0pt ; margin-left:0pt ; ; text-indent:0pt ; ; font-weight : bold ; color : # 000000 ; font-size:8pt ; font-family : times new
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if a tenant terminates its lease prior to the original contractual termination date of the lease and no rental payments are being made on the lease , any unamortized balance of the related above or below market lease value will be written off and could materially impact our net income positively or negatively . 38 percentage rentals percentage rentals , which represent revenues based on a percentage of tenants ' sales volume above predetermined levels , increased $ 2.1 million , or 23 % , in the 2012 period compared to the 2011 period . the following table sets forth the changes in various components of percentage rentals ( in thousands ) : replace_table_token_23_th the increase in percentage rentals is partially related to new developments and acquisitions completed in the 2011 period . in addition , percentage rentals from existing properties increased 10 % due to higher tenant sales productivity . reported tenant comparable sales for our consolidated properties for the rolling twelve months ended december 31 , 2012 increased 2.9 % to $ 376 per square foot . reported tenant comparable sales is defined as the weighted average sales per square foot reported in space open for the full duration of each comparison period . expense reimbursements expense reimbursements increased $ 11.5 million , or 13 % , in the 2012 period as compared to the 2011 period . the following table sets forth the changes in various components of expense reimbursements ( in thousands ) : replace_table_token_24_th expense reimbursements , which represent the contractual recovery from tenants of certain common area maintenance , insurance , property tax , promotional , advertising and management expenses , generally fluctuate consistently with the reimbursable property operating expenses to which they relate . existing property expense reimbursements increased in the 2012 period compared to the 2011 period as a result of an increase in the portfolio 's overall average occupancy rate , as well as a number of leases recently executed which require a higher reimbursement amount of our operating expenses . other income other income increased $ 600,000 , or 7 % , in the 2012 period as compared to the 2011 period . the following table sets forth the changes in various components of other income ( in thousands ) : replace_table_token_25_th the increase in fees recognized from unconsolidated joint ventures increased due to our entry into five new joint ventures in the 2011 and 2012 periods . 39 property operating expenses property operating expenses increased $ 10.9 million , or 11 % , in the 2012 period as compared to the 2011 period . the following table sets forth the changes in various components of property operating expenses ( in thousands ) : replace_table_token_26_th increases at existing properties related to higher mall office operating costs , security and property insurance . these costs were partially offset by lower snow removal costs across the portfolio . general and administrative expenses general and administrative expenses increased $ 7.3 million , or 24 % , in the 2012 period as compared to the 2011 period . this increase was mainly due to additional share-based compensation expense related to the 2012 restricted share grant to directors and certain officers of the company and share-based compensation . in addition , the 2012 period included $ 1.3 million of compensation expense related to 45,000 common shares that vested immediately , granted to steven b. tanger , pursuant to an amendment to his employment contract . in addition , the 2012 period included higher payroll related expenses on a comparative basis to the 2011 period due to the addition of new employees since january 1 , 2011. acquisition costs the 2012 period included acquisition costs incurred by us related to the two acquisitions through our riocan joint venture in november 2012. the 2011 period included costs related to the four acquisitions of consolidated properties described above in `` general overview , '' as well as one acquisition through our riocan joint venture in december , 2011. depreciation and amortization depreciation and amortization increased $ 14.7 million , or 17 % , in the 2012 period as compared to the 2011 period . the following table sets forth the changes in various components of depreciation and amortization ( in thousands ) : replace_table_token_27_th depreciation and amortization costs increased in the 2012 period compared to the 2011 period primarily as a result of the additional centers added to the portfolio during 2011. the depreciation and amortization from acquisitions includes the amortization of lease related intangibles recorded as part of the acquisition price of the acquired properties which are amortized over shorter lives . depreciation and amortization from existing properties decreased as certain construction and development related assets and lease related intangible assets from these properties became fully depreciated during 2012. interest expense interest expense increased approximately $ 4.4 million , or 10 % , in the 2012 period compared to the 2011 period . the primary reason for the increase in interest expense was the increase in the average amount of debt outstanding from approximately $ 870.1 million for the 2011 period to approximately $ 1.1 billion for the 2012 period . the higher debt levels outstanding were a result of the mortgages assumed as part of the acquisition of four properties , additional funding necessary for the development and acquisition projects described above and other general operating purposes . 40 the increase in interest expense associated with the higher debt outstanding was partially offset by lower interest rates on our unsecured lines of credit . these facilities were recast during the fourth quarter of 2011 resulting in the credit spread over libor being reduced from 190 basis points to 125 basis points . in addition , in february 2012 , we entered into a term loan for $ 250.0 million with an initial interest rate of libor + 1.80 % . equity in losses of unconsolidated joint ventures equity in losses of unconsolidated joint ventures increased approximately $ 1.7 million , or 111 % , in the 2012 period compared to the 2011 period . story_separator_special_tag the increase in loss is due primarily to acquisition costs and abandoned due diligence costs incurred by our riocan joint venture . the remaining increase in losses is attributable to joint ventures added during the year which in aggregate have depreciation in excess of their earnings before depreciation . liquidity and capital resources of the company in this “ liquidity and capital resources of the company ” section , the term , the company , refers only to tanger factory outlet centers , inc. on an unconsolidated basis , excluding the operating partnership . the company 's business is operated primarily through the operating partnership . the company issues public equity from time to time , but does not otherwise generate any capital itself or conduct any business itself , other than incurring certain expenses in operating as a public company , which are fully reimbursed by the operating partnership . the company does not hold any indebtedness , and its only material asset is its ownership of partnership interests of the operating partnership . the company 's principal funding requirement is the payment of dividends on its common shares . the company 's principal source of funding for its dividend payments is distributions it receives from the operating partnership . through its ownership of the sole general partner of the operating partnership , the company has the full , exclusive and complete responsibility for the operating partnership 's day-to-day management and control . the company causes the operating partnership to distribute all , or such portion as the company may in its discretion determine , of its available cash in the manner provided in the operating partnership 's partnership agreement . the company receives proceeds from equity issuances from time to time , but is required by the operating partnership 's partnership agreement to contribute the proceeds from its equity issuances to the operating partnership in exchange for partnership units of the operating partnership . the company is a well-known seasoned issuer with a shelf registration which expires in june 2015 that allows the company to register unspecified , various classes of equity securities and the operating partnership to register unspecified , various classes of debt securities . as circumstances warrant , the company may issue equity from time to time on an opportunistic basis , dependent upon market conditions and available pricing . the operating partnership may use the proceeds to repay debt , including borrowings under its lines of credit , develop new or existing properties , to make acquisitions of properties or portfolios of properties , to invest in existing or newly created joint ventures or for general corporate purposes . the liquidity of the company is dependent on the operating partnership 's ability to make sufficient distributions to the company . the operating partnership is a party to loan agreements with various bank lenders that require the operating partnership to comply with various financial and other covenants before it may make distributions to the company . the company also guarantees some of the operating partnership 's debt . if the operating partnership fails to fulfill its debt requirements , which trigger the company 's guarantee obligations , then the company may be required to fulfill its cash payment commitments under such guarantees . however , the company 's only material asset is its investment in the operating partnership . the company believes the operating partnership 's sources of working capital , specifically its cash flow from operations , and borrowings available under its unsecured credit facilities , are adequate for it to make its distribution payments to the company and , in turn , for the company to make its dividend payments to its shareholders . however , there can be no assurance that the operating partnership 's sources of capital will continue to be available at all or in amounts sufficient to meet its needs , including its ability to make distribution payments to the company . the unavailability of capital could adversely affect the operating partnership 's ability to pay its distributions to the company , which will in turn , adversely affect the company 's ability to pay cash dividends to its shareholders . 41 for the company to maintain its qualification as a real estate investment trust , it must pay dividends to its shareholders aggregating annually at least 90 % of its taxable income . while historically the company has satisfied this distribution requirement by making cash distributions to its shareholders , it may choose to satisfy this requirement by making distributions of cash or other property , including , in limited circumstances , the company 's own shares . based on our 2013 taxable income to shareholders , we were required to distribute approximately $ 59.7 million to our shareholders in order to maintain our reit status as described above . we distributed approximately $ 83.4 million to shareholders which significantly exceeds our required distributions . as a result of this distribution requirement , the operating partnership can not rely on retained earnings to fund its on-going operations to the same extent that other companies whose parent companies are not real estate investment trusts can . the company may need to continue to raise capital in the equity markets to fund the operating partnership 's working capital needs , as well as potential developments of new or existing properties , acquisitions or investments in existing or newly created joint ventures . as the sole owner of the general partner with control of the operating partnership , the company consolidates the operating partnership for financial reporting purposes . the company does not have significant assets other than its investment in the operating partnership . therefore , the assets and liabilities and the revenues and expenses of the company and the operating partnership are the same on their respective financial statements , except for immaterial differences related to cash , other assets and accrued liabilities that arise from public company expenses paid by the company .
| at december 31 , 2013 , the combined net value representing the amount of unamortized above market lease assets and below market lease liability values , recorded as a part of the purchase price of acquired properties , was a net above market lease asset which totaled approximately $ 10.7 million . if a tenant terminates its lease prior to the original contractual termination date of the lease and no rental payments are being made on the lease , any unamortized balance of the related above or below market lease value will be written off and could materially impact our net income positively or negatively . the decrease in base rent recognized from the amortization of above and below market lease values related primarily to the amortization of net above market lease assets recorded from the deer park acquisition . in addition , several below market leases from previous acquisitions became fully amortized at the end of 2012 thus causing a decrease in base rent in the 2013 period compared to the 2012 period . expense reimbursements expense reimbursements increased $ 8.5 million , or 8 % , in the 2013 period as compared to the 2012 period . the following table sets forth the changes in various components of expense reimbursements ( in thousands ) : replace_table_token_18_th expense reimbursements , which represent the contractual recovery from tenants of certain common area maintenance , insurance , property tax , promotional , advertising and management expenses , generally fluctuate consistently with the reimbursable property operating expenses to which they relate . existing property expense reimbursements increased in the 2013 period compared to the 2012 period as a result of an increase in recoverable property operating expenses , a modest increase in the portfolio 's overall average occupancy rate , and due to a number of leases recently executed which require a higher reimbursement amount of our operating expenses . other income other income increased $ 1.2 million , or 13 % , in the 2013 period as compared to the 2012 period . the following table sets forth the changes in various components of other
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summary of significant transactions and activities for the year ended december 31 , 2017 acquisitions during the year ended december 31 , 2017 , we acquired five buildings comprising 1.3 million square feet located in our chicago , denver , northern california , orlando and southern california markets for a total purchase price of approximately $ 129.0 million . weighted average occupancy upon the acquisition of the properties was 31.5 % . additionally , during the year ended december 31 , 2017 , we acquired land totaling approximately 344.3 acres for development in our atlanta , dallas , houston , new jersey , northern california , orlando , pennsylvania and seattle markets for approximately $ 57.0 million . development activities during the year ended december 31 , 2017 , we stabilized six development buildings , three redevelopment buildings and three value-add acquisitions totaling 2.9 million square feet in our atlanta , chicago , cincinnati , dallas , orlando , seattle and southern california markets . in 2017 we commenced construction on 19 development and redevelopment buildings . as of december 31 , 2017 , we had completed shell-construction on six buildings in our chicago , dallas , denver and miami markets totaling 1.0 million square feet with cumulative costs to date of approximately $ 75.3 million and a total projected investment of approximately $ 83.4 million . these properties were 39.0 % leased based on weighted average square feet as of december 31 , 2017 . also , as of december 31 , 2017 , we had 19 projects under construction totaling 4.9 million square feet with cumulative costs to date of approximately $ 205.2 million and a total projected investment of approximately $ 404.3 million . these projects were 13.4 % pre-leased as of december 31 , 2017 . 37 the table below presents a summary of development activities as of december 31 , 2017 ( square feet and dollar amounts in thousands ) : replace_table_token_18_th ( 1 ) percentage owned is based on equity ownership weighted by square feet . ( 2 ) the completion date represents the date of building shell-construction completion or estimated date of shell-completion . ( 3 ) percentage leased is computed as of the date the financial statements were available to be issued . dispositions during the year ended december 31 , 2017 , we sold 12 consolidated operating properties , totaling 1.5 million square feet , located in our baltimore/washington d.c. , cincinnati , dallas , louisville , miami , northern california , orlando and phoenix markets to third-parties for gross proceeds of approximately $ 115.3 million . we recognized gains of approximately $ 47.1 million on the disposition of 11 properties . debt activity during march 2017 , we repaid the remaining $ 25.0 million outstanding on our $ 100.0 million term loan maturing april 2017 at par using proceeds from our senior unsecured revolving credit facility . during march 2017 , the operating partnership issued $ 50.0 million aggregate principal amount of 4.50 % senior notes due 2023 at 103.88 % of face value in a public offering for net proceeds of approximately $ 51.2 million after offering costs and excluding accrued interest of approximately $ 0.9 million . the notes were issued under our indenture dated october 9 , 2013 and form part of the same series as our previously issued 4.50 % senior notes due 2023. we primarily used the net proceeds to pay down our senior unsecured revolving credit facility and for general corporate purposes . 38 during june 2017 , we paid-off our $ 51.0 million senior unsecured note maturing june 2017 at par using proceeds from our senior unsecured revolving credit facility and proceeds from the issuance of common stock under our continuous equity offering program . during the year ended december 31 , 2017 , we paid-off four mortgage notes totaling $ 34.5 million maturing in 2017 at par using proceeds from our senior unsecured revolving credit facility . during december 2017 , we amended our existing $ 200.0 million variable rate senior unsecured term loan , lowering our libor plus a margin 50 bps at the midpoint to between .90 % to 1.75 % per annum effective january 1 , 2018 , and based on our public debt credit rating , resulted in a fixed rate of 2.81 % beginning on that date . as of december 31 , 2017 , we had $ 234.0 million outstanding and $ 164.1 million available under our $ 400.0 million senior unsecured revolving credit facility , net of two letters of credit totaling $ 1.9 million activity from investments in and advances to unconsolidated joint venture during may 2017 , the scla joint venture entered into a $ 30.0 million secured fixed rate term note with a maturity date of may 2024. the proceeds were used to pay down a portion of the existing term note maturing in october 2017 and as a return of contributions to the joint venture partners . during june 2017 , the trt-dct venture iii disposed of its three remaining properties . we received approximately $ 2.7 million for our share of the gross proceeds and recognized our share of the gain on the sale of approximately $ 1.2 million , which is included in `` equity in earnings of unconsolidated joint ventures , net '' in our consolidated statements of operations . during july 2017 , the scla joint venture entered into a $ 13.5 million secured variable rate term note which bears interest at a variable rate equal to libor plus a margin of 2.50 % per annum with a maturity date of july 2024. the proceeds were used to return contributions to the joint venture partners . story_separator_special_tag during august 2017 , the scla joint venture entered into a pay-fixed , receive-floating interest rate swap which effectively fixed the interest rate on the related debt instrument at 4.55 % with a maturity date of july 2024. in october 2017 , the scla joint venture entered into an agreement to extend the maturity date of its $ 61.0 million secured construction loan from october 2017 to october 2019. equity activity on september 10 , 2015 , we registered a continuous equity offering program , to replace our continuous equity offering program previously registered on may 29 , 2013 , whereby the company may issue 5.0 million shares of common stock , at a par value of $ 0.01 per share , from time-to-time through september 10 , 2018 in “ at-the-market ” offerings or certain other transactions . during the year ended december 31 , 2017 , we issued approximately 1.8 million shares of common stock through the continuous equity offering program , at a weighted average price of $ 54.48 per share for proceeds of approximately $ 95.5 million , net of offering expenses . the proceeds from the sale of shares of common stock were contributed to the operating partnership for an equal number of op units in the operating partnership and were used for general corporate purposes , including funding developments and redevelopments . as of december 31 , 2017 , approximately 0.7 million shares of common stock remain available to be issued under the current offering . critical accounting policies and estimates general the preparation of financial statements in conformity with accounting principles generally accepted in the u.s. ( “ gaap ” ) requires management to use judgment in the application of accounting policies , including making estimates and assumptions . if our judgment or interpretation of the facts and circumstances relating to various transactions had been different or different assumptions were made , it is possible that different accounting policies would have been applied , resulting in different financial results or a different presentation of our financial statements . our discussion and analysis of financial condition and results of operations is based on our consolidated financial statements which have been prepared in accordance with gaap . estimates , judgments and assumptions are based on historical experiences that we believe to be reasonable under the circumstances . from time to time we re-evaluate those estimates and assumptions . 39 the company 's significant accounting policies are described in “ notes to the consolidated financial statements , note 2 – summary of significant accounting policies. ” these policies were followed in preparing the consolidated financial statements as of and for the year ended december 31 , 2017 and are consistent with the year ended december 31 , 2016 . the company has identified the following significant accounting policies as critical accounting policies . these accounting policies have the most significant impact on our financial condition and results of operations and require management 's most difficult , subjective and or complex estimates . capitalization of costs see the company 's accounting policy for capitalization of costs with respect to capitalization of project costs versus the expensing of repair and maintenance costs as described in “ notes to the consolidated financial statements , note 2 – summary of significant accounting policies. ” as described in our policy , we capitalize costs such as personnel , office and other expenses based on an estimate of the time spent on projects that are directly related to capital projects and acquisition of leases . in february 2016 , the financial accounting standards boards ( “ fasb ” ) issued an accounting standard update ( “ asu ” ) that modifies existing accounting standards for lease accounting whereby lessors may only capitalize incremental direct costs and as a result , upon adoption the company will no longer capitalize initial direct costs . the asu is effective for the company on january 1 , 2019. capitalized costs are recorded on the consolidated balance sheets in construction in progress for each specific property . for all development projects , the company uses its professional judgment in determining whether such costs meet the criteria for capitalization or must be expensed as incurred . the company capitalizes interest , real estate taxes , insurance , payroll and costs associated with individuals directly responsible for and who spend their time on development activities . capitalization is ceased upon substantial completion of the project . these costs are recorded on the consolidated balance sheets in construction in progress for each specific property . acquisition of investment properties the company allocates the purchase price of real estate to identifiable tangible assets such as land , building , land improvements and tenant improvements acquired based on their fair value . in estimating the fair value of each component management considers appraisals , replacement cost , its own analysis of recently acquired and existing comparable properties , market rental data and other related information . impairment of properties the company periodically evaluates its long-lived assets , including investments in properties , for indicators of impairment . the judgments regarding the existence of indicators of impairment are based on the operating performance , market conditions , as well as the company 's ability to hold and its intent with regard to each property . the judgments regarding whether the carrying amounts of these assets may not be recoverable are based on estimates of future undiscounted cash flows from properties which include estimates of future operating performance and market conditions . impairment of investments in and advances to unconsolidated joint ventures the company evaluates investments in and advances to unconsolidated joint ventures for impairment whenever events or changes in circumstances indicate that there may be an other-than-temporary decline in value . the judgments regarding other-than-temporary declines in value are based on operating performance , market conditions and the company 's ability and intent to hold as well as its ability to influence significant decisions of the venture .
| ( 2 ) for a discussion as to why we view property noi to be an appropriate supplemental performance measure and a reconciliation of our property noi to our reported “ net income attributable to common stockholders , ” see page 35. rental revenues and leasing activity rental revenues , which are comprised of base rent , straight-line rent , amortization of above and below market rent intangibles , tenant recovery income , other rental revenues and early lease termination fees , increased $ 38.3 million for the year ended december 31 , 2016 compared to the same period in 2015 , primarily due to the following changes : $ 25.7 million increase in total revenues in our non-same-store portfolio , of which $ 46.2 million is attributed to 22 operating property acquisitions and 35 development and redevelopment properties placed into operation since january 1 , 2015 , offset in part by a $ 20.5 million decrease attributed to 45 consolidated property dispositions since january 1 , 2015 . 46 $ 14.3 million increase in total revenues in our annual same-store portfolio primarily due to the following : $ 10.1 million increase in base rent primarily resulting from increased rental rates and a 180 basis point increase in average occupancy period over period ; $ 5.1 million increase in operating expense recoveries related to higher average occupancy and increases in property tax expense ; $ 0.6 million increase in straight-line rental revenue ; and $ 0.3 million increase in miscellaneous income from tenants primarily due to move-out repairs ; which was partially offset by $ 1.6 million decrease in early lease termination fees attributable to six tenants in 2015 ; and $ 0.2 million decrease in below market rent adjustments . $ 1.7 million decrease in total revenues primarily attributed to development and redevelopment properties and value-add acquisitions that were in our operating portfolio prior to january 1 , 2016. the following table presents the components of our consolidated rental revenues ( in thousands ) : replace_table_token_24_th the following table provides a summary of our leasing activity for the year ended december 31 , 2016 : replace_table_token_25_th ( 1 ) reflects leases executed during the periods presented . excludes leases with a term shorter than one year .
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non-gaap financial measures the following table reconciles the non-gaap financial measurements used by management to our most directly comparable gaap measures for the years ended december 31 , 2017 , 2016 , and 2015 , which represents ebitda , adjusted ebitda and distributable cash flow from continuing operations . 43 reconciliation of ebitda , adjusted ebitda , and distributable cash flow replace_table_token_7_th story_separator_special_tag revenues $ 43.2 million . cost of products sold . our average cost per barrel increased $ 9.84 , or 32 % , increasing cost of products sold by $ 93.8 million . the increase in average cost per barrel was a result of an increase in market prices . the increase in sales volume of 10 % resulted in a $ 38.7 million increase to cost of products sold . our margins increased $ 0.73 per barrel , or 18 % during the period . operating expenses . operating expenses decreased $ 0.8 million due to $ 0.3 million of decreased maintenance expense at our ngl east texas pipeline , decreased compensation expense of $ 0.3 million , and decreased repairs and maintenance at our underground ngl storage facility of $ 0.2 million . selling , general and administrative expenses . selling , general and administrative expenses increased primarily as a result of increased compensation expense . depreciation and amortization . depreciation and amortization decreased primarily due to a $ 3.7 million decrease in amortization related to contracts acquired during the purchase of cardinal gas storage partners , llc ( “ cardinal ” ) , offset by a $ 0.6 million increase in depreciation expense related to recent capital expenditures . other operating loss , net . other operating loss , net represents losses from the disposition of property , plant and equipment . 48 comparative results of operations for the twelve months ended december 31 , 2016 and 2015 replace_table_token_12_th services revenues . the decrease in services revenue is primarily a result of decreased storage rates at our arcadia gas storage facility . products revenues . our ngl average sales price per barrel increased $ 2.68 , or 8 % , resulting in an increase to products revenues of $ 38.5 million . the increase in average sales price per barrel was a result of an increase in market prices . product sales volumes decreased 34 % , decreasing revenues $ 166.6 million . cost of products sold . our average cost per barrel increased $ 1.66 , or 6 % , increasing cost of products sold by $ 23.7 million . the increase in average cost per barrel was a result of an increase in market prices . the decrease in sales volume of 34 % resulted in a $ 147.6 million decrease to cost of products sold . our margins increased $ 1.03 per barrel , or 35 % during the period . operating expenses . operating expenses decreased primarily due to a $ 0.6 million decrease in pipeline testing expense , $ 0.4 million in lower fuel expense at our gas storage facilities , $ 0.3 million decrease in maintenance expense at our gas storage facilities , $ 0.1 million decrease in ngls employment expense and a $ 0.1 million decrease in utility expense related to our east texas ngl pipeline . these decreases are offset by a $ 0.8 million increase from our arcadia rail facility put into service in june 2015. selling , general and administrative expenses . selling , general and administrative expenses decreased primarily due to a $ 0.3 million decrease in professional fees , $ 0.2 million decrease in bad debt expense , and a $ 0.2 million decrease in property tax expense . depreciation and amortization . depreciation and amortization decreased primarily due to a $ 6.8 million decrease in amortization related to contracts acquired during the purchase of cardinal , offset by a $ 0.8 million increase in depreciation expense related to recent capital expenditures . other operating loss , net . other operating loss , net represents losses from the disposition of property , plant and equipment . 49 sulfur services segment comparative results of operations for the twelve months ended december 31 , 2017 and 2016 replace_table_token_13_th services revenues . services revenues increased as a result of a contractually prescribed index based fee adjustment . products revenues . products revenues decreased $ 9.3 million as a result of a 7 % decline in average sales price . offsetting , products revenues increased $ 2.8 million due to a 2 % increase in sales volumes , primarily related to a 5 % increase in fertilizer volumes . cost of products sold . an 8 % decrease in prices reduced cost of products sold by $ 7.4 million , resulting from a decline in commodity prices . a 2 % increase in sales volumes caused an offsetting increase in cost of products sold of $ 1.9 million . margin per ton decreased $ 1.78 , or 4 % . selling , general and administrative expenses . our selling , general and administrative expenses increased $ 0.3 million due to increased compensation expense offset slightly by a decrease of $ 0.1 million in bad debt expense . depreciation and amortization . depreciation expense increased $ 0.1 million due to capital projects being completed and placed in service during the second half of 2016. other operating loss , net . other operating loss , net represents losses from the disposition of property , plant and equipment . 50 comparative results of operations for the twelve months ended december 31 , 2016 and 2015 replace_table_token_14_th services revenues . services revenues decreased $ 1.5 million as a result of renegotiation of contract terms effective january 2016. products revenues . products revenues decreased $ 18.9 million as a result of a 12 % decline in average sales price . further , products revenues decreased an additional $ 8.7 million due to a 6 % decrease in sales volumes , primarily story_separator_special_tag non-gaap financial measures the following table reconciles the non-gaap financial measurements used by management to our most directly comparable gaap measures for the years ended december 31 , 2017 , 2016 , and 2015 , which represents ebitda , adjusted ebitda and distributable cash flow from continuing operations . 43 reconciliation of ebitda , adjusted ebitda , and distributable cash flow replace_table_token_7_th story_separator_special_tag revenues $ 43.2 million . cost of products sold . our average cost per barrel increased $ 9.84 , or 32 % , increasing cost of products sold by $ 93.8 million . the increase in average cost per barrel was a result of an increase in market prices . the increase in sales volume of 10 % resulted in a $ 38.7 million increase to cost of products sold . our margins increased $ 0.73 per barrel , or 18 % during the period . operating expenses . operating expenses decreased $ 0.8 million due to $ 0.3 million of decreased maintenance expense at our ngl east texas pipeline , decreased compensation expense of $ 0.3 million , and decreased repairs and maintenance at our underground ngl storage facility of $ 0.2 million . selling , general and administrative expenses . selling , general and administrative expenses increased primarily as a result of increased compensation expense . depreciation and amortization . depreciation and amortization decreased primarily due to a $ 3.7 million decrease in amortization related to contracts acquired during the purchase of cardinal gas storage partners , llc ( “ cardinal ” ) , offset by a $ 0.6 million increase in depreciation expense related to recent capital expenditures . other operating loss , net . other operating loss , net represents losses from the disposition of property , plant and equipment . 48 comparative results of operations for the twelve months ended december 31 , 2016 and 2015 replace_table_token_12_th services revenues . the decrease in services revenue is primarily a result of decreased storage rates at our arcadia gas storage facility . products revenues . our ngl average sales price per barrel increased $ 2.68 , or 8 % , resulting in an increase to products revenues of $ 38.5 million . the increase in average sales price per barrel was a result of an increase in market prices . product sales volumes decreased 34 % , decreasing revenues $ 166.6 million . cost of products sold . our average cost per barrel increased $ 1.66 , or 6 % , increasing cost of products sold by $ 23.7 million . the increase in average cost per barrel was a result of an increase in market prices . the decrease in sales volume of 34 % resulted in a $ 147.6 million decrease to cost of products sold . our margins increased $ 1.03 per barrel , or 35 % during the period . operating expenses . operating expenses decreased primarily due to a $ 0.6 million decrease in pipeline testing expense , $ 0.4 million in lower fuel expense at our gas storage facilities , $ 0.3 million decrease in maintenance expense at our gas storage facilities , $ 0.1 million decrease in ngls employment expense and a $ 0.1 million decrease in utility expense related to our east texas ngl pipeline . these decreases are offset by a $ 0.8 million increase from our arcadia rail facility put into service in june 2015. selling , general and administrative expenses . selling , general and administrative expenses decreased primarily due to a $ 0.3 million decrease in professional fees , $ 0.2 million decrease in bad debt expense , and a $ 0.2 million decrease in property tax expense . depreciation and amortization . depreciation and amortization decreased primarily due to a $ 6.8 million decrease in amortization related to contracts acquired during the purchase of cardinal , offset by a $ 0.8 million increase in depreciation expense related to recent capital expenditures . other operating loss , net . other operating loss , net represents losses from the disposition of property , plant and equipment . 49 sulfur services segment comparative results of operations for the twelve months ended december 31 , 2017 and 2016 replace_table_token_13_th services revenues . services revenues increased as a result of a contractually prescribed index based fee adjustment . products revenues . products revenues decreased $ 9.3 million as a result of a 7 % decline in average sales price . offsetting , products revenues increased $ 2.8 million due to a 2 % increase in sales volumes , primarily related to a 5 % increase in fertilizer volumes . cost of products sold . an 8 % decrease in prices reduced cost of products sold by $ 7.4 million , resulting from a decline in commodity prices . a 2 % increase in sales volumes caused an offsetting increase in cost of products sold of $ 1.9 million . margin per ton decreased $ 1.78 , or 4 % . selling , general and administrative expenses . our selling , general and administrative expenses increased $ 0.3 million due to increased compensation expense offset slightly by a decrease of $ 0.1 million in bad debt expense . depreciation and amortization . depreciation expense increased $ 0.1 million due to capital projects being completed and placed in service during the second half of 2016. other operating loss , net . other operating loss , net represents losses from the disposition of property , plant and equipment . 50 comparative results of operations for the twelve months ended december 31 , 2016 and 2015 replace_table_token_14_th services revenues . services revenues decreased $ 1.5 million as a result of renegotiation of contract terms effective january 2016. products revenues . products revenues decreased $ 18.9 million as a result of a 12 % decline in average sales price . further , products revenues decreased an additional $ 8.7 million due to a 6 % decrease in sales volumes , primarily
| an 11 % increase in sales volumes at our blending and packaging facilities resulted in a $ 4.9 million increase in cost of products sold . average cost per gallon increased 2 % , resulting in a $ 0.8 million increase in cost of products sold . cost of products sold at our shore-based terminals increased $ 10.1 million resulting from an 19 % increase in average cost per gallon and a 1 % increase in sales volumes . operating expenses . operating expenses at our specialty terminals decreased $ 4.8 million , primarily as a result of the disposition of the corpus christi crude terminalling assets in the fourth quarter 2016 of $ 7.6 million , offset by hurricane expenses of $ 2.5 million . operating expenses at our shore-based terminals increased by $ 3.2 million , primarily due to a $ 5.5 million increase in the accrual related to asset retirement obligations at leased terminal facilities and hurricane expenses of $ 0.3 million , offset by $ 2.7 million decrease associated with closed facilities . selling , general and administrative expenses . selling , general and administrative expenses increased primarily due to increased legal fees of $ 0.6 million and compensation expense of $ 0.5 million . depreciation and amortization . the decrease in depreciation and amortization is due to the impact of the disposition of assets and assets being fully depreciated , offset by capital expenditures . other operating income , net . other operating income , net represents gains and losses from the disposition of property , plant and equipment . the 2016 period includes the gain on the disposition of the corpus christi crude terminalling assets of $ 37.3 million . 46 comparative results of operations for the twelve months ended december 31 , 2016 and 2015 replace_table_token_10_th services revenues . s ervices revenue decreased primarily as a result of decreased throughput volumes and pass-through revenues at our corpus christi crude terminal , which was sold on december 21 , 2016. products
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the life sciences market segment includes universities , government laboratories and research institutes engaged in biotech and life sciences applications , as well as pharmaceutical , biotech and medical device companies and hospitals . our products ' ultra-high resolution imaging allows structural and cellular biologists and drug researchers to create detailed 3d reconstructions of complex biological structures . our products are also used in particle analysis and a range of pathology and quality control applications . the service and components market segment provides support for products and customers for the entire life cycle of a tool from installation through the warranty period , and after warranty period through contract coverage or on a time and materials basis . we believe strong technical support is an important part of the value proposition that we offer customers when a tool is sold . our service and components market segment provides support across all markets and all regions . sales and backlog net sales increased to $ 826.4 million in 2011 compared to $ 634.2 million in 2010 . this increase reflects increases in all of our market segments as described more fully below . at december 31 , 2011 , our total backlog was $ 430.7 million compared to $ 471.9 million at december 31 , 2010 . as discussed in the section entitled “ business ” included in part i , item 1 of this annual report on form 10-k , orders received in a particular period that can not be built and shipped to the customer in that period represent backlog . outlook for 2012 we begin 2012 coming off a record year for fei . during 2011 , we experienced revenue growth of 30 % and nearly doubled net income from 2010. this was driven primarily by strong demand for our products and a large backlog at the end 2010 , which grew by over 20 % from 2009. looking forward to 2012 , we expect growth to moderate as our backlog at the end of 2011 is lower than at the end of 2010 , but still represents approximately six months of revenue at the current run rate . electronics revenue was up in 2011 , despite the uncertainty in demand for some end user products made by semiconductor and data storage producers . we do not have a clear view of the semiconductor industry 's prospects for all of 2012. based on our current view , demand for the first half of 2012 is consistent with the levels achieved in 2011. we are attaining an increased share of overall spending by semiconductor customers as they invest in more advanced processes , which require more of our tems and dualbeams in particular . we expect developing countries including china to drive 2012 sales growth in our materials science segment as these economies continue to invest in education infrastructure but at a slower pace than seen in 2011 , offsetting potential weakness in europe and the united states . we also expect the materials science segment to benefit from an increasing demand for our evolving line of natural resources product offerings . as the use of electron microscopy in life sciences applications continues to grow , we expect continued growth in our life sciences segment in 2012 , though at a somewhat slower pace than the growth experienced in 2011. in the second half of 2011 , we signed collaborative agreements with the oregon health sciences university and the national institutes of health . both of those agreements are expected to contribute to the long-run growth of our life sciences business . our service and components business grows with the expansion of our installed base and is expected to continue that growth in 2012. the acquisitions of till photonics and aspex corporation were strategic in nature and are not expected to have a significant impact on our earnings in 2012 , although we estimate they will add approximately $ 25 million in revenue . our goal is to continue to increase our gross margin during 2012. in addition to increasing our proportion of higher margin products , we expect lower costs from increased production volume in the czech republic and continued sourcing improvements including the termination of a manufacturing services agreement in hillsboro . the insourcing of these manufacturing operations is expected to reduce manufacturing costs by approximately $ 2 million to $ 3 million per year when fully implemented . 25 operating expenses are expected to increase in 2012 due to the increase in staff in customer-facing parts of the company to manage our growth in 2011 and increased spend in research and development . we expect to continue to report a net expense for other income ( expense ) , net , due to low market interest earned on our investments and the impact of currency costs . global foreign exchange rates could have a significant impact on our results . in general , a stronger u.s. dollar compared with the euro will reduce our revenue growth rate and improve our operating income , while a weaker dollar has the opposite effect . we expect our overall effective tax rate to stabilize and we are estimating that it will be around 22 % for 2012. please see the risk factors listed in item 1a . of this annual report on form 10-k for the risk factors that could cause our results to vary from this outlook for 2012. story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > the $ 7.3 million , or 8.9 % , decrease in life sciences sales in 2010 compared to 2009 was due primarily to the timing of unit sales of our higher-priced tem products , which can fluctuate with customer readiness and facility requirements and a decrease of $ 2.3 million related to currency fluctuations . these factors were partially offset by the increasing adoption of electron microscopy technology for life sciences applications . story_separator_special_tag service and components the $ 17.4 million , or 11.3 % , increase in service and components sales in 2011 compared to 2010 was due primarily to a larger install base and improved market conditions in the semiconductor industry , which contributed to an increase in service contracts . currency fluctuations increased service and components sales by $ 5.2 million in 2011 compared to 2010 . the $ 16.8 million , or 12.2 % , increase in service and components sales in 2010 compared to 2009 was due primarily to a larger install base and increased proportion of service to the semiconductor industry , which contributed to increases in service contracts . currency fluctuations decreased service and components sales by $ 0.7 million in 2010 compared to 2009 . 27 net sales by geographic region a significant portion of our net sales has been derived from customers outside of the u.s. , which we expect to continue . the following table shows our net sales by geographic region ( dollars in thousands ) : replace_table_token_8_th u.s. and canada the $ 53.2 million , or 26.1 % , increase in sales to the u.s. and canada in 2011 compared to 2010 was primarily due to continued strong semiconductor capital equipment spending and an increase in life sciences sales related to an increase in high-end tem units sold . the $ 5.4 million , or 2.7 % , increase in sales to the u.s. and canada in 2010 compared to 2009 was primarily due to an increase in electronics segment sales , partially offset by a decline in materials science segment sales . the weak condition of the u.s. economy had a negative effect on materials science spending . europe our european region also includes central america , south america , africa ( excluding south africa ) , the middle east and russia . the $ 53.9 million , or 26.0 % , increase in sales to europe in 2011 compared to 2010 was primarily due to increased semiconductor capital equipment spending and continued improvement in spending by research institutions . currency fluctuations increased sales to europe $ 10.4 million in 2011 compared to 2010 . the $ 4.4 million , or 2.1 % , decrease in sales to europe in 2010 compared to 2009 was primarily due to a decrease in materials science spending as discussed above and a $ 13.5 million decrease related to currency fluctuations . these decreases were partially offset by an increase in sales of our small dualbeams , mainly to the electronics segment . in addition , 2009 included a large sale to a middle eastern university customer with no comparable sale in 2010 . asia-pacific region and rest of world the $ 85.0 million , or 38.2 % , increase in sales to the asia-pacific region and rest of world in 2011 compared to 2010 was primarily driven by the strengthening economy , additional investment in educational infrastructure in emerging asian economies and increased spending by research institutions in materials science and life sciences . currency fluctuations increased sales to this region by $ 12.0 million in 2011 compared to 2010 . the $ 55.9 million , or 33.5 % , increase in sales to the asia-pacific region and rest of world in 2010 compared to 2009 was primarily due to increased electronics segment sales , principally to semiconductor and data storage customers , as well as to our investment in sales and service infrastructure in the asia-pacific region . in addition , we benefited from an increase in purchases from universities and research institutions within asia . currency fluctuations increased sales to the asia-pacific region and rest of world by $ 6.9 million in 2010 compared to 2009 . cost of sales and gross margin our gross margin ( gross profit as a percentage of net sales ) by segment was as follows : replace_table_token_9_th 28 cost of sales includes manufacturing costs , such as materials , labor ( both direct and indirect ) and factory overhead , as well as all of the costs of our customer service function such as labor , materials , travel and overhead . the five primary drivers affecting gross margin include : product mix ( including the effect of price competition ) , volume , cost reduction efforts , competitive pricing pressure and currency movements . cost of sales increased $ 94.1 million , or 25.8 % , to $ 459.1 million in 2011 compared to $ 365.0 million in 2010 , primarily due to increased sales . the impact of currency fluctuations on cost of sales was an increase of $ 6.0 million in 2011 compared to 2010 . the net effect on our gross margin from currency fluctuations during 2011 compared to 2010 was an increase of $ 16.4 million , or 0.8 percentage points . cost of sales increased $ 17.2 million , or 4.9 % , to $ 365.0 million in 2010 compared to $ 347.8 million in 2009 primarily due to increased sales . currency fluctuations decreased cost of sales by $ 13.2 million in 2010 compared to 2009 . gross margins were positively affected in 2010 due to purchasing and operational improvements , a lower level of competitive pricing pressure in 2010 and improved product mix with increased electronics segment sales and increased high-end tem and small dualbeam systems being sold . the net effect on our gross margin from currency fluctuations during 2010 was an approximately $ 6.6 million , or a 1.5 percentage point , increase . electronics the increase in electronics gross margin in 2011 compared to 2010 was due primarily to increased demand for our higher-margin small dualbeams , as well as abnormally low gross margins in the prior year period as we worked through orders that were priced in late 2009 and early 2010 when we were under greater pricing pressure . we also realized product cost savings related to our consolidation of the manufacturing of our small dualbeam products at our brno , czech republic facility .
| % , increase in electronics sales in 2010 compared to 2009 was primarily due to an increase in semiconductor and data storage company capital spending for capacity expansion and new process development . we realized increases in unit sales of our wafer-level and small dualbeam products . in addition , currency fluctuations increased electronics sales by $ 0.7 million as compared to the prior year . materials science the $ 109.7 million , or 60.1 % , increase in materials science ( formerly research and industry ) sales in 2011 compared to 2010 was primarily due to strong sales of our high-end tems as a result of increased spending in research institutions . we generally see our customers shifting from sem-based tools to tem-based tools as the demand to image on an increasingly small scale continues . the increase also reflects continued investment in education infrastructure in developing countries like korea and china as well as increasing demand for our evolving line of natural resources product offerings . currency fluctuations increased materials science sales by $ 7.7 million in 2011 compared to 2010 . the $ 49.0 million , or 21.2 % , decrease in materials science sales in 2010 compared to 2009 was due primarily to decreased volumes of our small dualbeam and higher-priced tem systems , partially due to the timing of customer order requirements and sluggish u.s. and world economies . in addition , 2009 included a large sale to a middle eastern university customer with no comparable sale in 2010 . also contributing was a $ 4.3 million decrease related to currency fluctuations . life sciences the $ 28.2 million , or 37.9 % , increase , in life sciences sales in 2011 compared to 2010 was primarily due to an increase in the number of high-end tem units sold during the period due in part to increased penetration in electron microscopy in life sciences research . currency fluctuations
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our goal is to establish invisalign as the treatment of choice for treating malocclusion ultimately driving increased product adoption and frequency of use by dental professionals , also known as `` utilization rates '' . our quarterly utilization rates for the previous 12 quarters are as follows : * invisalign utilization rates = # of cases shipped divided by # of doctors cases were shipped to total utilization in the fourth quarter of 2013 was 4.4 cases per doctor a slight increase from 4.3 cases in the third quarter of 2013 driven primarily by the increase in utilization by our international customers offset by a decrease 34 in utilization by our north american orthodontic customers from 8.4 to 8.0 cases per doctor . this decrease by our north american orthodontic customers reflects a decline in the number of teen-aged cases shipped as summer is typically the busiest season for orthodontists with practices that have a high percentage of adolescent and teenage patients as many parents want to get their teenagers started in treatment before the start of the school year . on a year-over-year basis , total utilization of 4.4 cases per doctor in the fourth quarter of 2013 increased from 4.1 cases in the fourth quarter of 2012 cases , reflecting improvements in product and technology over the past year , including invisalign g4 and smarttrack aligner material , which continues to strengthen our doctors ' clinical confidence in the use of invisalign such that they now utilize invisalign more often and on more complex cases . although we expect that over the long-term our utilization rates will gradually improve , we expect that period over period comparisons of our utilization rates will fluctuate . number of new invisalign doctors trained . we continue to expand our invisalign customer base through the training of new doctors . in 2013 , invisalign growth was driven primarily by increased utilization by our orthodontist customers as well as by the continued expansion of our customer base as we trained a total of 8,065 new invisalign doctors . gps are one of the keys to driving growth in the adult segment and in 2014 we launched a new ce i training course , now called invisalign fundamentals , designed to improve practice integration and increase utilization for newly trained doctors . we are implementing this new invisalign fundamentals program across north america and will look for opportunities to adjust our international training programs as we work to help our gp practices worldwide more successfully adopt invisalign into their practices . we believe that this new training approach will increase the number of doctors submitting cases 90-days post-training , as well as the number of cases submitted per doctor . international clear aligner . we will continue to focus our efforts towards increasing adoption of our products by dental professionals in our direct international markets . on a year over year basis , international volume increased 25 % , driven primarily by growth in europe as well as by strong performance in the asia-pacific region . in 2014 , we will continue to expand in our existing markets through targeted investments in sales coverage and professional marketing and education programs , along with consumer marketing in selected country markets . in addition , given the significant long term potential this extensive geography represents and the support we can now provide by utilizing our direct coverage model in europe , beginning in february 2014 , we will transition a small number of those countries into direct sales regions . we expect to leverage our existing infrastructure and resources to bring sales coverage and customer support to these countries , most of which are adjacent to our directly covered european countries . due to the small volume of business from our emea distributor , we do not anticipate that this transition will have a material effect on our financial results in the next several years . foreign exchange rates . although the u.s. dollar is our reporting currency , a portion of our net revenues and income are generated in foreign currencies . net revenues and income generated by subsidiaries operating outside of the u.s. are translated into u.s. dollars using exchange rates effective during the respective period and as a result are affected by changes in exchange rates . we have generally accepted the exposure to exchange rate movements without using derivative financial instruments to manage this risk ; therefore , both positive and negative movements in currency exchange rates against the u.s. dollar will continue to affect the reported amount of net revenues and income in our consolidated financial statements . story_separator_special_tag style= '' font-family : inherit ; font-size:9pt ; '' > replace_table_token_5_th 1 the scanners and cad/cam services segment was created as a result of our acquisition of cadent on april 29 , 2011 and the financial results for that segment reflect the activity since that date . 38 cost of net revenues for our clear aligner and sccs includes salaries for staff involved in the production process , the cost of materials , packaging , shipping costs , depreciation on capital equipment used in the production process , amortization of acquired intangible assets from cadent , training costs and stock-based compensation expense . fiscal year 2013 compared to fiscal year 2012 clear aligner gross margin improved slightly in 2013 compared to 2012 due to lower warranty costs as a result of reduced warranty claims corresponding with the change in our mid-course correction policy in june 2013. this gross margin improvement was partially offset by increased material costs , primarily related to our new smarttrack material . in addition , we incurred higher inventory reserves for our prior aligner material which has been substantially replaced by our new smarttrack aligner material . story_separator_special_tag scanner and cad/cam services gross margin increased in 2013 compared to 2012 primarily as a result of the release of revenue for amounts previously reserved in 2012 for the new 2.9 itero scanner upgrade program which was completed in the first quarter of 2013. in addition , we had lower manufacturing costs as a result of the closure of our new jersey facility , which was completed by october 2012 , and a reduction in training costs ; however , these savings were partially offset by higher third party labor service costs and lower manufacturing cost absorption . fiscal year 2012 compared to fiscal year 2011 clear aligner gross margin remained fairly consistent in 2012 compared to 2011 largely benefiting from higher sales volume that resulted in a decrease in cost per case offset by lower asp . scanner and cad/cam services gross margin improved slightly in 2012 compared to 2011 primarily resulting from lower acquisition , integration , and exit costs partially offset by lower scanner asp as well as higher training costs . sales and marketing ( in millions ) : replace_table_token_6_th sales and marketing expense primarily includes sales force and marketing compensation costs including commissions and stock-based compensation expense , media and advertising , travel and expense related costs , clinical education , product marketing , expenses for trade shows and industry events and allocations of corporate overhead expenses including facilities , it and human resource costs . sales and marketing expense increased in 2013 compared to 2012 due primarily to higher compensation costs of $ 16.4 million largely related to increased headcount , including additional employees as a result of the acquisition of our apac distributor , higher sales commissions and stock-based compensation . in addition , we incurred higher advertising and media costs primarily related to network and television media campaigns . sales and marketing expense increased in 2012 compared to 2011 due primarily to higher compensation costs of approximately $ 5.0 million which was largely attributable to the inclusion of cadent 's headcount for the full twelve months of 2012 as compared to only eight months in 2011. we also incurred higher costs related to advertising and industry events of approximately $ 4.4 million . 39 general and administrative ( in millions ) : replace_table_token_7_th general and administrative expense primarily includes administrative personnel compensation costs including stock-based compensation expense , outside consulting services , legal expenses , depreciation and amortization expense , the medical device excise tax ( which was effective january 1 , 2013 ) , and allocations of corporate overhead expenses including facilities , it and human resource costs . general and administrative expense for 2013 increased compared to 2012 primarily due to higher compensation related costs of $ 7.6 as a result of higher stock-based compensation expense and increased salaries . additionally we incurred $ 7.1 million of medical device excise tax as a result of new tax regulations effective january 1 , 2013. these costs were partially offset by lower outside legal expenses . general and administrative expense for 2012 increased compared to 2011 largely due to higher legal and consulting fees of approximately $ 10.8 million related to ongoing litigation . we also incurred higher facility related expenses of approximately $ 2.5 million as a result of the inclusion of cadent 's operations for a full twelve months in 2012 compared to only eight months during 2011. our compensation related costs were also higher by $ 2.1 million mainly due to our annual compensation adjustments and an increase in headcount . these costs were partially offset by lower consulting , accounting and legal fees of approximately $ 7.4 million that were directly related to the acquisition of cadent in 2011 and lower amortization expense of approximately $ 2.1 million related to our non-compete agreements which were fully amortized in 2011. research and development ( in millions ) : replace_table_token_8_th research and development expense is expensed as incurred and includes the costs associated with the research and development of new products and enhancements to existing products . these costs primarily include compensation costs , including stock-based compensation expense , outside consulting expenses , costs associated with conducting clinical and pre-commercialization trials and testing , allocations of corporate overhead expenses including facilities , it and human resource costs , equipment costs and depreciation and amortization expense . research and development expense increased slightly during 2013 compared to 2012 due to higher facilities related expenses primarily related to our russia research and development facility and compensation costs offset in part by lower clinical and product innovation research program costs . research and development expense increased in 2012 compared to 2011 primarily due to compensation costs of approximately $ 5.5 million which was largely attributed to the inclusion of cadent 's headcount for the full twelve months of 2012 compared to only eight months in 2011. impairment of goodwill ( in millions ) : replace_table_token_9_th 40 during the first quarter of 2013 , we determined that the goodwill for our sccs reporting unit should be tested for impairment between annual tests due to changes in the competitive environment for intra-oral scanners which included announcements of new low-priced scanners targeted at orthodontist and gp dentist in north america . as a result , this caused us to lower our expectations for growth and profitability for our sccs reporting unit that would more likely than not reduce the fair value of our sccs reporting unit below its carrying amount . as a result of our analysis , we recorded a goodwill impairment charge of $ 40.7 million in the first quarter of 2013 , none of which was deductible for tax purposes . refer to note 5 for details of the impairment analysis . during the third quarter of 2012 , we determined that the goodwill for our sccs reporting unit should be tested for impairment between annual tests since an event occurred or circumstances changed that would more likely than not reduce the fair value of our sccs reporting unit below its carrying amount .
| clear aligner case volume by channel and product case volume data which represents invisalign case shipments by channel and product , for the year ended december 31 , 2013 , 2012 and 2011 as follows ( in thousands ) : 36 replace_table_token_4_th fiscal year 2013 compared to fiscal year 2012 total net revenues increased by $ 100.2 million in 2013 as compared to 2012 primarily as a result of invisalign case volume growth across all regions and products as well as increased invisalign non-case revenue . clear aligner clear aligner north america net revenues increased by $ 47.1 million or 13.0 % in 2013 compared to 2012 primarily due to invisalign case volume growth of approximately $ 48.5 million across all channels and products , offset in part , by lower average selling prices ( `` asp '' ) which decreased net revenues by approximately $ 1.4 million . the decrease in asp was a result of product mix shift towards lower priced invisalign express products combined with the revenue deferral for free mid-course correction as a result of our policy change in june 2013. beginning june 15 , 2013 , we included up to three free mid-course correction orders in our list prices for invisalign full and invisalign teen . clear aligner international net revenues increased by $ 36.9 million or 29.6 % in 2013 compared to 2012 primarily driven by invisalign case volume growth of $ 31.1 million along with higher asp , which resulted in approximately $ 5.8 million increase in net revenues . the increase in asp was primarily due to the impact from acquiring our distributor in the apac region on april 30 , 2013 , as well as a favorable impact of foreign exchange rates . by bringing the apac region direct , we began to recognize direct sales of invisalign products sold in that region at our full asp rather than the discounted asp under the distributor agreement . the increase in asp was offset in part due to a product mix shift towards lower priced invisalign lite products . despite our recent product mix
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there can be no assurance that the company will be able to raise outside capital or have access to outside funding on reasonable terms , if at all . 30 accounting treatment of the merger the merger transaction , by which dillco became a wholly-owned subsidiary of enservco , was treated as a `` reverse acquisition '' for accounting purposes . in a reverse acquisition , although aspen was considered to be the `` legal acquirer '' ( that is , aspen ( now enservco corporation ) survived as the parent corporation ) , dillco was the `` accounting acquirer '' ( that is because dillco 's and its subsidiaries ' business was undeniably the more significant business ) . as a result , dillco 's financial statements became the financial statements of the surviving company . aspen 's financial condition is additive to dillco 's financial statements for the period following the merger transaction . as part of the merger transaction , aspen issued 14,519,244 shares of its common stock to the shareholders of dillco , in exchange for all of the issued and outstanding shares of dillco ( 7,259,622 shares ) . effective with the agreement , the company 's stockholders ' equity was recapitalized as that of aspen , or $ 72,596 from dillco and $ 36,298 from aspen for a total of $ 108,894 , while 100 % of the assets and liabilities of aspen were recorded as being acquired in the reverse acquisition . dillco 's fiscal year end is december 31 , 2010 whereas prior to the merger transaction aspen 's fiscal year end was june 30. because dillco was the accounting acquirer , the merger transaction resulted in the company 's fiscal year end being deemed to change to december 31. thus , starting with its form 10-q filed for the quarter ended september 30 , 2010 , the company began filing annual and quarterly reports based on the december 31 fiscal year end of dillco rather than the former ( pre-acquisition ) june 30 fiscal year end of aspen . although not required to complete the change of the fiscal year , more than a majority of the company 's stockholders approved that change ( as well as a change to the company 's tax year ) by consent . the financial statements included in this report are for enservco 's year ended december 31 , 2011 and 2010 and include aspen 's financial statements only as a result of , and subsequent to , the merger transaction . as such , the following management 's discussion and analysis is with respect to enservco 's year ended december 31 , 2011 , and the corresponding period ( s ) in the previous fiscal year . because of the business combination by which dillco became a wholly owned subsidiary of enservco , no separate discussion regarding aspen 's financial condition or results of operations are included in this report . 31 discussion of operations for the years ended december 31 , 2011 and 2010 the following table shows the results of operations for the periods noted . please see information following the table for management 's discussion of significant changes . replace_table_token_2_th * note : see below for discussion of the use of non-gaap financial measurements . 32 although enservco does not have segmented business operations , which would require segment reporting within the notes of its financial statements per accounting standards , we believe that revenue by service offering may be useful to readers of our financials . the following tables set forth revenue information for the company 's three service offerings during the years ending december 31 , 2011 and 2010 : replace_table_token_3_th enservco has also determined that an understanding of the diversity of its operations by geography is important to an understanding of its business operations . enservco only does business in the united states , in what it believes are three geographically diverse regions . the following table sets forth revenue information for the company 's three geographic regions during the years ending december 31 , 2011 and 2010 : replace_table_token_4_th notes to tables : ( 1 ) water hauling/disposal and frac tank rental . ( 2 ) services such as frac heating , acidizing , hot oil services , and pressure testing . ( 3 ) consists of operations and services performed in the southern region of the marcellus shale formation ( southwestern pennsylvania and northern west virginia ) . heat waves is the only company subsidiary operating in this region . ( 4 ) consists of western colorado , northeastern utah , southeastern wyoming , western north dakota , and eastern montana . heat waves is the only company subsidiary operating in this region . ( 5 ) consists of southwestern kansas , northwestern oklahoma , and northern new mexico . both dillco and heat waves engage in business operations in this region . ( 6 ) closed locations are those locations where services have been discontinued as of december 31 , 2011 . ( 7 ) due to the closing of the construction and roustabout services as part of the company 's garden city , ks operations . all assets were redeployed to other operation centers . 33 revenues : the approximately $ 6.0 million or 32 % increase in revenues in fiscal year 2011 as compared to fiscal year 2010 resulted from an increase in revenues across our lines of business and our geographical regions . story_separator_special_tag the increase was primarily a result of the following actions that served to increase our revenue producing activities : ( 1 ) closing of marginal operation centers in 2010 and redeploying assets to expand well enhancement and fluid management operations within our eastern usa region ( the southern region of the marcellus shale formation covering southwestern pennsylvania and northern west virginia ) ; ( 2 ) opening two new operation centers during september 2011 in a ) cheyenne , wyoming ( to expand service coverage within the d-j basin and niobrara formation ) , and b ) killdeer , north dakota ( to provide new service coverage within the bakken formation of western north dakota and eastern montana ) ; ( 3 ) increased well enhancement services within our rocky mountain and central usa regions ( made up of multiple operation centers covering western colorado , northeastern utah , southeastern wyoming ; and southwestern kansas , northwestern oklahoma , eastern colorado , northern new mexico ; respectively ) due to organic growth in our heat waves business operations ; and ( 4 ) increased fluid management services within our central usa region as the company was able to acquire new water hauling service contracts through our dillco operations center starting in the first quarter of 2011. also , it should be noted that revenues increased during fiscal year 2011 as compared to fiscal year 2010 for all geographical locations due to increased demand for services from existing and new customers due primarily to the growth in the development of unconventional oil and gas wells . due to the two new operation centers opened during september 2011 , expanded operations within our eastern usa region , and organic growth in our rocky mountain and central usa regions , the company projected a significant increase in revenues during the fourth quarter of 2011 as compared to the same period in 2010. however , due to higher-than-average temperatures within these regions ( regions in which the company performs well enhancement services , primarily as it relates to our frac heating and hot oiling services ) , the company realized only a slight increase in revenues during the fourth quarter of 2011 as compared to the same period in 2010. if the weather within these regions would have followed historic cold weather trends for the fourth quarter of 2011 , as it has in prior years , there would have been a greater increase in revenues for fiscal year 2011. in addition to the lower than projected revenues during the fourth quarter of 2011 , for the reasons discussed under the historical seasonality of revenues section below the rate of increase of our revenues decreased in the second and third quarters of 2011. until we expand our service offerings to include non-seasonal services , to help even out these seasonal fluctuations ( which we are currently endeavoring to do ) , we can expect this seasonal decrease in demand to continue in our second and third quarter periods . 34 we believe that with the increased opportunities available and the continuing oil and gas exploration and development activities in those regions by a number of different companies , our new and increased operations in the marcellus shale , niobrara , and bakken formation regions will continue to positively impact revenues in future periods . although the demand for certain of the services we provide in the marcellus shale and bakken formation regions are seasonal with higher demand during colder months , and though the start of the 2011 heating season experienced higher-than-average temperatures , the company believes demand for its water hauling services will not be as cyclical and to the extent improving economic conditions or other factors lead to an increase in oil and gas drilling operations , our water hauling operations will increase as well . we also believe that our expansion of operations into the niobrara region of south-central wyoming will also have a positive impact on revenues in future periods . historical seasonality of revenues because of the seasonality of our frac heating and hot oiling business , the second and third quarters are historically our lowest revenue generating periods of our fiscal year . in addition , the revenue mix of our service offerings also changes as our well enhancement services ( which includes frac heating and hot oiling ) decrease as a percentage of total revenues and fluid management services and other services increase . the first and fourth quarters of our fiscal year , covering the months during what is known as our “ heating season ” , have historically made up approximately 60 % or more of our total fiscal year revenues , with the remaining 40 % historically split evenly between the second and third quarters . and though our fourth quarter of 2011 experienced higher-than-average temperatures and we were unable to realize the projected revenues within that quarter , our revenue mix remained consistent ; i.e . first and fourth quarters of 2011 made up 60 % of our total revenues . costs of revenues and gross profit : although revenues increased ( approximately $ 6.0 million or 32 % ) during the fiscal year 2011 , cost of revenues as a percentage of revenues remained relatively consistent when compared to the same period in 2010 , resulting in consistent gross profit margins for both periods . this relatively consistent cost of revenues and consistent profitability rate for the two periods is primarily due to the following factors : ( 1 ) although historically we experience higher gross profit margins for well enhancement services and experienced growth in these services of approximately $ 3.8 million or 38 % during 2011 , we also experienced historically-high growth in our fluid management and well site construction and roustabout services during the same period , especially in our eastern usa and central usa regions ; cumulative growth of approximately $ 2.2 million or 26 % in these services .
| 37 income taxes : the increase in income tax benefit from fiscal year 2010 to fiscal year 2011 is due to the increased loss from operations before taxes . adjusted ebitda * : the following table presents a reconciliation of our net income to our adjusted ebitda on a historical basis for each of the periods indicated : replace_table_token_5_th * note : see discussion to follow below for use of non-gaap financial measurements . use of non-gaap financial measures : non-gaap results are presented only as a supplement to the financial statements and for use within management 's discussion and analysis based on u.s. generally accepted accounting principles ( gaap ) . the non-gaap financial information is provided to enhance the reader 's understanding of the company 's financial performance , but no non-gaap measure should be considered in isolation or as a substitute for financial measures calculated in accordance with gaap . reconciliations of the most directly comparable gaap measures to non-gaap measures are provided within the schedules attached herein . ebitda is defined as net income plus interest expense , income taxes , and depreciation and amortization . adjusted ebitda excludes from ebitda stock-based compensation and , when appropriate , other items that management does not utilize in assessing the company 's operating performance ( see list of these items to follow below ) . none of these non-gaap financial measures are recognized terms under gaap and do not purport to be an alternative to net income as an indicator of operating performance or any other gaap measure . management uses these non-gaap measures in its operational and financial decision-making , believing that it is useful to eliminate certain items in order to focus on what it deems to be a more reliable indicator of ongoing operating performance and the company 's ability to generate cash flow from operations . management also believes that investors may find non-gaap financial measures useful for the same reasons , although investors are cautioned that non-gaap financial measures are not
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37 under the revenue recognition rules for tangible products , we allocate revenue from arrangements with multiple deliverables to each of the deliverables based upon their relative selling prices as determined by a selling-price hierarchy . a deliverable in an arrangement qualifies as a separate unit of accounting if 1 ) the delivered item has value to the customer on a stand-alone basis , and 2 ) the arrangement includes a general right of return relative to the delivered item , delivery or performance of the undelivered items is considered probable and substantially in control of the vendor . the principal deliverables in our multiple deliverable arrangements that qualify as separate units of accounting consist of ( i ) sales of medical devices and supplies , ( ii ) installation and training services , and ( iii ) extended warranty agreements . we use a hierarchy to determine the selling price to be used for allocating revenue to deliverables 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 ( esp ) . vsoe of fair value is defined as the price charged when the same element is sold separately , or if the element has not yet been sold separately , the price for the element established by management having the relevant authority when it is probable that the price will not change before the introduction of the element into the marketplace . vsoe generally exists only when we sell the deliverable separately and is the price actually charged for that deliverable . for certain sales under gpo contracts , we have established vsoe for all of the elements in our multiple element arrangements . this determination is based on the volume of sales to these customers in relation to our total sales and the discount tier in which those sales are made . for all other sales we rely on esp , reflecting our best estimates of what the selling prices of elements would be if they were sold regularly on a stand-alone basis , to establish the amount of revenue to allocate to the undelivered elements . tpe generally does not exist for our products because of their uniqueness . for products shipped under fob shipping point terms , delivery is generally considered to have occurred when shipped . undelivered elements in our sales arrangements , which are not considered to be essential to the functionality of a product , generally include installation and training services that are performed after the related products have been delivered and extended warranty agreements . revenue related to undelivered installation and training services is deferred until such time as those services are complete , which is typically within 30 days of the related products being delivered to the customer 's location . revenue and direct acquisition costs related to undelivered extended warranty agreements are deferred and recognized ratably over the service period , which is between one and four years . deferred revenue for extended warranty agreements is based on the price charged when the service is sold separately . shipping and handling charges billed to customers are included in revenue and shipping and handling related expenses are charged to cost of revenue . advance payments from customers are recorded as deferred revenue and recognized as revenue as otherwise described above . most of our sales are subject to 30 to 60 day customer-specified acceptance provisions . these provisions require us to estimate the amount of future returns and recognize revenue net of these potential returns . in certain states we are required to collect sales taxes from our customers . these amounts are excluded from revenue and recorded as a liability until remitted to the taxing authority . gpos negotiate volume purchase prices for hospitals , group practices and other clinics that are members of a gpo . our agreements with gpos typically include the following provisions : · negotiated pricing for all group members ; · volume discounts and other preferential terms on their members ' purchases from us ; · promotion of our products by the gpo to its members ; · payment of administrative fees by us to the gpo , based on purchases of our products by group members . we do not sell to gpos . hospitals , group practices and other acute care facilities that are members of a gpo purchase products directly from us under the terms negotiated by the gpo . negotiated pricing and discounts are recognized as a reduction of the selling price of products at the time of the sale . revenue from sales to members of gpos is otherwise consistent with revenue recognition policies described above . 38 accounts receivable and allowance for doubtful accounts accounts receivable is recorded at the sales price of the related products and services . we assess the sufficiency of the allowance for estimated uncollectible accounts receivable . estimates are based on historical collection experience and other customer-specific information , such as bankruptcy filings or liquidity problems of our customers . when it is determined that an account receivable is uncollectible , it is written off and relieved from the allowance . any future determination that the allowance for estimated uncollectible accounts receivable is not properly stated could result in changes in operating expense and results of operations . inventory inventories are stated at the lower of standard cost , which approximates actual cost on a first-in , first-out basis , or market . we may be exposed to a number of factors that could result in portions of our inventory becoming either obsolete or in excess of anticipated usage . these factors include , but are not limited to , technological changes , competitive pressures in products and prices , and the introduction of new product lines . story_separator_special_tag we regularly evaluate our ability to realize the value of inventory based on a combination of factors , including historical usage rates , forecasted sales , product life cycles , and market acceptance of new products . when inventory that is obsolete or in excess of anticipated usage is identified , it is written down to realizable salvage value or an inventory valuation allowance is established . the estimates we use in projecting future product demand may prove to be incorrect . any future determination that our inventory is overvalued could result in increases to our cost of sales and decreases to our operating margins and results of operations . stock-based compensation we apply the fair value recognition provisions of financial accounting standards board accounting standards codification topic 718 , compensation stock compensation ( asc 718 ) . determining the amount of stock-based compensation to be recorded requires us to develop estimates of the fair value of stock options as of their grant date . stock-based compensation expense is recognized ratably over the requisite service period , which is the vesting period of the award . calculating the fair value of stock-based awards requires that we make highly subjective assumptions . we use the black-scholes option pricing model to value our stock option awards . use of this valuation methodology requires that we make assumptions as to the volatility of our common stock , the expected term of our stock options , the risk-free interest rate for a period that approximates the expected term of our stock options and our expected dividend yield . as we just completed our ipo in july 2014 , we utilize the historical stock price volatility from a representative group of public companies to estimate expected stock price volatility . we selected companies from the medical device industry with market capitalizations that are similar to ours . we intend to continue to utilize the historical volatility of the same or similar public companies to estimate expected volatility until a sufficient amount of historical information regarding the price of our publicly traded stock becomes available . we use the simplified method as prescribed by asc 718 to calculate the expected term of stock options granted to employees as we do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term of our stock option awards . the risk-free interest rate used for each grant is based on the u.s. treasury yield curve in effect at the time of the grant for instruments with a similar expected life . we utilize a dividend yield of zero because we have no current intention to pay cash dividends . we estimated the fair value of options granted using a black-scholes option pricing model with the following weighted average assumptions : replace_table_token_1_th 39 stock-based compensation expense totaled $ 724,063 and $ 271,919 for the years ended december 31 , 2014 and 2013 , respectively . the estimated forfeiture rate used to determine stock-based compensation expense was 3 % and 10 % for the years ended december 31 , 2014 and 2013 , respectively . as of december 31 , 2014 we had $ 3,122,686 of total unrecognized stock-based compensation expense , which is expected to be recognized over a weighted-average period of 3.3 years . we expect the future impact of stock-based compensation expense on our financial results to grow due to the potential increases in the value of our common stock , additional stock option grants and increased headcount . under asc 718 , we are required to estimate the level of forfeitures expected to occur and record stock-based compensation expense only for those awards that we ultimately expect will vest . we estimate our forfeiture rate based on historical experience and employee class . as discussed above , one input of the black-scholes option pricing model is the fair value of our common stock , which is issued upon exercise of the option . options to purchase shares of our common stock are intended to be granted with an exercise price per share that is no less than the fair value per share of our common stock on the date of grant , which is based on the information known to us on the date of grant . prior to our ipo , the fair value of our common stock was assessed on each grant date by our board . for stock option grants prior to our ipo , the historical valuations of our common stock were determined in accordance with the guidelines outlined in the applicable american institute of certified public accountants practice aid , valuation of privately-held-company equity securities issued as compensation ( aicpa practice aid ) . in the absence of a public trading market , our board considered all relevant facts and circumstances known at the time of valuation , made certain assumptions based on future expectations and exercised significant judgment to determine the fair value of our common stock . the factors considered by our board in determining the fair value include , but are not limited to , the following : · contemporaneous third-party valuation of our common stock as of december 31 , 2013 ; · our historical financial results and estimated trends and projections of our future operating and financial performance ; · the market performance of comparable , publicly traded companies ; and · the overall economic and industry conditions and outlook . december 31 , 2013 valuation certain members of our board and management reviewed the contemporaneous third-party valuation of our common stock as of december 31 , 2013 , discussed the reasonableness of the assumptions , methodologies , analysis and conclusions in this report . after reviewing this report , we determined the fair market value of the company 's common stock . our valuation of our common stock was conducted within the guidelines of the applicable aicpa practice aid .
| increased approximately $ 0.8 million , or 42 % , to $ 2.8 million for the year ended december 31 , 2014 , from $ 2.0 million for the same period in 2013. we expect revenue from sales of disposables and services to increase relative to the sale of devices as the installed base of our mri compatible iv infusion pumps systems increases . cost of revenue cost of revenue increased approximately $ 0.5 million , or 19 % , to $ 3.4 million for year ended december 31 , 2014 , from $ 2.9 million for the same period in 2013. gross profit increased approximately $ 3.7 million , or 44 % , to $ 12.2 million for the year ended december 31 , 2014 from $ 8.5 million for the same period in 2013. gross profit margin increased to 78.3 % for the year ended december 31 , 2014 , from 74.8 % for the same period in 2013 primarily due to favorable materials variances , partially offset by unfavorable overhead and labor utilization rates . 42 general and administrative general and administrative expense increased approximately $ 2.4 million , or 101 % , to $ 4.8 million for the year ended december 31 , 2014 , from $ 2.4 million for the same period last year . this increase is primarily due to higher payroll and employee benefits , legal and professional fees , stock compensation expense , business insurance , administration fees paid to group purchasing organizations , depreciation expense and office rent expense , partially offset by lower bad debt expense . sales and marketing sales and marketing expense increased approximately $ 1.0 million , or 44 % , to $ 3.3 million for the year ended december 31 , 2014 , from $ 2.3 million for the same period last year . this is primarily the result of higher salary and travel costs resulting from the increased size of our sales organization , higher sales commissions resulting from higher
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we believe the following critical accounting policies affect our judgments and estimates used in the preparation of our consolidated financial statements . revenue recognition revenues are recognized for product sales when title , ownership and risk of loss pass to the customer or for services when the service is rendered . in the case of stock sales and special orders , a sale occurs at the time of shipment from our distribution point , as the terms of our sales are typically fob shipping point . in cases where we process customer orders that ship directly from suppliers , revenue is recognized once product is shipped and title has passed . in all cases , revenue is recognized once the sales price to our customer is fixed or is determinable and we have reasonable assurance as to the collectability . we provide integrated supply services to certain customers , which include some or all of the following : determine inventory stocking levels ; establish inventory reorder points ; launch purchase orders ; receive material ; pack away material ; and , pick material for order fulfillment . we recognize revenue for these services in the period rendered based upon a previously negotiated fee arrangement . we also sell inventory to these customers and recognize revenue at the time title and risk of loss transfers to the customer . selling , general and administrative expenses we include warehousing , purchasing , branch operations , information services , and marketing and selling expenses in this category , as well as other types of general and administrative costs . allowance for doubtful accounts we maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments . we have a systematic procedure using estimates based on historical data and reasonable assumptions of collectability made at the local branch level and on a consolidated corporate basis to calculate the allowance for doubtful accounts . excess and obsolete inventory we write down our inventories to lower of cost and net realizable value based on internal factors derived from historical analysis of actual losses . on a retrospective basis , we identify items in excess of 36 months supply relative to demand or movement . we then analyze the ultimate disposition of identified excess inventories as they are sold , returned to supplier , or scrapped . this historical item-by-item analysis allows us to develop an estimate of the likelihood that an item identified as being in excess supply ultimately becomes obsolete . we apply the estimate to inventories currently in excess of 36 months supply , and reduce the carrying value of inventories by the derived amount . we revisit and test our assumptions on a periodic basis . historically , we have not had material changes to our assumptions , nor do we anticipate any material changes in the future . 18 supplier volume rebates we receive rebates from certain suppliers based on contractual arrangements with them . since there is a lag between actual purchases and the rebates received from suppliers , we estimate and accrue the approximate amount of rebates available at a specific date . we record the amounts as other accounts receivable in the consolidated balance sheets . the corresponding rebate income is derived from the level of actual purchases made by us and is recorded as a reduction of cost of goods sold . supplier volume rebate rates have historically ranged between approximately 0.9 % and 1.4 % of sales depending on market conditions . in 2017 , the rebate rate was 1.3 % . goodwill and indefinite-lived intangible assets goodwill and indefinite-lived intangible assets are tested for impairment annually during the fourth quarter using information available at the end of september , or more frequently if triggering events occur , indicating that their carrying value may not be recoverable . we test for goodwill impairment on a reporting unit level and the evaluation involves comparing the fair value of each reporting unit with its carrying value . the fair values of the reporting units are determined using a combination of a discounted cash flow analysis and market multiples . assumptions used for these fair value techniques are based on a combination of historical results , current forecasts , market data and recent economic events . we evaluate the recoverability of indefinite-lived intangible assets using the relief-from-royalty method based on projected financial information . at december 31 , 2017 and 2016 , respectively , goodwill and indefinite-lived trademarks totaled $ 1.87 billion and $ 1.83 billion . we performed our annual impairment testing of goodwill and indefinite-lived intangible assets during the fourth quarter . a possible indicator of goodwill impairment is the relationship of a company 's market capitalization to its book value . as of december 31 , 2017 , our market capitalization exceeded our book value and the fair values of our reporting units exceeded their carrying values . accordingly , there were no impairment losses identified as a result of our annual test . the determination of fair value involves significant management judgment and we apply our best judgment when assessing the reasonableness of financial projections . fair values are sensitive to changes in underlying assumptions and factors . as a result , there can be no assurance that the estimates and assumptions made for purposes of the annual goodwill and indefinite-lived intangible impairment tests will prove to be an accurate prediction of future results . intangible assets we account for certain economic benefits purchased as a result of our acquisitions , including customer relations , distribution agreements , technology and trademarks , as intangible assets . most trademarks have an indefinite life . we amortize all other intangible assets over a useful life determined by the expected cash flows produced by such intangibles and their respective tax benefits . useful lives vary between 2 and 20 years , depending on the specific intangible asset . story_separator_special_tag insurance programs we use commercial insurance for auto , workers ' compensation , casualty and health claims , and information technology as a risk sharing strategy to reduce our exposure to catastrophic losses . our strategy involves large deductible policies where we must pay all costs up to the deductible amount . we estimate our reserve based on historical incident rates and costs . income taxes we account for income taxes under the asset and liability method , which requires the recognition of deferred income taxes for events that have future tax consequences . under this method , deferred income taxes are recognized ( using enacted tax laws and rates ) based on the future income tax effects of differences in the carrying amounts of assets and liabilities for financial reporting and tax purposes . the effect of a tax rate change on deferred tax assets and liabilities is recognized in income in the period of change . we recognize deferred tax assets at amounts that are expected to be realized . to make such determination , management evaluates all positive and negative evidence , including but not limited to , prior , current and future taxable income , tax planning strategies and future reversals of existing temporary differences . a valuation allowance is recognized if it is “ more-likely-than-not ” that some or all of a deferred tax asset will not be realized . we regularly assess the realizability of deferred tax assets . we account for uncertainty in income taxes using a `` more-likely-than-not '' recognition threshold . due to the subjectivity inherent in the evaluation of uncertain tax positions , the tax benefit ultimately recognized may materially differ from the estimate . we recognize interest and penalties related to uncertain tax benefits as part of interest expense and income tax expense , respectively . the tcja imposes a one-time tax on the deemed repatriation of undistributed foreign earnings . notwithstanding the effects of applying such provisions of the tcja , we continue to assert that the earnings of our foreign subsidiaries are indefinitely reinvested . however , as a result of the tcja , the company is reevaluating its intent and ability to repatriate foreign cash based upon the available liquidity and cash flow needs of its foreign subsidiaries and will disclose in future filings any change in its intention to repatriate undistributed foreign earnings and any resulting income tax impacts . until the company completes this 19 reevaluation , it is not practicable to determine the amount of any unrecognized deferred income taxes on these undistributed foreign earnings . the provisions of the tcja also introduce u.s. taxation on certain global intangible low-taxed income ( `` gilti '' ) . we have elected to account for any gilti tax that arises in future periods as a component of income tax expense . provisional amounts are recorded for certain income tax effects of the tcja for which the accounting is incomplete , but a reasonable estimate can be determined . provisional amounts , or adjustments to provisional amounts , identified during the period ending on or before one year from the tcja 's enactment date are recognized as an adjustment to income tax expense or benefit from continuing operations in the period the amounts are determined . stock-based compensation our stock-based employee compensation plans are comprised of stock-settled stock appreciation rights , restricted stock units , and performance-based awards . compensation cost for all stock-based awards is measured at fair value on the date of grant , and compensation cost is recognized , net of forfeitures , over the service period for awards expected to vest . the fair value of stock-settled appreciation rights and performance-based awards with market conditions is determined using the black-scholes and monte carlo simulation models , respectively . the fair value of restricted stock units with service conditions and performance-based awards with performance conditions is determined by the grant-date closing price of our common stock . expected volatilities are based on historical volatility of our common stock . we estimate the expected life of stock-settled stock appreciation rights using historical data pertaining to option exercises and employee terminations . the risk-free rate is based on the u.s. treasury yields in effect at the time of grant . the forfeiture assumption is based on our historical employee behavior , which we review on an annual basis . no dividends are assumed for stock-based awards . for stock appreciation rights that are exercised and for restricted stock units and performance-based award that vest , shares are issued out of our outstanding common stock . story_separator_special_tag wesco international were $ 163.5 million and $ 3.38 per share , respectively , in 2017 , compared with $ 101.6 million and $ 2.10 per share , respectively , in 2016 . adjusted net income and adjusted earnings per diluted share attributable to wesco international were $ 189.9 million and $ 3.93 per share , and $ 184.3 million and $ 3.80 per share , for the years ended december 31 , 2017 and december 31 , 2016 , respectively . net loss attributable to noncontrolling interest . net loss attributable to noncontrolling interest in 2017 and 2016 was $ 0.3 million and $ 0.5 million , respectively . the following table sets forth the reconciliation of adjusted net income , adjusted income taxes , and adjusted earnings per diluted share : replace_table_token_10_th replace_table_token_11_th ( 1 ) the application of the tcja resulted in a provisional discrete income tax expense of $ 26.4 million , which is comprised of $ 82.8 million of expense associated with the deemed repatriation of undistributed earnings of foreign subsidiares partially offset by a $ 56.4 million benefit from the remeasurement of u.s. deferred income tax balances . ( 2 ) represents the third quarter of 2016 income tax benefit related to the loss on debt redemption . ( 3 ) the loss on debt redemption and related income tax benefit are based on the third quarter of 2016 diluted shares of 48.7 million .
| sg & a payroll expenses for 2017 of $ 774.4 million increased by $ 39.7 million compared to 2016 . the increase in sg & a payroll expenses was primarily due to an increase in commissions , incentive compensation , healthcare benefits , and temporary labor costs . the remaining sg & a expenses for 2017 of $ 325.3 million increased by $ 10.8 million compared to 2016 . the increase in the remaining sg & a expenses was primarily due to an increase in operating costs required to support higher sales volumes . depreciation and amortization . depreciation and amortization de creased $ 2.8 million to $ 64.0 million in 2017 , compared with $ 66.9 million in 2016 . income from operations . income from operations de creased by $ 11.2 million to $ 320.9 million in 2017 , compared to $ 332.1 million in 2016 . income from operations as a percentage of net sales was 4.2 % and 4.5 % in 2017 and 2016 , respectively . income from operations as a percentage of net sales decreased primarily as a result of lower gross margin . net interest expense . interest expense totaled $ 68.5 million in 2017 , compared with $ 76.6 million in 2016 , a de crease of 10.6 % . the decrease was primarily due to a reduction in higher-priced debt . non-cash interest expense , which includes the amortization of debt discounts and debt issuance costs , and interest related to uncertain tax positions , was $ 4.1 million and $ 7.8 million for 2017 and 2016 , respectively . the following table sets forth the components of interest expense : replace_table_token_9_th income taxes . our effective tax rate was 35.4 % in 2017 compared to 23.1 % in 2016 . our effective tax rate was impacted by the relative amounts of income earned in the u.s. and foreign jurisdictions , primarily canada , the tax rates in these jurisdictions , and changes in foreign currency exchange rates . additionally ,
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million from the prior-year comparable total of $ 270.3 million . increasing raw-material costs , as well as a less favorable sales mix and higher freight costs within the specialty foods segment , contributed to the lower gross margin . overall results were also affected by the funds received under cdsoa . in 2011 , we received approximately $ 14.4 million under cdsoa , as compared to approximately $ 0.9 million in 2010 and approximately $ 8.7 million in 2009. for a more-detailed discussion of cdsoa , see the subcaption other income continued dumping and subsidy offset act of this md & a . net income totaled approximately $ 106.4 million in 2011 , or $ 3.84 per diluted share , compared to net income of $ 115.0 million , or $ 4.07 per diluted share , in 2010. net income in 2009 totaled approximately $ 89.1 million , or $ 3.17 per diluted share . looking forward we are anticipating continued growth in consolidated sales during 2012. factors that we believe should contribute to our growth include the incremental impact of several recently-introduced retail food products , the implementation of higher pricing among various product lines , as well as the expansion of existing 17 product lines with current customers or into new geographic markets . we will also continue to review acquisition opportunities within the specialty foods segment that are consistent with our growth strategy and represent good value or otherwise provide significant strategic benefits . however , unsettled economic conditions affecting consumer and retailer buying patterns are among the many influences that may impact sales improvement and our ability to improve operating margins in the coming year . within our specialty foods segment , with respect to material input and freight costs , we enter 2012 experiencing an elevation of such costs over 2011 levels . it is possible that future changes in the economy and regulatory environment could cause further increases in these costs . to help offset or stabilize the impact of such increases , we have pursued other operational strategies that we believe will aid our future results . for example , as part of our cost reduction efforts , we consolidated our wilson , new york and atlanta , georgia production operations into our other existing facilities in the second quarter of 2010 and early 2009 , respectively . further , the 2011 expansion of our frozen roll capacity is expected to improve production throughput and reduce third party warehouse costs . we are also continuing to limit some of our exposure to volatile swings in food commodity costs through a structured purchasing program for certain future requirements . we do expect to realize higher pricing in 2012 , but we believe that the related income may ultimately be less than the total increase in material and freight costs . with respect to our glassware and candles segment , we expect lower 2012 sales levels , especially for holiday products , as some lower-margin business was not retained . higher wax costs will continue to negatively impact the segment 's operating results , and it will be challenging to maintain operating efficiencies with the expected lower production levels . accordingly , we currently expect this segment 's 2012 operating income will be challenged to reach the level of 2011. for a more-detailed discussion of the effect of commodity costs , see the impact of inflation section of this md & a below . in order to ensure that our capitalization is adequate to support our future internal growth prospects , acquire food businesses consistent with our strategic goals , and maintain cash returns to our shareholders through cash dividends and share repurchases , we will need to maintain sufficient flexibility in our future capital structure . we will continue to reassess our allocation of capital periodically to ensure that we maintain adequate operating flexibility while providing appropriate levels of cash returns to our shareholders , whether through share repurchases or cash dividends , including special dividends , if appropriate . story_separator_special_tag for the federal circuit reversed both cit decisions and the u.s. supreme court did not hear either case . this effectively ended the constitutional challenges brought in these cases , but other cases challenging cdsoa remain active . 20 we are unable to determine , at this time , what the ultimate outcome of other litigation will be , and it is possible that further legal action , potential additional changes in the law and other factors could affect the amount of funds available for distribution , including funds relating to entries prior to october 2007. accordingly , we can not predict the amount of future distributions we may receive . any change in cdsoa distributions could affect our earnings and cash flow . interest income and other net interest income and other was income of approximately $ 0.1 million , income of less than $ 0.1 million and expense of approximately $ 0.1 million in 2011 , 2010 and 2009 , respectively . income before income taxes as affected by the factors discussed above , our income before income taxes for 2011 of approximately $ 161.5 million decreased 8 % from the 2010 total of $ 175.1 million . the 2009 total income before income taxes was approximately $ 137.0 million . our effective tax rate was 34.1 % , 34.4 % and 35.0 % in 2011 , 2010 and 2009 , respectively . the 2011 rate was primarily impacted by the domestic manufacturing deduction , for which there was a rate increase in the current year . as compared to 2009 , the lower rate in 2010 reflected , in part , a favorable resolution of certain previously-reserved state and local tax matters in 2010 , as further discussed in note 5 to the consolidated financial statements . net income net income for 2011 of approximately $ 106.4 million decreased from 2010 net income of $ 115.0 million . story_separator_special_tag net income was approximately $ 89.1 million in 2009. diluted net income per share totaled approximately $ 3.84 in 2011 , a 6 % decrease from the prior-year total of $ 4.07. the latter amount was 28 % higher than 2009 diluted earnings per share of $ 3.17. income per share in each of the last three years has been beneficially affected by share repurchases , which have totaled approximately $ 64.4 million over the three-year period ended june 30 , 2011. segment review specialty foods during 2011 , net sales of the specialty foods segment set a new record level , surpassing the previous record set in 2009 , while operating income of approximately $ 155.2 million decreased 12 % from the 2010 level of $ 176.2 million . increasing material and freight costs , as well as a less favorable sales mix , contributed to the lower level of operating income . net sales during 2011 totaled approximately $ 922.9 million , an increase from the prior-year total of $ 893.3 million . sales for 2010 decreased 2 % from the 2009 total of approximately $ 909.9 million . the percentage of retail customer sales within the segment was approximately 52 % during 2011 , as compared to 53 % in 2010 and 51 % in 2009. in 2011 , net sales of the specialty foods segment increased by approximately 3 % . contribution from higher pricing was approximately 1 % of net sales . the segment 's foodservice net sales rose approximately 9 % on increased volumes , particularly from new programs with existing large chain restaurants , and higher pricing . retail net sales declined approximately 1 % as influenced by the prior year rationalization of some product lines associated with the mid-year 2010 closing of one of our dressing facilities . also , sales of produce dips declined , reflecting a weaker category and the loss of placement for certain products at one of our customers . mitigating these declines were higher retail sales of frozen rolls and the success of several recently-introduced products . the decline in net sales of the specialty foods segment in 2010 reflected generally flat volumes and lower pricing to customers in foodservice channels . higher sales to retail channel customers were more than offset by lower foodservice sales . foodservice sales declined by approximately 7 % for the year ended june 30 , 2010 , with contributing factors including weaker chain restaurant demand and downward pricing adjustments in certain of our customer supply arrangements that occurred as a result of lower key ingredient costs . net sales to retail channel customers increased 3 % in 2010 on volume growth from several product lines , as partially offset by the exiting of less profitable dressing lines with the closing of our wilson , new york operation . operating income of the specialty foods segment in 2011 totaled approximately $ 155.2 million , a 12 % decrease from the 2010 record level of $ 176.2 million . the 2010 level was 21 % higher than the 2009 level of $ 145.8 million . the 2011 decrease reflected broadly higher ingredient and freight costs , a less favorable sales mix and increased marketing costs . we estimate that higher material costs adversely affected the segment 's 21 comparative results by approximately 3 % of net sales . the 2010 increase reflected lower commodity costs , a stronger retail sales mix and operating efficiency improvements . we estimate that the favorable year-over-year impact of commodity costs approximated 5 % of 2010 net sales . segment review glassware and candles glassware and candles segment net sales totaled approximately $ 167.1 million during 2011 , as compared to $ 163.4 million in 2010 and $ 141.6 million in 2009. the 2011 increase reflected higher candle sales volumes , mainly product placement into new accounts that began in the fourth quarter of 2010. in 2010 , the increase in net sales reflected higher unit volume on improved consumer demand for high-quality , value-priced candles and the introduction , expanded product placement and the success of various new products . the segment recorded operating income of approximately $ 3.8 million in 2011 and $ 9.4 million in 2010 compared to an operating loss of $ 5.7 million during 2009. despite the benefits of achieving higher sales volumes in 2011 , operating results were adversely affected by higher wax costs and , to a lesser extent , lower production volumes . we estimate that higher wax costs in the glassware and candles segment adversely affected the segment 's comparative results in 2011 by approximately 5 % of net sales . operating results of the glassware and candles segment improved in 2010 due to lower material costs , especially for paraffin wax , and higher sales and production levels . we estimate the favorable year-over-year impact of wax costs for the year ended june 30 , 2010 approximated 4 % of the segment 's net sales . corporate expenses the 2011 corporate expenses totaled approximately $ 12.0 million as compared to $ 11.4 million in 2010 and $ 10.5 million in 2009. the higher level of corporate expenses for 2011 and 2010 related to costs associated with our idle real estate holdings while the increase in expenses in 2011 from 2010 related to increased professional fees and personnel related costs . financial condition liquidity and capital resources in order to ensure that our capitalization is adequate to support our future internal growth prospects , acquire food businesses consistent with our strategic goals , and maintain cash returns to our shareholders through cash dividends and share repurchases , we will need to maintain sufficient flexibility in our future capital structure . our balance sheet retained fundamental financial strength during 2011 , and we ended the year with approximately $ 132.3 million in cash and equivalents , along with shareholders ' equity of nearly $ 518 million and no debt .
| our gross margin as a percentage of net sales was approximately 22.2 % in 2011 compared with 25.6 % in 2010 and 20.5 % in 2009. as a percentage of net sales , higher material costs in 2011 are estimated to have impacted gross margin comparisons by approximately 3 % . in the specialty foods segment , gross margin percentages declined in 2011 , reflecting broadly-higher ingredient and freight costs and a less favorable sales mix . gross margin percentages in the glassware and candles segment declined in 2011 due to higher wax costs and , to a lesser extent , lower production volumes . as a percentage of net sales , lower material costs in 2010 are estimated to have benefited gross margin comparisons to 2009 by over 4 % . in 2010 , the specialty foods segment 's gross margin percentages improved as a result of lower commodity costs , a stronger retail mix and operating efficiency improvements . gross margin percentages in the glassware and candles segment improved in 2010 due to lower material costs , especially for paraffin wax , and higher sales and production levels . selling , general and administrative expenses replace_table_token_9_th selling , general and administrative expenses for 2011 totaled approximately $ 95.4 million and increased 2 % as compared with the 2010 total of $ 93.8 million , while the 2010 total had increased 11 % from the 2009 total of $ 84.2 million . higher sales-based expenses , increased compensation expense and greater consumer-directed marketing costs contributed to the overall increase for 2011 , although as a percentage of sales the 2011 expenses were comparable to 2010. in 2010 , increased costs in consumer-directed marketing initiatives to support retail sales and increased professional fees within the specialty foods segment contributed to the overall increase . restructuring and impairment charges specialty foods segment in 2010 , we closed our dressings and sauces manufacturing operation located in wilson , new york . during 2010 , we recorded restructuring charges of approximately $ 2.3 million ( $ 1.5 million after taxes ) . this closure was essentially complete at
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the collectability of receivables is affected by numerous factors including current economic conditions , bankruptcies , and the ability of the tenant to perform under the terms of their lease agreement . while we make estimates of potentially uncollectible amounts and provide an allowance for them through bad debt expense , actual collectability could differ from those estimates which could affect our net income . with respect to the allowance for current uncollectible tenant receivables , we assess the collectability of outstanding receivables by evaluating such factors as nature and age of the receivable , past history and current financial condition of the specific tenant including our assessment of the tenant 's ability to meet its contractual lease obligations , and the status of any pending disputes or lease negotiations with the tenant . at december 31 , 2015 and 2014 , our allowance for doubtful accounts was $ 11.7 million and $ 12.4 million , respectively . 30 historically , we have recognized bad debt expense between 0.3 % and 1.3 % of rental income and it was 0.2 % in 2015 reflecting positive economic changes and their impact to our tenants . a change in the estimate of collectability of a receivable would result in a change to our allowance for doubtful accounts and correspondingly bad debt expense and net income . for example , in the event our estimates were not accurate and we were required to increase our allowance by 1 % of rental income , our bad debt expense would have increased and our net income would have decreased by $ 7.3 million . due to the nature of the accounts receivable from straight-line rents , the collection period of these amounts typically extends beyond one year . our experience relative to unbilled straight-line rents is that a portion of the amounts otherwise recognizable as revenue is never billed to or collected from tenants due to early lease terminations , lease modifications , bankruptcies and other factors . accordingly , the extended collection period for straight-line rents along with our evaluation of tenant credit risk may result in the nonrecognition of a portion of straight-line rental income until the collection of such income is reasonably assured . if our evaluation of tenant credit risk changes indicating more straight-line revenue is reasonably collectible than previously estimated and realized , the additional straight-line rental income is recognized as revenue . if our evaluation of tenant credit risk changes indicating a portion of realized straight-line rental income is no longer collectible , a reserve and bad debt expense is recorded . at december 31 , 2015 and 2014 , accounts receivable includes approximately $ 72.7 million and $ 66.1 million , respectively , related to straight-line rents . correspondingly , these estimates of collectability have a direct impact on our net income . real estate the nature of our business as an owner , redeveloper and operator of retail shopping centers and mixed-use properties means that we invest significant amounts of capital . depreciation and maintenance costs relating to our properties constitute substantial costs for us as well as the industry as a whole . we capitalize real estate investments and depreciate them on a straight-line basis in accordance with gaap and consistent with industry standards based on our best estimates of the assets ' physical and economic useful lives . we periodically review the estimated lives of our assets and implement changes , as necessary , to these estimates and , therefore , to our depreciation rates . these reviews may take into account such factors as the historical retirement and replacement of our assets , expected redevelopments , and general economic and real estate factors . certain events , such as unforeseen competition or changes in customer shopping habits , could substantially alter our assumptions regarding our ability to realize the expected return on investment in the property and therefore reduce the economic life of the asset and affect the amount of depreciation expense to be charged against both the current and future revenues . these assessments have a direct impact on our net income . the longer the economic useful life , the lower the depreciation expense will be for that asset in a fiscal period , which in turn will increase our net income . similarly , having a shorter economic useful life would increase the depreciation for a fiscal period and decrease our net income . land , buildings and real estate under development are recorded at cost . we compute depreciation using the straight-line method with useful lives ranging generally from 35 years to a maximum of 50 years on buildings and major improvements . maintenance and repair costs are charged to operations as incurred . tenant work and other major improvements , which improve or extend the life of the asset , are capitalized and depreciated over the life of the lease or the estimated useful life of the improvements , whichever is shorter . minor improvements , furniture and equipment are capitalized and depreciated over useful lives ranging from 2 to 20 years . capitalized costs associated with leases are depreciated or amortized over the base term of the lease . unamortized leasing costs are charged to expense if the applicable tenant vacates before the expiration of its lease . undepreciated tenant work is written-off if the applicable tenant vacates and the tenant work is replaced or has no future value . additionally , we make estimates as to the probability of certain development and redevelopment projects being completed . if we determine the redevelopment is no longer probable of completion , we immediately expense all capitalized costs which are not recoverable . interest costs on developments and major redevelopments are capitalized as part of developments and redevelopments not yet placed in service . capitalization of interest commences when development activities and expenditures begin and end upon completion , which is when the asset is ready for its intended use . story_separator_special_tag generally , rental property is considered substantially complete and ready for its intended use upon completion of tenant improvements , but no later than one year from completion of major construction activity . we make judgments as to the time period over which to capitalize such costs and these assumptions have a direct impact on net income because capitalized costs are not subtracted in calculating net income . if the time period for capitalizing interest is extended , more interest is capitalized , thereby decreasing interest expense and increasing net income during that period . certain external and internal costs directly related to the development , redevelopment and leasing of real estate , including pre-construction costs , real estate taxes , insurance , construction costs and salaries and related costs of personnel directly involved , are capitalized . we capitalized external and internal costs related to both development and redevelopment activities of $ 232 million and $ 8 million , respectively , for 2015 and $ 277 million and $ 7 million , respectively , for 2014 . we capitalized external 31 and internal costs related to other property improvements of $ 42 million and $ 2 million , respectively , for 2015 and $ 45 million and $ 2 million , respectively , for 2014 . we capitalized external and internal costs related to leasing activities of $ 17 million and $ 6 million , respectively , for 2015 and $ 29 million and $ 7 million , respectively , for 2014 . the amount of capitalized internal costs for salaries and related benefits for development and redevelopment activities , other property improvements , and leasing activities were $ 7 million , $ 1 million , and $ 6 million , for both 2015 and 2014 . total capitalized costs were $ 307 million and $ 367 million for 2015 and 2014 , respectively . when applicable , as lessee , we classify our leases of land and building as operating or capital leases . we are required to use judgment and make estimates in determining the lease term , the estimated economic life of the property and the interest rate to be used in determining whether or not the lease meets the qualification of a capital lease and is recorded as an asset . real estate acquisitions upon acquisition of operating real estate properties , we estimate the fair value of assets and liabilities acquired including land , building , improvements , leasing costs , intangibles such as in-place leases , assumed debt , and current assets and liabilities , if any . based on these estimates , we allocate the purchase price to the applicable assets and liabilities . we utilize methods similar to those used by independent appraisers in estimating the fair value of acquired assets and liabilities . the value allocated to in-place leases is amortized over the related lease term and reflected as rental income in the statement of operations . we consider qualitative and quantitative factors in evaluating the likelihood of a tenant exercising a below market renewal option and include such renewal options in the calculation of in-place lease value when we consider these to be bargain renewal options . if the value of below market lease intangibles includes renewal option periods , we include such renewal periods in the amortization period utilized . if a tenant vacates its space prior to contractual termination of its lease , the unamortized balance of any in-place lease value is written off to rental income . long-lived assets and impairment there are estimates and assumptions made by management in preparing the consolidated financial statements for which the actual results will be determined over long periods of time . this includes the recoverability of long-lived assets , including our properties that have been acquired or redeveloped and our investment in certain joint ventures . management 's evaluation of impairment includes review for possible indicators of impairment as well as , in certain circumstances , undiscounted and discounted cash flow analysis . since most of our investments in real estate are wholly-owned or controlled assets which are held for use , a property with impairment indicators is first tested for impairment by comparing the undiscounted cash flows , including residual value , to the current net book value of the property . if the undiscounted cash flows are less than the net book value , the property is written down to expected fair value . the calculation of both discounted and undiscounted cash flows requires management to make estimates of future cash flows including revenues , operating expenses , required maintenance and development expenditures , market conditions , demand for space by tenants and rental rates over long periods . because our properties typically have a long life , the assumptions used to estimate the future recoverability of book value requires significant management judgment . actual results could be significantly different from the estimates . these estimates have a direct impact on net income , because recording an impairment charge results in a negative adjustment to net income . contingencies we are sometimes involved in lawsuits , warranty claims , and environmental matters arising in the ordinary course of business . management makes assumptions and estimates concerning the likelihood and amount of any potential loss relating to these matters . we accrue a liability for litigation if an unfavorable outcome is probable and the amount of loss can be reasonably estimated . if an unfavorable outcome is probable and a reasonable estimate of the loss is a range , we accrue the best estimate within the range ; however , if no amount within the range is a better estimate than any other amount , the minimum within the range is accrued . any difference between our estimate of a potential loss and the actual outcome would result in an increase or decrease to net income .
| of senior notes with a make-whole premium of $ 9.2 million in 2014 , and $ 28.1 million increase in dividends paid to shareholders due to an increase in the dividend rate and increased number of shares outstanding , partially offset by $ 211.6 million increase from net proceeds on senior note issuances due to $ 456.2 million from the re-opening of our 4.5 % senior notes in march 2015 and the issuance of 2.55 % notes in september 2015 as compared to $ 244.6 million from our 4.50 % senior notes issued in november 2014 , and $ 53.5 million increase in net borrowings on our revolving credit facility . contractual commitments the following table provides a summary of our fixed , noncancelable obligations as of december 31 , 2015 : replace_table_token_18_th _ ( 1 ) fixed rate debt includes our $ 275.0 million term loan as the rate is effectively fixed by two interest rate swap agreements . ( 2 ) amounts reflect our share , as of december 31 , 2015 , of principal and interest payments on our unconsolidated joint venture 's fixed rate debt . on january 13 , 2016 , we acquired our partner 's 70 % equity interest in the joint venture . our 2016 obligation after this transaction is $ 35.6 million . ( 3 ) variable rate debt includes a $ 9.4 million bond that had an interest rate of 0.03 % at december 31 , 2015 and our revolving credit facility , which currently has $ 53.5 million outstanding and bears interest at libor plus 0.90 % . ( 4 ) amounts include our share of our hotel joint venture related obligations . 44 in addition to the amounts set forth in the table above and other liquidity requirements previously discussed , the following potential commitments exist : ( a ) under the terms of the congressional plaza partnership agreement , from and after january 1 ,
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as we have no approved products , we have not generated any revenue from product sales and , to date , all our revenue has been generated under collaboration agreements , including payments to us of upfront license fees , funding or reimbursement of research and development efforts , milestone payments if specified objectives are achieved , and royalties on product sales . as of december 31 , 2018 , we had approximately $ 58.6 million in cash , cash equivalents and available-for-sale securities . we will need substantial additional funds to support our planned operations . in the absence of additional funding or business development activities , we believe that our existing cash , cash equivalents and available-for-sale securities will be adequate to satisfy our capital needs for at least the next twelve months based on planned levels of spending . 69 we expect to continue to spend significant resources to fund the development and potential commercialization of ipi-549 , and we expect to incur significant operating losses for the foreseeable future . we expect to incur substantial operating losses over the next several years as our clinical trial and drug manufacturing activities increase . in addition , in connection with seeking and possibly obtaining regulatory approval of ipi-549 or any future product candidates we may develop , we expect to incur significant commercialization expenses for product sales , marketing , manufacturing and distribution . as a result , we expect that our accumulated deficit will also increase significantly . financial overview revenue to date , all of our revenue has been generated under collaboration agreements , including payments to us of upfront license fees , funding or reimbursement of research and development efforts , milestone payments if specified objectives are achieved , and royalties on product sales . in the future , we may generate revenue from a combination of product sales , research and development support services and milestone payments in connection with strategic relationships , as well as royalties resulting from the sales of products developed under licenses of our intellectual property . we expect that any potential future revenue we generate will fluctuate from year to year as a result of the timing and amount of license fees , research and development reimbursement , milestone , royalty and other payments earned under our collaborative or strategic relationships and the amount and timing of payments that we earn upon the sale of our products , to the extent any are successfully commercialized . research and development expense we are a drug development company . our research and development expense has historically consisted primarily of the following : compensation of personnel associated with research and development activities ; clinical testing costs , including payments made to contract research organizations ; costs of combination and comparator drugs used in clinical studies ; costs of manufacturing product candidates for preclinical testing and clinical studies ; costs associated with the licensing of research and development programs ; preclinical testing costs , including costs of toxicology studies ; fees paid to external consultants ; fees paid to professional service providers for independent monitoring and analysis of our clinical trials ; costs for collaboration partners to perform research activities , including development milestones for which a payment is due when achieved ; depreciation of equipment ; and allocated costs of facilities . general and administrative expense general and administrative expense primarily consists of compensation of personnel in executive , finance , accounting , legal and intellectual property , information technology infrastructure , corporate communications , corporate development and human resources functions . other costs include facilities costs not otherwise included in research and development expense and professional fees for legal and accounting services . royalty expense royalty expense represents expense associated with amounts owed to third parties as a result of royalty revenue recognized . other income and expense other income and expense typically consists of interest earned on cash , cash equivalents and available-for-sale securities , gain or loss on sale of property and equipment and interest expense . 70 critical accounting policies and significant judgments and estimates the following 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 . the preparation of these financial statements requires us to make judgments , estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes . on an ongoing basis , we evaluate our estimates , including those related to revenue recognition , accrued expenses and assumptions in the valuation of stock-based compensation . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances . actual results could differ from those estimates . differences between actual and estimated results have not been material and have been adjusted in the period they become known . we believe that the following accounting policies and estimates are most critical to understanding and evaluating our reported financial results . please refer to note 2 to our consolidated financial statements included in this report for a description of our significant accounting policies . revenue recognition to date , all our revenue has been generated under collaboration agreements . the terms of these collaboration agreements may include payment to us of upfront license fees , funding or reimbursement of research and development efforts , milestone payments if specified objectives are achieved , and or royalties on product sales . effective january 1 , 2018 , we adopted financial accounting standards board accounting standard codification topic 606 , revenue from contracts with customers , or asc 606. the standard requires a company to recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services . story_separator_special_tag the standard allows for two transition methods - full retrospective , in which the standard is applied to each prior reporting period presented , or modified retrospective , in which the cumulative effect of initially applying the standard is recognized at the date of initial adoption . we elected the modified retrospective approach and applied it to contracts not completed at the date of adoption . therefore , comparative prior periods have not been adjusted . the adoption of the standard did not have a material impact on our financial position and results of operations when applied to our out-licensing arrangements . see note 10 to our consolidated financial statements included elsewhere in this annual report on form 10-k for additional details on these arrangements . the principles in the new standard are applied using a five-step model : 1 ) identify the customer contract ; 2 ) identify the contract 's performance obligations ; 3 ) determine the transaction price ; 4 ) allocate the transaction price to the performance obligations ; and 5 ) recognize revenue when or as a performance obligation is satisfied . we evaluate all promised goods and services within a customer contract and determine which of those are separate performance obligations . this evaluation includes an assessment of whether the good or service is capable of being distinct and whether the good or service is separable from other promises in the contract . when a performance obligation is satisfied , we recognize as revenue the amount of the transaction price , excluding estimates of variable consideration that are constrained , that is allocated to that performance obligation . for contracts that contain variable consideration , such as milestone payments , we estimate the amount of variable consideration by using either the expected value method or the most likely amount method . in making this assessment , we evaluate factors such as the clinical , regulatory , commercial and other risks that must be overcome to achieve the milestone . each reporting period we re-evaluate the probability of achievement of such milestones and any related constraints . we will include variable consideration , without constraint , in the transaction price to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved . we recognize sales-based milestones and royalty revenue based upon net sales by the licensee of licensed products in licensed territories , and in the period the sales occur under the sales- and usage-based royalty exception when the sole or predominate item to which the royalty relates is a license to intellectual property . in the event of an early termination of a collaboration agreement , any contract liabilities would be recognized in the period in which all our obligations under the agreement have been fulfilled . 71 accrued expenses as part of the process of preparing financial statements , we are required to estimate accrued expenses . this process involves identifying services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for such service as of each balance sheet date . examples of services for which we must estimate accrued expenses include contract service fees paid to contract manufacturers in conjunction with pharmaceutical development work and to contract research organizations in connection with clinical trials and preclinical studies . in connection with these service fees , our estimates are most affected by our understanding of the status and timing of services provided . the majority of our service providers invoice us in arrears for services performed . in the event that we do not identify certain costs that have been incurred by our service providers , or if we under- or over-estimate the level of services performed or the costs of such services in any given period , our reported expenses for such period would be too low or too high , respectively . we often rely on subjective judgments to determine the date on which certain services commence , the level of services performed on or before a given date and the cost of such services . we make these judgments based upon the facts and circumstances known to us . our estimates of expenses in future periods may be under- or over-accrued . stock-based compensation we expense the fair value of employee stock options and other equity compensation . we use our judgment in determining the fair value of our equity instruments , including selecting the inputs we use for the black-scholes valuation model . equity instrument valuation models are by their nature highly subjective . any significant changes in any of our judgments , including those used to select the inputs for the black-scholes valuation model , could have a significant impact on the fair value of the equity instruments granted and the associated compensation charge we record in our financial statements . story_separator_special_tag income taxes we did not incur any income tax expense during the year ended december 31 , 2018. income tax benefit for december 31 , 2017 is a result of monetizing our alternative minimum tax credit carryforwards as permitted by the tax cut and jobs act that was enacted on december 22 , 2017 . liquidity and capital resources we have not generated any revenue from product sales to date , and we do not expect to generate any such revenue for the foreseeable future , if at all . we have instead relied on the proceeds from sales of equity securities , debt , interest on investments , up-front license fees , expense reimbursement , milestones , royalties and cost sharing under our collaborations to fund our operations . our available-for-sale debt securities primarily trade in liquid markets , and the average days to maturity of our portfolio , as of december 31 , 2018 , is less than six months .
| million and $ 629.5 million , respectively , on our pi3k inhibitor program , including ipi-549 and duvelisib . we expect our research and development expense to increase as a result of our continued clinical development of ipi-549 . we do not believe that the historical costs associated with our lead drug development programs are indicative of the future costs associated with these programs , nor represent what any other future drug development programs we initiate may cost . due to the variability in the length of time and scope of activities necessary to develop a product candidate and uncertainties related to our cost estimates and our ability to obtain marketing approval for ipi-549 or any future product candidates we may develop , accurate and meaningful estimates of the total costs required to bring product candidates to market are not available . because of the risks inherent in drug development , we can not reasonably estimate or know : the nature , timing and estimated costs of the efforts necessary to complete the development of our programs ; the completion dates of these programs ; or the period in which material net cash inflows are expected to commence , if at all , from the programs described above and any potential future product candidates . there is significant uncertainty regarding our ability to successfully develop any product candidates . these risks include the uncertainty of : the scope , rate of progress and cost of our clinical trials that we are currently conducting or may commence in the future ; clinical trial results ; the cost of establishing clinical supplies of any product candidates ; the cost and availability of combination and comparator drugs ; the cost of filing , prosecuting , defending and enforcing any patent claims and other intellectual property rights relating to our programs under development ; the terms and timing of any collaborations , licensing and other arrangements that we have or may
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critical care sales decreased by $ 0.5 million , or 4 % , from 2012 . other product sales decreased by $ 0.3 million , or 6 % , from 2012 . the increases in infusion therapy and oncology sales were from increased unit sales from increased market share and demographic growth . the decrease in critical care sales was from lower unit sales , primarily due to competition in this market . the decrease in other product sales was primarily from the loss of sales from our former diabetes product line , orbit , which had contributed $ 0.6 million to sales in 2012 . 30 geographically , our 2013 international sales were primarily in europe , the pacific rim , latin america and canada . sales in europe , the pacific rim and canada increased by $ 9.1 million . our 2013 international sales were favorably impacted by approximately $ 1.5 million due to the increase in the average exchange rate of the euro to the u.s. dollar compared to 2012. sales by market segment and other revenue : net infusion therapy sales were $ 211.2 million in 2013 , a decrease of $ 4.1 million , or 2 % , from 2012 . the decrease from 2012 was from $ 6.5 million in lower clave product sales , $ 2.8 million in lower other infusion therapy product sales , partially offset by $ 5.2 million in increased custom infusion set sales . the decrease in clave product sales and other infusion therapy sales was primarily from lower sales to u.s. hospira . the increase in custom infusion sales was from higher sales to domestic distributors and through direct sales and higher international sales . net critical care sales were $ 51.5 million in 2013 , a decrease of $ 4.0 million , or 7 % , from 2012 . the decrease was primarily due to lower domestic sales due to competition . net oncology sales were $ 37.5 million in 2013 , an increase of $ 7.2 million , or 24 % , from 2012 . the increase was from $ 6.2 million in higher international sales , $ 1.1 million in higher domestic sales to distributors and through direct sales , partially offset by $ 0.1 million in lower domestic sales to hospira . other product sales were $ 12.8 million , a decrease of $ 2.5 million , or 16 % , from 2012 . the decrease is primarily from $ 0.4 million in lower renal sales and the loss of sales from our former diabetes product line , orbit , which had contributed $ 0.9 million to sales in the first quarter of 2012. other revenue consists of license , royalty and revenue share income and was approximately $ 0.7 million in 2013 and $ 0.5 million in 2012 . gross margins for 2013 and 2012 were 49 % in both years . our lower freight expense contributed approximately 0.5 % to our gross margin and was offset by lower manufacturing overhead absorption . selling , general and administrative expenses ( “ sg & a ” ) were $ 90.4 million , or 28 % , of revenues in 2013 , compared with $ 84.6 million , or 27 % , of revenues in 2012 . the new medical device tax , which became effective in 2013 , contributed $ 1.8 million to the sg & a increase in 2013 compared to 2012. information technology expenses increased $ 1.1 million and bad debt /warranty reserves increased $ 0.7 million in 2013 compared to 2012. we also incurred $ 1.4 million in one-time charges associated with a strategic transaction that did not go forward . research and development expenses ( “ r & d ” ) were $ 12.4 million , or 4 % , of revenue in 2013 compared to $ 10.6 million , or 3 % , of revenue in 2012 . the increase in r & d expenses was primarily from increased compensation and benefits from an increase of six r & d employees and increased r & d project expenses . our r & d projects focus on filling in product line gaps for our product line target markets and creating additional market opportunities . other income was $ 0.8 million in 2013 compared to $ 0.6 million in 2012 . income taxes were accrued at an estimated annual effective tax rate of 23 % in 2013 compared to 33 % in 2012 . the effective tax rate differs from that computed at the federal statutory rate of 35 % principally because of the effect of foreign and state income taxes , tax credits , deductions for domestic production activities and discrete tax items , including the tax effects of the extension of the federal research and development credit for the 2012 tax year and changes in mexican tax legislation both enacted in 2013. comparison of 2012 to 2011 revenues were $ 316.9 million in 2012 , compared to $ 302.2 million in 2011. domestic sales : net domestic sales in 2012 were $ 237.0 million , compared to net domestic sales of $ 224.5 million in 2011 , an increase of 6 % . net domestic sales to hospira in 2012 were $ 121.1 million , an increase of $ 5.5 million , or 5 % , from 2011. infusion therapy sales increased $ 2.7 million , or 2 % , from 2011 and oncology sales increased $ 2.7 million , or 46 % , from 2011. infusion therapy sales included a $ 0.9 million increase in sales of clave products and a $ 1.7 million increase in sales of custom infusion sets . the increase in clave product , custom infusion product and oncology sales was from higher unit sales due to conversion of products sold for needlefree connectors and increased market share through hospira . story_separator_special_tag 31 net other domestic sales ( excluding hospira ) in 2012 were $ 115.9 million , an increase of $ 7.0 million , or 6 % , from 2011. infusion therapy sales increased $ 8.7 million , or 18 % , from 2011 , which was primarily from a $ 4.5 million increase in clave product sales and a $ 3.9 million increase in custom infusion set sales . oncology sales increased $ 2.0 million , or 44 % from 2011. critical care sales decreased $ 4.4 million , or 10 % , from 2011. the increased clave , custom infusion set and oncology sales were primarily due to increased unit sales . the decrease in critical care sales was primarily from increased competition that resulted in lower average sales prices and lower unit sales on certain items . international sales : net international sales in 2012 were $ 79.9 million , compared to net international sales of $ 77.7 million in 2011 , an increase of 3 % . infusion therapy sales increased $ 5.0 million , or 12 % , from 2011 , which was primarily from a $ 3.4 million increase in custom infusion set sales and a $ 1.6 million increase in clave product sales . oncology sales increased $ 1.2 million , or 8 % , from 2011. critical care sales decreased by $ 1.4 million , or 9 % , from 2011. other product sales decreased by $ 2.6 million , or 39 % , from 2011. the increases in infusion therapy and oncology were from increased unit sales from increased market share and demographic growth . the decrease in critical care sales was primarily due to increased competition and the decline of the euro to u.s. dollar . the decrease in other product sales was primarily from the sale of the orbit diabetes product line in 2011. geographically , our 2012 international sales were primarily in europe , the pacific rim , latin america , canada and africa . sales in the pacific rim , canada and africa increased by $ 5.5 million and were offset by $ 3.3 million in lower european sales . the lower european sales in 2012 were impacted by a weak euro . our 2012 international sales were negatively impacted by approximately $ 3.6 million due to the decrease in the average exchange rate of the euro to the u.s. dollar compared to 2011. sales by market segment and other revenue : net infusion therapy sales were $ 215.3 million in 2012 , an increase of $ 16.4 million , or 8 % , from 2011. the increase from 2011 was primarily from $ 7.0 million in increased clave product sales and $ 9.0 million in increased custom infusion set sales . the increase in clave product sales was primarily from higher domestic sales to both hospira and other domestic customers . custom infusion set sales increased in all channels from higher unit sales . net critical care sales were $ 55.5 million in 2012 , a decrease of $ 5.9 million , or 10 % , from 2011. the decrease was primarily due to lower domestic sales from increased competition . we experienced lower unit sales in certain products and decreased our domestic critical care prices in the middle of 2011 to retain existing customers and attract new customers . net oncology sales were $ 30.3 million in 2012 , an increase of $ 5.9 million , or 24 % , from 2011. the increase was from higher sales in all channels . the increased sales was from increased market share and demographic growth . other product sales were $ 15.3 million , a decrease of $ 1.6 million , or 10 % , from 2011. the largest contributor to this change from 2011 was $ 2.1 million in lower orbit sales , a product line that we sold in 2011 , partially offset by $ 1.5 million in higher tego sales . other revenue consists of license , royalty and revenue share income and was approximately $ 0.5 million in 2012 and $ 0.6 million in 2011. gross margins for 2012 and 2011 were 49 % and 47 % , respectively . our favorable product mix contributed to approximately one percentage point of the gross margin increase . favorable exchange rates on the mexican peso contributed to approximately one-half of a percentage point of the gross margin increase . the remaining increase in the gross margin was due to plant efficiencies . sg & a were $ 84.6 million , or 27 % , of revenues in 2012 , compared with $ 85.3 million , or 28 % , of revenues in 2011. sg & a expenses for 2011 include one-time expenses for the long-term retention plan ( `` ltrp '' ) of $ 2.0 million and compensation expense related to the sale of our orbit diabetes infusion set product line of $ 1.6 million . our stock compensation expense increased $ 1.4 million , promotion costs increased $ 0.7 million , sales and marketing compensation and benefits increased $ 0.5 million and information technology ( `` it '' ) outside services and consulting costs increased by $ 1.1 million . our legal expenses decreased $ 0.8 million . in january 2011 , our compensation committee approved the pay out of the 2005 ltrp grants , determined to not make any future payments for the 2006 and 2007 awards , and determined that no additional awards would be made under the ltrp in the future , thus effectively cancelling the plan . the increase in sales and marketing compensation and benefits is primarily the result of the expansion of our sales and marketing workforce and compensation increases . the decrease in legal expenses is due to lower legal costs for patent litigation . r & d were $ 10.6 million , or 3 % , of revenue in 2012 compared to $ 8.6 million , or 3 % , of revenue in 2011. the increase in r & d expenses was primarily from $ 1.7
| in 2011 and 2012 , we introduced the neutron , a catheter patency device using clave technology , the nanoclave , a smaller clave product designed for neonatal and pediatric patients and the diana hazardous drug compounding system , an automated sterile compounding system for preparing hazardous drugs . we can provide no assurance that we will be able to successfully manufacture , market and sell these new products . we are also expanding our business through increased sales to medical product manufacturers , independent distributors and through direct sales to the end users of our product . these expansions include , but are not limited to , our 2014 agreement with premier , the extension of the term of our agreement with medassets and our 2011 agreement with novation covering all our critical care products . each of these organizations is a u.s. healthcare purchasing network . we also potentially face substantial increases in competition in our clave business . therefore , we are focusing on increasing product development , acquisition , sales and marketing efforts to custom infusion systems , oncology products , critical care products and other products that lend themselves to customization and new products in the u.s. and international markets . our products are used in hospitals and alternate medical sites in more than 55 countries throughout the world . we categorize our products into three main market segments : infusion therapy , critical care and oncology . products outside of our main market segments are grouped under other . our primary products include : infusion therapy needlefree connector products ◦ microclave and microclave clear ◦ anti-microbial microclave ◦ neutron ◦ nanoclave ◦ clave ◦ y-clave ◦ anti-microbial clave custom infusion sets 27 critical care hemodynamic monitoring systems ◦ transpac disposable pressure transducers ◦ safeset closed needlefree blood conservation systems ◦ cardioflo hemodynamic monitoring sensor system ◦ custom monitoring systems catheters ◦ advanced sensor catheters ◦ pulmonary artery thermodilution catheters ◦ central venous oximetry catheters ◦ multi-lumen central venous catheters custom angiography and interventional radiology kits oncology chemolock closed system transfer device and components chemoclave closed system transfer device and components including : ◦ genie closed vial access device ◦ spiros closed male luer custom preparation and administration
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properties as of december 31 , 2015 , our real estate portfolio consisted of ( i ) 20 office propertie s comprised of approximately 5.5 million rentable square feet , ( ii ) five multifamily properties comprised of 930 units , ( iii ) three hotels comprised of 1,070 rooms , ( iv ) three parking garages , two of which have street level retail space , and ( v ) two development sites , one of which is being used as a parking lot . strategy our investment strategy is centered around cim 's community qualification process . we believe this strategy provides us with a significant competitive advantage when making urban real estate investments . the qualification process generally takes between six months and five years and is a critical component of cim 's investment evaluation . cim examines the characteristics of a market to determine whether the district justifies the extensive efforts cim undertakes in reviewing and making potential investments in its qualified communities . qualified communities generally fall into one of two categories : ( i ) transitional urban districts that have dedicated resources to become vibrant urban communities and ( ii ) well ‑established , thriving urban areas ( typically major central business districts ) . qualified communities are distinct districts which have dedicated resources to become or are currently vibrant communities where people can live , work , shop and be entertained—all within walking distance or close proximity to public transportation . these areas also generally have high barriers - to - entry , high population density , improving demographic trends and a propensity for growth . cim believes that a vast majority of the risks associated with making real asset investments are mitigated by accumulating local market knowledge of the community where the investment lies . cim typically spends significant time and resources qualifying targeted investment communities prior to making any acquisitions . since 1994 , cim group has qualified 103 communities and has deployed capital in 50 of these qualified c ommunities . although we may not invest exclusively in qualified communities , it is expected that most of our investments will be identified through this systematic process . cim seeks to maximize the value of its investments through active asset management . cim has extensive in ‑house research , acquisition , investment , development , financing , leasing and property management capabilities , which leverage its deep understanding of urban communities to position properties for multiple uses and to maximize operating income . as a fully integrated owner and operator , cim 's asset management capabilities are complemented by its in ‑ house property management capabilities . property managers prepare annual capital and operating budgets and monthly operating reports , monitor results and oversee vendor services , maintenance and capital improvement schedules . in addition , they ensure that revenue objectives are met , lease terms are followed , receivables are collected , preventative maintenance programs are implemented , vendors are evaluated and expenses are controlled . cim 's asset management committee reviews and approves strategic plans for each investment , including financial , leasing , marketing , property positioning and strategic and disposition plans . in addition , the asset management committee reviews and approves the annual business plan for each property , including its capital and operating budget . cim 's organizational structure provides for investment and asset management continuity through multi ‑disciplinary teams responsible for an asset from the time of the original investment recommendation , through the implementation of the asset 's business plan , and any disposition activities . we have been reviewing our strategies with respect to certain of our non-office and non-strategic real estate portfolio . as a result of such review , we sold a hotel in oakland , california in february 2016 and an office building in orange county , california in november 2015. as a general matter , we continuously evaluate our portfolio as well as our strategy and such review may result in additional dispositions that no longer fit our overall objectives and or changes in our strategy . lending segment in order to allow cim commercial to increase its focus o n class a and creative office investments , our board of directors approved a plan for the lending segment that , when completed , will result in the deconsolidation of the lending segment . the assets and liabilities of the lending segment have been reflected as held for sale in our consolidated december 31 , 2015 and 2014 balance sheets and its operations have been reflected as discontinued operations in our consolidated income statements for the years ended december 31 , 2015 and 2014. during july 2015 , to maximize value , we modified our strategy from a strategy of selling the lending segment as a whole to a strategy of solicit ing buyers for 51 components of the business . on december 17 , 2015 , pursuant to such modified plan , we sold substantially all of our commercial mortgage loans that are associated with the lending segment to an unrelated third party . this change in the sale methodology resulted in the need to exten d the period to complete the sale of the r emainder of the lending segment beyond one year . the company is continuing its efforts and is actively soliciting the sale of the remainder of the lending segment . through our lending business , we are a national lender that primarily originates loans to small businesses . we identify loan origination opportunities through personal contacts , internet referrals , attendance at trade shows and meetings , direct mailings , advertisements in trade publications and other marketing methods . we also generate loans through referrals from real estate and loan brokers , franchise representatives , existing borrowers , lawyers and accountants . as part of our lending business , we also originate commercial real estate loans for properties that are primarily located in cim group 's qualified communities . story_separator_special_tag we target investments between $ 20 million and $ 100 million with a focus on developing a diversified pool of loans . these loans are typically short duration ( five years or less , inclusive of extension options ) , floating rate and are expected to be : · limited and or non ‑recourse junior ( mezzanine , b ‑note or 2nd lien ) and senior construction loans ; or · limited and or non ‑recourse junior ( mezzanine , b ‑note or 2nd lien ) and senior acquisition , bridge or repositioning loans . we intend to participate with one or more institutional investors with respect to a substantial portion of these loans , and or syndicate a substantial portion of these loans to , one or more institutional investors . funds from operations ( “ ffo ” ) we believe that ffo is a widely reco gnized and appropriate measure of the performance of a reit and that it is frequently used by security analysts , investors and other interested parties in the evaluation of reits , many of which present ffo when reporting their results . ffo represents net income ( loss ) , computed in accordance with gaap , excluding gains ( or losses ) from sales of real estate , real estate depreciation and amortization ( other than amortization of deferred financing costs ) , and after adjustments for non ‑controlling interests . we calculate ffo in accordance with the standards established by the national association of real estate investment trusts ( “ nareit ” ) . like any metric , ffo should not be used as the only measure of our performance because it excludes depreciation and amortization and captures neither the changes in the value of our real estate properties that result from use or market conditions nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of our properties , all of which have real economic effect and could materially impact our operating results . other reits may not calculate ffo in accordance with the stan dards established by the nareit ; a ccordingly , our ffo may not be comparable to those other reits ' ffo . therefore , ffo should be considered only as a supplement to net income as a measure of our performance and should not be used as a supplement to or substitute measure for cash flow from operating activities computed in accordance with gaap . ffo should not be used as a measure of our liquidity , nor is it indicative of funds available to fund our cash needs , including our ability to pay dividends . the following table sets forth a reconciliation of net income to ffo : replace_table_token_27_th ffo increased to $ 93,672,000 , or $ 27 ,000 , for the year ended december 31 , 2015 , compared to $ 93,645,000 for the year ended december 31 , 2014. the increase was primarily attributable to an increase of $ 6,090 ,000 in net operating income of our three operating segments in continuing operations and an increase of $ 7,64 1 ,000 in income from discontinued operations , including a gain related to the sale of substantially all of our commercial mortgage loan s of $ 5,151,000 recognized in 2015 . these increases were largely offset by an increase of $ 3,71 2 ,000 in interest expense 52 associated with higher debt level s and an increase in amortization of deferred loan costs related to the september 2014 unsecured facility and may 2015 term loan facility , recognition of the bargain purchase gain of $ 4,918,000 in 2014 related to t he merger , an increase of $ 4,097 ,000 in asset management and other fees to related parties , and an increase of $ 1,158,000 in corporate general and administration expenses . ffo increased to $ 93,645,000 , or 12.4 % , for the year ended december 31 , 2014 , compared to $ 83,323,000 for the year ended december 31 , 2013. the increase was primarily attributable to income of $ 12,638,000 from the operations of the lending segment acquired on the acquisition date , the recognition of the bargain purchase gain of $ 4,918,000 , a decrease in transaction costs of $ 3,500,000 and an increase of $ 4,797,000 in hotel net operating income primarily due to the operations of the lax holiday inn , which cim urban acquired through foreclosure in october 2013 being reflected as a non ‑performing mortgage note receivable during part of the year ended december 31 , 2013. these increases were partially offset by an increase of $ 4,337,000 in corporate general and administrative expenses , an increase of $ 3,455,000 in asset management fees and other fees to related parties , a decrease of $ 5,126,000 in multifamily net operating income , mainly due to a non ‑recurring tax abatement we refund ed at our new york property , an increase of $ 1,144,000 in interest expense from higher debt levels , and a decrease of $ 1,469,000 in office net operating income , mainly due to increases in real estate taxes at the california properties , a portion of which we expect to be reimbursed by tenants , and an increase in electricity expense at the district of columbia properties . rental rate trends office rental rates : the following table sets forth the annualized rent per occupied square foot across our office portfolio as of the specified periods : replace_table_token_28_th ( 1 ) represents gross monthly base rent under leases commenced as of the specified periods , multiplied by twelve . this amount reflects total cash rent before abatements . total abatements for the twelve months ended december 31 , 2015 , 2014 and 2013 were approximately $ 5,127 ,000 , $ 7,312 ,000 and $ 14,665,000 , respectively . where applicable , annualized rent has been grossed up by adding annualized expense reimbursements to base rent . annualized rent for certain office properties includes rent attributable to retail .
| office revenue increased to $ 188,270 ,000 , or 5 . 0 % , for the year ended december 31 , 201 5 compared to $ 179,338,000 for the year ended december 31 , 2014 , primarily due to revenue increases at certain properties in california , which experienced higher occupancy and rental rates as well as revenue from the office p roperties acquired in april and october 2014 , partially offset by a decrease in revenue at our sacramento , california property due to expiration of a lease with a large tenant on june 30 , 2015. additionally , certain properties in the washington d.c. area experienced higher expense reimbursement s revenue . the increase in revenue at california and the washington d.c. area properties is pa rtially offset by a decrease at our north carolina proper ty due to recognition of fees related to the early termination of a large tenant i n april 2014 . 55 hotel revenue : h otel revenue increased to $ 61,436,000 , or 9 . 5 % , for the year ended december 31 , 2015 compared to $ 56,096,000 for the year ended december 31 , 2014. the increase is primarily due to revpar growth at our three hotels primarily as a result of increase d rates . multifamily revenue : m ultifamily revenue de creased to $ 18,721,000 , or 9.6 % , for the year ended december 31 , 2015 compared to $ 20,719,000 for the year ended december 31 , 2014. the decrease is primarily due to lower multifamily revenue from our new york property for the year ended december 31 , 2015 , as our corporate housing tenant terminated its lease in march 2015 and the property was in the process of being re ‑leased as individual units during 2015 , partially offset by an increase at our dallas properties resulting from increased occupancy compared to the corresponding period in 2014 . expenses office expenses : office expenses increase d to
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except as required by applicable law , including the securities laws of the united states , we undertake no obligation to publicly update or revise any forward-looking statements , whether as a result of new information , future events or otherwise . you are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in this annual report on form 10-k. in reviewing management 's discussion and analysis of financial condition and results of operations , you should refer to our consolidated financial statements and the notes related thereto . critical accounting policies the following accounting policies are important to understanding our financial condition and results of operations and should be read as an integral part of the discussion and analysis of the results of our operations and financial position . for additional accounting policies , see note 2 to our consolidated financial statements , `` summary of significant accounting policies. the company has entered into a number of license agreements covering potential products using the company 's spd technology . the company receives fees and minimum annual royalties under certain license agreements and records fee income on a ratable basis each quarter . in instances when sales of licensed products by its licensees exceed minimum annual royalties , the company recognizes fee income as the amounts have been earned . certain of the fees are accrued by , or paid to , the company in advance of the period in which they are earned resulting in deferred revenue . the company expenses costs relating to the development or acquisition of patents due to the uncertainty of the recoverability of these items . all of our research and development costs are charged to operations as incurred . our research and development expenses consist of costs incurred for internal and external research and development . these costs include direct and indirect overhead expenses . the company has historically used the black-scholes option-pricing model to determine the estimated fair value of each option grant . the black-scholes model includes assumptions regarding dividend yields , expected volatility , expected lives , and risk-free interest rates . these assumptions reflect our best estimates , but these items involve uncertainties based on market conditions generally outside of our control . as a result , if other assumptions had been used in the current period , stock-based compensation expense could have been materially impacted . furthermore , if management uses different assumptions in future periods , stock-based compensation expense could be materially impacted in future years . 28 on occasion , the company may issue to consultants either options or warrants to purchase shares of common stock of the company at specified share prices . these options or warrants may vest based upon specific services being performed or performance criteria being met . in accounting for equity instruments that are issued to other than employees for acquiring , or in conjunction with selling , goods or services , the company would be required to record consulting expenses based upon the fair value of such options or warrants on the earlier of the service period or the period that such options or warrants vest as determined using a black-scholes option pricing model . the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , and reported amounts of revenues and expenses during the reporting periods . actual results could differ from these estimates . an example of a critical estimate is the full valuation allowance for deferred taxes that was recorded based on the uncertainty that such tax benefits will be realized in future periods . story_separator_special_tag and changes in relationships with existing licensees would have a favorable or negative impact depending upon the nature of such changes . during 2011 , the company 's cash and cash equivalents balance decreased by $ 4,554,180 principally as a result of cash used for operations of $ 3,352,584 , as well as net cash invested in certificates of deposit of $ 1,255,056. at december 31 , 2011 , the company had working capital of $ 4,002,165 and total shareholders ' equity of $ 4,107,198. during 2010 , the company 's cash and cash equivalents balance increased by $ 3,197,010 principally as a result of cash proceeds from the sale of common stock of $ 6,409,376 , partially offset by cash used for operations of $ 3,202,053. during 2009 , the company 's cash and cash equivalents balance increased by $ 1,393,022 principally as a result of cash proceeds from the sale of u.s. treasury securities of $ 2,299,496 as well as proceeds from the sale of common stock of $ 2,850,000 partially offset by cash used for operations of $ 3,732,527. the company expects to use its cash to fund its research and development of spd light valves , its expanded marketing initiatives , and for other working capital purposes . the company 's working capital and capital requirements depend upon numerous factors , including the results of research and development activities , competitive and technological developments , the timing and cost of patent filings , the development of new licensees and changes in the company 's relationships with its existing licensees . the degree of dependence of the company 's working capital requirements on each of the foregoing factors can not be quantified ; increased research and development activities and related costs would increase such requirements ; the addition of new licensees may provide additional working capital or working capital requirements , and changes in relationships with existing licensees would have a favorable or negative impact depending upon the nature of such changes . based upon existing levels of cash expenditures , existing cash reserves and budgeted revenues , the company believes that it would story_separator_special_tag except as required by applicable law , including the securities laws of the united states , we undertake no obligation to publicly update or revise any forward-looking statements , whether as a result of new information , future events or otherwise . you are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in this annual report on form 10-k. in reviewing management 's discussion and analysis of financial condition and results of operations , you should refer to our consolidated financial statements and the notes related thereto . critical accounting policies the following accounting policies are important to understanding our financial condition and results of operations and should be read as an integral part of the discussion and analysis of the results of our operations and financial position . for additional accounting policies , see note 2 to our consolidated financial statements , `` summary of significant accounting policies. the company has entered into a number of license agreements covering potential products using the company 's spd technology . the company receives fees and minimum annual royalties under certain license agreements and records fee income on a ratable basis each quarter . in instances when sales of licensed products by its licensees exceed minimum annual royalties , the company recognizes fee income as the amounts have been earned . certain of the fees are accrued by , or paid to , the company in advance of the period in which they are earned resulting in deferred revenue . the company expenses costs relating to the development or acquisition of patents due to the uncertainty of the recoverability of these items . all of our research and development costs are charged to operations as incurred . our research and development expenses consist of costs incurred for internal and external research and development . these costs include direct and indirect overhead expenses . the company has historically used the black-scholes option-pricing model to determine the estimated fair value of each option grant . the black-scholes model includes assumptions regarding dividend yields , expected volatility , expected lives , and risk-free interest rates . these assumptions reflect our best estimates , but these items involve uncertainties based on market conditions generally outside of our control . as a result , if other assumptions had been used in the current period , stock-based compensation expense could have been materially impacted . furthermore , if management uses different assumptions in future periods , stock-based compensation expense could be materially impacted in future years . 28 on occasion , the company may issue to consultants either options or warrants to purchase shares of common stock of the company at specified share prices . these options or warrants may vest based upon specific services being performed or performance criteria being met . in accounting for equity instruments that are issued to other than employees for acquiring , or in conjunction with selling , goods or services , the company would be required to record consulting expenses based upon the fair value of such options or warrants on the earlier of the service period or the period that such options or warrants vest as determined using a black-scholes option pricing model . the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , and reported amounts of revenues and expenses during the reporting periods . actual results could differ from these estimates . an example of a critical estimate is the full valuation allowance for deferred taxes that was recorded based on the uncertainty that such tax benefits will be realized in future periods . story_separator_special_tag and changes in relationships with existing licensees would have a favorable or negative impact depending upon the nature of such changes . during 2011 , the company 's cash and cash equivalents balance decreased by $ 4,554,180 principally as a result of cash used for operations of $ 3,352,584 , as well as net cash invested in certificates of deposit of $ 1,255,056. at december 31 , 2011 , the company had working capital of $ 4,002,165 and total shareholders ' equity of $ 4,107,198. during 2010 , the company 's cash and cash equivalents balance increased by $ 3,197,010 principally as a result of cash proceeds from the sale of common stock of $ 6,409,376 , partially offset by cash used for operations of $ 3,202,053. during 2009 , the company 's cash and cash equivalents balance increased by $ 1,393,022 principally as a result of cash proceeds from the sale of u.s. treasury securities of $ 2,299,496 as well as proceeds from the sale of common stock of $ 2,850,000 partially offset by cash used for operations of $ 3,732,527. the company expects to use its cash to fund its research and development of spd light valves , its expanded marketing initiatives , and for other working capital purposes . the company 's working capital and capital requirements depend upon numerous factors , including the results of research and development activities , competitive and technological developments , the timing and cost of patent filings , the development of new licensees and changes in the company 's relationships with its existing licensees . the degree of dependence of the company 's working capital requirements on each of the foregoing factors can not be quantified ; increased research and development activities and related costs would increase such requirements ; the addition of new licensees may provide additional working capital or working capital requirements , and changes in relationships with existing licensees would have a favorable or negative impact depending upon the nature of such changes . based upon existing levels of cash expenditures , existing cash reserves and budgeted revenues , the company believes that it would
| operating expenses increased by $ 365,385 for 2011 to $ 3,618,635 from $ 3,253,250 for 2010. this increase was principally the result of increased payroll and related costs ( $ 235,000 ) , as well as higher directors fees and expenses ( $ 70,000 ) , and higher insurance costs ( $ 48,000 ) . differences in the amount of directors fees recorded as expense by the company are the result of the addition of two new directors in 2011. included in operating expenses are $ 594,000 and $ 602,000 of non-cash stock and stock option compensation expense for 2011 and 2010 , respectively . 29 research and development expenditures decreased by $ 13,965 to $ 1,390,689 for 2011 from $ 1,404,654 for 2010. this decrease was principally the result of lower payroll and non cash stock option compensation charges ( $ 40,000 ) as well as lower allocated rent ( $ 10,000 ) partially offset by higher insurance costs ( $ 41,000 ) . included in research and development expenses are $ 108,000 and $ 170,000 of non-cash stock option compensation charges for 2011 and 2010 , respectively . investment income for 2011 was $ 29,274 as compared to $ 15,517 for 2010. the difference was due to higher cash balances available for investment which was invested in certificates of deposit bearing somewhat higher interest rates . as a consequence of the factors discussed above , the company 's net loss was $ 4,134,068 ( $ 0.22 per share ) for 2011 as compared to $ 3,874,865 ( $ 0.22 per share ) for 2010. year ended december 31 , 2010 compared to the year ended december 31 , 2009 the company 's fee income from licensing activities for 2010 was $ 767,522 , as compared to $ 709,811 for 2009. this difference in fee income was primarily due to the amount of royalties and other fee income paid by new and existing licensees . fee income also includes earned royalties resulting from sales by certain licensees in the architectural and aircraft
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the allowance for credit losses is discussed in more detail in “ risk elements of the loan portfolio — allowance for credit losses ” below . investment securities the classification and accounting for investment securities are discussed in detail in note 1 to the consolidated financial statements . under asc topic 320 , “ accounting for certain investments in debt and equity securities , ” investment securities must be classified as held-to-maturity , available-for-sale , or trading . the appropriate classification is based partially on our ability to hold the securities to maturity and largely on management 's intentions with respect to either holding or selling the securities . the classification of investment securities is significant since it directly impacts the accounting for unrealized gains and losses on securities . unrealized gains and losses on trading securities flow directly through earnings during the periods in which they arise , whereas available-for-sale securities are recorded as a separate component of stockholders ' equity ( accumulated other comprehensive income or loss ) and do not affect earnings until realized . the fair values of our investment securities are generally determined by reference to quoted market prices and reliable independent sources . we are obligated to assess , at each reporting date , whether there is an `` other-than-temporary '' impairment to our investment securities . asc topic 320 requires us to assess whether we have the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery . other-than-temporary impairment related to credit losses will be recognized in earnings . other-than-temporary impairment related to all other factors will be recognized in other comprehensive income . income taxes the provision for income taxes is based on income reported for financial statement purposes , and differs from the amount of taxes currently payable , since certain income and expense items are reported for financial statement purposes in different periods than those for tax reporting purposes . taxes are discussed in more detail in note 11 to the consolidated financial statements . accrued taxes represent the net estimated amount due or to be received from taxing authorities . in estimating accrued taxes , we assess the relative merits and risks of the appropriate tax treatment of transactions taking into account statutory , judicial , and regulatory guidance in the context of our tax position . 44 we account for income taxes using the asset and liability approach , the objective of which is to establish deferred tax assets and liabilities for the temporary differences between the financial reporting basis and the tax basis of our assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled . a valuation allowance is established for deferred tax assets if , based on the weight of available evidence , it is more likely than not that some portion or all of the deferred tax assets will not be realized . goodwill and g oodwill i mpairment goodwill represents the excess of costs over fair value of assets of businesses acquired . asc topic 805 , “ business combinations ( revised 2007 ) , ” requires an entity to recognize the assets , liabilities , and any non-controlling interest at fair value as of the acquisition date . contingent consideration is required to be recognized and measured at fair value on the date of acquisition rather than at a later date when the amount of that consideration may be determinable beyond a reasonable doubt . asc topic 805 also requires an entity to expense acquisition-related costs as incurred rather than allocating such costs to the assets acquired and liabilities assumed . contingent considerations are to be recognized at fair value on the acquisition date in a business combination and would be subject to the probable and estimable recognition criteria of asc topic 450 , “ accounting for contingencies . ” goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized , but instead are tested for impairment at least annually in accordance with the provisions of asc topic 350. asc topic 350 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values , and reviewed for impairment in accordance with asc topic 360 , “ accounting for impairment or disposal of long-lived assets. ” our policy is to assess goodwill for impairment at the reporting unit level on an annual basis or between annual assessments if a triggering event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount . impairment is the condition that exists when the carrying amount of goodwill exceeds its implied fair value . accounting standards require management to estimate the fair value of each reporting unit in making the assessment of impairment at least annually . the company first assesses 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 as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in asc topic 350. the two-step impairment testing process conducted by us , if needed , begins by assigning net assets and goodwill to our reporting units . we then complete “ step one ” of the impairment test by comparing the fair value of each reporting unit ( as determined in note 1 to the consolidated financial statements ) with the recorded book value ( or “ carrying amount ” ) of its net assets , with goodwill included in the computation of the carrying amount . if the fair value of a reporting unit exceeds its carrying amount , goodwill of that reporting unit is not considered impaired , and “ step two ” of the impairment test is not necessary . story_separator_special_tag if the carrying amount of a reporting unit exceeds its fair value , step two of the impairment test is performed to determine the amount of impairment . step two of the impairment test compares the carrying amount of the reporting unit 's goodwill to the “ implied fair value ” of that goodwill . the implied fair value of goodwill is computed by assuming all assets and liabilities of the reporting unit would be adjusted to the current fair value , with the offset as an adjustment to goodwill . this adjusted goodwill balance is the implied fair value used in step two . an impairment charge is recognized for the amount by which the carrying amount of goodwill exceeds its implied fair value . story_separator_special_tag times , serif '' > change in the mix of interest-bearing liabilities : average interest bearing deposits of $ 8.6 billion increased to 93.2 % of total interest-bearing liabilities in 2016 compared to 92.6 % in 2015. offsetting the increase , average securities sold under agreements to repurchase decreased to 4.2 % of total interest-bearing liabilities in 2016 compared to 4.8 % in 2015. net interest margin , defined as net interest income to average interest-earning assets , was 3.38 % in 2016 compared to 3.39 % in 2015. comparison of 2015 with 2014 net interest income increased $ 36.9 million , or 10.8 % , from $ 342.8 million in 2014 to $ 379.7 million in 2015. the increase in net interest income was due primarily to the increase in loan interest income and the decrease in interest expense from securities sold under agreements to repurchase , offset by the decrease in interest income from available-for-sale securities and increases in interest expense from time deposits . average loans for 2015 were $ 9.6 billion , a $ 1.1 billion , or a 12.4 % , increase from $ 8.5 billion in 2014. compared with 2014 , average commercial mortgage loans increased $ 658.1 million , or 15.4 % , average residential mortgage loans increased $ 247.3 million , or 15.1 % , average real estate construction loans increased $ 97.4 million , or 35.8 % and average commercial loans increased $ 67.2 million , or 2.9 % . average investment securities were $ 1.4 billion in 2015 , a decrease of $ 38.4 million , or 2.7 % , from 2014 , due primarily to decreases in u.s. treasury securities of $ 153.4 million and in corporate debt securities of $ 42.6 million , offset by increases in agency mortgage-backed securities of $ 125.1 million and increases in u.s. government sponsored agency securities of $ 31.3 million . 47 average interest bearing deposits were $ 7.8 billion in 2015 , an increase of $ 884.0 million , or 12.8 % , from $ 6.9 billion in 2014 , primarily due to increases of $ 416.1 million , or 9.8 % , in time deposits , $ 270.0 million , or 19.2 % , in money market deposits , $ 139.1 million , or 19.3 % , in interest bearing demand deposits , and $ 58.8 million , or 11.1 % , in saving deposits . average securities sold under agreements to repurchase decreased $ 228.5 million , or 36.3 % , to $ 400.8 million in 2015 from $ 629.3 million in 2014 , primarily due to maturities and prepayments of securities sold under agreements to repurchase . average other borrowings decreased $ 40.8 million , or 27.9 % , to $ 105.4 million in 2015 from $ 146.1 million in 2014 , primarily due to decreases in fhlb advances . interest income increased $ 35.1 million , or 8.4 % , from $ 418.6 million in 2014 to $ 453.7 million in 2015 primarily due to increases in the volume of loans offset by a decline in rate of loans and investment securities and by a change in the mix of interest-earning assets as discussed below : ● changes in volume : average interest-earning assets increased $ 965.6 million , or 9.4 % , to $ 11.19 billion in 2015 , compared with the average interest-earning assets of $ 10.22 billion in 2014. the increase in average loans of $ 1.06 billion in 2015 offset by a decrease in average investment securities of $ 38.4 million and in average interest bearing cash on deposits with financial institutions of $ 49.3 million contributed to the increase in interest income . the increase of $ 45.8 million in interest income due to volume were resulted primarily from a $ 47.5 million increase in interest income from the loan volume increase offset by a $ 1.7 million decrease in interest income caused by the decrease in the volume of investment securities , fhlb stock , and deposits with other banks . ● decrease in rate : the average yield of interest bearing assets decreased to 4.06 % in 2015 from 4.10 % in 2014. the rate on taxable investment securities decreased 15 basis points to 1.56 % in 2015 from 1.71 % in 2014. the decrease in taxable investment securities yields caused a $ 2.1 million decline in interest income . the rate on loans decreased 12 basis points to 4.46 % in 2015 from 4.58 % in 2014. the decrease in loan yield caused a $ 10.3 million decline in interest income . ● change in the mix of interest-earning assets : average gross loans , which generally have a higher yield than other types of investments , comprised 85.8 % of total average interest-earning assets in 2015 , an increase from 83.5 % in 2014 . average investment securities comprised 12.3 % of total average interest-bearing assets in 2015 , a decrease from 13.9 % in 2014. interest expense decreased by $ 1.9 million , or 2.5 % , to $ 74.0 million in 2015 , compared with $ 75.9 million in 2014 , primarily due to decreased cost from securities sold under agreements to repurchase offset by increased cost from time deposits , long-term debt and money market deposits .
| ● total assets for the year increased $ 1.3 billion , or 9.6 % , to $ 14.5 billion at december 31 , 2016 from $ 13.3 billion at december 31 , 2015. net income available to common stockholders and key financial performance ratios are presented below for the three years indicated : replace_table_token_4_th net interest income comparison of 2016 with 2015 net interest income increased $ 38.2 million , or 10.0 % , from $ 379.7 million in 2015 to $ 417.9 million in 2016. the increase in net interest income was due primarily to the increase in loan interest income , offset by the decrease in dividend income from fhlb stock and increases in interest expense from money market accounts and time deposits . average loans for 2016 were $ 10.6 billion , a $ 1.0 billion , or a 10.7 % , increase from $ 9.6 billion in 2015. compared with 2015 , average commercial mortgage loans increased $ 612.5 million , or 12.4 % , average residential mortgage loans increased $ 441.6 million , or 23.4 % , and average real estate construction loans increased $ 125.7 million , or 34.0 % . compared with 2015 , average commercial loans decreased $ 149.3 million , or 6.3 % . average investment securities were $ 1.37 billion in 2016 , a decrease of $ 5.7 million , or 0.4 % , from 2015. average interest bearing cash on deposits with financial institutions increased $ 152.3 million , or 79.1 % , to $ 345.1 million in 2016 from $ 192.8 million in 2015. average interest bearing deposits were $ 8.6 billion in 2016 , an increase of $ 750.6 million , or 9.6 % , from $ 7.8 billion in 2015 , primarily due to increases of $ 382.8 million , or 22.8 % , in money market deposits , $ 185.5 million , or 21.6 % , in interest bearing demand deposits , $ 136.9 million , or 2.9 % , in time deposits , and $ 45.4 million , or 7.7 % , in saving deposits . average securities sold under agreements to repurchase decreased $ 18.9 million , or 4.7 % , to $ 381.9 million in 2016 from $ 400.8 million in 2015 , primarily due to maturities of securities sold under agreements to repurchase . average other borrowings increased $ 21.3 million , or 20.3 % , to $ 126.7 million in 2016 from $ 105.4 million in 2015 , primarily due to increases in fhlb advances . 46 interest income increased $ 45.4 million , or 10.0 % , from $ 453.7 million in 2015
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recurring revenue growth our recurring revenue model and high annual revenue retention rates provide significant visibility into our future operating results and cash flow from operations . this visibility enables us to better manage and invest in our business . recurring revenue , which is comprised of recurring fees and interest income on funds held for clients , increased from $ 220.1 million in fiscal 2016 to $ 288.4 million in fiscal 2017 , representing a 31 % year-over-year increase . recurring revenue increased from $ 288.4 million in fiscal 2017 to $ 363.5 million in fiscal 2018 , representing a 26 % year-over-year increase . recurring revenue was positively impacted by the launch in fiscal 2016 of our affordable care act ( “ aca ” ) compliance solution , which had significant penetration beginning in the second quarter of fiscal 2016. the impact on year-over-year revenue growth of our aca compliance solution was the highest in the first quarter of fiscal 2017. recurring revenue represented 95 % of total revenue in fiscal 2016 and 96 % of total revenue in fiscal 2017 and 2018. client count growth we believe there is a significant opportunity to grow our business by increasing our number of clients . excluding clients acquired as part of the beneflex acquisition , we have increased the number of clients using our payroll and hcm software solutions from approximately 12,500 as of june 30 , 2016 to approximately 16,700 as of june 30 , 2018 , representing a compound annual growth rate of approximately 16 % . the table below sets forth the total number of clients using our payroll and hcm software solutions for the periods indicated , rounded to the nearest fifty . replace_table_token_7_th the rate at which we add clients is highly variable period-to-period and highly seasonal as many clients switch solutions during the first calendar quarter of each year . although many clients have multiple divisions , segments or locations , we only count such clients once for these purposes . annual revenue retention rate our annual revenue retention rate has been in excess of 92 % during each of the past three fiscal years . we calculate our annual revenue retention rate as our total revenue for the preceding 12 months , less the annualized value of revenue lost during the preceding 12 months , divided by our total revenue for the preceding 12 months . we calculate the annualized value of revenue lost by summing the recurring fees paid by lost clients over the previous twelve months prior to their termination if they have been a client for a minimum of twelve months . for those lost clients who became clients within the last twelve months , we sum the recurring fees for the period that they have been a client and then annualize the amount . we exclude interest income on funds held for clients from the revenue retention calculation . we 41 believe that our annual revenue retention rate is an important metric to measure overall client satisfaction and the general quality of our product and service offerings . adjusted gross profit , adjusted recurring gross profit and adjusted ebitda we disclose adjusted gross profit , adjusted recurring gross profit and adjusted ebitda because we use them to evaluate our performance , and we believe adjusted gross profit , adjusted recurring gross profit and adjusted ebitda assist in the comparison of our performance across reporting periods by excluding certain items that we do not believe are indicative of our core operating performance . we believe these metrics are used in the financial community , and we present it to enhance investors ' understanding of our operating performance and cash flows . adjusted gross profit , adjusted recurring gross profit and adjusted ebitda are not measurements of financial performance under generally accepted accounting principles in the united states , or gaap , and you should not consider adjusted gross profit as an alternative to gross profit , adjusted recurring gross profit as an alternative to total recurring revenues , or adjusted ebitda as an alternative to net income ( loss ) or net cash provided by operating activities , in each case as determined in accordance with gaap . in addition , our definition of adjusted gross profit , adjusted recurring gross profit and adjusted ebitda may be different than the definition utilized for similarly-titled measures used by other companies . we define adjusted gross profit as gross profit before amortization of capitalized internal-use software costs and stock-based compensation expense and employer payroll taxes related to stock releases and option exercises . we define adjusted recurring gross profit as total recurring revenues after cost of recurring revenues and before amortization of capitalized internal-use software costs and stock-based compensation expense and employer payroll taxes related to stock releases and option exercises . we define adjusted ebitda as net income ( loss ) before interest expense , income tax expense ( benefit ) , depreciation and amortization expense , stock-based compensation expense and employer payroll taxes related to stock releases and option exercises , acquisition-related costs and lease exit costs . the table below sets forth our adjusted gross profit , adjusted recurring gross profit and adjusted ebitda for the periods presented . replace_table_token_8_th for a further discussion of adjusted gross profit , adjusted recurring gross profit and adjusted ebitda , including a reconciliation of adjusted gross profit , adjusted recurring gross profit and adjusted ebitda to gaap , see part ii , item 6 : “ consolidated selected financial data. ” basis of presentation revenues recurring fees we derive the majority of our revenues from recurring fees attributable to our cloud-based payroll and hcm software solutions . recurring fees for each client generally include a base fee in addition to a fee based on the number of client employees and the number of products a client uses . we also charge fees attributable to our preparation of w-2 documents and annual required filings on behalf of our clients . story_separator_special_tag over the past three years , our client size has been on average over 100 employees . we derive revenue from a client based on the solutions purchased by the client , the number of client employees as well as the amount , type and timing of services provided with respect to those client employees . as such , the number of client employees on our system is not a good indicator of our financial results in any period . recurring fees attributable to our cloud-based payroll and hcm solutions accounted for approximately 94 % , 95 % and 94 % of our total revenues during the years ended june 30 , 2016 , 2017 and 2018 , respectively . 42 while the majority of our agreements with clients are generally cancellable by the client on 60 days ' notice or less , we began entering into term arrangements in fiscal 2018 , which are generally over two years in length . our agreements do not include general rights of return and do not provide clients with the right to take possession of the software supporting the services being provided . we recognize recurring fees in the period in which services are provided and when collection of fees is reasonably assured and the amount of fees is fixed or determinable . interest income on funds held for clients we earn interest income on funds held for clients . we collect funds for employee payroll payments and related taxes in advance of remittance to employees and taxing authorities . prior to remittance to employees and taxing authorities , we earn interest on these funds through demand deposit accounts with financial institutions with which we have automated clearing house , or ach , arrangements . we also earn interest by investing a portion of funds held for clients in highly liquid , investment-grade marketable securities . implementation services and other implementation services and other revenues primarily consist of implementation fees charged to new clients for professional services provided to implement and configure our payroll and hcm solutions . implementations of our payroll solutions typically require only three to four weeks at which point the new client 's payroll is first run using our solution , our implementation services are deemed completed , and we recognize the related revenue . we implement additional hcm products as requested by clients and leverage the data within our payroll solution to accelerate our implementation processes . implementation services and other revenues may fluctuate significantly from quarter to quarter based on the number of new clients , pricing and the product utilization . cost of revenues cost of recurring revenues cost of recurring revenues is generally expensed as incurred and includes costs to provide our payroll and other hcm solutions primarily consisting of employee-related expenses , including wages , stock-based compensation , bonuses and benefits , relating to the provision of ongoing client support , payroll tax filing and distribution of printed checks and other materials . these costs also include amortization of capitalized internal-use software costs , delivery costs and computing costs , as well as bank fees associated with client fund transfers . we expect to realize cost efficiencies over the long term as our business scales , resulting in improved operating leverage and increased margins . we capitalize a portion of our internal-use software costs , which are then all amortized as a cost of recurring revenues . we amortized $ 5.4 million , $ 9.4 million and $ 14.3 million of capitalized internal-use software costs in fiscal 2016 , 2017 and 2018 , respectively . cost of implementation services and other cost of implementation services and other consists primarily of employee-related expenses , including wages , stock-based compensation , bonuses and benefits involved in the implementation of our payroll and other hcm solutions for new clients . implementation costs are generally fixed in the short-term and exceed associated implementation revenue charged to each client . we intend to grow our business through acquisition of new clients , and doing so will require increased personnel to implement our solutions . therefore , our cost of implementation services and other is expected to increase in absolute dollars for the foreseeable future . 43 operating expenses sales and marketing sales and marketing expenses consist primarily of employee-related expenses for our direct sales and marketing staff , including wages , commissions , stock-based compensation , bonuses and benefits , marketing expenses and other related costs . commissions are primarily earned and recognized in the month when implementation is complete and the client first utilizes a service and are typically paid within two months after the start of service . bonuses paid to sales staff for attainment of certain performance criteria are accrued in the fiscal year in which they are earned and are subsequently paid annually in the first fiscal quarter of the following year . we will seek to grow our number of clients for the foreseeable future and therefore our sales and marketing expense is expected to continue to increase in absolute dollars as we grow our sales organization and expand our marketing activities . research and development research and development expenses consist primarily of employee-related expenses for our research and development and product management staff , including wages , stock-based compensation , bonuses and benefits . additional expenses include costs related to the development , maintenance , quality assurance and testing of new technologies and ongoing refinement of our existing solutions . research and development expenses , other than internal-use software costs qualifying for capitalization , are expensed as incurred . we capitalize a portion of our development costs related to internal-use software . the timing of our capitalized development projects may affect the amount of development costs expensed in any given period .
| result of higher average interest rates , increased average daily balances for funds held due to the addition of new clients to our client base and interest income from investing a portion of our funds held for clients in marketable securities starting in july 2017. interest income on funds held for clients for the year ended june 30 , 2017 increased by $ 0.9 million , or 35 % , to $ 3.6 million from $ 2.7 million for the year ended june 30 , 2016. interest income increased primarily as a result of an increased average daily balance of funds held due to the addition of new clients to our client base . implementation services and other implementation services and other revenue for the year ended june 30 , 2018 increased by $ 2.4 million , or 21 % , to $ 14.0 million from $ 11.6 million for the year ended june 30 , 2017 primarily due to the changes in the number of new clients and product mix year over year . implementation services and other revenue for the year ended june 30 , 2017 increased by $ 1.0 million , or 9 % , to $ 11.6 million from $ 10.6 million for the year ended june 30 , 2016. implementation services and other revenue increased primarily as a result of changes in the number of new clients and product mix during fiscal 2017 as compared to fiscal 2016. cost of revenues ( $ in thousands ) replace_table_token_13_th cost of recurring revenues cost of recurring revenues for the year ended june 30 , 2018 increased by $ 18.6 million , or 22 % , to $ 104.0 million from $ 85.4 million for the year ended june 30 , 2017. cost of recurring revenues increased primarily as a result of the continued growth of our business , in particular , $ 8.6 million in additional employee-related costs resulting from additional personnel necessary to provide services
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in february 2016 , in exchange for our partners ' aggregate 49 % interest in this venture and $ 2.5 million in cash , we distributed one center to our partners . we have consolidated this venture as of the transaction date and re-measured our investment in this venture to its fair value , and recognized a gain of $ 37.4 million . we intend to continue to focus on identifying new development projects as another source of growth , as well as continue to look for internal growth opportunities . although we have only seen a few viable projects , a lack of supply in new retail space has driven an increase in new development activity , particularly in mixed-use projects , which we believe is a positive trend . during 2016 , we invested $ 64.4 million in four new development projects that are partially or wholly owned . also during 2016 , we invested $ 96.6 million in 16 redevelopment projects that were partially or wholly owned . for 2017 , we expect to invest in new development and redevelopments in the range of $ 135 million to $ 235 million , but we can give no assurances that this will actually occur . we strive to maintain a strong , conservative capital structure which should provide ready access to a variety of attractive long and short-term capital sources . we carefully balance lower cost , short-term financing with long-term liabilities associated with acquired or developed long-term assets . in march 2016 , we amended and extended our $ 500 million unsecured revolving credit facility . this facility expires in march 2020 , provides for two consecutive six-month extensions upon our request and borrowing rates that float at a margin over libor plus a facility fee . the borrowing margin improved under the new agreement to libor plus 90 basis points , a decrease of 15 basis points . the facility also contains a competitive bid feature that allows us to request bids for up to $ 250 million . additionally , an accordion feature allows us to increase the facility amount up to $ 850 million . we intend to use the proceeds from the facility to fund acquisition , new development and redevelopment activities , and for general corporate purposes . in august 2016 , we issued $ 250 million of 3.25 % senior unsecured notes maturing in 2026 . the notes were issued at 99.16 % of the principal amount with a yield to maturity of 3.35 % . the net proceeds received of $ 246.3 million were used to reduce the amount outstanding under our $ 500 million unsecured revolving credit facility . in june 2016 , we amended an existing $ 90 million secured note to extend the maturity to 2028 and reduce the interest rate from 7.5 % to 4.5 % per annum . in connection with this transaction , we have recorded a $ 2.0 million gain on extinguishment of debt that has been classified as net interest expense in our consolidated statements of operations . in august 2016 , we established a new atm equity offering program under which we may , but are not obligated to , sell up to $ 250 million of common shares , in amounts and at times as we determine , at prices determined by the market at the time of sale . the common shares under this new program include common shares having an aggregate gross sales price of up to $ 34.1 million previously registered but unsold under a prior atm equity offering program . we intend to use the net proceeds from future sales for general trust purposes , which may include acquisitions and reducing borrowings under our $ 500 million unsecured revolving credit facility , repaying other indebtedness or repurchasing outstanding debt . during 2016 , we sold 3.5 million common shares under this program with gross proceeds totaling $ 132.9 million . as of the date of this filing , $ 242.2 million of common shares remained available for sale under this atm equity program . we believe that these transactions should continue to strengthen our consolidated balance sheet and further enhance our access to various sources of capital , while reducing our cost of capital . due to the variability in the capital markets , there can be no assurance that favorable pricing and availability will be available in the future . 28 operational metrics in assessing the performance of our centers , management carefully monitors various operating metrics of the portfolio . as a result of our strong leasing activity , low tenant fallout and lack of quality retail space in the market , the operating metrics of our portfolio remained very strong in 2016 as we focused on increasing rental rates and same property net operating income ( `` spnoi '' and see non-gaap financial measures for additional information ) . our portfolio delivered solid operating results with : occupancy of 94.3 % at december 31 , 2016 ; an increase of 3.8 % in spnoi including redevelopments for the three months ended december 31 , 2016 over the same period of 2015 ; and rental rate increases of 22.4 % for new leases and 11.0 % for renewals were realized during the three months ended december 31 , 2016 . below are performance metrics associated with our signed occupancy , spnoi growth and leasing activity on a pro rata basis : replace_table_token_8_th replace_table_token_9_th _ ( 1 ) see non-gaap financial measures for a definition of the measurement of spnoi and a reconciliation to operating income within this section of item 7. replace_table_token_10_th _ ( 1 ) average external lease commissions per square foot for the three and twelve months ended december 31 , 2016 were $ 6.41 and $ 6.00 , respectively . story_separator_special_tag 29 while we will continue to monitor the economy and the effects on our tenants , over the long-term , we believe the significant diversification of our portfolio , both geographically and by tenant base , and the quality of our portfolio will allow future increases to occupancy levels . the bankruptcy proceedings for the sports authority has come to a conclusion for us and has resulted in the return of six spaces , which has negatively affected our occupancy and spnoi until we re-lease and commence rent on these spaces . the decrease in occupancy related to our anchor spaces is a direct result of the sports authority bankruptcy , as well as the acquisition of a 96,000 square foot vacant building in the fourth quarter of 2016 , that is adjacent to one of our centers and was formerly occupied by target . occupancy may also be affected over the next several quarters as we continue to maximize our long-term portfolio value by repositioning some of our anchor space . a reduction in quality retail space available , as well as continued retailer demand , contributed to the increase in overall rental rates on a same-space basis as we completed new leases and renewed existing leases . leasing volume is anticipated to decline as we have less vacant space available for leasing and tenant fallout remains low . our expectation is that spnoi growth with redevelopments will average between 2.5 % to 3.5 % for 2017 , although there are no assurances that this will occur . new development/redevelopment at december 31 , 2016 , we had four projects in various stages of development that were partially or wholly owned , including a contractual commitment to purchase the retail portion of a mixed-use property and a joint venture project located in arlington , virginia where we expect to purchase the land during the second quarter of 2017. we have funded $ 91.3 million through december 31 , 2016 on these projects , and we estimate our aggregate net investment upon completion to be $ 391.9 million , which includes anticipated funding of $ 127 million related to the arlington , virginia project . overall , the average projected stabilized return on investment for these properties is expected to be approximately 6.0 % upon completion . during 2016 , we sold our development in raleigh , north carolina , and effective january 1 , 2016 , we stabilized our development in alexandria , virginia , moving it to our operating property portfolio . this development was 100 % leased with an investment of $ 65 million and an 8 % yield . additionally , effective january 1 , 2017 , we stabilized the development in white marsh , maryland , moving it to our operating property portfolio . this development is 100 % leased with an investment of $ 46 million and an 8 % yield . during 2016 , we purchased land for a mixed-use project in alexandria , virgina , and construction activities commenced in 2017. we also entered into a joint venture partnership arrangement for another mixed-use project in arlington , virginia . we anticipate purchasing the land for this project and commencing construction in april 2017. we have nine redevelopment projects in which we plan to invest approximately $ 61.9 million . upon completion , the average projected stabilized return on our incremental investment on these redevelopment projects is expected to average around 10.5 % to 12.5 % . included in these projects , we began redevelopment activities on three additional shopping centers where we estimate a capital investment totaling $ 22.5 million . during 2016 , we completed seven redevelopment projects that added approximately 208,558 incremental square feet to the total portfolio with an incremental investment totaling $ 30.9 million . we had approximately $ 83.0 million in land held for development at december 31 , 2016 that may either be developed or sold . while we are experiencing some interest from retailers and other market participants in our land held for development , opportunities for economically viable developments remain limited . we intend to continue to pursue additional development and redevelopment opportunities in multiple markets ; however , finding the right opportunities remains challenging . subsequent to december 31 , 2016 , we announced a redevelopment project at our prominent river oaks shopping center in houston , texas where we will be developing a 30-story luxury high-rise with around 10,000 square feet of ground floor retail . the total project cost will approximate $ 150 million and will include a parking garage . we expect to start construction in the first quarter of 2018 with stabilization estimated in 2021. acquisitions acquisitions are a key component of our long-term growth strategy . the availability of quality acquisition opportunities in the market remains sporadic in our targeted markets . intense competition , along with a decline in the volume of high-quality core properties on the market , has in many cases driven pricing to pre-recession highs . we intend to remain disciplined in approaching these opportunities , pursuing only those that provide appropriate risk-adjusted returns . 30 dispositions dispositions are also a key component of our ongoing management process where we selectively prune properties from our portfolio that no longer meet our geographic or growth targets . dispositions provide capital , which may be recycled into properties that are high barrier-to-entry locations within high growth metropolitan markets , and thus have higher long-term growth potential . additionally , proceeds from dispositions may be used to reduce outstanding debt , further deleveraging our consolidated balance sheet . summary of critical accounting policies our discussion and analysis of 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 of america ( “ gaap ” ) .
| in 2016 , a $ 2.0 million gain was realized as compared to a $ 6.1 million loss in 2015. for the year ended december 31 , 2016 , the weighted average debt outstanding was $ 2.2 billion at a weighted average interest rate of 3.9 % as compared to $ 2.0 billion outstanding at a weighted average interest rate of 4.2 % in the same period of 2015. interest and other income the decrease in interest and other income of $ 2.0 million is primarily attributable to a $ 1.7 million litigation settlement received in 2015. gain on sale and acquisition of real estate joint venture and partnership interests the gain in 2016 of $ 48.3 million is primarily attributable to a $ 37.4 million gain associated with the remeasurement of our 51 % unconsolidated real estate partnership interest to fair value associated with the exchange of properties among the partners , a $ 9.0 million gain associated with the fair value realization upon consolidation of our equity associated with the acquisition of a partner 's 50 % interest in a previously unconsolidated tenancy-in-common arrangement and a gain of $ 1.9 million associated with the remeasurement of a land parcel from an unconsolidated real estate joint venture . the gain in 2015 of $ .9 million is primarily attributable to our return of equity associated with an unconsolidated joint venture 's disposition of its real estate property . provision for income taxes the increase of $ 6.8 million in the provision for income taxes is attributable to our taxable reit subsidiary associated primarily with the gain from the exchange of properties among the partners of an unconsolidated real estate joint venture and the disposition of the development in raleigh , north carolina . 33 comparison of the year ended december 31 , 2015 to the year ended december 31 , 2014 the following table is a summary of certain items from our consolidated statements of operations , which we believe represent items that significantly changed during 2015 as compared to the same period in 2014 : replace_table_token_13_th revenues the decrease in revenues of $ 1.6 million is primarily attributable to our dispositions in 2015 and 2014 that totaled $ 37.6 million and slight changes in occupancy , which is offset by an
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while the company anticipates pressure on gross margin percent from product mix and pricing , the company expects that both product mix and pricing will positively impact gross profit dollars in 2014. the company expects that changes in foreign currency exchange rates in 2014 will adversely impact both gross margin percent and gross profit dollars . with respect to the first quarter of 2014 , the company expects gross margin to be down slightly from 2013 due to start-up costs associated with street motorcycles which the company expects to recognize during the first half of 2014. the company expects selling , administrative and engineering expenses to grow in 2014 as it continues to invest in future growth opportunities , but will decrease as a percent of revenue as the company leverages its current spending . the company expects operating income for the financial services segment to be down modestly in 2014 as compared to 2013. going forward , the company continues to expect pressure on financial services operating income as a result of modestly higher credit losses and tightening net interest margins due to increasing competition and higher year-over-year borrowing costs . the company 's capital expenditure estimates for 2014 are between $ 215 million and $ 235 million . the company anticipates it will have the ability to fund all capital expenditures in 2014 with cash flows generated by operations . the company also announced on january 30 , 2014 that it expects the full year 2014 effective income tax rate to be approximately 35.5 % . the increase over 2013 is primarily due to the absence of the u.s. federal research and development tax credit in 2014. this guidance excludes the effect of any potential future adjustments such as changes in tax legislation or audit settlements which are recorded as discrete items in the period in which they are settled . 25 restructuring activities ( 1 ) restructuring costs and savings in 2013 , the company completed work related to its various restructuring activities that were initiated during 2009 through 2011 , as described below . during 2013 , the company incurred a restructuring benefit of $ 2.1 million related to combined restructuring plan activities . this included approximately $ 5 million of benefit related to restructuring reserves released in the second quarter of 2013 in connection with the decision to retain a limited operation at the new castalloy facility , as described below . on a cumulative basis the company has recognized $ 482.2 million in restructuring and impairment expense since its restructuring activities were initiated in 2009. the company has realized or estimates that it will realize cumulative savings from these restructuring activities , measured against 2008 , as follows : 2009 - $ 91 million ( 91 % operating expense and 9 % cost of sales ) ( actual ) ; 2010 - $ 172 million ( 64 % operating expense and 36 % cost of sales ) ( actual ) ; 2011 - $ 217 ( 51 % operating expense and 49 % cost of sales ) ( actual ) ; 2012 - $ 280 million ( 42 % operating expense and 58 % cost of sales ) ( actual ) ; 2013 - $ 310 million ( 39 % operating expense and 61 % cost of sales ) ( actual ) ; ongoing annual - $ 320 million ( approximately 37 % operating expense and approximately 63 % cost of sales ) ( estimated ) ( 1 ) . 2011 restructuring plans in december 2011 , the company made a decision to cease operations at new castalloy , its australian subsidiary and producer of cast motorcycle wheels and wheel hubs , and source those components through other existing suppliers by the end of 2013. since 2011 , the company has successfully transitioned a significant amount of wheel production to other existing suppliers . however , during 2013 , the company made a decision to retain limited operations at new castalloy focused on the production of certain complex , high-finish wheels in a cost-effective and competitive manner . the company also entered into a new agreement with the unionized labor force at new castalloy . in connection with the modified 2011 new castalloy restructuring plan , the new castalloy workforce was reduced by approximately 100 employees , leaving approximately 100 remaining employees to support the ongoing operations . the original plan would have resulted in a workforce reduction of approximately 200 employees . in february 2011 , the company 's unionized employees at its facility in kansas city , missouri ratified a new seven-year labor agreement . the new agreement took effect on august 1 , 2011. the new contract is similar to the labor agreements ratified at the company 's wisconsin facilities in september 2010 and its york , pennsylvania production facility in december 2009 , and allows for similar flexibility , increased production efficiency and the addition of a flexible workforce component . the 2011 kansas city restructuring plan resulted in approximately 145 fewer full-time hourly unionized employees in its kansas city facility than would have been required under the previous contract . 2010 restructuring plan in september 2010 , the company 's unionized employees in wisconsin ratified three separate new seven-year labor agreements which took effect in april 2012 when the prior contracts expired . the new contracts are similar to the labor agreement ratified at the company 's york , pennsylvania production facility in december 2009 and allow for similar flexibility , increased production efficiency and the addition of a flexible workforce component . the 2010 restructuring plan resulted in approximately 250 fewer full-time hourly unionized employees in its milwaukee-area facilities than would have been required under the previous contract and approximately 75 fewer full-time hourly unionized employees in its tomahawk facility than would have been required under the previous contract . story_separator_special_tag 2009 restructuring plan during 2009 , in response to the u.s. economic recession and worldwide slowdown in consumer demand , the company committed to a volume reduction and a combination of restructuring actions that were completed at various dates between 2009 and 2013. the actions were designed to reduce administrative costs , eliminate excess capacity and exit non-core business operations . the company 's actions included the restructuring and transformation of its york , pennsylvania production facility including the implementation of a new more flexible unionized labor agreement which allows for the addition of a flexible workforce component ; consolidation of facilities related to engine and transmission production ; outsourcing of certain distribution and transportation activities and exiting the buell product line . in addition , the company completed projects under 26 this plan involving the outsourcing of select information technology activities and the consolidation of an administrative office in michigan into its corporate headquarters in milwaukee , wisconsin . the 2009 restructuring plan resulted in a reduction of approximately 2,900 hourly production positions and approximately 800 non-production , primarily salaried positions within the motorcycles segment and approximately 100 salaried positions in the financial services segment . results of operations 2013 compared to 2012 consolidated results replace_table_token_9_th consolidated operating income was up 15.3 % in 2013 led by an increase in operating income from the motorcycles segment which improved by $ 155.1 million compared to 2012 . operating income for the financial services segment decreased by $ 1.6 million during 2013 as compared to 2012. please refer to the “ motorcycles and related products segment ” and “ financial services segment ” discussions following for a more detailed discussion of the factors affecting operating income . the effective income tax rate for 2013 was 34.1 % compared to 35.1 % for 2012 . the company 's 2013 effective tax rate was favorably impacted by the reinstatement of the u.s. federal research and development tax credit with the enactment of the american taxpayer relief act of 2012 at the beginning of 2013. during 2013 , the company recorded the benefits of the research and development tax credit for the full year of 2012 , as well as , the full year of 2013. diluted earnings per share were $ 3.28 in 2013 , up 20.6 % over 2012 . the increase in diluted earnings per share was driven primarily by the 17.6 % increase in net income , but also benefited from lower diluted weighted average shares outstanding . diluted weighted average shares outstanding decreased from 229.2 million in 2012 to 224.1 million in 2013 driven by the company 's repurchases of common stock . please refer to `` liquidity and capital resources '' for additional information concerning the company 's share repurchase activity . motorcycle retail sales and registration data worldwide independent dealer retail sales of harley-davidson motorcycles increased 4.4 % during 2013 compared to 2012 . retail sales of harley-davidson motorcycles increased 4.4 % in the united states and 4.3 % internationally in 2013 . the company believes u.s. retail sales for 2013 were positively impacted by the launch of its 2014 model year motorcycles and improved availability of motorcycles which more than offset the adverse impact of weather experienced in the first half of 2013. the company also believes that the u.s. retail sales in 2013 were adversely impacted in the fourth quarter by the absence of its popular road glide models from the 2014 model year . road glide models were discontinued for the 2014 model year , but the company expects the model will be reintroduced when it is upgraded with rushmore features . international retail sales growth during 2013 in the asia pacific region , latin america region and canada were offset by a decline in the emea region . retail sales in the asia pacific region were driven by growth in emerging markets , especially india and china . the retail sales growth in the latin america region was driven by brazil and mexico . the emea region was adversely impacted by that region 's ongoing difficult economic environment . the international retail sales as a percent of total retail sales were consistent compared to 2012 with international retail sales representing 35.3 % of total retail sales in both 2013 and 2012 , respectively . 27 harley-davidson motorcycle retail sales ( a ) the following table includes retail unit sales of harley-davidson motorcycles : replace_table_token_10_th ( a ) data source for retail sales figures shown above is new sales warranty and registration information provided by harley-davidson dealers and compiled by the company . the company must rely on information that its dealers supply concerning retail sales and this information is subject to revision . ( b ) data for europe include austria , belgium , denmark , finland , france , germany , greece , italy , luxembourg , netherlands , norway , portugal , spain , sweden , switzerland and the united kingdom . motorcycle registration data - 601+cc ( a ) the following table includes industry retail motorcycle registration data : replace_table_token_11_th ( a ) data includes street-legal 601+cc models . street-legal 601+cc models include on-highway and dual purpose models and three-wheeled vehicles . ( b ) united states industry data is derived from information provided by motorcycle industry council ( mic ) . this third party data is subject to revision and update . prior periods have been adjusted to include all dual purpose models that were previously excluded . ( c ) europe data includes austria , belgium , denmark , finland , france , germany , greece , italy , luxembourg , netherlands , norway , portugal , spain , sweden , switzerland , and the united kingdom . industry retail motorcycle registration data includes 601+cc models derived from information provided by association des constructeurs europeens de motocycles ( acem ) , an independent agency . this third-party data is subject to revision and update .
| temporary inefficiencies associated with the company 's restructuring activities were $ 15 million in 2013 compared to $ 33 million in 2012. with the completion of the restructuring activities , the company has significantly reduced its fixed cost structure , and therefore improved the overall profitability of the company . at the start of restructuring , motorcycle fixed costs were in the range of 20 % to 25 % of total motorcycle manufacturing costs . beginning in 2014 , the company expects motorcycle fixed costs to be approximately 15 % to 20 % of total motorcycle manufacturing costs , resulting in gross margin on incremental motorcycle volume of approximately 47 % . ( 1 ) the net decrease in operating expense was primarily due to lower restructuring charges and variable employee compensation costs , partially offset by incremental investments to support the company 's international growth and product development initiatives and increases in the company 's global information systems costs . for further information regarding the company 's previously announced restructuring activities , refer to note 4 of notes to condensed consolidated financial statements . 30 financial services segment segment results the following table includes the condensed statements of operations for the financial services segment ( in thousands ) : replace_table_token_15_th other income was favorable primarily due to higher fee income , increased credit card licensing revenue and increased insurance commission revenue . interest expense benefited from a more favorable cost of funds , partially offset by higher debt levels related to higher average finance receivables outstanding . the provision for credit losses was unfavorable compared to 2012 due to an increase in the provision for retail credit losses . retail motorcycle credit losses increased $ 15.8 million in 2013 as compared to 2012 due to lower year-over-year recoveries as well as a higher frequency of loss . as a result , the 2013 retail motorcycle provision increased $ 36.8 million . additionally , 2012 benefited from approximately $ 17.0 million in allowance releases . annual losses on hdfs ' retail motorcycle loans were 1.09 % during 2013 compared to
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in addition , through fiscal 2016 , our belgian based subsidiary , orgenesis sprl , was awarded grants from the regional walloon of 13.5 million ( approximately $ 7.7 million as of the date of this report ) , of which 7.4 million ( approximately $ 7.7 million ) was funded . -42- our other belgian based subsidiary , masthercell , recorded revenues of approximately $ 6.4 million during fiscal 2016 , representing a 115 % increase over the amount of revenues recorded in fiscal 2015. as of the date of this report on form 10-k , masthercell had backlog of approximately $ 7.3 million ( 6.9 million ) . we define our backlog as products and services that masthercell is obligated to deliver based on firm commitments relating to contracts with its customers . however , no assurance can be provided that such contracts will not be cancelled , in which case we will not be authorized to deliver and record the anticipated revenues . in january 2017 , our subsidiary , masthercell , paid out 1.5 million ( approximately $ 1.7 million ) in principal amount and accrued interest owing under a series of bonds that were issued by it in 2014 and came due september 2016. in february 2017 , we and admiral ventures inc. ( “ admiral ” ) , a creditor , reached a settlement agreement pursuant to which approximately $ 1.9 million due and payable has been extended to june 2018. under the terms of the agreement , we agreed to pay to admiral by march 1 , 2017 , $ 1.5 million on account of the amounts due to it . we also agreed to pay to admiral , commencing april 2017 , $ 125 thousand each calendar month to reduce the amounts outstanding and also agreed to remit from the equity investment subscription proceeds raised after february 28 , 2017 of $ 500 thousand or more , 20 % of such proceeds , and of $ 1 million or more , 25 % of such proceeds . in addition , we have agreed to prepay , on our about march 7 , 2017 , approximately $ 402,500 of principal and accrued interest on short-term loans . critical accounting policies and use of estimates the discussion and analysis of our financial condition and results of operations are based upon our financial statements , which have been prepared in accordance with generally accepted accounting principles in the united states . the preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . on an on-going basis , we evaluate our estimates , including those related to revenue recognition , bad debts , investments , intangible assets and income taxes . our estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances . actual results may differ from these estimates . we have identified the accounting policies below as critical to our business operations and the understanding of our results of operations . business combination we allocated the purchase price of the business we acquired to the tangible and intangible assets acquired and liabilities assumed based upon their estimated fair values on the acquisition date . any excess of the purchase price over the fair value of the net assets acquired is recorded as goodwill . acquired in-process backlog , customer relations , brand name and know how are recognized at fair value . the purchase price allocation process requires from us to make significant estimates and assumptions , especially at the acquisition date with respect to intangible assets . direct transaction costs associated with the business combination are expensed as incurred . the allocation of the consideration transferred in certain cases may be subject to revision based on the final determination of fair values during the measurement period , which may be up to one year from the acquisition date . we included the results of operations of the business that we acquired in the consolidated results prospectively from the date of acquisition , when control was obtained . intangible assets intangible assets are recorded at acquisition cost less accumulated amortization and impairment . definite lived intangible assets are amortized over their estimated useful life using the straight-line method over their estimated period of useful life , which is determined by identifying the period over which the cash flows are expected to be generated . -43- goodwill goodwill represents the excess of the purchase price of an acquired business over the estimated fair value of the identifiable net assets acquired . goodwill is not amortized but is tested for impairment at least annually ( at november 30 ) , at the reporting unit level or more frequently if events or changes in circumstances indicate that the goodwill might be impaired . the goodwill impairment test is applied by performing a qualitative assessment before calculating the fair value of the reporting unit . if , on the basis of qualitative factors , it is considered not more likely than not that the fair value of the reporting unit is less than the carrying amount , further testing of goodwill for impairment would not be required . otherwise , goodwill impairment is tested using a two-step approach . the first step involves comparing the fair value of the reporting unit to its carrying amount . if the fair value of the reporting unit is determined to be greater than its carrying amount , there is no impairment . if the reporting unit 's carrying amount is determined to be greater than the fair value , the second step must be completed to measure the amount of impairment , if any . story_separator_special_tag the second step involves calculating the implied fair value of goodwill by deducting the fair value of all tangible and intangible assets , excluding goodwill , of the reporting unit from the fair value of the reporting unit as determined in step one . the implied fair value of the goodwill in this step is compared to the carrying value of goodwill . if the implied fair value of the goodwill is less than the carrying value of the goodwill , an impairment loss equivalent to the difference is recorded . as of november 30 , 2016 , the fair value of the reporting unit , cdmo , exceeded the carrying value by approximately $ 3 million . a decrease in the terminal year growth rate of 1 % and an increase in the discount rate of 1 % would reduce the fair value of the reporting unit by approximately $ 4 million and would result in an impairment . given the small amount that the fair value exceeded the carrying value of the reporting unit , a negative change in the future to the income approach based on discounted cash flows of a number of assumptions ( including the expected cash flows , discount rate , growth rate and terminal rate ) will result in an impairment . given that the reporting unit is still in its growth stage , there can be no assurance that an impairment may not occur in the near future . impairment of long-lived assets we are reviewing the property and equipment , intangible assets subject to amortization and other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset class may not be recoverable . indicators of potential impairment include : an adverse change in legal factors or in the business climate that could affect the value of the asset ; an adverse change in the extent or manner in which the asset is used or is expected to be used , or in its physical condition ; and current or forecasted operating or cash flow losses that demonstrate continuing losses associated with the use of the asset . if indicators of impairment are present , the asset is tested for recoverability by comparing the carrying value of the asset to the related estimated undiscounted future cash flows expected to be derived from the asset . if the expected cash flows are less than the carrying value of the asset , then the asset is considered to be impaired and its carrying value is written down to fair value , based on the related estimated discounted cash flows . there were no impairment charges in 2016 and 2015. revenue recognition we recognize the revenue for services linked to cell process development and cell manufacturing services based on individual contracts in accordance with accounting standards codification ( asc ) 605 , revenue recognition , when the following criteria have been met : persuasive evidence of an arrangement exists ; delivery of the processed cells has occurred or the services that are milestones based have been provided ; the price is fixed or determinable and collectability is reasonably assured . we determine that persuasive evidence of an arrangement exists based on written contracts that define the terms of the arrangements . in addition , we determine that services have been delivered in accordance with the arrangement . we assess whether the fee is fixed or determinable based on the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment . service revenues are recognized as the services are provided . we also incur revenue from selling of some consumables which are incidental to the services provided as foreseen in the clinical services contracts . such revenue is recognized upon delivery of the processed cells in which they were consumed . -44- story_separator_special_tag november , 2015 , ( ii ) a decrease of $ 1,113 thousand in the interest income from changes in fair value of convertible bonds primarily resulting from changes in our assumptions related to the occurrence of the convertible bonds conversion option during the year 2015 and ( iii ) $ 229 thousand loss from extinguishment of a convertible loan and ( iv ) a decrease of $ 728 thousand in income from changes in the fair value of the embedded derivatives , due to the fact that in 2015 there was a strong impact of the decrease in the share price . this decrease was partially offset by interest income of $ 1,476 thousand in 2016 from changes in fair value of the price protection derivative , due to changes in our assumptions related to the probability of activating the anti-dilution mechanism . in addition , part of the decrease is primarily attributable to $ 208 thousand of stock-based compensation expenses related to warrants granted due to expiration of our credit facility . working capital deficiency replace_table_token_7_th current assets decreased by $ 4 million , which was primarily attributable to a decrease of $ 3.3 million in cash and cash equivalents that were used for , among other things , the repayment of short and long-term debt in amount of $ 2.1 million , purchase of property and equipment in amount of $ 1.4 million for the manufacturing facility in belgium in order to meet customers ' demands and expanding capacity . furthermore , the prepaid expenses and other receivables decreased by $ 0.5 million and the grants receivable decreased by $ 0.5 million mainly due to reduction in the expected receivables from the dgo6 resulting from dgo6 's of certain expenses . this was partially offset by an increase of $ 0.1 million in inventory .
| expenses cost of sales replace_table_token_3_th -45- cost of sales for the year ended november 30 , 2016 increased by 97 % , or $ 3.8 million , compared to 2015. an increase of 39 % , or $ 1.5 million , in costs of sales for the year ended november 30 , 2016 compared to 2015 was due to consolidation of the full period results of masthercell in 2016. salaries and related expenses for the year ended november 30 , 2016 increased by 154 % , or $ 2 million compared to 2015. the increase in salaries and related expenses for the year ended november 30 , 2016 compared to 2015 , was due to recruitment by masthercell of new employees as part of our plans to expand the manufacturing facility 's capacity in belgium and to addition of staff to support the increase in the volume of services provided . accordingly , masthercell employed as of november 30 , 2016 an average of 80 compared to 35 employees in the corresponding period last year . professional fees and consulting services for the year ended november 30 , 2016 , increased by 134 % , or $ 554 thousand , compared to 2015. of the increase in professional fees and consulting services 160 thousand is partially attributable to the engagement of two new consultants and a new service provider . raw materials for the year ended november 30 , 2016 , increased by 40 % , or $ 509 thousand , compared to year ended november 30 , 2015 due to the increase in the volume of our services and the execution of two qualification runs . amortization and depreciation expenses , net for the year ended november 30 , 2016 , increased by 66 % , or $ 518 thousand , compared to the year ended november 30 , 2015 as a result of depreciation expenses of equipment purchased during 2016 for two production rooms and a new clean room . research and development expenses replace_table_token_4_th the increase in salaries and related expenses for the year ended november 30 , 2016 compared to 2015 is primarily due to the expansion of our development team in belgium from one part time employee to three employees . in addition , during the year 2016 we expanded our research and development team in our israeli subsidiary compared to last year . professional fees and consulting services for the year ended november 30 , 2016 compared to 2015 , decreased by 15 % , or $ 76 thousand , and is attributable to the merger with masthercell , which was one of our subcontractors for the dgo6 project before the acquisition . the increase in lab expenses in the year ended november 30 , 2016
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) civil east primoris i & m ( formerly jcg infrastructure & maintenance division ) civil east primoris build own operate civil east we own a 50 % interest in two separate joint ventures , both formed in 2015. the carlsbad power constructors joint venture ( “ carlsbad ” ) is engineering and constructing a gas-fired power generation facility , and the “ arb inc. & b & m engineering co. ” joint venture ( “ wilmington ” ) is also engineering and constructing a gas-fired power generation facility . both projects are located in southern california . the joint venture operations are included as part of the power segment . as a result of determining that we are the primary beneficiary of the two variable interest entities ( “ vies ” ) , the results of the carlsbad and wilmington joint ventures are consolidated in our financial statements . both projects are expected to be completed in 2018. we owned 50 % of the blythe power constructors joint venture ( “ blythe ” ) created for the installation of a parabolic trough solar field and steam generation system in california , and its operations have been included as part of the power segment . we determined that in accordance with fasb topic 810 , we were the primary beneficiary of a variable interest entity and have consolidated the results of blythe in our financial statements . the project has been completed , the project warranty expired in may 2015 , and dissolution of the joint venture was completed in the third quarter of 2015. financial information for the joint ventures is presented in note 12— “ noncontrolling interests ” of the notes to consolidated financial statements included in item 8 of this form 10-k. we continue to be acquisitive , and the following outlines the various acquisitions made over the past three years . see note 4— “ business combinations ” of the notes to consolidated financial statements included in item 8 of this form 10-k on february 28 , 2015 , we acquired the net assets of aevenia , inc. for $ 22.3 million . aevenia operations are included in the utilities segment . 31 on january 29 , 2016 , we acquired the net assets of mueller concrete construction company ( `` mueller '' ) for $ 4.1 million , and on november 18 , 2016 , we acquired the net assets of northern energy & power ( “ northern ” ) for $ 6.9 million . on june 24 , 2016 , we purchased property , plant and equipment from pipe jacking unlimited , inc. ( “ pipe jacking ” ) , consisting of specialty directional drilling and tunneling equipment for $ 13.4 million . we determined this purchase did not meet the definition of a business as defined under asc 805. mueller operations are included in the utilities segment , northern operations are included in the power segment , and pipe jacking operations are included in the pipeline segment . on may 26 , 2017 , we acquired the net assets of florida gas contractors ( “ fgc ” ) for $ 37.7 million ; on may 30 , 2017 , we acquired certain engineering assets for approximately $ 2.3 million ; and on june 16 , 2017 , we acquired the net assets of coastal field services ( “ coastal ” ) for $ 27.5 million . fgc operations are included in the utilities segment , the engineering assets are included in the power segment , and coastal operations are included in the pipeline segment . in august 2017 , we announced we are investing approximately $ 22.0 million to build , own , and operate a portfolio of solar projects in a california school district acquired from the developers , spear point energy , llc , and pfmg solar , llc . this investment amount includes the estimated cost of engineering , procurement , and construction ( “ epc ” ) work on the projects , which is projected to be completed in 2018. the solar projects are expected to generate a 25-year recurring revenue stream from the district 's signed power purchase agreement . as an investment in a renewable energy project , the solar assets should provide us with investment tax credits valued at over $ 5.0 million . as of december 31 , 2017 , our investment for the solar projects was approximately $ 9.9 million . the $ 9.9 million investment is our construction in progress on the solar projects and is included in property and equipment , net on the consolidated balance sheets . material trends and uncertainties we generate our revenue from both large and small construction and engineering projects . the award of these contracts is dependent on many factors , most of which are not within our control . we depend in part on spending by companies in the energy and oil and gas industries , the gas utility industry , as well as municipal water and wastewater customers . over the past several years , each segment has benefited from demand for more efficient and more environmentally friendly energy and power facilities , local highway and bridge needs and from the activity level in the oil and gas industry . however , periodically , each of these industries and government agencies is adversely affected by macroeconomic conditions . economic factors outside of our control may affect the amount and size of contracts we are awarded in any particular period . we closely monitor our customers to assess the effect that changes in economic , market and regulatory conditions may have on them . we have experienced reduced spending by some of our customers over the last several years , which we attribute to negative economic and market conditions , and we anticipate that these negative conditions may continue to affect demand for our services in the near-term . fluctuations in market prices of oil , gas and other fuel sources have affected demand for our services . story_separator_special_tag while we have seen signs of a recovery in the price of oil , the significant volatility in the price of oil , gas and liquid natural gas that occurred in the past few years has created uncertainty with respect to demand for our oil and gas pipeline services both in the near-term and for future projects . we believe that our upstream operations , such as the construction of gathering lines within the oil shale formations , will remain at lower levels for an extended period . while there was some stability in the price of oil in 2017 , that stability has not resulted in a significant change in the contracting activities of our customers . we believe that over time , the need for pipeline infrastructure for mid-stream and gas utility companies will result in a continuing need for our services , but the impact of the low oil prices may delay midstream pipeline opportunities . the continuing changes in the regulatory environment also affect the demand for our services , either by increasing our work or delaying projects . for example , the regulatory environment in california may result in delays for the construction of gas-fired power plants while regulators continue to search for significant renewable resources , but renewable resources may also create a demand for our construction services such as the need for storage of renewable generated electricity . finally , we believe that regulated utility customers will continue to invest in our maintenance and replacement services . 32 seasonality , cyclicality and variability our results of operations are subject to quarterly variations . some of the variation is the result of weather , particularly rain , ice and snow , which can impact our ability to perform construction services . while the majority of our work is in the southern half of the united states , these seasonal impacts can affect revenues and profitability in all of our businesses since gas and other utilities defer routine replacement and repair during their period of peak demand . any quarter can be affected either negatively or positively by atypical weather patterns in any part of the country . in addition , demand for new projects tends to be lower during the early part of the year due to clients ' internal budget cycles . as a result , we usually experience higher revenues and earnings in the third and fourth quarters of the year as compared to the first two quarters . we are also dependent on large construction projects which tend not to be seasonal , but can fluctuate from year to year based on general economic conditions . our business may be affected by declines or delays in new projects or by client project schedules . because of the cyclical nature of our business , the financial results for any period may fluctuate from prior periods , and our financial condition and operating results may vary from quarter to quarter . results from one quarter may not be indicative of financial condition or operating results for any other quarter or for an entire year . critical accounting policies and estimates general —the preparation of financial statements in conformity with accounting principles generally accepted in the united states requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and also affect the amounts of revenues and expenses reported for each period . these estimates and assumptions must be made because certain information that is used in the preparation of our financial statements can not be calculated with a high degree of precision from data available , is dependent on future events , or is not capable of being readily calculated based on generally accepted methodologies . often , estimates are particularly difficult to determine , and we must exercise significant judgment . estimates may be used in our assessments of revenue recognition under percentage-of-completion accounting , the allowance for doubtful accounts , useful lives of property and equipment , fair value assumptions in analyzing goodwill and long-lived asset impairments , self-insured claims liabilities and deferred income taxes . actual results could differ from those that result from using the estimates under different assumptions or conditions . an accounting policy is deemed to be critical if it requires an accounting estimate to be based on assumptions about matters that are highly uncertain at the time the estimate is made , and different estimates that reasonably could have been used , or changes in the accounting estimates that are reasonably likely to occur periodically , could materially impact our consolidated financial statements . the following accounting policies are based on , among other things , judgments and assumptions made by management that include inherent risks and uncertainties . management 's estimates are based on the relevant information available at the end of each period . we periodically review these accounting policies with the audit committee of the board of directors . revenue recognition —we generate revenue under a range of contracting options , including fixed-price , unit-price , time and material , and cost reimbursable plus fee contracts . a substantial portion of our revenue is derived from contracts that are fixed-price or unit-price , using the percentage-of-completion method . for time and material and cost reimbursable plus fee contracts , revenue is recognized primarily based on contractual terms . generally , time and material and cost reimbursable contract revenues are recognized on an input basis , based on labor hours incurred and on purchases made . in the percentage-of-completion method , estimated contract values , estimated cost at completion and total costs incurred to date are used to calculate revenues earned . unforeseen events and circumstances can alter the estimate of the costs and potential profit associated with a particular contract . total estimated costs , and thus contract revenues and income , can be impacted by changes in productivity , scheduling , the unit cost of labor , subcontracts , materials and equipment .
| our gross profit benefitted by $ 26.7 million from the settlement of one of the “ receivable collection actions ” . gross profit as a percentage of revenues decreased from 11.4 % in 2015 to 10.1 % in 2016 for the reasons noted above . 39 selling , general and administrative expenses selling , general and administrative expenses ( “ sg & a ” ) consist primarily of compensation and benefits to executive , management level and administrative employees , marketing and communications , professional fees , office rent and utilities and acquisition costs . 2017 and 2016 for 2017 , sg & a expenses were $ 172.1 million , compared to $ 140.8 million for 2016 , an increase of $ 31.3 million . approximately $ 12.4 million of the increase in sg & a is related to businesses acquired in 2017 and a full year of expense in 2017 for the northern acquisition compared to less than two months of expense in 2016. the remaining increase was primarily due to a $ 12.6 million increase in compensation related expenses , including incentive compensation accruals ; and a $ 1.3 million increase in legal costs . sg & a as a percentage of revenue for the year ended december 31 , 2017 increased slightly to 7.2 % compared to 7.1 % for the year ended december 31 , 2016. excluding the impact of acquisitions , sg & a as a percentage of revenue for the year ended december 31 , 2017 , decreased slightly to 6.9 % compared to 7.1 % for the year ended december 31 , 2016 . 2016 and 2015 for 2016 , sg & a expenses were $ 140.8 million , compared to $ 151.7 million for 2015 , a decrease of $ 10.9 million . the decrease was primarily as a result of decreases in professional fees of $ 7.4 million due to reduced legal fees and due to completion of the implementation of the integrated financial system . the reduction in sg & a was also the result of a $ 2.6 million prior year one-time
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on march 11 , 2014 , we completed our initial public offering and received $ 141.6 million of net proceeds in connection with the initial public offering and concurrent private placement , net of the portion of the underwriting sales load and offering costs we paid . in 2015 , we completed a follow-on public offering of our common stock raising approximately $ 95.9 million after offering costs . on october 25 , 2017 , we sold in a private placement transaction : ( i ) 1,594,007 shares of our common stock at a price of $ 13.54 per share to certain investment funds managed by the alternative investments & manager selection group of goldman sachs asset management , l.p. and ( ii ) 73,855 shares of our common stock at a price of $ 13.65 per share to certain of our executive officers , for total gross proceeds of approximately $ 22.6 million . borrowings in february 2014 , we entered into a credit agreement with deutsche bank ag acting as administrative agent and a lender , and keybank national association , everbank commercial lender finance , inc. , and alostar bank of commerce , as other lenders , which provided us with a $ 150.0 million commitment , subject to borrowing base requirements ( the “ revolving credit facility ” ) . in august 2014 , we amended the revolving credit facility to increase the total commitments by $ 50.0 million to $ 200.0 million in aggregate . effective as of a january 2016 amendment to the revolving credit facility , borrowings under the revolving credit facility bore interest at the sum of ( i ) a floating rate based on certain indices , including libor and commercial paper rates , plus ( ii ) a margin of 3.0 % during the revolving credit facility 's revolving period . in january 2018 we amended and renewed the revolving credit facility . mufg union bank , n.a , replaced alostar bank of commerce as a lender , under the amended revolving credit facility . the amendment and renewal , among other things , increased the total commitment by $ 10.0 million to $ 210.0 million , extended the revolving period from february 21 , 2018 to february 21 , 2020 , and extended the maturity date from february 21 , 2019 to august 21 , 2021. in addition , the amended revolving credit facility includes a reduction in the undrawn rate from 0.75 % to 0.50 % and a reduction in the applicable margin during the revolving period to 2.80 % if facility utilization is greater than or equal to 75 % , 2.90 % if utilization is greater than or equal to 50 % , and 3.00 % if utilization is less than 50 % . borrowings under the revolving credit facility are subject to its various covenants and the leverage restrictions contained in the 1940 act . on august 4 , 2015 , we completed a public offering of $ 50.0 million in aggregate principal amount of our 6.75 % notes due 2020 ( the “ 2020 notes ” ) and received net proceeds of $ 48.3 million after the payment of fees and offering costs . on september 2 , 2015 , we issued an additional $ 4.6 million in aggregate principal amount of our 2020 notes and received net proceeds of approximately $ 4.5 million , after the payment of the underwriting sales load and offering costs , as a result of the underwriters ' partial exercise of their option to purchase additional 2020 notes . the interest on the 2020 notes were payable quarterly on january 15 , april 15 , july 15 and october 15 , beginning on october 15 , 2015 . 63 on july 14 , 2017 , we elected to exercise our option to redeem , in full , the 2020 notes . on august 13 , 2017 , we redeemed all of the issued and outstanding 2020 notes in an aggregate principal amount of $ 54.6 million and paid an aggregate accrued interest of approximately $ 0.3 million . the 2020 notes have been delisted on the nyse effective august 15 , 2017. on july 14 , 2017 , we completed a public offering of $ 65.0 million in aggregate principal amount of our newly issued 2022 notes and received net proceeds of approximately $ 62.8 million , after the payment of fees and offering costs . on july 24 , 2017 , as a result of the underwriters ' full exercise of their option to purchase additional 2022 notes , we issued an additional $ 9.75 million in aggregate principal amount of the 2022 notes and received net proceeds of approximately $ 9.5 million , after the payment of fees and offering costs . the interest on the 2022 notes is payable quarterly on january 15 , april 15 , july 15 and october 15 , beginning october 15 , 2017. portfolio composition , investment activity and asset quality portfolio composition we originate and invest primarily in venture growth stage companies . companies at the venture growth stage have distinct characteristics differentiating them from venture capital-backed companies at other stages in their development lifecycle . we invest primarily in ( i ) growth capital loans that have a secured collateral position and that are used by venture growth stage companies to finance their continued expansion and growth , ( ii ) equipment financings , which may be structured as loans or leases , that have a secured collateral position on specified mission-critical equipment , ( iii ) on a select basis , revolving loans that have a secured collateral position and that are used by venture growth stage companies to advance against inventory , components , accounts receivable , contractual or future billings , bookings , revenues , sales or cash payments and collections including proceeds from a sale , financing or the equivalent and ( iv ) direct equity investments in venture growth stage companies . story_separator_special_tag in connection with our growth capital loans , equipment financings and revolving loans , we generally receive warrant investments that allow us to participate in any equity appreciation of our borrowers and enhance our overall investment returns . as of december 31 , 2017 , we had 106 investments in 42 companies . our investments included 60 debt investments , 32 warrant investments , and 14 direct equity and related investments . as of december 31 , 2017 , the total cost and fair value of these investments were approximately $ 373.7 million and approximately $ 372.1 million , respectively . as of december 31 , 2017 , one of our portfolio companies was publicly traded . as of december 31 , 2017 , the 60 debt investments had an aggregate fair value of approximately $ 352.1 million and a weighted average loan to enterprise value ratio at the time of underwriting of approximately 7.4 % . enterprise value of a portfolio company is estimated based on information available , including any information regarding the most recent rounds of borrower funding , at the time of origination . as of december 31 , 2016 , we held 99 investments in 33. our investments included 63 debt investments , 29 warrant investments , and seven direct equity and related investments . as of december 31 , 2016 , the total cost and fair value of these investments were approximately $ 370.1 million and approximately $ 374.3 million , respectively . as of december 31 , 2016 , one of our portfolio companies was publicly traded . as of december 31 , 2016 , the 63 debt investments with an aggregate fair value of approximately $ 360.0 million had a weighted average loan to enterprise value ratio at the time of underwriting of approximately 8.6 % . the following tables provide information on the cost and fair value of our investments in companies along with the number of companies in our portfolio as of december 31 , 2017 and december 31 , 2016. replace_table_token_4_th replace_table_token_5_th * represents non-duplicative number of companies . 64 the following tables present the fair value of the portfolio of investments , by industry and the percentage of the total investment portfolio , as of december 31 , 2017 and december 31 , 2016. replace_table_token_6_th * amount represents less than 0.05 % of the total portfolio investments . 65 replace_table_token_7_th * amount represents less than 0.05 % of the total portfolio investments . the following tables present the financing product type of our debt investments as of december 31 , 2017 and december 31 , 2016. replace_table_token_8_th replace_table_token_9_th growth capital loans in which the borrower held a term loan facility , with or without an accompanying revolving loan , in priority to our senior lien represent approximately 22.5 % and 18.7 % of the debt investments at fair value as of december 31 , 2017 and december 31 , 2016 , respectively . investment activity during the year ended december 31 , 2017 , we entered into fifteen new debt commitments with twelve new portfolio companies and three existing portfolio companies totaling $ 329.9 million , funded thirty-six debt investments for approximately $ 231.8 million in principal value , acquired warrant investments representing approximately $ 3.8 million of value , and made nine equity and related investments of approximately $ 5.0 million and sold equity in one portfolio company for $ 4.5 million . 66 during the year ended december 31 , 2016 , we entered into seventeen new commitments with eight new portfolio companies and nine existing portfolio companies totaling $ 286.9 million , funded twenty-eight debt investments for approximately $ 158.3 million in principal value , acquired warrant investments representing approximately $ 2.5 million of value , and made two equity and related investments of approximately $ 0.2 million . during the year ended december 31 , 2017 , one portfolio company repaid its outstanding growth capital loans at maturity in the amount of approximately $ 22.5 million , eight portfolio companies prepaid prior to maturity all of their outstanding growth capital loans of approximately $ 193.1 million , one portfolio company prepaid one of their equipment leases of approximately $ 0.6 million and one portfolio company made a partial principal prepayment of $ 1.8 million . in addition , during the year ended december 31 , 2017 , we received $ 2.4 million of cash proceeds and anticipate further distributions of $ 0.4 million from bankruptcy proceedings related to the liquidation of kncminer ab and converted any and all remaining receivables to an equity investment in gogreenhost ab . during the year ended december 31 , 2016 , three portfolio companies fully prepaid their outstanding principal of approximately $ 36.1 million and one portfolio company made a partial principal prepayment of its outstanding growth capital loan of $ 5.0 million . total portfolio investment activity for the years ended december 31 , 2017 and december 31 , 2016 was as follows : replace_table_token_10_th as of december 31 , 2017 , our unfunded commitments to ten companies totaled approximately $ 100.1 million . during the year ended december 31 , 2017 , $ 120.0 million in unfunded commitments expired or were terminated and approximately $ 231.8 million were funded . as of december 31 , 2016 , our unfunded commitments to nine companies totaled approximately $ 117.4 million . during the year ended december 31 , 2016 , $ 161.2 million in unfunded commitments expired or were terminated and approximately $ 158.3 million were funded . the following table provides additional information on our unfunded commitments regarding milestones , expirations , and types of loans . replace_table_token_11_th _ * does not include backlog of potential future commitments . 67 our credit agreements with our portfolio companies contain customary lending provisions that allow us relief from funding obligations for previously made commitments in instances where the underlying company experiences materially adverse events that affect the financial condition or business outlook for the company .
| ( 1 ) due to payoffs of their outstanding obligations in the amount of $ 65.0 million . during the year ended december 31 , 2016 , there were seven changes within the credit categories . three portfolio companies , with a combined principal balance of $ 82.0 million was upgraded from white ( 2 ) to clear ( 1 ) . one portfolio company , with a principal balance of $ 41.6 million was downgraded from clear ( 1 ) to white ( 2 ) and subsequently upgraded back to clear ( 1 ) . one portfolio company , with a principal balance of $ 31.2 million was upgraded from orange ( 4 ) to yellow ( 3 ) . one portfolio company , with a principal balance of $ 20.5 million was downgraded from white ( 2 ) to yellow ( 3 ) . one portfolio company , with a principal balance of $ 5.6 million was downgraded from white ( 2 ) to yellow ( 3 ) and subsequently to orange ( 4 ) . the following tables show the credit rankings for the portfolio companies that had outstanding obligations to us as of december 31 , 2017 and december 31 , 2016. replace_table_token_13_th 69 replace_table_token_14_th results of operations comparison of operating results for the years ended december 31 , 2017 , december 31 , 2016 and december 31 , 2015 an important measure of our financial performance is net increase ( decrease ) in net assets resulting from operations , which includes net investment income ( loss ) , net realized gains ( losses ) and net unrealized gains ( losses ) . net investment income ( loss ) is the difference between our income from interest , dividends , fees and other investment income and our operating expenses including interest on borrowed funds . net realized gains ( losses ) on investments are the difference between the proceeds received from dispositions of portfolio investments and their amortized cost . net unrealized gains ( losses ) on investments is the net change in the fair value of our investment portfolio . for the year ended december 31 , 2017 , our net
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this table does not include the six management services agreements under which we manage the operations of six home nursing agencies , through our home health services segment , nor does it include our pharmacies , family health center , rural health clinic , physical therapy clinics through our facility-based services segment . replace_table_token_8_th recent developments home health services on april 14 , 2015 , legislation was passed which limits any increase in home health payments to 1 % for fiscal year 2018 and extended the 3 % rural home health safeguard for two years through december 31 , 2017. on november 1 , 2017 , cms released the final rule ( effective january 1 , 2018 ) regarding payment rates for home health services provided during calendar year 2018. the national , standardized 60-day episode payment rate will increase to $ 3,039.64 in 2018. the final rule estimates an impact of 0.5 % reduction in payments due to the expiration of the rural add-on provision , a 1 % home health payment update percentage , and 0.97 % adjustment for case mix ( the third year of a three year adjustment ) . cms also estimates a reduction in regulatory reporting due to the removal of a number of quality measures and oasis items . cms estimates the overall economic impact of the final rule 's changes and payment rate update is an estimated decrease of 0.4 % in payments to home health agencies . in addition , cms decided not to finalize its rule on the home health groupings model ( `` hhgm '' ) as was proposed , but instead will take additional time to further engage with stakeholders to move towards a system that shifts the focus from volume of services to a more patient-centered model . the bba 2018 included the following provisions impacting our home health business : a new case mix model mandates the development of a new case mix model in a transparent process involving cms , the home health industry , and the congressional committees of jurisdiction . the new model will use a 30-day payment period ( leaving intact the 60-day assessment and order process ) , and must be implemented in a budget-neutral manner beginning in 2020 and will not include the use of therapy visits as a determinant . congressional budget office ( `` cbo '' ) scored this at zero savings and zero cost due to the budget-neutrality requirement . cms is specifically instructed to consider the use of alternative payment reform recommendations like the “ risk based grouper model ” proposed in lieu of the home health groupings model ( `` hhgm '' ) proposed in the preliminary rule . 43 the new model must be developed on a budget-neutral basis as opposed to the hhgm , which was proposed on a non-budget-neutral basis in the preliminary rule . further , any behavioral adjustments must now be transparent and subject to public notice , comment , and the rule-making process . the hhgm , as proposed , footnoted a reference to behavioral adjustments that were not defined and not transparent in its underlying assumptions period in 2017. restoration of the 3 % rural add-on restores the 3 % home health rate add-on for home health patients who reside in rural geographies , effective january 1 , 2018. the add-on rate will be phased downward over a five-year period following a formula specified in the legislation . restores an important protection of access to medicare home health care for rural america , and provides sufficient time for the industry to produce additional compelling evidence to demonstrate the positive impact of the rural add-on payment to rural medicare beneficiaries . since its inception , the rural rate has been repeatedly renewed by congress in recognition of the continued need . face-to-face documentation improvements allowing the home health medical record in its entirety to be used in support of the physician 's attestation of medical necessity . a study is to be conducted by the gao ( government accounting office ) on medicare improvements to address the needs of the chronically ill through healthcare services provided at home , including interdisciplinary care management , tele-health , and tele-monitoring for medicare advantage plans , requiring states to better integrate medicare and medicaid services for the dually-eligible , and the extension and expansion of the independence at home demonstration program . a specific market basket update percentage of 1.5 % for fiscal year 2020 , leaving intact the full market basket update ( generally expected to be between 2-3 % ) for fiscal year 2019. suspends the productivity adjustment in 2020. repeal of the independent payment advisory board , effective upon passage . payment rate feasibility study to be conducted concerning the feasibility of a higher payment rate for providers , including home health providers that engage in the management of patients ' chronic conditions . on october 31 , 2018 , cms released the final rule regarding payment rates for home health services provided during calendar year 2019. the national , standardized 60-day episode payment rate will increase to $ 3,154.27 in 2019. the rule estimates an impact of 2.2 % increase in payments due to the rate and policy changes proposed in the rule . the rule implements a modified rural safeguard payment varying between 1.5 % and 4.0 % beginning in 2019 as prescribed by the bipartisan budget act of 2018. the final rule prescribed scores for various case-weights and made minor changes to the wage indices , both in a budget neutral manner . story_separator_special_tag the final rule also establishes policy changes to the home health quality reporting program , the home health value based purchasing demonstration , the home health high cost outlier policy , and simplifies certification and recertification requirements beginning january 1 , 2019. in addition , for certifications and recertifications that commence on or after january 1 , 2020 , cms will implement the patient driven groupings model ( `` pdgm '' ) prospective payment system , as mandated by the bipartisan budget act of 2018. under pdgm , the initial certification of patient eligibility , plan of care , and comprehensive assessment will remain valid for 60-day episodes of care , but payments for home health services will be made based upon 30-day payment periods . for lupas under pdgm , the threshold will vary for a 30-day period depending on the pdgm payment group . further , pdgm eliminates the use of the number of therapy visits in determining the calculation of payments . under pdgm , the national standardized rate will be budget neutral and will be set in the 2020 proposed rule . while cms has proposed to make adjustments totaling -6.42 % for assumptions on changes in provider behavior affecting reimbursement , which relate to clinical group coding , comorbidity coding , and achievement of lupa thresholds , without providing backup data to support a full understanding of the assumptions that cms used in determining these adjustments . lhc group intends to continue its advocacy efforts to eliminate or reduce the amount of the behavioral adjustments . hospice on august 1 , 2017 , cms issued a final rule updating medicare payment rates and the wage index for hospices for fiscal year 2018. the result will be a 1.0 % increase in payment rates due to the provisions of section 411 ( d ) of the medicare access and chip reauthorization act of 2015 ( pub . l. 114-10 ) ( `` macra '' ) . the hospice cap will be $ 28,689.04 , which is a 1 % increase . the final rule finalizes eight measures from consumer assessment of healthcare providers and systems ( `` cahps '' ) hospice survey data already submitted by hospices . the rule also finalizes the extension of the exception for quality reporting purposes from 30 calendar days to 90 calendar days after the date that an extraordinary circumstance occurred . cms began public reporting hospice quality reporting program ( `` hqrp '' ) data via a hospice compare site in 44 august 2017 to help customers make informed choices . hospices that fail to meet quality reporting requirements will receive a two percentage point reduction to their payments . the following table shows the hospice medicare payment rates for fiscal year 2018 , which began on october 1 , 2017 and ended september 30 , 2018 : replace_table_token_9_th on august 1 , 2018 , cms posted a display copy of the final rule for the annual update to medicare hospice payment rates for fiscal year 2019. in this final rule , hospices will receive a 1.8 % increase in medicare payments for fiscal year 2019. the hospice payment update percentage for fiscal year 2019 is based on a 2.9 % inpatient hospital market basket update , reduced by a 0.8 % point multifactor productivity adjustment , and reduced by a 0.3 percentage point adjustment required by law . hospices that fail to meet quality reporting requirements receive a 2.0 percentage point reduction to their payments . the hospice aggregate cap amount for fiscal year 2019 will be $ 29,205.44 ( 2018 cap amount of $ 28,689.04 increased by 1.8 % ) . additionally , this rule finalizes conforming regulations text changes so that effective january 1 , 2019 , physician assistants will be recognized as designated hospice attending physicians , in addition to physicians and nurse practitioners . this rule also finalizes changes to the hqrp . the following table shows the hospice medicare payment rates for fiscal year 2019 , which began on october 1 , 2018 and will end september 30 , 2019 : replace_table_token_10_th the bba 2018 included the following provisions impacting our hospice business : hospice included in hospital post-acute transfer policy for early discharges to hospice care . hospice will be included as a post-acute service subject to the transfer drg policy , in which acute-care hospitals receive a reduction in payments if they transfer a patient to post-acute care prior to achieving the mean length of stay for the drg . currently , home health , skilled nursing facilities , and ltachs are included within the policy , and the bba 2018 adds hospice as a post-acute provider subject to the policy . home and community-based services home and community-based services are in-home care services , which are primarily performed by skilled nursing and paraprofessional personnel , and include assistance with activities of daily living to elderly , chronically ill , and disabled patients . revenue is generated on an hourly basis and our current primary payors are tenncare managed care organization and medicaid . facility-based services on december 26 , 2013 , president obama signed into law the bipartisan budget act of 2013 ( public law 113-67 ) . this law prevents a scheduled payment reduction for physicians and other practitioners who treat medicare patients from taking effect on january 1 , 2014. included in the legislation are the following changes to ltach reimbursement : 45 medicare discharges from ltachs will continue to be paid at full ltach pps rates if : ◦ the patient spent at least three days in a short-term care hospital ( “ stch ” ) intensive care unit ( “ icu ” ) during a stch stay that immediately preceded the ltach stay , or ◦ the patient was on a ventilator for more than 96 hours in the ltach ( based on the ms-ltach drg assigned ) and had a stch stay immediately preceding the ltach stay . ◦ also , the ltach discharge can not have a principal diagnosis that is psychiatric or rehabilitation .
| ( 4 ) acquired - purchased location that has been in service with us 12 months or less , including all legacy almost family locations for the period after april 1 , 2018. total home health organic revenue and patient metrics increased due to market share growth in service areas where we have quality scores greater than 4 stars . total organic revenue and patient days increased in our facility-based services segment due to a higher percentage of ltach patients meeting patient criteria requirements . organic growth is primarily generated by population growth in areas covered by mature agencies and by increased market share in acquired and developing agencies . historically , acquired agencies have the highest growth in admissions and average census in the first 24 months after acquisition , and have the highest contribution to organic growth , measured as a percentage of growth , in the second full year of operation after the acquisition . the following table sets forth the reconciliation of total revenue disclosed above , which excludes implicit price concessions , to net service revenue recognized for the twelve months ended december 31 , 2018 and 2017 ( amounts in thousands ) : replace_table_token_17_th cost of service revenue the following table summarizes cost of service revenue ( amounts in thousands , except percentages , which are percentages of the segment 's respective net service revenue ) : replace_table_token_18_th 50 replace_table_token_19_th consolidated cost of service revenue for the year ended december 31 , 2018 was $ 1,156.4 million compared to $ 675.8 million for the same period in 2017 , an increase of approximately $ 480.5 million , or 71.1 % . substantially all of the change in consolidated cost of service revenue was a result of the merger and other acquisitions purchased during the latter part of 2017 and 2018. general and administrative expenses the following table summarizes general and administrative expenses ( amounts in thousands , except percentages , which are percentages of the segment 's respective net service revenue ) : replace_table_token_20_th 51 replace_table_token_21_th consolidated general and administrative expenses for the year ended december
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in response to these industry conditions , the u.s. domestic oems and their suppliers undertook wide-scale domestic capacity reduction initiatives , workforce reductions and other restructuring actions to reduce costs . these restructuring actions reduced fixed operating costs and increased the variability of their cost structures , which better positioned the industry to manage through reduced production levels . in 2010 , the u.s. saar increased to 11.6 million from 10.4 million in 2009. while the increase in production levels represents a significant year-over-year improvement , these production levels are still depressed in comparison to the 16.1 million saar experienced in 2007. although it is expected that u.s. automotive production will continue to increase in 2011 and u.s. domestic oem market share should remain stable , it is likely that domestic production levels will remain at relatively low levels until general economic conditions and consumer confidence significantly improve . factors such as the depressed u.s. housing market and continued high unemployment rates may still hinder a full recovery of the domestic automotive industry over the next few years . however , as a result of the significant restructuring actions that were implemented over the previous years , we expect that the u.s. domestic oems and their suppliers will be able to capitalize on these increased volumes and provide improved financial performance as the industry continues to recover . change in product mix shift and increase in demand for alternative energy sources and electronic integration in the u.s. , consumer demand for full-frame light trucks and suv-type vehicles shifted to smaller awd passenger cars and crossover vehicles with smaller displacement engines and higher fuel economy . over the past several years , the volatility of fuel prices has caused a shift in market demand to passenger cars and crossover vehicles , away from full-frame pickup trucks and suvs . a significant portion of our current revenue stream is tied to full-size pickup trucks and suvs . as demand has softened for these products , our revenue streams have been adversely impacted . with a rapid shift towards aggressive , environmentally focused legislation in the u.s. , we have observed an increased demand for technologies designed to help reduce emissions , increase fuel economy and minimize the environmental impact of vehicles . in 2010 , the u.s. congress enacted new corporate average fuel economy ( cafe ) regulations that would increase the u.s. fuel-economy standard industry average for passenger cars to 35 miles per gallon by year 2016 , while light trucks will be required to meet nearly 28 miles per gallon by 2016. as a result , oems and suppliers are competing intensely to develop and market new and alternative technologies , such as electric vehicles , hybrid vehicles , fuel cells , diesel engines and efficiency improvements of driveline systems to improve fuel economy and emissions . the electronic content of vehicles continues to expand , largely driven by consumer demand for greater vehicle performance , functionality , and affordable convenience options . this demand is a result of increased communication abilities in vehicles as well as increasingly stringent regulatory standards for energy efficiency , emissions reduction and increased safety . as these electronics continue to become more reliable and affordable , we expect this trend to continue . the increased use of electronics provides greater flexibility in vehicles and enables the oems to better control vehicle stability , fuel efficiency , and safety while improving the overall driving experience . suppliers with enhanced capability in electronic integration have greater sourcing opportunities with oems and may be able to obtain more favorable pricing for these products . we are responding to the change in vehicle mix in the north american market as well as expected increases in cafe regulations , with ongoing research and development ( r & d ) efforts that focus on fuel economy , emission reduction and environmental improvements . these efforts position us to compete as this product mix shift continues and have led to new business awards for products that support awd and rwd passenger cars and crossover vehicles . we are continuing to invest in the development of advanced products focused on fuel economy , mass reductions , vehicle safety and performance leveraging electronics and technology . we have increased our focus on alternative energy and electronics by investing in product development that is consistent with the expected shift in market demand . approximately 55 % of aam 's new business backlog launching from 2011 to 2013 , which is an estimated $ 850 million , relates to aam 's newest awd systems for passenger cars and crossover vehicles . in 2010 , we entered into a joint venture with saab in which the new company , e-aam , 20 engineers and develops electric all-wheel-drive ( eawd ) hybrid driveline systems to be commercialized for passenger cars and crossover vehicles . we have also developed and commercialized a disconnecting awd system and established our new ecotrac brand of fuel-efficient and environment-friendly driveline products , which strengthens aam 's position as a leader in global driveline systems technology . the ecotrac brand includes the eawd systems , the disconnecting awd systems and a full range of high-efficiency axles . through our establishment of e-aam and the development of our ecotrac brand , we made great progress in 2010 on our focus to improve fuel efficiency and ride and handling performance while reducing emissions . global automotive production the trend toward the globalization of automotive production continues to intensify in regions such as asia ( particularly china , india , south korea and thailand ) , eastern europe and south america . automotive production in these regions is expected to continue to grow while production in the traditional automotive production centers such as north america , western europe and japan are looking to stabilize from recent declines . story_separator_special_tag we have more than doubled our global installed capacity to support current and future opportunities while significantly reducing our installed capacity in the u.s. we have expanded our facilities in mexico , brazil and poland , invested in our china joint venture and are constructing new facilities in india and thailand . we also have offices in germany , india , china , south korea , brazil and sweden to support these developing markets . we expect our business activity in these markets to increase significantly over the next several years . approximately 75 % of our new business backlog is for end use markets outside of north america and approximately 90 % has been sourced to our manufacturing facilities outside the u.s. steel and other metallic commodities worldwide commodity market conditions have resulted in volatile steel and other metallic material prices . as general economic conditions have improved and production levels increased in 2010 , demand for these commodities has grown and prices have risen . we have taken actions to mitigate the impact of this trend through commercial agreements with our customers , strategic sourcing arrangements with suppliers and technology advancements that result in using less metallic content or less expensive metallic content in the manufacturing of our products . the majority of our sales contracts with our largest customers provide price adjustment provisions for metal market price fluctuations . we do not have metal market price provisions with all of our customers for all of the parts that we sell . we also have agreed to share in the risk of metal market price fluctuations in certain customer contracts . as a result , we may experience higher net costs for raw materials . these cost increases would come in the form of metal market adjustments and base price increases . we have contracts with our steel suppliers that ensure continuity of supply . we also have validations and testing capabilities that enable us to strategically utilize steel sources on a global basis . story_separator_special_tag partially offset by lower professional fees related to restructuring actions . the decrease in sg & a in 2009 as compared to 2008 was primarily a result of structural cost reduction efforts . sg & a in 2010 included a $ 3.3 million write down of administrative and engineering facilities located in detroit , michigan . sg & a in 2009 included special charges of $ 2.6 million , which primarily related to salaried workforce reductions . in addition , we incurred approximately $ 9.0 million of professional fees related to restructuring actions in 2009. sg & a in 2008 included net special charges of $ 2.0 million for the estimated costs related to salaried workforce reductions and restructuring accrual adjustments . r & d in 2010 , r & d spending in product , process and systems was $ 82.5 million as compared to $ 67.0 million in 2009 and $ 85.0 million in 2008. the focus of this investment continues to be developing innovative driveline and drivetrain systems and components for light trucks , suvs , passenger cars , crossover vehicles and commercial vehicles in the global marketplace . product development in this area includes power transfer units , transfer cases , driveline and transmission differentials , multipiece driveshafts , halfshafts , torque transfer devices , and front and rear drive axles . we continue to focus on electronic integration in our existing and future products to advance their performance . we also continue to support the development of hybrid vehicle systems . special focus is also placed on the development of products and systems that provide our customers with efficiency , fuel economy and 22 emissions reduction advancements . our efforts in these areas have resulted in the development of prototypes and various configurations of these driveline systems for several oems throughout the world . in 2010 , we entered into a joint venture with saab , e-aam , which will launch eawd systems designed to improve fuel efficiency up to 30 percent , reduce co 2 emissions and provide all-wheel-drive capability . we also won an industry-first order for our ecotrac awd fuel economy optimization system . operating income ( loss ) operating income ( loss ) was income of $ 204.1 million in 2010 as compared to a loss of $ 203.8 million in 2009 and a loss of $ 1,050.6 million in 2008. operating margin was 8.9 % in 2010 as compared to negative 13.4 % in 2009 and negative 49.8 % in 2008. the changes in operating income and operating margin in 2010 , 2009 and 2008 were due to the factors discussed in gross profit ( loss ) and sg & a . interest expense interest expense was $ 89.0 million in 2010 , $ 84.5 million in 2009 and $ 70.4 million in 2008. the increase in interest expense primarily reflects higher interest rates and amortization of debt issuance costs in 2010 as compared to 2009. the increase in interest expense in 2009 as compared to 2008 reflects an increase in interest rates and higher average outstanding borrowings . the weighted-average interest rate of our total debt outstanding was 8.1 % , 7.3 % and 7.2 % during 2010 , 2009 and 2008 , respectively . investment income investment income was $ 3.8 million in 2010 , $ 2.0 million in 2009 and $ 2.5 million in 2008. investment income includes interest and dividends earned on cash and cash equivalents and short-term investments during the period . investment income in 2010 includes a gain of $ 2.3 million in 2010 , related to distributions of our short-term investments from which distributions were previously suspended . investment income includes a loss of $ 1.3 million and $ 5.5 million as a result of an other-than-temporary decline in the fair value of our short-term investments in 2009 and 2008 , respectively .
| our content-per-vehicle ( as measured by the dollar value of our products supporting gm 's north american light truck platforms and the dodge ram program ) increased to $ 1,441 in 2010 as compared to $ 1,403 in 2009 and $ 1,391 in 2008. the increase in 2010 as compared to 2009 is primarily due to higher metal market pass throughs partially offset by a change in the billing process for consigned components for the dodge ram program and the adverse mix in the first half of 2010 associated with the launch of the next generation heavy-duty truck for gm in june 2010. the increase in 2009 as compared to 2008 was primarily due to mix shifts favoring full-size trucks and 21 suv programs and an increase in the recognition of deferred revenue related to agreements with gm , partially offset by a reduction in metal market adjustments . our 4wd/awd penetration rate was 64.2 % in 2010 as compared to 64.1 % in 2009 and 64.8 % in 2008. we define 4wd/awd penetration as the total number of front axles we produce divided by the total number of rear axles we produce for the vehicle programs we support . gross profit ( loss ) gross profit ( loss ) was a profit of $ 401.7 million in 2010 as compared to a loss of $ 31.1 million in 2009 and a loss of $ 865.2 million in 2008. gross margin was 17.6 % in 2010 as compared to negative 2.0 % in 2009 and negative 41.0 % in 2008. the increase in gross profit and gross margin in 2010 , as compared to 2009 , reflects the positive impact of an increase in sales , lower special charges and the favorable impact of structural cost reductions taken in 2008 and 2009. the changes in gross loss and gross margin in 2009 as compared to 2008 reflects the impact of lower special charges , structural cost reductions resulting from the 2008 labor agreements with the international uaw and related capacity reduction initiatives . gross profit in 2010 includes the adverse impact of an arbitration ruling related to the transfer of certain production from the detroit manufacturing complex ( dmc ) to another aam facility for which we recorded a charge of $ 5.3 million for wages and benefits
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the following items highlight the most recent significant events : · in the third quarter of fiscal 2017 , the company reached a decision to integrate and restructure its industrial manufacturing operation in south carolina . the company will exit a few smaller product offerings and consolidate two manufacturing facilities into one . these restructuring efforts will better align our manufacturing capacity and market focus . as a result , the company recorded a charge of $ 7.1 million associated with the restructuring in the third quarter of fiscal 2017 attributable to the roller bearings segment . the $ 7.1 million charge includes $ 3.2 million of inventory rationalization costs , $ 0.3 million in impairment of intangibles , $ 2.4 million loss on fixed assets disposals , and $ 1.2 million exit obligation associated with a building operating lease . the inventory rationalization costs were recorded in cost of sales in the income statement . all other costs were recorded under operating expenses in the other , net category of the income statement . the pre-tax charge of $ 7.1 million was offset with a tax benefit of approximately $ 2.2 million . the company determined that the market approach was the most appropriate method to estimate the fair value for the inventory , intangible assets , equipment and building operating lease using comparable sales data and actual quotes from potential buyers in the market place . · in the first quarter of fiscal 2016 , subsequent to the close of the fiscal 2015 year , we acquired sargent for $ 500.0 million financed through a combination of cash on hand and senior debt . headquartered in tucson , arizona , sargent is a leader in precision-engineered products , solutions and repairs for aircraft airframes and engines , rotorcraft , submarines and land vehicles . sargent manufactures , sells , and services hydraulic valves and actuators , specialty bearings , specialty fasteners , seal rings & alignment joints , and precision components under leading brands including kahr bearing , airtomic , sonic industries , sargent controls and sargent aerospace & defense . annual sales are approximately $ 195.0 million and the company has over 750 employees in six facilities in three countries . · in connection with the sargent acquisition on april 24 , 2015 , we entered into a credit agreement ( the “ credit agreement ” ) and related guarantee , pledge agreement and security agreement with wells fargo bank , national association , as administrative agent , collateral agent , swingline lender and letter of credit issuer and the other lenders party thereto . the credit agreement provides rbca , as borrower , with ( a ) a $ 200.0 million term loan facility ( the “ term loan facility ” ) and ( b ) a $ 350.0 million revolving credit facility ( the “ revolving credit facility ” and together with the term loan facility , the “ facilities ” ) . 22 · in the second quarter of fiscal 2015 , we reached a decision to consolidate the manufacturing capacity of the united kingdom ( u.k. ) facility into our other manufacturing facilities . this decision was based on our intent to better align manufacturing abilities and product development . · in the third quarter of fiscal 2014 , we acquired the net assets of tci for approximately $ 3.9 million . located in san diego , california , tci is an faa certified aircraft gas turbine repair station and manufacturer of precision components for aerospace markets . outlook we ended fiscal 2017 with a backlog of $ 354.1 million compared to $ 346.4 million for the same period last fiscal year . our net sales increased 3.0 % year over year due to a 2.9 % growth in the aerospace markets and 3.1 % in the industrial markets . we expect to see continued growth in the industrial markets resulting from the overall economic improvement of the semi-conductor , energy , mining and general industrial markets . we also anticipate continued growth in aerospace tied to the aircraft build rates , new aircraft introductions and positive movement in defense spending under the new administration . our internal goal is to grow our industrial business at a pace of 2.0 to 2.5 times gross domestic product ( “ gdp ” ) on a compounded basis . management believes that operating cash flows and available credit under the credit facilities will provide adequate resources to fund internal and external growth initiatives for the foreseeable future . as of april 1 , 2017 , we had cash and cash equivalents of $ 38.9 million of which approximately $ 30.0 million was cash held by our foreign operations . we expect that our undistributed foreign earnings will be re-invested indefinitely for working capital , internal growth and acquisitions for and by our foreign entities . sources of revenue revenue is generated primarily from sales of products to the industrial market and the aerospace markets . sales are often made pursuant to sole-source relationships , long-term agreements and purchase orders with our customers . we recognize revenues principally from the sale of products at the point of passage of title , which is at the time of shipment , except for certain customers for which it occurs when the products reach their destination . we also recognize revenue on a ship-in-place basis for three customers who have required that we hold the product after final production is complete . in this case , a written agreement has been executed ( at the customer 's request ) whereby the customer accepts the risk of loss for product that is invoiced under the ship-in-place arrangement . for each transaction for which revenue is recognized under a ship-in-place arrangement , all final manufacturing inspections have been completed and customer acceptance has been obtained . story_separator_special_tag in fiscal 2017 , 2.6 % of our total net sales were recognized under ship-in-place transactions compared to 2.1 % in fiscal 2016. sales to the industrial market accounted for 34 % of our net sales for the fiscal years 2017 and 2016 , respectively . sales to the aerospace and defense markets accounted for 66 % of our net sales for the same periods . aftermarket sales of replacement parts for existing equipment platforms and aftermarket services represented approximately 45 % of our net sales for fiscal 2017. we continue to develop our oem relationships which have established us as a leading supplier on many important industrial , aerospace and defense platforms . over the past several years , we have experienced increased demand from the replacement parts market , particularly within the diversified industrial sectors ; one of our business strategies has been to increase the proportion of sales derived from this sector and from aerospace and defense . we believe these activities increase the stability of our revenue base , strengthen our brand identity and provide multiple paths for revenue growth . approximately 12 % of our net sales were generated by our international facilities for fiscal 2017 , compared to 13 % for fiscal 2016. we expect that this proportion will increase as we seek to increase our penetration of foreign markets . our top ten customers generated 37 % and 33 % of our net sales in fiscal 2017 and fiscal 2016 , respectively . out of the 37 % of net sales generated by our top ten customers during the fiscal year ended april 1 , 2017 , 22 % of net sales were generated by our top four customers compared to 20 % for the comparable period last fiscal year . 23 cost of revenues cost of sales includes employee compensation and benefits , raw materials , outside processing , depreciation of manufacturing machinery and equipment , supplies and manufacturing overhead . approximately 12 % to 25 % of our costs , depending on product mix , are attributable to raw materials and purchased components , a majority of which are related to steel and related products . during fiscal 2017 , steel prices remained flat with slight variances up and down throughout the fiscal year . when we do experience raw material inflation , we offset these cost increases by changing our buying patterns , expanding our vendor network and passing through price increases when possible . the overall impact on raw material costs for this fiscal year was not material as a percent change on a year over year basis . we monitor gross margin performance through a process of monthly operation reviews with all our divisions . we develop new products to target certain markets allied to our strategies by first understanding volume levels and product pricing and then constructing manufacturing strategies to achieve defined margin objectives . we only pursue product lines where we believe that the developed manufacturing process will yield the targeted margins . management monitors gross margins of all product lines on a monthly basis to determine which manufacturing processes or prices should be adjusted . fiscal 2017 compared to fiscal 2016 story_separator_special_tag tax audits closing , the expiration of statutes of limitations and an item associated with federal legislation reinstating the u.s. research credit . the effective income tax rate for fiscal 2016 without these discrete items would have been 32.8 % . segment information we have four reportable product segments : plain bearings , roller bearings , ball bearings and engineered products . in fiscal 2016 , we integrated the sargent businesses into our plain bearings and engineered products segments ( see notes 3 and 18 ) . we use net sales and gross margin as the primary measurement to assess the financial performance of each reportable segment . plain bearing segment : replace_table_token_15_th net sales increased $ 7.2 million , or 2.6 % , for fiscal 2017 compared to fiscal 2016. the net sales increase of $ 7.2 million for this segment was mostly attributable to a net sales increase to the aerospace sector of $ 11.2 million primarily driven by the commercial aerospace build rates . this was offset by a net sales decrease of $ 4.0 million to the industrial sector , driven mainly by energy and general industrial oem partly offset by distribution . gross margin was $ 110.2 million , or 39.7 % of sales , in fiscal 2017 compared to $ 103.5 million , or 38.3 % of sales , an increase of $ 6.7 million . the increase in gross margin was primarily due to production efficiencies achieved in conjunction with higher sales volumes . further , the fiscal 2016 gross margin was impacted by approximately $ 1.2 million of purchase price adjustments associated with the sargent acquisition . roller bearing segment : replace_table_token_16_th net sales decreased $ 2.5 million , or 2.3 % , compared to fiscal 2016. this was attributable to net sales decreases to the industrial sector of $ 6.6 million mainly driven by the energy markets and distribution offset by mining . aerospace sales increased $ 4.1 million primarily driven by the commercial oem markets . the roller bearings segment achieved a gross margin of $ 41.7 million , or 38.1 % of sales , in fiscal 2017 compared to $ 47.5 million , or 42.4 % of sales , in fiscal 2016. the decrease in gross margin was primarily due to the impact of decreased industrial volume during the year and $ 3.2 million in integration and restructuring charges incurred during the year . 26 ball bearing segment : replace_table_token_17_th net sales increased $ 4.7 million , or 8.9 % , for fiscal 2017 compared to fiscal 2016. this was attributable to net sales increases to the industrial sector of $ 6.6 million due to industrial oem and distribution associated with the semiconductor and general industrial markets partly offset by decreases to the aerospace and defense market of $ 1.9 million .
| 24 selling , general and administrative replace_table_token_10_th sg & a increased as a percentage of net sales to 16.7 % in fiscal 2017 from 16.5 % in fiscal 2016. sg & a expenses increased by $ 4.2 million to $ 102.9 million for fiscal 2017 compared to fiscal 2016. this increase is primarily due to $ 1.9 million of additional stock compensation expense , $ 1.8 million of personnel related expenses , and $ 0.5 million of other miscellaneous expenses . other income ( expense ) replace_table_token_11_th other operating expenses for fiscal 2017 totaled $ 13.0 million compared to $ 16.2 million for fiscal 2016. for fiscal 2017 , other operating expenses were comprised of $ 9.3 million in amortization of intangibles , $ 4.1 million of restructuring costs , and $ 0.2 million of miscellaneous costs offset by other income of $ 0.6 million . for fiscal 2016 , other operating expenses were comprised of $ 9.0 million in amortization of intangibles , $ 5.1 million of acquisition related costs , $ 1.7 million in litigation reserves and $ 1.0 million in integration and restructuring costs offset by other income of $ 0.6 million . interest expense , net replace_table_token_12_th interest expense , net , generally consists of interest charged on our debt and amortization of debt issuance costs offset by interest income ( see “ liquidity and capital resources – liquidity ” , below ) . interest expense , net was $ 8.7 million for fiscal 2017 compared to $ 8.7 million for fiscal 2016. this included amortization of debt issuance costs of $ 1.4 million for fiscal 2017 compared to $ 1.3 million for fiscal 2016. other non-operating expense ( income ) replace_table_token_13_th other non-operating expense for fiscal 2017 totaled $ 0.1 million , consisting primarily of $ 0.2 million of foreign currency gains offset by $ 0.3 million of other miscellaneous costs . income taxes replace_table_token_14_th 25 income tax expense for fiscal 2017 was $ 34.3 million compared to $ 30.9 million for fiscal 2016. our effective income tax rate for fiscal 2017
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the following table summarizes all warrant activity for the years ended june 30 , 2014 and 2013 : replace_table_token_12_th ( 1 story_separator_special_tag the following discussion of our financial condition and results of operations should be read together with our financial statements and the notes thereto and other information included elsewhere in this annual report on form 10-k. forward-looking information and factors that may affect future results the following discussion contains forward-looking statements within the “ safe harbor ” provisions of the private securities litigation reform act of 1995. all statements contained in the following discussion , other than statements that are purely historical , are forward-looking statements . forward-looking statements can be identified by the use of forward-looking terminology such as “ believes , ” “ expects , ” “ may , ” “ will , ” “ should , ” “ potential , ” “ anticipates , ” “ plans , ” or “ intends ” or the negative thereof , or other variations thereof , or comparable terminology , or by discussions of strategy . forward-looking statements are based upon management 's present expectations , objectives , anticipations , plans , hopes , beliefs , intentions or strategies regarding the future and are subject to known and unknown risks and uncertainties that could cause actual results , events or developments to be materially different from those indicated in such forward-looking statements , including the risks and uncertainties set forth in item 1a - risk factors . these risks and uncertainties should be considered carefully and readers are cautioned not to place undue reliance on such forward-looking statements . as such , no assurance can be given that the future results covered by the forward-looking statements will be achieved . overview we are a biotechnology company focused on commercializing our proprietary platform technologies : the ibiolaunch platform for vaccines and therapeutic proteins , and the ibiomodulator platform for vaccine enhancement . we plan on developing and commercializing select product candidates that may benefit from the ibiolaunch platform , which is a proprietary , transformative technology for development and production of biologics using transient gene expression in hydroponically grown , unmodified green plants . the ibiomodulator platform is complementary to the ibiolaunch platform and is designed to significantly improve vaccine products with both higher potency and greater duration of effect . the ibiomodulator platform can be used with any recombinant expression technology for vaccine development and production . we believe our technology offers advantages that are not available with conventional manufacturing systems . these anticipated advantages may include the ability to manufacture therapeutic proteins that are difficult or commercially infeasible to produce with conventional methods , reduced production time , and lower capital and operating costs . 28 our near-term focus is to realize two key objectives : ( 1 ) the establishment of additional business arrangements pursuant to which commercial , government and not-for-profit licensees will utilize our platform technology in connection with the production and development of products for both therapeutic and vaccine uses ; and ( 2 ) the further advancement of product candidates selected for clinical development including our proprietary product candidate for treatment of idiopathic pulmonary fibrosis , systemic sclerosis , and other fibrotic diseases . these objectives are a part of our strategy to commercialize the proprietary technology we have developed and validated . our strategy to engage in partnering and out-licensing of our technology preserves the opportunity for ibio to share in the successful development and commercialization of product candidates while conserving our own capital and financial resources as licensees undertake to conduct and fund the development and commercialization of the product candidates derived under our platform . in addition to financial resources we may receive , we believe that successful development by licensees of product candidates derived from the ibio platforms will further validate our technology , increase awareness of the advantages that may be realized by its use and promote broader adoption of our transformative technology . the advancement of product candidates which may benefit from the ibiolaunch platform is also a key element of our strategy . we believe that selecting and developing products which individually have substantial commercial value and are representative of classes of pharmaceuticals that can be successfully produced using the ibiolaunch technology will allow us to maximize the near and longer term value of our technology . to realize this result , we believe that we should seek to advance designated product candidates through the preclinical stage required for submission of investigational new drug applications and , in some instances , early stage clinical development . story_separator_special_tag times , serif ; margin : 0pt 0 ; text-align : justify '' > we have historically financed our activities through the sale of common stock and warrants , sold together as units . we plan to fund our future business operations using cash on hand , through proceeds from the sale of additional equity and other securities , including sales of our common stock pursuant to the purchase agreement with aspire capital fund , llc described under [ item 1 business – recent business highlights ] , and through proceeds realized in connection with license and collaboration arrangements . the extent to which we utilize the purchase agreement with aspire capital as a source of funding will depend on a number of factors , including the prevailing market price of our common stock , the volume of trading in our common stock and the extent to which we are able to secure funds from other sources . the number of shares that we may sell to aspire capital under the purchase agreement on any given day and during the term of the agreement is limited . story_separator_special_tag additionally , we and aspire capital may not effect any sales of shares of our common stock under the purchase agreement during the continuance of an event of default or on any trading day that the closing sale price of our common stock is less than $ 0.44 per share . even if we are able to access the full $ 10.0 million under the purchase agreement , we may still need additional capital to fully implement our business , operating and development plans for periods beyond june 30 , 2015. we can not be certain that such funding will be available on favorable terms or available at all . to the extent that we raise additional funds by issuing equity securities , our stockholders may experience significant dilution . if we are unable to raise funds when required or on favorable terms , we may have to : a ) significantly delay , scale back , or discontinue the product application and or commercialization of our proprietary technologies ; b ) seek collaborators for our technology and product candidates on terms that are less favorable than might otherwise be available ; c ) relinquish or otherwise dispose of rights to technologies , product candidates , or products that we would otherwise seek to develop or commercialize ; or d ) possibly cease operations . off-balance sheet arrangements as part of our ongoing business , we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships , such as entities often referred to as structured finance or special purpose entities ( spes ) , which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually limited purposes . as of june 30 , 2014 , we were not involved in any spe transactions . critical accounting policies and estimates a critical accounting policy is one that is both important to the portrayal of a company 's financial condition and results of operations and requires management 's most difficult , subjective or complex judgments , often as a result of the need to make estimates about the effect of matters that are inherently uncertain . our financial statements are presented in accordance with accounting principles that are generally accepted in the u.s. ( “ u.s . gaap ” ) . all applicable u.s. gaap accounting standards effective as of june 30 , 2014 have been taken into consideration in preparing the financial statements . the preparation financial statements requires estimates and assumptions that affect the reported amounts of assets , liabilities , revenues , expenses and related disclosures . some of those estimates are subjective and complex , and , consequently , actual results could differ from those estimates . the following accounting policies and estimates have been highlighted as significant because changes to certain judgments and assumptions inherent in these policies could affect our financial statements . 30 we base our estimates , to the extent possible , on historical experience . historical information is modified as appropriate based on current business factors and various assumptions that we believe are necessary to form a basis for making judgments about the carrying value of assets and liabilities . we evaluate our estimates on an ongoing basis and make changes when necessary . actual results could differ from our estimates . intangible assets the company accounts for intangible assets at their historical cost and records amortization utilizing the straight-line method based upon their estimated useful lives . patents are amortized over a period of ten years and other intellectual property is amortized over a period from 16 to 23 years . the company reviews the carrying value of its intangible assets for impairment whenever events or changes in business circumstances indicate the carrying amount of such assets may not be fully recoverable . evaluating for impairment requires judgment , and recoverability is assessed by comparing the projected undiscounted net cash flows of the assets over the remaining useful life to the carrying amount . impairments , if any , are based on the excess of the carrying amount over the fair value of the assets . derivative instruments the company does not use derivative instruments in its ordinary course of business . revenue recognition the company recognizes revenue when persuasive evidence of an arrangement exists , delivery has occurred , the fee is fixed or determinable , and collectability is reasonably assured . deferred revenue represents billings to a customer to whom the services have not yet been provided . research and development costs all research and development costs are expensed as incurred . these expenses consist primarily of payments to third-party contractual service providers and internal personnel costs . share-based compensation the company recognizes the cost of all share-based payment transactions at fair value . compensation cost , measured by the fair value of the equity instruments issued , adjusted for estimated forfeitures , is recognized in the financial statements as the respective awards are earned over the performance period . the company uses historical data to estimate forfeiture rates . the impact that share-based payment awards will have on the company 's results of operations is a function of the number of shares awarded , the trading price of the company 's stock at the date of grant or modification , and the vesting schedule . furthermore , the application of the black-scholes option pricing model employs weighted-average assumptions for expected volatility of the company 's stock , expected term until exercise of the options , the risk-free interest rate , and dividends , if any , to determine fair value . expected volatility is based on historical volatility of the company 's common stock ; the expected term until exercise represents the weighted-average period of time that options granted are expected to be outstanding giving consideration to vesting schedules and the company 's historical exercise patterns ; and the risk-free interest rate is based on the u.s. treasury yield curve
| however , general and administrative expenses for 2014 included ( i ) a credit of $ 0.7 million resulting from the reversal of royalty expenses accrued through june 30 , 2013 under the tta prior to the settlement agreement with fraunhofer completed in september 2013 and ( ii ) the write-off of an accounts receivable of $ 1.007 million recorded in 2013 as a result of the amendment discussed above . adjusting for this , general and administrative spending was approximately $ 3.9 million for 2014 , a decline of approximately $ 0.3 million attributable to lower spending on consulting and investor relations services . general and administrative expenses principally include officer and employee salaries and benefits , legal and accounting fees , insurance , consulting services , investor and public relations services , and other costs associated with being a publicly traded company . other income ( expense ) other income ( expense ) for 2014 was approximately $ 174,000 , as compared to approximately $ 469,000 for 2013. however , other income ( expense ) for 2014 includes a credit of $ 122,000 resulting from the reversal in interest expense accrued through june 30 , 2013 under the tta prior to the settlement agreement with fraunhofer completed in september 2013. adjusting for this , other income ( expense ) was approximately $ 52,000. other income ( expense ) in 2013 included $ 520,000 of non-cash income related to the change in the fair value of the warrant derivative liability resulting from the anti-dilution provision of the august 2008 warrants . these warrants expired in august 2013 , and the warrant derivative liability was eliminated . interest expense in 2013 totaled approximately $ 90,000 and was incurred to fraunhofer for past due balances owed . liquidity and capital resources as of june 30 , 2014 , we had cash of $ 3.6 million as compared to $ 4.4 million as of june 30 , 2013 . 29 net cash used in operating activities net cash used in operating activities was $ 4.1 million . the decrease in cash was primarily attributable to funding the loss for the period . net cash used in investing activities net cash used in investing activities
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fiscal year ended december 31 , 2013 compared to 2012 revenue for 2013 was $ 1,319.1 , an increase of $ 781.2 , or 145.2 % , from revenue of $ 537.9 in 2012 . the increase in revenue in 2013 compared to 2012 was due to primarily to the acquisition of veolia . all amounts presented in the foregoing paragraph are net of intercompany eliminations . operating expenses the following table summarizes our operating expenses ( in millions and as a percentage of our revenue ) . 24 replace_table_token_4_th our operating expenses include the following : labor and related benefits consist of salaries and wages , health and welfare benefits , incentive compensation and payroll taxes . transfer and disposal costs include tipping fees paid to third-party disposal facilities and transfer stations and transportation and subcontractor costs ( which include costs for independent haulers who transport waste from transfer stations to our disposal facilities and costs for local operators who provide waste handling services associated with our national accounts in markets outside our standard operating areas ) . maintenance and repairs expenses include labor , maintenance and repairs to our vehicles , equipment and containers . fuel costs include the direct cost of fuel used by our vehicles , net of fuel credits . the company also incurs certain indirect fuel costs in its operations that are not taken into account in the above analysis . franchise fees and taxes consist of municipal franchise fees , host community fees and royalties . risk management expenses include casualty insurance premiums and claims payments and estimates for claims incurred but not reported . other expenses include expenses such as facility operating costs , equipment rent , leachate treatment and disposal , and other landfill maintenance costs . accretion expense related to landfill capping , closure and post-closure is included in “ operating expenses ” in the company 's consolidated income statements , however , it is excluded from the table below ( refer to discussion below “ accretion of landfill retirement obligations ” for a detailed discussion of the changes in amounts ) . the following table summarizes the major components of our operating expenses , excluding accretion expense ( in millions and as a percentage of our revenue ) : replace_table_token_5_th the cost categories shown above may not be comparable to similarly titled categories used by other companies . thus , you should exercise caution when comparing our cost of operations by cost component to that of other companies . fiscal year ended december 31 , 2014 compared to 2013 operating expenses increased by $ 63.5 , or 7.8 % , to $ 882.6 for 2014 from $ 819.1 in 2013 . operating expenses , as a percentage of revenue , increased by 80 basis points in 2014 over 2013 . labor and related benefits increased by $ 19.6 or 7.5 % to $ 281.3 , of which approximately $ 4.2 of this increase was attributable to merit-based wage increases , $ 1.3 was attributable to weather related impacts in the first quarter of 2014 and the remainder primarily due to acquisitions and increased overtime costs and temporary labor due to driver shortages . 25 transfer and disposal costs increased by $ 18.7 or 9.9 % to $ 207.8 . the increase was primarily driven by increased volume in the collection operation , increased third party disposal costs and higher transportation costs . maintenance and repairs expense increased by $ 12.4 , or 12.1 % to $ 114.9 . the increase was driven by weather impacts in the first quarter of 2014 , increased cost of parts and increased overtime wages due to a shortage of mechanics . fuel costs increased $ 1.6 , or 1.6 % to $ 101.3 , of which $ 0.4 was driven by weather impacts on the fuel burn in the first quarter of 2014 and the remaining increase was primarily attributable to acquisition volume . franchise fees and taxes increased $ 7.7 or 13.5 % to $ 64.8 during 2014 primarily due to increased volumes . risk management expenses increased $ 4.9 or 20.9 % to $ 28.4 during 2014 primarily due to adverse development in the severity of claims . other operating costs decreased $ 1.4 or 1.6 % to $ 84.1 in 2014 , of which $ 0.6 was related to weather impacts in the first quarter of 2014 and an increase in the cost of leachate treatment due to wet weather and taxes and utilities at our operating sites . fiscal year ended december 31 , 2013 compared to 2012 operating expenses increased by $ 490.3 , or 149.1 % , to $ 819.1 for 2013 from $ 328.8 in 2012 . labor and related benefits increased by $ 158.3 or 153.1 % to $ 261.7 , which was attributable to the acquisition of veolia and other acquisition activity , as well as merit-based wage increases in 2013 and increases in health care costs . transfer and disposal costs increased by $ 105.4 or 125.9 % to $ 189.1 . the acquisition of veolia accounted for $ 101.1 of the increase . offsetting these increase were the benefits of increased internalization of waste which reduces the cost base . maintenance and repairs expense increased by $ 62.0 , or 153.1 % to $ 102.5 . the acquisition of veolia accounted for the increase . absent the acquisition of veolia , maintenance and repairs expenses decreased due to an effort to standardize maintenance programs across the company . during 2013 , our fuel costs increased $ 56.2 , or 129.2 % to $ 99.7 . the impact of the veolia acquisition accounted for $ 57.5 of our 2013 fuel costs . excluding the impact of the veolia acquisition our fuel costs were relatively stable year over year . franchise fees and taxes increased $ 41.7 or 270.8 % to $ 57.1 during 2013 primarily due to the veolia acquisition businesses in franchise markets . story_separator_special_tag risk management expenses increased $ 12.6 or 115.6 % to $ 23.5 during 2013 primarily due to the acquisition of veolia offset by the favorable development of existing claims compared to the prior year . other operating costs increased $ 54.1 or 172.3 % to $ 85.5 in 2013 , of which $ 46.9 relates to the acquisition of veolia . additional costs were incurred in 2013 as a result of extremely wet weather , which increased landfill leachate disposal costs and costs incurred to control odor issues at our moretown landfill . accretion of landfill retirement obligations accretion expense was $ 13.5 , $ 13.7 and $ 7.9 for 2014 , 2013 and 2012 , respectively . accretion expense decreased by $ 0.2 in 2014 from 2013 primarily due to lower average interest rate and expenditures of capping and post-closure related costs . the increase in 2013 over 2012 was primarily related to veolia contributing approximately $ 8.1 in 2013 offset by expenditures on capping and post-closure related costs . selling , general and administrative selling , general and administrative expenses include salaries , legal and professional fees , rebranding and integration costs and other expenses . salaries expenses include salaries and wages , health and welfare benefits and incentive compensation for corporate and field general management , field support functions , sales force , accounting and finance , legal , management information systems , and clerical and administrative departments . rebranding and integration costs are those costs associated with renaming all of the acquired and merged businesses ' trucks and containers and those costs expended to align the corporate and strategic operations of the acquired and merged businesses . other expenses include rent and office costs , fees for professional services provided by third parties , marketing , directors ' and officers ' insurance , general employee relocation , travel , entertainment and bank charges , but excludes any such amounts recorded as restructuring charges . 26 the following table provides the components of our selling , general and administrative expenses for the periods indicated ( in millions and as a percentage of our revenue ) : replace_table_token_6_th fiscal year ended december 31 , 2014 compared to 2013 our salaries expenses increased by $ 0.4 , but decreased 40 basis points as a percentage of revenue primarily due to merit increases in the current year offset by lower salaries expense related to a reduction in force that occurred in august 2014 and the resignation of an executive in the first quarter of 2014. legal and professional fees increased by $ 2.0 in 2014 compared to 2013 primarily as a result of increased fees related to defense of a legal matter . refer to note 20 in the consolidated financial statements included in item 8 for further details regarding the legal matter . rebranding and integration costs are mainly related to the costs associated with the integration program from the acquisition of veolia and other entities . these costs are mainly comprised of professional fees , including legal , accounting , engineering and rebranding fees paid to outside parties to rebrand all containers and equipment . the decrease of $ 18.7 from 2014 to 2013 is primarily a result of efforts to complete the integration program in the current fiscal year . other selling , general and administrative expenses increased by $ 0.3 , but decreased 20 basis points as a percentage of revenue mainly due to an increase in bank charges and payroll processing costs . fiscal year ended december 31 , 2013 compared to 2012 our salaries expenses increased by $ 47.3 primarily due to the acquisition of veolia , which contributed $ 47.3. other contributing factors to the increase included : increases in stock compensation expense of $ 3.3 , retention bonuses paid to certain employees of $ 3.2 , merit increases of $ 1.9 and increased corporate employees and region staff . legal and professional fees increased by $ 2.3 in 2013 compared to 2012 primarily as a result of increased fees related to union contract negotiations and costs incurred in connection with the defense of a legal matter . refer to note 20 in the consolidated financial statements included in item 8 for further details regarding the legal matter . rebranding and integration costs are mainly related to the costs associated with the acquisition of veolia . these costs are mainly comprised of professional fees , including legal , accounting , engineering and rebranding fees paid to outside parties to rebrand all containers and equipment . the decrease of $ 6.4 in 2013 compared to 2012 is primarily a result of due diligence and merger and acquisition costs paid in 2012 in connection with the acquisition of veolia , which did not recur in 2013 . other selling , general and administrative expenses increased by $ 26.7 mainly due to the acquisition of veolia and increased rent for a corporate and regional offices . depreciation and amortization the following table summarizes the components of depreciation and amortization expense by asset type ( in millions and as a percentage of our revenue ) . for a detailed discussion of depreciation and amortization by asset type refer to the discussion included in the following two sections herein . 27 replace_table_token_7_th depreciation , amortization and depletion of property and equipment depreciation , amortization and depletion expense includes depreciation of fixed assets over the estimated useful life of the assets using the straight-line method , and amortization and depletion of landfill airspace assets under the units-of-consumption method . we depreciate all fixed assets to a zero net book value , and do not apply salvage values .
| in 2014 , we incurred approximately $ 1.3 in costs paid to our lenders in connection with refinancing our term loan b facility and payments of other costs associated with the original term b loan facility ( defined below ) . we made payments on our revolver and long-term debt obligations in the amount of $ 141.3 and borrowed approximately $ 95.0 in 2014 . borrowings on the revolver were utilized to fund working capital , acquisition of businesses and for interest payments on debt . cash flows used in financing activities in 2013 were $ 32.3 , as compared to an inflow from financing activities of $ 1,937.2 in 2012 . we incurred approximately $ 22.9 in costs paid to our lenders in connection with refinancing our term b loan facility and payments of other costs associated with the original term b loan facility ( defined below ) . we made payments on our revolver and long-term debt obligations in the amount of $ 196.8 during 2013 and borrowed approximately $ 184.0 on the revolver . borrowings on the revolver were utilized to fund acquisition of businesses and for interest payments on debt . senior secured credit facilities in november 2012 , the company entered into ( i ) a $ 1,800.0 term loan b facility ( the “ term loan b facility ” ) and ( ii ) a $ 300.0 revolving credit facility ( the “ revolving credit facility ” and , together with the term loan b facility , the “ senior secured credit facilities ” ) with deutsche bank trust company americas , as administrative agent , and affiliates of barclays capital inc. , deutsche bank securities inc. , macquarie capital ( usa ) inc. , ubs securities llc and credit suisse securities ( usa ) llc , and other lenders from time to time party thereto and effected a re-pricing transactions in february 2014 and 2013 , respectively that reduced the
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bluebird network , llc operating company – property company transaction . on january 15 , 2019 , the company entered into an opco-propco transaction with macquarie infrastructure partners ( “ mip ” ) to acquire bluebird network , llc ( “ bluebird ” ) . mip operates within the macquarie infrastructure and real assets ( `` mira '' ) division of macquarie group . bluebird 's network consists of approximately 178,000 fiber strand miles in the midwest across missouri , kansas , illinois and oklahoma . in the transaction , uniti has agreed to purchase the bluebird fiber network and mip has agreed to purchase the bluebird operations . in addition , uniti has agreed to sell uniti fiber 's midwest operations to mip , while uniti will retain its existing midwest fiber network . uniti is acquiring the fiber network of bluebird for $ 319 million , of which $ 175 million will be funded by uniti in cash and $ 144 million from pre-paid rent to be received from mip at closing . in connection with the sale of the company 's midwest operations , we will receive total upfront cash of approximately $ 37 million , including related pre-paid rent to be received from mip at closing . these transactions are subject to regulatory and other closing conditions and are expected to close by the end of the third quarter of 2019. concurrently with the closing of these transactions , uniti will lease the bluebird fiber network and its midwest fiber network on a combined basis to mip , under a long-term triple net lease , with initial annual cash rents of approximately $ 20.3 million . the lease will be reported within the results of our leasing segment . the midwest operations that will be sold to mip are currently reported in our fiber infrastructure segment . acquisition of information transport solutions , inc. on october 19 , 2018 , we completed the acquisition of information transport solutions , inc. ( “ its ” ) . we acquired all the outstanding membership interests of its for approximately $ 59.6 million in cash , including the payoff of existing indebtedness and unpaid transaction expenses . its is a full-service provider of technology solutions , primarily to educational institutions in alabama and florida . 32 over 30 % of its 's total revenue is on uniti fiber 's network , which is expected to increase under uniti fiber 's ownership . the results of operations of its are reflected in the fiber infrastructure segment beginni ng october 19 , 2018. hurricane michael . during october 2018 hurricane michael made landfall as a category 4 hurricane . the storm resulted in significant damage to the uniti fiber network in florida 's bay county and surrounding areas . shortly after landfall we dedicated substantial internal and third-party resources to repair and replace the damaged network , as well as to make enhancements to the network in the impacted areas . as of december 31 , 2018 , we incurred $ 3.0 million of costs associated with the restoration efforts and wrote off $ 3.7 million of network assets that were destroyed . we anticipate full recovery of these costs and expense through insurance proceeds . acquisition and lease-back of cablesouth media , llc fiber assets . on october 9 , 2018 , we completed the acquisition of fiber assets from cablesouth media , llc ( “ cablesouth ” ) for cash consideration of $ 31 million . in the transaction , uniti acquired 43,000 fiber strand miles located across arkansas , louisiana and mississippi , of which 34,000 fiber strand miles were leased back to cablesouth on a triple-net basis . uniti has exclusive use of 9,000 fiber strand miles , which are adjacent to uniti fiber 's southern network footprint . the initial lease term is 20 years with four 5-year renewal options at cablesouth 's discretion . annual cash rent is initially $ 2.9 million with a fixed annual escalator of 2.0 % . the results of this transaction are recorded within our leasing segment . acquisition and lease-back of u.s. telepacific holding corp. fiber assets . on september 19 , 2018 , we completed the acquisition and lease-back of the california fiber assets of u.s. telepacific holding corp. ( “ tpx ” ) , for total cash consideration of $ 70 million . on may 1 , 2018 , we completed the acquisition and lease-back of the non-california fiber assets of tpx , which included exclusive use fiber strand miles in texas , for total cash consideration of $ 25 million . the initial lease term is 15 years with five 5-year renewal options at tpx 's discretion . initial annual cash rent related to the non-california and california assets is $ 8.8 million with a fixed annual escalator of 1.5 % . the results of these transactions are recorded within our leasing segment . irs private letter ruling . during july 2018 , we received a favorable private letter ruling ( “ plr ” ) from the internal revenue service ( “ irs ” ) in connection with our request for guidance to clarify the treatment of income the company receives from certain communication infrastructure assets . in the plr , the irs addressed and favorably ruled that the revenues generated from certain communication infrastructure assets that presently are part of our trss would be considered rent from real property . dark fiber acquisition and anchor tenant lease . on may 10 , 2018 , the company acquired from centurylink , inc. 30 long-haul intercity dark fiber routes totaling 11,000 route miles and 270,000 fiber strand miles across 25 states . this transaction was approved by the u.s. department of justice as a condition of the merger between centurylink , inc. and level 3 communications , inc. , and adds attractive , high demand assets to uniti leasing . simultaneously with this purchase , the company executed an anchor tenant lease with a fortune 100 company for 11 % of the fiber strand miles . story_separator_special_tag during august 2018 , the company executed a lease agreement with a national multiple system operator ( “ mso ” ) on existing uniti leasing fiber . the lease term will be 20 years covering approximately 9,900 route miles or 41,000 fiber strand miles . annual results related to the agreements are reported within our leasing segment . comparison of the years ended december 31 , 2018 and 2017 the following tables sets forth , for the periods indicated , our results of operations expressed as dollars and as a percentage of total revenues : 33 replace_table_token_7_th the following table sets forth , for the years ended december 31 , 2018 and 2017 , revenues and adjusted ebitda of our reportable segments : replace_table_token_8_th 34 replace_table_token_9_th revenues leasing – leasing revenues are primarily attributable to rental revenue from leasing our distribution systems to windstream holdings pursuant to the master lease . under the master lease , windstream holdings is responsible for the costs related to operating the distribution systems , including property taxes , insurance , and maintenance and repair costs . as a result , we do not record an obligation related to the payment of property taxes , as windstream makes direct payments to the taxing authorities . the master lease has an initial term of 15 years with four 5-year renewal options and encompasses properties located in 29 states . cash rent under the master lease is currently $ 657 million and is subject to an annual escalation of 0.5 % each may through the initial term . rental revenues over the initial term of the master lease are recognized in the financial statements on a straight-line basis , representing approximately $ 670.8 million per year . the master lease provides that tenant funded capital improvements ( “ tcis ” ) , defined as maintenance , repair , overbuild , upgrade or replacement to the leased network , including without limitation , the replacement of copper distribution systems with fiber distribution systems , automatically become property of uniti upon their construction by windstream . we receive non-monetary consideration related to tcis as they automatically become our property , and we recognize the cost basis of tcis that are capital in nature as real estate investments and deferred revenue . we depreciate the real estate investments over their estimated useful lives and amortize the deferred revenue as additional leasing revenues over the same depreciable life of the tci assets . for the year ended december 31 , 2018 , we recognized $ 693.9 million of revenue under the master lease , which included $ 23.1 million of non-cash tci revenue and $ 15.1 million of non-cash straight-line rental revenue . for the year ended december 31 , 2017 , we recognized $ 685.1 million of revenue under the master lease , which included $ 14.3 million of non-cash tci revenue and $ 17.3 million of non-cash straight-line rental revenue . the increase in tci revenue is attributable to continued investment by windstream in tcis . windstream invested $ 153.6 million in tcis during the year ended december 31 , 2018 , a decrease from $ 228.0 million it invested in tcis during the year ended december 31 , 2017. since the inception of the master lease , windstream has invested a total of $ 607.1 million in such improvements . because a substantial portion of our revenue and cash flows are derived from lease payments by windstream pursuant to the master lease , there could be a material adverse impact on our consolidated results of operations , liquidity , financial condition and or ability to pay dividends and service debt if windstream were to default under the master lease or otherwise experiences operating or liquidity difficulties and becomes unable to generate sufficient cash to make payments to us . in recent years , windstream has experienced annual declines in its total revenue , sales and cash flow , and has had its credit ratings downgraded by nationally recognized credit rating agencies multiple times over the past 12 months . in addition , windstream has been involved in litigation with an entity who acquired certain windstream debt securities and thereafter issued a notice of default as to such securities 35 relating to our spin-off from windstream . on december 7 , 2017 , the entity issued a notice of acceleration to w indstream claiming that the alleged default had matured into an “ event of default ” and that the principal amount , along with accrued interest , of such securities was due and payable immediately . windstream challenged the matter in federal court and a trial was held in july 2018. on february 15 , 2019 , the federal court judge issued a ruling against windstream , finding that windstream 's attempts to waive such default were not valid ; that an “ event of default ” occurred with respect to such debt securitie s ; and that the holder 's acceleration of such debt in december 2017 was effective . in response to the adverse outcome , on february 25 , 2019 , windstream filed a voluntary petition for relief under chapter 11 of the bankruptcy code in the u.s. bankruptcy court for the southern district of new york . in bankruptcy , windstream has the option to assume or reject the master lease . while we believe that the master lease is essential to windstream 's operations , it is difficult to predict what could occur in a restructuring , and even a temporary disruption in payments to us may require us to fund certain expenses and obligations ( e.g. , real estate taxes and maintenance expenses ) to preserve the value of our properties and avoid the imposition of liens on our properties and could impact our ability to fund other cash obligations , including dividends necessary to maintain reit status , non-essential capital expenditures and , in an extreme case , our debt service obligations . see item 1a risk factors for additional information concerning the impact windstream 's bankruptcy may have on our operations and financial condition .
| we have elected to treat the subsidiaries through which we operate our fiber business , uniti fiber , and talk america services , llc , which operates the consumer clec business ( “ talk america ” ) , as taxable reit subsidiaries ( “ trss ” ) . trss enable us to engage in activities that result in income that does not constitute qualifying income for a reit . our trss are subject to u.s. federal , state and local corporate income taxes . the company operates through a customary up-reit structure , pursuant to which we hold substantially all of our assets through a partnership , uniti group lp , a delaware limited partnership ( the “ operating partnership ” ) , that we control as general partner . this structure is intended to facilitate future acquisition opportunities by providing the company with the ability to use common units of the operating partnership as a tax-efficient acquisition currency . as of the date of this report , we are the sole general partner of the operating partnership and own approximately 97.7 % of the partnership interests in the operating partnership . we expect to grow and diversify our portfolio and tenant base by pursuing a range of transaction structures with communication service providers , including , ( i ) sale leaseback transactions , whereby we acquire existing infrastructure assets from third parties , including communication service providers , and lease them back on a long-term triple net basis ; ( ii ) whole company acquisitions , which may include the use of one or more trss that are permitted under the tax laws to acquire and operate non-reit businesses and assets subject to certain limitations ; ( iii ) capital investment financing , whereby we offer communication service providers a cost efficient method of raising funds for discrete capital investments to upgrade or expand their network ; and ( iv ) mergers and acquisitions financing , whereby we facilitate mergers and acquisition transactions as a capital partner , including through operating company/property company ( “ opco-propco ” ) structures . we manage our operations as four reportable business segments in addition to our corporate operations : leasing segment : represents a component of our reit operations and includes the results from our leasing business , uniti leasing , which
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the purpose of this acquisition was to enhance our portfolio of rapid microbial detection products and services with the addition of a rapid bioburden testing product . the purchase price for celsis was $ 214.5 million . in november 2015 , we acquired oncotest gmbh ( oncotest ) , a cro providing discovery services for oncology , one of the largest therapeutic areas for biopharmaceutical research and development spending . the purpose of this acquisition was to expand our oncology services capabilities , enabling us to provide clients with access to a more comprehensive portfolio of technologies , including patient-derived xenograft ( pdx ) and syngeneic models . the preliminary purchase price for oncotest was $ 36.0 million . on january 6 , 2016 , we entered into a definitive agreement to acquire wrh , inc. ( wil research ) , a premier provider of safety assessment and contract development and manufacturing services to biopharmaceutical and agricultural and industrial chemical companies worldwide . acquiring wil research will enhance our position as a leading global early-stage cro by strengthening our ability to partner with global clients across the drug discovery and development continuum . the transaction is expected to close early in the second quarter of 2016 , subject to regulatory approvals and customary closing conditions . the preliminary purchase price will be approximately $ 585.0 million in cash , subject to customary closing adjustments . the acquisition and associated fees are expected to be financed through an expansion of our credit facility and cash . in the event the agreement is terminated under specified circumstances , we may be required to pay wil research a termination fee of $ 17.5 million . segment reporting in the second quarter of 2014 , following our acquisition of argenta and biofocus , we revised our reportable segments to ensure alignment with our view of the business . we reviewed the new and existing markets addressed by the business , the recently revised go-to-market strategy , long-term operating margins , and the discrete financial information available to our chief operating decision maker , and considered how our businesses aggregated based on these qualitative and quantitative factors . based on this review , we identified three reportable segments : research models and services ( rms ) , discovery and safety assessment ( dsa ) , and manufacturing support ( manufacturing ) . we reported segment results on this basis for all periods presented in this annual report on form 10-k. 31 the revised reportable segments are as follows : research models and services discovery and safety assessment manufacturing support research models discovery services ( 2 ) microbial solutions research model services ( 1 ) safety assessment avian biologics ( 1 ) research model services includes genetically engineered models and services ( gems ) , research animal diagnostic services ( rads ) , and is . ( 2 ) discovery services includes both the in vivo discovery business and the early discovery business . early discovery includes argenta and biofocus , which were acquired in april 2014 ; chantest corporation ( chantest ) , which was acquired in october 2014 ; and oncotest , which was acquired in november 2015. our rms segment includes the research models and research model services businesses . research models includes the commercial production and sale of small research models , as well as the supply of large research models . research model services includes three business units : gems , which performs contract breeding and other services associated with genetically engineered research models ; rads , which provides health monitoring and diagnostics services related to research models ; and is , which provides management of our clients ' research operations ( including recruitment , training , staffing , and management services ) . our dsa segment includes services required to take a drug through the early development process including discovery services , which are non-regulated services to assist clients with the identification , screening , and selection of a lead compound for drug development , and regulated and non-regulated safety assessment services . our manufacturing segment includes microbial solutions , which includes in vitro ( non-animal ) lot-release testing products and microbial detection , conventional and rapid quality control testing of sterile and non-sterile biopharmaceutical and consumer products and species identification services ; biologics , which performs specialized testing of biologics ; and avian , which supplies specific-pathogen-free fertile chicken eggs and chickens . prior to recasting the reportable segments , the businesses were reported in two segments as follows : research models and services preclinical services research models ( 3 ) discovery services research model services ( 4 ) safety assessment endotoxin and microbial detection biologics ( 3 ) research models included avian . ( 4 ) research model services included gems , rads , is and discovery research services . as part of the segment revisions , the former discovery research services was folded into the company 's discovery services business , previously located under the preclinical services segment . fiscal quarters our fiscal quarters consists of the 3 months ending on the last saturday on , or prior to , march 31 , june 30 , september 30 and december 31. critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements prepared in accordance with generally accepted accounting principles in the united states ( u.s. ) . the preparation of these financial statements requires us to make certain estimates and assumptions that may affect the reported amounts of assets and liabilities , the reported amounts of revenues and expenses during the reported periods and related disclosures . these estimates and assumptions are monitored and analyzed by us for changes in facts and circumstances , and material changes in these estimates could occur in the future . we base our estimates on our historical experience , trends in the industry , and various other factors that are believed to be reasonable under the circumstances . story_separator_special_tag actual results may differ from our estimates under different assumptions or conditions . we believe that our application of the following accounting policies , each of which require significant judgments and estimates on the part of management , are the most critical to aid in fully understanding and evaluating our reported financial results . our significant accounting policies are more fully described in note 1 , “ description of business and summary of significant accounting policies ” , to our consolidated financial statements appearing elsewhere in this annual report on form 10-k. 32 we believe the following represent our critical accounting policies and estimates used in the preparation of our financial statements : revenue recognition we recognize revenue when all of the following conditions are satisfied : persuasive evidence of an arrangement exists , delivery has occurred or services have been provided , our price to the customer is fixed or determinable , and collectibility is reasonably assured . service revenue is generally evidenced by client contracts , which range in duration from a few weeks to a few years and typically take the form of an agreed upon rate per unit or fixed fee arrangements . such contracts typically do not contain acceptance provisions based upon the achievement of certain study or laboratory testing results . revenue of agreed upon rate per unit contracts is recognized as services are performed , based upon rates specified in the contract . in cases where performance spans reporting periods , revenue of fixed fee contracts is recognized as services are performed , measured on the ratio of outputs or performance obligations completed to the total contractual outputs or performance obligations to be provided . changes in estimated effort to complete the fixed fee contract are reflected in the period in which the change becomes known . changes in scope of work are common , especially under long-term contracts , and generally result in a change in contract value . once the parties have agreed to the changes in scope and renegotiated pricing terms , the contract value is amended and revenue is typically recognized as described above . most contracts are terminable by the client , either immediately or upon notice . these contracts often require payment to us of expenses to wind down the project , fees earned to date or , in some cases , a termination fee . such payments are included in revenues when earned . we recognize product revenue , net of allowances for estimated returns , rebates and discounts , when title and risk of loss pass to customers . when we sell equipment with specified acceptance criteria , we assess our ability to meet the acceptance criteria in order to determine the timing of revenue recognition . we would defer revenue until completion of customer acceptance testing if we are not able to demonstrate the ability to meet such acceptance criteria . a portion of our revenue is from multiple-element arrangements that include multiple products and or services as deliverables in a single arrangement , with each deliverable , or a combination of the deliverables , representing a separate unit of accounting . we allocate revenues to each element in a multiple-element arrangement based upon the relative selling price of each deliverable . revenue allocated to each deliverable is then recognized when all revenue recognition criteria are met . judgments as to the identification of deliverables , units of accounting , the allocation of consideration to the deliverable , and the appropriate timing of revenue recognition are critical with respect to these arrangements . at the inception of each arrangement that includes milestone payments , we evaluate whether each milestone is substantive . this evaluation includes an assessment of whether ( a ) the consideration is commensurate with either ( 1 ) our performance to achieve the milestone , or ( 2 ) the enhancement of the value of the delivered item ( s ) as a result of a specific outcome resulting from our performance to achieve the milestone ; ( b ) the consideration relates solely to past performance ; and ( c ) the consideration is reasonable relative to all of the deliverables and payment terms within the arrangement . we evaluate factors such as the scientific , clinical , regulatory and other risks that must be overcome to achieve the respective milestone , the level of effort and investment required and whether the milestone consideration is reasonable relative to all deliverables and payment terms in the arrangement in making this assessment . if a substantive milestone is achieved and collection of the related receivable is reasonably assured , we recognize revenue related to the milestone in its entirety in the period in which the milestone is achieved . if we were to achieve milestones that we consider substantive under any of our revenue arrangements , we may experience significant fluctuations in our revenue from quarter to quarter and year to year depending on the timing of achieving such substantive milestones . in those circumstances where a milestone is not substantive , we recognize as revenue , on the date the milestone is achieved , an amount equal to the applicable percentage of the performance period that had elapsed as of the date the milestone was achieved , with the balance being deferred and recognized over the remaining period of performance . as of december 26 , 2015 , we had no significant milestones that were deemed substantive . income taxes we prepare and file income tax returns based on our interpretation of each jurisdiction 's tax laws and regulations . in preparing our consolidated financial statements , we estimate our income tax liability in each of the jurisdictions in which we operate by estimating our actual current tax expense together with assessing temporary differences resulting from differing treatment of items for tax and financial reporting purposes . these differences result in deferred tax assets and liabilities , which are included in our consolidated balance sheets . significant management judgment is required in assessing the realizability of our deferred 33 tax assets .
| the increase in service revenue was due to higher revenue in the safety assessment business , as a result of increased study volume ; and higher revenue in the discovery services business , which included the acquisitions of argenta , biofocus , chantest , and oncotest that contributed $ 27.3 million to service revenue growth ; partially offset by lower revenue in our research model services and the negative effect of changes in foreign currency exchange rates . product revenue for the fiscal year 2015 was $ 505.1 million , an increase of $ 5.2 million , or 1.0 % , compared to $ 499.9 million for the fiscal year 2014 . the increase was due to higher revenue for microbial solutions and avian , which include the acquisitions of celsis and sunrise , respectively that contributed $ 16.7 million to product revenue growth ; higher research models revenue in north america , china and europe ; partially offset by lower revenue in our research models and the negative effect of changes in foreign currency exchange rates . cost of products sold and services provided ( excluding amortization of intangible assets ) replace_table_token_4_th cost of products sold and services provided ( excluding amortization of intangible assets ) ( costs ) for the fiscal year 2015 increased $ 7.2 million , or 0.9 % , compared with the fiscal year 2014 . costs as a percentage of revenue for the fiscal year 2015 were 61.0 % , a decrease of 2.6 % , from 63.6 % for the fiscal year 2014 . rms costs decreased $ 31.0 million due primarily to favorable effect of changes in foreign currency exchange rates , cost savings achieved as a result of our efficiency initiatives , and reduced restructuring costs . rms costs as a percentage of revenue for the fiscal year 2015 were 60.5 % , a decrease of 2.0 % , from 62.5 % for the fiscal year 2014 . 37 dsa costs increased $ 19.7 million due primarily to an increase in discovery services costs , which included a higher cost base due to the acquisitions of argenta , biofocus , chantest , and oncotest ; partially offset by the favorable effect of changes in foreign currency exchange rates . safety assessment costs increased due to higher costs resulting from the
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deferred tax assets are reduced by a valuation allowance when , in the opinion of management , it is more likely than not that some portion or all of the deferred tax assets will not be realized . deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment . 23 financial condition assets the company 's total assets increased $ 103.3 million , or 15.8 % , from $ 653.4 million at december 31 , 2015 to $ 756.7 million at december 31 , 2016. the growth in assets is primarily attributable to management 's efforts to increase the amount and quality of its loan portfolio through its loan origination activities and by investing in quality loan pools , primarily funded through a growth in deposits . following is a detailed discussion and analysis of events and transactions during the years ended december 31 , 2016 and 2015 and the impacts that have been realized with respect to patriot 's financial position . 24 cash and cash e quivalents cash and cash equivalents have increased $ 6.9 million or 8.1 % as of december 31 , 2016 compared to 2015 due to a number of factors including a decision to offer attractive yields on financial products to increase market share and build loyalty among depositors , continuing efforts to maintain and improve the operating cost saving initiatives that have produced positive results , and a debt issuance near year end that that allowed the company to increase its investment in the bank . investment s ecurities patriot 's investment security portfolio has decreased $ 5.0 million or 14.6 % from december 31 , 2015 to 2016. the decrease is due to the collection of the u.s. government agency bonds held at december 31 , 2015 , which bonds were yielding less than 2 % and were called during 2016. the total investment among the other existing investment security classes , consisting of u.s. government agency mortgage-backed securities , corporate bonds , and subordinated notes has remained stable . however , a redistribution of investment among these classes has occurred , in order to maximize returns . specifically , the investment in government agency mortgage-backed securities has decreased $ 2.97 million or 22 % , corporate bonds has decreased $ 49,000 or 0.5 % , and subordinated notes have increased $ 3.02 million or 151.3 % . the management of the investment portfolio produced a $ 71,000 or 15 % improvement in interest income earned in 2016 over 2015. loans receivable , net during the year ended december 31 , 2016 , management implemented a strategy to increase its liquidity by aggressively marketing its products to depositors . through its efforts , which were initiated late in the third quarter of 2016 , management was able to generate approximately $ 84.7 million of liquidity that , coupled with other resources , allowed for a $ 97.8 million or 20.4 % increase in loans receivable , net that is allocable to a $ 49.4 million or 550 % increase in loan originations and a $ 52.0 million increase in loan pool purchases . the increase in loans receivable , gross is attributable to the loan portfolio segments as follows : ● $ 53.9 million or 113.5 % increase in consumer loans ; ● $ 38.3 million or 246.6 % increase in construction loans ; ● $ 25.4 million or 10.3 % increase in commercial real estate loans ; ● $ 2.7 million or 55.6 % increase in construction to permanent – cre loans ; ● $ 1.2 million or 2 % increase in commercial and industrial loans ; and ● $ 24.3 million or 21.9 % decrease in residential real estate loans . the residential real estate loan portfolio segment is the only loan portfolio segment to experience a decrease that is primarily due to payoffs received . management is also taking the strategic approach to focus its lending efforts on other loan portfolio segments . the increase in loans receivable , net is further enhanced by improved quality in the originated loan portfolio as represented by a $ 567,000 or 10.8 % decrease in the allowance for loan losses . this decrease resulted from a reserve and subsequent charge-off during 2016 of a single $ 3.0 million loan more fully described below that was offset by $ 149,000 in recoveries . without the realized loss of the single loan , an improvement in the quality of loans receivable of $ 506,000 would have been recognized for the year ended december 31 , 2016 , rather than the $ 2.5 million provision for loan losses recognized in the results from operations . 25 although the general quality of the loan portfolio has measurably improved , the bank experienced one significant loan loss during the period which occurred in its commercial and industrial loan portfolio segment . the loan loss occurred in the year ended december 31 , 2016 , accounting for $ 3.0 million or 120.7 % of the provision for loan losses recognized for the year ended december 31 , 2016. the subject loan was charged off during the fourth quarter of 2016 in the approximate amount of $ 3.0 million , against which loss $ 2.8 million of insurance proceeds were received in the first quarter of 2017. had the loan been performing in accordance with its contractual terms , the bank would have recognized approximately $ 232,000 of additional interest income during the year ended december 31 , 2016. other than the single impaired loan experienced in 2016 , impaired and non-accruing loans historically do not represent a significant impact to the bank 's loan portfolio . however , management is cognizant of the risk of extending credit to unworthy entities and , therefore , maintains strong credit approval processes to mitigate its risk . story_separator_special_tag maturities and sensitivities of loans to changes in interest rates approximately 63.0 % of the loan portfolio is currently weighted towards long-term maturities five-years or more from december 31 , 2016. the longer term of these loans provides a degree of stability to the bank in managing its liquidity and concentrating its efforts on loan origination to higher quality , longer term relationships . as a community bank , the bank is invested in a thriving , robust local economy , which may be subject to the vagaries of general economic conditions , but which has maintained an above-national averages status with respect to capital investment . the existing conditions has led an investment in the loan portfolio weighted to commercial real estate and construction lending , which accounts for 55.9 % of total loans receivable . these loans generally are collateralized by the underlying real estate and supported by personal guarantees of the borrowers . the following table presents loans receivable , gross by portfolio segment , by contractual maturity as of december 31 , 2016 : replace_table_token_5_th 26 variable rate loans account for 71.7 % of the total loan portfolio , which is attractive to the bank in a period of increasing interest rates . $ 291.6 million or 69.9 % of the variable rate loan portfolio matures in more than five years , which contributes a certain degree of stability to the bank in managing both its interest rate risk and liquidity . premises and equipment patriot has undertaken a review and is in-process of realigning its market strategy to improve customer service and provide greater accessibility to depositors and prospective borrowers . in connection with its plan , management has initiated and is in-process of realigning its branch locations and corporate offices to improve penetration in targeted markets and utilize available properties to increase operating efficiencies and independence . during the year ended december 31 , 2016 , construction-in-process has increased approximately $ 3 million or 87.6 % , of which approximately $ 2.7 million or 91.2 % is attributable to the build-out of the 999 bedford street , stamford location that will be used to provide branch operations and house multiple corporate departments currently located in leased space . construction-in-process has also been impacted by the renovation and build-out of a new branch location in westport , ct located at 50 charles street that accounts for $ 0.2 million or 8.0 % of the increase . management anticipates completing construction in the second quarter of 2017 , at which time the properties will be placed into service . other real estate owned ( “ oreo ” ) during the year ended december 31 , 2016 , one property was foreclosed upon and is held as oreo at december 31 , 2016. on taking possession of the property in 2016 , the bank recognized an approximate $ 11,000 gain that represents the fair value of the property in excess of the carrying value of the loan . deferred taxes as of december 31 , 2016 , patriot has available approximately $ 45.9 million of federal net operating loss carryforwards ( “ nol ” ) that is offset by $ 30.6 million in §382 limitations imposed by the internal revenue code . the $ 15.3 million of federal nols are available to offset patriot 's taxable income for periods up to and through 2032 , as these nols expire on various dates beginning in 2029. additionally , patriot has approximately $ 64.8 million of nols available for connecticut tax purposes , which may be used to offset up to 50 % of taxable income in any year . the nols have an approximate fourteen year life . patriot anticipates utilizing approximately $ 1.1 million of its tax-effected nols , in respect to its 2016 tax year . as of december 31 , 2016 , patriot had a $ 12.6 million deferred tax asset , comprised of multiple temporary differences , in addition to the previously aforementioned nols , which management believes will be fully realized in the future . the assessment of the potential relizability of the deferred tax assets is based on observation of the condition and future of the bank , including : ● favorable financial performance over the past three years ; ● forecasted taxable income for 2017 and future periods ; ● the growth in loan originations and the overall quality of the loan portfolio ; ● improvements in operations and cost management ; and ● net operating loss carry-forwards that do not begin to expire until 2029. there is no guarantee that patriot will realize the benefits of the nols in the future . as such , management continues to evaluate its ability to realize the benefits of the net deferred tax assets and will act accordingly if conditions change . 27 deposits during the year ended december 31 , 2016 , total deposits increased by $ 84.7 million or 19.0 % from the year ended december 31 , 2015. the increase is substantially the result of a late third quarter and strong fourth quarter of 2016 effort by management to aggressively attract new depositors and strengthen the loyalty of the existing customer base by offering attractive interest rates compared to market . the effort is part of management 's strategy to establish long-term relationships for sustained growth and profitability over short-term margins reflected in results . the long-term strategy is seen in the increase in interest expense on deposits of $ 0.2 million that is comparable to the $ 0.2 million decrease in advertising and marketing expense during the year ended december 31 , 2016 compared to 2015. the growth in deposits was virtually across all products offered by the bank , except for non-interest bearing and money market accounts , which decreased by $ 9.0 million or 10.5 % and $ 3.9 million or 20.1 % , respectively from december 31 , 2015. the decrease in non-interest bearing and money market accounts is emblematic of general market conditions and the rates of return offered by the financial services industry .
| in order to achieve this , the bank originated $ 94.7 million in commercial real estate loans and $ 14.7 million in construction loans . average loan balances were $ 29.8 million higher in 2016 than in 2015 , as loan payoffs continued throughout 2016. average yields on loans increased slightly to 4.67 % from 4.65 % in 2015 as the bank operates in a very competitive market . additionally , the bank purchased two refinanced education loan pools totaling $ 52.0 million with a weighted average stated interest rate of approximately 5.3 % from an originator who used targeted marketing to source qualified borrowers and applied strong credit standards similar to the bank 's credit guidelines . average yields on investment securities improved in 2016 to 2.39 % from 1.71 % in 2015 resulting in higher interest income of $ 137,000. this increase was primarily due to the purchase of subordinated bonds from two creditworthy financial institutions during 2016 each yielding 5 % or greater . one government sponsored bond was called in 2016 which yielded under 2 % . as the loan pipeline began to grow during 2016 , so did the need to increase the bank 's deposit base and liquidity sources . in the second half of 2016 , the bank initiated a certificate of deposits ( cd ) program to attract term deposits at competitive rates . the program was successful and achieved over $ 50 million in cds in just five months . the average term of the new cds was 15 months . total deposit interest expense increased $ 226,000 to $ 2.2 million for the year ended december 31 , 2016. this increase was related to the deposit initiative as well as the increase in the use of broker deposits as a funding source . the average rate on interest bearing deposits increased from 54.8 basis points in 2015 to 55.3 basis points in 2016 . 32 interest expense on borrowings increased $ 92,000 from 2015. interest expense
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in terms of strategic initiatives , during fiscal 2019 , the company : ● invested behind our lead brands to accelerate revenue growth – some of the company 's more significant initiatives included mobile-first digital and social commerce marketing programs , merchandising assortments emphasizing new and original product development , including new flavor profiles , and our gourmet lines , which in our gourmet food & gift baskets segment enabled us to increase our “ everyday ” gifting volume , ● multi-brand customer initiatives – the company continued to expand its multi-brand customer initiatives , a key ingredient in our strategy to enhance customer engagement and facilitate long-term growth . the multi-brand website provides the customer with an enriched shopping experience using cross-brand marketing and merchandising programs and by providing access to the company 's celebrations suite of services , including passport free shipping and reminders membership programs , as well as our digital self-service portal . these customers exhibit the highest purchase frequency , retention , and life-time value metrics in our customer files , ● invested in operations – the company continued to invest in the key areas that will provide for growth in the future , including : o manufacturing , production and distribution – warehouse expansion and production improvements for cheryl 's ; manufacturing production , orchard and facility improvements for harry & david , o technology – multi-brand website redesign and customer experience improvements , mobile platform upgrades , mobile and desktop progressive web application ( pwa ) upgrades , and o business intelligence – customer database mining to effectively market and target key demographics , ● innovation and positioning for emerging technologies – the company has built a reputation as an innovator and an early adopter of new technologies . this was illustrated by the company 's initiatives , including : o expanding our category-leading position in conversational commerce , where we are now one of the few companies that have applications running on all five of the leading platforms , including : apple , samsung , facebook , google and amazon , o continuing to roll out pwa technology across our mobile and desktop platforms , significantly increasing site speeds and enhancing the customer experience , o expanding our integration with smartgift – a highly personalized , experiential gifting feature that allows customers to notify their recipient via text , email or any messaging platform , that a gift is on the way – and then gives the recipient the option of modifying their delivery preference , further involving them in the total gifting experience , o launching an interactive , telephonic virtual assistant , integrating artificial intelligence and human understanding to reduce average time on hold and increase our already high customer satisfaction metrics ; and o launching smart message – an augmented-reality , gift-messaging feature available on our ios mobile app , and ● strengthened its balance sheet - the company was able to fund its christmas holiday working capital requirements primarily through the use of cash on hand , and continued to pay down its outstanding term loan . during may 2019 , the company amended its credit facility to , among other modifications : ( i ) increase the amount of the outstanding term loan ( “ term loan ” ) from approximately $ 97 million to $ 100 million , ( ii ) extend the maturity date of the outstanding term loan and the revolving credit facility ( “ revolver ” ) by approximately 29 months to may 31 , 2024 , and ( iii ) decrease the applicable interest rate margins for libor and base rate loans by 25 basis points . the company also continued to repurchase shares , while investing capital to grow its businesses utilizing cash generated from operations . when combined with the company 's amended credit facility , the company believes that its strong balance sheet , and growing cash flows , provide it with significant liquidity and flexibility to invest and enhance future growth , both organically , as well as through potential acquisitions . for fiscal 2020 , the company 's guidance reflects its plans to continue to invest in strategic marketing and merchandising programs to take advantage of market conditions and build on the revenue growth momentum it generated across all three of its business segments during fiscal 2019. based on these factors , in fiscal 2020 , the company anticipates : total consolidated revenue growth of 8 % to 9 % , compared with the prior year , comprised of organic revenue growth of approximately 6 % to 7 % , and revenue attributable to the shari 's berries brand , acquired in august 2019 ; adjusted ebitda and eps growth in a range of 8 % to 10 % , and ; free cash flow for the year of approximately $ 45 million . 24 definitions of non-gaap financial measures : we sometimes use financial measures derived from consolidated financial information , but not presented in our financial statements prepared in accordance with u.s. generally accepted accounting principles ( “ gaap ” ) . certain of these are considered `` non-gaap financial measures '' under the sec rules . see below for definitions and the reasons why we use these non-gaap financial measures . where applicable , see the segment information and results of operations sections below for reconciliations of these non-gaap financial measures to their most directly comparable gaap financial measures . these non-gaap financial measures are referred to as “ adjusted '' or “ on a comparable basis ” below , as these terms are used interchangeably . ebitda and adjusted ebitda we define ebitda as net income ( loss ) before interest , taxes , depreciation and amortization . adjusted ebitda is defined as ebitda adjusted for the impact of stock-based compensation , non-qualified plan investment appreciation/depreciation , and certain items affecting period to period comparability . see segment information for details on how ebitda and adjusted ebitda were calculated for each period presented . story_separator_special_tag the company presents ebitda and adjusted ebitda because it considers such information meaningful supplemental measures of its performance and believes such information is frequently used by the investment community in the evaluation of similarly situated companies . the company uses ebitda and adjusted ebitda as factors used to determine the total amount of incentive compensation available to be awarded to executive officers and other employees . the company 's credit agreement uses ebitda and adjusted ebitda to measure compliance with covenants such as interest coverage and debt incurrence . ebitda and adjusted ebitda are also used by the company to evaluate and price potential acquisition candidates . ebitda and adjusted ebitda have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of the company 's results as reported under gaap . some of the limitations are : ( a ) ebitda and adjusted ebitda do not reflect changes in , or cash requirements for , the company 's working capital needs ; ( b ) ebitda and adjusted ebitda do not reflect the significant interest expense , or the cash requirements necessary to service interest or principal payments , on the company 's debts ; and ( c ) although depreciation and amortization are non-cash charges , the assets being depreciated and amortized may have to be replaced in the future and ebitda does not reflect any cash requirements for such capital expenditures . ebitda should only be used on a supplemental basis combined with gaap results when evaluating the company 's performance . segment contribution margin we define segment contribution margin as earnings before interest , taxes , depreciation and amortization , before the allocation of corporate overhead expenses . see segment information for details on how segment contribution margin was calculated for each period presented . when viewed together with our gaap results , we believe segment contribution margin provides management and users of the financial statements meaningful information about the performance of our business segments . segment contribution margin is used in addition to and in conjunction with results presented in accordance with gaap and should not be relied upon to the exclusion of gaap financial measures . the material limitation associated with the use of the segment contribution margin is that it is an incomplete measure of profitability as it does not include all operating expenses or non-operating income and expenses . management compensates for these limitations when using this measure by looking at other gaap measures , such as operating income and net income . adjusted net income and adjusted net income per common share we define adjusted net income and adjusted net income per common share as net income and net income per common share adjusted for certain items affecting period to period comparability . see segment information below for details on how adjusted net income and adjusted net income per common share were calculated for each period presented . we believe that adjusted net income and adjusted net income per common share are meaningful measures because they increase the comparability of period to period results . since these are not measures of performance calculated in accordance with gaap , they should not be considered in isolation of , or as a substitute for , gaap net income and net income per common share , as indicators of operating performance and they may not be comparable to similarly titled measures employed by other companies . 25 free cash flow we define free cash flow as net cash provided by operating activities , less capital expenditures . the company considers free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business after the purchases of fixed assets , which can then be used to , among other things , invest in the company 's business , make strategic acquisitions , strengthen the balance sheet and repurchase stock or retire debt . free cash flow is a liquidity measure that is frequently used by the investment community in the evaluation of similarly situated companies . since free cash flow is not a measure of performance calculated in accordance with gaap , it should not be considered in isolation or as a substitute for analysis of the company 's results as reported under gaap . a limitation of the utility of free cash flow as a measure of financial performance is that it does not represent the total increase or decrease in the company 's cash balance for the period . 26 segment information the following table presents the net revenues , gross profit and segment contribution margin from each of the company 's business segments , as well as consolidated ebitda , adjusted ebitda and adjusted net income , for fiscal years ended june 30 , 2019 and july 1 , 2018. for segment information for the fiscal year ended july 2 , 2017 , please refer to our annual report on form 10-k for the fiscal year ended july 2 , 2017 , filed on september 15 , 2017. replace_table_token_4_th 27 reconciliation of net income to adjusted net income ( non-gaap ) : replace_table_token_5_th 28 reconciliation of net income to adjusted ebitda ( non-gaap ) : replace_table_token_6_th ( a ) segment performance is measured based on segment contribution margin or segment adjusted ebitda , reflecting only the direct controllable revenue and operating expenses of the segments , both of which are non-gaap measurements . as such , management 's measure of profitability for these segments does not include the effect of corporate overhead , described above , depreciation and amortization , other income ( net ) , and other items that we do not consider indicative of our core operating performance . ( b ) corporate expenses consist of the company 's enterprise shared service cost centers , and include , among other items , information technology , human resources , accounting and finance , legal , executive and customer service center functions , as well as stock-based compensation .
| during fiscal 2019 , the company fulfilled approximately 13.2 million e-commerce orders , at an average order value of $ 75.44 , representing increases of 6.4 % and 1.8 % , respectively , compared to fiscal 2018. e-commerce revenues increased 2.8 % during fiscal 2018 compared to the fiscal 2017. on a comparable basis , adjusting fiscal 2017 e-commerce revenues to exclude the revenues of fannie may , e-commerce revenues increased 4.3 % during fiscal 2018 , due to growth within the company 's consumer floral segment , as well as growth in the gourmet foods & gift baskets segment , reflecting year-over-year growth by harry & david and 1-800-baskets . during fiscal 2018 , the company fulfilled approximately 12.4 million e-commerce orders , at an average order value of $ 74.04 , representing increases of 2.4 % and 0.4 % , respectively , compared to fiscal 2017. adjusted to exclude fannie may 's revenue and orders , in fiscal 2018 , orders increased 5.2 % , while average order value decreased 0.9 % , in comparison to fiscal 2017 . ● other revenues are comprised of the company 's bloomnet wire service segment , as well as the wholesale and retail channels of its 1-800-flowers.com consumer floral and gourmet food & gift baskets segments . other revenues increased 8.8 % during fiscal 2019 , primarily as a result of 14.9 % growth within the bloomnet wire service segment , and 5.2 % growth within the gourmet foods & gift baskets segment , driven primarily by increased wholesale volume , partially offset by a decline in harry & david retail store volume due to a reduction in store count and a decline in customer traffic . other revenues decreased 22.5 % during fiscal 2018 , primarily as a result of the may 2017 disposition of fannie may , which generated most of its revenues through its retail and wholesale operations . on a comparable basis , adjusting fiscal 2017 to exclude the revenues of fannie may , other revenues increased 2.0 % during fiscal 2018 , as a result of growth within the bloomnet wire service segment as well as the gourmet foods & gift baskets segment , driven by 1-800-baskets and cheryl 's wholesale growth , partially offset by declines in harry & david retail store volume due to a reduction in store count and a decline in customer traffic . revenue by segment : ● 1-800-flowers.com consumer floral – this segment includes the operations of the 1-800-flowers.com brand , which derives revenue from the sale of consumer floral products through its e-commerce sales channels ( telephonic and online sales ) , retail stores , and royalties from its franchise operations .
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the tax income tax rate increased to 14 % plus a 1 % social contribution effective from january 1 , 2020. for fiscal 2020 , our income tax in jordan was $ 1,229,000. jerash garments and its subsidiaries and vie are subject to local sales tax of 16 % . however , jerash garments was granted a sales tax exemption from the jordanian investment commission for the period june 1 , 2015 to june 1 , 2018 that allowed jerash garments to make purchases with no sales tax charge . this exemption was extended to february 5 , 2021 and we intend to apply to extend the exemption before the expiration date . hong kong taxation . treasure success is registered in hong kong with an income tax rate of 8.25 % on assessable profits up to hk $ 2,000,000 and 16.5 % on any part of assessable profits over hk $ 2,000,000. treasure success incurred no income tax expense for fiscal 2020 and 2019 due to its operating loss . in accordance with tax legislation in hong kong , the accumulated loss can be used to offset future profit for income tax purposes . prc taxation . jiangmen treasure success was established in the prc and is subject to an income tax rate of 25 % . net income . net income for fiscal 2020 was approximately $ 6.5 million , a 27 % increase from approximately $ 5.1 million for fiscal 2019. the increase was mainly attributable to the decrease in stock-based compensation expenses partially offset by a decrease in gross profit in fiscal 2020. liquidity and capital resources jerash holdings is a holding company incorporated in delaware . as a holding company , we rely on dividends and other distributions from our jordanian subsidiaries to satisfy our liquidity requirements . current jordanian regulations permit our jordanian subsidiaries and vie to pay dividends to us only out of their accumulated profits , if any , determined in accordance with jordanian accounting standards and regulations . in addition , our jordanian subsidiaries and vie are required to set aside at least 10 % of their respective accumulated profits each year , if any , to fund certain reserve funds . these reserves are not distributable as cash dividends . we have relied on direct payments of expenses by our subsidiaries and vie ( which generate revenue ) to meet our obligations to date . to the extent payments are due in u.s. dollars , we have occasionally paid such amounts in jod to an entity controlled by our management capable of paying such amounts in u.s. dollars . such transactions have been made at prevailing exchange rates and have resulted in immaterial losses or gains on currency exchange but no other profit . as of march 31 , 2020 , we had cash of approximately $ 26.1 million and restricted cash of approximately $ 0.8 million compared to cash of approximately $ 27.2 million and restricted cash of approximately $ 0.7 million as of march 31 , 2019 , which was mainly the security deposit supporting our duty free import into jordan at the customs . 20 our current assets as of march 31 , 2020 were approximately $ 59.0 million , and our current liabilities were approximately $ 10.9 million , which resulted in a current ratio of approximately 5.4:1. our current assets as of march 31 , 2019 were approximately $ 55.4 million , and our current liabilities were approximately $ 7.6 million , which resulted in a current ratio of approximately 7.3:1. total equity as of march 31 , 2020 and 2019 was approximately $ 54.8 million and $ 50.3 million , respectively . we had net working capital of $ 48.1 million and $ 47.8 million as of march 31 , 2020 and 2019 , respectively . based on our current operating plan , we believe that cash on hand and cash generated from operation will be sufficient to support our working capital needs for the next 12 months from the date this document is filed . we have funded our working capital needs from operations . our working capital requirements are influenced by the level of our operations , the numerical and dollar volume of our sales contracts , the progress of execution on our customer contracts , and the timing of accounts receivable collections . credit facilities hsbc facility on may 29 , 2017 , our wholly owned subsidiary , treasure success , entered into a facility letter ( “ 2017 facility letter ” ) with hsbc to provide credit to us , which was later amended by an offer letter between hsbc , treasure success , and jerash garments dated june 19 , 2018 ( “ 2018 facility letter ” ) , and further amended on august 12 , 2019 ( the “ 2019 facility letter , ” and together with the 2017 facility letter and the 2018 facility letter , the “ hsbc facility ” ) . the 2019 facility letter extended the term of the hsbc facility indefinitely , subject to review at any time by hsbc . pursuant to the hsbc facility , we have a total credit limit of $ 11,000,000. the hsbc facility currently provides us with various credit facilities for importing and settling payment for goods purchased from our suppliers . the available credit facilities as described in greater detail below includes an import facility , import facilities with loan against import , trust receipts , clean import loan , and advances to us against purchase orders . hsbc charges an interest rate of 1.5 % per annum over libor or hibor , as applicable , for credit related to the release of goods immediately on our documentary credit . story_separator_special_tag libor was 0.3 % and hibor was 0.9 % on june 24 , 2020. hsbc charges a commission of : i ) 0.25 % for the first $ 50,000 , ii ) 0.125 % for the balance in excess of $ 50,000 and up to $ 100,000 , and iii ) 0.0625 % for balance in excess of $ 100,000 and an interest rate of 1.5 % per annum over libor or hibor , as applicable , for credit related to trust receipts whereby hsbc has title to the goods or merchandise released immediately to us . hsbc has approved certain of our suppliers that are eligible to use clean import loans . hsbc charges a commission of : i ) 0.25 % for the first $ 50,000 , ii ) 0.125 % for the balance in excess of $ 50,000 and up to $ 100,000 , and iii ) 0.0625 % for balance in excess of $ 100,000 and an interest of 1.5 % per annum over libor or hibor , as applicable , for credit services related to clean import loans or release of the goods or merchandise based on evidence of delivery or invoice . hsbc will advance up to 70 % of the purchase order value in our favor . hsbc charges a handling fee of 0.25 % and an interest rate of 1.5 % per annum over libor or hibor , as applicable , for credit services related to advances . previously , the hsbc facility was secured by collateral provided by us , jerash garments , treasure success , and the personal guarantees of mr. choi and mr. ng . the personal guarantees were released by hsbc in august 2019. jerash garments is also required to maintain an account at hsbc for receiving payments from vf sourcing asia s.a.r.l . and its related companies . as of march 31 , 2020 , there was no amount outstanding under the hsbc facility . borrowings under the hsbc facility are due upon demand by hsbc or within 120 days of each borrowing date . 21 hsbc factoring agreement on june 5 , 2017 , treasure success entered into an offer letter—invoice discounting/factoring agreement , and on august 21 , 2017 , treasure success entered into the invoice discounting/factoring agreement ( together , the “ 2017 factoring agreement ” ) with hsbc for certain debt purchase services related to our accounts receivable . on june 14 , 2018 , treasure success and jerash garments entered into another offer letter—invoice discounting/factoring agreement with hsbc ( the “ 2018 factoring agreement , and together with the 2017 factoring agreement , the “ hsbc factoring agreement ” ) , which amended the 2017 factoring agreement . the hsbc factoring agreement was effective through may 1 , 2019. we are negotiating with hsbc to amend the hsbc factoring agreement to extend the term of the facility with substantially similar terms and we will continue to be able to use the borrowings under the hsbc factoring agreement through any negotiation period . under the current terms of the hsbc factoring agreement , we may borrow up to $ 12,000,000. in exchange for advances on eligible invoices from hsbc for our approved customers , hsbc charges a fee to advance such payments at a discounting charge of 1.5 % per annum over 2-month libor or hibor , as applicable . such fee accrues on a daily basis on the amount of funds in use . hsbc has final determination of the percentage amount available for prepayment from each of our approved customers . we may not prepay an amount from a customer in excess of 85 % of the funds available for borrowing . as of march 31 , 2020 , there was $ 235 outstanding under the hsbc factoring agreement . hsbc also provides credit protection and debt services related to each of our preapproved customers . for any approved debts or collections assigned to hsbc , hsbc charges a flat fee of 0.35 % on the face value of the invoice for such debt or collection . we may assign debtor payments that are to be paid to hsbc within 90 days , defined as the maximum terms of payment . we may receive advances on invoices that are due within 30 days of the delivery of our goods , defined as the maximum invoicing period . the advances made by hsbc were secured by collateral provided by us , jerash garments , and treasure success , and the personal guarantees of mr. choi and mr. ng . if we fail to pay any sum due to hsbc , hsbc may charge a default interest at the rate of 8.5 % per annum over the best lending rate quoted by hsbc on such defaulted amount . in addition , to secure the factoring agreement , we had granted hsbc a charge of $ 3,000,000 over our deposits . following the effectiveness of the 2018 factoring agreement , the security collateral of $ 3,000,000 was released as of january 22 , 2019. hsbc released the personal guarantees of mr. choi and mr. ng in august 2019. the hsbc factoring agreement is subject to the review by hsbc at any time and hsbc has discretion on whether to renew the hsbc factoring agreement . either party may terminate the agreement subject to a 30-day notice period . scbhk facility letter pursuant to the scbhk facility letter dated june 15 , 2018 , and issued to treasure success by scbhk , scbhk offered to provide an import facility of up to $ 3.0 million to treasure success . the scbhk facility covers import invoice financing and pre-shipment financing under export orders with a combined limit of $ 3 million . borrowings under the scbhk facility are due within 90 days of each invoice or financing date . scbhk charges interest at 1.3 % per annum over scbhk 's cost of funds . in consideration for arranging the scbhk facility , treasure success paid scbhk hkd50,000 .
| march 31 , 2020. our sales growth ratio has been exceeding the industrial average growth ratio , and we expect we still have plenty of room to expand our garment export business in the u.s. in the long run , as jerash accounted for only approximately 5 % of the total jordanian garment exports to the u.s. in fiscal 2020 , according to data from the major shippers report issued by the u.s. department of commerce . the short-term trend may be substantially impacted by the covid-19 outbreak in fiscal 2021. cost of goods sold . following the growth in sales revenue , our cost of goods sold increased by approximately $ 8.8 million , or 13 % , to approximately $ 75.0 million in fiscal 2020 from approximately $ 66.2 million in fiscal 2019. as a percentage of revenue , the cost of goods sold increased by approximately 3 % points to 81 % in fiscal 2020 from 78 % in fiscal 2019. the increase in cost of goods sold as a percentage of revenue was primarily attributable to the absorption of ramp-up expenses of our newly acquired paramount facility starting in april 2019 and newly set up al-hasa workshop that started operation in november 2019 , and the manufacturing overheads absorbed as expenses in the period from march 18 to march 31 , 2020 , due to the shutdown in jordan amid the covid-19 outbreak . for the fiscal year ended march 31 , 2020 , we purchased approximately 22 % , 16 % , and 11 % of our raw materials from three major suppliers . for the fiscal year ended march 31 , 2019 , we purchased approximately 19 % , 12 % , and 11 % of our raw materials from three major suppliers . gross profit margin . gross profit margin was approximately 19 % in fiscal 2020 , which decreased by approximately 3 % points from 22 % in fiscal 2019. the decrease in gross profit margin was primarily
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actual results may differ materially from those anticipated in the forward-looking statements as a result of many factors including , but not limited to , those set forth under cautionary statement about forward-looking statements and risk factors in item 1a . included above in this annual report . all forward-looking statements included in this annual report are based on the information available to us as of the time we file this annual report , and except as required by law , we undertake no obligation to update publicly or revise any forward-looking statements . overview and recent developments our business purpose is the development of drugs for the treatment of cancer . our portfolio of clinical drug candidates includes pracinostat , an oral hdac inhibitor that is being developed in combination with azacitidine for the treatment of adults with newly diagnosed aml who are unfit for intensive chemotherapy , and patients with high or very high-risk mds . in august 2016 , we entered into an exclusive worldwide license , development and commercialization agreement with helsinn for pracinostat in aml , mds and other potential indications . our clinical development portfolio also includes me-401 , an oral inhibitor of pi3k delta being developed for b-cell malignancies , and me-344 , a mitochondrial inhibitor that has shown evidence of clinical activity in refractory solid tumors . we own exclusive worldwide rights to me-401 and me-344 . we have an accumulated deficit of $ 174.3 million as of june 30 , 2017 , and may incur substantial net losses in the future as we advance our research and development programs . we expect to incur operating losses and generate negative cash flows from operations for the foreseeable future . we may need additional financing to fund our operations in the future , including the continued development of our lead drug candidates . 23 clinical development programs pracinostat in august 2016 , the fda granted breakthrough therapy designation for pracinostat in combination with azacitidine for the treatment of patients with newly diagnosed aml who are unfit for intensive chemotherapy . the breakthrough therapy designation is supported by data from a phase ii study of pracinostat plus azacitidine in elderly patients with newly diagnosed aml who are not candidates for induction chemotherapy . the study showed a median overall survival of 19.1 months and a cr rate of 42 % ( 21 of 50 patients ) . the combination of pracinostat and azacitidine was generally well tolerated , with no unexpected toxicities . the most common grade 3/4 treatment-emergent adverse events included febrile neutropenia , thrombocytopenia , anemia and fatigue . in august 2016 , we entered into the helsinn license agreement . under the terms of the agreement , helsinn was granted a worldwide exclusive license to develop , manufacture and commercialize pracinostat , and is primarily responsible for funding its global development and commercialization . as compensation for such grant of rights , we received payments of $ 20.0 million , including a $ 15.0 million upfront payment and a $ 5.0 million payment in march 2017. in addition , we are eligible to receive up to $ 444 million in potential regulatory and sales-based milestones , along with royalty payments on the net sales of pracinostat , which , in the u.s. , are tiered and begin in the mid-teens . in july 2017 , the first patient was dosed in a pivotal phase iii study of pracinostat in combination with azacitidine in adults with newly diagnosed aml who are unfit to receive intensive induction chemotherapy . the randomized , double-blind , placebo-controlled study will enroll approximately 500 eligible patients worldwide . the primary endpoint of the study is overall survival . secondary endpoints include morphologic cr rate , efs and duration of cr . helsinn is responsible for the conduct and funding of this phase iii study . in june 2017 , the first patient was dosed in a phase ii dose-optimization study of pracinostat in combination with azacitidine in patients with high and very high risk mds who are previously untreated with hypomethylating agents . the two-stage study will be conducted at approximately 25 sites and is expected to enroll up to 120 patients . data from the first stage is expected in the first quarter of 2018. we are responsible for the conduct of this phase ii study , the cost of which will be shared by helsinn . helsinn will be responsible for funding any further studies . me-401 results from a first-in-human , single ascending dose clinical study of me-401 in healthy volunteers were presented at the american association for cancer research annual meeting in april 2016. the data demonstrated on target activity at very low plasma concentrations . in addition , the results from the study suggest that me-401 has the potential for a superior pharmacokinetic and pharmacodynamics profile and an improved therapeutic window compared to idelalisib , with a half-life that supports once-daily dosing . in may 2017 , an independent safety review committee completed its pre-specified review of the first cohort of six evaluable patients in a phase ib , open-label , dose-escalation study of me-401 in relapsed/refractory cll and follicular lymphoma . based on its review of the safety and efficacy data , the safety review committee declared a mbed for me-401 at the starting dose of 60 mg and recommended escalation to a 120 mg dose cohort . to date there have been no reports of alt/ast elevations , colitis or pneumonitis , events commonly reported with other drugs in this class . story_separator_special_tag one patient in the study experienced grade 3 neutropenia that was considered related to the study drug ; all other adverse events reported were grades 1 or 2. no patients have discontinued due to adverse events or disease progression . we plan to submit full data for presentation at an upcoming scientific meeting . me-344 results from our first-in-human , single-agent phase i clinical trial of me-344 in patients with refractory solid tumors were published in the april 1 , 2015 issue of cancer . the results indicated that eight of 21 evaluable patients ( 38 % ) treated with me-344 achieved stable disease or better , including five who experienced progression-free survival that was at least twice the duration of their last prior treatment before entry into the study . in addition , one of these patients , a heavily pre-treated patient with small cell lung cancer , achieved a confirmed partial response and remained on study for two years . me-344 was generally well tolerated at doses equal to or less than 10 mg/kg delivered on a weekly schedule for extended durations . treatment-related adverse events included nausea , dizziness and fatigue . dose limiting toxicities were observed at both the 15 mg/kg and 20 mg/kg dose levels , consisting primarily of grade 3 peripheral neuropathy . in may 2015 , we announced pre-clinical data from a collaboration with the spanish national cancer research centre in madrid showing mitochondria-specific effects of me-344 in cancer cells , including substantially enhanced anti-tumor activity when combined with a vegf inhibitor . these data demonstrate that the anti-cancer effects when combining me-344 with a vegf inhibitor are due to an inhibition of both mitochondrial and glycolytic metabolism . an investigator-sponsored study of me-344 in combination with the vegf inhibitor bevacizumab ( marketed as avastin ® ) in her2-negative breast cancer opened for enrollment in august 2016. this study is now actively dosing patients and interim data are expected in the fourth quarter of 2017. equity transactions shelf registration statement in may 2017 , we filed a shelf registration statement on form s-3 with the sec ( shelf registration statement ) . the shelf registration statement was declared effective by the sec in may 2017 and permits us to sell , from time to time , up to $ 150.0 million of common stock , preferred stock and warrants . as of june 30 , 2017 , there is $ 150.0 million aggregate value of securities available under the shelf registration statement . 24 helsinn equity investment on august 5 , 2016 , we entered into a common stock purchase agreement with helsinn investment fund sa ( the helsinn equity agreement ) . pursuant to the terms of the helsinn equity agreement , we issued 2,616,431 shares of common stock on august 16 , 2016 in exchange for a $ 5.0 million investment . under the multiple-element arrangement accounting guidance , we allocated $ 0.8 million of the investment as additional consideration related to the revenues under the helsinn license agreement . ( see note 2 to the financial statements included in item 8 of this annual report . ) the transaction was exempt from registration pursuant to section 4 ( a ) ( 2 ) of the securities act of 1933 , as amended . underwritten registered offerings in december 2014 , we completed an underwritten registered offering of 11,500,000 shares of our common stock at a price per share of $ 4.00. we received net proceeds of $ 43.1 million associated with the offering , after costs of $ 2.9 million . critical accounting policies and management estimates management 's discussion and analysis of our financial condition and results of operations is based on our 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 assumptions that affect the reported amounts of assets , liabilities , expenses and related disclosures . actual results could differ from those estimates . we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our financial statements . revenue recognition : payments received under commercial arrangements , such as licensing technology rights , may include non-refundable fees at the inception of the arrangements , milestone payments for specific achievements designated in the agreements , and royalties on the sale of products . the company considers a variety of factors in determining the appropriate method of accounting under its license agreements , including whether the various elements can be separated and accounted for individually as separate units of accounting . multiple element arrangements deliverables under an arrangement will be separate units of accounting , provided ( i ) a delivered item has value to the customer on a standalone basis ; and ( ii ) the arrangement includes a general right of return relative to the delivered item , and delivery or performance of the undelivered item is considered probable and substantially in the company 's control . we account for revenue arrangements with multiple elements by separating and allocating consideration according to the relative selling price of each deliverable . if an element can be separated , an amount is allocated based upon the relative selling price of each element . we determine the relative selling price of a separate deliverable using the price it charges other customers when it sells that element separately . if the element is not sold separately and third party pricing evidence is not available , we will use our best estimate of selling price .
| research and development : research and development expenses consist primarily of clinical trial costs ( including payments to cros ) , pre-clinical study costs , cost to manufacture our drug candidates for non-clinical and clinical studies , and salaries and other personnel costs . research and development expenses decreased $ 6.2 million to $ 7.2 million for the year ended june 30 , 2017 compared to $ 13.4 million for the year ended june 30 , 2016. the decrease was primarily due to a reduction of $ 2.5 million in costs associated with clinical trials for pracinostat pursuant to the helsinn license agreement whereby helsinn is primarily responsible for the costs to continue the development of pracinostat . additionally , costs related to our other clinical trials decreased by $ 1.0 million and the cost of drug manufacturing for pracinostat decreased by $ 0.7 million . general and administrative : general and administrative expenses increased by $ 1.0 million to $ 8.6 million for the year ended june 30 , 2017 compared to $ 7.6 million for the year ended june 30 , 2016. the increase primarily relates to higher levels of professional services expenses related to the helsinn license agreement . 26 other income or expense : we received interest on cash , cash equivalents and short-term investments of $ 287,000 for the year ended june 30 , 2017 and $ 143,000 for the year ended june 30 , 2016. the increase was due to higher yields on investments during the year ended june 30 , 2017 compared to the year ended june 30 , 2016. comparison of years ended june 30 , 2016 and 2015 the following is a summary of our research and development expenses to supplement the more detailed discussions below . the dollar values in the following table are in thousands . replace_table_token_4_th research and development : research and development expenses consist primarily of clinical trial costs ( including payments to cros ) , pre-clinical study costs , cost to manufacture our drug candidates for non-clinical and clinical studies , and salaries and other personnel costs . research and development expenses decreased $ 10.4 million to $ 13.4 million for the
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offering costs ( other than selling commissions and the dealer manager fee ) include costs that may be paid by the advisor , the former dealer manager or their affiliates on our behalf . these costs include but are not limited to ( i ) legal , accounting , printing , mailing , and filing fees ; ( ii ) escrow related fees ; ( iii ) reimbursement of the former dealer manager for amounts it may pay to reimburse itemized and detailed due diligence expenses of broker-dealers ; and ( iv ) reimbursement to the advisor for the salaries of its employees and other costs in connection with preparing supplemental sales materials and related offering activities . we are obligated to reimburse the advisor or its affiliates , as applicable , for organization and offering costs paid by them on our behalf , provided that the advisor is obligated to reimburse us to the extent organization and offering costs ( excluding selling commissions and the dealer manager fee ) incurred by us in our offering exceed 2.0 % of gross offering proceeds from the ipo . as a result , these costs are only our liability to the extent selling commissions , the dealer manager fees and other organization and offering costs do not exceed 12.0 % of the gross proceeds determined at the end of the ipo . as of the end of our ipo , offering costs were less than 12.0 % of the gross proceeds received in the ipo . revenue recognition our revenues , which are derived primarily from rental income , include rents that each tenant pays in accordance with the terms of each lease reported on a straight-line basis over the initial term of the lease . since many of our leases provide for rental increases at specified intervals , straight-line basis accounting requires us to record a receivable , and include in revenues , unbilled rents receivable that we will only receive if the tenant makes all rent payments required through the expiration of the initial term of the lease . when we acquire a property , acquisition date is considered to be the commencement date for purposes of this calculation . we defer the revenue related to lease payments received from tenants in advance of their due dates . we own certain properties with leases that include provisions for the tenant to pay contingent rental income based on a percent of the tenant 's sales upon the achievement of certain sales thresholds or other targets which may be monthly , quarterly or annual targets . as the lessor to the aforementioned leases , we defer the recognition of contingent rental income , until the specified target that triggered the contingent rental income is achieved , or until such sales upon which percentage rent is based are known . contingent rental income is included in rental income on the consolidated statements of operations and comprehensive ( loss ) income . we continually review receivables related to rent and unbilled rents receivable and determine collectability by taking into consideration the tenant 's payment history , the financial condition of the tenant , business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located . in the event that the collectability of a receivable is in doubt , we record an increase in our allowance for uncollectible accounts or record a direct write-off of the receivable in our consolidated statements of operations and comprehensive ( loss ) income . cost recoveries from tenants are included in operating expense reimbursements in our consolidated statements of operations and comprehensive ( loss ) income in the period the related costs are incurred , as applicable . real estate investments investments in real estate are recorded at cost . improvements and replacements are capitalized when they extend the useful life of the asset . costs of repairs and maintenance are expensed as incurred . we evaluate the inputs , processes and outputs of each asset acquired to determine if the transaction is a business combination or asset acquisition . if an acquisition qualifies as a business combination , the related transaction costs are recorded as an expense in the consolidated statements of operations and comprehensive ( loss ) income . if an acquisition qualifies as an asset acquisition , the related transaction costs are generally capitalized and subsequently amortized over the useful life of the acquired assets . in business combinations , we allocate the purchase price of acquired properties to tangible and identifiable intangible assets or liabilities based on their respective fair values . tangible assets may include land , land improvements , buildings , fixtures and tenant improvements . intangible assets may include the value of in-place leases and above- and below- market leases . in addition , any assumed mortgages receivable or payable and any assumed or issued noncontrolling interests are recorded at their estimated fair values . 60 the fair value of the tangible assets of an acquired property with an in-place operating lease is determined by valuing the property as if it were vacant , and the `` as-if-vacant '' value is then allocated to the tangible assets based on the fair value of the tangible assets . the fair value of in-place leases is determined by considering estimates of carrying costs during the expected lease-up periods , current market conditions , as well as costs to execute similar leases . the fair value of above- or below-market leases is recorded based on the present value of the difference between the contractual amount to be paid pursuant to the in-place lease and our estimate of the fair market lease rate for the corresponding in-place lease , measured over the remaining term of the lease , including any below-market fixed rate renewal options for below-market leases . story_separator_special_tag in allocating the fair value to assumed mortgages , amounts are recorded to debt premiums or discounts based on the present value of the estimated cash flows , which is calculated to account for either above or below-market interest rates . in allocating non-controlling interests , amounts are recorded based on the fair value of units issued at the date of acquisition , as determined by the terms of the applicable agreement . in making estimates of fair values for purposes of allocating purchase price , we utilize a number of sources , including real estate valuations , prepared by independent valuation firms . we also consider information and other factors including : market conditions , the industry that the tenant operates in , characteristics of the real estate , i.e . : location , size , demographics , value and comparative rental rates , tenant credit profile , store profitability and the importance of the location of the real estate to the operations of the tenant 's business . real estate investments that are intended to be sold are designated as `` held for sale '' on the consolidated balance sheets at the lesser of carrying amount or fair value less estimated selling costs when they meet specific criteria to be presented as held for sale . real estate investments are no longer depreciated when they are classified as held for sale . if the disposal , or intended disposal , of certain real estate investments represents a strategic shift that has had or will have a major effect on our operations and financial results , the operations of such real estate investments would be presented as discontinued operations in the consolidated statements of operations and comprehensive ( loss ) income for all applicable periods . there are no real estate investments held for sale as of december 31 , 2015 and 2014 . depreciation and amortization we are required to make subjective assessments as to the useful lives of the components of our real estate investments for purposes of determining the amount of depreciation to record on an annual basis . these assessments have a direct impact on our net income because if we were to shorten the expected useful lives of our real estate investments , we would depreciate these investments over fewer years , resulting in more depreciation expense and lower net income on an annual basis . depreciation is computed using the straight-line method over the estimated useful lives of up to 40 years for buildings , 15 years for land improvements , five years for fixtures and improvements and the shorter of the useful life or the remaining lease term for tenant improvements and leasehold interests . capitalized above-market lease values are amortized as a reduction of rental income over the remaining terms of the respective leases . capitalized below-market lease values are amortized as an increase to rental income over the remaining terms of the respective leases and expected below-market renewal option periods . capitalized above-market ground lease values are amortized as a reduction of property operating expense over the remaining terms of the respective leases . capitalized below-market ground lease values are amortized as an increase to property operating expense over the remaining terms of the respective leases and expected below-market renewal option periods . the value of in-place leases , exclusive of the value of above-market and below-market in-place leases , is amortized to expense over the remaining periods of the respective leases . assumed mortgage premiums or discounts are amortized as an increase or reduction to interest expense over the remaining terms of the respective mortgages . impairment of long-lived assets when circumstances indicate the carrying value of a property may not be recoverable , we review the property for impairment . this review is based on an estimate of the future undiscounted cash flows , excluding interest charges , expected to result from the property 's use and eventual disposition . these estimates consider factors such as expected future operating income , market and other applicable trends and residual value , as well as the effects of leasing demand , competition and other factors . if impairment exists , due to the inability to recover the carrying value of a property , an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property for properties to be held and used . for properties held for sale , the impairment loss is the adjustment to fair value less estimated cost to dispose of the asset . these assessments have a direct impact on net income because recording an impairment loss results in an immediate negative adjustment to net income . 61 commercial mortgage loans commercial mortgage loans held for investment purposes are anticipated to be held until maturity , and accordingly , are carried at cost , net of unamortized acquisition fees and expenses capitalized , discounts or premiums and unfunded commitments . commercial mortgage loans that are deemed to be impaired will be carried at amortized cost less a specific allowance for loan losses . interest income is recorded on the accrual basis and related discounts , premiums and capitalized acquisition fees and expenses on investments are amortized over the life of the investment using the effective interest method . amortization is reflected as an adjustment to interest income from debt investments in our consolidated statements of operations and comprehensive ( loss ) income . guaranteed loan exit fees payable by the borrower upon maturity are accreted over the life of the investment using the effective interest method . the accretion of guaranteed loan exit fees is recognized in interest income from debt investments in our consolidated statements of operations and comprehensive ( loss ) income . acquisition fees and expenses incurred in connection with the origination and acquisition of commercial mortgage loan investments are evaluated based on the nature of the expense to determine if they should be expensed in the period incurred or capitalized and amortized over the life of the investment .
| pursuant to certain of our lease agreements , tenants are required to reimburse us for certain property operating expenses , in addition to base rent , whereas under certain other lease agreements , the tenants are directly responsible for all operating costs of the respective properties . this decrease was primarily driven by a decrease in our same store operating expense reimbursements of $ 0.9 million , as a result of a decrease in same store property operating expense . this decrease was partially offset by an increase in operating expense reimbursements from our 2014 acquisitions of $ 0.2 million . interest income from debt investments interest income from debt investments for the year ended december 31 , 2015 of $ 2.1 million related to our cre debt investments . for the year ended december 31 , 2015 , the average carrying value of our commercial mortgage loans and cmbs were $ 26.7 million and $ 9.2 million , respectively . for the year ended december 31 , 2015 , the weighted-average yields of our commercial mortgage loans and cmbs were 5.16 % and 7.09 % , respectively . we did not have cre debt investments during the year ended december 31 , 2014 . 64 asset management fees to related party asset management fees to related party for the year ended december 31 , 2015 of $ 13.0 million were related to services that we received from our advisor in connection with the management of our assets . from april 1 , 2015 through july 20 , 2015 , we paid an asset management fee to our advisor on a monthly basis based on our cost of assets . subsequent to july 20 , 2015 , we pay a base management fee of $ 1.5 million per month that replaces the asset management fee . as of december 31 , 2015 , the company had not incurred a variable management fee . please see note 12 — related party transactions and arrangements to our consolidated financial statements included in this annual report on form 10-k for more information on fees incurred from our advisor . there were no asset management
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accordingly , revenue for services not yet performed at the time of product shipment are deferred and recognized as such services are performed . the relative selling price of any undelivered products is also deferred at the time of shipment and recognized as revenue when these products are delivered . for product sales to distributors , we recognize revenue for both equipment and consumables upon delivery to the distributors unless direct shipment to the end user 's is requested . in this case , revenue is recognized upon delivery to the end user 's location . in general , distributors are responsible for shipment to the end customer along with installation , training and acceptance of the equipment by the end customer . shipments to distributors are not contingent upon resale of the product . we have had no significant write-offs of uncollectible invoices in the periods presented . we have a few longstanding customers who comprise the majority of revenue and have excellent payment histories and therefore we do not require collateral . at the time of sale , we also evaluate the need to accrue for warranty and sales returns . the supply agreements we have with our customers and related purchase orders identify the terms and conditions of each sale and the price of the goods ordered . due to the nature of the sales arrangements , inventory produced for sale is tested for quality specifications prior to shipment . since the product is manufactured to order and in compliance with required specifications prior to shipment , the likelihood of sales return , warranty or other issues is largely diminished . furthermore , there is no customer right of return in our sales agreements . sales returns and warranty issues are infrequent and have not had a material impact on our financial statements historically . shipping and handling fees are recorded as a component of product revenue , with the associated costs recorded as a component of cost of product revenue . biomarin license agreement on january 21 , 2014 , we out-licensed our histone deacetylase inhibitor ( hdac ) portfolio , which includes the friedreich 's ataxia program , to biomarin pharmaceuticals inc. ( biomarin ) . under the terms of the agreement , we received an upfront payment of $ 2 million in january 2014 from biomarin and a $ 125,675 payment in september 2014 upon tech transfer , and we have the potential to receive up to $ 160 million in future milestone payments for the development , regulatory approval and commercial sale of portfolio compounds included in the agreement . in addition , we are eligible to receive royalties on sales of qualified products developed . 31 inventories we value inventory at cost or , if lower , net realizable value , using the first-in , first-out method . we review our inventory at least quarterly and record a provision for excess and obsolete inventory based on our estimates of expected sales volume , production capacity and expiration dates of raw materials , work-in-process and finished products . expected sales volumes are determined based on supply forecasts provided by key customers for the next three to 12 months . we write down inventory that has become obsolete , inventory that has a cost basis in excess of its expected net realizable value , and inventory in excess of expected requirements to cost of product revenue . manufacturing of bioprocessing finished goods is done to order and tested for quality specifications prior to shipment . a change in the estimated timing or amount of demand for our products could result in additional provisions for excess inventory quantities on hand . any significant unanticipated changes in demand or unexpected quality failures could have a significant impact on the value of inventory and reported operating results . during all periods presented in the accompanying consolidated financial statements , there have been no material adjustments related to a revised estimate of inventory valuations . business combinations amounts paid for acquisitions are allocated to the assets acquired and liabilities assumed , if any , based on their fair values at the dates of acquisition . the fair value of identifiable intangible assets is based on detailed valuations that use information and assumptions determined by management . any excess of purchase price over the fair value of the net tangible and intangible assets acquired is allocated to goodwill . the fair value of contingent consideration includes estimates and judgments made by management regarding the probability that future contingent payments will be made , the extent of royalties to be earned in excess of the defined minimum royalties , etc . management updates these estimates and the related fair value of contingent consideration at each reporting period based on the estimated probability of achieving the earnout targets and applying a discount rate that captures the risk associated with the expected contingent payments . to the extent our estimates change in the future regarding the likelihood of achieving these targets we may need to record material adjustments to our accrued contingent consideration . changes in the fair value of contingent consideration are recorded in our consolidated statement of operations . we use the income approach to determine the fair value of certain identifiable intangible assets including customer relationships and developed technology . this approach determines fair value by estimating after-tax cash flows attributable to these assets over their respective useful lives and then discounting these after-tax cash flows back to a present value . we base our assumptions on estimates of future cash flows , expected growth rates , expected trends in technology , etc . we base the discount rates used to arrive at a present value as of the date of acquisition on the time value of money and certain industry-specific risk factors . story_separator_special_tag we believe the estimated purchased customer relationships , developed technologies , trademark / tradename , patents , and in process research and development amounts so determined represent the fair value at the date of acquisition and do not exceed the amount a third party would pay for the assets . intangible assets and goodwill intangible assets we amortize our intangible assets that have finite lives using the straight-line method . amortization is recorded over the estimated useful lives ranging from 2 to 20 years . we review our intangible assets subject to amortization to determine if any adverse conditions exist or a change in circumstances has occurred that would indicate impairment or a change in the remaining useful life . further , we also review our indefinite-lived intangible assets not subject to amortization to determine if any adverse conditions exist or a change in circumstances occurred that would indicate an impairment . if the carrying value of an asset exceeds its estimated undiscounted cash flows , we will write-down the carrying value of the intangible asset to its fair value in the 32 period identified . in assessing fair value , we must make assumptions regarding estimated future cash flows and discount rates . if these estimates or related assumptions change in the future , we may be required to record impairment charges . we generally calculate fair value as the present value of estimated future cash flows to be generated by the asset using a risk-adjusted discount rate . if the estimate of an intangible asset 's remaining useful life is changed , we will amortize the remaining carrying value of the intangible asset prospectively over the revised remaining useful life . goodwill we test goodwill for impairment on an annual basis and between annual tests if events and circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying value . events that would indicate impairment and trigger an interim impairment assessment include , but are not limited to current economic and market conditions , including a decline in market capitalization , a significant adverse change in legal factors , business climate or operational performance of the business , and an adverse action or assessment by a regulator . our annual impairment test date is the last day of our fiscal year , december 31. while we currently operate as one operating segment , we perform our annual impairment test over each of the company 's two reporting units and concluded that goodwill was not impaired . accrued liabilities we estimate accrued liabilities by identifying services performed on our behalf , estimating the level of service performed and determining the associated cost incurred for such service as of each balance sheet date . for example , we would accrue for professional and consulting fees incurred with law firms , audit and accounting service providers and other third party consultants . these expenses are determined by either requesting those service providers to estimate unbilled services at each reporting date for services incurred or tracking costs incurred by service providers under fixed fee arrangements . we have processes in place to estimate the appropriate amounts to record for accrued liabilities , which principally involve the applicable personnel reviewing the services provided . in the event that we do not identify certain costs that have begun to be incurred or we under or over-estimate the level of services performed or the costs of such services , the reported expenses for that period may be too low or too high . the date on which certain services commence , the level of services performed on or before a given date , and the cost of such services often require the exercise of judgment . we make these judgments based upon the facts and circumstances known at the date of the financial statements . a change in the estimated cost or volume of services provided could result in additional accrued liabilities . any significant unanticipated changes in such estimates could have a significant impact on our accrued liabilities and reported operating results . there have been no material adjustments to our accrued liabilities in any of the periods presented in the accompanying financial statements . stock-based compensation we use the black-scholes option pricing model to calculate the fair value of share-based awards on the grant date . the expected term of options granted represents the period of time for which the options are expected to be outstanding and is derived from our historical stock option exercise experience and option expiration data . for purposes of estimating the expected term , we have aggregated all individual option awards into one group , as we do not expect substantial differences in exercise behavior among our employees . the expected volatility is a measure of the amount by which our stock price is expected to fluctuate during the expected term of options granted . we determined the expected volatility based upon the historical volatility of our common stock over a period commensurate with the option 's expected term . the risk-free interest rate is the implied yield available on 33 u.s. treasury zero-coupon issues with a remaining term equal to the option 's expected term on the grant date . we have never declared or paid any cash dividends on any of our capital stock and do not expect to do so in the foreseeable future . accordingly , we use an expected dividend yield of zero to calculate the grant-date fair value of a stock option . we recognize compensation expense on awards that vest based on service conditions on a straight-line basis over the requisite service period based upon the number of options that are ultimately expected to vest , and accordingly , such compensation expense has been adjusted by an amount of estimated forfeitures . we recognize compensation expense on awards that vest based on performance conditions based on our assessment of the probability that the performance condition will be achieved over the service period .
| for fiscal 2017 , product revenues increased by $ 36,648,000 or 35 % as compared to fiscal 2016. the increase in product revenues is due largely to increased volumes in our filtration and chromatography products , full year of revenue generated from atoll and tangenx in 2017 , and revenues of $ 19,394,000 generated from the spectrum acquisition in 2017. we sell our various bioprocessing products at different price points . the mix of products sold varies and impacts the fluctuations in total product revenue and cost of product revenues from period to period . 35 for fiscal 2016 , bioprocessing product sales increased by $ 20,904,000 or 25 % as compared to fiscal 2015 , due largely to increased volumes in our filtration and chromatography products , as well as from revenues generated from the atoll acquisition . we sell our various bioprocessing products at different price points . the mix of products sold varies and impacts the fluctuations in total product revenue and cost of product revenues from period to period . royalty revenues royalty revenues in fiscal 2017 and 2016 relate to royalties received from a third party systems manufacturer associated with our opus pd chromatography columns . royalty revenues are variable and are dependent on sales generated by our partner . costs and operating expenses total costs and operating expenses for fiscal years 2017 , 2016 and 2015 were comprised of the following : replace_table_token_8_th cost of product revenue for fiscal 2017 , cost of product revenue increased $ 19,933,000 or 42 % as compared to fiscal 2016. this increase is primarily due to the increase in product revenues noted above , the sale of higher cost spectrum finished goods inventory due to step up to fair value upon acquisition , and costs related to continuing investments in our operations to support future growth . for fiscal 2016 , cost of product revenue increased $ 11,866,000 or 34 % as compared to fiscal 2015. this increase is primarily due to the increase in product revenues noted above . gross margins were 53 % , 55 % , and 58 % for fiscal 2017 , 2016 and 2015 , respectively .
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two of the operating segments meet all of the aggregation criteria , and are aggregated . the remaining operating segment does not meet the quantitative thresholds for individual disclosure and we have combined our operating segments into a single reportable segment . critical accounting policies we prepare our consolidated financial statements in accordance with generally accepted accounting principles , or gaap , in the united states . our significant accounting policies are discussed in detail below and in note 2 of the notes to consolidated financial statements . in preparing our consolidated financial statements , we use estimates and assumptions for matters that are inherently uncertain . we base our estimates on historical experiences and reasonable assumptions . our use of estimates and assumptions affect the reported amounts of assets , liabilities and the amount and timing of revenues and expenses we recognize for and during the reporting period . actual results may differ from our estimates . due to the covid-19 pandemic , there has been uncertainty and disruption in the global economy and financial markets . we are not currently aware of any specific event or circumstance that would require an update to our estimates or judgments or a revision of the carrying value of our assets or liabilities as of march 31 , 2020. these estimates may change , as new events occur and additional information is obtained . actual results could differ materially from these estimates under different assumptions or conditions . our remanufacturing operations include a core exchange program for the core portion of the finished good . the used cores that we acquire and are returned to us from our customers are a necessary raw material for remanufacturing . we also offer our customers marketing and other allowances that impact revenue recognition . these elements of our business give rise to more complex accounting than many businesses our size or larger . new accounting pronouncements recently adopted leases in february 2016 , the fasb issued new guidance that requires balance sheet recognition of a lease asset and lease liability by lessees for all leases , other than leases with a term of 12 months or less if the short-term lease exclusion expedient is elected . the new guidance also requires new disclosures providing additional qualitative and quantitative information about the amounts recorded in the financial statements . the new guidance required a modified retrospective approach with optional practical expedients . the fasb provided entities with an additional transition method , which allows an entity to apply this guidance as of the beginning of the period of adoption instead of the beginning of the earliest comparative period presented in the entity 's financial statements . we adopted this guidance on april 1 , 2019 using the modified retrospective approach and the optional transition method permitted by the fasb . we also elected certain practical expedients permitted under the transition guidance , including the package of practical expedients , which allowed us not to reassess lease classification for leases that commenced prior to the adoption date . in addition , we elected to exempt leases with an initial term of 12 months or less from balance sheet recognition and , for all classes of assets , combining non-lease components with lease components . 24 upon adoption , we recorded operating lease liabilities of $ 53,043,000 and corresponding operating lease assets of $ 50,773,000. the difference between the operating lease assets and liabilities recognized on our consolidated balance sheet primarily related to accrued rent on existing leases that were offset against the operating lease asset upon adoption . there was an immaterial reclassification of non-lease components to finance lease assets and finance lease liabilities upon adoption due to our election to combine non-lease components with lease components . the adoption of the new guidance did not have any impact on our rent expense and consolidated statement of cash flows . however , we have material nonfunctional currency leases that could have a material impact on our consolidated statements of operations . as required for other monetary liabilities , lessees shall remeasure a foreign currency-denominated lease liability using the exchange rate at each reporting date , but the lease assets are nonmonetary assets measured at historical rates , which are not affected by subsequent changes in the exchange rates . we recorded a loss of $ 11,710,000 in general and administrative expenses in connection with the remeasurement of foreign currency-denominated lease liabilities during fiscal 2020. see note 11 for additional discussion of the adoption of asc 842 and the impact on our financial statements . new accounting pronouncements not yet adopted measurement of credit losses on financial instruments in june 2016 , the fasb issued an accounting pronouncement related to the measurement of credit losses on financial instruments . this pronouncement , along with a subsequent asu issued to clarify certain provisions of the new guidance , changes the impairment model for most financial assets and will require the use of an “ expected loss ” model for instruments measured at amortized cost . under this model , entities will be required to estimate the lifetime expected credit loss on such instruments and record an allowance to offset the amortized cost basis of the financial asset , resulting in a net presentation of the amount expected to be collected on the financial asset . this pronouncement is effective for fiscal years , and for interim periods within those fiscal years , beginning after december 15 , 2019. we will adopt this guidance on april 1 , 2020 and the adoption is not expected to have a significant impact on our consolidated financial statements and related disclosures . additionally , the adoption is not expected to have any significant impact on our business processes , systems and internal controls . fair value measurements in august 2018 , the fasb issued guidance , which changes the disclosure requirements for fair value measurements by removing , adding and modifying certain disclosures . story_separator_special_tag the standard is effective for financial statements issued for fiscal years , and for interim periods within those fiscal years , beginning after december 15 , 2019. early adoption is permitted . we will adopt this guidance on april 1 , 2020 and the adoption is not expected to have a significant impact on our consolidated financial statements and related disclosures . income taxes in december 2019 , the fasb issued guidance that simplifies the accounting for income taxes , eliminates certain exceptions within asc 740 , income taxes , and clarifies certain aspects of the current guidance to promote consistent application . this guidance is effective for annual and interim periods in fiscal years beginning after december 15 , 2020. early adoption is permitted . we are currently evaluating the impact this guidance will have on our consolidated financial statements and related disclosures . 25 reference rate reform in march 2020 , the fasb issued guidance that , for a limited time , eases the potential burden in accounting for reference rate reform . the new guidance provides optional expedients and exceptions for applying gaap to contracts , hedging relationships and other transactions affected by reference rate reform if certain criteria are met . the amendments apply only to contracts and hedging relationships that reference the london interbank offered rate ( “ libor ” ) or another reference rate expected to be discontinued due to reference rate reform . these amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before december 31 , 2022. we are currently evaluating our contracts and the optional expedients provided by this guidance and the impact the new standard will have on our consolidated financial statements and related disclosures . inventory inventory is comprised of : ( i ) used core and component raw materials , ( ii ) work-in-process , and ( iii ) remanufactured and purchased finished goods . used core , component raw materials , and purchased finished goods are stated at the lower of average cost or net realizable value . work-in-process is in various stages of production and is valued at the average cost of used cores and component raw materials issued to work orders still open , including allocations of labor and overhead costs . historically , work-in-process inventory has not been material compared to the total inventory balance . remanufactured finished goods include : ( i ) the used core cost and ( ii ) the cost of component raw materials , and allocations of labor and variable and fixed overhead costs ( the “ unit value ” ) . the allocations of labor and variable and fixed overhead costs are based on the actual use of the production facilities over the prior 12 months which approximates normal capacity . this method prevents the distortion in allocated labor and overhead costs that would occur during short periods of abnormally low or high production . in addition , we exclude certain unallocated overhead such as severance costs , duplicative facility overhead costs , start-up costs , training , and spoilage from the calculation and expenses these unallocated overhead as period costs . purchased finished goods also include an allocation of fixed overhead costs . the estimate of net realizable value is subjective and based on our judgment and knowledge of current industry demand and management 's projections of industry demand . the estimates may , therefore , be revised if there are changes in the overall market for our products or market changes that in our judgment , impact our ability to sell or liquidate potentially excess or obsolete inventory . net realizable value is determined at least quarterly as follows : net realizable value for finished goods by customer by product line are determined based on the agreed upon selling price with the customer for a product in the trailing 12 months . we compare the average selling price , including any discounts and allowances , to the finished goods cost of on-hand inventory less any reserve for excess and obsolete inventory . any reduction of value is recorded as cost of goods sold in the period in which the revaluation is identified . net realizable value for used cores are determined based on current core purchase prices from core brokers to the extent that core purchases in the trailing 12 months are significant . remanufacturing consumes , on average , more than one used core for each remanufactured unit produced since not all used cores are reusable . the yield rates depend upon both the product and customer specifications . we purchase used cores from core brokers to supplement our yield rates and used cores not returned under the core exchange program . we also consider the net selling price our customers have agreed to pay for used cores that are not returned under our core exchange program to assess whether used core cost exceeds used core net realizable value on a by customer by product line basis . any reduction of core cost is recorded as cost of goods sold in the period in which the revaluation is identified . we record an allowance for potentially excess and obsolete inventory based upon recent sales history , the quantity of inventory on-hand , and a forecast of potential use of the inventory . we periodically review inventory to identify excess quantities and part numbers that are experiencing a reduction in demand . any part numbers with quantities identified during this process are reserved for at rates based upon our judgment , historical rates , and consideration of possible scrap and liquidation values which may be as high as 100 % of cost if no liquidation market exists for the part . as a result of this process , we recorded reserves for excess and obsolete inventory of $ 13,208,000 and $ 11,899,000 at march 31 , 2020 and 2019 , respectively . the increase in the reserve for excess and obsolete inventory was primarily driven by our acquisition of dixie .
| our gross profit was $ 118,400,000 , or 22.1 % of net sales for fiscal 2020 compared with $ 89,174,000 , or 18.9 % of net sales for fiscal 2019. the gross profit margin increase of 3.2 % was primarily due to a lower non-cash quarterly revaluation of cores that are part of the finished goods on the customers ' shelves and lower customer allowances related to new business for fiscal 2020 as compared with fiscal 2019. t he non-cash quarterly revaluation of cores that are part of the finished goods on the customers ' shelves ( which are included in contract assets ) to the lower of cost or net realizable value , resulted in a write-down of $ 10,799,000 , which impacted gross margin by 2.0 % , compared with $ 18,843,000 , which impacted gross margin by 4.0 % , for fiscal 2020 and 2019 , respectively . our gross profit for fiscal 2020 and 2019 was further impacted by : ( i ) transition expenses in connection with the expansion of our operations in mexico of $ 8,337,000 and $ 8,178,000 , respectively , ( ii ) amortization of core premiums paid to customers related to new business of $ 4,501,000 and $ 4,127,000 , respectively , ( iii ) customer allowances and return accruals related to new business of $ 1,065,000 and $ 6,042,000 , respectively , and ( iv ) net tariff costs of $ 1,067,000 and $ 1,526,000 , respectively , which were paid for products sold before price increases were effective . gross profit for fiscal 2020 was further impacted by a cost of $ 133,000 incurred in connection with the cancellation of a customer contract . in addition , gross profit for fiscal 2019 was impacted by core sales of $ 7,753,000 , less related cost of goods sold of $ 7,750,000 , and a cost of $ 767,000 incurred in connection with the cancellation of a customer contract , and a cost of goods sold impact of $ 104,000 for inventory step-up in connection with our december 2018 acquisition . 31 operating expenses
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management evaluates all positive and negative evidence and uses judgment regarding past and future events , including operating results , to help determine when it is more likely than not that all or some portion of the deferred tax assets may not be realized . when appropriate , a valuation allowance is recorded against deferred tax assets to offset future tax benefits that may not be realized . valuation allowances of $ 36.3 million and $ 31.0 million were recorded as of december 31 , 2011 and 2010 , respectively . the valuation allowances recorded related primarily to net operating losses in certain foreign operations . if such losses are ultimately utilized to offset future operating income , the company will recognize a tax benefit up to the full amount of the valuation reserve . while management believes that its judgments and interpretations regarding income taxes are appropriate , significant differences in actual experience may materially affect the future financial results of the company . goodwill impairment . the company assesses the impairment of goodwill annually in the second quarter , or more often if events or changes in circumstances indicate that the carrying value may not be recoverable in accordance with financial accounting standards board ( fasb ) authoritative guidance . the company completed its annual goodwill impairment analysis as of june 30 , 2011 , and determined that no adjustment to the carrying value of goodwill was required . there were no events or changes in circumstances during the six months ended december 31 , 2011 that caused the company to perform an interim impairment assessment . fasb authoritative guidance requires a two-step approach for determining goodwill impairment . in the first step the company determines the fair value of each reporting unit utilizing a present value technique derived from a discounted cash flow methodology . for purposes of this assessment the company 's reporting units are its lines of business . the fair value of the reporting unit is then compared to its carrying value . 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 no further testing is performed . the second step under the fasb guidance is contingent upon the results of the first step . to the extent a reporting unit 's carrying value exceeds its fair value , an indication exists that the reporting unit 's goodwill may be impaired and the company must perform a second more detailed impairment assessment . the second step involves allocating the reporting unit 's fair value to its net assets in order to determine the implied fair value of the reporting unit 's goodwill as of the assessment date . the implied fair value of the reporting unit 's goodwill is then compared to the carrying amount of goodwill to quantify an impairment charge as of the assessment date . the company 's reporting units are accountemps , robert half finance & accounting , officeteam , robert half technology , robert half management resources and protiviti , which had goodwill balances at december 31 , 2011 , of $ 127.4 million , $ 26.5 million , $ 0.0 million , $ 7.2 million , $ 0.0 million and $ 28.3 million , 14 respectively , totaling $ 189.4 million . there were no changes to the company 's reporting units or to the allocations of goodwill by reporting unit for the year ended december 31 , 2011. the goodwill impairment assessment is based upon a discounted cash flow analysis . the estimate of future cash flows is based upon , among other things , a discount rate and certain assumptions about expected future operating performance . the discount rate for all reporting units was determined by management based on estimates of risk free interest rates , beta and market risk premiums . the discount rate used was compared to the rate published in various third party research reports , which indicated that the rate was within a range of reasonableness . the primary assumptions related to future operating performance include revenue growth rates and profitability levels . in addition , the impairment assessment requires that management make certain judgments in allocating shared assets and liabilities to the balance sheets of the reporting units . solely for purposes of establishing inputs for the fair value calculations described above related to its annual goodwill impairment testing , the company made the following assumptions . the company assumed that year-to-date trends through the date of the last assessment would continue for all reporting units through 2011 , using unique assumptions for each reporting unit . in addition , the company applied profitability assumptions consistent with each reporting unit 's historical trends at various revenue levels and , for years 2013 and beyond , used a 5 % growth factor to calculate the terminal value at the end of ten years for each unit . this rate is comparable to the company 's most recent ten-year annual compound revenue growth rate . in its most recent calculation , the company used a 9.5 % discount rate , which is slightly lower than the 9.6 % discount rate used for the company 's test during the second quarter of 2010. in order to evaluate the sensitivity of the fair value calculations on the goodwill impairment test , the company applied hypothetical decreases to the fair values of each reporting unit . the company determined that hypothetical decreases in fair value of at least 70 % would be required before any reporting unit would have a carrying value in excess of its fair value . given the current economic environment and the uncertainties regarding the impact on the company 's business , there can be no assurance that the company 's estimates and assumptions made for purposes of the company 's goodwill impairment testing will prove to be accurate predictions of the future . story_separator_special_tag if the company 's assumptions regarding forecasted revenue or profitability growth rates of certain reporting units are not achieved , the company may be required to recognize goodwill impairment charges in future periods . it is not possible at this time to determine if any such future impairment charge would result or , if it does , whether such charge would be material . workers ' compensation . except for states which require participation in state-operated insurance funds , the company retains the economic burden for the first $ 0.5 million per occurrence in workers ' compensation claims . workers ' compensation includes ongoing healthcare and indemnity coverage for claims and may be paid over numerous years following the date of injury . claims in excess of $ 0.5 million are insured . workers ' compensation expense includes the insurance premiums for claims in excess of $ 0.5 million , claims administration fees charged by the company 's workers ' compensation administrator , premiums paid to state-operated insurance funds , and an estimate for the company 's liability for incurred but not reported ( ibnr ) claims and for the ongoing development of existing claims . total workers ' compensation expense was $ 7.9 million , $ 6.6 million and $ 5.0 million , representing 0.30 % , 0.29 % and 0.23 % of applicable u.s. revenue for the years ended december 31 , 2011 , 2010 and 2009 , respectively . the reserves for ibnr claims and for the ongoing development of existing claims in each reporting period includes estimates . the company has established reserves for workers ' compensation claims using loss development rates which are estimated using periodic third party actuarial valuations based upon historical loss statistics which include the company 's historical frequency and severity of workers ' compensation claims , and an estimate of future cost trends . while management believes that its assumptions and estimates are appropriate , significant differences in actual experience or significant changes in assumptions may materially affect the company 's future results . based on the company 's results for the year ended december 31 , 2011 , a five- 15 percentage point deviation in the company 's estimated loss development rates would have resulted in an increase or decrease in the reserve of $ 0.3 million . stock-based compensation . under various stock plans , officers , employees and outside directors have received or may receive grants of restricted stock , stock units , stock appreciation rights or options to purchase common stock . compensation expense for restricted stock and stock units is generally recognized on a straight-line basis over the vesting period , based on the stock 's fair market value on the grant date . for restricted stock grants issued with performance conditions , compensation expense is recognized over each vesting tranche . the company recognizes compensation expense for only the portion of restricted stock and stock units that is expected to vest , rather than record forfeitures when they occur . if the actual number of forfeitures differs from those estimated by management , additional adjustments to compensation expense may be required in future periods . for purposes of calculating stock-based compensation expense for retirement-eligible employees , the service period is assumed to be met on the grant date or retirement-eligible date , whichever is later . no stock appreciation rights have been granted under the company 's existing stock plans . the company determines the fair value of options to purchase common stock using the black-scholes valuation model . the company recognizes expense over the service period for options that are expected to vest and records adjustments to compensation expense at the end of the service period if actual forfeitures differ from original estimates . the company has not granted any options to purchase common stock since 2006. for the years ended december 31 , 2011 , 2010 and 2009 , compensation expense related to stock options was $ 0.0 million , $ 0.2 million and $ 0.8 million , respectively . for the years ended december 31 , 2011 , 2010 and 2009 , compensation expense related to restricted stock and stock units was $ 50.9 million , $ 56.9 million and $ 60.3 million , respectively , of which $ 13.3 million , $ 12.2 million and $ 12.0 million was related to grants made in 2011 , 2010 and 2009 , respectively . a one-percentage point deviation in the estimated forfeiture rates would have resulted in a $ 0.5 million , $ 0.6 million and $ 0.6 million increase or decrease in compensation expense related to restricted stock and stock units for each year ended december 31 , 2011 , 2010 and 2009 , respectively . recent accounting pronouncements balance sheet disclosures . in december 2011 , the fasb issued authoritative guidance in regards to the presentation of netting assets and liabilities as a single amount in the statement of financial position to address the difference between gaap and international financial reporting standards ( ifrs ) . this authoritative guidance is to be applied for annual reporting periods beginning on or after january 1 , 2013 , and interim periods within those annual periods . the company does not expect the adoption of this guidance to have a material effect on its financial statements . testing goodwill for impairment . in august 2011 , the fasb issued authoritative guidance which is intended to simplify how entities test goodwill for impairment by permitting an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test . this authoritative guidance is to be applied prospectively and is effective for fiscal years , and interim periods within those years , beginning after december 15 , 2011. the company does not expect the adoption of this guidance to have a material effect on its financial statements . comprehensive income .
| temporary and consultant staffing services revenues were $ 3.1 billion for the year ended december 31 , 2011 , up 19 % from revenues of $ 2.6 billion for the year ended december 31 , 2010. on a constant-currency basis , temporary and consultant staffing services revenues increased 17 % for 2011 compared to 2010. in the united states , 2011 revenues increased 17 % compared to 2010. although unemployment rates in the united states remained high for the year ended december 31 , 2011 , the company experienced an increase in demand for its temporary and consulting services during the year . this is consistent with prior post recession periods where we believe clients seek to keep their labor costs as variable as possible . the company 's revenues from foreign operations increased 25 % for 2011 compared to 2010. on a constant-currency basis , the company 's revenues from foreign operations increased 18 % for 2011 compared to 2010. permanent placement revenues were $ 302 million for the year ended december 31 , 2011 , up 37 % from revenues of $ 221 million for the year ended december 31 , 2010. on a constant-currency basis , permanent placement revenues increased 33 % for 2011 compared to 2010. in the united states , 2011 revenues increased 42 % compared to 2010. although unemployment rates in the united states remained high throughout 2011 , the company experienced an increase in demand for its permanent placement services during this period . the company believes this demand was bolstered by clients who had previously made deep personnel cuts and needed to reinstate a portion of their workforce as business conditions improved . the company 's revenues from foreign operations increased 31 % for 2011 compared to 2010. on a constant-currency basis , the company 's revenues from foreign operations increased 25 % for 2011 compared to 2010. risk consulting and internal audit services revenues were $ 424 million for the year ended december 31 , 2011 , up 10 % from revenues of
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these decisions removed many of the factors that had historically distinguished the massachusetts private passenger automobile insurance market from the market in other states . however , certain of the historically unique factors have not been eliminated , including compulsory insurance , affinity group marketing , and the prominence of independent agents . car runs a reinsurance pool for commercial automobile policies and , beginning january 1 , 2006 , car implemented a limited servicing carrier program ( `` lsc '' ) for ceded commercial automobile policies . car approved safety insurance and five other servicing carriers through a request for proposal to process ceded commercial automobile business , which was spread equitably among the six servicing carriers . in 2010 car reduced the number of servicing carriers to four , and car has approved safety insurance and three other servicing carriers effective july 1 , 2011 to continue the program . subject to the commissioner 's review , car sets the premium rates for commercial automobile policies reinsured through car and this reinsurance pool can generate an underwriting result that is a profit or deficit based upon car 's rate level . this underwriting result is allocated among every massachusetts commercial automobile insurance company , including us , based on a company 's commercial automobile voluntary market share . car also runs a reinsurance pool for taxi , limousine and car service risks ( the `` taxi/limo program '' ) . car approved safety insurance as one of the two servicing carriers for this program beginning january 1 , 2011 until december 31 , 2016. during 2013 , we filed private passenger rate changes that increased the variation of rates within our tiering system which resulted in no change to the overall rate level . our rates include a 13.0 % commission rate for agents . statutory accounting principles our results are reported in accordance with gaap , which differ from amounts reported in accordance with statutory accounting principles ( `` sap '' ) as prescribed by insurance regulatory authorities , which in general reflect a liquidating , rather than going concern concept of accounting . specifically , under gaap : policy acquisition costs such as commissions , premium taxes and other variable costs incurred which are directly related to the successful acquisition of a new or renewal insurance contract are capitalized and amortized on a pro rata basis over the period in which the related premiums are earned , rather than expensed as incurred , as required by sap . certain assets are included in the consolidated balance sheets whereas , under sap , such assets are designated as `` nonadmitted assets , '' and charged directly against statutory surplus . these assets consist primarily of premium receivables that are outstanding over ninety days , federal deferred tax assets in excess of statutory limitations , furniture , equipment , leasehold improvements and prepaid expenses . amounts related to ceded reinsurance are shown gross of ceded unearned premiums and reinsurance recoverables , rather than netted against unearned premium reserves and loss and loss adjustment expense reserves , respectively , as required by sap . fixed maturities securities , which are classified as available-for-sale , are reported at current fair values , rather than at amortized cost , or the lower of amortized cost or market , depending on the specific type of security , as required by sap . the differing treatment of income and expense items results in a corresponding difference in federal income tax expense . changes in deferred income taxes are reflected as an item of 40 income tax benefit or expense , rather than recorded directly to surplus as regards policyholders , as required by sap . admittance testing may result in a charge to unassigned surplus for non-admitted portions of deferred tax assets . under gaap reporting , a valuation allowance may be recorded against the deferred tax asset and reflected as an expense . insurance ratios the property and casualty insurance industry uses the combined ratio as a measure of underwriting profitability . the combined ratio is the sum of the loss ratio ( losses and loss adjustment expenses incurred as a percent of net earned premiums ) plus the expense ratio ( underwriting and other expenses as a percent of net earned premiums , calculated on a gaap basis ) . the combined ratio reflects only underwriting results and does not include income from investments or finance and other service income . underwriting profitability is subject to significant fluctuations due to competition , catastrophic events , weather , economic and social conditions , and other factors . our gaap insurance ratios are presented in the following table for the periods indicated . replace_table_token_17_th share-based compensation on june 25 , 2002 , the board of directors of the company ( the `` board '' ) adopted the 2002 management omnibus incentive plan ( the `` incentive plan '' ) . the incentive plan provides for a variety of awards , including nonqualified stock options ( `` nqsos '' ) , stock appreciation rights and restricted stock ( `` rs '' ) awards . on march 10 , 2006 , the board approved amendments to the incentive plan , subject to shareholder approval , to ( i ) increase the number of shares of common stock available for issuance by 1,250,000 shares , ( ii ) remove obsolete provisions , and ( iii ) make other non-material changes . a total of 1,250,000 shares of common stock had previously been authorized for issuance under the incentive plan . the incentive plan , as amended , was approved by the shareholders at the 2006 annual meeting of shareholders which was held on may 19 , 2006. under the incentive plan , as amended , the maximum number of shares of common stock with respect to which awards may be granted is 2,500,000. as of december 31 , 2013 , there were 531,862 shares available for future grant . the board and the compensation committee intend to issue more awards under the incentive plan in the future . story_separator_special_tag grants outstanding under the incentive plan as of december 31 , 2013 , were comprised of 212,690 restricted shares and 20,200 nonqualified stock options . 41 grants made under the incentive plan during the years 2009 through 2013 were as follows . replace_table_token_18_th ( 1 ) the fair value per share of the restricted stock grant is equal to the closing price of our common stock on the grant date . ( 2 ) the fair value per share of the restricted stock grant is equal to the performance-based restricted stock award calculation . ( 3 ) the shares can not be sold , assigned , pledged , or otherwise transferred , encumbered or disposed of until the recipient is no longer a member of our board of directors . ( 4 ) the shares represent performance-based restricted shares award . vesting of these shares is dependent upon the attainment of pre-established performance objectives , and any difference between shares granted and shares earned at the end of the performance period will be reported at the conclusion of the performance period in 2016 . ( 5 ) the shares represent awards granted to non-executive employees and vest ratable over a five-year service period . reinsurance we reinsure with other insurance companies a portion of our potential liability under the policies we have underwritten , thereby protecting us against an unexpectedly large loss or a catastrophic occurrence that could produce large losses , primarily in our homeowners line of business . we use various software products to measure our exposure to catastrophe losses and the probable maximum loss to us for catastrophe losses such as hurricanes . the models include estimates for our share of the catastrophe losses generated in the residual market for property insurance by the massachusetts property insurance underwriting association ( `` fair plan '' ) . the reinsurance market has seen from the various software modelers , increases in the estimate of damage from hurricanes in the southern and northeast portions of the united states due to revised estimations of increased hurricane activity and increases in the estimation of demand surge in the periods following a significant event . we continue to 42 manage and model our exposure and adjust our reinsurance programs as a result of the changes to the models . as of january 1 , 2014 , we have purchased three layers of excess catastrophe reinsurance providing $ 515,000 of coverage for property losses in excess of $ 50,000 up to a maximum of $ 565,000. our reinsurers co-participation is 65.00 % of $ 100,000 for the 1st layer , 80.0 % of $ 280,000 for the 2nd layer and 80.0 % of $ 135,000 for the 3rd layer . as a result of the changes to the models , and our revised reinsurance program , our catastrophe reinsurance in 2014 protects us in the event of a `` 115-year storm '' ( that is , a storm of a severity expected to occur once in a 115-year period ) . swiss re , our primary reinsurer , maintains an a.m. best rating of `` a+ '' ( excellent ) . most of our other reinsurers have an a.m. best rating of `` a+ '' ( excellent ) or `` a '' ( excellent ) . we are a participant in car , a state-established body that runs the residual market reinsurance programs for commercial automobile insurance in massachusetts under which premiums , expenses , losses and loss adjustment expenses on ceded business are shared by all insurers writing automobile insurance in massachusetts . car also runs maip , the private passenger assigned risk in massachusetts . we also participate in the fair plan in which premiums , expenses , losses and loss adjustment expenses on homeowners business that can not be placed in the voluntary market are shared by all insurers writing homeowners insurance in massachusetts . the fair plan has grown dramatically over the past decade as insurance carriers have reduced their exposure to coastal property . the fair plan 's exposure to catastrophe losses increased and as a result , the fair plan buys reinsurance to reduce their exposure to catastrophe losses . on july 1 , 2013 , the fair plan purchased $ 1,000,000 of catastrophe reinsurance for property losses in excess of $ 200,000. at december 31 , 2013 , we had no material amounts recoverable from any reinsurer , excluding $ 59,058 recoverable from car . effects of inflation we do not believe that inflation has had a material effect on our consolidated results of operations , except insofar as inflation may affect interest rates . 43 story_separator_special_tag style= '' padding:0pt ; position : relative ; width:80 % ; margin-left:10 % ; '' > replace_table_token_24_th the moody 's ratings of our insured investments held at december 31 , 2013 are essentially the same with or without the investment guarantees . we reviewed the unrealized losses in our fixed income and equity portfolio as of december 31 , 2013 for potential other-than-temporary asset impairments . we held no securities at december 31 , 2013 with a material ( 20.0 % or greater ) unrealized loss for four or more consecutive quarters . specific qualitative analysis was performed for securities appearing on our `` watch list , '' if any . qualitative analysis considered such factors as the financial condition and the near term prospects of the issuer , whether the debtor is current on its contractually obligated interest and principal payments , changes to the rating of the security by a rating agency and the historical volatility of the fair value of the security . 47 of the $ 9,834 gross unrealized losses as of december 31 , 2013 , $ 4,186 relates to obligations of u.s. treasuries , states and political subdivisions . the remaining $ 5,648 of gross unrealized losses relates primarily to holdings of investment grade asset-backed , corporate , other fixed maturity and equity securities .
| net effective annual yield on the investment portfolio was 3.7 % for both the years ended december 31 , 2013 and 2012. our duration was 4.0 years at december 31 , 2013 , up from 3.6 years at december 31 , 2012. net realized gains on investments . net realized gains on investments were $ 1,677 for the year ended december 31 , 2013 compared to $ 1,975 for the comparable 2012 period . the gross unrealized gains and losses on investments in fixed maturity securities , equity securities , including interests in mutual funds , and other invested assets were as follows : replace_table_token_21_th ( 1 ) residential mortgage-backed securities consists of obligations of u.s. government agencies including collateralized mortgage obligations issued , guaranteed and or insured by the following issuers : government national mortgage association ( gnma ) , federal home loan mortgage 45 corporation ( fhlmc ) , federal national mortgage association ( fnma ) and the federal home loan bank ( fhlb ) . ( 2 ) equity securities includes interests in mutual funds held to fund the company 's executive deferred compensation plan . ( 3 ) our investment portfolio included 220 securities in an unrealized loss position at december 31 , 2013 . ( 4 ) amounts in this column represent other-than-temporary impairment ( `` otti '' ) recognized in accumulated other comprehensive income . ( 5 ) other invested assets are accounted for under the equity method which approximates fair value . the composition of our fixed income security portfolio by moody 's rating was as follows : replace_table_token_22_th as of december 31 , 2013 , our portfolio of fixed maturity investments was principally comprised of investment grade corporate fixed maturity securities , u.s. government and agency securities , and asset-backed securities . the portion of our non-investment grade portfolio of fixed maturity investments is primarily comprised of variable rate secured and senior bank loans and high yield bonds . we have no exposure to european sovereign debt . 46 the following table illustrates the gross unrealized losses included in our investment portfolio and the fair value of those securities , aggregated by investment category . the table also illustrates the length of time that they have been in a continuous unrealized loss position as
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these two business segments include construction , asset and property management , including the remaining homebuilding projects , and service-oriented companies providing services clients primarily in the real estate sector as further discussed in note 2 of our consolidated financial statements . cam under the cam business segment , we manage projects ranging from approximately 100-500 units in locations that are supply constrained with demonstrated demand for stabilized assets . we seek opportunities in the multi-family rental market where our experience and core capabilities can be leveraged . we also provide management services to a wide range of real estate assets and businesses that include apartments , hotels , office buildings , leased lands , retail stores , mixed-use developments , and urban developments . we have significant experience with construction and development management , property management , and asset management . although we intend to transition away from our on-balance sheet homebuilding operations , our expertise in developing various housing products enables us to focus on a wide range of opportunities and provide a wide range of services to clients within our core market . for our remaining homebuilding inventory , we will continue to develop properties with the intent that they be sold either as fee-simple properties or condominiums to individual unit buyers or we may sell raw or finished lot inventories to third party developers or homebuilders who will then develop or build out the homes in our remaining projects . for the inventory which we will continue with our homebuilding operations , we will continue to focus on for-sale products designed to attract first-time , early move-up , and secondary move-up buyers . we focus on products that we are able to offer for sale in the middle price points within the markets where we operate , avoiding the very low-end and high-end products . cres we can provide a wide range of real estate services through our experienced management team . we continue to engage in providing third party services focused on strategic planning , land development , land acquisitions , environmental , entitlement , and general construction management activities . our real estate and environmental services , including consulting , studies , and remediation activities , provide site specific solutions for any project that may have an environmental impact , from environmental due diligence to site-specific assessments and remediation . this business line not only allows us to generate positive fee income from our highly qualified personnel but also serves as a potential catalyst for joint venture and future acquisition opportunities that are complementary to the services provided by cres and the real estate focused clients of cam . 20 liquidity and capital resources we require capital to operate , to post deposits on new potential acquisitions , to purchase and develop land , to construct homes , to fund related carrying costs and overhead and to fund various advertising and marketing programs to generate sales . these expenditures include payroll , community engineering , entitlement , architecture , advertising , utilities and interest as well as the construction costs of our homes . our sources of capital include , and we believe will continue to include , private equity and debt placements ( which has included significant participation from company insiders ) , funds derived from various secured and unsecured borrowings to finance acquisition , development and construction on acquired land , cash flow from operations , which includes the sale and delivery of constructed homes , finished and raw building lots and the potential sale of public debt and equity securities . the company is involved in ongoing discussions with lenders and equity sources in an effort to provide additional growth capital to fund various new business opportunities . see note 10 in the accompanying consolidated financial statements for more details on our debt and credit facilities and note 17 in the accompanying consolidated financial statements for details on private placement offerings in 2017 and 2016. as of december 31 , 2017 , $ 16.0 million of the company 's secured project related notes were set to mature at various periods through the end of 2018. as of april 20 , 2018 , the company has successfully extended or repaid all obligations with lenders through april 20 , 2018 , as more fully described in note 10 and note 22 , and we are actively engaging our lenders seeking long term extensions and modifications to the loans where necessary . these debt instruments impose certain restrictions on our operations , including speculative unit construction limitations , curtailment obligations and financial covenant compliance . if we fail to comply with any of these restrictions , an event of default could occur . additionally , events of default could occur if we fail to make required debt service payments or if we fail to come to agreement on an extension on a certain facility prior to a given loan 's maturity date . any event of default would likely render the obligations under these instruments due and payable as of that event . any such event of default would allow certain of our lenders to exercise cross default provisions in our loan agreements with them , such that all debt with that institution could be called into default . at december 31 , 2017 , $ 14.9 million of our notes payable to affiliates are set to mature prior to the end of 2018. these funds were primarily obtained from entities wholly owned by our chief executive officer , who has unilateral ability to extend the maturity dates beyond 2018 as needed . the current performance of our projects has met all required servicing obligations required by the facilities . story_separator_special_tag we are anticipating that with successful resolution of the debt extension discussions with our lenders , the recently completed capital raises from our private placements , current available cash on hand , and additional cash from settlement proceeds at existing and under development communities , the company will have sufficient financial resources to sustain its operations through the next 12 months , though no assurances can be made that the company will be successful in its efforts . refer to note 10 and 22 for further discussion regarding our debts , extension of loan maturity date and other subsequent events impacting our credit facilities . cash flow net cash provided by operating activities was $ 5.1 million for the year ended december 31 , 2017. the $ 5.1 million net cash provided by operations in 2017 was primarily due to $ 4.8 million of releases of real estate inventories associated with the settlements at our various communities during the year , an impairment charge of $ 0.5 million increases in accounts payable of $ 1.4 million , amortization of loan fees and intangible assets of $ 1.1 million , increases in other assets of $ 0.8 million , issuances of stock compensation of $ 0.3 million , offset by the net loss for the year of $ 4.8 million . net cash used in operating activities was $ 11.8 million for the year ended december 31 , 2016. the $ 11.8 million net cash used in operations in 2016 was primarily due to $ 11.1 million of net purchases of real estate inventories associated with the townes at totten mews , the towns at 1333 , and the woods at spring ridge projects , which commenced during the year . net cash used in investing activities was $ 0.8 million for the year ended december 31 , 2017. this was primarily attributable to the cash paid for the acquisition of monridge environmental , llc of $ 0.6 million and the decrease in collateral for letters of credit of $ 0.2 million . net cash provided by investing activities was $ 0.2 million for the year ended december 31 , 2016. this was primarily attributable to the net releases of deposits from escrow accounts held as collateral for certain letters of credit of $ 0.2 million . net cash used in financing activities was $ 8.2 million for the year ended december 31 , 2017. this was primarily attributable to an increase in distributions paid to non-controlling interests , net of contributions , of $ 1.4 million and payments on notes payable , net of proceeds , of $ 6.4 million . net cash provided by financing activities was $ 4.9 million for the year ended december 31 , 2016. this was primarily attributable to an increase in contributions from non-controlling interests , net of distributions paid , of $ 9.6 million , offset by a decrease in borrowings , net of payments , on notes payable of $ 4.5 million . 21 share repurchase program in november 2014 , our board of directors approved a new share repurchase program authorizing the company to repurchase up to 429 thousand shares of our class a common stock in one or more open market or privately negotiated transactions . as of december 31 , 2017 and 2016 , 404 thousand shares of our class a common stock remain available for repurchase pursuant to our share repurchase program . recent accounting pronouncements information regarding recent accounting pronouncements is contained in note 2 in the accompanying consolidated financial statements . critical accounting policies and estimates our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the united states ( gaap ) , which require us to make certain estimates and judgments 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 periods . on an ongoing basis , we evaluate our estimates including those related to the consolidation of variable interest entities ( vies ) , revenue recognition , impairment of real estate inventories , warranty reserve and our environmental liability exposure . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances . actual results may differ materially from these estimates . a summary of significant accounting policies is provided in note 2 in the accompanying consolidated financial statements . the following section is a summary of certain aspects of those accounting policies that require the most difficult , subjective or complex judgments and estimates . real estate inventories real estate inventories include land , land development costs , construction and other costs . real estate held for development and use is stated at cost , or when circumstances or events indicate that the real estate is impaired , at estimated fair value . real estate held for sale is carried at the lower of cost or fair value less estimated costs to sell . land , land development and indirect land development costs are accumulated by specific project and allocated to various units within that project using specific identification and allocation based upon the relative estimated sales value method . direct construction costs are assigned to units based on specific identification , when practical , or based upon the relative sales value method . construction costs primarily include direct construction costs and capitalized field overhead . other costs are comprised of fees , capitalized interest and real estate taxes . we also use our best estimate at the end of a reporting period to capitalize estimated construction and development costs .
| units for the year ended december 31 , 2016. net new order revenue , representing revenue for all units sold less revenue from cancellations , for the year ended december 31 , 2017 was $ 40.4 million on 74 units as compared to $ 46.3 million on 104 units for the year ended december 31 , 2016. the increase noted in revenue and average sales price were a result of the mix of units settled . our homebuilding gross margin percentage for the year ended december 31 , 2017 increased by 0.5 % to 6.5 % , as compared to 6.0 % for the year ended december 31 , 2016. the increase noted in margins was mainly a result of the mix of homes settled and lower overhead costs as a percentage of homebuilding revenue in certain of our communities that had continued settlements . revenue other revenue other increased approximately $ 1.1 million to $ 2.0 million during the year ended december 31 , 2017 , as compared to $ 0.9 million for the year ended december 31 , 2016. the increase primarily relates to the revenue generated from the newly acquired entity , jk environmental . cost of sales homebuilding cost of sales homebuilding for the year ended december 31 , 2017 increased by $ 2.4 million to $ 40.6 million as compared to $ 38.2 million for the year ended december 31 , 2016. the mix of homes settled during the year ended december 31 , 2017 accounted for the increase in cost of sales . cost of sales other cost of sales other increased approximately $ 1.9 million to $ 2.3 million during the year ended december 31 , 2017 as compared to $ 0.4 million for the year ended december 31 , 2016. the increase primarily relates to our costs and efforts expended in relation to growing our real estate services line of business , along with the cost of sales
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while some of these companies may perform limited production , most of their sales are of products that are manufactured in our plants in germany , france , the u.s. , the u.k. , ireland , sweden and china , or are purchased from third party vendors . international . our international segment includes companies in south america , africa and the asia pacific region , some of which are in developing regions of the world . principal international segment manufacturing operations are located in brazil and china . these companies manufacture products that are sold primarily in each company 's home country as well as regional markets . the other companies in the international segment focus primarily on sales and distribution in their respective home country markets . while some of these companies may perform limited production , most of their sales are of products that are manufactured in our plants in china , germany , france and the u.s. , or are purchased from third party vendors . corporate . the corporate segment primarily consists of general and administrative expenses incurred in our corporate headquarters , costs associated with corporate development initiatives , legal expense , interest expense , foreign exchange gains or losses , and other centrally-managed costs . corporate general and administrative costs comprise the majority of the expense in the corporate segment . corporate general and administrative costs were $ 38.5 million during the year ended december 31 , 2015 , which included $ 7.5 million of transaction and integration costs related to the latchways acquisition . during the year ended december 31 , 2014 , corporate general and administrative costs were $ 35.0 million . story_separator_special_tag december 31 , 2015 were $ 315.3 million , a decrease of $ 7.5 million , or 2 % , from $ 322.8 million for the year ended december 31 , 2014. currency translation effects decreased selling , general and administrative expenses for the year ended december 31 , 2015 , when stated in u.s. dollars , by 8 % . the decrease reflects weakening currencies across several geographies , notably a weaker euro , brazilian real , and australian dollar . selling , general and administrative expenses were 27.9 % of net sales in 2015 compared to 28.5 % of net sales in 2014. local currency selling , general and administrative expenses increased 6 % in the current period , primarily reflecting latchways acquisition related costs of $ 7.5 million and latchways operating sg & a costs of $ 3.2 million . excluding latchways acquisition related costs , local currency selling , general , and administrative expenses increased 4 % . research and development expenses . research and development expenses were $ 48.6 million for the year ended december 31 , 2015 , an increase of $ 0.4 million , or 1 % , from $ 48.2 million for the year ended december 31 , 2014. currency translation effects decreased research and development expense for the year ended december 31 , 2015 , when stated in u.s. dollars , by 5 % . research and development expenses were 4.3 % of net sales in both 2015 and 2014 , which is in line with our target ratio of 4.0 % - 4.5 % of net sales . local currency research and development spending increased 6 % , reflecting our focus on the development of new and innovative technologies for the g1 platform and other core products . our past r & d investments have yielded solid returns , with sales from products developed and launched over the past five years reflecting 38 % of total sales . restructuring and other charges . for the year ended december 31 , 2015 , we recorded charges of $ 12.3 million , an increase of $ 3.8 million , or 45 % , compared to charges of $ 8.5 million for the year ended december 31 , 2014. at december 31 , 2015 , the company had accrued restructuring costs of $ 8.1 million , primarily related to severance costs associated with our global cost reduction program . the majority of this accrual at december 31 , 2015 is expected to be paid out in 2016. the global cost reduction program is expected to save an estimated $ 10.0 million in future operating costs for 2016 , primarily impacting selling , general , and administrative expense and , to a lesser extent , cost of goods sold . while the company made significant progress in optimizing its cost structure at the end of 2015 , the company is actively evaluating additional cost reduction opportunities in 2016. refer to note 2 restructuring and other charges of the consolidated financial statements in part ii item 8 of this form 10-k for more information . for the year ended december 31 , 2014 , the company recorded charges of $ 8.5 million . european segment charges of $ 4.8 million related primarily to severance from staff reductions in central and southern europe as well as reorganization costs in central europe . international segment charges of $ 3.7 million primarily related to staff reductions in south africa , australia , and brazil as well as asset disposals in australia and south africa , as the company continued to reduce its footprint and to optimize its cost structure in response to challenging economic conditions in certain markets . interest expense . interest expense for the year ended december 31 , 2015 was $ 10.9 million , an increase of $ 1.0 million , or 10 % , from $ 9.9 million for the year ended december 31 , 2014. the increase in interest expense reflects increased borrowing levels in the current year associated with the latchways acquisition . currency exchange . currency exchange losses were $ 2.2 million during the year ended december 31 , 2015 , compared to losses of $ 1.5 million during the same period in 2014. currency exchange losses in both periods were mostly unrealized and relate primarily to the effect of the strengthening u.s. dollar on intercompany balances . income tax provision . story_separator_special_tag our effective tax rate from continuing operations for the year ended december 31 , 2015 was 40.0 % compared to 32.3 % for the year ended december 31 , 2014. excluding $ 7.7 million of charges associated with exit taxes related to our european reorganization , the effective tax rate for the year was 33.1 % and 32.3 % for the same period last year . the effective tax rate increase was primarily due to non-deductible losses in certain foreign jurisdictions . msa continues to move affiliates onto the principal operating company model as part of the european reorganization . the reorganization is designed to drive optimal performance by aligning certain strategic planning and decision making into a single location enabled by a common it platform . in january , the company successfully integrated four more affiliates onto the model , and we anticipate incurring additional exit taxes in the range of $ 3 - 5 million in 2016 . 22 net income from continuing operations . net income from continuing operations for the year ended december 31 , 2015 was $ 69.6 million , a decrease of $ 17.8 million , or 20 % , from net income from continuing operations for the year ended december 31 , 2014 of $ 87.4 million . currency translation effects decreased current period net income when stated in u.s. dollars , by 2 % . local currency net income decreased 18 % . basic earnings per share from continuing operations was $ 1.86 in 2015 compared to $ 2.34 in 2014 , a decrease of 48 cents per share , or 21 % . north american segment net income for the year ended december 31 , 2015 was $ 87.1 million , an increase of $ 9.4 million , or 12 % , from $ 77.7 million for the year ended december 31 , 2014. the increase in north american segment net income reflects higher sales , notably in the fire sector , and controlled selling , general , and administrative spending . european segment net income for the year ended december 31 , 2015 was $ 6.8 million , a decrease of $ 16.0 million , or 70 % , from $ 22.8 million for the year ended december 31 , 2014. currency translation effects decreased european segment net income in the current year , when stated in u.s. dollars , by 1 % . local currency net income decreased 69 % , reflecting higher exit taxes earlier in the year associated with the europe 2.0 program . excluding exit taxes , local currency pre-tax income was 23 % below the prior year period on higher selling , general , and administrative expense due to the latchways integration , higher pension costs , increased customer facing costs , and costs incurred as we continued to transition parts of the european business to the principal operating model . international segment net income for the year ended december 31 , 2015 was $ 10.1 million , a decrease of $ 6.9 million , or 41 % , from $ 17.0 million for the year ended december 31 , 2014. currency translation effects increased current period international segment net income , when stated in u.s. dollars , by 5 % . local currency net income declined 45 % , primarily related to a lower level of sales , notably in brazil . the decrease also reflects higher restructuring costs associated with our global cost reduction program , higher customer facing costs , and higher inventory costs . corporate segment net loss for the year ended december 31 , 2015 was $ 33.2 million , an increase of $ 2.9 million , or 10 % , from $ 30.3 million for the year ended december 31 , 2014. the higher loss during the year ended december 31 , 2015 reflects higher corporate development costs associated with the acquisition and integration of latchways as well as one-time restructuring costs associated with our global cost reduction efforts . year ended december 31 , 2014 compared to year ended december 31 , 2013 net sales from continuing operations . net sales for the year ended december 31 , 2014 were $ 1,133.9 million , an increase of $ 21.8 million , or 2 % , from $ 1,112.1 million for the year ended december 31 , 2013 . the unfavorable translation effects of weaker foreign currencies decreased net sales , when stated in u.s. dollars , by 2 % . excluding the impact of weakening foreign currencies , net sales increased 4 % . replace_table_token_9_th for the year ended december 31 , 2014 , local currency core product sales increased by 4 % , comprising 79 % of our total business . local currency non-core sales increased 5 % , primarily on higher helmet sales to the fire and military markets in europe . by product group , core product group sales year-over-year growth was as follows on a local currency basis : replace_table_token_10_th 23 replace_table_token_11_th net sales by the north american segment were $ 547.7 million for the year ended december 31 , 2014 , an increase of $ 14.5 million , or 3 % , compared to $ 533.2 million for the year ended december 31 , 2013 . leading growth were shipments of fgfd , head protection , and portable gas instruments , up 11 % , 10 % , and 7 % , respectively . these increases were partially offset by an 11 % decrease in shipments of breathing apparatus to the fire segment , reflecting delays in securing product approvals of the company 's g1 scba platform and other small decreases across a broad range of product lines . the company began shipping its g1 scba after receiving certification in late november , though these shipments were not overly material to results in 2014. net sales for the european segment were $ 321.6 million for the year ended december 31 , 2014 , an increase of $ 28.5 million , or 10 % , from $ 293.1 million for the year ended december 31 , 2013 .
| net sales for the european segment were $ 293.2 million for the year ended december 31 , 2015 , a decrease of $ 28.4 million , or 9 % , compared to $ 321.6 million for the year ended december 31 , 2014. currency translation effects decreased european segment sales in the current year , when stated in u.s. dollars , by 16 % . local currency sales in europe increased 7 % , of which 3 % growth is attributable to the latchways acquisition . the remaining increase reflects strong growth across several geographies in the segment . in western europe , shipments of military helmets in france and fire helmets in northern and central europe were up 14 % and 4 % in the segment , respectively . across emerging european markets , most notably the middle east , shipments of industrial head protection , portable gas detection , and fixed gas and flame detection were up 21 % , 5 % and 3 % in the segment , respectively . net sales for the international segment were $ 228.6 million for the year ended december 31 , 2015 , a decrease of $ 35.9 million , or 14 % , compared to $ 264.5 million for the year ended december 31 , 2014. currency translation effects decreased international segment sales , when stated in u.s. dollars , by 13 % , reflecting weakened currencies across several international geographies , notably in brazil and australia . local currency sales in the international segment decreased 1 % when compared to the same period in 2014 , reflecting lower demand in energy and commodities sectors as well as challenging economic conditions in key emerging markets like brazil and china . the decrease in sales reflects a lower level of non-core and industrial head protection shipments , down 13 % and 11 % , respectively , partially offset by higher sales of fire & rescue helmets , breathing apparatus , portable gas detection instruments , and fixed gas and flame detection , up 29 % , 11 % , 6 % , and 4 % , respectively . other ( loss ) income . other loss for the year ended december 31 , 2015 was $ 0.9 million compared to income of $ 2.8 million for the year ended december 31 , 2014. in 2015 , other loss of
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this increase was driven primarily by increased volume as cost of sales as a percentage of total sales did not fluctuate significantly . cost of sales as a percentage of net sales decreased slightly from 65.9 % for the year ended december 31 , 2010 to 65.6 % for the year ended december 31 , 2011. negative inflationary commodity experience throughout the year was more than offset by lower costs per unit resulting from increases in volume of equipment units and parts and accessories . as a percentage of cost of sales , fixed and variable costs were approximately 15 % and 85 % , respectively , for the year ended december 31 , 2011 versus approximately 19 % and 81 % , respectively for the year ended december 31 , 2010. gross profit . gross profit was $ 71.8 million for the year ended december 31 , 2011 compared to $ 60.3 million in 2010 , an increase of $ 11.5 million , or 19.1 % , due to the increase in net sales volume described above under `` net sales '' and `` cost of sales . '' as a percentage of net sales , gross profit increased from 34.1 % for the year ended december 31 , 2010 to 34.4 % for the corresponding period in 2011 , as a result of the factors discussed above under `` net sales '' and `` cost of sales . '' selling , general and administrative expense . selling , general and administrative expenses , including intangible asset amortization and management fees , were $ 31.6 million for the year ended december 31 , 2011 compared to $ 38.9 million for the year ended december 31 , 2010 , a decrease of $ 7.3 million , or 18.7 % , driven by non-recurring expenses incurred at the time of the ipo in 2010. the non-recurring charges associated with the ipo totaled $ 8.5 million , and were comprised of the buyout of the management services agreement at $ 5.8 million , compensation expense associated with net exercises of stock options totaling $ 1.7 million and the expense and payment of cash bonuses under the our liquidity bonus plan of $ 1.0 million . additionally , in 2010 there was non-recurring compensation expense associated with net exercises of stock options subsequent to the ipo totaling $ 1.2 million . in addition , the closure costs associated with the johnson city facility were $ 0.7 million in the prior year . amortization expense decreased $ 0.8 million compared to 2010 due to certain intangible assets becoming fully amortized . additionally , contributing to the reduction , in 2011 , we spent $ 0.9 million less on legal and consulting fees compared to 2010 in order to defend patents and explore potential acquisitions . meanwhile , offsetting the decreases , in 2011 we incurred higher incentive based compensation of $ 2.1 million due to better operating results . recurring stock based compensation increased $ 0.8 million compared to 2010 due to a full year as a public company in the current year . we spent $ 1.3 million in 2011 on offering costs to allow our former principal stockholders to dispose of their remaining holdings in our common stock . finally , health insurance costs increased $ 0.6 million in the year ended december 31 , 2011 compared to 2010. as a percentage of net sales , selling , general and administrative expenses , including intangibles amortization and management fees , decreased from 22.0 % for the year ended december 31 , 2010 to 15.2 % for the corresponding period in 2011 due to items discussed above . interest expense . interest expense was $ 8.9 million for the year ended december 31 , 2011 compared to $ 10.9 million in the corresponding period in 2010 , a decrease of $ 2.0 million . this 28 decrease was due to less interest expense as a result of the redemption of our 7 3 / 4 % senior notes due 2012 ( `` senior notes '' ) with proceeds from the ipo , additional borrowings under our senior credit facilities and cash on hand . additionally , interest expense was lower for year ending december 31 , 2011 compared to 2010 as we incurred a favorable rate as a result of the april 2011 refinancing . loss on extinguishment of debt . loss on extinguishment of debt totaling $ 0.7 million for the year ended december 31 , 2011 was entirely driven by our entry into a new term loan facility resulting in a significant modification of our debt which resulted in the write off of unamortized capitalized deferred financing costs of $ 0.3 million and write off of unamortized debt discount of $ 0.3 million . loss on extinguishment of debt totaling $ 8.0 million for the year ended december 31 , 2010 was entirely driven by costs associated with the amendment of our senior credit facilities and the redemption of the senior notes , including both the call premium on the redemption of our senior notes , and the write-off of unamortized deferred financing costs relating to the redemption of our senior notes and the amendment of our senior credit facilities . income taxes . deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes . the largest item affecting deferred taxes is the difference between book and tax amortization of goodwill and other intangibles amortization . our effective combined federal and state tax rate for 2011 was 37.3 % compared to 34.4 % for 2010. the effective tax rate for the year ended december 31 , 2011 is higher than 2010 due to an increase in federal rate from 34.0 % in year ending december 31 , 2010 compared to 35.0 % for the year ending december 31 , 2011. net income . story_separator_special_tag net income for the year ended december 31 , 2011 was $ 19.0 million compared to net income of $ 1.7 million for the corresponding period in 2010 , an increase of $ 17.3 million . this increase was driven by the factors described above , and primarily by the non-recurring charges associated with the ipo incurred in 2010. non-gaap financial measures this annual report on form 10-k contains financial information calculated other than in accordance with u.s. generally accepted accounting principles ( `` gaap '' ) . these non-gaap measures include : free cash flow ; adjusted net income ; and adjusted ebitda . these non-gaap disclosures should not be construed as an alternative to the reported results determined in accordance with gaap . free cash flow ( as defined below ) for the year ended december 31 , 2012 was $ 14.2 million compared to $ 45.4 million in 2011 , a decrease in free cash flow of $ 31.2 million , or 68.7 % . the decrease in free cash flow is primarily a result of $ 32.2 million less cash provided by operating activities , as discussed below under liquidity and capital resources . in addition to the changes in cash provided by operating activities , capital expenditures decreased by $ 1.0 million . in 2012 , there were lower capital expenditures to preserve cash flow following a low snowfall season ending march 2012. free cash flow is a non-gaap financial measure , which we define as net cash provided by operating activities less capital expenditures . free cash flow should be evaluated in addition to , and not considered a substitute for , other financial measures such as net income and cash flow provided by operations . we believe that free cash flow represents our ability to generate additional cash flow from our business operations . 29 the following table reconciles net cash provided by operating activities , a gaap measure , to free cash flow , a non-gaap measure . replace_table_token_9_th adjusted net income represents net income as determined under gaap , excluding certain expenses incurred at the time of our ipo in 2010 ( namely the buyout of our management services agreement , loss on extinguishment of debt , stock based compensation expense associated with the net exercise of stock options and the payment of cash bonuses under our liquidity bonus plan ) ; loss on extinguishment of debt incurred in 2011 , costs incurred to pursue potential acquisitions in 2011 and certain expenses incurred at the time of our secondary offerings in 2011. we believe that the presentation of adjusted net income for the years ended december 30 , 2010 , december 31 , 2011 and december 30 , 2012 allows investors to make meaningful comparisons of our operating performance between periods and to view our business from the same perspective as our management . because the excluded items are not predictable or consistent , management does not consider them when evaluating our performance or when making decisions regarding allocation of resources . the following table presents a reconciliation of net income , the most comparable gaap financial measure , to adjusted net income for the years ending december 31 , 2010 , december 31 , 2011 and december 31 , 2012. replace_table_token_10_th adjusted ebitda represents net income before interest , taxes , depreciation and amortization , as further adjusted for certain charges consisting of unrelated legal and consulting fees , as well as management fees paid by us to affiliates of our former principal stockholders , stock based compensation , payment of cash bonuses under our liquidity bonus plan , loss on extinguishment of debt and offering costs . we use , and we believe our investors benefit from the presentation of adjusted ebitda in evaluating our operating performance because it provides us and our investors with additional tools to compare our operating performance on a consistent basis by removing the impact of certain items that management believes do not directly reflect our core operations . in addition , we believe that adjusted ebitda is useful to investors and other external users of our consolidated financial statements in evaluating our operating performance as compared to that of other companies , because it allows them to measure a company 's operating performance without regard to items such as 30 interest expense , taxes , depreciation and amortization , which can vary substantially from company to company depending upon accounting methods and book value of assets and liabilities , capital structure and the method by which assets were acquired . our management also uses adjusted ebitda for planning purposes , including the preparation of our annual operating budget and financial projections . management also uses adjusted ebitda to evaluate our ability to make certain payments , including dividends , in compliance with our senior credit facilities , which is determined based on a calculation of `` consolidated adjusted ebitda '' that is substantially similar to adjusted ebitda . adjusted ebitda has limitations as an analytical tool . as a result , you should not consider it in isolation , or as a substitute for net income , operating income , cash flow from operating activities or any other measure of financial performance or liquidity presented in accordance with gaap . some of these limitations are : adjusted ebitda does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments ; adjusted ebitda does not reflect changes in , or cash requirements for , our working capital needs ; adjusted ebitda does not reflect the interest expense , or the cash requirements necessary to service interest or principal payments , on our indebtedness ; although depreciation and amortization are non-cash charges , the assets being depreciated and amortized will often have to be replaced in the future , and adjusted ebitda does not reflect any cash requirements for such replacements ; other companies , including other companies in our industry , may calculate adjusted ebitda differently than we do , limiting its usefulness as a comparative measure ; and adjusted ebitda does
| sales of parts and accessories for 2012 and 2011 were $ 16.7 million and $ 31.0 million , respectively , or approximately 21 % below and 46 % higher than average annual parts and accessories sales over the preceding ten years , respectively . sales of equipment unit sales for 2012 and 2011 were $ 123.3 million and $ 177.8 million , respectively . in 2012 , equipment unit sales decreased 32.2 % as we sold 34,457 equipment units in 2012 as compared to 50,801 equipment units in 2011. we believe that the decline of both parts and accessories sales and equipment unit sales in 2012 as compared to the prior calendar year is a direct result of the historically low snowfall and the lingering impact of economic uncertainty in the marketplace . meanwhile , we believe that pent up demand due to deferred new equipment purchases still exists in the marketplace and could be released in or following a year of average or better snowfall that is accompanied by stronger macro-economic conditions . we believe this deferral of new equipment purchases could result in an elevated multi-year replacement cycle as the economy recovers . the following table shows our sales of snow and ice control equipment and related parts and accessories as a percentage of net sales for the periods indicated . during the years ended december 31 , 24 2010 , 2011 and 2012 , we sold 45,054 , 50,801 and 34,457 units of snow and ice control equipment , respectively . replace_table_token_6_th the following table sets forth , for the periods presented , the consolidated statements of income of the company and its subsidiaries . all intercompany balances and transactions have been eliminated in consolidation . in the table below and throughout this `` management 's discussion and analysis of financial condition and results of operations , '' consolidated statements of income data for the years ended december 31 , 2010 , 2011 and 2012 have been derived from our audited consolidated financial statements . the information contained in the table below should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this annual report on form 10-k. replace_table_token_7_th 25 the following table
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( 2 ) represents advances paid to dealers on consumer loans assigned under our portfolio program and one-time payments made to dealers to purchase consumer loans assigned under our purchase program . payments of dealer holdback and accelerated dealer holdback are not included . forecasting collection rates accurately at loan inception is difficult . with this in mind , we establish advance rates that are intended to allow us to achieve acceptable levels of profitability , even if collection rates are less than we initially forecast . 26 the following table presents forecasted consumer loan collection rates , advance rates , the spread ( the forecasted collection rate less the advance rate ) , and the percentage of the forecasted collections that had been realized as of december 31 , 2016 . all amounts , unless otherwise noted , are presented as a percentage of the initial balance of the consumer loan ( principal + interest ) . the table includes both dealer loans and purchased loans . replace_table_token_13_th ( 1 ) represents advances paid to dealers on consumer loans assigned under our portfolio program and one-time payments made to dealers to purchase consumer loans assigned under our purchase program as a percentage of the initial balance of the consumer loans . payments of dealer holdback and accelerated dealer holdback are not included . ( 2 ) presented as a percentage of total forecasted collections . the risk of a material change in our forecasted collection rate declines as the consumer loans age . for 2012 and prior consumer loan assignments , the risk of a material forecast variance is modest , as we have currently realized in excess of 90 % of the expected collections . conversely , the forecasted collection rates for more recent consumer loan assignments are less certain as a significant portion of our forecast has not been realized . the spread between the forecasted collection rate and the advance rate has ranged from 21.3 % to 35.5 % over the last 10 years . the spread was at the high end of this range in 2009 and 2010 , when the competitive environment was unusually favorable , and much lower during other years ( 2007 and 2014 through 2016 ) when competition was more intense . the decline in the advance rate from 2015 to 2016 reflects the lower initial forecast on consumer loan assignments received in 2016 , partially offset by an increase in purchased loans as a percentage of total unit volume . the decline in the spread from 2015 to 2016 was the result of a change in the mix of consumer loan assignments received during 2016 , including an increase in purchased loans as a percentage of total unit volume , partially offset by the performance of 2015 consumer loans , which has declined from our initial estimates by a greater margin than those assigned to us in 2016 . 27 the following table presents forecasted consumer loan collection rates , advance rates , and the spread ( the forecasted collection rate less the advance rate ) as of december 31 , 2016 for dealer loans and purchased loans separately . all amounts are presented as a percentage of the initial balance of the consumer loan ( principal + interest ) . replace_table_token_14_th ( 1 ) the forecasted collection rates and advance rates presented for each consumer loan assignment year change over time due to the impact of transfers between dealer and purchased loans . under our portfolio program , certain events may result in dealers forfeiting their rights to dealer holdback . we transfer the dealer 's consumer loans from the dealer loan portfolio to the purchased loan portfolio in the period this forfeiture occurs . ( 2 ) represents advances paid to dealers on consumer loans assigned under our portfolio program and one-time payments made to dealers to purchase consumer loans assigned under our purchase program as a percentage of the initial balance of the consumer loans . payments of dealer holdback and accelerated dealer holdback are not included . although the advance rate on purchased loans is higher as compared to the advance rate on dealer loans , purchased loans do not require us to pay dealer holdback . the spread on dealer loans increased from 21.9 % in 2015 to 22.1 % in 2016 as a result of the performance of 2015 consumer loans in our dealer loan portfolio , which declined from our initial estimates by a greater margin than those assigned to us in 2016 , partially offset by a change in the mix of consumer loan assignments . the spread on purchased loans decreased from 20.2 % in 2015 to 19.2 % in 2016 as a result of the performance of 2015 consumer loans in our purchased loan portfolio , which exceeded our initial estimates by a greater margin than those assigned to us in 2016 , and a change in the mix of consumer loan assignments . access to capital our strategy for accessing capital on acceptable terms needed to maintain and grow the business is to : ( 1 ) maintain consistent financial performance ; ( 2 ) maintain modest financial leverage ; and ( 3 ) maintain multiple funding sources . our funded debt to equity ratio was 2.2 to 1 as of december 31 , 2016 . we currently utilize the following primary forms of debt financing : ( 1 ) a revolving secured line of credit ; ( 2 ) warehouse facilities ; ( 3 ) term abs financings ; and ( 4 ) senior notes . 28 consumer loan volume the following table summarizes changes in consumer loan assignment volume in each of the last three years as compared to the same period in the previous year : replace_table_token_15_th ( 1 ) represents advances paid to dealers on consumer loans assigned under our portfolio program and one-time payments made to dealers to purchase consumer loans assigned under our purchase program . payments of dealer holdback and accelerated dealer holdback are not included . story_separator_special_tag consumer loan assignment volumes depend on a number of factors including ( 1 ) the overall demand for our financing programs , ( 2 ) the amount of capital available to fund new loans , and ( 3 ) our assessment of the volume that our infrastructure can support . our pricing strategy is intended to maximize the amount of economic profit we generate , within the confines of capital and infrastructure constraints . unit and dollar volumes grew 10.9 % and 21.6 % , respectively , during 2016 as the number of active dealers grew 16.2 % while average volume per active dealer declined 4.6 % . dollar volume grew faster than unit volume during 2016 due to an increase in the average advance paid per unit . this increase was the result of an increase in the average size of the consumer loans assigned primarily due to an increase in the average initial loan term and an increase in purchased loans as a percentage of total unit volume , partially offset by a decrease in the average advance rate due to a decrease in the average initial forecast of the consumer loans assigned . unit and dollar volumes grew 33.2 % and 29.3 % , respectively , during 2015 as the number of active dealers grew 25.1 % while average volume per active dealer grew 6.5 % . dollar volume grew slower than unit volume during 2015 due to a decline in the average advance paid per unit . this decline was the result of a decrease in the average advance rate due to a decrease in the average initial forecast of the consumer loans assigned , partially offset by an increase in the average size of the consumer loans assigned primarily due to an increase in the average initial loan term . after peaking in the third quarter of 2015 , unit volume growth slowed in each of the next four quarters . in the fourth quarter of 2016 , unit volume declined as compared to the same period in 2015. this trend reflects the difficulty of growing the number of active dealers fast enough to offset the impact of the competitive environment on attrition and per dealer volumes . in addition , in response to the decline in forecasted collection rates experienced in 2016 , we adjusted our initial collection forecasts downward during the year . while the adjustments have been modest , we believe these adjustments have had an adverse impact on unit volumes during the year . 29 the following table summarizes the changes in consumer loan unit volume and active dealers : replace_table_token_16_th ( 1 ) active dealers are dealers who have received funding for at least one consumer loan during the period . the following table provides additional information on the changes in consumer loan unit volume and active dealers : replace_table_token_17_th ( 1 ) new active dealers are dealers who enrolled in our program and have received funding for their first loan from us during the period . ( 2 ) attrition is measured according to the following formula : decrease in consumer loan unit volume from dealers who have received funding for at least one loan during the comparable period of the prior year but did not receive funding for any loans during the current period divided by prior year comparable period consumer loan unit volume . consumer loans are assigned to us as either dealer loans through our portfolio program or purchased loans through our purchase program . the following table shows the percentage of consumer loans assigned to us under each of the programs for each of the last three years : replace_table_token_18_th ( 1 ) represents advances paid to dealers on consumer loans assigned under our portfolio program and one-time payments made to dealers to purchase consumer loans assigned under our purchase program . payments of dealer holdback and accelerated dealer holdback are not included . as of december 31 , 2016 and 2015 , the net dealer loans receivable balance was 74.6 % and 83.5 % , respectively , of the total net loans receivable balance . 30 story_separator_special_tag font > . the increase was primarily due to higher effective tax rates in certain state tax jurisdictions . 33 year ended december 31 , 2015 compared to year ended december 31 , 2014 replace_table_token_22_th finance charges . the increase of $ 100.1 million , or 15.9 % , was primarily the result of an increase in the average net loans receivable balance partially offset by a decrease in the average yield on our loan portfolio , as follows : replace_table_token_23_th the following table summarizes the impact each component had on the overall increase in finance charges for the year ended december 31 , 2015 : ( in millions ) impact on finance charges : for the year ended december 31 , 2015 due to an increase in the average net loans receivable balance $ 126.3 due to a decrease in the average yield ( 26.2 ) total increase in finance charges $ 100.1 the increase in the average net loans receivable balance was primarily due to year-over-year growth in consumer loan assignment volume in recent years . the average yield on our loan portfolio for the year ended december 31 , 2015 decreased as compared to the same period in 2014 due to lower yields on new consumer loan assignments . 34 premiums earned . the decrease of $ 4.1 million , or 7.8 % , was primarily due to a decrease in the size of our reinsurance portfolio , which was the result of a decline in premiums written on vehicle service contracts . while we have experienced year-over-year growth in consumer loan assignment volume in recent years , the percentage of consumer loan assignments with reinsured vehicle service contracts has declined . other income .
| the increase of $ 5.3 million , or 11.4 % , was primarily due to year-over-year growth in consumer loan assignment volume in recent years , resulting in increases of $ 3.7 million in ancillary product profit sharing and $ 2.3 million in remarketing fees , partially offset by a decrease in gps-sid fees of $ 2.9 million due to a decrease in the number of units purchased by dealers from third party providers in the current year . operating expenses . the increase of $ 24.0 million , or 12.0 % , was primarily due to the following : an increase in general and administrative expense of $ 10.4 million , or 27.5 % , primarily as a result of increases in legal fees and information technology expenses . an increase in salaries and wages expense of $ 10.1 million , or 8.7 % , comprised of the following : an increase of $ 15.1 million in salaries and wages expense , excluding stock-based compensation expense , primarily related to an increase in the number of team members , including increases of $ 8.3 million for our support function , $ 4.6 million for our servicing function and $ 2.2 million for our originations function . a decrease of $ 5.0 million in stock-based compensation expense primarily due to declining expense recognition related to long-term stock awards granted in prior years and amounts recorded in the prior year related to a change in the expected vesting period of performance-based stock awards . provision for credit losses . under accounting principles generally accepted in the united states of america ( “ gaap ” ) , when the present value of forecasted future cash flows decline relative to our expectations at the time of assignment , a provision for credit losses is recorded immediately as a current period expense and a corresponding allowance for credit losses is established . for purposes of calculating the required allowance , dealer loans are grouped by dealer and purchased loans are grouped by month of purchase . as a result , regardless of the overall performance of the portfolio of consumer loans , a provision can
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( 2 ) rentable square feet are subject to changes when space is remeasured or reconfigured for tenants . leases at our properties totaling approximately 3.8 million rentable square feet expired during the year ended december 31 , 2019 . during the year ended december 31 , 2019 , we entered leases totaling 2.9 million rentable square feet , including lease renewals of 2.6 million rentable square feet and new leases of approximately 0.4 million rentable square feet . the weighted ( by rentable square feet ) average rents were 4.2 % above prior rents for the same space and the weighted ( by rentable square feet ) average lease term for new and renewal leases entered during the year ended december 31 , 2019 was 8.6 years . 48 during the year ended december 31 , 2019 , changes in effective rental rates per square foot achieved for new leases and lease renewals at our properties that commenced during the year ended december 31 , 2019 , when compared to prior effective rental rates per square foot in effect for the same space ( and excluding space acquired vacant ) , were as follows ( square feet in thousands ) : replace_table_token_8_th ( 1 ) effective rental rate includes contractual base rents from our tenants pursuant to our lease agreements , plus straight line rent adjustments and estimated expense reimbursements to be paid to us , and excluding lease value amortization . during the year ended december 31 , 2019 , commitments made for expenditures , such as tenant improvements and leasing costs , in connection with leasing space at our properties were as follows ( square feet in thousands ) : replace_table_token_9_th ( 1 ) includes commitments made for leasing expenditures and concessions , such as tenant improvements , leasing commissions , tenant reimbursements and free rent . during the years ended december 31 , 2019 and 2018 , amounts capitalized at our properties for tenant improvements , leasing costs , building improvements and development and redevelopment activities were as follows : replace_table_token_10_th ( 1 ) tenant improvements include capital expenditures used to improve tenants ' space or amounts paid directly to tenants to improve their space . ( 2 ) leasing costs include leasing related costs , such as brokerage commissions and other tenant inducements . ( 3 ) building improvements generally include expenditures to replace obsolete building components and expenditures that extend the useful life of existing assets . ( 4 ) development , redevelopment and other activities generally include capital expenditure projects that reposition a property or result in new sources of revenue . as of december 31 , 2019 , we have estimated unspent leasing related obligations of $ 55,984 . as of december 31 , 2019 , we had leases at our properties totaling 1.9 million rentable square feet that were scheduled to expire during 2020. as of february 19 , 2020 , tenants with leases totaling 0.6 million rentable square feet that are scheduled to expire during 2020 have notified us that they do not plan to renew their leases upon expiration and we can not be sure as to whether other tenants may or may not renew their leases upon expiration . based upon current market conditions and tenant negotiations for leases scheduled to expire through december 31 , 2020 , we expect that the rental rates we are likely to achieve on new or renewed leases for space under leases expiring through december 31 , 2020 will , in the aggregate and on a weighted ( by annualized revenues ) average basis , be higher than the rates currently being paid , thereby generally resulting in higher rent 49 from the same space . we can not be sure of the rental rates which will result from our ongoing negotiations regarding lease renewals or any new or renewed leases we may enter ; also , we may experience material declines in our rental income due to vacancies upon lease expirations or early terminations . prevailing market conditions and government and other tenants ' needs at the time we negotiate and enter leases or lease renewals will generally determine rental rates and demand for leased space at our properties , and market conditions and our tenants ' needs are beyond our control . whenever we extend , renew or enter into new leases for our properties , we intend to seek rents which are equal to or higher than our historical rents for the same properties ; however , our ability to maintain or increase the rents for our current properties will depend in large part upon market conditions , which are beyond our control . as of december 31 , 2019 , our lease expirations by year are as follows ( square feet in thousands ) : replace_table_token_11_th ( 1 ) the year of lease expiration is pursuant to current contract terms . some of our leases allow the tenants to vacate the leased premises before the stated expirations of their leases with little or no liability . as of december 31 , 2019 , tenants occupying approximately 9.4 % of our rentable square feet and responsible for approximately 5.5 % of our annualized rental income as of december 31 , 2019 , currently have exercisable rights to terminate their leases before the stated terms of their leases expire . story_separator_special_tag also , in 2020 , 2021 , 2022 , 2023 , 2024 , 2025 , 2026 , 2027 , 2028 , 2030 , and 2034 early termination rights become exercisable by other tenants who currently occupy an additional approximately 4.5 % , 1.5 % , 2.1 % , 1.0 % , 1.0 % , 2.1 % , 0.9 % , 0.5 % , 1.0 % , 0.1 % and 0.1 % of our rentable square feet , respectively , and contribute an additional approximately 6.3 % , 1.7 % , 2.2 % , 1.2 % , 1.6 % , 3.5 % , 1.2 % , 0.6 % , 1.2 % , 0.3 % and 0.1 % of our annualized rental income , respectively , as of december 31 , 2019 . in addition , as of december 31 , 2019 , pursuant to leases with 13 of our tenants , these tenants have rights to terminate their leases if their respective legislature or other funding authority does not appropriate rent amounts in their respective annual budgets . these 13 tenants occupy approximately 5.0 % of our rentable square feet and contribute approximately 5.3 % of our annualized rental income as of december 31 , 2019 . ( 2 ) leased square feet is pursuant to leases existing as of december 31 , 2019 , and includes ( i ) space being fitted out for tenant occupancy pursuant to our lease agreements , if any , and ( ii ) space which is leased , but is not occupied or is being offered for sublease by tenants , if any . square feet measurements are subject to changes when space is remeasured or reconfigured for new tenants . we generally will seek to renew or extend the terms of leases in our single tenant properties when they expire . because of the capital many of the tenants in these properties have invested in the properties and because many of these properties appear to be of strategic importance to the tenants ' businesses , we believe that it is likely that these tenants will renew or extend their leases prior to when they expire . if we are unable to extend or renew our leases , it may be time consuming and expensive to relet some of these properties . we believe that current government budgetary methodology , spending priorities and the current u.s. presidential administration 's views on the size and scope of government employment have resulted in a decrease in government employment . furthermore , for the past six years , government tenants have reduced their space utilization per employee and consolidated government tenants into existing government owned properties . this activity has reduced the demand for government leased space . our historical experience with respect to properties of the type we own that are majority leased to government tenants has been that government tenants frequently renew leases to avoid the costs and disruptions that may result from relocating their operations . however , efforts to reduce space utilization rates may result in our tenants exercising early termination rights under our leases , vacating our properties upon expiration of our leases in order to relocate , or renewing their leases for less space than they currently occupy . also , our government tenants ' desires to reconfigure leased office space to reduce utilization per employee may require us to spend significant amounts for tenant improvements , and tenant relocations have become more prevalent than our past experiences in instances where efforts by government tenants to reduce their space utilization require a significant reconfiguration of currently leased space . increasing uncertainty with respect to government agency budgets and funding to implement relocations , consolidations and reconfigurations has resulted in delayed decisions by 50 some of our government tenants and their reliance on short term lease renewals ; however , recent activity suggests that the government has begun to shift its leasing strategy to include longer term leases and is actively exploring 10 to 20 year lease terms at renewal , in some instances . we believe the reduction in government tenant space utilization and the consolidation of government tenants into government owned real estate is substantially complete ; however , these activities may impact us for some time into the future . at present , we are unable to reasonably project what the financial impact of market conditions or changing government circumstances will be on our financial results for future periods . as of december 31 , 2019 , we derive 24.1 % of our annualized rental income from our properties located in the metropolitan washington , d.c. market area , which includes washington , d.c. , northern virginia and suburban maryland . a downturn in economic conditions in this area could result in reduced demand from tenants for our properties or reduce the rents that our tenants in this area are willing to pay when our leases expire or terminate and when renewal or new terms are negotiated . additionally , in recent years there has been a decrease in demand for new leased space by the u.s. government in the metropolitan washington , d.c. market area , and that could increase competition for government tenants and adversely affect our ability to retain government tenants when our leases expire . our manager , rmr llc , employs a tenant review process for us . rmr llc assesses tenants on an individual basis based on various applicable credit criteria . in general , depending on facts and circumstances , rmr llc evaluates the creditworthiness of a tenant based on information concerning the tenant that is provided by the tenant and , in some cases , information that is publicly available or obtained from third party sources . rmr llc also often uses a third party service to monitor the credit ratings of debt securities of our existing tenants whose debt securities are rated by a nationally recognized credit rating agency .
| rental income includes non-cash straight line rent adjustments totaling $ 27,507 in 2019 and $ 10,164 in 2018 , and amortization of acquired leases and assumed lease obligations totaling ( $ 2,710 ) in 2019 and ( $ 2,903 ) in 2018 . real estate taxes . the increase in real estate taxes reflects the increase in real estate taxes associated with the properties acquired in the sir merger of $ 26,417 as well as an increase for comparable properties of $ 1,828 , partially offset by a decrease in real estate taxes as a result of property dispositions of $ 3,326 and a decrease of $ 977 at one property classified as held for sale resulting from a successful real estate tax appeal . real estate taxes for comparable properties increased primarily due to the effect of higher real estate tax valuation assessments at certain of our properties in 2019 . utility expenses . the increase in utility expenses reflects an increase in utility expenses associated with the properties acquired in the sir merger of $ 9,412 , partially offset by a decrease in utility expenses for comparable properties of $ 428 , as well as a decrease as a result of property dispositions of $ 1,176. utility expenses for comparable properties declined primarily due to a decrease in electricity and water usage as a result of energy savings initiatives at certain of our properties in 2019 . other operating expenses . other operating expenses consist of salaries and benefit costs of property level personnel , repairs and maintenance expense , cleaning expense , other direct costs of operating our properties and property management fees . the increase in other operating expenses reflects an increase in expenses associated with the properties acquired in the sir merger of $ 36,858 and an increase for comparable properties of $ 2,764 , partially offset by a decrease in other operating expenses as a result of property dispositions of $ 8,108. other
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the following tables present a summary of the changes in total revenues and coalition profit by coalition during the last two years : replace_table_token_6_th 33 replace_table_token_7_th the following section discusses changes in revenues and profitability by coalition : outdoor & action sports : replace_table_token_8_th this coalition consists of vf 's outdoor and action sports-related businesses , including the north face ® , vans ® , timberland ® , kipling ® , smartwool ® , jansport ® , eastpak ® , napapijri ® , reef ® , lucy ® and eagle creek ® . the outdoor & action sports coalition achieved record revenues and operating income in 2011. global revenues for this coalition increased 42 % over 2010 , reflecting 20 % organic growth and 22 % growth from the timberland acquisition . outdoor & action sports revenues in the americas increased 31 % over 2010 and international revenues rose 63 % , with approximately one-half of the growth in each of the geographies coming from the timberland acquisition . of the 30 % increase in international organic revenues , 6 % was attributable to foreign currency translation . nearly all outdoor & action sports brands achieved double-digit growth in the year , with the two largest brands the north face ® and vans ® achieving global revenue growth of 21 % and 23 % , respectively . in addition , revenues of the kipling ® , eastpak ® , reef ® and napapijri ® brands increased 24 % , 21 % , 17 % and 15 % , respectively . coalition revenues in asia increased 93 % , with over 50 percentage points of the growth due to the timberland acquisition . direct-to-consumer revenues in the coalition rose 44 % in 2011 over 2010 with approximately 25 percentage points of the increase from the timberland acquisition . direct-to-consumer revenue growth was also driven by new store openings , comp store revenue growth and an expanding e-commerce business with increases of 26 % and 17 % in the north face ® and vans ® direct-to-consumer businesses , respectively . the 14 % increase in revenues in 2010 over 2009 was driven by growth in the north face ® and vans ® brands of 18 % and 20 % , respectively . these brands experienced growth in both domestic and international markets . direct-to-consumer revenues for this coalition rose 20 % in 2010 over 2009 , with double-digit growth in 34 the north face ® , vans ® , kipling ® , napapijri ® and lucy ® retail businesses as the coalition benefited from new store openings , growth in comp store sales and expansion of the e-commerce business . revenues in asia increased 31 % in 2010 over the prior year . operating margin declined in 2011 , compared with 2010 , due primarily to the timberland acquisition . excluding the operating results of timberland and its acquisition-related expenses , operating margin in 2011 was 19.7 % , compared with 19.9 % in 2010. the operating margin improvement in 2010 over 2009 was driven by ( i ) a 2.5 % increase in gross margin , reflecting improvements in retail store performance and improved profitability on the disposal of distressed inventories , and ( ii ) leverage of operating expenses on higher revenues . these operating margin improvements were partially offset by a significant increase in marketing spending that negatively impacted operating margin comparisons by 1.2 % in 2010 compared with 2009. jeanswear : replace_table_token_9_th the jeanswear coalition consists of the global jeanswear businesses , led by the wrangler ® and lee ® brands . domestic jeanswear revenues increased 4 % in 2011 over 2010 with unit pricing contributing to 8 % revenue growth , offset by a 4 % reduction in unit volumes . the domestic jeanswear growth was led by increases in the western and lee ® businesses of 11 % and 8 % , respectively . mass market revenues in 2011 were flat with 2010 levels . international jeanswear revenue growth in 2011 was 17 % , of which 3 % was due to the impact of foreign currency translation . asia revenues rose by 37 % , and mexico , canada and latin america each had double-digit growth . european jeanswear revenues increased 6 % , with approximately two-thirds of the increase attributable to favorable foreign currency translation . domestic jeanswear revenues increased 2 % in 2010 over 2009 , with 3 % growth in both the wrangler ® and lee ® brands reflecting the positive impact of new products introduced during the year . international jeanswear revenues , including europe , canada , mexico , latin america and asia , declined 3 % in 2010 , with lower revenues in europe partially offset by 36 % revenue growth in asia and double-digit growth in all other foreign markets . the decline in europe resulted primarily from the decision in 2009 to exit the mass market jeans business in europe , as well as continued difficult business conditions in the overall european jeanswear market . the decline in operating margin in 2011 from 2010 was driven by higher product costs that were not fully offset by pricing increases within the domestic jeanswear businesses . the operating margin in 2011 benefited by 0.4 % from the gain on a facility closure in 2011 and 0.4 % from restructuring expenses in 2010 that did not recur in 2011. the improvement in operating margin in 2010 over 2009 resulted from a 2.6 % higher gross margin reflecting ( i ) lower product costs , particularly in the u.s. jeanswear businesses , and ( ii ) lower levels of and improved profitability on the disposal of distressed inventories . operating margin comparisons in 2010 also benefited from the 2009 exit of the european mass market jeans business , which had operating margins that were well below the coalition average . these benefits were partially offset by increased marketing spending and charges for cost reduction actions that negatively impacted 2010 operating margin comparisons by 0.8 % and 0.4 % , respectively . story_separator_special_tag 35 imagewear : replace_table_token_10_th the imagewear coalition consists of vf 's image business ( occupational apparel and uniforms ) and licensed sports business ( licensed high profile athletic apparel ) . image business revenues increased 19 % in 2011 over 2010 , driven by strength in the protective apparel and industrial uniform business . revenues in the licensed sports business rose 6 % due to continued growth in the national football league licensed apparel business , including positive response to an expanded women 's apparel offering . image business revenues increased 8 % in 2010 over 2009 due to strength in the industrial and protective sectors resulting from the gradual economic recovery and the competitive advantage of its quick response service model . licensed sports revenues increased 3 % in 2010 over 2009 due primarily to growth in the licensed national football league business . the improvement in operating margin in 2011 over 2010 resulted from a more favorable mix of business , which led to a higher gross margin of 0.8 % , and leverage of operating expenses on higher revenues . operating margin increased 1.5 % in 2010 over 2009 due to a higher gross margin , resulting primarily from an improved mix of business . the remainder of the increase was driven by leverage of operating expenses on higher revenues . sportswear : replace_table_token_11_th the sportswear coalition consists of the nautica ® and kipling ® brand businesses in north america ( the kipling ® brand outside of north america is managed by the outdoor & action sports coalition ) . nautica ® brand revenues increased 5 % in 2011 over 2010 with unit pricing driving the majority of the growth . revenues increased in both the nautica ® men 's wholesale sportswear and direct-to-consumer businesses . kipling ® brand revenues increased 56 % , reflecting significant increases in both the wholesale and direct-to-consumer businesses . sportswear coalition revenues were flat in 2010 compared with 2009. a 2 % decline in nautica ® brand revenues during 2010 due to lower volume in owned outlet stores was offset by 30 % growth in kipling ® brand revenues , reflecting significant increases in both the wholesale and direct-to-consumer businesses . operating margin was flat in 2011 compared with 2010 due to the impact of higher product costs being offset by ( i ) a higher percentage of kipling ® revenues , which have higher margins than the coalition average and ( ii ) leverage of operating expenses on higher revenues . 36 operating margin was flat in 2010 compared with 2009. gross margin improved by 0.7 % due to ( i ) lower markdown activity in the department and outlet store channels , ( ii ) lower levels of excess inventory coming into 2010 and ( iii ) a higher percentage of kipling ® revenues , which have stronger margins than the coalition average . the gross margin improvement was offset by increased marketing spending . contemporary brands : replace_table_token_12_th this coalition consists of the 7 for all mankind ® brand of premium denim jeanswear and related apparel , the john varvatos ® luxury apparel collection for men and the splendid ® and ella moss ® apparel brands . domestic and international revenues rose 11 % and 8 % in 2011 over 2010 , respectively , with double-digit revenue growth in the splendid ® , ella moss ® and john varvatos ® brands . global 7 for all mankind ® revenues increased 4 % in 2011 over 2010 , with growth both domestically and internationally . new stores , comp store revenue growth and higher e-commerce revenues drove 34 % growth in direct-to-consumer revenues for this coalition in 2011. the growth in coalition revenues in 2010 resulted from the 2009 acquisition of the splendid ® and ella moss ® brands , which contributed an incremental $ 24 million in revenues in 2010 , and 10 % revenue growth in the john varvatos ® business . these increases were partially offset by a 3 % decrease in global 7 for all mankind ® brand revenues , reflecting volume declines due to challenging conditions in the premium denim market . the improvement in operating margin in 2011 compared with 2010 resulted from ( i ) a lower , more normalized volume of distressed inventory sales , ( ii ) the write-off of fixtures at eight underperforming stores in 2010 that did not recur in 2011 and ( iii ) strong comp store sales performance . these increases were partially offset by investments in new retail stores and increased marketing spending . the decline in operating margin in 2010 compared with 2009 was driven by ( i ) investments in new 7 for all mankind ® retail stores , ( ii ) increased marketing spending , ( iii ) the write-off of fixtures at eight underperforming retail stores that had been opened in previous years , ( iv ) higher volumes of distressed inventory sales , at lower gross margin , and ( v ) the favorable resolution of a value-added tax and duty matter during 2009 that did not recur in 2010. these decreases were partially offset by improved operating results in the john varvatos ® business , which had a positive operating margin in 2010 as compared with operating losses in all prior years . other : replace_table_token_13_th vf operates outlet stores in the united states that sell vf and other branded products . revenues and profits of vf products sold in these stores are reported as part of the operating results of the applicable coalition , while revenues and profits of non-vf products are reported in this other category . revenues and profit in the other business segment for 2011 were flat with both 2010 and 2009 . 37 reconciliation of coalition profit to consolidated income before income taxes : there are three types of costs necessary to reconcile total coalition profit , as discussed in the preceding paragraphs , to income before income taxes .
| all of the short-term borrowings related to the timberland acquisition were repaid by year-end , and the debt-to-total capital ratio was 32 % at year-end . vf increased the quarterly dividend rate by 14 % , which marks the 39 th consecutive year of increase in dividends paid per share . during the fourth quarter of 2011 , vf purchased the remaining interest in its joint venture in india . adjusted amounts excluding timberland acquisition expenses and impairment charges the discussions in this section refer to adjusted amounts that exclude transaction and restructuring expenses related to the timberland acquisition in 2011 and impairment charges for goodwill and intangible assets in 2010. management believes that this adjusted information is a relevant measurement of our operating financial performance . refer to the non-gaap financial information section below for further discussion and a reconciliation of gaap measures to adjusted amounts . all numbers herein are reported under gaap unless noted otherwise . analysis of results of operations consolidated statements of income the following table presents a summary of the changes in total revenues during the last two years : replace_table_token_4_th total revenues consist of net sales of products and royalty income from licensees . revenues grew 23 % in 2011 over 2010 with a 42 % increase in the outdoor & action sports businesses , driven by organic growth and 30 the timberland acquisition . revenues in the imagewear and contemporary brands businesses grew 13 % and 11 % , respectively , over the 2010 levels . sportswear revenues in 2011 grew 9 % over the prior year , and jeanswear revenues increased 8 % . revenues in 2010 increased 7 % over 2009 with 14 % growth in the outdoor & action sports businesses . revenues also increased in most other businesses in 2010 , but not to the same extent as the outdoor & action sports businesses . additional details on revenues are provided in the section titled information by business segment. translating a foreign entity 's financial
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in connection with the senior notes offering , we also amended our existing credit agreement ( `` credit agreement '' ) to increase the level of permitted foreign currency borrowings , resize our revolving loan commitments and extend the maturity to september 2022. we believe the refinancing enhanced our capital structure , and also extended maturity dates and locked-in fixed rate debt at favorable long-term rates . we paid fees and expenses of approximately $ 10.8 million in connection with refinancing-related activities , of which approximately $ 6.0 million was capitalized as deferred financing fees and $ 4.8 million was expensed , which was primarily related to the termination of interest rate swap agreements . in addition , we recorded non-cash charges of approximately $ 2.0 million related to the write-off of previously capitalized deferred financing fees . additional key risks that may affect our reported results critical factors affecting our ability to succeed include : our ability to create organic growth through product development , cross-selling and extending product-line offerings , and our ability to quickly and cost-effectively introduce new products ; our ability to acquire and integrate companies or products that supplement existing product lines , add new distribution channels or customers , expand our geographic coverage or enable better absorption of overhead costs ; our ability to manage our cost structure more efficiently via supply base management , internal sourcing and or purchasing of materials , selective outsourcing and or purchasing of support functions , working capital management , and greater leverage of our administrative functions . our overall business does not experience significant seasonal fluctuation , other than our fourth quarter , which has tended to be the lowest net sales quarter of the year due to holiday shutdowns at certain customers or other customers deferring capital spending to the following year . given the short-cycle nature of most of our businesses , we do not consider sales order backlog to be a material factor . a growing amount of our sales is derived from international sources , which exposes us to certain risks , including currency risks . we are sensitive to price movements in our raw materials supply base . our largest material purchases are for resins ( such as polypropylene and polyethylene ) , steel , aluminum and other oil and metal-based purchased components . although we are generally able to mitigate the impact of higher commodity costs , we may experience additional material costs and disruptions in supply in the future and may not be able to pass along higher costs to our customers in the form of price increases . certain of our businesses in our specialty products reportable segment are sensitive to the demand for natural gas and crude oil in north america . for example , our arrow engine business is most directly impacted by these factors , as its engine , pump jack and compressor products are impacted by oil and gas rig counts and well completion activities . in addition , a portion of our lamons business serves upstream customers at oil well sites that are impacted by fluctuating oil prices . the majority of this business provides parts for oil refineries and petrochemical plants , which may or may not decide to incur capital expenditures for their preventive maintenance or capacity expansion activities , both of which require use of our gaskets and bolts , in times of fluctuating oil prices . separately , oil-based commodity costs are a significant driver of raw materials and purchased components used within our packaging reportable segment . although we have escalator/de-escalator clauses in commercial contracts with certain of our customers , or can modify prices based on market conditions to recover higher costs , we can not be assured of full cost recovery in the open market . each year , as a core tenet of the tbm , our businesses target cost savings from kaizen and continuous improvement initiatives in an effort to lower input costs or increase throughput and yield rates with a goal of at least covering inflationary and market cost increases . in addition , we continuously review our costs to ensure alignment with current market demand . 31 as our businesses continue to generate cash , we continue to evaluate strategies to redeploy our cash , which includes returning capital to our shareholders . in november 2015 , we announced our board of directors had authorized us to purchase up to $ 50 million in the aggregate of our common stock . in 2018 , we purchased 442,632 shares of our outstanding common stock for approximately $ 12.1 million . the 2018 share purchases represent the first stock buyback activity under this authorization . on february 28 , 2019 , we announced our board of directors increased this authorization to $ 75 million , which includes the value of shares already purchased under the previous authorization . we will continue to evaluate opportunities to return capital to shareholders through the purchase of our common stock , depending on market conditions and other factors . 32 segment information and supplemental analysis the following table summarizes financial information for our three reportable segments ( dollars in thousands ) : replace_table_token_5_th ( a ) corporate capital expenditures for the years ended december 31 , 2018 and 2017 , respectively , are primarily related to purchases of machinery and equipment formerly held under operating leases . these purchased assets were subsequently transferred from corporate to the reportable segment utilizing the assets . 33 story_separator_special_tag currencies . packaging 's gross profit increased approximately $ 3.0 million to $ 119.6 million , or 32.5 % of sales , in 2018 , as compared to $ 116.6 million , or 33.8 % of sales , in 2017 , primarily as a result higher sales levels , as well as approximately $ 2.7 million of costs incurred in 2017 to consolidate manufacturing facilities in india and to finalize the move to a new facility in mexico that did not recur . in addition , gross profit increased due to approximately $ 0.8 story_separator_special_tag million of favorable currency exchange , as our reported results in u.s. dollars were favorably impacted as a result of the weakening of the u.s. dollar relative to foreign currencies . these increases were partially offset by approximately $ 3.5 million higher steel and resin-based material costs , as well as a less favorable product sales mix and pricing pressures , most notably in our health , beauty and home care end market . packaging 's selling , general and administrative expenses decreased approximately $ 3.3 million to $ 35.0 million , or 9.5 % of sales , in 2018 , as compared to $ 38.3 million , or 11.1 % of sales , in 2017 , primarily due to approximately $ 2.7 million lower third-party professional fees in 2018 , as well as a charge of approximately $ 1.0 million in 2017 to reserve for an outstanding accounts receivable deemed uncollectable from a european customer who filed for insolvency . these decreases were partially offset by higher employee-related costs in 2018 supporting our sales growth initiatives . packaging 's operating profit increased approximately $ 4.0 million to $ 84.6 million , or 23.0 % of sales , in 2018 , as compared to $ 80.6 million , or 23.4 % of sales , in 2017 . operating profit increased primarily due to higher sales levels , lower consolidation and move costs than in 2017 , lower selling , general , and administrative expenses and approximately $ 0.6 million due to favorable currency exchange , all of which were partially offset by higher material costs , a gain of approximately $ 2.5 million related to the the sale of the former mexico facility in 2017 that did not recur , a less favorable product sales mix and pricing pressures . aerospace . net sales increased approximately $ 1.6 million , or 0.9 % , to $ 185.9 million in 2018 , as compared to $ 184.3 million in 2017 . sales of our fastener products increased by approximately $ 2.3 million , as we achieved higher sales levels consistent with new aircraft build rates . sales of our machined components products decreased by approximately $ 0.7 million , as new product sales and the benefit of improved commercial terms with our largest customer for machined components were more than offset by our decision to exit certain less profitable components . 35 gross profit within aerospace increased approximately $ 0.7 million to $ 49.6 million , or 26.7 % of sales , in 2018 , from $ 48.9 million , or 26.5 % of sales , in 2017 , primarily as a result of higher sales levels . gross profit margin increased slightly , as a more favorable product sales mix and increased profitability for machined components more than offset the impact of lower profit generated by our standard fastener product facility in ottawa , kansas . selling , general and administrative expenses remained relatively flat at $ 22.3 million , or 12.0 % of sales , in 2018 , as compared to $ 22.4 million , or 12.1 % of sales , in 2017 . operating profit within aerospace increased approximately $ 0.9 million to $ 27.3 million , or 14.7 % of sales , in 2018 , as compared to $ 26.4 million , or 14.3 % of sales , in 2017 , primarily due to higher sales levels , as well as a more favorable product sales mix and increased profitability for machined components , which was partially offset by the impact of lower profit generated by our standard fastener product facility in ottawa , kansas . specialty products . net sales increased approximately $ 34.1 million , or 11.8 % , to $ 323.0 million in 2018 , as compared to $ 288.9 million in 2017 . sales of our oil and gas related products increased by approximately $ 17.3 million , due to higher levels of petrochemical and refinery production site turnaround activity as well as increased sales of engines and compressors to wellhead sites due to higher levels of extraction activity in the united states and canada . sales of our steel cylinders for the compressed gas market increased by approximately $ 16.2 million , as we have captured increased general industrial and defense demand for steel cylinders . in addition , net sales increased by approximately $ 0.6 million due to favorable currency exchange , as our reported results in u.s. dollars were positively impacted as a result of the weaker u.s. dollar relative to foreign currencies . gross profit within specialty products increased approximately $ 21.0 million to $ 74.9 million , or 23.2 % of sales , in 2018 , as compared to $ 53.9 million , or 18.6 % of sales , in 2017 . gross profit and margin increased primarily as a result of higher sales levels , as we continue to leverage our lower fixed cost footprint . in addition , gross profit dollars and margin increased as a result of approximately $ 6.7 million lower costs related to the exit of our former reynosa , mexico and bangalore , india facilities in 2018 compared with 2017. these increases were partially offset by approximately $ 3 million higher input costs , primarily related to steel . selling , general and administrative expenses within specialty products increased approximately $ 3.5 million to $ 40.4 million , or 12.5 % of sales , in 2018 , as compared to $ 36.9 million , or 12.8 % of net sales , in 2017 . selling , general and administrative expenses increased primarily due to higher sales levels and approximately $ 0.7 million of severance and restructuring costs associated with the exit of our bangalore , india facility in 2018. however , we were able to leverage our lower cost structure , reducing expenses as a percentage of sales . operating profit within specialty products increased approximately $ 22.0 million to $ 34.3 million , or 10.6 % of sales , in 2018 , as compared to $ 12.3 million , or 4.3
| dollar relative to foreign currencies . gross profit margin ( gross profit as a percentage of sales ) approximated 27.8 % and 26.8 % in 2018 and 2017 , respectively . gross profit increased primarily as a result of higher sales levels and lower facility exit costs , primarily within our specialty products and packaging reportable segments . these increases were partially offset by the impact of higher commodity-related costs , a less favorable product sales mix and pricing pressures , most notably in our health , beauty and home care end market within our packaging reportable segment . operating profit margin ( operating profit as a percentage of sales ) approximated 13.9 % and 10.9 % in 2018 and 2017 , respectively . operating profit increased $ 32.9 million , to $ 122.1 million in 2018 , as compared to $ 89.2 million in 2017 . operating profit increased primarily due to overall higher sales levels and lower costs to exit , move and consolidate facilities in 2018 as compared to 2017. operating profit also increased by approximately $ 8.2 million due to a reduction of our recorded liability to metaldyne following the u.s. bankruptcy court 's final decree to close all remaining cases and terminate the metaldyne bankruptcy distribution trust . interest expense decreased approximately $ 0.5 million , to $ 13.9 million in 2018 , as compared to $ 14.4 million in 2017 , as lower weighted average borrowings more than offset an increase in our interest rates . in 2017 , we incurred debt financing and related expenses of approximately $ 6.6 million related to costs associated with the issuance of our senior notes , repayment of all outstanding obligations of our former term loan a facility , termination of the interest rate swaps and the amendment of our credit agreement . other expense , net increased approximately $ 0.3 million to $ 2.2 million in 2018 , from $ 1.9 million in 2017 ,
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42 on february 1 , 2017 , telesat amended the senior secured credit facilities to effectively reprice the then outstanding term loan borrowings of $ 2.424 billion . telesat 's operating results are subject to fluctuations as a result of exchange rate variations . during 2016 , approximately 51 % of telesat 's revenues , 41 % of its operating expenses , 90 % of its interest expense and a majority of its capital expenditures were denominated in u.s. dollars . the most significant impact of variations in the exchange rate is on the u.s. dollar denominated debt financing . as of december 31 , 2016 , telesat 's u.s. dollar denominated debt totaled $ 2.9 billion . as of december 31 , 2016 , a five percent increase ( decrease ) in the canadian dollar against the u.s. dollar would have increased ( decreased ) telesat 's net income by approximately $ 122 million . this analysis assumes all other variables , in particular interest rates , remain constant . sale of ssl on november 2 , 2012 , loral completed the sale of ssl to mda . pursuant to the purchase agreement dated as of june 26 , 2012 , as amended on october 30 , 2012 and march 28 , 2013 , by and among loral , ssl , mda and mda holdings , loral agreed to indemnify mda and its affiliates from certain damages in the viasat suit brought in 2012 by viasat against loral and ssl . on september 5 , 2014 , loral , ssl and viasat entered into the settlement agreement pursuant to which the viasat suit and an additional patent infringement and breach of contract lawsuit brought by viasat against ssl in september 2013 were settled . loral was also released by mda , mda holdings and ssl from indemnification claims relating to the viasat lawsuits under the purchase agreement . the terms of the settlement agreement provided , among other things , for payment by loral and ssl to viasat on a joint and several basis of $ 100 million , $ 40 million of which was paid in september 2014 in connection with entering into the settlement agreement , with the remaining $ 60 million payable with interest in ten equal quarterly installments of $ 6.9 million from october 15 , 2014 through january 15 , 2017. following a mediation session held on december 1 , 2014 , loral and mda entered into the allocation agreement , pursuant to which loral and mda agreed that loral was responsible for $ 45 million , and mda and ssl were responsible for $ 55 million , of the $ 100 million litigation settlement with viasat . as of december 31 , 2016 , loral had paid $ 43.3 million , including interest , toward the viasat settlement . pursuant to the allocation agreement , loral paid viasat $ 11.2 million in 2016 and the final installment of $ 2.8 million in january 2017. general our principal asset is our majority ownership interest in telesat . in an effort to maximize shareholder value , we have been exploring , and are in discussions with psp regarding , potential strategic transactions to alter the status quo in our ownership of telesat . subject to market conditions and the cooperation of psp , we continue to explore the combination of loral and telesat into one public company and or the sale of loral in connection with a sale of telesat . also , as described more fully below , we have exercised our right to require that telesat initiate a public offering , and we may further pursue this right in the event a combination transaction or a sale of telesat is not likely to be achievable in a timely manner or on satisfactory terms . there can be no assurance as to whether or when we will be able to conclude any strategic transaction or that any strategic initiatives or transaction involving telesat or loral may occur , or that any particular economic , tax , structural or other objectives or benefits with respect to any initiative or transaction involving telesat or loral 's interest therein will be achieved . in the first quarter of 2017 , we received $ 242.7 million in cash from telesat , representing our share of an aggregate approximately $ 400 million distribution from telesat to its shareholders and option holders . we intend to use the proceeds of such distribution , net of reasonable reserves for working capital and other liabilities , to make a distribution to our stockholders . there can be no assurance as to the amount and timing of any such distribution . 43 as mentioned above , we have the right under the telesat shareholders agreement to require telesat to conduct an initial public offering of its equity shares ( a “ telesat ipo ” ) , and , in july 2015 , we exercised this right . specifically , we requested that telesat issue not more than 25 million newly issued shares of telesat voting common stock . we also requested the termination of the shareholders agreement and the elimination of certain provisions in telesat 's articles of incorporation , both of which we believe are important for a successful public offering . if those provisions are eliminated , an impediment to the conversion of our non-voting telesat shares to voting shares would be eliminated . termination or modification of the shareholders agreement and conversion of our non-voting shares to voting shares would enable us , after a telesat ipo and subject to the receipt of any necessary regulatory approvals , to obtain majority voting control of telesat . telesat selected two co-managing underwriters and informed us that it will work to implement a telesat ipo pending our agreement with psp on governance matters following a telesat ipo . to date , no such agreement has been reached . story_separator_special_tag in the event a combination transaction that we are pursuing or a sale of telesat as described above is not likely to be achievable in a timely manner or on satisfactory terms , we may further pursue our right to a telesat ipo . there can be no assurance as to whether , when or on what terms a telesat ipo , termination or modification of the shareholders agreement or any requested changes to telesat 's articles of incorporation may occur or that any particular economic , tax , structural or other objectives or benefits with respect to a telesat ipo will be achieved . if a telesat ipo is expected to proceed under unfavorable terms or at an unfavorable price , we may withdraw our demand for a telesat ipo . depending upon the outcome of the strategic initiatives discussed above , we may assert certain claims against psp for actions we believe violated our rights relating to the affairs of telesat under the telesat shareholders agreement and otherwise . in response to our claims , psp has informed us that it believes that it may have claims against us , although we are not aware of the legal or factual basis for any such claims . we and psp have agreed that , pending the outcome of our discussions relating to telesat , it would be beneficial to delay the commencement of any action relating to either party 's claims and have entered into an agreement ( the “ tolling agreement ” ) which preserves the parties ' rights to assert against one another legal claims relating to telesat . we also included telesat as a party to the tolling agreement because , as a technical matter of canadian law and for purposes of potentially seeking equitable relief , telesat may be a necessary party . there can be no assurance that if the tolling agreement lapses that we and psp will not pursue legal claims against one another relating to telesat . if we pursue claims against psp , there can be no assurance that our claims will be successful or that the relief we seek will be granted . if psp pursues claims against us , there can be no assurance that psp will not prevail on its claims . loral may , from time to time , explore and evaluate other possible strategic transactions and alliances which may include joint ventures and strategic relationships as well as business combinations or the acquisition or disposition of assets . in order to pursue certain of these opportunities , additional funds are likely to be required . there can be no assurance that we will enter into additional strategic transactions or alliances , nor do we know if we will be able to obtain the necessary financing for transactions that require additional funds on favorable terms , if at all . in connection with the acquisition of our ownership interest in telesat in 2007 , loral has agreed that , subject to certain exceptions described in the shareholders agreement , for so long as loral has an interest in telesat , it will not compete in the business of leasing , selling or otherwise furnishing fixed satellite service , broadcast satellite service or audio and video broadcast direct to home service using transponder capacity in the c-band , ku-band and ka-band ( including in each case extended band ) frequencies and the business of providing end-to-end data solutions on networks comprised of earth terminals , space segment , and , where appropriate , networking hubs . story_separator_special_tag below for discussion of our accounting method for income taxes . equity in net income ( loss ) of affiliates replace_table_token_9_th the following is a reconciliation of the changes in our investment in telesat for the years ended december 31 , 2016 and 2015 : replace_table_token_10_th as of december 31 , 2016 , we held a 62.7 % economic interest and a 32.7 % voting interest in telesat . loral 's equity in net income of telesat is based on our proportionate share of telesat 's results in accordance with u.s. gaap and in u.s. dollars . the amortization of telesat fair value adjustments applicable to the loral skynet assets and liabilities acquired by telesat in 2007 is proportionately eliminated in determining our share of the net income or loss of telesat . our equity in net income or loss of telesat also reflects amortization of profits eliminated , to the extent of our economic interest in telesat , on satellites we constructed for telesat while we owned ssl and on loral 's sale to telesat in april 2011 of its portion of the payload on the viasat-1 satellite and related assets . as of december 31 , 2015 , we had an unrecorded equity loss in telesat of $ 57.9 million , the amount by which our share of telesat 's losses together with cash distributions we received from telesat exceeded our recorded cumulative equity in net income of telesat and our initial investment in telesat . in following the equity method of accounting , our investment balance in telesat was reduced to zero as of december 31 , 2015. in addition , our equity in telesat 's other comprehensive income that we could not record as of december 31 , 2015 was $ 20.8 million . we recognized this $ 57.9 million equity loss and our $ 20.8 million share in the equity of telesat 's other comprehensive income in 2016 .
| the decrease from 2014 to 2015 was primarily the result of a $ 33.7 million principal payment received on march 31 , 2015. the principal payment related to a promissory note received in connection with the sale ( the “ land note ” ) . other expense replace_table_token_7_th other expense for the years ended december 31 , 2016 , 2015 and 2014 is primarily comprised of expenses related to the evaluation of strategic initiatives . see overview – general . income tax ( provision ) benefit replace_table_token_8_th for 2016 , we recorded a current tax benefit of $ 1.0 million and a deferred tax provision of $ 29.5 million , resulting in a total tax provision of $ 28.5 million on a pre-tax loss from continuing operations of $ 8.0 million . for 2015 , we recorded a current tax benefit of $ 5.8 million and a deferred tax benefit of $ 39.7 million , resulting in a total tax benefit of $ 45.5 million on a pre-tax loss from continuing operations of $ 10.2 million . for 2014 , we recorded a current tax provision of $ 2.2 million and a deferred tax benefit of $ 10.3 million , resulting in a total tax benefit of $ 8.1 million on a pre-tax loss from continuing operations of $ 8.0 million . the deferred tax ( provision ) benefit for each period included the impact of equity in net income ( loss ) of affiliates from our consolidated statement of operations . for each period presented , the statute of limitations for the assessment of additional tax expired with regard to several of our federal and state utps and certain other utps were settled . as a result , the reduction to our liability for utps provided a current tax benefit , partially offset by an additional provision for the potential payment of interest on our remaining utps . in december 2014 , we received a $ 10.6 million tax refund from the carryback of our 2013 federal tax loss against the taxes previously paid for 2012. for 2014 , the current tax provision
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other expense , net the following table summarizes our other expense , net for the years ended december 31 , 2018 and 2017 : replace_table_token_4_th other expense , net was $ 0.8 million for the year ended december 31 , 2018 as compared to $ 0.1 million for the same period in 2017. interest expense increased $ 0.8 million for the year ended december 31 , 2018 as compared to the same period in 2017. the interest expense recognized in the year ended december 31 , 2018 relates to interest for the deerfield obligation assumed as part of the avadel pediatric products acquisition , which took place in the first quarter of 2018. interest expense was minimal for the year ended december 31 , 2017 due to the reduction in the principal balance of the secured term loan facility which was paid off in august 2017. income tax ( benefit ) expense the income tax benefit was $ 33,910 for the year ended december 31 , 2018. the provision for income taxes for the year ended december 31 , 2018 is composed of an adjustment benefit from the return to provision true up of a prior year tax liability , offset by state income tax of one subsidiary , and deferred income tax expense , all of which were not significant . the provision for income taxes was $ 2.0 million for the year ended december 31 , 2017 due to the net income generated from the sale of cerc-501 to janssen during the third quarter of 2017. the annual effective tax rate was 0.09 % and 14.21 % for the years ended december 31 , 2018 and 2017 , respectively . non-gaap financial metrics in addition to disclosing financial results that are determined in accordance with u.s. generally accepted accounting standards ( `` gaap '' ) , the company also uses the following non-gaap financial metrics to understand and evaluate our operating performance : 63 ebitda , which the company defines as gaap net income adjusted for ( i ) taxes , ( ii ) interest expense , ( iii ) interest income , ( iv ) amortization of intangible assets , ( v ) depreciation , and ( vi ) inventory step-up adjustment recognized in earnings . adjusted ebitda , which the company defines as ebitda as defined above further adjusted for ( i ) stock-based compensation expense , ( ii ) change in fair value of contingent consideration , ( iii ) change in fair value of warrant liability and unit purchase option liability , ( iv ) restructuring costs , ( v ) acquisition and integration-related expenses , ( vi ) impairment of intangible assets , ( vii ) arbitration costs related to the lachlan transaction , which is further described in item 1 note 7 , ( viii ) acquired ipr & d , which is further described in item 1 note 4 , and ( ix ) sale or out-licensing of company assets . the company updated our definition of adjusted ebitda during the third quarter of 2018 to further adjust for acquired ipr & d and sale or out-licensing of company assets . these updates did not impact previous presentation of prior periods . the company believes that providing this additional information is useful to the reader to better assess and understand our operating performance , primarily because management typically monitors the business adjusted for these items in addition to gaap results . these non-gaap financial metrics should be considered supplemental to and not a substitute for financial information prepared in accordance with gaap . our definition of these non-gaap metrics may differ from similarly titled metrics used by others . the company views these non-gaap financial metrics as a means to facilitate our financial and operational decision-making , including evaluation of our historical operating results and comparison to competitors ' operating results . these non-gaap financial metrics reflect an additional way of viewing aspects of our operations that , when viewed with gaap results may provide a more complete understanding of factors and trends affecting our business . the determination of the amounts that are adjusted from these non-gaap financial metrics is a matter of management judgment and depends upon , among other factors , the nature of the underlying expense or income amounts . because non-gaap financial metrics adjust for the effect of items that will increase or decrease our reported results of operations , we strongly encourage investors to review our consolidated financial statements and periodic reports in their entirety . the following tables present reconciliations of these non-gaap financial metrics to the most directly comparable gaap financial measure for the years ended december 31 , 2018 and 2017 : 64 replace_table_token_5_th liquidity , capital resources and expenditure requirements the company applies a disciplined decision-making methodology as it evaluates the optimal allocation of the company 's resources between investing in the company 's current commercial product line , the company 's development portfolio and acquisitions or in-licensing of new assets in order to meet its cash flow needs . for the year ended december 31 , 2018 , the company generated a net loss of $ 40.1 million and negative cash flow from operations of $ 3.1 million . as of december 31 , 2018 , the company had an accumulated deficit of $ 98.2 million and a balance of $ 10.6 million in cash and cash equivalents . during the third quarter of 2018 , the company entered into a securities purchase agreement with armistice , pursuant to which the company sold 1,000,000 shares of the company 's common stock that generated net proceeds of approximately $ 3.9 million ( see `` armistice private placements '' in note 13 for a description of this transaction ) . during the fourth quarter of 2018 , armistice exercised warrants for convertible preferred stock that generated net proceeds of approximately $ 5.7 million ( see `` december 2018 armistice private placement '' in note 13 for a description of this transaction ) . story_separator_special_tag additionally , during the first quarter of 2019 , the company closed on an underwritten public offering of common stock for 1,818,182 shares of common stock of the company , at a price to the public of $ 5.50 per share ( `` public price '' ) . armistice participated in the offering by purchasing 363,637 shares of common stock of the company from the underwriter at the public price . the net proceeds to the company from the offering was approximately $ 9.0 million . the company plans to use cash and the anticipated positive net cash flows from the company 's existing product sales to offset costs related to its pediatric rare disease preclinical programs , neurology clinical programs , business development , costs associated with its organizational infrastructure and debt principal and interest payments . the company expects to continue to incur significant expenses and operating losses for the immediate future as it continues to invest in its pipeline assets . our ability to achieve and maintain profitability in the future is dependent on , among other things , the development , regulatory approval and commercialization of our new product candidates and achieving a level of revenues from our existing product sales adequate to support our cost structure , which includes significant investment in our pipeline assets . the company believes it will require additional financing to continue to execute its clinical development strategy and or fund future operations . the company plans to meet its capital requirements through operating cash flows from product sales and some combination of equity or debt financings , collaborations , out-licensing arrangements , strategic alliances , federal and private grants , 65 marketing , distribution or licensing arrangements or the sale of current or future assets . if the company is not able to secure adequate additional funding , the company may be forced to make reductions in spending , extend payment terms with suppliers , liquidate assets where possible or suspend or curtail planned programs . if the company raises additional funds through collaborations , strategic alliances or licensing arrangements with third parties , the company may have to relinquish valuable rights to our technologies , future revenue streams , research programs or product candidates . our plan to aggressively develop our pipeline , including our recently acquired pediatric rare disease preclinical programs , will require substantial cash inflows in excess of what the company expects our current commercial operations to generate . the company expects that our existing cash and cash equivalents , together with anticipated revenue , will enable us to fund our operating expenses , capital expenditure requirements , and other non-operating cash payments such as fixed quarterly payments on our outstanding debt balances through at least march 2020. uses of liquidity ichorion asset acquisition on september 24 , 2018 , the company entered into a merger agreement in which we acquired ichorion therapeutics , inc. the consideration for the ichorion acquisition at closing consisted of 5.8 million shares of the company 's common stock , par value $ 0.001 per share , as adjusted for estimated working capital . the shares are subject to a lockup date of december 31 , 2019. consideration for the merger included certain development milestones worth up to an additional $ 15 million , payable either in shares of company common stock or in cash , at the election of the company . there will be future cash outflow for research and development costs associated with the development of the assets acquired as part of the ichorion acquisition ( cerc-801 , cerc-802 , cerc-803 and cerc-913 ) . avadel pediatric products acquisition on february 16 , 2018 , the company entered into an asset purchase agreement with avadel us holdings , inc. , avadel pharmaceuticals ( usa ) , inc. , avadel pediatrics , inc. , avadel therapeutics , llc and avadel pharmaceuticals plc ( collectively “ avadel ” ) to purchase and acquire all rights in avadel 's pediatric products . the company made a nominal cash payment for the acquired assets and assumed certain of avadel 's financial obligations to deerfield csf , llc , ( `` deerfield '' ) which include a $ 15 million loan due in january 2021 and certain royalty obligations through february 2026. trx pharmaceuticals , llc acquisition on november 17 , 2017 , cerecor and trx pharmaceuticals , llc ( `` trx '' ) entered into a purchase agreement in which the company acquired trx , including subsidiary zylera pharmaceuticals , llc and its franchise of pediatric medications . the consideration for the acquisition consists of $ 18.9 million in cash , subject to working capital adjustments , as well as approximately 7.5 million shares of our common stock having a market value of $ 8.5 million and certain contingent consideration with a fair value of $ 1.4 million . deerfield debt obligation in relation to the company 's acquisition of avadel 's pediatric products on february 16 , 2018 , the company assumed an obligation that avadel had to deerfield , ( the `` deerfield obligation '' ) . beginning in july 2018 through october 2020 , the company will pay a quarterly payment of $ 262,500 to deerfield . in january 2021 , a balloon payment of $ 15,250,000 is due . the deerfield obligation was $ 15.4 million as of december 31 , 2018 , of which $ 1.1 million is recorded as a current liability . the deerfield obligation contains certain covenants , explained below , in which the company is in compliance with as of december 31 , 2018. the company can not waive , breach , terminate or materially amend any of the acquired avadel pediatric products ' commercial , supply , and distribution agreements which include the karbinal agreement , the aciphex agreement , and the cefaclor agreement ( see note 11 for a full description of each of these agreements ) until the deerfield obligation is paid in full .
| sales force revenue was $ 0.5 million for the year ended december 31 , 2018 as compared to $ 0.3 million for the year ended december 31 , 2017. the increase was due to 1.5 months of revenue in 2017 as compared to four months of revenue in 2018. the pai contract was canceled during the second quarter of 2018. license and other revenue there was no license and other revenue for the year ended december 31 , 2018 , compared to $ 25.0 million for the year ended december 31 , 2017. in the third quarter of 2017 , the company sold cerc-501 to janssen in exchange for initial gross proceeds of $ 25.0 million . under this agreement , we are also eligible for a potential future $ 20.0 million regulatory milestone payment . the terms of the agreement provide that janssen will assume ongoing clinical trials and be responsible for any new development and commercialization of cerc-501 . grant revenue there was no grant revenue for the year ended december 31 , 2018 , compared to $ 0.6 million for the year ended december 31 , 2017 . the grant revenues for the year ended december 31 , 2017 related to cerc-501 and were dependent upon the timing and progress of the underlying studies and development activities . the grant revenue and study costs related to these grants were discontinued with the sale of cerc-501 to janssen in august 2017 . 60 cost of product sales cost of product sales was $ 7.5 million for the year ended december 31 , 2018 , compared to $ 0.6 million for the year ended december 31 , 2017. cost of product sales related to sales of products from our pediatric products that we recently acquired . the increase of $ 6.9 million in cost of product sales in the current year is due to the company having a full year of sales of products acquired from the trx acquisition in 2017 and nearly a full year of sales of products acquired from the acquisition of avadel 's pediatric products on february 16 , 2018 , while in the previous year the company had approximately one month of sales since trx was acquired on november 17 , 2017. research and development expenses the following table summarizes our research and development expenses for the years ended december 31 , 2018 and 2017 : replace_table_token_1_th research and development expenses were $ 5.8 million for the year ended december 31 , 2018 , an increase of $ 1.4 million compared to
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% by a subsidiary of breit . in exchange for the contribution of the mandalay bay real estate assets , the operating partnership received consideration of $ 2.1 billion , which was comprised of $ 1.3 billion of the operating partnership 's secured indebtedness assumed by mgm breit venture , the operating partnership 's 50.1 % equity interest in the mgp breit venture , and the remainder in cash . in addition , mgm received $ 2.4 billion of cash distributed from the mgp breit venture as consideration for its contribution of the mgm grand las vegas real estate assets , and , additionally , the operating partnership issued 2.6 million operating partnership units to mgm representing 5 % of the equity value of the mgp breit venture . mgm provides a shortfall guarantee of the principal amount of indebtedness of the mgp breit venture ( and any interest accrued and unpaid thereto ) . on the closing date , breit also purchased 4.9 million class a common shares of mgp for $ 150 million . in connection with the transactions , mgp breit venture entered into a lease with a subsidiary of mgm for the real estate assets of mandalay bay and mgm grand las vegas . the lease provides for a term of thirty years with two ten-year renewal options and has an initial annual base rent of $ 292 million , escalating annually at a rate of 2 % per annum for the first fifteen years and thereafter equal to the greater of 2 % and the cpi increase during the prior year subject to a cap of 3 % . in addition , the lease obligates the tenant to spend a specified percentage of net revenues at the properties on capital expenditures and that the tenant and mgm to comply with certain financial covenants , which , if not met , would require the tenant to maintain cash security or provide one or more letters of credit in favor of the landlord in an amount equal to the rent for the succeeding one-year period . mgm provides a guarantee of tenant 's obligations under the lease . in connection with the mgp breit venture transaction , the mgm-mgp master lease was modified to remove the mandalay bay property and the annual cash rent under the mgm-mgp master lease was reduced by $ 133 million . also , on january 14 , 2020 , the operating partnership , mgp , and mgm entered into an agreement for the operating partnership to waive its right to issue mgp class a shares , in lieu of cash , to mgm in connection with mgm exercising its right to require the operating partnership to redeem the operating partnership units it holds . the waiver provided that the units would be purchased at a price per unit equal to a 3 % discount to the applicable cash amount as calculated in accordance with the operating agreement . the waiver was effective upon closing of the transaction on february 14 , 2020 and scheduled to terminate on the earlier of february 14 , 2022 or mgm receiving cash proceeds of $ 1.4 billion as consideration for the redemption of its operating partnership units . on may 18 , 2020 , the operating partnership redeemed 30.3 million of operating partnership units held by mgm for $ 700 million , or $ 23.10 per unit , and on december 2 , 2020 , the operating partnership redeemed 23.5 million of operating partnership units held by mgm for the remaining $ 700 million , or $ 29.78 per unit . as a result , the waiver has terminated in accordance with its terms . covid-19 update the covid-19 pandemic has not had a material impact on our operations ; however , we can not estimate the duration of the pandemic and potential impact on our business if our properties will be required to close again , or if the tenant ( or the guarantor ) is otherwise unable or unwilling to make rental payments . for further information regarding the potential impact of covid-19 on our operations , refer to “ liquidity and capital resources ” below as well as “ risk factors ” in part i , item 1a of this report . combined results of operations for mgp and the operating partnership overview the following table summarizes our financial results for the years ended december 31 , 2020 , 2019 and 2018 : replace_table_token_4_th 36 revenues rental revenue . rental revenues , including ground lease and other , for the years ended december 31 , 2020 and 2019 were $ 792.6 million and $ 881.1 million , respectively . the $ 88.5 million , or 10 % , decrease for 2020 compared to 2019 was primarily due to a decrease in rental revenues as a result of the removal of mandalay bay from the mgm-mgp master lease in connection with the mgp breit venture transaction in february 2020 , partially offset by a full period of revenue in 2020 related to the empire city transaction in january 2019 , the park mgm transaction in march 2019 , and the addition of mgm northfield park to the mgm-mgp master lease in april 2019. expenses depreciation . depreciation expense was $ 236.9 million and $ 294.7 million for the years ended december 31 , 2020 and 2019 , respectively . the $ 57.9 million , or 20 % , decrease for 2020 as compared to 2019 was primarily due to the contribution of mandalay bay to the mgp breit venture in february 2020. property transactions , net . story_separator_special_tag property transactions , net were $ 195.2 million in 2020 compared to $ 10.8 million in 2019. the increase in 2020 is primarily due to the difference between the carrying value of the mandalay bay real estate assets of $ 2.3 billion and the consideration received of $ 2.1 billion , as well as the expenses of $ 10.0 million incurred in connection with the sale , that resulted in a loss on sale of the mandalay bay real estate assets of $ 193.1 million . ground lease expense . ground lease expense was $ 23.7 million for both the years ended december 31 , 2020 and 2019. acquisition-related expenses . acquisition-related expenses were $ 1.0 million and $ 10.2 million for the years ended december 31 , 2020 and 2019 , respectively . the $ 9.2 million , or 90 % , decrease for 2020 as compared to 2019 primarily relates to expenses relating to the empire city transaction in 2019 , slightly offset by expenses incurred relating to the mgp breit venture transaction in february 2020. general and administrative expenses . general and administrative expenses for the years ended december 31 , 2020 and 2019 were $ 16.1 million and $ 16.5 million , respectively . other expenses income from unconsolidated affiliate . income from unconsolidated affiliate for the year ended december 31 , 2020 was $ 89.1 million and is attributable to income from our investment in mgp breit venture . there was no income from unconsolidated affiliate for the year ended december 31 , 2019. other expenses , excluding income from unconsolidated affiliate , for the years ended december 31 , 2020 and 2019 were $ 238.8 million and $ 258.2 million , respectively . the $ 19.4 million , or 8 % , decrease for 2020 as compared to 2019 was primarily related to a decrease in interest expense due to the repayment of our term loan a and term loan b facilities in february 2020 , partially offset by an increase in interest expense due to our issuance of the $ 800 million 4.625 % senior notes due 2025 in june 2020 and of the $ 750 million 3.875 % senior notes due 2029 in november 2020 , and a loss on retirement of debt of $ 18.1 million relating to our repayment of the term loan a and term loan b facilities . discontinued operations income from discontinued operations , net of tax for the year ended december 31 , 2019 was $ 16.2 million and was entirely attributable to northfield opco . there was no income from discontinued operations , net of tax for the year ended december 31 , 2020. see note 3 of the accompanying financial statements for additional discussion . provision for income taxes our effective tax rate on income from continuing operations was 5.7 % for the year ended december 31 , 2020 compared to 2.8 % for the year ended december 31 , 2019. the effective tax rate in the year ended december 31 , 2020 was impacted by the loss resulting from the mgp breit venture transaction , which provides no federal or state income tax benefit due to our reit status , while the effective rate in 2019 was impacted by tax consequences related to the liquidation of the trs that had owned northfield prior to transferring the operations to mgm in april 2019. refer to note 2 and note 9 of the accompanying financial statements for additional discussion . 37 non-gaap measures unless otherwise indicated , our non-gaap measures discussed herein are related to our continuing operations and not our discontinued operations . funds from operations ( “ ffo ” ) is net income ( computed in accordance with u.s. gaap ) , excluding gains and losses from sales or disposals of property ( presented as property transactions , net ) , plus depreciation , as defined by the national association of real estate investment trusts , plus our share of depreciation of our unconsolidated affiliate . adjusted funds from operations ( “ affo ” ) is ffo as adjusted for amortization of financing costs and cash flow hedges ; our share of amortization of financing costs of our unconsolidated affiliate ; non-cash compensation expense ; straight-line rental revenue ( which is defined as the difference between contractual rent and cash rent payments , excluding lease incentive asset amortization ) ; our share of straight-line rental revenues of our unconsolidated affiliate ; amortization of lease incentive asset and deferred revenue relating to non-normal tenant improvements ; acquisition-related expenses ; non-cash ground lease rent , net ; other expenses ; ( gain ) loss on unhedged interest rate swaps , net ; provision for income taxes related to the reit ; and other , net - discontinued operations . adjusted ebitda is net income ( computed in accordance with u.s. gaap ) as adjusted for gains and losses from sales or disposals of property ( presented as property transactions , net ) ; depreciation ; our share of depreciation of our unconsolidated affiliate ; amortization of financing costs and cash flow hedges ; our share of amortization of financing costs of our unconsolidated affiliate ; non-cash compensation expense ; straight-line rental revenue ; our share of straight-line rental revenues of our unconsolidated affiliate ; amortization of lease incentive asset and deferred revenue relating to non-normal tenant improvements ; acquisition-related expenses ; non-cash ground lease rent , net ; other expenses ; ( gain ) loss on unhedged interest rate swaps , net ; other , net - discontinued operations ; interest income ; interest expense ( including amortization of financing costs and cash flow hedges ) ; our share of interest expense ( including amortization of financing costs ) of our unconsolidated affiliate ; and provision for income taxes . ffo , ffo per unit , affo , affo per unit and adjusted ebitda are supplemental performance measures that have not been prepared in conformity with u.s. gaap that management believes are useful to investors in comparing operating and financial results between periods .
| net cash used in financing activities for the year ended december 31 , 2020 was $ 338.0 million , which reflects our issuance of class a shares to breit for $ 150.0 million , the issuance of $ 800 million in aggregate principal amount of 4.625 % senior notes due 2025 , the proceeds of which were used to repay draws on our revolving credit facility used to fund the first redemption of $ 700 million of operating partnership units held by mgm , and the issuance of $ 750 million in aggregate principal amount of 3.875 % senior notes due 2029 , the proceeds of which were used to fund the second redemption of $ 700 million of operating partnership units held by mgm . this was offset by payments of $ 601.7 million of distributions and dividends and our $ 1.7 billion of net repayments under the bank credit facility , consisting of : the repayment of the operating partnership 's $ 1.3 billion outstanding term loan b facility with the proceeds from the bridge loan facility , which was then assumed by the mgp breit venture , and the repayment of the operating partnership 's $ 399 million outstanding term loan a facility with the $ 374.6 million of net proceeds from the settlement of forward equity agreements ; offset by a net draw of $ 10.0 million on the revolving credit facility . net cash provided by financing activities for the year ended december 31 , 2019 was $ 93.6 million , which was primarily attributable to our issuance of $ 750 million in aggregate principal amount of 5.75 % senior notes due 2027 , our offering of 19.6 million class a shares in a registered public offering in january 2019 for net proceeds of $ 548.4 million , our offering of 18.0 million class a shares in a registered public offering in november 2019 for net proceeds of $ 540.6 million , and our offering of 5.3 million class a shares under our “ at-the-market ” ( “ atm ” ) equity distribution program throughout 2019 for net proceeds of $ 161.0 million , partially offset by repayments of our bank credit facility of approximately $ 1.1 billion , net , our repayment
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accounts receivable securitization facility in july 2019 , we , through a wholly-owned special purpose entity , entered into an accounts receivable securitization facility ( “ securitization facility ” ) to enhance our liquidity . the original borrowings amounted to $ 125 million , which , along with available cash , was used to pay down our then outstanding revolving loan . at december 31 , 2019 , our net borrowings under the securitization facility were $ 110 million . capital allocation for the year ended december 31 , 2019 , we returned $ 486 million in cash to our shareholders by purchasing $ 322 million in our issued and outstanding common stock under our 2018 share repurchase program , and through the payment of $ 164 million in cash dividends , thereby fulfilling our goal of returning the majority of our free cash flows to shareholders . at december 31 , 2019 , the aggregate amount of our common stock that remained available for purchase under the 2018 share repurchase program was $ 428 million . 35 the chemours company results of operations and business highlights story_separator_special_tag effective tax rate of 14 % . the $ 231 million decrease in our provision for income taxes for the year ended december 31 , 2019 , when compared with the same period in 2018 , was primarily attributable to reduced profitability and the geographic mix of our earnings . in addition , our benefit from income taxes for the year ended december 31 , 2019 included $ 14 million in windfall benefit from our share-based payments , which was partially offset by an $ 8 million valuation allowance on certain foreign subsidiary earnings and certain foreign tax credits . our provision for income taxes for the year ended december 31 , 2018 included $ 14 million in windfall benefit from our share-based payments , a $ 15 million benefit from the release of a valuation allowance against our foreign tax credits , and a net $ 10 million benefit from certain other provisions of u.s. tax reform . segment reviews adjusted earnings before interest , taxes , depreciation , and amortization ( “ adjusted ebitda ” ) is the primary measure of segment performance used by our chief operating decision maker ( “ codm ” ) and is defined as income ( loss ) before income taxes , excluding the following : interest expense , depreciation , and amortization ; non-operating pension and other post-retirement employee benefit costs , which represents the component of net periodic pension ( income ) costs excluding the service cost component ; exchange ( gains ) losses included in other income ( expense ) , net ; restructuring , asset-related , and other charges ; asset impairments ; ( gains ) losses on sales of assets and businesses ; and , other items not considered indicative of our ongoing operational performance and expected to occur infrequently . a reconciliation of adjusted ebitda to net income ( loss ) attributable to chemours for the years ended december 31 , 2019 and 2018 is included in the “ non-gaap financial measures ” section of this md & a . the following table sets forth our adjusted ebitda by segment for the years ended december 31 , 2019 and 2018. replace_table_token_3_th 38 the chemours company fluoroproducts the following table sets forth the net sales , adjusted ebitda , and adjusted ebitda margin amounts for our fluoroproducts segment for the years ended december 31 , 2019 and 2018. replace_table_token_4_th the following table sets forth the impacts of price , volume , and currency on our fluoroproducts segment 's net sales for the year ended december 31 , 2019. year ended december 31 , change in segment net sales from prior period 2019 price ( 2 ) % volume ( 4 ) % currency ( 1 ) % total change in segment net sales ( 7 ) % segment net sales our fluoroproducts segment 's net sales decreased by $ 214 million ( or 7 % ) to $ 2.6 billion for the year ended december 31 , 2019 , compared with segment net sales of $ 2.9 billion for the same period in 2018. the decrease in segment net sales for the year ended december 31 , 2019 was primarily attributable to decreases in volume and price of 4 % and 2 % , respectively . illegal imports of legacy hfc refrigerants into the eu , in violation of the eu 's f-gas regulations , impacted both volume and price during the year ended december 31 , 2019. volumes also declined due to lower demand for our legacy base refrigerants and polymers , which was driven by softness in global markets , primarily the automotive and electronics markets . these decreases were partially offset by volume increases from the continued adoption of opteon tm products in mobile applications and growth in high-grade fluoropolymers sales . unfavorable currency movements added a 1 % headwind to the segment 's net sales during the year ended december 31 , 2019. segment adjusted ebitda and adjusted ebitda margin segment adjusted ebitda decreased by $ 205 million ( or 26 % ) to $ 578 million and segment adjusted ebitda margin decreased by approximately 500 basis points to 22 % for the year ended december 31 , 2019 , compared with segment adjusted ebitda of $ 783 million and segment adjusted ebitda margin of 27 % for the same period in 2018. the decreases in segment adjusted ebitda and segment adjusted ebitda margin for the year ended december 31 , 2019 were primarily attributable to the aforementioned decreases in the price and volume and unfavorable currency movements in the segment 's net sales . we also experienced increased costs during the year ended december 31 , 2019 due to the start-up of our new opteon tm refrigerants facility in corpus christi , texas , and unplanned outages at certain facilities . story_separator_special_tag additionally , our f-gas quota authorization sales decreased by $ 26 million when compared to the year ended december 31 , 2018. the segment 's operating results for the years ended december 31 , 2019 and 2018 included $ 22 million and $ 34 million , respectively , of additional costs for process waste water treatment at fayetteville . we expect to continue to incur these costs as we actively work with the nc deq to resolve the suspension of our national pollutant discharge elimination system permit . 39 the chemours company chemical solutions the following table sets forth the net sales , adjusted ebitda , and adjusted ebitda margin amounts for our chemical solutions segment for the years ended december 31 , 2019 and 2018. replace_table_token_5_th the following table sets forth the impacts of price , volume , and currency on our chemical solutions segment 's net sales for the year ended december 31 , 2019. year ended december 31 , change in segment net sales from prior period 2019 price ( 4 ) % volume ( 7 ) % currency — % total change in segment net sales ( 11 ) % segment net sales our chemical solutions segment 's net sales decreased by $ 69 million ( or 11 % ) to $ 533 million for the year ended december 31 , 2019 , compared with segment net sales of $ 602 million for the same period in 2018. the decrease in segment net sales for the year ended december 31 , 2019 was primarily attributable to decreases in volume and price of 7 % and 4 % , respectively , which were driven by operational issues at a key customer mine in mining solutions and lower prices for certain performance chemicals and intermediates products , mainly driven by mix and raw material cost pass-throughs as stipulated in certain contracts . segment adjusted ebitda and adjusted ebitda margin segment adjusted ebitda increased by $ 16 million ( or 25 % ) to $ 80 million and segment adjusted ebitda margin increased by approximately 400 basis points to 15 % for the year ended december 31 , 2019 , compared with segment adjusted ebitda of $ 64 million and segment adjusted ebitda margin of 11 % for the same period in 2018. the increases in segment adjusted ebitda and segment adjusted ebitda margin for the year ended december 31 , 2019 were primarily attributable to increased license income and lower cost of goods sold , partially offset by the aforementioned decreases in net sales . 40 the chemours company titanium technologies the following table sets forth the net sales , adjusted ebitda , and adjusted ebitda margin amounts for our titanium technologies segment for the years ended december 31 , 2019 and 2018. replace_table_token_6_th the following table sets forth the impacts of price , volume , and currency on our titanium technologies segment 's net sales for the year ended december 31 , 2019. year ended december 31 , change in segment net sales from prior period 2019 price ( 1 ) % volume ( 24 ) % currency ( 1 ) % total change in segment net sales ( 26 ) % segment net sales our titanium technologies segment 's net sales decreased by $ 829 million ( or 26 % ) to $ 2.3 billion for the year ended december 31 , 2019 , compared with segment net sales of $ 3.2 billion for the same period in 2018. the decrease in segment net sales for the year ended december 31 , 2019 was primarily attributable to a 24 % decrease in volume , driven by lower tipure tm tio 2 net sales volumes due to market destocking and share loss . price declined modestly by 1 % , primarily due to customer , regional , and channel mix , but remained largely stable as a result of our tvs strategy . we also experienced a 1 % headwind from unfavorable currency movements . segment adjusted ebitda and adjusted ebitda margin segment adjusted ebitda decreased by $ 550 million ( or 52 % ) to $ 505 million and segment adjusted ebitda margin decreased by approximately 1,100 basis points to 22 % for the year ended december 31 , 2019 , compared with segment adjusted ebitda of $ 1.1 billion and segment adjusted ebitda margin of 33 % for the same period in 2018. the decreases in segment adjusted ebitda and segment adjusted ebitda margin for the year ended december 31 , 2019 were primarily attributable to the aforementioned decreases in segment net sales volume associated with market destocking and share loss , as well as margin compression due to higher costs for certain raw materials and lower fixed cost absorption as we reduced production rates to match reduced customer demand . corporate and other corporate costs and certain legacy legal and environmental expenses , stock-based compensation costs , and foreign exchange gains and losses arising from the remeasurement of balances in currencies other than the functional currency of our legal entities are reflected in corporate and other . corporate and other costs decreased by $ 19 million ( or 12 % ) to $ 143 million for the year ended december 31 , 2019 , compared with corporate and other costs of $ 162 million for the same period in 2018. the decrease in corporate and other costs for the year ended december 31 , 2019 was primarily attributable to lower performance-related compensation and lower costs for certain legacy legal matters .
| these decreases were partially offset by operational headwinds in our fluoroproducts segment , and higher raw materials costs and lower fixed cost absorption in our titanium technologies segment . additionally , during the year ended december 31 , 2019 , we incurred $ 150 million for environmental remediation activities related to fayetteville . 36 the chemours company selling , general , and administrative expense our selling , general , and administrative ( “ sg & a ” ) expense decreased by $ 109 million ( or 17 % ) to $ 548 million for the year ended december 31 , 2019 , compared with sg & a expense of $ 657 million for the same period in 2018. the decrease in our sg & a expense for the year ended december 31 , 2019 was primarily attributable to lower performance-related compensation costs , as well as costs incurred for our 2018 debt transactions , which did not recur in 2019. the year ended december 31 , 2018 also included the accrual of $ 63 million for estimated liabilities associated with ongoing environmental matters at fayetteville . these comparative decreases for the year ended december 31 , 2019 are partially offset by $ 18 million incurred during the first quarter of 2019 , in connection with the approved final consent order to settle certain legal and environmental matters at fayetteville . research and development expense our r & d expense was largely unchanged at $ 80 million for the year ended december 31 , 2019 and $ 82 million for the year ended december 31 , 2018. restructuring , asset-related , and other charges our restructuring , asset-related , and other charges amounted to $ 87 million and $ 49 million for the years ended december 31 , 2019 and 2018 , respectively . for the year ended december 31 , 2019 , our restructuring , asset-related , and other charges were primarily attributable to $ 22 million of employee separation charges incurred in connection with our 2019 restructuring program , as well as $ 34 million of accelerated depreciation recorded in conjunction with our exit of the methylamines and methylamides business at our belle , west virginia manufacturing plant . we also
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fiscal year 2011 compared to fiscal 2010 net revenues rose 12.2 % to $ 237.0 million for 2011 from $ 211.2 million for 2010 due to increases in net patient revenues and other revenues as discussed below . the 2011 results include five months of operations of the july 2011 acquisition . the 2010 results include 10 months of operations for the february 2010 acquisition and eight days of operations for the december 21 , 2010 acquisition . the 2011 and 2010 results include 255 days and 254 days of operations , respectively . net income attributable to common shareholders for 2011 increased 34.1 % to $ 21.0 million from $ 15.6 million in 2010. diluted earnings per share rose to $ 1.75 from $ 1.32. included in the 2011 results is a pretax gain of $ 5.4 million related to a purchase price settlement on the february 2010 acquisition . included in the 2010 results was a positive adjustment in the income tax provision of $ 0.8 million and a gain from the sale of a five clinic joint venture of approximately $ 0.6 million . excluding the 2011 and 2010 gains and the 2010 tax adjustment , diluted earnings per shares from operations would have been $ 1.35 for 2011 and $ 1.22 for 2010 , an increase of 10.7 % . see table below replace_table_token_13_th net patient revenues net patient revenues increased to $ 226.6 million for 2011 from $ 204.1 million for 2010 , an increase of $ 22.5 million , or 11.0 % , primarily due to an increase in patient visits from 1.9 million to 2.2 million . the increase in net patient revenues of $ 22.5 million consisted of an increase of $ 14.3 million from 2011 mature clinics and $ 8.2 million from 2011 new clinics , primarily due to the july 2011 acquisition . the $ 14.4 million from 2011 mature clinics is made up of an increase of $ 14.2 million from the 2010 acquisitions and $ 0.2 million from other 2011 mature clinics . 29 total patient visits increased to 2,164,000 for 2011 from 1,927,000 for 2010. the growth in patient visits was attributable to 76,000 visits in 2011 new clinics , primarily due to the july 2011 acquisition and an increase of 162,000 visits for 2011 mature clinics , primarily due to the 2010 acquisitions . net patient revenues are based on established billing rates less allowances and discounts for patients covered by contractual programs and workers ' compensation . net patient revenues reflect contractual and other adjustments , which we evaluate monthly , relating to patient discounts from certain payors . payments received under these programs are based on predetermined rates and are generally less than the established billing rates of the clinics . other revenues other revenues increased by $ 3.3 million from $ 7.1 million to $ 10.4 million primarily due to $ 2.5 million higher revenues from physician services , which include clinical services related to intra articular joint and lumbar osteoarthritis programs as well as electro-diagnostic analysis , and $ 0.5 million from a management contract acquired as part of the 2010 acquisitions . clinic operating costs clinic operating costs were 74.4 % of net revenues for 2011 and 73.5 % of net revenues for 2010. each component of clinic operating costs is discussed below : clinic operating costssalaries and related costs salaries and related costs increased to $ 125.1 million for 2011 from $ 110.9 million for 2010 , an increase of $ 14.2 million , or 12.8 % . approximately $ 5.5 million of the increase was attributable to 2011 new clinics . the remaining $ 8.7 million of the increase was due to $ 10.4 million in higher costs at various 2010 new clinics offset by a decrease of $ 1.7 million in costs at 2010 mature clinics . salaries and related costs as a percentage of net revenues was 52.8 % for 2011 and 52.5 % for 2010. clinic operating costsrent , clinic supplies and other rent , clinic supplies and other costs increased to $ 47.4 million for 2011 from $ 40.9 million for 2010 , an increase of $ 6.5 million , or 15.8 % . for 2011 , 2011 new clinics accounted for approximately $ 2.8 million of the increase and 2010 new clinics accounted for approximately $ 4.2 million of the increase due to a full year of activity for clinics developed or acquired in 2010. rent , clinic supplies and other costs for 2010 mature clinics decreased $ 0.5 million in 2011 as compared to 2010 due to cost containment efforts . rent , clinic supplies and other costs as a percent of net revenues was 20.0 % for 2011 and 19.4 % for 2010. clinic operating costsprovision for doubtful accounts the provision for doubtful accounts for net patient receivables as a percentage of net patient revenues was 1.7 % for 2011 and 1.6 % for 2010. our allowance for bad debts as a percentage of total patient accounts receivable was 7.0 % at december 31 , 2011 and 8.1 % at december 31 , 2010. the allowance for doubtful accounts at the end of each period is based on a detailed , clinic-by-clinic review of overdue accounts and is regularly reviewed in the aggregate in light of historical experience . the accounts receivable days outstanding were 48 days at december 31 , 2011 and 45 days at december 31 , 2010. receivables in the amount of $ 3.0 million and $ 2.8 million were written-off in 2011 and 2010 , respectively . closure costs for 2011 , closure costs amounted to $ 59,000 related to the closure of 17 clinics . story_separator_special_tag in 2010 , 15 clinics were closed with closure costs amounting to $ 163,000 . 30 corporate office costs corporate office costs , consisting primarily of salaries , benefits and equity based compensation of corporate office personnel and directors , rent , insurance costs , depreciation and amortization , travel , legal , compliance , professional , marketing and recruiting fees , were $ 24.7 million for 2011 and $ 22.8 million for 2010 , an increase of $ 1.9 million inclusive of $ 0.5 million related to a potential legal settlement . corporate office costs were reduced as a percentage of net revenues to 10.4 % for 2011 from 10.8 % for 2010. interest and other income , net interest and other income for 2011 included a pretax gain of $ 5.4 million related to a purchase price settlement on the february 2010 acquisition that occurred beyond our purchase price measurement date . the settlement included $ 1.5 million in cash , $ 0.1 million in debt forgiveness and $ 3.8 million in exchange of the remaining noncontrolling interest . interest and other income for 2010 included a pre-tax gain of $ 578,000 from the sale of our 51.0 % interest in a five clinic texas joint venture . interest expense interest expense increased to $ 496,000 for 2011 from $ 236,000 for 2010 primarily due to higher average borrowings . at december 31 , 2011 , $ 23.5 million was outstanding under our revolving credit facility . see liquidity and capital resources below for a discussion of the terms of our revolving credit facility . provision for income taxes the provision for income taxes increased to $ 11.1 million for 2011 from $ 8.8 million for 2010 , an increase of approximately $ 2.3 million , primarily as a result of higher pre-tax income . for 2011 , we accrued state and federal income taxes at an effective tax rate ( provision for taxes divided by the difference between income from operations and net income attributable to noncontrolling interest ) of 34.6 % . of the $ 5.4 million gain mentioned above , $ 3.8 million was non taxable . during the fourth quarter of 2010 , we completed a process to perform a detailed reconciliation of our federal and state taxes payable and receivable accounts along with our federal and state deferred tax asset and liability accounts . historically , calculations of these tax-related accounts were performed through summary estimates and analysis . as a result of this detailed analysis , we recorded a reduction in our current state income tax provision of $ 814,000. without the effect of the $ 814,000 , during 2010 , we accrued state and federal income taxes at an effective tax rate of 39.4 % . we performed a similar reconciliation process during the fourth quarter of 2011 which did not yield a significant adjustment . net income attributable to noncontrolling interests net income attributable to noncontrolling interests was $ 8.8 million in 2011 compared to $ 9.1 million in 2010. as a percentage of operating income before corporate office costs , net income attributable to noncontrolling interests was 14.5 % in 2011 compared to 16.2 % in 2010. the reduction is attributable to the company 's increased ownership interest in certain physical therapy partnerships . liquidity and capital resources we believe that our business is generating sufficient cash flow from operating activities to allow us to meet our short-term and long-term cash requirements , other than those with respect to future significant acquisitions . at december 31 , 2012 , we had $ 11.7 million in cash and cash equivalents compared to $ 10.0 million at december 31 , 2011. although the start-up costs associated with opening new clinics and our planned capital expenditures are significant , we believe that our cash and cash equivalents and availability under our revolving credit facility are sufficient to fund the working capital needs of our operating subsidiaries , future clinic development and single practice acquisitions and investments through at least december 2013. the amount 31 outstanding under our revolving credit facility was $ 17.4 million at december 31 , 2012 compared to $ 23.5 million at december 31 , 2011. at december 31 , 2012 , we had $ 57.6 million available under our revolving credit facility . significant acquisitions would likely require financing under our revolving credit facility . the increase in cash and cash equivalents of $ 1.7 million from december 31 , 2011 to december 31 , 2012 was due primarily to $ 39.3 million provided by operations and $ 1.4 million from the tax benefit of stock options exercised . the major uses of cash for investing and financing activities included : distributions to noncontrolling interests ( $ 9.3 million ) , payments of cash dividends to our shareholders ( $ 9.0 million ) , purchase of businesses ( $ 7.9 million ) , net reduction of amounts outstanding under our credit facility ( $ 6.1 million ) , purchases of fixed assets ( $ 4.2 million ) , acquisitions of noncontrolling interests , net of sales of noncontrolling interest ( $ 2.0 million ) , and payments on notes payable ( $ 0.4 million ) . effective august 27 , 2007 , we entered into a credit agreement with a commitment for a $ 30.0 million revolving credit facility which was increased to $ 50.0 million effective june 4 , 2008 ( credit agreement ) . effective march 18 , 2009 , we amended the credit agreement to permit us to purchase up to $ 15,000,000 of our common stock subject to compliance with certain covenants , including the requirement that after giving effect to any stock purchase , our consolidated leverage ratio ( as defined in the credit agreement ) be less than 1.0 to 1.0 and that any stock repurchased be retired within seven days of purchase . effective october 13 , 2010 , we amended
| total patient visits increased to 2,315,000 for 2012 from 2,164,000 for 2011. the growth in patient visits was attributable to 51,000 visits in new clinics , primarily due to the may 2012 acquisition , and an increase of 100,000 visits for mature clinics , primarily due to the july 2011 acquisition . net patient revenues are based on established billing rates less allowances and discounts for patients covered by contractual programs and workers ' compensation . net patient revenues reflect contractual and other adjustments , which we evaluate monthly , relating to patient discounts from certain payors . payments received under these programs are based on predetermined rates and are generally less than the established billing rates of the clinics . other revenues other revenues decreased by $ 2.8 million from $ 10.4 million to $ 7.6 million primarily due to a reduction in revenue from physician services , which include clinical services related to intra articular joint and lumbar osteoarthritis programs as well as electro-diagnostic analysis . clinic operating costs clinic operating costs were 75.2 % of net revenues for 2012 and 74.4 % of net revenues for 2011. each component of clinic operating costs is discussed below : clinic operating costssalaries and related costs salaries and related costs increased to $ 132.8 million for 2012 from $ 125.1 million for 2011 , an increase of $ 7.7 million , or 6.2 % . approximately $ 3.7 million of the increase was attributable to new clinics . the remaining $ 4.0 million of the increase was due to $ 5.9 million in higher costs at various 2011 new clinics offset by a decrease of $ 1.9 million in costs at 2011 mature clinics . salaries and related costs as a percentage of net revenues was 52.7 % for 2012 and 52.8 % for 2011. clinic operating costsrent , clinic supplies and other rent , clinic supplies and other costs increased to $ 51.6 million for
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our results of operations for the fiscal year ended january 30 , 2021 were significantly impacted by the effects of the covid-19 pandemic . comparable sales decreased 17.9 % for the fiscal year ended january 30 , 2021 as a result of the covid-19 pandemic , but the multi-year , strategic investments we have made to enhance our omnichannel and supply chain capabilities , combined with the ongoing commitment of our distribution associates , have enabled us to support increased e-commerce demand and strong guest engagement . in addition to decreases in net revenue , our overall profitability also decreased as compared to the prior year . these developments have further required us to recognize certain long-lived asset impairment charges and restructuring charges . further , in connection with the coronavirus aid , 31 relief , and economic security ( cares ) act , we recognized payroll subsidies as a reduction of selling , general and administrative expenses in the consolidated statement of operations . as we navigated these unprecedented circumstances , we continued to focus on our financial flexibility , including drawing down $ 800.0 million under our $ 1.0 billion revolving credit facility on march 18 , 2020 , which was repaid in full on september 2 , 2020. in addition , we took the following steps to preserve financial liquidity : ● limited new hires and delayed merit increases for all corporate , store , and salon associates ; ● reduced marketing , travel and controllable expenses ; ● aligned inventory receipts with current sales trends ; ● prioritized payment obligations ; ● reduced new store openings , relocations and remodel projects ; and ● suspended the stock repurchase program , which resumed in the fourth quarter of fiscal 2020. to help support our associates through this crisis , we expanded the criteria for our associate relief program to include those who need assistance due to a personal hardship as a result of the covid-19 pandemic . the ulta beauty executive team and board of directors have each made personal donations to the program . sales are expected to be challenged as events continue to change , and we are unable to accurately predict the future impact that the covid-19 pandemic will have on our results of operations due to uncertainties including , but not limited to , the potential temporary reclosing of certain of our stores , the potential temporary restrictions on certain store operating hours and or in-store capacity , the duration of potential future quarantines , shelter-in-place and other travel restrictions within the u.s. and other affected countries , the duration of the pandemic and any more dangerous variants of the virus , the duration , timing and severity of the impact on consumer spending , the timing and effectiveness of vaccine distribution , and how quickly and to what extent normal economic and operating conditions can resume . industry trends our research indicates that ulta beauty has captured meaningful market share across all categories over the last several years . however , our research also suggests that the cosmetics category in the overall u.s. market experienced mid-single digit declines through fiscal 2019 and 2020. beauty cycles are impacted by demographics and innovation . while demographic trends continue to be favorable , we believe a lack of incremental innovation has resulted in a challenging cycle for the cosmetics category , as innovation brought to the market has not resulted in incremental product purchases . in addition , the covid-19 pandemic and its various impacts have changed consumer behavior and consumption of beauty products due to the closures of offices , retail stores and other businesses and the significant decline in social gatherings . we expect the beauty category will return to growth as consumers recover from the impacts of covid-19 , and we remain confident that our differentiated and diverse business model , our commitment to strategic investments , and our highly engaged associates will continue to drive market share gains over the long term . basis of presentation the company has one reportable segment , which includes retail stores , salon services , and e-commerce . we recognize merchandise revenue at the point of sale in our retail stores . e-commerce sales are recognized upon shipment or guest pickup of the merchandise based on meeting the transfer of control criteria . retail store and e-commerce sales are recorded net of estimated returns . shipping and handling are treated as costs to fulfill the contract and not a separate performance obligation . accordingly , we recognize revenue for our single performance obligation related to online sales at the time control of the merchandise passes to the customer , which is at the time of shipment or guest pickup . we provide refunds for merchandise returns within 60 days from the original purchase date ; however , due to store closures during the first half of fiscal 2020 , we extended our return policy to 180 days through november 16 , 2020. state sales taxes are presented on a net basis as we consider our self a pass-through conduit for collecting and remitting state sales tax . salon service revenue is recognized at the time the service is provided to the guest . gift card sales revenue is deferred until the guest redeems the gift card . company coupons and other incentives are recorded as a 32 reduction of net sales . other revenue sources include the private label and co-branded credit card programs , as well as deferred revenue related to the loyalty program and gift card breakage . comparable sales reflect sales for stores beginning on the first day of the 14 th month of operation . therefore , a store is included in our comparable store base on the first day of the period after one year of operations plus the initial one-month grand opening period . story_separator_special_tag non-comparable store sales include sales from new stores that have not yet completed their 13 th month of operation and stores that were closed for part or all of the period in either year . remodeled stores are included in comparable sales unless the store was closed for a portion of the current or prior period . comparable sales include retail sales and salon services ( including stores temporarily closed due to covid-19 ) , and e-commerce . there may be variations in the way in which some of our competitors and other retailers calculate comparable or same store sales . measuring comparable sales allows us to evaluate the performance of our store base as well as several other aspects of our overall strategy . several factors could positively or negatively impact our comparable sales results : ● the general national , regional , and local economic conditions and corresponding impact on customer spending levels ; ● the introduction of new products or brands ; ● the location of new stores in existing store markets ; ● competition ; ● our ability to respond on a timely basis to changes in consumer preferences ; ● the effectiveness of our various merchandising and marketing activities ; and ● the number of new stores opened and the impact on the average age of all of our comparable stores . cost of sales includes : ● the cost of merchandise sold , including substantially all vendor allowances , which are treated as a reduction of merchandise costs ; ● distribution costs including labor and related benefits , freight , rent , depreciation and amortization , real estate taxes , utilities , and insurance ; ● shipping and handling costs ; ● retail stores occupancy costs including rent , depreciation and amortization , real estate taxes , utilities , repairs and maintenance , insurance , and licenses ; ● salon services payroll and benefits ; and ● shrink and inventory valuation reserves . our cost of sales may be negatively impacted as we open new stores . changes in our merchandise mix may also have an impact on cost of sales . this presentation of items included in cost of sales may not be comparable to the way in which our competitors or other retailers compute their cost of sales . selling , general and administrative expenses include : ● payroll , bonus , and benefit costs for retail store and corporate employees ; ● advertising and marketing costs ; ● occupancy costs related to our corporate office facilities ; ● stock-based compensation expense ; ● depreciation and amortization for all assets , except those related to our retail stores and distribution operations , which are included in cost of sales ; and ● legal , finance , information systems , and other corporate overhead costs . this presentation of items in selling , general and administrative expenses may not be comparable to the way in which our competitors or other retailers compute their selling , general and administrative expenses . 33 impairment , restructuring and other costs include long-lived asset impairment charges , restructuring costs associated with store closings , costs associated with the suspension of our canadian expansion , and employee related severance costs . pre-opening expenses include non-capital expenditures during the period prior to store opening for new , remodeled , and relocated stores including rent during the construction period for new and relocated stores , store set-up labor , management and employee training , and grand opening advertising . interest expense ( income ) , net includes both interest income and expense . interest expense includes interest costs and facility fees associated with our credit facility , which is structured as an asset-based lending instrument . our credit facility interest is based on a variable interest rate structure which can result in increased cost in periods of rising interest rates . interest income represents interest from cash equivalents and short-term investments with maturities of twelve months or less from the date of purchase . income tax expense reflects the federal statutory tax rate and the weighted average state statutory tax rate for the states in which we operate stores . story_separator_special_tag stock-based compensation compared to a benefit in fiscal 2019 . net income net income decreased $ 530.1 million , or 75.1 % , to $ 175.8 million in fiscal 2020 compared to $ 705.9 million in fiscal 2019. the decrease in net income was primarily due to a $ 731.9 million decrease in gross profit and a $ 114.3 million increase in impairment , restructuring and other costs , partially offset by a $ 177.6 million decrease in sg & a expenses and $ 145.0 million decrease in income taxes . fiscal year 2019 versus fiscal year 2018 net sales net sales increased $ 0.7 billion , or 10.1 % , to $ 7.4 billion in fiscal 2019 compared to $ 6.7 billion in fiscal 2018. the net sales increases are due to the opening of 80 net new stores in 2019 , a 5.0 % increase in comparable sales , and an increase of $ 23.4 million in other revenue . the 5.0 % comparable sales increase included a 3.3 % increase in transactions and a 1.7 % increase in average ticket . we attribute the increase in comparable sales to our successful marketing and merchandising strategies .
| gross profit gross profit decreased $ 0.7 billion , or 27.3 % , to $ 1.9 billion in fiscal 2020 , compared to $ 2.7 billion in fiscal 2019. gross profit as a percentage of net sales decreased 450 basis points to 31.7 % in fiscal 2020 compared to 36.2 % in fiscal 2019. the decrease in gross profit margin was primarily due to : ● 220 basis points of deleverage due to channel mix shifts ; ● 220 basis points deleverage of fixed costs and 90 basis points of deleverage in salon services , both attributed to the impact of lower sales ; partially offset by ● 80 basis points of leverage driven by lower promotional activity and cost optimization efforts . selling , general and administrative expenses selling , general and administrative ( sg & a ) expenses decreased $ 0.2 billion , or 10.1 % , to $ 1.6 billion in fiscal 2020 compared to $ 1.8 billion in fiscal 2019. as a percentage of net sales , sg & a expenses increased 190 basis points to 25.7 % in fiscal 2020 compared to 23.8 % in fiscal 2019. the deleverage in sg & a expenses was primarily due to : ● 170 basis points of deleverage primarily due to higher corporate overhead ; ● 80 basis points of deleverage of store payroll and benefits and variable store expenses due to the impact of lower sales and personal protective equipment and covid-related expenses ; and ● 30 basis points of deleverage of marketing expenses attributed to the impact of lower sales volume ; partially offset by ● 90 basis points of leverage related to the employee retention credits made available under the cares act . 35 impairment , restructuring and other costs impairment , restructuring and other costs were $ 114.3 million for fiscal 2020 , which consisted of $ 41.9 million due to the impairment of tangible long-lived assets and operating lease assets associated with certain retail stores , $ 29.1 million related to the suspension of the planned expansion to canada , $ 27.5 million related to the permanent closure of 19 stores , and $ 15.8 million of severance charges . all restructuring expenses were recognized in fiscal 2020. there was no impairment , restructuring and other costs in fiscal 2019 . pre-opening expenses pre-opening expenses decreased $ 4.3 million , or 22.1 % , to $ 15.0 million in fiscal 2020 compared to $ 19.3 million in fiscal 2019 due to current year real estate activity and stores expected to open in the first quarter of fiscal 2021. during fiscal 2020 , we opened 30 new stores and relocated five stores .
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under the terms of the factoring agreements , cit remits customer payments to the company as such payments are received by cit . cit bears credit losses with respect to assigned accounts receivable from approved shipments , while the company bears the responsibility for adjustments from customers related to returns , allowances , claims and discounts . cit may at any time terminate or limit its approval of shipments to a particular customer . if such a termination or limitation occurs , the company either assumes ( and may seek to mitigate ) the credit risk for shipments to the customer after the date of such termination or limitation or discontinues shipments to the customer . factoring fees , which are included in marketing and administrative expenses in the accompanying consolidated statements of income , were $ 261,000 and $ 223,000 during fiscal years 2019 and 2018 , respectively . there were no advances on the factoring agreements at march 31 , 2019 or april 1 , 2018. critical accounting policies and estimates the company prepares its financial statements to conform with accounting principles generally accepted in the u.s. ( “ gaap ” ) as promulgated by the financial accounting standards board ( “ fasb ” ) . references herein to gaap are to topics within the fasb accounting standards codification ( the “ fasb asc ” ) , which the fasb periodically revises through the issuance of an accounting standards update ( “ asu ” ) and which has been established by the fasb as the authoritative source for gaap recognized by the fasb to be applied by nongovernmental entities . 15 use of 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 and disclosure of contingent assets and liabilities at the date of the consolidated balance sheets and the reported amounts of revenues and expenses during the reporting period . the listing below , while not inclusive of all of the company 's accounting policies , sets forth those accounting policies which the company 's management believes embody the most significant judgments due to the uncertainties affecting their application and the likelihood that materially different amounts would be reported under different conditions or using different assumptions . revenue recognition : revenue is recognized upon the satisfaction of all contractual performance obligations and the transfer of control of the products sold to the customer . the majority of the company 's sales consists of single performance obligation arrangements for which the transaction price for a given product sold is equivalent to the price quoted for the product , net of any stated discounts applicable at a point in time . each sales transaction results in an implicit contract with the customer to deliver a product as directed by the customer . shipping and handling costs that are charged to customers are included in net sales , and the company 's costs associated with shipping and handling activities are included in cost of products sold . a provision for anticipated returns , which are based upon historical returns and claims , is provided through a reduction of net sales and cost of products sold in the reporting period within which the related sales are recorded . actual returns and claims experienced in a future period may differ from historical experience , and thus , the company 's provision for anticipated returns at any given point in time may be over-funded or under-funded . the company recognizes revenue associated with unredeemed store credits and gift certificates at the earlier of their redemption by customers , their expiration or when their likelihood of redemption becomes remote , which is generally two years from the date of issuance . revenue from sales made directly to consumers is recorded when the shipped products have been received by customers , and excludes sales taxes collected on behalf of governmental entities . revenue from sales made to retailers is recorded when legal title has been passed to the customer based upon the terms of the customer 's purchase order , the company 's sales invoice , or other associated relevant documents . such terms usually stipulate that legal title will pass when the shipped products are no longer under the control of the company , such as when the products are picked up at the company 's facility by the customer or by a common carrier . payment terms can vary from prepayment for sales made directly to consumers to payment due in arrears ( generally , 60 days of being invoiced ) for sales made to retailers . allowances against accounts receivable : revenue from sales made to retailers is reported net of allowances for anticipated returns and other allowances , including cooperative advertising allowances , warehouse allowances , placement fees , volume rebates , coupons and discounts . such allowances 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 . the provision for the majority of the company 's allowances occurs on a per-invoice basis . when a customer requests to have an agreed-upon deduction applied against the customer 's outstanding balance due to the company , the allowances are correspondingly 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 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 should have no impact on the consolidated statements of income since such costs are accrued commensurate with sales activity or using the straight-line method , as appropriate . purchase price allocations and the resulting goodwill : from time to time , the company has entered into transactions accounted for as business combinations . story_separator_special_tag in connection with a business combination , the company must prepare an allocation of the cost of the acquisition to the identifiable assets acquired and liabilities assumed , based on estimated fair values as of the acquisition date . the excess of the purchase price over the estimated fair value of the identifiable net assets acquired is recorded as goodwill . the amount of goodwill recorded in a business combination can vary significantly depending upon the values attributed to the assets acquired and liabilities assumed . although goodwill has no useful life and is not subject to a systematic annual amortization against earnings , the company performs a measurement for impairment of the carrying value of its goodwill annually on the first day of the company 's fiscal year . 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 annual or interim measurement for impairment of goodwill is performed at the reporting unit level . a reporting unit is either an operating segment or one level below an operating segment . in its annual or interim measurement for impairment of goodwill , the company conducts a qualitative assessment by examining relevant events and circumstances which could have a negative impact on the company 's goodwill , which includes macroeconomic conditions , industry and market conditions , commodity prices , cost factors , overall financial performance , reporting unit dispositions and acquisitions , the market capitalization of the company and other relevant events specific to the company . 16 if , after assessing the totality of events or circumstances described above , the company determines that it is more likely than not that the fair value of either of the company 's reporting units is less than its carrying amount , then a quantitative goodwill test is performed . the quantitative goodwill impairment test is also performed whenever events or changes in circumstances indicate that the carrying value may not be recoverable . if , after performing the quantitative goodwill test , it is determined that the carrying value of goodwill is impaired , the amount of goodwill is reduced and a corresponding charge is made to earnings in the period in which the goodwill is determined to be impaired . preparing a purchase price allocation requires estimating the fair values of assets acquired and liabilities assumed in a business combination , a process that requires the company to make various assumptions . the most significant assumptions relate to the estimated fair values assigned to the assets acquired and liabilities assumed as of the acquisition date . the resulting estimated fair values assigned to assets acquired and liabilities assumed in a purchase price allocation can have a significant effect on results of operations in the future . a future impairment to goodwill would have no effect on the company 's cash flows , but would result in a decrease in net income for the period in which the impairment is recorded . valuation of long-lived assets and identifiable intangible a s sets : in addition to the systematic annual depreciation and amortization of the company 's fixed assets and identifiable intangible assets , the company reviews for impairment long-lived assets and 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 . inventory valuation : 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 . 17 item 8. financial statements and supplementary data refer to pages 21 and f-1 through f-22 hereof . i tem 9. c hanges in and disagreements with accountants on accounting and financial disclosure not applicable . i tem 9a . controls and procedures disclosure controls and procedures disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports filed or submitted under the exchange act is recorded , processed , summarized and reported within the time period specified in the sec 's rules and forms .
| during the three-month period ended july 1 , 2018 , most of the sales that ordinarily would have been made to tru had not yet shifted to other customers of the company , as tru actually became a major competitor of the company as it conducted liquidation sales during this entire period , which included deep discounts on in-line merchandise . gross profit : gross profit increased by $ 2.5 million and increased from 28.1 % of net sales for 2018 to 29.2 % of net sales for 2019. the increase in amount is due to higher sales that resulted from the carousel acquisition and the sassy acquisition . in addition , sales in the current year were made at overall higher gross profit percentages , as sales to tru during the prior year leading up to and continuing through tru 's bankruptcy and liquidation resulted in a shift to a less profitable product mix and shortfalls of minimum guaranteed royalties . 13 marketing and administrative expenses : marketing and administrative expenses increased by $ 922,000 for fiscal year 2019 compared with fiscal year 2018. contributing to the increase is $ 3.1 million in costs incurred during the current year that were associated with carousel , compared with $ 2.6 million in such costs during the prior year , which included $ 347,000 in acquisition costs . costs in the current year also included $ 210,000 in charges associated with transferring most of the inventory acquired in the sassy acquisition from grand rapids , michigan to the company 's distribution facility in compton , california . offsetting the increase in the current year is the elimination of credit coverage fees of $ 653,000 and a bad debt charge of $ 218,000 that occurred in the prior year and that were associated with the bankruptcy and liquidation of tru . in come tax expense : the company 's provision for income taxes is based upon an annual effective tax rate ( “ etr ” ) on continuing operations , which decreased from 32.7 % during 2018 to 24.4 % in 2019. on december 22 , 2017 , the president of the united states signed into law comprehensive tax legislation commonly referred to as the tax cuts and jobs act ( “ the tcja ” ) , which includes a provision to lower the federal
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as a ric , we generally did not have to pay corporate-level federal income taxes on any net ordinary income or capital gains that we distributed to our shareholders as dividends , if we met certain source-of-income and asset diversification requirements . medallion bank is not a ric and must pay corporate-level us federal and state income taxes . see note 5 for more information . our wholly-owned portfolio company , medallion bank , is a bank regulated by the fdic and the utah department of financial institutions which originates consumer loans , raises deposits , and conducts other banking activities . medallion bank generally provides us with our lowest cost of funds which it raises through bank certificates of deposit . to take advantage of this low cost of funds , historically we have referred a portion of our taxicab medallion and commercial loans to medallion bank , who originated these loans , and have been serviced by msc . however , at this time medallion bank is not originating any new taxi medallion loans and is working with msc to service its existing portfolio . the fdic restricts the amount of taxicab medallion loans that medallion bank may finance to three times tier 1 capital , or $ 491,391,000 as of december 31 , 2017. msc earns referral and servicing fees for these activities . as a non-investment company , medallion bank is not consolidated with the company . if the company withdraws its election to be regulated as a bdc , as expected , commencing with the second quarter of 2018 , the company would no longer be subject to fasb accounting standards codification topic 946 , financial services investment companies , which would result in a significant change in our accounting and financial reporting requirements . our financial statements are currently presented and accounted for under the specialized method of accounting applicable to investment companies , which requires us to recognize our investments , including controlled investments , at fair value . as a bdc , we are currently precluded from consolidating any entity other than another investment company that acts as an extension of our investment operations and facilitates the execution of our investment strategy or an investment in a controlled operating company that provides substantially all of its services to us . our financial statements currently consolidate the accounts of the company and its wholly-owned investment company subsidiaries , except for medallion bank and other portfolio investments . our financial statements reflect our investment in medallion bank and other portfolio investments at fair value , as determined in good faith by our board of directors . medallion bank 's financial statements are separately provided as a significant unconsolidated wholly-owned subsidiary . if the company withdraws its election to be regulated as a bdc , the company will consolidate the financial statements of medallion bank and controlled or majority-owned portfolio investments together with those of the company . realized gains or losses on investments are recognized when the investments are sold or written off . the realized gains or losses represent the difference between the proceeds received from the disposition of portfolio assets , if any , and the cost of such portfolio assets . in addition , changes in unrealized appreciation or depreciation on investments are recorded and represent the net change in the estimated fair values of the portfolio assets at the end of the period as compared with their estimated fair values at the beginning of the period . generally , realized gains ( losses ) on investments and changes in unrealized appreciation ( depreciation ) on investments are inversely related . when an appreciated asset is sold to realize a gain , a decrease in the previously recorded unrealized appreciation occurs . conversely , when a loss previously recorded as unrealized depreciation is realized by the sale or other disposition of a depreciated portfolio asset , the reclassification of the loss from unrealized to realized causes a decrease in net unrealized depreciation and an increase in realized loss . our investment in medallion bank , as a wholly owned portfolio investment , is also subject to quarterly assessments of fair value . we conduct a thorough valuation analysis as discussed previously , and determine whether any factors give rise to a valuation different than recorded book value , including various regulatory restrictions that were established at medallion bank 's inception , by the fdic and state of utah , and also by additional marketplace restrictions , such as the ability to transfer industrial bank charters . because of these restrictions and other factors , our board of directors had previously determined that medallion bank had little value beyond its recorded book value . as a result of this valuation process , we had previously used medallion bank 's actual results of operations as the best estimate of changes in fair value , and recorded the results as a component of unrealized appreciation ( depreciation ) on investments . in the second quarter of 2015 , we first became aware of external interest in medallion bank and its portfolio assets at values in excess of their book value . expression of interest in medallion bank from both investment bankers and interested parties has continued through 2016 and 2017. we incorporated these new factors in the medallion bank fair value analysis , and the board of directors determined that medallion bank had a fair value in excess of book value . in addition , in the third quarter of 2016 there was a court ruling involving a marketplace lender that the company believes heightens the interest of marketplace lenders to acquire or merge with utah industrial banks . we also engaged a valuation specialist to assist the board of directors in its determination of medallion bank 's fair value , and this appreciation of $ 15,500,000 was thereby recorded in 2015 , and additional appreciation of $ 128,918,000 was recorded in 2016 and $ 7,849,000 was recorded in 2017. see note 3 for additional information about medallion bank . story_separator_special_tag 40 trends in investment portfolio our investment income is driven by the principal amount of and yields on our investment portfolio . to identify trends in the balances and yields , the following table illustrates our investments at fair value , grouped by medallion loans , commercial loans , equity investments , and investment securities , and also presents the portfolio information for medallion bank , at the dates indicated . replace_table_token_10_th ( 1 ) represents the weighted average interest or dividend rate of the respective portfolio as of the date indicated . ( 2 ) the weighted average interest rate for the entire managed loan portfolio ( medallion , commercial , and consumer loans ) was 10.89 % , 9.74 % , and 9.03 % at december 31 , 2017 , 2016 , and 2015 . 41 portfolio summary total portfolio yield the weighted average yield ( which is calculated by dividing the aggregate yield of each investment in the portfolio by the aggregate portfolio balance and does not include expenses and sales load for any offering ) of the total portfolio at december 31 , 2017 was 4.73 % ( 6.58 % for the loan portfolio ) , a decrease of 24 basis points from 4.97 % at december 31 , 2016 , which was a decrease of 209 basis points from 7.06 % at december 31 , 2015. the decreased yield from 2015 was primarily attributable to the decreased yield in our investment in medallion bank and other controlled subsidiaries . the weighted average yield of the total managed portfolio at december 31 , 2017 was 10.61 % ( 10.89 % for the loan portfolio ) , an increase of 111 basis points from 9.50 % at december 31 , 2016 , which was an increase of 97 basis points from 8.53 % at december 31 , 2015. the increased yield of the total managed portfolio was mainly due to the higher yield of the total managed commercial portfolio , driven by our exit from the asset-based lending business which had a lower average yield in comparison to our mezzanine and other secured commercial loans , and the higher yield of our consumer loans . medallion loan portfolio our medallion loans comprised 34 % of the net portfolio of $ 610,135,000 at december 31 , 2017 , compared to 41 % of the net portfolio of $ 652,278,000 at december 31 , 2016 , and 51 % of $ 606,959,000 at december 31 , 2015. our managed medallion loans of $ 388,001,000 comprised 28 % of the net managed portfolio of $ 1,380,054,000 at december 31 , 2017 , compared to 35 % the net managed portfolio of $ 1,517,592,000 at december 31 , 2016 , and 43 % of $ 1,501,555,000 at december 31 , 2015. the medallion loan portfolio decreased by $ 58,537,000 or 22 % in 2017 ( and decreased by $ 140,642,000 or 27 % on a managed basis ) . the decreases in outstandings were primarily concentrated in the new york and chicago markets , although all markets declined , and reflected increased realized and unrealized losses and net amortization of loan principal . total medallion loans serviced for third parties were $ 26,349,000 , $ 24,796,000 , and $ 26,959,000 at december 31 , 2017 , 2016 , and 2015. the weighted average yield of the medallion loan portfolio at december 31 , 2017 was 4.41 % , an increase of 40 basis points from 4.01 % at december 31 , 2016 , which was a decrease of 8 basis points from 4.09 % at december 31 , 2015. the weighted average yield of the managed medallion loan portfolio at december 31 , 2017 was 4.36 % , an increase of 48 basis points from 3.88 % at december 31 , 2016 , which was a decrease of 8 basis points from 3.96 % at december 31 , 2015. the fluctuation in yield primarily reflected the repricing of the existing portfolio to current market interest rates . at december 31 , 2017 , 27 % of the medallion loan portfolio represented loans outside new york , compared to 31 % at year-end 2016 and 2015. at december 31 , 2017 , 19 % of the managed medallion loan portfolio represented loans outside new york , compared to 24 % and 26 % at year-end 2016 and 2015. commercial loan portfolio our commercial loans represented 15 % of the net investment portfolio as of december 31 , 2017 , compared to 13 % and 14 % at december 31 , 2016 and 2015 , and were 7 % , 6 % , and 8 % on a managed basis . commercial loans increased by $ 6,554,000 or 8 % during 2017 ( increased by $ 5,583,000 or 6 % on a managed basis ) , primarily reflecting the growth in the mezzanine loan portfolio . net commercial loans serviced for third parties were $ 747,000 at december 31 , 2017 and $ 1,644,000 at december 31 , 2016 , and serviced by third parties were $ 3,419,000 at december 31 , 2015. the weighted average yield of the commercial loan portfolio at december 31 , 2017 was 12.02 % , a decrease of 103 basis points from 13.05 % at december 31 , 2016 , which was an increase of 25 basis points from 12.80 % at december 31 , 2015. the weighted average yield of the managed commercial loan portfolio at december 31 , 2017 was 11.85 % , a decrease of 91 basis points from 12.76 % at december 31 , 2016 , which was an increase of 258 basis points from 10.18 % at december 31 , 2015. the decreases primarily reflected the recent lower rates on certain of the mezzanine loans . at december 31 , 2017 , variable-rate loans represented 0 % of the commercial portfolio , compared to 7 % and 9 % at december 31 , 2016 and 2015 , and were 0 % , 7 % , and 38 % on a managed basis .
| the managed medallion portfolio , which includes loans at medallion bank and those serviced for third parties , was $ 414,350,000 at year end , down $ 139,089,000 or 25 % from $ 553,439,000 a year ago , reflecting the above , and realized losses taken and principal amortization at medallion bank . the commercial loan portfolio was $ 90,188,000 at year end , compared to $ 83,634,000 a year ago , an increase of $ 6,554,000 or 8 % , and represented 15 % of the investment portfolio compared to 13 % a year ago . the increase was primarily attributable to increases in the secured mezzanine portfolio , partially offset by decreases in other secured commercial loans . commercial loans yielded 12.02 % at year end , down 8 % from 13.05 % a year ago , reflecting lower yields on certain recent loans . the net managed commercial loan portfolio , which includes loans at medallion bank and those serviced for or by third parties , was $ 92,530,000 at year end , up 50 $ 4,686,000 or 5 % from $ 87,844,000 a year ago , reflecting the above . investments in medallion bank and other controlled subsidiaries were $ 302,147,000 at year end , up $ 8,787,000 or 3 % from $ 293,360,000 a year ago , primarily reflecting the appreciation and equity in the earnings of medallion bank other portfolio company investments , capital contributions made , dividends paid , portfolio sales , and the net valuation adjustment , and which represented 49 % of the investment portfolio at the end of 2017 and 45 % in the prior year , and which yielded 0.83 % at year end , compared to 2.13 % a year ago , primarily reflecting reduced dividends from medallion bank . see notes 3 and 11 of the consolidated financial statements for additional information about medallion bank and the other controlled subsidiaries . equity investments were $ 9,521,000 at year end , up $ 1,053,000 or 12 % from $ 8,468,000 a year ago , primarily
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in addition , the company also expects to continue to invest time and resources in its stockholder engagement and other board-driven initiatives , including harmonizing its corporate governance and executive compensation to reflect current best practices and latest developments . in january 2017 , the company acquired gbo fastening systems for approximately $ 10.2 million . gbo fastening systems is headquartered in gunnebo , sweden , with fastener production and surface treatment capabilities in sweden and poland . gbo fastening systems has over 200 employees located in sweden , poland , norway and romania . gbo fastening systems manufactures and sells a complete line of european approved ce-marked structural fasteners and provides unique fastener dimensioning software for wood construction applications , mostly in northern and eastern europe , which the company expects to eventually distribute and sell in western europe . the company also expects that the acquisition will enable the company to develop and expand distribution into northern europe its wood construction products manufactured in the company 's manufacturing facilities in western europe . further , the company expects to access gbo fastening systems ' expertise in product development and testing , and proficiency in fastener manufacturing , surface treatment and painting , to strengthen gbo fastening systems ' global presence and contribute engineering expertise in automatic fastening systems and fastener collation to help gbo fastening systems broaden both its fastener and structural connectors lines . based on preliminary unaudited information received from gbo fastening systems ' management , the company currently believes that for the fiscal year ended december 31 , 2016 , gbo fastening systems had approximately $ 42.6 million in net sales and $ 0.8 million in income from operations before interest , non-recurring expenses and income taxes . based on such information , and subject to future events and circumstances , the company believes it is reasonable to expect that the annual return on investment with respect gbo fastening systems will exceed its cost of capital within 4 to 5 years , although the company will incur integration expenses that are expected to result in operating losses during the next 2 years . in january 2017 , the company acquired cg visions , inc. ( `` cg visions '' ) for up to approximately $ 21.5 million , including an earn-out of $ 2.15 million subject to meeting sales targets , and subject to specified holdback provisions and post-closing adjustment . cg visions was founded in 2000 in lafayette , indiana , to bring new ideas and experience in the digital media and construction fields . cg visions provides its scalable technologies and services to a number of the top 100 mid-sized to large builders in the united states of america . this acquisition is expected to enable the company to build closer partnerships with builders by offering software and services to help them control costs and increase efficiency at all stages of the home building process . the company expects to look for opportunities to incorporate its products into cg visions ' building information modeling ( `` bim '' ) packages and apply cg visions ' expertise to the company 's existing and future software initiatives . based on preliminary unaudited information received from cg visions ' management team , the company currently believes that for the fiscal year ended december 31 , 2016 , cg visions had approximately $ 5.9 million in net sales and $ 1.2 million in income from operations before interest and income taxes . based on such information , and subject to future events and circumstances , the company believes that it is reasonable to expect that the annual return on investment with respect to the company 's investment in cg visions will exceed its cost of capital within 4 to 5 years . while we believe that the unaudited third-party information in connection with our recent acquisitions provides investors with useful information about the financial performance of our acquisition targets and allow for greater transparency with respect to information relied on by our management in evaluating and executing such acquisitions , investors are cautioned that there are material limitations associated with the use of such unaudited information as an analytical tool . for example , these measures may be different from financial measures used by the company and or other companies , limiting their usefulness for comparison purposes . in july 2016 , the company 's board of directors approved a plan to replace the company 's current in-house enterprise resource planning ( `` erp '' ) and accounting platforms with a fully integrated erp platform from sap america , inc. ( `` sap '' ) . management plans to replace the current platforms in multiple phases over a period of three to four years , minimize project scope expansion and focus on configuring , instead of customizing , the standard sap modules with an emphasis on creating a global template that will accommodate all company product lines and market segments . based on current information and subject to future events and 28 circumstances , management estimates that the new platform will cost approximately $ 30 million , including capital expenditures , which will increase annual operating expenses during the implementation phase from 2017 to 2019. when fully implemented , however , the company anticipates that the new platform could result in annual savings approximately equal to 1 % of net sales from improved production scheduling and inventory management , as well as lower labor , administrative and compliance costs . the company generally manufactures products and incurs costs in the areas where sales occur . therefore , for each of the company 's foreign operations the local currency is the functional currency and each foreign operation transacts primarily in its functional currency . the company does not currently have or plan to enter into foreign currency contracts to hedge its exposure to foreign exchange rates . story_separator_special_tag the administrative & all other segment primarily includes expenses such as self-insured workers compensation claims costs for employees of the company 's venting business , which was sold in 2010 , stock-based compensation for certain members of management , interest expense , foreign exchange gains or losses and income tax expense , as well as income and expenses related to real estate activities , such as rental income and depreciation expense on the company 's facility in vacaville , california , which the company has leased to a third party for a 10-year term expiring in august 2020. unlike lumber or other products that have a more direct correlation to housing starts , the company 's products are used to a greater extent in areas that are subject to natural forces , such as seismic or wind events . the company 's products are used in a sequential process that follows the construction process . residential and commercial construction begins with the foundation , followed by the wall and the roof systems , and the installation of the company 's products flow into a project or a house according to these schedules . foundation product sales could be considered a leading indicator for the company . sales of these products in the fourth quarter of 2016 increased compared to the same period in 2015. the company 's sales also tend to be seasonal , with operating results varying from quarter to quarter . with some exceptions , the company 's sales and income have historically been lower in the first and fourth quarters than in the second and third quarters of the year , as customers purchase construction materials in the late spring and summer months for the construction season . in addition , weather conditions , such as extended wet or cold weather in any region of north america or europe , which affect and sometimes delay installation of some of the company 's products , could negatively affect the company 's net sales and results of operations . political and economic events can also affect the company 's sales and profitability . see `` item 1a — risk factors . '' results of operations the following table sets forth , for the years indicated , the company 's operating results as a percentage of net sales for the years ended december 31 , 2016 , 2015 and 2014 , respectively : replace_table_token_4_th 29 2014 to 2016 financial highlights to avoid fractional percentages , all percentages presented below in this `` story_separator_special_tag style= '' line-height:120 % ; text-align : justify ; font-size:10pt ; '' > unless otherwise stated , the results announced below , in this `` comparison of the years ended december 31 , 2016 and 2015 '' section , when providing comparisons ( which are generally indicated by words such as “ increased , ” “ decreased , ” `` remained '' or “ compared to ” ) , compare the results of operations for the year ended december 31 , 2016 , against the results of operations for the year ended december 31 , 2015 . to avoid fractional percentages , all percentages presented below in this section were rounded to the nearest whole number . net sales increased 8 % to $ 860.7 million from $ 794.1 million . the company had net income of $ 89.7 million compared to $ 67.9 million . diluted net income per common share was $ 1.86 compared to $ 1.38. income from operations increased 28 % to $ 139 . 5 million from $ 109.0 million . the following table shows the change in the company 's operations from 2015 to 2016 , and the increases or decreases for each category by segment : replace_table_token_5_th net sales the following table shows net sales by segment for the years ended december 31 , 2015 and 2016 , respectively : replace_table_token_6_th 31 the following table shows segment net sales as percentages of total net sales for the years ended december 31 , 2015 and 2016 , respectively : replace_table_token_7_th segment net sales : north america — net sales increased 10 % , mostly due to increased unit sales volumes on improved economic activity as well as a slight increase in average net sales unit prices in both the united states and canada . canada 's net sales were negatively affected by approximately $ 1.2 million in foreign currency translation , due to the weakening of the canadian dollar against the united states dollar . europe — net sales increased 3 % , mostly due to increased unit sales volumes , partly offset by a decrease in average net sales unit prices . europe 's net sales were negatively affected by approximately $ 3.1 million primarily due to the weakening of the british pound against the united states dollar . asia/pacific — net sales decreased 21 % , primarily due to the effects of the closing of sales offices in china , thailand and dubai late in the first quarter of 2015 , which accounted for an approximately $ 4.1 million decrease in net sales . consolidated net sales channels and product groups : net sales to dealer distributors , lumber dealers , contractor distributors and home centers increased , primarily due to increased construction activity . wood construction product net sales , including sales of connectors , truss plates , fastening systems , fasteners and shearwalls , represented 85 % of the company 's total net sales in both 2016 and 2015. concrete construction product net sales , including sales of adhesives , chemicals , mechanical anchors , powder actuated tools and reinforcing fiber materials , represented 15 % of the company 's total net sales in both 2016 and 2015. gross profit the following table shows gross profit by segment for the years ended december 31 , 2015 and 2016 , respectively : replace_table_token_8_th the following table shows gross profit percentages by segment for the years ended december 31 , 2015 and 2016 , respectively : replace_table_token_9_th gross profit increased to $ 412.5 million from $ 358.9 million .
| in local currencies , europe 's overall net sales increased in 2016 compared to 2014 , primarily due to increases in unit sales volume from expanding concrete construction products net sales into denmark and sweden , as well as the august 2016 acquisition of ms decoupe ( see `` note 2 — acquisitions '' to the company 's consolidated financial statements ) , partly offset by a slight decrease in average sales prices . ◦ asia/pacific — net sales decreased to $ 7.4 million in 2016 from $ 15.1 million in 2014 , due to the closing of sales offices in china , thailand and dubai in the first quarter of 2015 , which accounted for an approximately $ 10 million decrease in net sales . excluding net sales from the closed sales offices , asia/pacific net sales increased $ 1.9 million , net of the negative effects of foreign currency translation of approximately $ 1.4 million . consolidated net sales channels and product groups : ◦ net sales to contractor distributors , lumber dealers and dealer distributors increased significantly in 2016 compared to 2014 due to increased construction activity . ◦ wood construction product net sales , including connectors , truss plates , fastening systems , fasteners and shearwalls , increased 15 % to $ 732.4 million in 2016 from $ 636.0 million in 2014 , primarily due to increased unit sales volumes on improved economic conditions , partly offset by the negative effects of foreign currency translation . ◦ concrete construction product sales , including adhesives , chemicals , mechanical anchors , powder actuated tools and reinforcing fiber materials , increased 11 % to $ 128.2 million in 2016 from $ 115.9 million in 2014 , primarily due to increased unit sales volumes on improved economic conditions , partly offset a decrease of $ 8.7 million in net sales from the closure of sales offices located in china , thailand and dubai , as well as the negative effects of foreign currency translation . gross profit gross profit margin increased to 48 % in 2016 from 46 % in 2014 . north america — gross profit margin increased to 49 % from 46 % , primarily as a result of
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net sales for office furniture increased $ 38.8 million or 2.2 percent in 2015 to $ 1,778 million compared to $ 1,739 million in 2014 including price realization of $ 31 million . the corporation experienced growth in the contract business while the supplies business remained flat . operating profit as a percent of net sales was 6.9 percent in 2016 , 7.7 percent in 2015 and 5.0 percent in 2014 . the decrease in operating profit for 2016 was driven by lower volume , strategic investments , and the impacts of the sale of artcobell , previously announced closures , and impairments of goodwill and other intangibles . these factors were partially offset by strong operational performance , favorable material costs and productivity and cost reductions . the improvement in operating margins for 2015 was due to increased volume , strong operational performance , cost reductions , lower restructuring and impairment charges , favorable material costs and price realization . these drivers were partially offset by unfavorable product mix , higher freight costs , strategic investments , and incentive based compensation . total restructuring and transition costs impacting office furniture in 2016 were $ 12.2 million of which $ 9.2 million were recorded in cost of sales . total restructuring and transition costs impacting office furniture in 2015 were $ 3.7 million of which $ 3.3 million were recorded in cost of sales . hearth products hearth products sales decreased $ 27.0 million or 5.1 percent in 2016 to $ 500 million compared to $ 527 million in 2015 including price realization of $ 5 million . sales in new construction grew as the housing market continued to recover but were offset by a declines in the retail pellet and retail gas businesses due to unseasonably warm weather and comparatively low energy prices . hearth products sales increased 8.9 percent in 2015 to $ 527 million compared to $ 484 million in 2014 including price realization of $ 6 million and incremental sales from the vcg acquisition of $ 63 million . sales in new construction grew as the housing market continued to recover but were offset by a decline in the retail pellet business due to unseasonably warm weather and comparatively low energy prices . operating profit as a percent of sales in 2016 was 14.0 percent compared to 14.8 percent in 2015 and 15.9 percent in 2014 . the 2016 change was caused by restructuring and transition costs related to the previously announced closure of the hearth manufacturing facility in paris , kentucky , lower volume and higher freight costs . these factors were partially offset by price realization , strong operational performance , favorable materials cost and productivity and cost reductions . the 2015 decrease in operating margins compared to 2014 was due to dilution caused by the vcg acquisition and decreased volume partially offset by cost reductions , lower material costs , and price realization . total restructuring and transition costs impacting hearth product in 2016 were $ 7.7 million of which $ 5.5 million were recorded in cost of sales . total restructuring and transition costs impacting hearth products in 2015 were $ 2.3 million of which $ 2.2 million were recorded in cost of sales . - 27 - liquidity and capital resources cash flow – operating activities cash generated from operating activities in 2016 totaled $ 223.4 million compared to $ 173.4 million generated in 2015 . the increase in cash generated was driven by favorable working capital changes partially offset by lower net income . changes in working capital balances resulted in a $ 17.4 million source of cash in 2016 compared to $ 28.1 million use of cash in the prior year . cash generated from operating activities in 2014 totaled $ 167.8 million and changes in working capital balances resulted in a $ 2.3 million source of cash . the source of cash related to working capital changes in 2016 was primarily driven from lower accounts receivable of $ 11.2 million due to sales timing and higher accounts payable and accrued expense balances of $ 11.1 million due to timing of payments . this was partially offset by uses of cash for strategic investments in inventory . the use of cash related to working capital changes in 2015 was primarily driven from lower accounts payable of $ 26.3 million due to timing of payments . other uses of cash include higher receivables due to sales timing and increased inventory due to strategic investments . the corporation places special emphasis on management and control of working capital . the success achieved in managing receivables is in large part a result of doing business with quality customers and maintaining close communication with them . management believes recorded trade receivable valuation allowances at the end of 2016 are adequate to cover the risk of potential bad debts . allowances for non-collectible trade receivables , as a percent of gross trade receivables , totaled 0.9 percent , 1.7 percent and 2.1 percent at the end of fiscal years 2016 , 2015 and 2014 , respectively . the corporation 's inventory turns were 12 , 12 and 12 , for fiscal years 2016 , 2015 and 2014 , respectively . cash flow – investing activities capital expenditures , including capitalized software , were $ 119.6 million in 2016 , $ 115.0 million in 2015 and $ 112.7 million in 2014 . these expenditures continue to focus on machinery , equipment and tooling required to support new products , continuous improvements and cost savings initiatives in our manufacturing processes as well as the implementation of new integrated information systems to support business process transformation . the corporation anticipates capital expenditures for 2017 to total $ 100 million to $ 110 million , primarily related to new products , operational process improvements and capabilities and the business process transformation project referred to above . story_separator_special_tag in 2016 , the investing activities reflected a net cash outflow of $ 34.3 million related to the acquisition of ofm , an office furniture company , and also a small office furniture dealership that offered strategic value to the corporation . in 2014 , the investing activities reflected a net cash outflow of $ 61.8 million related to the acquisition of vcg as part of the corporation 's hearth and home technologies business . refer to the acquisitions and divestitures note in the notes to consolidated financial statements for additional information . in 2014 , the corporation completed the sales of a facility located in south gate , california , a facility and equipment located in chicago , illinois and california air emission credits . the proceeds from these sales of $ 16 million are reflected in the consolidated statement of cash flows as “ proceeds from sale of property , plant and equipment ” for 2014. cash flow – financing activities the corporation , certain domestic subsidiaries of the corporation , the lenders and wells fargo bank , national association , as administrative agent , entered into the first amendment to second amended and restated credit agreement ( the `` credit agreement '' ) on january 6 , 2016. the credit agreement amends the second amended and restated credit agreement dated as of june 9 , 2015. the credit agreement was amended to increase the revolving commitment of the lenders from $ 250 million to $ 400 million ( while retaining the corporation 's option under the credit agreement to increase its borrowing capacity by an additional $ 150 million ) in order to provide funding for the payoff of its maturing senior notes on april 6 , 2016 and to extend the maturity date of the credit agreement from june 2020 to january 2021. the corporation deferred the debt issuance costs related to the credit agreement , which were classified as assets , and is amortizing them over the term of the credit agreement . - 28 - as of december 31 , 2016 , there was $ 214 million outstanding under the $ 400 million revolving credit facility of which $ 180 million was classified as long-term as the corporation does not expect to repay the borrowings within a year . because the corporation expects , but is not required , to repay the remaining $ 34 million during 2017 it is classified as current . the revolving credit facility under the credit agreement is the primary source of committed funding from which the corporation finances its planned capital expenditures and strategic initiatives , such as acquisitions , repurchases of common stock and certain working capital needs . non-compliance with the various financial covenant ratios in the credit agreement could prevent the corporation from being able to access further borrowings under the revolving credit facility , require immediate repayment of all amounts outstanding with respect to the revolving credit facility and or increase the cost of borrowing . the credit agreement contains a number of covenants , including covenants requiring maintenance of the following financial ratios as of the end of any fiscal quarter : a consolidated interest coverage ratio of not less than 4.0 to 1.0 , based upon the ratio of ( a ) consolidated ebitda ( as defined in the credit agreement ) for the last four fiscal quarters to ( b ) the sum of consolidated interest charges ; and a consolidated leverage ratio of not greater than 3.5 to 1.0 , based upon the ratio of ( a ) the quarter-end consolidated funded indebtedness ( as defined in the credit agreement ) to ( b ) consolidated ebitda for the last four fiscal quarters . the most restrictive of the financial covenants is the consolidated leverage ratio requirement of 3.5 to 1.0 included in the credit agreement . under the credit agreement , consolidated ebitda is defined as consolidated net income before interest expense , income taxes and depreciation and amortization of intangibles , as well as non-cash , nonrecurring charges and all non-cash items increasing net income . on december 31 , 2016 , the corporation was well below the maximum allowable ratio and was in compliance with all of the covenants and other restrictions in the credit agreement . the corporation expects to remain in compliance over the next twelve months . in 2006 , the corporation refinanced $ 150 million of borrowings outstanding under its prior revolving credit facility with 5.54 percent , ten-year unsecured senior notes ( `` senior notes '' ) due april 6 , 2016 issued through the private placement debt market . interest payments were due semi-annually on april 6 and october 6 of each year . the corporation paid off the senior notes on april 6 , 2016 with revolving credit facility borrowings . in march 2016 , the corporation entered in to an interest rate swap transaction to hedge $ 150 million of outstanding variable rate revolver borrowings against future interest rate volatility . under the terms of the interest rate swap , the corporation pays a fixed rate of 1.29 percent and receives one month libor on a $ 150 million notational value expiring january 2021. as of december 31 , 2016 , the fair value of the corporation 's interest rate swap was a net asset of $ 2.3 million reported net of tax as $ 1.5 million in accumulated other comprehensive income . during 2016 , the corporation repurchased 1,082,938 shares of its common stock at a cost of approximately $ 55.8 million , or an average price of $ 51.55 per share . the board authorized $ 200 million on november 9 , 2007 and an additional $ 200 million on november 7 , 2014 for repurchases of the corporation 's common stock . as of december 31 , 2016 , approximately $ 136.9 million of this authorized amount remained unspent .
| both segments experienced price realization compared to 2014. fiscal 2016 and 2015 included 52 weeks compared to 53 weeks in 2014. due to the corporation 's 2014 holiday schedule and production shutdowns , the extra week had minimal impact on net sales . gross profit margin gross profit as a percentage of net sales increased 110 basis points in 2016 as compared to 2015 driven by strong operational performance , favorable material cost and productivity and price realization partially offset by lower volume . gross profit as a percentage of net sales increased 150 basis points in 2015 as compared to 2014 driven by strong operational performance , structural cost reductions , lower restructuring charges and price realization partially offset by lower volume and unfavorable product mix . cost of sales in 2016 included $ 5.3 million of restructuring costs and $ 9.3 million of transition costs related to the previously announced closures of the hearth manufacturing facility in paris , kentucky and the office furniture manufacturing facility in orleans , indiana and structural realignments among office furniture companies in muscatine , iowa and china . specific items incurred include accelerated depreciation and production move costs . cost of sales in 2015 included $ 0.8 million of restructuring costs related to the decision to exit a small line of business within the hearth products segment and $ 4.7 million of transition costs related to previously announced closures and structural realignments in the office furniture segment . during 2014 , the corporation made decisions to close office furniture manufacturing facilities in florence , alabama ; chicago , illinois ; and nalagarh , india and consolidate production into existing office furniture manufacturing - 25 - facilities . in connection with these decisions , the corporation recorded $ 5.2 million of restructuring costs and $ 4.9 million of transition costs in cost of sales in 2014. selling and administrative expenses selling and administrative expenses increased 110 basis points in 2016 driven by the impact of lower volume , strategic investments and incentive based compensation . selling and administrative costs
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parent 's obligation to consummate the merger is also conditioned on , among other things , the absence of any material adverse effect ( as defined in the merger agreement ) . entry into the merger agreement was unanimously approved by our board of directors . the merger agreement includes customary representations , warranties and covenants of us , parent and merger sub . among other things , we have agreed to use commercially reasonable efforts to conduct its business in the ordinary course of business consistent with past practice and use commercially reasonable efforts to preserve intact its businesses until the merger is consummated . we and parent have also agreed to use their respective reasonable best efforts to obtain any approvals from governmental authorities for the merger , including all required antitrust approvals , on the terms and subject to the conditions set forth in the merger agreement , provided that parent and its affiliates will not be required to take , or agree to take , certain actions with respect to assets , businesses or product lines of parent or any of its subsidiaries , or we or any of its subsidiaries , accounting for more than $ 80 million of ebitda ( as defined in the merger agreement ) for the 12 months ended december 31 , 2020 , measured in accordance with the merger agreement . the merger agreement contains certain provisions giving each of parent and us rights to terminate the merger agreement under certain circumstances , including the right for either parent or us to terminate the merger agreement if the merger has not been consummated on or before november 19 , 2021 , which date will be automatically extended for up to two additional 60-day periods in specified circumstances as described in the merger agreement , or the outside date . upon termination of the merger agreement under specified circumstances , we will be required to pay parent a termination fee of $ 50 million . the merger agreement further provides that parent will be required to pay us a reverse termination fee of $ 85 million under certain circumstances if the merger agreement is terminated due to the failure of the parties to obtain required approvals under antitrust laws ( as defined in the merger agreement ) prior to the outside date or as a result of a restraint ( as defined in the merger agreement ) arising under applicable antitrust laws . 45 if the merger is consummated , the shares of common stock will be delisted from the nasdaq stock market llc and deregistered under the securities exchange act of 1934 , as amended ( the “ exchange act ” ) . our segments our operations are organized into the following reportable segments : drainage pipe & products - we are a producer of concrete drainage pipe and precast products and concrete pressure pipe products . water pipe & products - we are a producer of ductile iron pipe , or dip . corporate and other - corporate , general and administrative expenses not allocated to our revenue-generating segments such as certain shared services , executive and other administrative functions . in the fourth quarter of 2020 , we reclassified our pressure pipe business from water segment to drainage segment to better align with our organizational structure . covid-19 pandemic beginning in mid-march , local , state , provincial and federal authorities began issuing stay at home orders in response to the spread of the coronavirus disease 2019 , or covid-19 , which has quickly spread throughout the united states and worldwide . these government-instituted restrictions , together with the economic volatility and uncertainty caused by the pandemic , have had a significant impact on the united states economy in general and certain parts of our end-markets in particular . despite these events and the related uncertainty , we have continued to operate as an essential business under the government orders , and the covid-19 pandemic has not materially affected our liquidity , financial results or business operations thus far . during the initial phase of the pandemic in the early part of the second quarter , we experienced temporary delays in certain projects , primarily related to governmental stay-at-home orders in place at that time and the reactions of certain customers to those orders , specifically in our residential end-markets . late in the second quarter and continuing through 2020 and into 2021 , as most states started gradually resuming their normal economic activities , there was some correction in these trends in the residential housing market . since the onset of the covid-19 pandemic , we have focused on protecting the health and safety of our team members while maintaining our operations , which have been deemed essential under relevant pandemic-related government regulations , and continuing to meet our customers ' needs . although some of our team members have tested positive for covid-19 , and we encountered temporary closures of a small number of our manufacturing facilities in the second quarter due to such cases or due to government mandate , these events have not had a significant impact on our operations or our ability to serve our customers ' needs . we are however utilizing the option under the cares act to defer the employer portion of the social security taxes that would otherwise be due in 2020 , but will be delayed with 50 % due by december 31 , 2021 and the remaining 50 % by december 31 , 2022. however , there is still considerable uncertainty regarding the extent and duration of the impact of the covid-19 pandemic , and the pandemic and related economic impacts may affect our operations in 2021 , in particular due to the uncertainty of future funding and demand in our infrastructure and municipal end-markets , as well as increased case numbers in locations where we have large numbers of employees or significant customer concentration . our backlogs are stronger to date in 2021 than they were in 2020 , however , and bidding activity also appears strong . story_separator_special_tag due to the fluidity and unprecedented and uncertain nature of the pandemic , we can not predict the full impact of the covid-19 pandemic on our business , or that of our customers , and participants in our supply chain , or on economic conditions generally , including the effects on infrastructure and other construction activity . the ultimate scope and extent of the effects of the covid-19 pandemic are highly uncertain and will depend on future developments , and such effects could exist for an extended period of time even after the pandemic may end . 46 for additional information on risk factors that could impact our results , please refer to “ risk factors ” in part i , item 1a of this form 10-k. principal factors affecting our results of operations our financial performance and results of operations are influenced by a variety of factors , including conditions in the residential , non-residential and infrastructure construction markets , general economic conditions , changes in cost of goods sold , competitive behavior in the markets we serve , and seasonality and weather conditions . some of the more important factors are discussed below , as well as in the section item 1a . “ risk factors , ” with the exception of the impacts of the covid-19 pandemic , which are discussed above . infrastructure spending and residential and non-residential construction activities a large proportion of our net sales in our drainage pipe & products segment is generated through public infrastructure projects , which are driven by federal , state and provincial funding programs . in the u.s. , federal funds are allocated to the states , which are required to match a portion of the federal funds they receive . federal highway spending uses funds predominantly from the federal highway trust fund , which derives its revenue from taxes on diesel fuel , gasoline and other user fees . the dependability of federal funding allows the state departments of transportation to plan for their long term highway construction and maintenance needs . funding for the existing u.s. federal transportation funding program extends through 2021. with the nation 's infrastructure aging , there is increased demand by states and municipalities for long-term federal funding to support the construction of new roads , highways and bridges in addition to the maintenance of the existing infrastructure . in addition to federal funding , state , county and local agencies provide highway construction and maintenance funding through various sources such as gas taxes . the ongoing covid-19 pandemic has resulted in high levels of unemployment and a slowdown in economic activities , mostly brought on by stay-at-home orders or partial shutdowns issued during 2020 by various state , county , city and local authorities across the country . the state and local transportation programs that depend on sales tax and gas tax revenues are also facing funding shortfalls . many states have delayed projects or cut capital programs in 2020. the american road and transportation builders association ( “ artba ” ) forecasts transportation construction activity to decline 5.5 percent in 2021 , and to resume growth in 2022 as economic conditions improve to pre-covid levels . a large proportion of our net sales in our water pipe & products segment is generated through municipal infrastructure projects . the u.s. potable water infrastructure , especially the underground pipes that deliver drinking water to homes and businesses , is aging and in need of significant reinvestment . like many of the roads , bridges , and other public assets on which the u.s. relies , most of the underground drinking water infrastructure was built 50 or more years ago , in the post-world war ii era of rapid demographic change and economic growth . in some older urban areas , many water mains have been in the ground for a century or longer . given its age , a large proportion of the u.s. water infrastructure is approaching , or has already reached , the end of its useful life . in some locations , improvements to water infrastructure are needed to comply with standards for drinking water quality . the american society of civil engineers estimates 240,000 water main breaks per year in the u.s. due to aging pipelines , wasting over two trillion gallons of treated drinking water . the underlying demand for municipalities to repair or replace their water systems depends on the status of the water systems and the availability of funding . with people spending more time at their homes in order to reduce the spread of the covid-19 virus , it is even more critical to ensure the uninterrupted supply of clean water . a relatively smaller proportion of our products has been closely tied to residential construction and non-residential construction activity in the united states and eastern canada . activity levels in these markets can be materially affected by general economic and global financial market conditions . in addition , residential construction activity levels are influenced by and sensitive to mortgage availability , the cost of financing a home ( in particular , mortgage and interest rates ) , unemployment levels , household formation rates , residential vacancy and foreclosure rates , existing housing prices , rental prices , housing inventory levels , consumer confidence and government policy and incentives . during 2020 , we saw a brief downturn in the housing market at the onset of 47 the pandemic , but it quickly rebounded and continued to grow throughout the remainder of 2020 , driven by improvements in economic activities , increased demand for single-family housing as more people work remotely , as well as historically low mortgage interest rates . non-residential construction activity is primarily driven by levels of business investment , availability of credit and interest rates , as well as many of the factors that impact residential construction activity levels . see item 1 “ business.
| the remaining increase in net sales was primarily related to our structural precast business and was driven by higher shipment volumes . gross profit gross profit in the year ended december 31 , 2020 was $ 211.6 million , an increase of $ 10.6 million or 5.3 % from $ 201.0 million in the year ended december 31 , 2019. the increase was primarily due to higher average selling prices , partially offset by lower shipment volumes of our pipe and precast products . water pipe & products net sales net sales in the year ended december 31 , 2020 were $ 707.1 million , an increase of $ 90.4 million or 14.7 % from $ 616.7 million in the year ended december 31 , 2019. the increase was primarily the combination of $ 76.2 million driven by higher average selling prices and $ 13.9 million driven by higher shipment volumes of our ductile iron pipe products . ductile-iron pipe sales accounted for more than 85 % of the net sales in this segment . gross profit gross profit in the year ended december 31 , 2020 was $ 165.1 million , an increase of $ 69.5 million or 72.7 % from $ 95.6 million in the year ended december 31 , 2019. the increase was primarily due to both higher average selling prices and higher shipment volumes . year ended december 31 , 2019 as compared to the year ended december 31 , 2018 total company the following table summarizes certain financial information relating to our operating results for the years ended december 31 , 2019 and december 31 , 2018 ( in thousands ) . replace_table_token_4_th * represents positive or negative change in excess of 100 % 53 net sales net sales for the year ended december 31 , 2019 were $ 1,529.8 million , an increase of $ 50.1 million or 3.4 % from $ 1,479.7 million for the year ended december 31 , 2018. the increase was the net effect of a $ 73.3 million increase in our drainage pipe & products segment primarily due to
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total deposits at december 31 , 2003 and 2002 were $ 407.8 million and $ 425.0 million , respectively , a decrease of $ 17.1 million , or 4.0 % in 2003. the decrease was primarily attributable to a decrease in certificates of deposits of $ 25.4 million partially offset by increases in demand accounts of $ 3.7 million and now accounts of $ 5.0 million . at december 31 , 2003 and 2002 , securities totaled $ 99.6 million and $ 107.0 million , respectively . the decrease in securities in 2003 was primarily due to an increase in normal pay-downs in the secondary market caused by the increase in refinancing activity due to the low interest rate environment . common shareholders ' equity was $ 36.4 million and $ 34.6 million at december 31 , 2003 and 2002 , respectively . the increase in common shareholder 's equity for the year ended december 31 , 2003 reflects earnings retention , partially offset by a decrease in the unrealized gain on securities available for sale , the purchase of treasury stock and payment of dividends . story_separator_special_tag of $ 88,000 or 3.0 % over the same period in 2002 and an increase of $ 191,000 or 7.1 % over the same period in 2001. securities gains decreased $ 192,000 , from $ 380,000 in 2002 to $ 188,000 in 2003. as to normal and recurring noninterest income , the company experienced a slight increase of 1.1 % to $ 5.1 million for the twelve months ended december 31 , 2003 and a 7.6 % increase to $ 5.1 million for the same period in 2002. the following table presents for the periods indicated the major categories of noninterest income : replace_table_token_8_th 24 noninterest expense for the years ended december 31 , 2003 , 2002 and 2001 , noninterest expense totaled $ 15.8 million , $ 14.7 million and $ 13.5 million , respectively . the $ 1.1 million , or 7.8 % , increase in 2003 was primarily the result of an increase in employee compensation and benefits . this increase was due to an increase in full time equivalent employees from 212 at december 31 , 2002 to 226 at december 31 , 2003 , normal salary adjustments , increased employee benefits , and payroll taxes . legal and professional fees increased $ 235,000 or 25.2 % in 2003 primarily due to litigation involving the lawsuit with the internal revenue service . the increase in total noninterest expense for 2002 compared with 2001 of $ 1.2 million , or 8.7 % , was primarily the result of increases in employee compensation and benefits . employee compensation and benefits increased from $ 7.6 million in 2001 to $ 8.7 million in 2002 , an increase of $ 1.1 million , or 14.7 % . this increase was due to an increase in full time equivalent employees from 199 at december 31 , 2001 to 212 at december 31 , 2002 , an increase in normal salary adjustments , increased bonus incentives , profit sharing contributions and payroll taxes . the company 's efficiency ratios , calculated by dividing total noninterest expense ( excluding securities gains and losses ) by net interest income plus noninterest income , was 71.75 % in 2003 , 68.79 % in 2002 , and 70.10 % in 2001. the following table presents for the periods indicated the major categories of noninterest expense : replace_table_token_9_th income taxes federal income tax is reported as income tax expense and is influenced by the amount of taxable income , the amount of tax-exempt income , the amount of non-deductible interest expense and the amount of other non-deductible expense . the company did not utilize tax benefits on leveraged lease transactions in 2003. the company utilized tax benefits on leveraged lease transactions in the amounts of $ 960,000 and $ 763,000 for 2002 and 2001 , respectively . the effective tax rates for 2003 , 2002 and 2001 were 28.11 % , 24.37 % and 31.39 % , respectively . income taxes for financial purposes in the consolidated statements of earnings differ from the amount computed by applying the statutory income tax rate of 34 % to earnings before income taxes . the difference in the statutory rate is primarily due to the tax benefits on the leveraged lease transactions and non-taxable income . 25 additionally , the state of texas imposes a texas franchise tax . taxable income for the income tax component of the texas franchise tax is the federal pre-tax income , plus certain officers ' salaries , less interest income from federal securities . total franchise tax expense was $ 38,000 in 2003 , $ 41,000 in 2002 and $ 50,000 in 2001. such expense was included as a part of other noninterest expense . impact of inflation the effects of inflation on the local economy and on the company 's operating results have been relatively modest for the past several years . since substantially all of the company 's assets and liabilities are monetary in nature , such as cash , securities , loans and deposits , their values are less sensitive to the effects of inflation than to changing interest rates , which do not necessarily change in accordance with inflation rates . the company tries to control the impact of interest rate fluctuations by managing the relationship between its interest rate sensitive assets and liabilities . see quantitative and qualitative disclosures about market risk below . financial condition loan portfolio ( including loans held for sale ) the company provides a broad range of commercial , real estate and consumer loan products to small and medium-sized businesses and individuals in its market areas . the company aggressively pursues qualified lending customers in both the commercial and consumer sectors , providing customers with direct access to lending personnel and prompt , professional service . the 89.6 % gross loan to deposit ratio as of december 31 , 2003 , reflects the company 's commitment as an active lender in the local communities it serves . story_separator_special_tag although the company , as did the industry , experienced a large amount of activity in refinancing of its loans into the secondary market , the company was able to book new loans to offset this run-off and ultimately showed no change in loan balances for the year 2003. total loans were $ 365.5 million and $ 365.6 million at december 31 , 2003 and 2002 , respectively , reflecting no change . in 2002 , total loans increased by $ 34.3 million , or 10.4 % to $ 365.6 million from $ 331.3 million at december 31 , 2001. the 2002 growth in loans , and the ability to maintain that level in 2003 , is reflective of a stable local economy , an aggressive advertising campaign , the company 's pro-lending reputation and the solicitation of new companies and individuals entering the company 's market areas . the following table summarizes the loan portfolio ( including loans held for sale ) of the company by type of loan as of the dates indicated : replace_table_token_10_th the primary lending focus of the company is on loans to small and medium-sized businesses and one-to- four family residential mortgage loans . the company 's commercial lending products include business loans , 26 commercial real estate loans , equipment loans , working capital loans , term loans , revolving lines of credit and letters of credit . most commercial loans are collateralized and on payment programs . the purpose of a particular loan generally determines its structure . in almost all cases , the company requires personal guarantees on commercial loans to help assure repayment . commercial the company 's commercial loans are primarily made within its market area and are underwritten on the basis of the borrower 's ability to service such debt from income . as a general practice , the company takes as collateral a lien on any available real estate , equipment , or other assets owned by the borrower and obtains a personal guaranty of the borrower . in general , commercial loans involve more credit risk than residential mortgage loans and commercial mortgage loans and , therefore , usually yield a higher return . the increased risk for commercial loans is due to the type of collateral securing these loans . the increased risk also derives from the expectation that commercial loans generally will be serviced principally from the business ' operations , and those operations may not be successful . as a result of these additional complexities , variables and risks , commercial loans require more thorough underwriting and servicing than other types of loans . in addition to commercial loans secured by real estate , the company makes commercial mortgage loans to finance the purchase of real property , which generally consists of real estate with completed structures . commercial mortgage lending typically involves higher loan principal amounts and the repayment of loans is dependent , in large part , on sufficient income from the properties securing the loans to cover operating expenses and debt service . as a general practice , the company requires its commercial mortgage loans to be secured by well-managed income producing property with adequate margins and to be guaranteed by responsible parties . the company 's commercial mortgage loans are generally secured by first liens on real estate . loans with fixed interest rates typically amortize over a 10 to 15 year period with balloon payments due at the end of one to five years . in underwriting commercial mortgage loans , consideration is given to the property 's operating history , future operating projections , current and projected occupancy , location and physical condition . the underwriting analysis also includes credit checks , appraisals and a review of the financial condition of the borrower and guarantor . construction the company makes loans to finance the construction of residential and , to a limited extent , nonresidential properties . construction loans generally are secured by first liens on real estate . the company conducts periodic inspections , either directly or through an agent , prior to approval of periodic draws on these loans . construction loans involve additional risks attributable to the fact that loan funds are advanced upon the security of a project under construction , and the project is of uncertain value prior to its completion . because of uncertainties inherent in estimating construction costs , the market value of the completed project and the effects of governmental regulation on real property , it can be difficult to accurately evaluate the total funds required to complete a project and the related loan to value ratio . as a result of these uncertainties , construction lending often involves the disbursement of substantial funds with repayment dependent , in part , on the success of the ultimate project rather than the ability of a borrower or guarantor to repay the loan . if the company is forced to foreclose on a project prior to completion , there is no assurance that it will be able to recover the entire unpaid portion of the loan . in addition , the company may be required to fund additional amounts to complete a project and may have to hold the property for an indeterminate period of time . 1-4 family residential the company offers a variety of mortgage loan products . the company 's loans collateralized by one-to-four family residential real estate generally are originated in amounts of no more than 90 % of the lower of cost or appraised value . the company generally requires mortgage title insurance and hazard insurance in the amount of the loan . of the mortgages originated , the company generally retains mortgage loans with short terms or variable rates and sells longer-term fixed-rate loans that do not meet the company 's credit underwriting standards . prior to the acquisition of first american in september 1999 , the company sold such loans to texas independent bank mortgage company ; however , since the first american acquisition , the company sells these loans directly into the secondary market .
| this resulted in net interest margins of 3.73 % and 3.46 % and net interest spreads of 3.31 % and 2.85 % for the years ended december 31 , 2002 and 2001 , respectively . the increase in net interest income for 2002 was primarily due to the decrease in cost of interest-bearing liabilities from 4.80 % in 2001 to 3.16 % in 2002. while the company had an increase in average loans of $ 40.2 million , or 13.3 % and average securities of $ 16.9 million , or 22.6 % , the impact of these increases were partially offset by lower yields on interest-earning assets which decreased from 7.65 % in 2001 to 6.47 % in 2002. the lower yields and lower costs of funds resulted from a decrease in prime rate during 2001 from 9.50 % to 4.75 % and a further reduction in 2002 from 4.75 % to 4.50 % . 21 the following table presents for the periods indicated the total dollar amount of interest income from average interest-earning assets and the resultant yields , as well as the interest expense on average interest-bearing liabilities , expressed both in dollars and rates . no tax equivalent adjustments were made and all average balances are derived from average daily balances . nonaccruing loans have been included in the tables as loans carrying a zero yield . replace_table_token_6_th 22 the following table presents the dollar amount of changes in interest income and interest expense for the major components of interest-earning assets and interest-bearing liabilities and distinguishes between the changes in interest income and interest expense related to changes in average outstanding balances and the volatility of interest rates . for purposes of this table , changes attributable to both rate and volume , which can be segregated , have been allocated proportionately to changes due to rate and changes due to volume . replace_table_token_7_th provision for loan losses the company 's provision for loan losses is established through charges to operating income in the form of the provision
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the 2010 amendments and waivers also permitted us to defer the payment of interest owed under $ 52.4 million of the notes until july 31 , 2011. effective july 31 , 2011 , we entered into individual amendments with the great american members that increased the principal amount of the promissory notes for the $ 1.8 million of accrued interest that was due to them on july 31 , 2011. the addition to the principal amount will accrue interest at the note rate of 3.75 % and continue to be subject to annual prepayments based upon our cash flow and the maintenance of a minimum adjusted cash balance as provided in the notes prior to the capitalization of the accrued interest . we are not required to make any principal prepayments under these notes for the fiscal years ended december 31 , 2010 and 2011. also effective july 31 , 2011 , we entered into agreements permitting us to defer payment of $ 1.4 million in interest owed to the phantom equityholders from july 31 , 2011 to the fourth quarter of 2011. as of december 31 , 2012 , there was $ 48.8 million in aggregate principal amount outstanding under the notes payable to the great american members and $ 3.4 million in aggregate principal amount outstanding under the notes payable to the phantom equityholders . of this amount , $ 50.9 million accrues interest at 3.75 % and $ 1.3 million accrues interest at 12.0 % . overview we are a leading provider of asset disposition , valuation and appraisal , and real estate consulting services to a wide range of retail , wholesale and industrial clients , as well as lenders , capital providers , private equity investors and professional service firms throughout the united states , canada and the united kingdom . we operate our business in three segments : auction and liquidation solutions , valuation and appraisal services and uk retail stores . our auction and liquidation segment seeks to assist clients in maximizing return and recovery rates through the efficient disposition of assets and provide clients with capital advisory , financing and real estate services . such assets include multi-location retail inventory , wholesale inventory , trade fixtures , machinery and equipment , intellectual property and real property . our valuation and appraisal services segment provides our clients with independent appraisals in connection with asset-based loans , acquisitions , divestitures and other business needs . these services are provided to a wide range of retail , wholesale and industrial companies , as well as lenders , capital providers , private equity investors and professional service firms throughout the united states , canada and the united kingdom . our uk retail stores segment was created from our investment in shoon trading limited ( “ shoon ” ) in may 2012. this new segment is complementary to the expansion of our auction and liquidation business in the united kingdom and strategically supports our efforts in that market . the operating results of our uk retail stores segment includes the operations of ten retail shoe stores in the united kingdom acquired in our acquisition of shoon on may 4 , 2012. the financial statements in this annual report are presented in a manner consistent with our operating structure . for additional information regarding our operating segments , see note 19 of the notes to our consolidated financial statements . our significant industry experience and network of highly skilled employees and independent contractors allow us to tailor our auction and liquidation solutions to the specific needs of a multitude of clients , logistical challenges and distressed circumstances . we have established appraisal and valuation methodologies and practices in a broad array of asset categories which have made us a recognized industry leader . furthermore , our scale and pool of resources allow us to offer our services on a nationwide basis . together with our predecessors , we have been in business since 1973. for over 39 years , we and our predecessors have provided retail , wholesale and industrial auction and liquidation solutions to clients . past clients include boeing , apple computers , blockbuster video , borders group , circuit city , comet , friedman 's jewelers , mervyns , tower records , tj hughes , hancock fabrics , movie gallery , linens n things , kmart , sears , whitehall jewelers and fortunoff . since 1995 , we have participated in liquidations involving over $ 25 billion in aggregate asset value and auctioned assets with an estimated aggregate value of over $ 6 billion . 23 historically , revenues from our auction and liquidation segment have comprised a significant amount of our total revenues and operating profits . during the years ended december 31 , 2012 , 2011 and 2010 , revenues from our auction and liquidation segment were 57.5 % , 64.1 % and 49.9 % of total revenues . our profitability in each reporting period is impacted by the number and size of retail liquidation engagements we perform on a quarterly or annual basis . revenues from liquidation service contracts and financing activities to two retailers represented 20.4 % of our total revenues during the year ended december 31 , 2012. revenues from two liquidation contracts represented 26.9 % of our total revenues during the year ended december 31 , 2011. our revenues in the auction and liquidation segment during the year ended december 31 , 2010 were negatively impacted by fewer liquidation engagements during the year as economic conditions for retailers and credit markets improved from the prior years . our valuation and appraisal services division provides valuation and appraisal services to financial institutions , lenders , private equity investors and other providers of capital . these services primarily include the valuation of assets ( i ) for purposes of determining and monitoring the value of collateral securing financial transactions and loan arrangements and ( ii ) in connection with potential business combinations . our valuation and appraisal services divisions operate through limited liability companies that are majority owned by us . story_separator_special_tag our clients include major financial institutions such as bank of america , credit suisse , ge capital , jpmorgan chase , union bank of california , and wells fargo . our clients also include private equity firms such as apollo management , goldman sachs capital partners , laurus funds , sun capital partners and ubs capital . in september 2008 , we partnered with kelly capital to launch great american real estate , llc through which we and kelly capital conduct public auctions of foreclosed residential real estate and market residential and commercial loan sales to third parties on behalf of financial institutions and other private parties . we commenced auctions for foreclosed residential real estate properties in the fourth quarter of 2009 and we commenced residential and commercial loan sales to third parties on behalf of financial institutions and other private parties in the first quarter of 2010. during 2010 , the market for providers of services for foreclosed residential real estate properties was challenging and we incurred losses from our equity investment in great american real estate , llc of $ 1.6 million . the flow of new inventory of residential home foreclosures into the market was impacted by legislation at the state and federal levels . this impacted our ability to establish new relationships as the auction broker with major financial institutions , lenders , portfolio managers and investment firms , which hold title to foreclosed homes . during the fourth quarter of 2010 , we limited operations of the joint venture with kelly capital to the sale of certain residential and commercial loan sales that the joint venture purchased through an investment with a third party . during the year ended december 31 , 2012 and 2011 , we incurred a loss from our equity investment in great american real estate , llc of $ 0.1 million and $ 0.4 million , respectively . in april 2009 , we expanded our operations into europe by opening an office in the united kingdom . in 2010 , we hired a number of key employees to increase our presence and expand the operations of our retail liquidations solutions business throughout europe . because of the difference in the legal regime in which retailers operate in the united kingdom , our business activities in the united kingdom may frequently involve lending activities that includes the acquisition of debt of distressed retailers from banks and finance companies at a discount to face value . revenues from services , fees and financing activities from our auction and liquidation segment and valuation and appraisal services segment in the united kingdom increased to $ 23.5 million during the year ended december 31 , 2012 from $ 11.6 million during the year ended december 31 , 2011 and from $ 0.6 million during the year ended december 31 , 2010. during 2012 , revenues of $ 17.1 million were generated from lending activities to one retailer and liquidation services we provided to another retailer in the united kingdom . during 2011 , revenues of $ 8.1 million were generated from two retail liquidation service engagements conducted in the united kingdom . in october 2009 , we formed ga capital , llc ( “ ga capital ” ) , a majority owned subsidiary of the company . ga capital focuses on services to retailers that are in need of junior secured loans for growth capital , working capital , and turnaround financing as part of our auction and liquidation segment . ga capital advises borrowers and sources loans between $ 10 million and $ 100 million secured by collateral assets of the borrowers , including inventory , accounts receivable , real estate and intellectual property . during the years ended december 31 , 2012 , 2011 and 2010 , revenues from capital advisory services performed by our ga capital operations were $ 0.4 million , $ 7.3 million and $ 2.6 million , respectively . the decrease in revenues from capital advisory services in 2012 was primarily due to a decrease in fees earned from loan origination activity in 2012 and contingent fees that were earned in 2011 from the prepayment of previously originated loans where we acted as an advisor . in january 2011 , the keen consultants ' real estate team joined us and is operating as ga keen realty advisors . this newly formed division provides real estate analysis , valuation and strategic planning services , brokerage , mergers and acquisition , auction services , lease restructuring services , and real estate capital market services as part of our auction and liquidation segment . ga keen realty advisors offers services to property owners , tenants , secured and unsecured creditors , attorneys , and financial advisors . during the year ended december 31 , 2012 , revenues from real estate services increased to $ 6.7 million from $ 1.4 million during the year ended december 31 , 2011. the increase in real estate services in 2012 is primarily due to the increase in the size and the number of real estate engagements performed in 2012 . 24 during the year ended december 31 , 2012 , we generated $ 17.1 million revenues from lending activities to tj hughes limited , a 57 store department chain , and revenues from liquidation services provided to comet , a 236 store electronics chain , both in the united kingdom . during the year ended december 31 , 2011 , we generated $ 17.1 million of revenues from the liquidation engagement for tj hughes limited and our participation in a joint venture involving the liquidation of borders group , inc. , a going-out-of-business sale for all 399 remaining borders bookstore locations . in august 2012 , we were engaged to participate in a joint venture involving the liquidation of inventory for the going-out-of-business sale of 568 fashion bug clothing store locations in the united states . the joint venture provided fashion bug with a minimum guarantee of amounts to be realized from the liquidation of the inventory .
| the increase in revenues from financing activities was primarily due to interest income , amortization of discount , and monitoring fees earned and collected in 2012 on a loan to a retailer in the united kingdom . the increase in revenues from our ga keen realty advisors division in 2012 was due to an increase in the size and number of engagements where we provided real estate consulting services as compared to the same period in 2011. the decrease in revenues from capital advisory fees was primarily due to a decrease in fees earned from loan origination activity in 2012 and contingent fees earned in 2011 from the prepayment of previously originated loans where we acted as an advisor . the increase in revenues of $ 2.7 million in the valuation and appraisal services segment was primarily due to an increase in revenues of $ 0.9 million related to appraisals for machinery and equipment and an increase in revenues of $ 1.8 million for appraisal engagements where we perform valuations for the monitoring of collateral for financial institutions , lenders , and private equity investors . revenues from gross sales of goods increased to $ 18.3 million during the year ended december 31 , 2012 from $ 2.9 million during the year ended december 31 , 2011 , primarily due to a increase in revenues in our uk retail stores segment as a result of the acquisition of shoon on may 4 , 2012 as more fully discussed below . revenue and gross margin by segment ( dollars in thousands ) auction and liquidation segment : replace_table_token_5_th revenues in the auction and liquidation segment increased $ 7.5 million to $ 48.2 million during the year ended december 31 , 2012 from $ 40.7 million during the year ended december 31 , 2011. the increase in revenues in the auction and liquidation segment in 2012 was primarily due to ( a ) an increase in revenues of $ 5.2 million from the auction of wholesale and industrial equipment , which included revenues of $ 1.7 million from the sale of one oil rig from the exercise of the lease purchase
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each of the segments are projected to achieve stable to improved operating margins through net productivity savings in 2017 , including from procurement and overhead programs . on a company-wide basis , management has established and is committed to achieving the following specific goals in 2017 : improving adjusted ebitda ( 1 ) margin ( 2 ) excluding costs associated with the separation transaction by approximately 130 basis points to 15 % ; achieving return on net assets ( rona ) ( 2 ) of approximately 9 % , or 190 basis points better than 2016 ; spending no more than $ 650 on capital expenditures ; reducing debt by $ 1,000 ; and generating cash from operations that will exceed capital expenditures by a minimum of $ 350 . ( 1 ) adjusted ebitda ( earnings before interest , taxes , depreciation , and amortization ) is calculated as net margin plus an add-back for depreciation and amortization . net margin is equivalent to sales minus the following items : cost of goods sold ; selling , general administrative , and other expenses ; research and development expenses ; and provision for depreciation and amortization . ( 2 ) expectations for adjusted ebitda margin and rona on a forward-looking basis are being provided , however , a reconciliation of the differences between the non-gaap expectations and the corresponding gaap measures generally is not available without unreasonable effort . results of operations story_separator_special_tag style= '' margin-top:12px ; margin-bottom:0px '' > in 2016 , management made the decision to exit certain legacy firth rixson facilities in the u.k. costs related to these actions included asset impairments and accelerated depreciation of $ 51 ; other exit costs of $ 4 ; and $ 2 for the separation of 60 employees . also in 2016 , management approved the shutdown and demolition of the can sheet facility in tennessee upon completion of the toll processing and services agreement with alcoa corporation ( see global rolled products in segment information below ) . costs related to this action included $ 21 in asset impairments ; $ 9 in other exit costs ; and $ 7 for the separation of 145 employees . the other exit costs of $ 9 represent $ 4 in asset retirement obligations and $ 3 in environmental remediation , both of which were triggered by the decision to permanently shut down and demolish the can sheet facility in tennessee , and $ 2 in other exit costs . as of december 31 , 2016 , approximately 880 of the 1,800 employees were separated . the remaining separations for 2016 restructuring programs are expected to be completed by the end of 2017. in 2016 , cash payments of $ 16 were made against layoff reserves related to 2016 restructuring programs . 2015 actions . in 2015 , arconic recorded restructuring and other charges of $ 214 ( $ 192 after-tax ) , which were comprised of the following components : a $ 136 ( $ 134 after-tax ) net loss related to the march 2015 divestiture of a rolling mill in russia and post-closing adjustments associated with the december 2014 divestitures of three rolling mills located in spain and france ; $ 97 ( $ 70 after-tax ) for layoff costs , including the separation of approximately 1,505 employees ( 425 in the transportation and construction solutions segment , 590 in the engineered products and solutions segment , 90 in the global rolled products segment , and 400 in corporate ) ; an $ 18 ( $ 13 after-tax ) gain on the sale of land related to one of the rolling mills in australia that was permanently closed in december 2014 ( see 2014 actions below ) ; a net charge of $ 7 ( $ 4 after-tax ) for other miscellaneous items ; and $ 8 ( $ 3 after-tax ) for the reversal of a number of small layoff reserves related to prior periods . as of december 31 , 2016 , approximately 1,100 of the 1,240 ( previously 1,505 ) employees were separated . the total number of employees associated with 2015 restructuring programs was updated to reflect employees , who were initially identified for separation , accepting other positions within arconic and natural attrition . the remaining separations for 2015 restructuring programs are expected to be completed by the end of 2017. in 2016 and 2015 , cash payments of $ 55 and $ 18 , respectively , were made against layoff reserves related to 2015 restructuring programs . 2014 actions . in 2014 , arconic recorded restructuring and other charges of $ 314 ( $ 249 after-tax ) , which were comprised of the following components : $ 154 ( $ 107 after-tax ) for exit costs related to the decision to permanently shut down and demolish two rolling mills ( see below ) ; a $ 111 ( $ 112 after-tax ) net loss primarily for the divestitures of three rolling mills in spain and france ; $ 49 ( $ 28 after-tax ) for other layoff costs , including the separation of approximately 1,035 employees ( 470 in the engineered products and solutions segment , 410 in the transportation and construction 41 solutions segment , 45 in the global rolled products segment , and 110 in corporate ) ; a net charge of $ 10 ( $ 7 after-tax ) for other miscellaneous items ; and $ 10 ( $ 5 after-tax ) for the reversal of a number of layoff reserves related to prior periods . in early 2014 , management approved the permanent shutdown of arconic 's two rolling mills in australia , point henry and yennora . this decision was made due to the significant impact of excess can sheet capacity in both australia and asia . story_separator_special_tag the two rolling mills had a combined can sheet capacity of 200,000 metric-tons-per-year and were closed by the end of 2014. costs related to the shutdown of the two rolling mills included $ 56 for the separation of approximately 470 employees ; accelerated depreciation of $ 58 as the rolling mills continued to operate during 2014 ; asset impairments of $ 7 representing the write-off of the remaining book value of all related properties , plants , and equipment ; and $ 33 in other exit costs . additionally , in 2014 , remaining inventories , mostly operating supplies and raw materials , were written down to their net realizable value , resulting in a charge of $ 13 ( $ 9 after-tax ) , which was recorded in cost of goods sold on the accompanying statement of consolidated operations . the other exit costs of $ 33 represent $ 18 in environmental remediation and $ 8 in asset retirement obligations , both of which were triggered by the decisions to permanently shut down and demolish the aforementioned structures in australia , and $ 7 in other related costs , including supplier and customer contract-related costs . demolition and remediation activities related to the two rolling mills began in mid-2015 and are expected to be completed by the end of 2018. as of december 31 , 2016 , the separations associated with 2014 restructuring programs were essentially complete . in 2016 , 2015 , and 2014 , cash payments of $ 3 , $ 27 , and $ 54 , respectively , were made against layoff reserves related to 2014 restructuring programs . arconic does not include restructuring and other charges in the results of its reportable segments . the pretax impact of allocating such charges to segment results would have been as follows : replace_table_token_12_th interest expense interest expense was $ 499 in 2016 compared with $ 473 in 2015. the increase of $ 26 , or 5 % , was primarily due to debt issuance costs of $ 9 that were expensed in connection with the separation transaction and costs associated with the early redemption of $ 750 of 5.55 % notes due february 2017 , completed on december 30 , 2016 , which included a $ 3 purchase premium , and a full-year of interest related to rti international metals , inc. ( rti ) debt of $ 6. interest expense was $ 473 in 2015 compared with $ 442 in 2014. the increase of $ 31 , or 7 % , was primarily due to an 8 % higher average debt level , somewhat offset by the absence of fees paid associated with the execution and termination of a 364-day senior unsecured bridge term loan facility related to the then-planned acquisition of firth rixson ( $ 13see engineered products and solutions in segment information below ) . the higher average debt level was mostly attributable to higher outstanding long-term debt due to the september 2014 issuance of $ 1,250 in 5.125 % notes , the proceeds of which were used to pay a portion of the purchase price of the firth rixson acquisition . other income , net other income , net was $ 94 in 2016 compared with $ 28 in 2015. the increase of $ 66 was mainly the result of a favorable adjustment to the contingent earn-out liability and a post-closing adjustment , both of which related to the november 2014 acquisition of firth rixson ( $ 76 ) , and favorable foreign currency movements ( $ 55 ) . these items were partially offset by the absence of gains on the sales of land in the united states and equity investment in a china rolling mill ( $ 38 ) in 2015. other income , net was $ 28 in 2015 compared with $ 5 in 2014. the increase of $ 23 was mainly the result of a gain on the sale of land around arconic 's former sherwin , tx refinery site ( $ 19 ) and the remaining equity investment in a 42 china rolling mill ( $ 19 ) and a favorable change in deferred compensation . these items were somewhat offset by the absence of a gain on a portion of an equity investment in a china rolling mill ( $ 14 ) and an unfavorable change in the cash surrender value of company-owned life insurance . income taxes arconic 's effective tax rate was 356.5 % ( provision on income ) in 2016 compared with the u.s. federal statutory rate of 35 % . the effective tax rate differs from the u.s. federal statutory rate primarily due to a $ 1,267 discrete income tax charge for valuation allowances related to the separation transaction ( see income taxes in critical accounting policies and estimates below ) , a $ 95 tax charge associated with the redemption of company-owned life insurance policies whose tax basis was less than the redemption amount resulting in a taxable gain , a $ 51 net charge for the remeasurement of certain deferred tax assets and liabilities due to tax rate and tax law changes , a $ 34 unfavorable tax impact related to certain separation costs which are nondeductible for income tax purposes , somewhat offset by a $ 39 discrete income tax benefit for the release of valuation allowances in canada and russia , a $ 38 tax benefit related to currency impacts of a distribution of previously taxed income , and a $ 26 favorable tax impact associated with non-taxable settlement proceeds and earn-out liability adjustments in connection with the firth rixson acquisition . arconic 's effective tax rate was 185.2 % ( provision on income ) in 2015 compared with the u.s. federal statutory rate of 35 % .
| the decrease was primarily due to the absence of sales related to capacity that was closed or sold in the global rolled products segment ( see global rolled products in segment information below ) , a lower average realized price for aluminum in the global rolled products segment and unfavorable foreign currency movements across all segments . these negative impacts were partially offset by the addition of sales from three acquired businesses ( see engineered products and solutions in segment information below ) , higher volume across all segments , and favorable product mix in the global rolled products segment . 39 cost of goods sold ( cogs ) cogs as a percentage of sales was 79.2 % in 2016 compared with 81.4 % in 2015. the primary drivers in the improvement in cogs as a percentage of sales were productivity gains across all segments and higher volume in the engineered products and solutions segment due to the benefit of a full-year effect of two 2015 acquisitions . this benefit was somewhat offset by overall cost increases across all segments and unfavorable pricing and product mix impacts primarily in the engineered products and solutions and global rolled products segments . cogs as a percentage of sales was 81.4 % in 2015 compared with 82.5 % in 2014. the percentage was favorably impacted by net productivity improvements and higher volume across all segments and a favorable lifo ( last in , first out ) adjustment due to lower prices for aluminum in the global rolled products segment . these positive impacts were partially offset by unfavorable price and product mix across all segments and higher costs . selling , general administrative , and other expenses ( sg & a ) sg & a expenses were $ 942 , or 7.6 % of sales , in 2016 compared with $ 765 , or 6.2 % of sales , in 2015. the increase in sg & a was primarily due to costs related to the separation transaction of
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inputs into the binomial lattice method include expected volatility , interest rate , and probabilities of a voluntary exercise of the warrants as well as the probability of major transaction ( i.e . company sale ) . the inputs to determine the value of the warrants in the binomial lattice model require significant accounting judgment and estimates . stock-based compensation the company maintains stock-based incentive plans , under which it provides stock incentives to employees , directors and contractors . the company grants to employees , directors and contractors , options to purchase common stock at an exercise price equal to the market value of the stock at the date of grant . the company grants restricted stock to employees . the underlying shares of the restricted stock grant are not issued until the shares vest , and compensation expense is based on the stock price of the shares at the time of grant . the company follows asc 718 , compensation stock compensation , ( asc 718 ) , for all stock-based compensation . 47 the company uses the black-scholes option pricing model to value stock options which requires extensive use of accounting judgment and financial estimates , including estimates of the expected term participants will retain their vested stock options before exercising them , the estimated volatility of its common stock price over the expected term , and the number of options that will be forfeited prior to the completion of their vesting requirements . fair value of restricted stock is determined based on the stock price of the underlying option on the date of the grant . application of alternative assumptions could produce significantly different estimates of the fair value of stock-based compensation and consequently , the related amounts recognized in the consolidated statements of operations . income taxes the company follows the liability method under asc 740 , income taxes ( asc 740 ) . the primary objectives of accounting for taxes under asc 740 are to ( a ) recognize the amount of tax payable for the current year and ( b ) recognize the amount of deferred tax liability or asset for the future tax consequences of events that have been reflected in the company 's financial statements or tax returns . the company has provided a full valuation allowance against its deferred tax assets at december 31 , 2013 and 2012 as it is more likely than not that the deferred tax asset will not be realized . asc 740-10 clarifies the accounting for uncertainty in income taxes recognized in an enterprise 's financial statements and 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 . asc 740-10 also provides guidance on de-recognition , classification , interest and penalties , disclosure and transition . in addition , uncertain tax positions and tax related valuation allowances assumed in connection with a business combination are initially estimated as of the acquisition date and the company revaluates these items quarterly , with any adjustments to preliminary estimates being recorded to goodwill , provided that the company is within the measurement period ( which may be up to one year from the acquisition date ) and continues to collect information in order to determine their estimated values . subsequent to the measurement period or final determination of the tax allowance 's or contingency 's estimated value , changes to these uncertain tax positions and tax related valuation allowances may affect the provision for income taxes presented in the company 's statement of operations . year ended december 31 , 2013 compared to year ended december 31 , 2012 revenue . revenue for the year ended december 31 , 2013 was $ 33.1 million compared with revenue of $ 28.3 million for the year ended december 31 , 2012 , an increase of $ 4.8 million or 16.9 % . therapy revenue increased $ 5.2 million and detection revenue decreased $ 0.4 million . 48 the table below presents the components of revenue for 2013 and 2012 : replace_table_token_3_th detection revenues decreased slightly by $ 0.4 million from $ 17.3 million for the year ended december 31 , 2012 to $ 16.9 million for the year ended december 31 , 2013. detection product revenue decreased $ 1.4 million offset by an increase in service revenue of $ 1.0 million . the decrease in detection product revenue is primarily due to a $ 0.9 million decrease in film-based revenue , and a $ 0.5 million decrease in digital revenues . the decrease in digital revenue was driven by decreases in demand for digital cad systems primarily from our oem customers . the decline in revenue from film-based products and accessories was the result of the decreasing market for film based products as most customers have transitioned to digital technologies . detection service and supplies revenue increased $ 1.0 million primarily due to an increase in the number of customers with a service contract , offset by a decline in customer with analog service contracts . therapy revenue increased 46.8 % or $ 5.2 million to $ 16.2 million for the year ended december 31 , 2013 from $ 11.0 million in the year ended december 31 , 2012. the increase in therapy revenue was driven by an increase in therapy product revenue of $ 2.9 million and an increase in therapy service revenue of $ 2.2 million . the increase in therapy product revenue for the year ended december 31 , 2013 is due primarily to an increase in number of xoft ebx systems sold , which increased by 14 units , representing approximately $ 2.6 million , an increase of 12 systems as compared to the fiscal year ended december 31 , 2012. the use of the xoft ebx system in the treatment of non-melanoma skin cancer contributed to the growth in 2013 , and we believe this will continue to be an important market for the growth of therapy product revenue . story_separator_special_tag applicators , which are typically sold with the xoft ebx system accounted for an increase of approximately $ 0.3 million . the increase in therapy service revenue of $ 2.2 million for the year ended december 31 , 2013 is due an increase in the number of customers and associated service and source contracts purchased by our growing install base . service and supply revenue is expected to increase as the sales of xoft ebx systems increase . 49 gross margin . gross margin was $ 23.1 million for the year ended december 31 , 2013 compared to $ 20.0 million for the year ended december 31 , 2012 , an increase of $ 3.1 million , due primarily to an increase in therapy gross margin of $ 3.4 million from $ 6.1 million in the year ended december 31 , 2012 to $ 9.5 million in the year ended december 31 , 2013. this increase was offset by a decrease of $ 0.3 million from $ 13.9 million in the year ended december 31 , 2012 to $ 13.6 million in the year ended december 31 , 2013 in detection gross margin . the increase in therapy gross margin was due primarily to the increase in therapy revenue . gross margin percent was 69.8 % for the year ended december 31 , 2013 compared to 70.8 % for the year ended december 31 , 2012. gross margin percent decreased slightly by 1.0 % , due primarily to the $ 0.5 million impact of the medical device excise tax which was enacted in 2013. gross margin will fluctuate due to the costs related to manufacturing , amortization and the impact of product mix in each segment . cost of revenue and gross margin for 2013 and 2012 were as follows ( in thousands ) : replace_table_token_4_th operating expenses : operating expenses for 2013 and 2012 are as follows ( in thousands ) : replace_table_token_5_th engineering and product development . engineering and product development costs for the year ended december 31 , 2013 decreased by $ 75,000 or 1.0 % , from $ 7.8 million in 2012 to $ 7.7 million in 2013. therapy engineering and product development costs increased by approximately $ 180,000 offset by a decrease of $ 255,000 in the detection segment . clinical trial and research expenses in the therapy segment increased by approximately $ 0.2 million which was offset by decreases in consulting and subcontracting in the detection segment of $ 0.3 million . 50 marketing and sales . marketing and sales expense for the year ended december 31 , 2013 decreased by $ 0.3 million or 2.6 % , from $ 10.7 million in 2012 to $ 10.4 million in 2013. therapy marketing and sales expenses increased approximately $ 0.5 million offset by a decrease of $ 0.8 million in the detection segment . the decrease in marketing and sales expense was due primarily to a decrease in personnel , travel advertising and trade show expenses in the detection segment offset by increases in sales and personnel expenses in the therapy segment . general and administrative . general and administrative expenses for the year ended december 31 , 2013 decreased by $ 0.2 million or 3.2 % , from $ 6.9 million in 2012 to $ 6.7 million in 2013. the reduction in general and administrative expenses was primarily due to a reduction in amortization expenses for assets fully amortized , consulting , and franchise taxes . other income and expense replace_table_token_6_th the company recorded $ 3.3 million of interest expense in 2013 as compared with $ 3.4 million of interest expense during the year ended december 31 , 2012. the decrease in interest expense is due to a decrease of $ 0.1 million related to the accretion of the settlement liabilities with zeiss and hologic . interest expense related to the deerfield financing was $ 3.0 million for each of the years ended december 31 , 2013 and december 31 , 2012. the loss from the change in the fair value of the warrant in 2013 was due primarily to the increase in the stock price of the company offset by a decrease in volatility during 2013. the warrants were issued in connection with the financing closed in january 2012 and are recorded at fair value using the binomial lattice method . year ended december 31 , 2012 compared to year ended december 31 , 2011 revenue . revenue for the year ended december 31 , 2012 was $ 28.3 million compared with revenue of $ 28.7 million for the year ended december 31 , 2011 , a decrease of $ 0.4 million or 1.3 % . therapy revenue increased $ 5.1 million , which almost offset the decline in detection revenue of $ 5.5 million . 51 the table below presents the components of revenue for 2012 and 2011 : replace_table_token_7_th therapy product revenue increased 119.1 % to $ 8.1 million for the year ended december 31 , 2012 from $ 3.7 million in the year ended december 31 , 2011. we believe the increase in demand for ebx systems resulted from increased awareness , additional clinical trial data and an increase in reimbursement rates for customers treating patients . therapy service revenues increased by $ 707,000 or 32.5 % to $ 2.9 million in the year ended december 31 , 2012 from $ 2.2 million in the year ended december 31 , 2011. the increase in the therapy service revenue was due primarily to increased use of supplies as customers treatment volumes increased .
| the company does not expect to renew the lease in the ohio facility , which will expire in april 2014. the company does not expect any reduction in its research and development workforce as a result of the lease termination . critical accounting policies the company 's discussion and analysis of its financial condition , results of operations , and cash flows are based on its consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these 42 financial statements requires the company to make estimates and judgments that affect the reported amounts of assets , liabilities , revenue and expenses , and related disclosure of contingent assets and liabilities . on an on-going basis , the company evaluates these estimates , including those related to revenue recognition , allowance for doubtful accounts , inventory valuation and obsolescence , intangible assets , goodwill , warrants , income taxes , contingencies and litigation . additionally , the company uses assumptions and estimates in calculations to determine stock-based compensation and the value of warrants . the company bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . the company 's critical accounting policies include : revenue recognition ; allowance for doubtful accounts ; inventory ; valuation of long-lived and intangible assets ; goodwill ; warrants stock based compensation ; and income taxes . revenue recognition the company recognizes revenue primarily from the sale of products and from the sale of services and supplies . revenue is recognized when delivery has occurred , persuasive evidence of an arrangement exists , fees are fixed or determinable and collectability of the related receivable is probable . for product revenue , delivery has occurred upon shipment provided title and risk of loss has passed to the customer . services
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see financial statements and supplementary data – note 2 – acquisitions and divestitures under part ii , item 8 in this form 10-k for additional information on acquisitions . our financial condition , cash flow and results of operations are significantly affected by the volume of our oil , ngls and natural gas production and the prices that we receive for such production . our production volumes for 2014 were comprised of approximately 41 % oil and condensate , 12 % ngls and 47 % natural gas , determined using the energy-equivalent ratio of six mcf of natural gas to one barrel of crude oil , condensate or ngls . the energy-equivalent ratio does not assume price equivalency , and the energy-equivalent prices per mcfe for oil , ngls and natural gas may differ significantly . for 2014 , our combined total production of oil , ngls and natural gas was consistent with 2013 , as we had new production from recently drilled wells and acquisitions , partially offset by various pipeline outages , platform outages and maintenance shut-ins offshore and weather onshore . during 2013 , sales volumes also benefited from new wells that were brought on line along with production from acquisitions . the year 2013 was also negatively impacted by various pipeline outages , shut downs for maintenance , tropical storm karen and various operational issues . during 2012 , sales volumes were negatively impacted by various pipeline outages , hurricane isaac and tropical storm debbie . our realized prices received for our crude oil , ngls and natural gas production are affected by not only domestic production activities and political issues , but more importantly , international events , including both geopolitical and economic events . for the first nine months of 2014 , wti and brent crude oil prices averaged above $ 100 per barrel . in fact , crude oil prices have averaged over $ 90 per barrel for wti and $ 100 per barrel for brent for the last four years . this in turn has led to significant cost inflation in the oil and gas services industry . crude oil prices have fallen dramatically recently from a peak of $ 107 per barrel for wti in june 2014 to the low $ 50s per barrel in december 2014 and the mid $ 40s per barrel during january 2015. the current market imbalance is predominantly supply driven caused by a number of issues that are described below : the u.s. energy information administration 's ( “ eia ” ) data estimates the worldwide supply of crude oil will outpace consumption in 2014 by approximately 800,000 barrels per day . for 2015 and 2016 , eia forecasts crude oil supply being above consumption by approximately 600,000 and 100,000 barrels per day , respectively , which is expected to keep downward pressure on prices . worldwide storage capacity exists for the excess oil in the next two years but this is only a temporary solution that has historically led to lower prices . the extreme rapid decrease in crude oil prices appears to be due to supply-side growth . over the past five years , supply has increased at 1.7 % per year , while consumption increased 1.5 % per year . over the five year period , 2014 had the largest market imbalance , with supply increasing 2.3 % compared to demand increasing at 1.0 % . for 2014 , production growth from countries outside of opec grew at a record high of 2.0 million barrels per day over 2013 , of which the u.s. grew production 1.6 million barrels per day and canada grew production 0.3 million barrels per day . opec production was relatively flat for 2014 compared to 2013. opec members have taken no actions to reduce supplies and saudi arabia has made statements that it intends to protect its market share regardless of the price of crude oil . many countries , such as russia , iraq , iran , venezuela , have economies that are highly ( or solely ) dependent on oil revenues and do not have significant cash reserves like saudi arabia . these countries are not able to reduce production to wait for higher prices in the future ; therefore , these types of countries would not have the economic ability to withstand lower production , which would further hurt their economies and continue to pressure crude oil prices . iran , which has suffered under economic sanctions imposed by the united states and other nato countries , is ramping up its production further exacerbating the excess crude oil supply situation . while many u. s. producers have reduced capital budgets for 2015 compared to 2014 , the u.s. producers have projected constant or increased production of crude oil for 2015. eia estimates u.s. petroleum and other liquids production for 2014 , 2015 and 2016 to be 14.0 , 14.8 and 15.4 million barrels per day , respectively , and estimates canada 's petroleum and other liquids production for 2014 , 2015 and 2016 to be 4.4 , 4.5 and 4.7 million barrels per day , respectively . the increasing strength in the u.s. dollar relative to other currencies has also had an impact on crude pricing . because all barrels are traded in u.s. dollars , as the u.s. dollar gains strength , crude prices are lower in u.s. dollars but are more expensive in other currencies . 52 while the expectations of consumption growth have been lowered , consumption did grow in 2014 and is projected to grow over the next two years . world-wide consumption growth of petroleum and other liquid products was estimated by eia to be 1.0 % , 1.1 % and 1.1 % for 2014 , 2015 and 2016 , respectively . china and the u.s. are projected to be the leading contributors to world-wide growth for the next two years and russia is projected to have the largest reduction in consumption in the next two years due to an economic downturn . story_separator_special_tag based on the above , crude oil supply is expected by many commentators to exceed demand over the next two years . accordingly , we expect that prices will continue to stay depressed until such time as demand grows to meet supply or depressed prices drive producers to cut back production . in addition to u.s. crude oil production , another factor affecting the price of domestic crude oil is the ability to get production to market . over the past few years , the infrastructure ( both pipeline and rail ) to transport crude oil within the united states has seen a major and rapid change . a number of pipelines have been built and completed , reversed flowed , or expanded to move crude oil from cushing , oklahoma ( a major crude oil storage hub ) primarily to the u.s. gulf coast but also to the midwest as well . transportation capacity has also been added in major producing regions , like the permian basin , to move crude oil to the u.s. gulf coast rather than to cushing . both of these events have helped relieve the excess crude oil that built up in cushing , which in turn allowed wti pricing to increase relative to brent . up to the fourth quarter of 2013 , wti traded at a discount to brent , while our gulf coast crude oil production traded at a premium to wti . the structural changes that have occurred as a result of new pipeline and rail infrastructure are expected to impact u.s. gulf coast crude oil pricing going forward . rail receiving capacity also expanded on the east coast , and to some extent on the u.s. gulf coast , with more capacity being announced . the average spread between brent and wti was $ 5.72 per barrel in 2014 compared to $ 10.52 per barrel in 2013 as a result of the increased domestic production and structural changes outlined above . the brent-wti spread declined during 2014 and the average spread for december 2014 was $ 3.04 per barrel . during 2014 , our average realized oil sales price was 11.2 % lower than that realized in 2013. our average realized oil sales price percentage decrease for 2014 was lower than the crude oil benchmark wti due to the reduction in our offshore crude oil premiums as discussed above . as reported by the eia , wti prices averaged $ 93.17 per barrel for 2014 , down from $ 97.98 per barrel for 2013. brent prices decreased to $ 98.97 per barrel for 2014 from $ 108.53 per barrel for 2013. crude oil prices fell dramatically during the fourth quarter of 2014 and have fallen further thus far in 2015. in december 2014 and january 2015 , wti average prices were $ 59.29 and $ 47.22 , respectively . wti is frequently used to value domestically produced crude oil , and the majority of our oil production is priced using the spot price for wti as a base price , then adjusted for the type and quality of crude oil and other factors . in addition , beginning in the fourth quarter of 2013 and continuing through 2014 , the premiums for the gulf of mexico crude oil have declined to virtually be at parity with one another as the crude being moved to the u.s. gulf coast increased and imports continued . over 85 % of our oil is produced from offshore in the gulf of mexico and is characterized as light louisiana sweet ( “ lls ” ) , heavy louisiana sweet ( “ hls ” ) , poseidon and others . for example , the monthly average premiums to wti for lls , hls and poseidon for 2014 were $ 3.88 , $ 3.52 and a negative $ 1.20 per barrel , respectively , compared to $ 11.06 , $ 11.02 and $ 5.58 per barrel , respectively , for 2013. permian basin crudes also have traded at a discount to wti ( at times the discount has been significant ) in much of 2014 as supply growth outpaced infrastructure capacity . this bottleneck has been relieved recently with the new pipeline expansions from longhorn , bridge tex and cactus coming on line and allowing the wti to permian differentials to revert to more normal levels . our oil production in west texas incurs discounts for transportation costs incurred by the purchaser , with larger discounts applied where the oil is trucked due to lack of pipeline access . our average realized ngls sales prices decreased 1.7 % during 2014 versus 2013. two major components of our ngls , ethane and propane , typically make up over 70 % of an average ngl barrel . during 2014 , average prices for domestic ethane increased 2 % and average domestic propane prices increased 4 % from the comparable 2013 period . average price changes for other domestic ngls ranged from a decrease of 13 % to a decrease of 7 % , which caused the average realized ngls sales price to decline . colder weather was a major factor for the increase of the price of propane during the winter months of 2014 ; however , propane prices were below prior year levels for the balance of 2014. for december 2014 , propane prices fell dramatically and were 48 % below the 2014 average . other market factors and weather influence the price of ethane , as it is not used directly as a heating fuel . however , cold weather drove up the price of natural gas , helping to increase the price of ethane , which is extracted from natural gas . once the cold weather passed , ethane prices declined to pre-winter pricing and prices for the balance of 2014 were below the comparable 2013 period . similar to propane , ethane prices for december 2014 fell dramatically and were 38 % below the 2014 average . the decreases in the prices of crude oil and natural gas have affected the prices of ngls .
| we estimate production deferrals were 2.6 mmboe during 2014. specifically , production at mississippi canyon 506 ( wrigley ) was deferred as a result of maintenance at the host platform and comprised approximately 17 % of the deferred production . the wrigley field resumed production during 2014. in addition , production from selected wells at ship shoal 349 ( mahogany ) was deferred due to closure of a pipeline , a rig move and well work and weather was a contributing factor in the first quarter of 2014 for production declines at west texas and at selected offshore fields . the balance of the deferred production occurred at multiple locations . during 2013 , estimated production deferrals were 2.2 mmboe . revenues from oil and liquids as a percent of our total revenues were 76.5 % for 2014 compared to 80.5 % for 2013. ngls realized sales prices as a percent of oil realized prices increased to 37.9 % for 2014 compared to 34.2 % for 2013. lease operating expenses . lease operating expenses , which include base lease operating expenses , insurance , workovers , maintenance on our facilities , and hurricane remediation costs net of insurance claims , decreased $ 6.1 million to $ 264.8 million in 2014 compared to 2013. on a per boe basis , lease operating expenses decreased to $ 15.01 per boe during 2014 compared to $ 15.06 per boe during 2013. on a component basis , workover expense decreased $ 13.2 million , facilities maintenance expense decreased $ 4.6 million and insurance premiums decreased $ 3.3 million , partially offset by increases in base lease operating expenses of $ 15.4 million . the decrease in workover costs was primarily due to workovers at main pass 69 and ship shoal ( mahogany ) occurring in 2013 , which were partially offset by workovers at high island 111 and high island 129 occurring in 2014 and increased workover costs at spraberry ( yellow rose ) . the decrease in facilities maintenance expense was primarily due to the shutdown for scheduled maintenance at
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( g ) o & m expenses at our fossil-fuel generating plants increased primarily due to outage costs at rio grande unit 8 in 2018 . ( h ) income tax expense-other tcja impact decreased primarily due to the tcja that reduced the federal corporate income tax rate from 35 % to 21 % , excluding the tax impact of other items in the table above . ( i ) palo verde performance rewards , associated with the 2013 to 2015 performance periods , net of disallowed fuel and purchased power costs related to the resolution for the texas fuel reconciliation proceeding designated as puct docket no . 46308 for the period from april 2013 through march 2016 , were recorded in june 2017 , with no comparable amounts in 2018 . ( j ) strategic transaction costs increased due to costs incurred in connection with the pending merger . 29 ( k ) depreciation and amortization increased primarily due to increases in plant . ( l ) depreciation and amortization increased primarily due to increases in plant , including mps units 3 and 4 , which were placed in service in 2016. these increases were partially offset by the sale of the company 's interest in four corners in july 2016 . ( m ) afudc decreased due to lower balances of construction work in progress ( `` cwip '' ) , primarily due to mps units 3 and 4 being placed in service in may and september 2016 , respectively , and a reduction in the afudc rate effective january 2017 . 30 use of non-gaap financial measures as required by asu 2016-01 , financial instruments - recognition and measurement of financial assets and financial liabilities , changes in the fair value of equity securities are recognized in the company 's statements of operations . this standard added the potential for significant volatility to the company 's reported results of operations as changes in the fair value of equity securities may occur . furthermore , the equity investments included in the ndt are significant and are expected to increase significantly during the remaining life ( estimated to be 26 to 29 years ) of palo verde . accordingly , the company has provided the following non-gaap financial measures to exclude the impact of changes in fair value of equity securities and realized gains ( losses ) from the sale of both equity and fixed income securities . reconciliations of both non-gaap financial measures to the most directly comparable financial information presented in accordance with gaap are presented in the table below . non-gaap adjusted net income is reconciled to gaap net income , and non-gaap adjusted basic earnings per share is reconciled to gaap basic earnings per share . replace_table_token_14_th ( 1 ) net income ( gaap ) and adjusted net income ( non-gaap ) include a pre-tax charge of $ 12.1 million , or $ 0.25 per share , after-tax , of strategic transaction costs . adjusted net income and adjusted basic earnings per share are not measures of financial performance under gaap and should not be considered as an alternative to net income and basic earnings per share , respectively . furthermore , the company 's presentation of any non-gaap financial measure may not be comparable to similarly titled measures used by other companies . the company believes adjusted net income and adjusted basic earnings per share are useful financial measures for investors and analysts in understanding the company 's core operating performance because each measure removes the effects of variances reported in the company 's results of operations that are not indicative of fundamental changes in the earnings capacity of the company . non-gaap financial information should be read together with , and is not an alternative or substitute for , the company 's financial results reported in accordance with gaap . 31 story_separator_special_tag january 1 , 2018 , pursuant to the final order in nmprc case no . 17-00090-ut , the rps costs for new mexico are recovered through a separate rps cost rider , which is updated annually . in texas , fuel and purchased power costs , net of shared margins on off-system sales , are recovered through a fixed fuel factor . we can seek to revise our texas fixed fuel factor based upon an approved formula at least four months after our last revision , except in the month of december . in addition , if we materially over-recover fuel costs , we must seek to refund the over-recovery , and if we materially under-recover fuel costs , we may seek a surcharge to recover those costs . fuel over- and under-recoveries are defined as material when they exceed 4 % of the previous twelve months ' fuel costs . in june 2019 , march 2018 and march 2017 , $ 1.0 million , $ 1.1 million and $ 1.4 million , respectively , were credited to customers through the applicable fuel adjustment clauses as the result of a reimbursement from the doe related to spent nuclear fuel storage . off-system sales . off-system sales are sales into wholesale markets outside our service territory . off-system sales are primarily made in off-peak periods when we have competitive generation capacity available after meeting our regulated service obligations . we have shared 100 % of margins on non-arbitrage sales ( as defined by the settlement approved in puct docket no . 41852 ) and 50 % of margins on arbitrage sales with our texas customers since april 1 , 2014. we are currently sharing 90 % of off-system sales margins with our new mexico customers ( as reaffirmed in nmprc case no . 09-00171-ut ) , and 25 % of our off-system sales margins with our sales for resale - full requirement customer under the terms of their contract . typically , we realize a significant portion of our off-system sales margins in the first and fourth quarter of each calendar year story_separator_special_tag ( g ) o & m expenses at our fossil-fuel generating plants increased primarily due to outage costs at rio grande unit 8 in 2018 . ( h ) income tax expense-other tcja impact decreased primarily due to the tcja that reduced the federal corporate income tax rate from 35 % to 21 % , excluding the tax impact of other items in the table above . ( i ) palo verde performance rewards , associated with the 2013 to 2015 performance periods , net of disallowed fuel and purchased power costs related to the resolution for the texas fuel reconciliation proceeding designated as puct docket no . 46308 for the period from april 2013 through march 2016 , were recorded in june 2017 , with no comparable amounts in 2018 . ( j ) strategic transaction costs increased due to costs incurred in connection with the pending merger . 29 ( k ) depreciation and amortization increased primarily due to increases in plant . ( l ) depreciation and amortization increased primarily due to increases in plant , including mps units 3 and 4 , which were placed in service in 2016. these increases were partially offset by the sale of the company 's interest in four corners in july 2016 . ( m ) afudc decreased due to lower balances of construction work in progress ( `` cwip '' ) , primarily due to mps units 3 and 4 being placed in service in may and september 2016 , respectively , and a reduction in the afudc rate effective january 2017 . 30 use of non-gaap financial measures as required by asu 2016-01 , financial instruments - recognition and measurement of financial assets and financial liabilities , changes in the fair value of equity securities are recognized in the company 's statements of operations . this standard added the potential for significant volatility to the company 's reported results of operations as changes in the fair value of equity securities may occur . furthermore , the equity investments included in the ndt are significant and are expected to increase significantly during the remaining life ( estimated to be 26 to 29 years ) of palo verde . accordingly , the company has provided the following non-gaap financial measures to exclude the impact of changes in fair value of equity securities and realized gains ( losses ) from the sale of both equity and fixed income securities . reconciliations of both non-gaap financial measures to the most directly comparable financial information presented in accordance with gaap are presented in the table below . non-gaap adjusted net income is reconciled to gaap net income , and non-gaap adjusted basic earnings per share is reconciled to gaap basic earnings per share . replace_table_token_14_th ( 1 ) net income ( gaap ) and adjusted net income ( non-gaap ) include a pre-tax charge of $ 12.1 million , or $ 0.25 per share , after-tax , of strategic transaction costs . adjusted net income and adjusted basic earnings per share are not measures of financial performance under gaap and should not be considered as an alternative to net income and basic earnings per share , respectively . furthermore , the company 's presentation of any non-gaap financial measure may not be comparable to similarly titled measures used by other companies . the company believes adjusted net income and adjusted basic earnings per share are useful financial measures for investors and analysts in understanding the company 's core operating performance because each measure removes the effects of variances reported in the company 's results of operations that are not indicative of fundamental changes in the earnings capacity of the company . non-gaap financial information should be read together with , and is not an alternative or substitute for , the company 's financial results reported in accordance with gaap . 31 story_separator_special_tag january 1 , 2018 , pursuant to the final order in nmprc case no . 17-00090-ut , the rps costs for new mexico are recovered through a separate rps cost rider , which is updated annually . in texas , fuel and purchased power costs , net of shared margins on off-system sales , are recovered through a fixed fuel factor . we can seek to revise our texas fixed fuel factor based upon an approved formula at least four months after our last revision , except in the month of december . in addition , if we materially over-recover fuel costs , we must seek to refund the over-recovery , and if we materially under-recover fuel costs , we may seek a surcharge to recover those costs . fuel over- and under-recoveries are defined as material when they exceed 4 % of the previous twelve months ' fuel costs . in june 2019 , march 2018 and march 2017 , $ 1.0 million , $ 1.1 million and $ 1.4 million , respectively , were credited to customers through the applicable fuel adjustment clauses as the result of a reimbursement from the doe related to spent nuclear fuel storage . off-system sales . off-system sales are sales into wholesale markets outside our service territory . off-system sales are primarily made in off-peak periods when we have competitive generation capacity available after meeting our regulated service obligations . we have shared 100 % of margins on non-arbitrage sales ( as defined by the settlement approved in puct docket no . 41852 ) and 50 % of margins on arbitrage sales with our texas customers since april 1 , 2014. we are currently sharing 90 % of off-system sales margins with our new mexico customers ( as reaffirmed in nmprc case no . 09-00171-ut ) , and 25 % of our off-system sales margins with our sales for resale - full requirement customer under the terms of their contract . typically , we realize a significant portion of our off-system sales margins in the first and fourth quarter of each calendar year
| the following table sets forth the percentage of our retail non-fuel base revenues derived during each quarter for the periods presented : replace_table_token_16_th weather significantly impacts our residential , small commercial and industrial customers , and to a lesser extent , our sales to public authorities . heating and cooling degree days can be used to evaluate the effect of weather on energy use . for each degree the average outdoor temperature varies from a standard of 65 degrees fahrenheit , a degree day is recorded . the table below shows heating and cooling degree days compared to a 10-year average for 2019 , 2018 and 2017. replace_table_token_17_th customer growth is a key driver of the growth of retail sales . the average number of retail customers grew 1.6 % in 2019 and 2018. see the tables presented on pages 35 and 36 , which provide detail on the average number of retail customers and the related revenues and kwh sales . 32 retail non-fuel base revenues . for the twelve months ended december 31 , 2019 , retail non-fuel base revenues increased $ 9.6 million , or 1.5 % , compared to the twelve months ended december 31 , 2018. retail non-fuel base revenues increased primarily due to rate changes which include ( i ) a $ 3.8 million increase related to the 1 % increase in the city of el paso franchise fee on gross revenues for services within the city of el paso , applicable to customer billings issued on or after october 1 , 2018 , ( ii ) $ 3.0 million of revenues in texas for the period of july 30 , 2019 through december 31 , 2019 , related to the tcrf settlement agreement approved by the puct in docket no . 49148 on december 16 , 2019 , and ( iii ) a $ 2.0 million increase related to the dcrf settlement agreement approved by the puct in docket no . 49395 on september 27 , 2019 , applicable to customer billings issued on or after october 1 , 2019. excluding the impact of rate changes , retail non-fuel base revenues for the twelve months ended december
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as a result , according to phocuswright , by 2010 travel supplier sites accounted for 59 % of total online travel spend in the united states . more recently , due to booking fee reductions and eliminations , online agents appear to have regained some share of overall online travel spend . our visibility on whether these share gains continue in 2011 and beyond is limited . differentiation among the various website offerings has narrowed dramatically in the past several years , and the travel landscape has grown extremely competitive , with the need for competitors to generally differentiate their offerings on features other than price . competitive entrants such as metasearch companies have in some cases been able to introduce differentiated features and content compared with the legacy online travel agency companies ; although in most cases they are not providing actual travel booking services . some of these competitors have raised significant amounts of capital and have begun to aggressively market their service offerings . in addition , beginning in 2009 and through 2010 , we have seen increased interest in the online travel industry from search engine companies as evidenced by recent innovations and proposed and actual acquisitions by companies such as google and microsoft . the online travel industry has also seen the development of alternative business models and variations in the timing of payment by travelers and to suppliers , which in some cases place pressure on historical business models . in particular , the agency hotel model has seen rapid adoption in europe and , in 2009 , expedia introduced a competitive offering . while agency hotel is an important component of our european strategy , we expect it will continue to take time for expedia to drive meaningful demand to those hotels . intense competition has also historically led to aggressive marketing spend by the travel suppliers and intermediaries , and a meaningful reduction in our overall marketing efficiencies and operating margins . in 2009 , we experienced a reversal of these trends due to several factors including the softer macro environment , lower ad rates and a pullback in spend by some of our online competitors impacted by lower fee revenues . our marketing spend in 2010 has returned to a more normalized environment as the economy has improved and as we have increased marketing spend associated with our international growth opportunities . we believe that over the long term we can manage our sales and marketing expense largely in line with revenue growth . as a result of our large and growing travel advertising business , we have a partial hedge with regard to the price of advertising . as advertising prices rise , our leisure transaction brands may spend more on their marketing efforts , while the tripadvisor media network benefits from rising prices through revenue growth . strategy we play a fundamental role in facilitating travel , whether for leisure , unmanaged business or managed business travelers . we are committed to providing travelers , travel suppliers and advertisers the world over with the best set of resources to serve their travel needs by leveraging expedia 's critical assets our brand portfolio , technology and content innovation , global reach and breadth of product offering . in addition , we intelligently utilize our growing base of knowledge about destinations , activities , suppliers and travelers and our central position in the travel value chain to more effectively merchandise our travel offerings . 42 a discussion of the critical assets that we leverage in achieving our business strategy follows : portfolio of travel brands . we seek to appeal to the broadest possible range of travelers , suppliers and advertisers through our collection of industry-leading brands . we target several different demographics , from the value-conscious traveler through our hotwire brand to luxury travelers seeking a high-touch , customized vacation package through our classic vacations brand . we believe our flagship expedia brand appeals to the broadest range of travelers , with our extensive product offering ranging from single item bookings of discounted product to dynamic bundling of higher-end travel packages . our hotels.com site and its international versions target travelers with premium hotel content such as 360 degree tours and hotel reviews . in the united states , hotels.com generally appeals to travelers with shorter booking windows who prefer to drive to their destinations , and who make a significant portion of their travel bookings over the telephone . we have a robust and growing advertising business , led primarily by the efforts of the tripadvisor media network , which offers travel and other advertisers a host of alternatives for reaching customers in our prime demographic . the majority of advertising revenue is generated through click-based advertising , but we also have a growing display advertising business as well as other new products such as hotel business listings , vacation rentals , and a new private sale site , sniqueaway . tripadvisor generates customer traffic to its sites by offering a broad and deep selection of hotel reviews and other user-generated content to help travelers make decisions about where to travel , where to stay and what to do while on vacation . we also generate advertising revenue on our transaction sites , primarily through efforts of expedia media solutions . egencia makes travel products and services available on a managed basis to corporate travelers in north america , europe and the asia pacific region . we believe our appeal to suppliers and advertisers is further enhanced by our geographic breadth and range of business models , allowing them to offer their products and services to the industry 's broadest range of travelers using our various agency , merchant and advertising business models . we intend to continue supporting and investing in our brand portfolio , geographic footprint and business models for the benefit of our travelers , suppliers and advertisers . technology and content innovation . story_separator_special_tag expedia has an established tradition of technology innovation , from expedia.com 's inception as a division of microsoft to our introduction of more recent innovations such as expedia 's introduction of opaque hotel inventory through its new unpublished rates product , tripadvisor media network 's launch of the new private sale site , sniqueaway , through its smarter travel media brand , and expedia affiliate network 's introduction of ean package rates , that gives expedia affiliates the ability to bundle their inventory with expedia hotel package rates . in addition , in 2010 , we increased our focus on mobile offerings and acquired mobiata , a mobile application development company , to accelerate these efforts . we intend to continue innovating on behalf of our travelers , suppliers and advertisers with particular focus on improving the traveler experience , supplier integration and presentation , platform improvements , search engine marketing and search engine optimization . global reach . our expedia , hotels.com and tripadvisor media network brands operate both in north america and internationally . we also offer chinese travelers an array of products and services through our majority ownership in elong and through our tripadvisor brands daodao.com and kuxun.cn , and we offer hotels to european-based travelers through venere . in 2010 , approximately 36 % of our worldwide gross bookings and 38 % of worldwide revenue were international . egencia , our corporate travel business , operates in north america , europe , the middle east , africa , and the asia pacific region using direct points of sale as well as strategic partnerships . we believe the corporate travel sector represents a significant opportunity for expedia , and we believe we offer a compelling technology solution to businesses seeking to optimize travel costs and improve their employees ' travel experiences . we intend to continue investing in and expanding the geographic footprint and technology infrastructure of egencia . in expanding our global reach , we leverage significant investments in technology , operations , brand building , supplier relationships and other initiatives that we have made since the launch of expedia.com in 1996 . 43 we intend to continue leveraging this investment when launching additional points of sale in new countries , introducing new website features , adding supplier products and services including new business model offerings , as well as proprietary and user-generated content for travelers . our scale of operations enhances the value of technology innovations we introduce on behalf of our travelers and suppliers . as an example , our traveler review feature whereby our travelers have created millions of qualified reviews of hotel properties is able to accumulate a larger base of reviews due to the higher base of online traffic that frequents our various websites . in addition , our increasing scale enhances our websites ' appeal to travel and non-travel advertisers . we intend to continue investing in and growing our international points of sale . we anticipate launching points of sale in additional countries where we find large travel markets and rapid growth of online commerce . future launches may occur under any of our brands , or through acquisition of third party brands , as in the case of egencia , elong , kuxun and venere . breadth of product offering . we offer a comprehensive array of innovative travel products and services to our travelers . we plan to continue improving and growing these offerings , as well as expand them to our worldwide points of sale over time . travelers can interact with us how and when they prefer , including via our 24/7 1-800 telesales service , which is an integral part of the company 's appeal to travelers . we offer travelers access to over 130,000 hotels and over 300 airlines in over 200 countries around the world . over 60 % of our revenue comes from transactions involving the booking of hotel reservations , with less than 15 % of our worldwide revenue derived from the sale of airline tickets . we facilitate travel products and services either as stand-alone products or as part of package transactions . we have emphasized growing our merchant hotel and packages businesses as these result in higher revenue per transaction ; however , we are working to grow our global agency hotel business through our venere , expedia and hotel.com brands . we also seek to continue diversifying our revenue mix beyond core air and hotel products to car rental , destination services , cruise and other product offerings . we have been working toward and will continue to work toward increasing the mix of advertising and media revenue from both the expansion of our tripadvisor media network , as well as increasing advertising revenue from our worldwide websites such as expedia.com and hotels.com , which have historically been focused on transaction revenue . in 2010 , advertising and media revenue accounted for approximately 13 % of worldwide revenue . seasonality we generally experience seasonal fluctuations in the demand for our travel products and services . for example , traditional leisure travel bookings are generally the highest in the first three quarters as travelers plan and book their spring , summer and holiday travel . the number of bookings typically decreases in the fourth quarter . because revenue in the merchant business is generally recognized when the travel takes place rather than when it is booked , revenue typically lags bookings by several weeks or longer . as a result , revenue is typically the lowest in the first quarter and highest in the third quarter . the macroeconomic downturn in the latter part of 2008 also affected our general revenue seasonality trends in the fourth quarter of 2008. in addition , the continued growth of our international operations or a change in our product mix may influence the typical trend of our seasonality in the future .
| worldwide air revenue decreased 13 % in 2009 compared to 2008 due to a 24 % decrease in revenue per air ticket , partially offset by a 15 % increase in ticket volumes . expedia.com eliminated consumer booking fees on online air tickets in march 2009 , with certain other points of sale following at various dates into the third quarter of 2009 , which primarily drove the decline in revenue per ticket . this elimination of fees on expedia.com and other points of sale , combined with lower average ticket prices , contributed to the increase in our air ticketing volumes . worldwide revenue other than hotel and air discussed above increased by 5 % in 2009 compared to 2008 primarily due to an increase in our advertising and media revenue and car rental revenue . in addition to the above segment and product revenue discussion , our revenue by business model is as follows : replace_table_token_7_th ( 1 ) includes third-party revenue from tripadvisor media network as well as our leisure transaction-based websites . our merchant revenue for 2010 compared to 2009 increased due to an increase in merchant hotel revenue primarily driven by an increase in room nights stayed . our merchant revenue for 2009 compared to 2008 was relatively flat as increases in car revenue were offset by decreases in air revenue . agency revenue increased for 2010 compared to 2009 due to an increase in air revenue as well as increases in hotel , corporate products , cruise and destination service revenue . agency revenue decreased for 2009 compared to 2008 due to a decrease in air revenue primarily resulting from our expedia.com u.s. booking fee removal and decreased agency package revenue , partially offset by higher hotel revenue related to venere and higher car revenue . advertising and media revenue increased in 2010 compared to 2009 primarily due to a 48 % increase in advertising revenue at tripadvisor media network . advertising and media revenue increased in 2009 compared to 2008 primarily due to a 21 % increase in advertising revenue at our leisure transaction-based
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in our largest international affiliates ( in germany , france , united kingdom , ireland and china ) , we develop , manufacture and sell a wide variety of products . in china , the products manufactured are sold primarily in the home country as well as regional markets . operations in other international segment countries focus primarily on sales and distribution in their respective home country markets . although some of these companies may perform limited production , most of their sales are of products manufactured in our plants in germany , france , the u.s. , united kingdom , ireland and china or are purchased from third party vendors . corporate . the corporate segment primarily consists of general and administrative expenses incurred in our corporate headquarters , costs associated with corporate development initiatives , legal expense , interest expense , foreign exchange gains or losses , and other centrally-managed costs . corporate general and administrative costs comprise the majority of the expense in the corporate segment . during the years ended december 31 , 2018 , 2017 and 2016 corporate general and administrative costs were $ 31.2 million , $ 37.6 million , and $ 38.9 million , respectively . story_separator_special_tag operational realignment of our u.s. and canadian operations . this compared to charges of $ 17.6 million during the year ended december 31 , 2017 , primarily related to non-cash special termination benefit expense of $ 11.4 million for the voluntary retirement incentive package elected by certain employees in the americas segment and severance costs for staff reductions associated with our ongoing initiatives to drive profitable growth in europe and right size our operations in australia and africa . we expect to make progress on our international segment footprint rationalization project in the first quarter of 2019. while these actions may drive noncash restructuring charges associated with the write-off of cumulative currency translation , we expect these actions to drive a more efficient business model and are similar to the steps we took to reduce our footprint and improve our efficiency in other areas of the international segment . currency exchange . currency exchange losses were $ 2.3 million during the year ended december 31 , 2018 , compared to losses of $ 5.1 million during the year ended december 31 , 2017 . currency exchange losses in both years were related to management of foreign currency exposure on unsettled intercompany balances . refer to note 17—derivative financial instruments of the consolidated financial statements in part ii item 8 of this form 10-k for information regarding our currency exchange rate risk management strategy . other operating expense . other operating expense during the year ended december 31 , 2018 was $ 45.3 million and was primarily related to an increase in our reserve for cumulative trauma product liability claims . that increase resulted from the company 's revision of its estimates of potential liability for cumulative trauma product liability claims as part of its annual review process . this compared to other operating expense during the year ended december 31 , 2017 of $ 126.4 million . in the fourth quarter of 2017 , msa llc determined that a reasonable estimate of the liability for incurred but not reported ( `` ibnr '' ) cumulative trauma liability claims was $ 111.1 million as of december 31 , 2017 . msa llc recorded a total charge of $ 126.4 million before tax ( $ 85.0 million after tax ) during 2017 representing the estimated liability in excess of available insurance coverage for both asserted and ibnr cumulative trauma product liability claims . please refer to note 19—contingencies of the consolidated financial statements in part ii item 8 of this form 10-k for additional information . gaap operating income . consolidated operating income for the year ended december 31 , 2018 was $ 173.5 million compared to $ 39.6 million for the year ended december 31 , 2017 . the increase in operating results was primarily driven by higher sales volumes , lower restructuring and other operating expense , partially offset by higher sg & a costs . adjusted operating income . americas adjusted operating income for the year ended december 31 , 2018 was $ 206.8 million , an increase of $ 31.2 million , or 18 % , compared to $ 175.6 million for the year ended december 31 , 2017 . the increase was primarily related to the higher level of sales partially offset by higher sg & a costs as a result of higher variable compensation cost due to stronger revenue performance , and higher selling and marketing costs to invest resources in driving revenue growth . international adjusted operating income for the year ended december 31 , 2018 was $ 59.9 million , an increase of $ 9.5 million , or 19 % , compared to $ 50.4 million for the year ended december 31 , 2017 . the increase was primarily attributable to higher sales volumes and improvements associated with our ongoing initiatives to right size our operations in europe . corporate segment adjusted operating loss for the year ended december 31 , 2018 was $ 31.9 million , an improvement of $ 1.1 million , or 3 % , compared to an operating loss of $ 33.0 million for the year ended december 31 , 2017 , reflecting lower legal expenses . 24 the following tables reconcile gaap operating income to adjusted operating income ( loss ) . adjusted operating margin % is calculated as adjusted operating income divided by net sales . replace_table_token_8_th replace_table_token_9_th note : adjusted operating income is a non-gaap financial measure used by the chief operating decision maker to evaluate segment performance and allocate resources . adjusted operating income is reconciled above to the nearest gaap financial measure , operating income ( loss ) and excludes restructuring , currency exchange , other operating expense and strategic transaction costs . total other expense , net . story_separator_special_tag other expense for the year ended december 31 , 2018 was $ 11.1 million , an increase of $ 1.3 million , or 14 % , compared to $ 9.8 million for the year ended december 31 , 2017 . the increase was related to higher interest expense and the loss on extinguishment of debt which were only partially offset by higher interest income . income taxes . the reported effective tax rate for the the year ended december 31 , 2018 , was 22.9 % , which included a benefit of 1.6 % for certain share-based payments related to the application of asu 2016-09 09 as discussed in note 1—significant accounting policies of the consolidated financial statements in part ii item 8 of this form 10-k and a charge of 1.1 % associated with to exit taxes related to our u.s. , canadian and european realignment . this compared to a reported effective tax rate of 9.5 % for the year ended december 31 , 2017 , which included a benefit of 28.0 % for certain share-based payments related to the adoption of asu 2016-09 and a benefit of 8.4 % associated with the reduction of exit taxes related to our european reorganization . the remaining effective tax rate change was primarily due to the decrease in the u.s. federal statutory rate and benefits associated with the foreign provisions of u.s. tax reform , partially offset by the increased profitability in less favorable tax jurisdictions , higher entity losses in jurisdictions where we can not take tax benefits and reduced manufacturing deduction benefits . during 2018 , the company recorded $ 1.8 million of foreign income tax reserves related to the legal and operational realignment of our u.s. , canadian and european operations . on december 22 , 2017 , sab 118 was issued to address the application of u.s. gaap in situations when a registrant does not have the necessary information available , prepared or analyzed in reasonable detail to complete the accounting for certain income tax effects of the act . in accordance with sab 118 , the company calculated its best estimate of the impact of the act and recorded income tax expense of $ 19.8 million during the fourth quarter of 2017. at december 31 , 2018 , the company has now completed its accounting for all of the enactment-date income tax effects of the act . accordingly , we reduced our estimate for the one-time transition tax by $ 2.0 million and increased our estimate for the revaluation of u.s. deferred tax assets and liabilities by $ 2.5 million and a $ 2.0 million increase associated with prepaid taxes for updated regulations related to the act . 25 net income from continuing operations attributable to msa safety incorporated . net income from continuing operations was $ 124.2 million for the year ended december 31 , 2018 , or $ 3.18 per diluted share , compared to $ 26.0 million , or $ 0.67 per diluted share , for the year ended december 31 , 2017 as a result of the factors described above . year ended december 31 , 2017 compared to year ended december 31 , 2016 replace_table_token_10_th net sales from continuing operations . net sales for the year ended december 31 , 2017 , were $ 1,196.8 million , an increase of $ 47.3 million , from $ 1,149.5 million for the year ended december 31 , 2016 . organic constant currency sales decreased by 1 % for the year ended december 31 , 2017 . please refer to the net sales from continuing operations table below for a reconciliation of the year over year sales change . replace_table_token_11_th note : organic constant currency sales change is a non-gaap financial measure provided by the company to give a better understanding of the company 's underlying business performance . organic constant currency sales change is calculated by removing the percentage impact from acquisitions and related strategic transaction costs as well as currency translation effects from the overall percentage change in net sales . net sales for the americas segment were $ 736.8 million for the year ended december 31 , 2017 , an increase of $ 58.4 million , or 9 % , compared to $ 678.4 million for the year ended december 31 , 2016 . during 2017 , constant currency sales in the americas segment increased 8 % compared to the prior year period , driven primarily by the acquisition of globe on july 31 , 2017 , which provided a 7 % increase in sales . we also saw growth in head protection and fall protection on improving conditions in industrial markets . these increases were partially offset by a lower level of shipments of self-contained breathing apparatus ( `` scba '' ) . at december 31 , 2017 , we entered 2018 with a strong pipeline of business secured in the fire service market as the fourth quarter order book for scba reflected our highest incoming order total of this entire replacement cycle . net sales for the international segment were $ 460.0 million for the year ended december 31 , 2017 , a decrease of $ 11.1 million , or 2 % , compared to $ 471.1 million for the year ended december 31 , 2016 . constant currency sales in the international segment decreased 4 % during 2017 , primarily due to a lower volume of non-core military helmet sales in europe as well as less breathing apparatus , fall protection , and portable instruments sales across the segment . these decreases were partially offset by a higher volume of fgfd sales in the middle east and head protection across the segment . gross profit . gross profit for the year ended december 31 , 2017 , was $ 538.9 million , an increase of $ 16.6 million , or 3 % , compared to $ 522.2 million for the year ended december 31 , 2016 . the ratio of gross profit to net sales was 45.0 % in 2017 compared to 45.4 % in 2016 .
| during the year ended december 31 , 2018 , constant currency sales in the international segment increased 8 % as we recognized stronger sales driven by growth throughout our product portfolio . gross profit . gross profit for the year ended december 31 , 2018 was $ 611.9 million , an increase of $ 73.0 million , or 14 % , compared to $ 538.9 million for the year ended december 31 , 2017 . the ratio of gross profit to net sales was 45.1 % in 2018 compared to 45.0 % in 2017 . the slightly higher gross profit ratio is attributable to improved price realization and improved leverage on indirect costs , offset by inflationary pressures and dilution associated with a less favorable product mix from the globe acquisition . the impact of the globe acquisition reduced the gross profit percentage by 1 % or 100 basis points . selling , general and administrative expenses . selling , general and administrative ( `` sg & a '' ) expenses were $ 324.8 million for the year ended december 31 , 2018 , an increase of $ 24.7 million , or 8 % , compared to $ 300.1 million for the year ended december 31 , 2017 . the increase is related to increased sg & a expenses related to the globe acquisition , higher variable compensation cost due to stronger revenue , profitability and cash flow performance as well as higher selling and marketing costs to invest resources in driving revenue growth . selling , general and administrative expenses were 23.9 % of net sales in 2018 , compared to 25.1 % of net sales in 2017 . please refer to the selling , general and administrative expenses table for a reconciliation of the year over year expense change . selling , general , and administrative expenses year ended december 31 , 2018 versus december 31 , 2017 ( percent change ) consolidated gaap reported change 8.2 % less : currency translation effects ( 1.0 ) % constant currency change 9.2 % less : acquisitions and related strategic transaction costs 0.6 % organic constant
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the comparison of 2018 net income to 2017 net income is also affected by the fact that net income in 2017 benefitted from the recognition of the effects of the tax cuts and jobs act , further described below . in december 2017 , we revalued our ending net deferred tax liabilities at december 30 , 2017 and recognized a $ 12.4 million tax benefit in the consolidated statement of operations for the year ended december 30 , 2017 , which was adjusted slightly by $ 0.2 million in tax expense in 2018. liquidity and cash flow during 2018 , we generated $ 100.3 million in cash flow from operations , an increase of $ 51.3 million over last year , which was used to fund the cash portion of the wws acquisition of $ 39.6 million , make voluntary prepayments of debt of $ 8.0 million , as well as fund working capital needs , and for capital expenditures of $ 29.8 million . our cash flow in 2018 benefitted from proceeds received under the apa , described below , of $ 24.8 million , but also was reduced by payments of estimated income taxes of $ 19.5 million , including a federal income tax payment of $ 9.0 million , relating to our fourth quarter of 2017 estimated payment which was not required to be made until the end of january 2018 due to temporary relief on estimated tax payments for florida businesses affected by hurricane irma . during 2018 , we executed on two major capital transactions : ( 1 ) the issuance of the 2018 senior notes due 2026 ; and ( 2 ) the 2018 equity issuance . the transactions provided substantial liquidity , the proceeds from which were used to acquire wws , in the case of the 2018 senior notes due 2026 and used to make a prepayment of borrowings under the 2016 credit agreement due 2022 , in the case of the 2018 equity issuance . see “ liquidity and capital resources ” for a more detailed discussion of these events . sale of door glass processing assets on september 22 , 2017 , we entered into the apa with cardinal for the sale to cardinal of certain manufacturing equipment we used in processing glass components for pgt-branded doors for a cash purchase price of $ 28.0 million . contemporaneously with entering into the apa , we entered into a seven-year supply agreement ( sa ) with cardinal for cardinal to supply us with glass components for pgt-branded doors . the company determined to sell these assets and enter the sa to allow us to heighten our focus in our core areas of window and door manufacturing and , at the same time , strengthen our supply chain for high-quality door glass from a supplier with whom we have been doing business for many years . the company has determined that , although the apa and sa are separate agreements , they were negotiated contemporaneously . therefore , the company has concluded that the $ 28.0 million of proceeds under the apa should be bifurcated between the sale of the door glass manufacturing assets , and as payment received from a supplier for the company 's agreement to buy glass components for pgt-branded doors from cardinal under the sa . the bifurcation of the proceeds in excess of the stand-alone selling price of the assets acquired would be allocated to the sa and recognized as a reduction of cost of sales as glass components are purchased by pgti . based on the established stand-alone selling price of the assets sold , as determined by an independent appraisal , approximately $ 7.7 million was allocated to the sale of the assets , with the remaining $ 20.3 million representing consideration received from cardinal related to the agreement to buy door glass components for pgt-branded doors from cardinal . this consideration is being amortized over the 7-year term of the sa . at the time we ceased using these assets in production , at which time they became available for immediate sale , their net book value was $ 4.7 million , and they were reclassified from property , plant and equipment , to assets held for sale within other current assets . the apa provided for the transfer of the assets from the company to cardinal in two phases , with the first date in 2017 , and the second date in 2018 , on dates which the company and cardinal agree to use . under the apa , the cash purchase price of $ 28.0 million was to be paid by cardinal to the company in three separate payments of $ 3 million on or about the time of the first transfer of the assets to cardinal , $ 10 million on or about january 15 , 2018 , and $ 15 million at or about the time of the second transfer of assets to cardinal . cardinal paid us $ 3.0 million in cash on november 1 , 2017 , $ 10.0 million in cash on january 16 , 2018 , and $ 14.8 million on june 8 , 2018 , pursuant to the apa . the total proceeds received of $ 27.8 million was $ 0.2 million less than the $ 28.0 million as specified in the apa as we retained certain assets that were initially identified for transfer . on december 15 , 2017 , machinery and equipment classified as assets held for sale with net book value of $ 1.5 million , and fair value of $ 1.9 million was transferred to cardinal and their equipment rigger , and we recognized a gain for the difference . substantially all of the remaining machinery and equipment was transferred to cardinal during the second quarter of 2018 , which had a net book value of $ 3.2 million and fair value of - 22 - $ 5.8 million . story_separator_special_tag we recognized gains on disposals for the difference totaling $ 2.6 million during the year ended december 29 , 2018 , classified as a separate line item in the accompanying consolidated statement of operatio ns for the year ended december 29 , 2018. the sa provides that the company will purchase , and cardinal will supply , all the company 's requirements for certain glass components used in pgt-branded doors through the end of 2024. the terms of the manufacture by cardinal and purchase by the company of such glass components as to purchase orders , forecasts of purchases , pricing , invoicing , delivery and payment terms and other terms , are all as described in the sa . early in the fourth quarter of 2017 , we began purchasing and receiving glass components from cardinal under the sa . at that time , we began amortizing the advance consideration received from cardinal initially allocated to the sa , recognizing $ 628 thousand in the year ended december 30 , 2017 , and $ 2.8 million and in the year ended december 29 , 2018 , which is classified as reductions to cost of sales in the accompanying consolidated statements of operations . the remaining unamortized balance of $ 16.7 million is classified in the accompanying consolidated balance sheet as of december 29 , 2018 , as $ 2.8 million within accrued liabilities and $ 13.9 million within other liabilities . the tax cuts and jobs act of 2017 on december 22 , 2017 , the president of the united states signed into law the tax cuts and jobs act of 2017 ( the “ tax act ” ) . the tax act includes significant changes to the u.s. corporate income tax system , including a federal corporate rate reduction from 35 % to 21 % , effective january 1 , 2018 , limitations on the deductibility of interest expense and executive compensation , the elimination of the section 199 domestic production activities deduction , and further restricting the deductibility of certain already restricted expenses . the company uses the asset and liability method of accounting for income taxes . under this method , deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse . as a result of the reduction in the u.s. corporate income tax rate from 35 % to 21 % under the tax act , the company revalued its ending net deferred tax liabilities at december 30 , 2017 and recognized a $ 12.4 million tax benefit in the company 's consolidated statement of operations for the year ended december 30 , 2017. upon the filing of our federal and state income tax return for 2017 , in the third quarter of 2018 , we recognized an adjustment to this gain of $ 0.2 million of tax expense . the company has recognized the tax impacts related to the revaluation of deferred tax assets and liabilities and included these amounts in its consolidated financial statements for the years ended december 29 , 2018 and december 30 , 2017. in 2018 , we experienced a benefit to our cash flow and a decrease in our overall effective tax rate as the result of the reduction of the federal corporate income tax rate under the tax act , partially offset by the negative impact from the repeal of the section 199 domestic production activities deduction . in 2018 , we had no significant effect on our tax rate or obligation to pay income taxes due to the limitations on the deductions for interest expense and executive compensation . - 23 - story_separator_special_tag $ 1.4 million in 2018 , compared to last year . we record warranty costs as a selling expense within selling , general and administrative expenses . during 2018 , we recorded warranty expense at a rate of 1.7 % of sales , which decreased when compared to the rate in 2017 of 2.1 % of sales . we believe the decrease in warranty expense as a percentage of sales was the result of our workforce becoming more seasoned through experience and training , as well as a change in our warranty profile on pgt-branded door glass components produced by cardinal as part of the sa on which they provide the warranty coverage . gains on sales of assets under apa on september 22 , 2017 , we entered into the apa with cardinal for the sale to cardinal of certain manufacturing equipment we used in processing glass components for pgt-branded doors . substantially all of the remaining machinery and equipment was transferred to cardinal during the second quarter of 2018 , which had a net book value of $ 3.2 million and fair value of $ 5.8 million . we recognized gains on disposals for the difference totaling $ 2.6 million during 2018 , classified as a separate line item in the accompanying consolidated statement of operations for the year ended december 29 , 2018 . - 25 - interest expense interest expense was $ 26.5 million in 2018 , an increase of $ 6.2 million from $ 20.3 million in the prior year .
| gross profit and gross margin gross profit was $ 243.5 million in 2018 , an increase of $ 84.5 million , or 53.1 % , from $ 159.0 million in the prior year . the gross margin percentage was 34.9 % in 2018 , compared to 31.1 % in the prior year , a percentage-point increase of 3.8 % . adjusting for costs relating to machinery and equipment relocations , as well as an opening balance sheet inventory adjustment relating to our acquisition of wws , for a total of $ 1.2 million in 2018 , and adjusting for costs relating to hurricane irma , windoor leadership and glass supply-chain transition costs , and costs relating to the start-up of our thermal plastic spacer system line incurred in january and february , totaling $ 2.1 million in 2017 , the gross margin percentage was 35.0 % in 2018 , compared to 31.5 % in 2017 , a percentage-point increase of 3.5 % . there were improvements in 2018 , compared to last year , relating to higher contribution margins on the increased sales volume , which benefitted gross margin by 1.2 % , price increases , which benefitted gross margin by 1.5 % , in scrap rates and efficiencies , which benefitted gross margin by 1.0 % , a change in mix towards a higher portion of repair and remodeling sales , which benefitted gross margin by 0.7 % . these increases were partially offset by decreases due to higher overall material prices , which decreased gross margin by 1.1 % , and which included higher aluminum prices compared to last year , partially offset by lower glass costs as a result of our supply agreement with cardinal glass industries , and by higher overhead costs , which decreased gross margin by 1.2 % . the addition of wws benefitted gross margin by 1.4 % . selling , general and administrative expenses selling , general and administrative expenses for 2018 were $ 150.9 million , an increase of $ 52.1 million , or 52.7 % , from $ 98.8 million in the prior year . sg & a in
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divestiture of u.s. pressure pipe on july 31 , 2017 , we completed the sale of our u.s. concrete and steel pressure pipe business , a component of our water pipe & products segment , to thompson pipe group ( “ tpg ” ) in exchange for approximately $ 23.2 million in cash , subject to customer net working capital adjutments , exclusive of fees and expenses , as well as certain assets relating to a drainage pipe and products manufacturing facility . this divestiture generated a pre-tax loss of $ 32.3 million recorded in other income ( expense ) , net . in addition , in the second quarter of 2017 , we recorded a pre-tax long-lived asset impairment of $ 7.5 million within impairment and exit charges to adjust the held for sale long-lived assets to fair value . we used the net proceeds from the transaction to pay down debt on our 2016 revolver . see note 21 , discontinued operations and divestitures , to the consolidated financial statements . history bricks disposition on august 23 , 2016 , an affiliate of lone star fund ix ( u.s. ) , l.p. ( along with its affiliates and associates , but excluding the company and other companies that it owns as a result of its investment activity , or lone star ) entered 41 into an agreement with an unaffiliated third party to contribute lsf9 's bricks business to a newly formed joint venture with the unaffiliated third party ( the bricks joint venture ) . in exchange for the contribution of the bricks business , an affiliate of lone star received a 50 % interest in the bricks joint venture . on october 17 , 2016 , lsf9 distributed its bricks business to an affiliate of lone star ( the bricks disposition ) . following the bricks disposition , lsf9 had no relation to or business affiliation with its former bricks business or the bricks joint venture other than contractual arrangements regarding certain limited transition services , the temporary use of the “ forterra ” name , and a short-term loan which has subsequently been repaid in full . we incurred a tax liability of approximately $ 31.1 million as a result of the bricks disposition which is presented as a component of the loss from discontinued operations , net of tax line in the consolidated statement of operations for the year ended december 31 , 2016. this transaction qualifies as a reorganization of businesses under common control as set forth in the financial accounting standards board 's or fasb 's accounting standards codification 805 , business combinations and , as such , was reflected in our financial statements covering the date on which the transaction occurred . as of the disposition date , the carrying value of net assets related to the brick business were removed from our balance sheet and recognized as an equity distribution . also , we reclassified the operations of our former brick business to discontinued operations on the statement of operations for the year ended december 31 , 2016 , the period from march 14 to december 31 , 2015 and the period from january 1 to march 13 , 2015. reorganization following the bricks disposition and prior to the consummation of the ipo , the remaining building products operations of lsf9 in the united states and eastern canada , were transferred to forterra , inc. in an internal reorganization under common control transaction , or the reorganization . following the reorganization but prior to the consummation of the ipo , forterra , inc. was a wholly owned subsidiary of forterra us holdings , llc , which is indirectly wholly owned by lsf9 . each of lsf9 , forterra us holdings , llc and forterra , inc. are affiliates of lone star . initial public offering on october 25 , 2016 , we completed the ipo , in which we offered and sold 18,420,000 shares of our common stock . we received net proceeds from the ipo of $ 313.3 million , net of underwriting discounts and commissions and before payment of offering expenses , $ 296.0 million of which were used to repay indebtedness . refinancing concurrent with the completion of the ipo , the company entered into the 2016 revolver for working capital and general corporate purposes and the 2016 senior term loan , the proceeds of which , together with the proceeds from the ipo , were used to repay in full the junior term loan of $ 260.0 million , the 2015 senior term loan of $ 1.04 billion , and the existing balance under the 2015 revolver , in addition to related expenses associated with the ipo and refinancing . immediately subsequent to the completion of the ipo , forterra had $ 125.0 million outstanding on its 2016 revolver and $ 1.05 billion on its 2016 senior term loan . the $ 260.0 million repayment toward the junior term loan represented a full repayment of the outstanding principal on that loan , resulting in a related write-off of issue discounts and capitalized issuance costs of approximately $ 22.4 million . the repayment also triggered a prepayment penalty of approximately $ 7.8 million . the 2016 senior term loan provides for a $ 1.05 billion senior secured term loan that was made available to a newly formed direct subsidiary of forterra . subject to the conditions set forth in the term loan agreement , the 2016 senior term loan may be increased by ( i ) up to the greater of $ 285.0 million and 1.0x consolidated ebitda of forterra and its restricted subsidiaries for the four quarters most recently ended prior to such incurrence plus ( ii ) the aggregate amount of any voluntary prepayments , plus ( iii ) an additional amount , provided certain financial tests are met . story_separator_special_tag effective may 1 , 2017 the company amended the 2016 senior term loan to increase the principal outstanding by an additional $ 200.0 million and to reduce the interest margins applicable to the full balance of the 2016 senior term loan by 50 basis points such that applicable margin based on libor was reduced from 3.50 % 42 to 3.00 % . the net proceeds from the incremental term loan of $ 196.8 million were used to pay down a portion of the outstanding balance on the 2016 revolver . this amendment had no effect on the company 's ability to increase the size of the 2016 senior term loan under the original provisions . the 2016 senior term loan matures on october 25 , 2023 and is subject to quarterly amortization equal to 0.25 % of the initial principal amount . interest accrues on outstanding borrowings thereunder at a rate equal to libor ( with a floor of 1.0 % ) or an alternate base rate , in each case plus a margin of 3.0 % or 2.0 % , respectively . tax receivable agreement in connection with the ipo , the company entered into a tax receivable agreement with lone star that provides for , among other things , the payment by the company to lone star of 85 % of the amount of certain covered tax benefits , which may reduce the actual liability for certain taxes that the company might otherwise be required to pay . the tax benefits subject to the tax receivable agreement include : ( i ) all depreciation and amortization deductions , and any offset to taxable income and gain or increase to taxable loss , resulting from the tax basis that the company had in its assets as of the time of the consummation of the ipo , ( ii ) the utilization of the company 's and its subsidiaries ' net operating losses and tax credits , if any , attributable to periods prior to the ipo , ( iii ) deductions in respect of payments made , funded or reimbursed by an initial party to the tax receivable agreement ( other than the company or one of its subsidiaries ) or an affiliate thereof to participants under the lsf9 concrete holdings ltd. long term incentive plan , ( iv ) deductions in respect of transaction expenses attributable to the usp acquisition and ( v ) certain other tax benefits attributable to payments made under the tax receivable agreement . for purposes of the tax receivable agreement , the aggregate reduction in income tax payable by the company will be computed by comparing the company 's actual income tax liability with its hypothetical liability had it not been able to utilize the related tax benefits . the agreement will remain in effect for the period of time in which all such related tax benefits remain . the company accounts for potential payments under the tax receivable agreement as a contingent liability , with amounts accrued when considered probable and reasonably estimable . as of the ipo date , the company recorded a $ 160.8 million liability and a reduction to additional paid-in-capital related to the tax receivable agreement for the undiscounted value of probable future payments . net of tax effects of $ 18.5 million , the net reduction to additional paid-in-capital related to the initial liability for the tax receivable agreement issued in connection with the ipo was $ 142.3 million . the passage of the tax cuts and jobs act of 2017 significantly reduced the company 's anticipated liability under the tax receivable agreement . the company 's liability recorded for the tax receivable agreement at december 31 , 2017 was $ 117.6 million . the company anticipates that it will have sufficient taxable income in future periods to realize the full value of the obligation recorded . future tax receivable agreement payments related to the tax basis of assets at the time of the ipo will be recorded as a reduction to the liability and will be recorded as a financing obligation in the statement of cash flows . at the end of each reporting period , any changes in the company 's estimate of the liability will be recorded in the statement of operations as a component of other income/expense and will be recorded as an operating activity in the statement of cash flows . the timing and amount of future tax benefits associated with the tax receivable agreement are subject to change , and additional payments may be required which could be materially different from the current accrued liability . 43 acquisitions acquisitions are part of our strategy to increase sales and profits . w e completed multiple business combinations during 2017 and 2016. below is a summary of the aggregate purchase price of each of the transactions . replace_table_token_3_th principal factors affecting our results of operations our financial performance and results of operations are influenced by a variety of factors , including conditions in the residential , and non-residential and infrastructure construction markets , general economic conditions , changes in cost of goods sold , and seasonality and weather conditions . some of the more important factors are discussed below , as well as in the section entitled “ risk factors. ” infrastructure spending and residential and non-residential construction activities a large proportion of our net sales in our drainage pipe & products and water pipe & products segments are generated through public infrastructure projects . many of these projects are dependent on government funding , including subsidies and stimulus programs . government spending on infrastructure projects depends on the availability of public funds , which is influenced by various factors , including fiscal budgets , the level of public debt , interest rates , existing and anticipated tax revenues and the political climate . increases or reductions in governmental funding for these infrastructure projects can have a material effect on our net sales and results of operations .
| the increase was primarily attributable to an additional $ 166.8 million in net sales from u.s. pipe due to a full year of activity in 2017 compared to a partial period in 2016 , offset by a decrease in existing business net sales of $ 38.6 million due to sale of the u.s. concrete and steel pressure pipe business in july 2017. our canadian concrete and steel pressure pipe business has 52 declining volumes , resulting in an additional $ 24.3 million decrease in net sales . growth in u.s. pipe added approximately $ 9.1 million in net sales . gross profit gross profit was $ 108.3 million in the year ended december 31 , 2017 , a decrease of $ 12.3 million or 10.2 % from $ 120.6 million in the year ended december 31 , 2016 . the decrease in gross profit was due to losses incurred by our u.s. concrete and steel pressure pipe business of $ 7.0 million prior to its sale in addition to higher costs of freight , labor , and raw materials , namely scrap . other for the year ended december 31 , 2017 , ebitda decreased by $ 32.3 million due to the loss generated by the u.s. pressure pipe divestiture in july 2017. in addition , for the year ended december 31 , 2017 , ebitda decreased by $ 3.0 million for a goodwill impairment and $ 7.5 million for long-lived asset impairment charges . period from march 14 , 2015 to december 31 , 2015 total company the following table summarizes certain financial information relating to our operating results that have been derived from our consolidated successor financial statements for the period from march 14 , 2015 to december 31 , 2015. also included is certain information relating to the operating results as a percentage of net sales . replace_table_token_7_th net sales for the period were $ 604.3 million which included net of $ 39.1 million of sales from cretex . cost of goods sold was $ 513.7 million which resulted in gross profit of $ 90.6 million . selling , general and administrative 53 expenses were $ 121.6 million . interest expense was $ 46.0
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we will evaluate additional cost actions , as necessary , as the operational and financial impacts to our company continue to evolve . mou with the dupont indemnitees and settlement of pfoa multi-district litigation in january 2021 , we entered into a binding mou with dupont , corteva , and eid , reflecting the parties ' agreement to share potential future legacy pfas liabilities arising out of pre-july 1 , 2015 conduct ( i.e. , “ indemnifiable losses ” , as defined in the separation agreement , dated as of june 26 , 2015 , as amended , between eid and chemours ( the “ separation agreement ” ) ) until the earlier to occur of : ( i ) december 31 , 2040 ; ( ii ) the day on which the aggregate amount of qualified spend is equal to $ 4.0 billion ; or , ( iii ) a termination in accordance with the terms of the mou ( e.g. , non-performance of the escrow funding requirements pursuant to the mou by any party ) . qualified spend is further described in “ note 22 – commitments and contingent liabilities ” to the consolidated financial statements and is defined in the mou . the parties have agreed that , during the term of the cost-sharing arrangement , we will bear half of the cost of such future potential legacy pfas liabilities , and dupont and corteva will collectively bear the other half of the cost of such future potential legacy pfas liabilities . any recoveries of qualified spend from dupont and or corteva under the cost-sharing arrangement will be recognized as an offset to our cost of goods sold or selling , general , and administrative expense , as applicable , when realizable . any qualified spend incurred by dupont and or corteva under the cost-sharing arrangement will be recognized in our cost of goods sold or selling , general , and administrative expense , as applicable , when the amounts of such costs are probable and estimable . after the term of this arrangement , our indemnification obligations under the separation agreement would continue unchanged , subject in each case to certain exceptions set out in the mou . pursuant to the terms of the mou , the parties have agreed to release certain claims regarding our delaware lawsuit and pending confidential arbitration ( concerning the indemnification of specified liabilities that eid assigned to us in its spin-off ) , including that we have released any claim set forth in the complaint filed in the delaware lawsuit , any other similar claims arising out of or resulting from the facts recited by us in the complaint or the process and manner in which eid structured or conducted the spin-off , and any other claims that challenge the spin-off or the assumption of chemours liabilities ( as defined in the separation agreement ) by us and the allocation thereof , subject in each case to certain exceptions set out in the mou . the parties have further agreed not to bring any future , additional claims regarding the separation agreement or the mou outside of arbitration . in order to support and manage the payments for potential future pfas liabilities , the parties have also agreed to establish an escrow account . the mou provides that : ( i ) no later than each of september 30 , 2021 and september 30 , 2022 , we shall deposit $ 100 million into an escrow account and dupont and corteva shall together deposit $ 100 million in the aggregate into an escrow account , and ( ii ) no later than september 30 of each subsequent year through and including 2028 , we shall deposit $ 50 million into an escrow account and dupont and corteva shall together deposit $ 50 million in the aggregate into an escrow account . subject to the terms and conditions set forth in the mou , each party may be permitted to defer funding in any year ( excluding 2021 ) . additionally , if on december 31 , 2028 , the balance of the escrow account ( including interest ) is less than $ 700 million , we will make 50 % of the deposits and dupont and corteva together will make 50 % of the deposits necessary to restore the balance of the escrow account to $ 700 million . such payments will be made in a series of consecutive annual equal installments commencing on september 30 , 2029 pursuant to the escrow account replenishment terms as set forth in the mou . any funds that remain in escrow at termination of the mou will revert to the party that deposited them . as such , future payments made by us into the escrow account will remain an asset of chemours , and such payments will be reflected as a transfer to restricted cash on our consolidated balance sheets . no withdrawals are permitted from the escrow account before january 2026 , except for funding mutually agreed-upon third-party settlements in excess of $ 125 million . starting in january 2026 , withdrawals may be made from the escrow account to fund qualified spend if the parties ' aggregate qualified spend in that particular year is greater than $ 200 million . starting in january 2031 , the amounts in the escrow account can be used to fund any qualified spend . future payments from the escrow account for potential future pfas liabilities will be reflected on our consolidated statement of cash flows at that point in time . the parties will cooperate in good faith to enter into additional agreements reflecting the terms set forth in the mou prior to february 28 , 2021 . story_separator_special_tag 39 the chemours company in january 2021 , we and eid entered into settlement agreements with counsel representing the multi-district litigation ( “ mdl ” ) plaintiffs , providing for a settlement of all but one of the 96 filed and pending cases in the mdl , as well as additional pre-suit claims , under which those cases and claims of settling plaintiffs will be resolved for approximately $ 83 million ( the “ second mdl settlement ” ) . we will contribute approximately $ 29 million , and dupont and corteva will each contribute approximately $ 27 million to the second mdl settlement . at december 31 , 2020 , w e have accrued approximately $ 29 million associated with this matter , which we will pay once the settlements are finalized . the settlements are expected to be finalized in the first quarter of 2021 . change in segment reporting during the fourth quarter of 2020 , we changed the level of detail at which our codm regularly reviews and manages certain of our businesses , resulting in the bifurcation of our former fluoroproducts segment into two standalone reportable segments : thermal & specialized solutions ( formerly fluorochemicals ) and advanced performance materials ( formerly fluoropolymers ) . we now manage and report our operating results through four reportable segments : titanium technologies , thermal & specialized solutions , advanced performance materials , and chemical solutions . this change allows us to enhance our customer focus and better align our business models , resources , and cost structure to the specific current and future secular growth drivers of each business , while providing increased transparency to our shareholders . our historical segment information has been recast to conform to the current segment structure . senior unsecured notes due november 2028 in november 2020 , we issued an $ 800 million aggregate principal amount of 5.750 % senior unsecured notes due november 2028 ( the “ 2028 notes ” ) . we received proceeds of $ 790 million , net of underwriting fees and other related expenses of $ 10 million , which are deferred and amortized to interest expense over the term of the 2028 notes . the net proceeds from the 2028 notes were used , together with cash on hand , to purchase or redeem , as applicable , the remaining $ 908 million aggregate principal amount of our 6.625 % senior unsecured notes due may 2023 , denominated in u.s. dollars ( the “ 2023 dollar notes ” ) . in connection with the purchase and redemption of the remaining 2023 dollar notes , we incurred a loss on extinguishment of $ 22 million for the year ended december 31 , 2020. accounts receivable securitization facility in march 2020 , through a wholly-owned special purpose entity , we entered into an amended and restated receivables purchase agreement ( the “ amended purchase agreement ” ) under our accounts receivable securitization facility ( “ securitization facility ” ) . the amended purchase agreement amends and restates , in its entirety , the receivables purchase agreement dated as of july 12 , 2019 ( the “ original purchase agreement ” ) . under the amended purchase agreement , we no longer maintain effective control over the receivables that have been transferred to the bank , and such transfers are considered true sales of receivables . as a result , on march 9 , 2020 , we repurchased the then-outstanding receivables under the securitization facility through repayment of the secured borrowings under the original purchase agreement , resulting in net repayments of $ 110 million , and sold $ 125 million of our receivables ( the “ aggregate purchase limit ” ) to the bank . the receivables were sold at 100 % of face value and were derecognized from our consolidated balance sheets . pascagoula , mississippi plant closure in the second quarter of 2020 , we completed a business review of our aniline business , which generated $ 71 million in net sales during the year ended december 31 , 2019 , primarily as a raw materials pass-through business . based on our review , we determined that the aniline business is not core to our future strategy , and the decision was made to stop production at our pascagoula , mississippi manufacturing plant by the end of 2020. as a result , we recorded restructuring , asset-related , and other charges of $ 12 million , which are comprised of $ 6 million for property , plant , and equipment and other asset impairments , $ 4 million for environmental remediation liabilities , and $ 2 million for employee separation-related liabilities . in conjunction with this decision , approximately 75 employees will separate from the company in 2021 and will be subject to our customary involuntary termination benefits . the associated severance payments will also be made in 2021 . 40 the chemours company results of operations and business story_separator_special_tag roman ; font-weight : bold ; ; '' > our selling , general , and administrative ( “ sg & a ” ) expense decreased by $ 21 million ( or 4 % ) to $ 527 million for the year ended december 31 , 2020 , compared with sg & a expense of $ 548 million for the same period in 2019. the decrease in our sg & a expense for the year ended december 31 , 2020 was primarily attributable to our cost reductions and our cost savings initiatives in response to the covid-19 pandemic as further discussed in the “ liquidity and capital resources ” section of this md & a . the comparative decrease in our sg & a expense was also driven by $ 18 million incurred during the first quarter of 2019 in connection with the approved final consent order to settle certain legal and environmental matters at fayetteville .
| unfavorable currency movements also added a 2 % headwind to net sales in our advanced performance materials segment and a 1 % headwind to net sales in our titanium technologies and thermal & specialized solutions segments . the drivers of these changes for each of our segments are discussed further under the “ segment reviews ” section within this md & a . 41 the chemours company cost of goods sold our cost of goods sold ( “ cogs ” ) decreased by $ 561 million ( or 13 % ) to $ 3.9 billion for the year ended december 31 , 2020 , compared with cogs of $ 4.5 billion for the same period in 2019. the decrease in our cogs for the year ended december 31 , 2020 was primarily attributable to lower net sales , as well as lower distribution , freight , and logistics expenses . our cost reductions and cost savings initiatives in response to the covid-19 pandemic further reduced our cogs for the year ended december 31 , 2020. in comparison with the prior year , we also did not incur costs during the year ended december 31 , 2020 in connection with unplanned outages at certain of our operating facilities , or costs associated with the start-up of our opteon tm refrigerants facility in corpus christi , texas . we also incurred $ 150 million during the year ended december 31 , 2019 in connection with on-site environmental remediation activities at our fayetteville works site in fayetteville , north carolina ( “ fayetteville ” ) . our previous exit of the methylamines and methylamides business at our belle , west virginia production facility further contributed to our reduction in cogs for the year ended december 31 , 2020. these comparative reductions in cogs were partially offset by costs incurred in conjunction with the temporary idling of certain of our production lines in 2020 due to reduced customer demand during the covid-19 pandemic . our cogs decreased by $ 204 million ( or 4 % ) to $ 4.5 billion for the year ended december 31 , 2019 , compared with cogs
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we generally use the words “ believes , ” “ expects , ” “ intends , ” “ plans , ” “ anticipates , ” “ likely , ” “ will ” and similar expressions to identify forward-looking statements . such forward-looking statements , including those concerning our expectations , involve risks , uncertainties and other factors , some of which are beyond our control , which may cause our actual results , performance or achievements , or industry results , to be materially different from any future results , performance or achievements expressed or implied by such forward-looking statements . these risks , uncertainties and factors include , but are not limited to , those factors set forth in this annual report on form 10-k under “ item 1a . – risk factors ” above . except as required by applicable law , including the securities laws of the united states , we undertake no obligation to publicly update or revise any forward-looking statements , whether as a result of new information , future events or otherwise . you are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in this annual report on form 10-k . in reviewing management 's discussion and analysis of financial condition and results of operations , you should refer to our consolidated financial statements and the notes related thereto . critical accounting policies the following accounting policies are important to understanding our financial condition and results of operations and should be read as an integral part of the discussion and analysis of the results of our operations and financial position . for additional accounting policies , see note 2 to our consolidated financial statements , “ summary of significant accounting policies. ” the company has entered into a number of license agreements covering potential products using the company 's spd technology . the company receives fees and minimum annual royalties under certain license agreements and records fee income on a ratable basis each quarter . in instances when sales of licensed products by its licensees exceed minimum annual royalties , the company recognizes fee income as the amounts have been earned . certain of the fees are accrued by , or paid to , the company in advance of the period in which they are earned resulting in deferred revenue . royalty receivables are stated less allowance for doubtful accounts . the allowance represents estimated uncollectible receivables usually due to licensees ' potential insolvency . the allowance includes amounts for certain licensees where risk of default has been specifically identified . the company evaluates the collectability of its receivables on at least a quarterly basis and records appropriate allowances for uncollectible accounts when necessary . the company expenses costs relating to the development or acquisition of patents due to the uncertainty of the recoverability of these items . all of our research and development costs are charged to operations as incurred . our research and development expenses consist of costs incurred for internal and external research and development . these costs include direct and indirect overhead expenses . the company has historically used the black-scholes option-pricing model to determine the estimated fair value of each option grant . the black-scholes model includes assumptions regarding dividend yields , expected volatility , expected lives , and risk-free interest rates . these assumptions reflect our best estimates , but these items involve uncertainties based on market conditions generally outside of our control . as a result , if other assumptions had been used in the current period , stock-based compensation expense could have been materially impacted . furthermore , if management uses different assumptions in future periods , stock-based compensation expense could be materially impacted in future years . on occasion , the company may issue to consultants either options or warrants to purchase shares of common stock of the company at specified share prices . these options or warrants may vest based upon specific services being performed or performance criteria being met . in accounting for equity instruments that are issued to other than employees for acquiring , or in conjunction with selling , goods or services , the company is required to record consulting expenses based upon the fair value of such options or warrants on the earlier of the service period or the period that such options or warrants vest as determined using a black-scholes option pricing model and are marked to market quarterly using the black-scholes option valuation model . the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements , and reported amounts of revenues and expenses during the reporting periods . actual results could differ from these estimates . an example of a critical estimate is the full valuation allowance for deferred taxes that was recorded based on the uncertainty that such tax benefits will be realized in future periods . 27 story_separator_special_tag year ended december 31 , 2016 compared to the year ended december 31 , 2015 the company 's fee income from licensing activities for the year ended december 31 , 2016 was $ 1,236,097 , as compared to $ 2,007,482 for the year ended december 31 , 2015. a substantial majority of this decrease was principally the result of non-recurring fees earned in 2015 associated with the company 's participation in the milan expo , and other non-recurring fee income under several licenses in 2015. to a much lesser extent , fee income from automobiles and aircraft using the company 's technology was lower in 2016 due to : ( 1 ) lower story_separator_special_tag production levels of certain car models in the period ; ( 2 ) lower costs to the oem ( and therefore lower royalties per car to the company ) for glass incorporating the company 's technology on certain car models , and ( 3 ) a design improvement in certain aircraft that caused a short-term reduction in new window installations . these factors were partially offset by higher sales volumes on other car and aircraft models using the company 's technology . operating expenses decreased by $ 655,758 for the year ended december 31 , 2016 to $ 4,086,408 from $ 4,742,166 for the year ended december 31 , 2015. this decrease was the result of lower payroll and related costs ( $ 588,000 ) and lower marketing and investor relations costs ( $ 75,000 ) partially offset by higher bad debt expenses ( $ 157,000 ) . included in operating expenses are approximately $ 51,000 and $ 579,000 of non-cash compensation charges for the years ended december 31 , 2016 and 2015 , respectively . research and development expenditures decreased by $ 170,857 to $ 1,417,634 for the year ended december 31 , 2016 from $ 1,588,491 for the year ended december 31 , 2015. this decrease was the result of lower payroll and related costs ( $ 127,000 ) as well as lower material costs ( $ 29,000 ) . included in research and development expenses are approximately $ 16,000 and $ 146,000 of non-cash compensation charges for the years ended december 31 , 2016 and 2015 , respectively . the company 's net investment income for the year ended december 31 , 2016 was $ 29,535 as compared to $ 43,319 for the year ended december 31 , 2015. the difference was primarily due to lower interest earned from cash balances available for investment . no income tax benefit or expense was recorded for the years ended december 31 , 2016 and 2015. as a consequence of the factors discussed above , the company 's net loss was $ 4,238,410 ( $ 0.18 per common share ) for the year ended december 31 , 2016 as compared to $ 4,279,856 ( $ 0.18 per common share ) for the year ended december 31 , 2015 . 28 financial condition , liquidity and capital resources the company has primarily utilized its cash , cash equivalents , short-term investments , and the proceeds from its investments to fund its research and development , for marketing initiatives , and for other working capital purposes . the company 's working capital and capital requirements depend upon numerous factors , including , but not limited to , the results of research and development activities , competitive and technological developments , the timing and costs of patent filings , and the development of new licensees and changes in the company 's relationship with existing licensees . the degree of dependence of the company 's working capital requirements on each of the foregoing factors can not be quantified ; increased research and development activities and related costs would increase such requirements ; the addition of new licensees may provide additional working capital or working capital requirements , and changes in relationships with existing licensees would have a favorable or negative impact depending upon the nature of such changes . during 2017 , the company 's cash and cash equivalents balance increase by $ 46,244 principally as a result of cash proceeds of $ 1,523,333 from the sale of an investment partially offset by cash used for operations of $ 1,470,540 and cash used for the purchase of property and equipment of $ 6,549. at december 31 , 2017 the company had cash and short-term investments of $ 1,737,847 , working capital of $ 2,051,238 and total shareholders ' equity of $ 2,567,366. in february 2018 , a small group of long-time shareholders of the company made an interest-free five-year loan of $ 1.25 million to the company which , upon the occurrence of certain conditions , is expected to convert into common stock at a price equal to the market price of the company 's common stock when the loan was made , plus warrants exercisable at a premium to such market price . no payments are due on this note during its five-year term . our quarterly projected cash flow shortfall , based on our current operations adjusted for any non-recurring cash expenses for the next 12 months , is approximately $ 350,000-450,000 per quarter . we may eliminate some operating expenses in the future , which will further reduce our cash flow shortfall if needed . based on the expected benefit of expense reductions and the recently completed convertible debt offering detailed in the subsequent event section of this report , we expect to have sufficient working capital for the next 18 months of operations . since last year we have reduced our cash shortfall and are working to further reduce it and may seek new sources of financing . during 2016 , the company 's cash and cash equivalents balance decreased by $ 4,020,707 principally because of cash used for operations of $ 4,005,443 and cash used for the purchase of property and equipment of $ 11,715. at december 31 , 2016 the company had cash and short-term investments of $ 3,214,936 working capital of $ 4,219,704 and total shareholders ' equity of $ 4,904,926. during 2015 , the company 's cash and cash equivalents balance decreased by $ 1,857,227 principally because of cash used for operations of $ 3,580,812 and cash used for the purchase of property and equipment of $ 316,185 partially offset by cash proceeds from the maturity of a certificate of deposit of $ 1,491,295 as well as net proceeds of $ 548,475 from the exercise of options and warrants . at december 31 , 2015 the company had working capital of $ 8,206,022 and total shareholders ' equity of $ 9,075,805. the company expects to use
| as such , royalties from these five car models was accretive to the company 's royalty revenue . production efficiencies are expected to continue and accelerate with the introduction of the higher vehicle production volumes for various car models going forward , and the company expects that lower pricing per square foot of the company 's technology could expand the market opportunities , adoption rates , and revenues for its technology in automotive and non-automotive applications . the company expects to generate additional royalty income from the near-term introduction of additional new car and aircraft models from other oem 's ( original equipment manufacturers ) , continued growth of sales of products using the company 's technology for the marine industry in yachts and other watercraft , in trains , in museums , and in larger architectural projects . because the company 's license agreements typically provide for the payment of royalties by a licensee on product sales within 45 days after the end of the quarter in which a sale of a licensed product occurs ( with some of the company 's more recent license agreements providing for payments on a monthly basis ) , and because of the time period which typically will elapse between a customer order and the sale of the licensed product and installation in a home , office building , automobile , aircraft , boat or any other product , there could be a delay between when economic activity between a licensee and its customer occurs and when the company gets paid its royalty resulting from such activity . year ended december 31 , 2017 compared to the year ended december 31 , 2016 the company 's fee income for the year ended december 31 , 2017 was $ 1,509,070 , as compared to $ 1,236,097 for the year ended december 31 , 2016. a substantial majority of this increase was principally the result of increase fees earned during 2017 from licensees focused in automotive , marine , display and
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due to the uncertainty many wireless carrier companies delay ed investments in location technologies . additionally , trueposition experienced reduced hardware and software license sales in the international markets which was partially offset by skyhook revenue subsequent to its acquisition in early 2014. in mid november 2014 , skyhook was notified that one of its significant customers is not expected to renew its contract for 2015. as a result , i t is expected that approximately 3 0-40 % of skyhook 's revenue will n ot be recurring for 2015. the decrease in revenue during 2013 was primarily due to reduced hardware and software license sales of $ 2.9 million and reduced services revenue of $ 2.5 million . sales of hardware and services to existing customers with installed networks can vary from year to year as such sales are dependent on any expansion or maintenance of the networks . adjusted oibda we define adjusted oibda as revenue less operating expenses and selling , general and administrative expenses ( excluding stock compensation ) . our chief operating decision maker and management team use this measure of performance in conjunction with other measures to evaluate our businesses and make decisions about allocating resources among our businesses . we believe this is an important indicator of the operational strength and performance of our businesses , including each business 's ability to service debt and fund capital expenditures . in addition , this measure allows us to view operating results , perform analytical comparisons and benchmarking between businesses and identify strategies to improve performance . this measure of performance excludes such costs as depreciation and amortization , stock-based compensation , separately reported litigation settlements and restructuring and impairment charges that are included in the measurement of operating income pursuant to gaap . accordingly , adjusted oibda should be considered in addition to , but not as a substitute for , operating income , net income , cash flow provided by operating activities and other measures of financial performance prepared in a ccordance with gaap . see note 15 to the accompanying consolidated financial statements for a reconciliation of adjusted oibda to earnings ( loss ) from continuing operations before income taxes . adjusted oibda decreased $ 9.0 million and $ 6.0 million in the years ended december 31 , 2014 and 2013 , respectively , as compared to the corresponding prior year periods . the decrease in adjusted oibda during 2014 was primarily a result of increased legal expenses , cost of the skyhook acquisition and skyhook generating negative adjusted oibda , partially offset by the full year impact of cost reduction measures undertaken in 2013. the reduction in overall revenue , discussed above , of $ 8.3 million was offset by lower cost of goods sold of $ 15.2 million , primarily due to reduced international sales , which have lower margins than domestic sales . during 2013 trueposition entered into an international project for which revenue was only recognized to the extent cash was received , as future collectability of revenue was unsure . therefore , the gross margin on that particular project was dependent on the payments received from the customer . this project has been canceled as of the end of 2013 and therefore there is less revenue and cost of goods sold for the year ended december 31 , 2014. the decrease in adjusted oibda in 2013 was primarily due to lower revenue , increased legal expenses and the cost of the skyhook acquisition partially offset by lower cost of goods sold and the impacts of cost reduction initiatives . during 2013 trueposition entered into an international project for which revenue was only recognized to the extent cash was received , as future collectability was unsure . gross margins on this particular project were impacted negatively throughout the year ended december 31 , 2013. the decrease in cost of goods sold during 2013 is primarily the result of an $ 11.2 million inventory obsolescence adjustment recorded in 2012. legal expenses increased $ 5.8 million and $ 8.7 million in the years ended december 31 , 2014 and 2013 , respectively , as compared to the prior years . the increase in legal costs during 2014 and 2013 is primarily a result of trueposition 's antitrust lawsuit arising from the standard setting processes for lte wireless data communication technology as it pertains to location technology . legal expenses are included in selling , general and administrative expenses . additionally , approximately $ 3 million of lobbying costs were incurred during each of the years ended december 31 , 2014 and 2013 related to the indoor accuracy regulations described above . lobbying expenses are also included in selling , general and administrative expenses . these costs are not anticipated to continue significantly beyond the first quarter of 2015 based on potential rulemaking timelines . ii- 7 merger costs of $ 958 thousand and $ 624 thousand related to the skyhook acquisition were incurred in 2014 and 2013 , respectively . merger costs are included in selling , general and administrative costs . operating expenses , research and development , and selling , general and administrative , excluding legal expenses and merger costs , discussed above , increased by $ 9.7 million and decreased by $ 4.7 million in the years ended december 31 , 2014 and 2013 , respectively , as compared to the corresponding prior year periods . the increase in the current year was primarily due to o perating and selling , general and administrative expenses related to skyhook of $ 13.5 million against revenue of $ 8.4 million for the year ended december 31 , 2014. the decrease in 2013 was primarily the result of the company 's implementation of cost reduction initiatives , including personnel and contractor headcount reductions and curtailment of other expenses . operating income ( loss ) operating income decreased $ 42.9 million and $ 8.0 million for the years ended december 31 , 2014 and 2013 , respectively , as compared to the corresponding prior year periods . story_separator_special_tag in addition to those items impacting adjusted oibda , operating income ( loss ) for the year ended december 31 , 201 4 was further impacted by an in crease in depreciation and amortization of $ 4.7 million and a $ 35.2 million impairment of goodwill and intangible assets , partially offset by a $ 6.0 million favorable legal settlement of the antitrust lawsuit in july 2014. in addition to those items impacting adjusted oibda , operating income ( loss ) for the year ended december 31 , 2013 was further impacted by an increase in stock-based compensation of $ 3.4 million partially offset by a decrease in depreciation and amortization of $ 1.5 million as compared to the same period in 2012. stock-based compensation expense increased $ 3 thousand and $ 3.4 million for the years ended december 31 , 2014 and 2013 , respectively . the increase in 2013 is primarily a result of a significant reduction in the estimated fair value of trueposition during 2012. the decrease in the estimated fair value of trueposition was driven , in part , by the determination of one of skyhook 's two major customers ' not to renew its contract and general uncertainty about the domestic market . depreciation and amortization increased by $ 4.7 million and decreased $ 1.5 million for the years ended december 31 , 2014 and 2013 , respectively , as compared to the corresponding prior year periods . the increase in 2014 was due to the acquisition of skyhook during the year , and the decrease in 2013 w as the result of certain assets becoming fully amortized . as discussed above , skyhook was notified that one of its significant customers was not expected to renew its contract for 2015. as a result , approximately 30-40 % of skyhook 's revenue will not be recurring for 2015. due to this anticipated decline in skyhook 's operations , the company performed a step 2 impairment test to determine the fair value of skyhook and recorded a $ 35.2 million impairment loss related to trueposition 's goodwill and intangible assets related to skyhook during december 2014 . see note 7 in the accompanying consolidated financial statements for additional discussion regarding this impairment loss . ii- 8 other income and expense components of other income ( expense ) are presented in the table below . replace_table_token_6_th interest expense interest expense during the year ended december 31 , 2014 is attributable to two margin loans entered into with each of the lenders party thereto by broadbandspv on october 30 , 2014 , in connection with and prior to the effective ness of the broadband spin-off . see note 8 in the accompanying consolidated financial statements for additional information on the margin loan agreements . dividend and interest income dividend and interest income decreased $ 1.5 million and increased $ 1.5 million for each of the years ended december 31 , 2014 and 2013 , respectively , as compared to the corresponding prior year periods . although the time warner cable dividend rate increased from $ 0.65 per share per quarter in 2013 to $ 0.75 per share per quarter in 2014 , interest and dividend income decreased in 2014 due to contractual commitments on the time warner cable shares , as a portion of the dividends were passed through to the counterparty in 2014 based on the written call option contracts on time warner cable shares . the increase in 2013 was primarily due to increasing dividend rates paid on time warner cable shares from $ 0.56 per share in 2012 to $ 0.65 per share in 2013. share of earnings ( losses ) of affiliates share of losses from affiliates increased $ 51.5 million and $ 76.1 million during the year s ended december 31 , 2014 and 2013 , respectively , as compared to the corresponding prior year periods . share of losses from affiliates is attributable to the company 's ownership interest in charter . in may 2013 , the company acquired approximately 26.9 million shares of common stock and approximately 1.1 million warrants in charter for approximately $ 2.6 billion , which represented an approximate 27 % beneficial ownership ( including the warrants on an as if converted basis ) in charter at the time of purchase . upon acquisition , the company allocated the excess basis , between the book basis of charter and fair value of the shares acquired , and ascribed remaining useful lives of 7 years and 13 years to property and equipment and customer relationships , respectively , and indefinite lives to franchise fees , trademarks and goodwill . outstanding debt is amortized over the contractual period using the effective interest rate method . amortization related to debt and intangible assets with identifiable useful lives is included in the company 's share of earnings ( losses ) from affiliates line item in the accompanying consolidated statements of operations and aggregated $ 81.2 million and $ 44.3 million , net of related taxes , for the year s ended december 31 , 2014 and 2013 , respectively . see note 6 in the accompanying notes to the consolidated financial statements for additional discussion of the company 's investment in charter . ii- 9 the following is a discussion of charter 's stand alone results of operations . in order to provide a better understanding of charter 's operations , we have included a summarized presentation of charter 's results from operations . charter is a separate publicly traded company and additional information about charter can be obtained through its website and public filings .
| the fcc recently passed certain indoor accuracy standards for e-9-1-1 services that trueposition believes its services would meet or exceed which could provide further opportunity for work with wireless carriers in the future . charter is one of the largest providers of cable services in the united states with approximately 6.2 million residential and commercial customers at december 31 , 2014 , offering a variety of entertainment , information and communications solutions to residential and commercial customers , including traditional cable video programming , internet services , and voice services , as well as advanced video services such as ondemandtm , hd television and dvr service . charter also sells local advertising on cable networks and provides fiber connectivity to cellular towers . its infrastructure consists of a hybrid of fiber and coaxial cable plant with approximately 12 . 9 million estimated passings , with 97 % at 550 mhz or greater and 9 8 % of plant miles two-way active and 99 % of plant all-digital . a national ip infrastructure interconnects charter markets . liberty acquired its interest in charter on may 1 , 2013. at december 31 , 2014 , liberty broadband owned approximately 28.8 million shares of charter common stock , representing an approximate 26 % ownership interest in the issued and outstanding shares . under the charter stockholders agreement , liberty has the right to nominate four directors to the charter board of directors , subject to certain exclusions and requirements . liberty broadband also has the right to cause one of its nominees to serve on the nominating and corporate governance , audit and compensation and benefits committees of the board , provided they meet the independence and other qualifications for membership on those committees . these rights were transferred from liberty to liberty broadband in connection with the broadband spin-off . key drivers of revenue trueposition earns revenue from the sale of hardware and licensing of software required to generate location records for wireless phones and other wireless devices on a cellular network and from the
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the goodwill impairment was included as a component of `` income ( loss ) from operations '' in our consolidated statement of operations for the year ended december 31 , 2018. for the remaining reporting units , qualitative assessments were performed , and we concluded that it was more likely than not that the fair value of each such reporting unit was more than the carrying value of the reporting unit . income taxes . our tax provisions are based on our expected taxable income , statutory rates and tax-planning opportunities available to us in the various jurisdictions in which we operate . the determination of taxable income in any jurisdiction requires the interpretation of the related tax laws . we are at risk that a taxing authority 's final determination of our tax liabilities may differ from our interpretation . our effective tax rate may fluctuate from year to year , as our operations are conducted in different taxing jurisdictions , the amount of pre-tax income fluctuates and our estimates regarding the realizability of items such as foreign tax credits may change . we account for any applicable interest and penalties on uncertain tax positions as a component of our provision for income taxes on our financial statements . current income tax expense represents either nonresident withholding taxes or the liabilities expected to be reflected on our income tax returns for the current year , while the net deferred income tax expense or benefit represents the change in the balance of deferred tax assets or liabilities as reported on our balance sheet . we establish valuation allowances to reduce deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized in the future . provisions for valuation allowances impact our income tax provision in the period in which such adjustments are identified and recorded . as further discussed in note 6— '' income taxes , '' in the notes to consolidated financial statements included in this report , the u.s. tax reform legislation commonly referred to as the tax cuts and jobs act ( the `` tax act '' ) was enacted on december 22 , 2017 , and significantly affected how the united states imposes income tax on multinational corporations . in accordance with sec staff accounting bulletin no . 118 ( `` sab no . 118 '' ) , we recorded provisional estimates to reflect the effects of the provisions of the tax act on our income tax assets and liabilities as of december 31 , 2017. we have collected additional information to complete our assessment of the impacts of these changes on our operations and recorded income tax assets and liabilities as of december 31 , 2019. for a summary of our major accounting policies and a discussion of recently adopted accounting standards , please see note 1— '' summary of major accounting policies '' in the notes to consolidated financial statements included in this report . 29 liquidity and capital resources we consider our liquidity and capital resources adequate to support our operations and growth initiatives . as of december 31 , 2019 , we had working capital of $ 643 million , including cash and cash equivalents of $ 374 million . additionally , we had $ 500 million available through our revolving credit facility under a credit agreement further described below . cash flows for the years ended december 31 , 2019 , 2018 and 2017 are summarized as follows : replace_table_token_12_th operating activities our principal source of cash from operating activities is our net income ( loss ) , adjusted for noncash items . our primary sources and uses of cash flows from operating activities for the years ended december 31 , 2019 , 2018 and 2017 are as follows : replace_table_token_13_th net cash provided by operating activities for the years ended december 31 , 2019 , 2018 and 2017 was $ 158 million , $ 37 million and $ 136 million , respectively , was affected by the following : accounts receivable and contract assets - the decrease in cash related to accounts receivable and contract assets in 2019 and 2018 reflects higher business activity in the fourth quarter of both years due to commencement of new projects , along with timing of project milestones and customer payments . the increase in cash in 2017 was the result of lower revenue and activity in general . inventory - the decrease in cash related to inventory as of december 31 , 2019 and 2018 was primarily due to increases in manufactured products ' inventory related to increases in backlog . the increase in cash in 2017 was a result of lower revenue and activity in general . 30 current liabilities - the increase in cash related to changes in current liabilities in 2019 reflected higher business activity in the fourth quarter and primarily the timing of vendor payments for related goods and services . the increase in cash in 2018 reflected timing of vendor payments . the decrease in cash in 2017 was the result of lower revenue and activity in general . investing activities in 2019 , we used $ 135 million in net investing activities , primarily for capital expenditures of $ 148 million . our 2019 capital expenditures included $ 68 million in our rov segment to upgrade our fleet of work-class rovs , adding 13 rovs to our fleet , $ 48 million in our subsea products segment to add capabilities and maintain current operations and $ 19 million in our subsea projects segment , which included completion of the msv ocean evolution , which was placed in service in the second quarter of 2019. in 2018 , we used $ 99 million in net investing activities . we used $ 109 million for capital expenditures and $ 69 million for business acquisitions , totaling $ 178 million in investments . these investments included $ story_separator_special_tag the goodwill impairment was included as a component of `` income ( loss ) from operations '' in our consolidated statement of operations for the year ended december 31 , 2018. for the remaining reporting units , qualitative assessments were performed , and we concluded that it was more likely than not that the fair value of each such reporting unit was more than the carrying value of the reporting unit . income taxes . our tax provisions are based on our expected taxable income , statutory rates and tax-planning opportunities available to us in the various jurisdictions in which we operate . the determination of taxable income in any jurisdiction requires the interpretation of the related tax laws . we are at risk that a taxing authority 's final determination of our tax liabilities may differ from our interpretation . our effective tax rate may fluctuate from year to year , as our operations are conducted in different taxing jurisdictions , the amount of pre-tax income fluctuates and our estimates regarding the realizability of items such as foreign tax credits may change . we account for any applicable interest and penalties on uncertain tax positions as a component of our provision for income taxes on our financial statements . current income tax expense represents either nonresident withholding taxes or the liabilities expected to be reflected on our income tax returns for the current year , while the net deferred income tax expense or benefit represents the change in the balance of deferred tax assets or liabilities as reported on our balance sheet . we establish valuation allowances to reduce deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized in the future . provisions for valuation allowances impact our income tax provision in the period in which such adjustments are identified and recorded . as further discussed in note 6— '' income taxes , '' in the notes to consolidated financial statements included in this report , the u.s. tax reform legislation commonly referred to as the tax cuts and jobs act ( the `` tax act '' ) was enacted on december 22 , 2017 , and significantly affected how the united states imposes income tax on multinational corporations . in accordance with sec staff accounting bulletin no . 118 ( `` sab no . 118 '' ) , we recorded provisional estimates to reflect the effects of the provisions of the tax act on our income tax assets and liabilities as of december 31 , 2017. we have collected additional information to complete our assessment of the impacts of these changes on our operations and recorded income tax assets and liabilities as of december 31 , 2019. for a summary of our major accounting policies and a discussion of recently adopted accounting standards , please see note 1— '' summary of major accounting policies '' in the notes to consolidated financial statements included in this report . 29 liquidity and capital resources we consider our liquidity and capital resources adequate to support our operations and growth initiatives . as of december 31 , 2019 , we had working capital of $ 643 million , including cash and cash equivalents of $ 374 million . additionally , we had $ 500 million available through our revolving credit facility under a credit agreement further described below . cash flows for the years ended december 31 , 2019 , 2018 and 2017 are summarized as follows : replace_table_token_12_th operating activities our principal source of cash from operating activities is our net income ( loss ) , adjusted for noncash items . our primary sources and uses of cash flows from operating activities for the years ended december 31 , 2019 , 2018 and 2017 are as follows : replace_table_token_13_th net cash provided by operating activities for the years ended december 31 , 2019 , 2018 and 2017 was $ 158 million , $ 37 million and $ 136 million , respectively , was affected by the following : accounts receivable and contract assets - the decrease in cash related to accounts receivable and contract assets in 2019 and 2018 reflects higher business activity in the fourth quarter of both years due to commencement of new projects , along with timing of project milestones and customer payments . the increase in cash in 2017 was the result of lower revenue and activity in general . inventory - the decrease in cash related to inventory as of december 31 , 2019 and 2018 was primarily due to increases in manufactured products ' inventory related to increases in backlog . the increase in cash in 2017 was a result of lower revenue and activity in general . 30 current liabilities - the increase in cash related to changes in current liabilities in 2019 reflected higher business activity in the fourth quarter and primarily the timing of vendor payments for related goods and services . the increase in cash in 2018 reflected timing of vendor payments . the decrease in cash in 2017 was the result of lower revenue and activity in general . investing activities in 2019 , we used $ 135 million in net investing activities , primarily for capital expenditures of $ 148 million . our 2019 capital expenditures included $ 68 million in our rov segment to upgrade our fleet of work-class rovs , adding 13 rovs to our fleet , $ 48 million in our subsea products segment to add capabilities and maintain current operations and $ 19 million in our subsea projects segment , which included completion of the msv ocean evolution , which was placed in service in the second quarter of 2019. in 2018 , we used $ 99 million in net investing activities . we used $ 109 million for capital expenditures and $ 69 million for business acquisitions , totaling $ 178 million in investments . these investments included $
| our four business segments within the energy services and products business are remotely operated vehicles ( `` rovs '' ) , subsea products , subsea projects and asset integrity . we report our advanced technologies business as one segment . unallocated expenses are expenses not associated with a specific business segment . these consist of expenses related to our incentive and deferred compensation plans , including restricted stock and bonuses , as well as other general expenses . 24 our business primarily depends on the level of spending on offshore developments and related operating activities by our customers in the energy industry . during 2019 , we generated approximately 79 % of our revenue from services and products we provide to the energy industry . our results for 2019 reflect the impact of pre-tax charges of $ 252 million recognized during the year , most notably in the fourth quarter . activity levels and operating performance within our energy segments exceeded our expectations , led by our rov and subsea products segments . operating performance by our advanced technologies segment fell well short of expectations , primarily due to execution issues and customer-driven project delays and cancellations within our entertainment business . overall , our 2019 revenue increased 7 % to $ 2.0 billion , with revenue increases in our rov , subsea products and advanced technologies segments partially offset by revenue decreases in our subsea projects and asset integrity segments . in 2019 , on a consolidated level , we had a net loss of $ 348 million , or diluted loss of $ 3.52 per share , compared to net loss of $ 212 million , or diluted loss of $ 2.16 per share , in 2018 . the $ 136 million decrease from 2018 net loss was primarily attributable to pre-tax charges of $ 252 million recorded in 2019 for impairments , write-downs and write-offs of certain equipment , intangible assets , goodwill and inventory , and other expenses , most notably in our subsea projects and asset integrity segments . this compares to pre-tax charges
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we have made concerted efforts to realign our r & d organization to better fit the future direction of our company , including dedicating resources to focus on current product extensions and enhancements to meet our short term technology needs . 22 story_separator_special_tag style= '' vertical-align : bottom ; background-color : # cceeff ; padding-left:2px ; padding-top:2px ; padding-bottom:2px ; padding-right:2px ; '' > $ ( 1,788 ) $ ( 8,492 ) ( 78.9 ) % in 2015 , our results included $ 4.8 million of a loss on the sale of the arlon specialty polyimide and epoxy-based laminates business and $ 2.4 million of receivables related to the tax indemnities that were reversed , which related to the release of uncertain tax positions . comparing 2016 to 2015 , we recognized a net favorable impact of $ 1.5 million due to copper hedging transactions and a net unfavorable impact of $ 1.9 million due to foreign currency transactions . additionally , in the third quarter of 2016 , we had $ 0.8 million of expense for tax indemnity receivables that were reversed , which related to the release of uncertain tax positions , and in the first quarter of 2016 , we recorded an additional loss related to the sale of the arlon polyimide and thermoset laminate business of $ 0.2 million . 24 income tax expense replace_table_token_8_th our effective tax rate for 2016 was 41.3 % compared to 30.0 % in 2015. the increase from 2015 is primarily related to withholding taxes on off-shore cash movements , a change to our assertion that certain foreign earnings are permanently reinvested and a change in the mix of earnings attributable to higher-taxing jurisdictions , offset by benefits associated with an increase in the reversal of reserves for uncertain tax positions . this increase was offset by the prior year being unfavorably impacted by adjustments related to finalization of 2014 income tax year returns . the prior year also included a benefit due to a change of the state tax rate as a result of a legal reorganization and release of valuation allowance on certain state tax attributes . historically , our intention was to permanently reinvest the majority of our foreign earnings indefinitely or to distribute them only when it is tax efficient to do so . as a result of changes in business circumstances and our long-term business plan , with respect to offshore distributions , we modified our assertion of certain accumulated foreign subsidiary earnings considered permanently reinvested during 2016. this change resulted in accrual of a deferred tax liability of $ 6.1 million associated with distribution related foreign taxes on undistributed earnings of our chinese subsidiaries that are no longer considered permanently reinvested . in the event that we distributed these funds to other offshore subsidiaries , these taxes would become due . in addition , we incurred $ 6.3 million of withholding taxes related to distributions from china . backlog our backlog of firm orders was $ 106.5 million as of december 31 , 2016 , as compared to $ 63.3 million as of december 31 , 2015 . acs , ems , pes , and other operating segments experienced year over year increases in backlog of $ 13.2 million , $ 15.8 million , $ 13.8 million and $ 0.4 million , respectively . contributing to the year over year change in backlog was an improvement in general market conditions . additionally , the 2016 backlog contains $ 7.2 million related to the dewal business . the backlog of firm orders is expected to be filled within the next 12 months . 2015 vs. 2014 net sales ( dollars in thousands ) 2015 2014 percent change net sales $ 641,443 $ 610,911 5.0 % net sales increased by 5.0 % in 2015 from 2014 . the increase in net sales in 2015 was composed of an organic sales decrease of 6.9 % and a negative currency impact of 4.5 % , offset by arlon acquisition related growth of 16.4 % . the decline in organic sales was the result of a decline in all operating segments . the acs operating segment net sales increased 11.1 % : organic sales decline of 11.4 % and negative currency impact of 1.3 % , which partially offset acquisition growth of 23.8 % . the ems operating segment net sales increased 4.2 % : organic sales decline of 7.9 % and negative currency impact of 1.8 % , which partially offset acquisition growth of 13.8 % . the pes operating segment net sales declined 12.5 % : organic sales decline of 0.5 % combined with a negative currency impact of 12.0 % . see “ segment sales and operations ” below for further discussion on segment performance . gross margin replace_table_token_9_th gross margin as a percentage of net sales declined by 170 basis points to 36.7 % in 2015 compared to 38.4 % in 2014 . our 2015 results included approximately $ 1.8 million of purchase accounting related to the arlon acquisition , of which , $ 1.6 million was the non-recurring fair value adjustment for inventory . the year over year decline was primarily the result of lower organic net sales and lower gross margin contribution related to the arlon business . this was partially offset by improvements in supply chain , product quality and procurement , which favorably impacted margin performance . 25 selling , general and administrative expenses replace_table_token_10_th selling , general and administrative ( sg & a ) expenses increased by 5.0 % in 2015 compared with 2014 . as a percentage of net sales , selling , general and administrative expenses were 20.5 % for each of 2015 and 2014. our 2015 results included approximately $ 9.6 million of charges comprised of $ 1.6 million of severance related charges , $ 4.8 million in integration expenses related to the arlon acquisition and $ 3.2 million related to the establishment of an environmental reserve . our 2014 results included approximately $ 2.3 million of acquisition costs . story_separator_special_tag excluding the charges noted above , sg & a expense decreased $ 1.1 million and as a percentage of sales , decreased by 110 basis points from 20.1 % in 2014 to 19.0 % in 2015 . the decrease in expenses , excluding these charges , is due to a variety of factors , including $ 12.0 million of lower incentive and equity compensation costs , $ 1.1 million of lower costs related to asbestos related liabilities , $ 1.0 million of lower severance and lower operational spending and other discrete items incurred in 2014 of $ 2.2 million . partially offsetting these amounts are increases in expenses due to a variety of factors , including $ 13.5 million of sg & a expenses related to the arlon business ( including $ 5.8 million of intangible amortization associated with the acquisition ) and $ 1.8 million of defined benefit pension and retirement plan costs . research and development expenses replace_table_token_11_th research and development ( r & d ) expenses increased by 20.8 % in 2015 compared with 2014 . as a percentage of sales , r & d costs increased from 3.7 % in 2014 to 4.3 % in 2015. the overall increase is due to $ 1.8 million of expenses related to the arlon business as well as an increase in investments that are targeted at developing new platforms and technologies focused on long term growth initiatives at our innovation centers in the u.s. and asia . equity income in unconsolidated joint ventures ( dollars in thousands ) 2015 2014 percent change equity income in unconsolidated joint ventures $ 2,890 $ 4,123 ( 29.9 ) % equity income in unconsolidated joint ventures declined approximately 29.9 % in 2015 from 2014 . the decrease was due to lower demand due to weakness in the japanese domestic and export markets , particularly lcd tvs , domestic mobile phones and general industrial applications , change in product mix and unfavorable currency exchange rate shifts , including depreciation of the japanese yen . interest income ( expense ) , net ( dollars in thousands ) 2015 2014 percent change interest income ( expense ) , net $ ( 4,480 ) $ ( 2,946 ) 52.1 % interest income ( expense ) , net , was higher expense by 52.1 % in 2015 from 2014 . the increase year over year was driven by the increase in long term debt associated with the arlon acquisition , which occurred in january of 2015. other income ( expense ) , net ( dollars in thousands ) 2015 2014 percent change other income ( expense ) , net $ ( 8,492 ) $ ( 1,194 ) 611.2 % 26 other income ( expense ) , net was higher expense of $ 7.3 million from 2014 to 2015. our 2015 results included charges of $ 4.8 million due to a loss on the sale of the arlon specialty polyimide and epoxy-based laminates business and $ 2.4 million due to receivables related to tax indemnities that were reversed , which related to the release of uncertain tax positions . income tax expense replace_table_token_12_th in 2015 , the difference between the our effective tax rate and the statutory federal tax rate was favorably impacted by taxable income generated in countries with a lower tax rate to that of the united states , research and development credits , a tax benefit related to a change in the effective state rate and release of valuation allowance on certain state tax attributes . the rate was unfavorably impacted by reserves for uncertain tax positions , change to prior estimates and nondeductible expenses . the rate decreased from 2014 primarily due to a reduction in the level of repatriation of current foreign earnings , increased reversals of uncertain tax benefits and deferred state tax benefits due to the acquisition of arlon , partially offset with a shift of earnings from low tax to high tax jurisdictions . backlog our backlog of firm orders was $ 63.3 million as of december 31 , 2015 , as compared to $ 77.0 million as of december 31 , 2014 . the decrease at the end of 2015 was primarily related to pes , acs and our other businesses , which experienced decreases in backlog of $ 7.3 million , $ 9.1 million and $ 0.1 million , respectively . these declines were slightly offset by ems , which experienced an increase of $ 2.8 million in the backlog . contributing to the year over year change in backlog were customer delivery improvements , which reduced customer ordering cycles , combined with general market conditions . additionally , the 2015 backlog contains $ 7.4 million related to the arlon businesses . segment sales and operations core strategic advanced connectivity solutions replace_table_token_13_th the acs operating segment is comprised of high frequency circuit material products used for making circuitry that receives , processes and transmits high frequency communications signals , in a wide variety of markets and applications , including wireless communications , high reliability , wired infrastructure and automotive , among others . 2016 vs. 2015 net sales in this segment increased by 3.8 % in 2016 compared to 2015 . currency fluctuations decreased net sales by 1.0 % . the increase in net sales is driven primarily by automotive radar applications for advanced driver assistance systems ( 23.1 % ) and aerospace and defense applications ( 8.7 % ) and other applications ( 30.0 % ) , partially offset by a decline in the wireless telecom market ( -3.5 % ) and lower demand in the satellite tv dish applications ( -22.2 % ) . operating income declined by 2.6 % in 2016 from 2015 . as a percentage of net sales , 2016 operating income was 15.8 % , a 110 basis point decrease as compared to the 16.9 % reported in 2015 . operating income in 2016 was positively impacted by higher sales , however this increase was offset by unfavorable mix , unfavorable volume pricing and absorption , higher incentive compensation and additional corporate selling , general and administrative expense allocations .
| our 2016 results increased principally due to $ 7.7 million of incentive compensation due to the company meeting performance incentive targets and $ 4.5 million of costs associated with non-acquisition related strategic projects . these increases were partially offset by cost savings from cost containment initiatives . our 2016 results include $ 3.8 million of acquisition costs related to dewal and dsp and 2015 included $ 4.8 million in integration expenses related to the arlon acquisition and $ 3.2 million related to the establishment of an environmental reserve . research and development expenses replace_table_token_7_th research and development ( r & d ) expenses increased by 3.4 % in 2016 compared with 2015 . as a percentage of sales , r & d costs increased from 4.3 % in 2015 to 4.4 % in 2016. the overall increase is due to continued investments that are targeted at developing new platforms and technologies focused on long-term growth initiatives at our innovation centers in the u.s. and asia . equity income in unconsolidated joint ventures ( dollars in thousands ) 2016 2015 percent change equity income in unconsolidated joint ventures $ 4,146 $ 2,890 43.5 % equity income in unconsolidated joint ventures increased 43.5 % in 2016 from 2015. the increase was due to the appreciation of the japanese yen against the u.s. dollar , as the currency value significantly changed . excluding the impact of the currency change , net sales increased due to higher demand primarily in the portable electronics market . interest income ( expense ) , net ( dollars in thousands ) 2016 2015 percent change interest income ( expense ) , net $ ( 3,930 ) $ ( 4,480 ) ( 12.3 ) % interest income ( expense ) , net , was lower expense by 12.3 % in 2016 from 2015 . the decrease year over year was driven by $ 103.4 million of debt repayments in 2016 on borrowings incurred in january 2015 associated with the arlon acquisition . other income ( expense ) , net ( dollars in thousands ) 2016 2015 percent change other income ( expense ) , net < td
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pursuant to such registration statement , we sold an aggregate of 5,000,000 shares of our common stock at a price of $ 15.00 per share for aggregate cash proceeds of approximately $ 67.2 million , net of underwriting discounts , commissions , and offering costs . the ipo closed on october 12 , 2016 . 58 we expect to continue to incur net losses for the foreseeable future as we commercialize our product in the united states , including supporting our sales and marketing efforts in the united states , continuing research and development efforts , and seeking regulatory approval for new products and product enhancements . we may need additional funding to pay expenses relating to our operating activities , including selling , general and administrative expenses and research and development expenses . adequate funding , if needed , may not be available to us on acceptable terms , or at all . our failure to obtain sufficient funds on acceptable terms could have a material adverse effect on our business , results of operations or financial condition . components of our results of operations revenue total revenue consists of international sales of an earlier generation of our obalon balloon system . revenue consists of sales of our obalon balloon system to distributors or directly to physicians in international markets outside of the middle east , and revenue , related party reflects sales of our obalon balloon system to bader in the middle east . during the third quarter of 2015 , we discontinued sales in international markets other than the middle east , and for the year ended december 31 , 2016 , total revenue consisted of sales of our obalon balloon system to bader in the middle east . in january 2017 we shifted our focus to selling our obalon balloon system in the united states , which we anticipate will be our primary market . we expect that , as a result , total revenue will increase as we implement our u.s. sales strategy and our revenue from international sales will constitute a smaller percentage of total revenue . however , the degree to which our revenue increases depends on many factors , including acceptance of our obalon balloon system by doctors and patients , the emergence of competing products and general economic trends . cost of revenue and gross margin cost of revenue consists primarily of costs related to the direct materials and direct labor that are used to manufacture our products and the manufacturing overhead that directly supports manufacturing . currently , a significant portion of our cost of revenue consists of manufacturing overhead , which is mostly fixed in nature . these overhead costs include the costs of compensation for operations supervision and management , material procurement , inventory control , allocated quality assurance costs associated with manufacturing our product , facilities and depreciation on production equipment . we expect cost of revenue to increase in absolute dollars to the extent our total revenue grows but decrease as a percentage total of revenue over time as the fixed portion of our overhead costs is allocated over a greater number of units . we calculate gross margin as gross profit divided by total revenue . our gross margin has been and will continue to be affected by a variety of factors , primarily production volumes , manufacturing costs , product yields , headcount and cost-reduction strategies . we expect our gross margin to increase over the long term as our production volume increases and as we allocate the fixed portion of our manufacturing overhead costs over a larger number of units produced , thereby reducing our per unit manufacturing costs . we intend to use our design , engineering and manufacturing capabilities to further advance and improve the efficiency of our manufacturing processes , which we believe will reduce costs and increase our gross margin . while we expect gross margin to increase over the long term , it will likely fluctuate from quarter to quarter as we continue to introduce new products , obsolete old products and adopt new manufacturing processes and technologies . in january 2017 , we began offering a swallow guarantee program in the united states where we may replace some balloons that can not be swallowed by patients , subject to certain requirements and restrictions . as a result of this program our financial results or gross margin may be adversely impacted . research and development expenses research and development , or r & d , expenses consist of the cost of engineering , clinical affairs , regulatory affairs and quality assurance associated with developing our obalon balloon system . r & d expenses consist primarily of : employee-related expenses , including salaries , benefits , travel expense and stock-based compensation expense ; cost of outside consultants who assist with technology development , regulatory affairs , clinical affairs and quality assurance ; cost of clinical trial activities performed by third party medical partners ; and cost of facilities , depreciation on r & d equipment and supplies used for internal research and development and clinical activities . we expense r & d costs as incurred . in the future , we expect r & d expenses to increase in absolute dollars as we continue to develop new products and enhance existing products and technologies . however , we expect r & d expenses as a percentage of total revenue to 59 vary over time depending on the level and timing of our new product development efforts , as well as our clinical development , clinical trial and other related activities . selling , general and administrative expenses selling , general and administrative , or sg & a , expenses consist of employee-related expenses , including salaries , benefits , travel expense and stock-based compensation expense . other sg & a expenses include promotional activities , marketing , conferences and trade shows , professional services fees , including legal , audit and tax fees , insurance costs , general corporate expenses and allocated facilities-related expenses . story_separator_special_tag we have grown our sales and marketing headcount and programs significantly in the recent quarter in preparation for the commercial launch of our obalon balloon system in the united states which occurred in january 2017. as a result , sg & a expenses have grown significantly in the recent quarter , and are expected to continue to increase in absolute dollars and as a percentage of total revenue for the foreseeable future as we continue to expand our sales and marketing infrastructure to drive and support anticipated growth in revenue and due to the additional legal , accounting , insurance and other expenses associated with being a public company . critical accounting policies and estimates management 's discussion and analysis of our financial condition and results of operations is based on our financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles , or gaap . the preparation of these financial statements requires us to make estimates and assumptions for the reported amounts of assets , liabilities , revenue , expenses and related disclosures . our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions and any such differences may be material . while our significant accounting policies are more fully described in the notes to our financial statements appearing elsewhere in this annual report on form 10-k , we believe the following discussion addresses our most critical accounting policies , which are those that are most important to our financial condition and results of operations and require our most difficult , subjective and complex judgments . revenue recognition revenue relates to sales of components of the obalon balloon system , which includes the balloon and accessory kit , ezfill inflation system , pre-filled can of gas and placebo capsule . for the year ended december 31 , 2016 , the product was sold to one customer , bader , a related party and healthcare product distributor based in sufat , kuwait . we recognize revenue when the following criteria are met : persuasive evidence of an arrangement exists . we consider this criterion satisfied when we have an agreement or contract in place with the customer . delivery has occurred . our standard terms specify that title and risk of loss transfers upon shipment to customer . we use third-party shipping documents to verify that title has transferred . the selling price is fixed or determinable . we assess whether the sales price is fixed or determinable at the time of the transaction . sales prices are documented in the executed sales contract or purchase order received prior to shipment . our standard terms do not allow for trial or evaluation periods , rights of return or refund , payments contingent upon the customer obtaining financing or other terms that could impact the customer 's obligation . collectability is reasonably assured . we assess whether collection is reasonably assured based on a number of factors , including the customer 's past transaction history and credit worthiness . stock-based compensation expense we maintain an equity incentive plan to provide long-term incentive for employees , members of our board of directors and consultants . the plan allows for the issuance of non-statutory and incentive stock options to employees and non-statutory stock options to non-employee directors and consultants . we are required to determine the fair value of equity incentive awards and recognize compensation expense for all equity incentive awards , including employee stock options . we recognize this expense over the requisite service period . in addition , we recognize stock-based compensation expense in the statements of operations and comprehensive loss based on awards expected to vest and , therefore , the amount of expense has been reduced for estimated forfeitures . we use the straight-line method for expense attribution . 60 the valuation model we used for calculating the fair value of awards for stock-based compensation expense is the black-scholes option-pricing model , or the black-scholes model . the black-scholes model requires us to make assumptions and judgments about the variables used in the calculation , including : expected term . we do not believe we are able to rely on our historical exercise and post-vesting termination activity to provide accurate data for estimating the expected term for use in determining the fair value-based measurement of our options . therefore , we have opted to use the “ simplified method ” for estimating the expected term of options , which is the average of the weighted-average vesting period and contractual term of the option . expected volatility . since there has been no public market for our common stock and lack of company specific historical volatility , we have determined the share price volatility for options granted based on an analysis of the volatility of a peer group of publicly traded companies . in evaluating similarity , we consider factors such as stage of development , risk profile , enterprise value and position within the industry . risk-free interest rate . the risk-free interest rate is based on the u.s. treasury yield in effect at the time of the grant for zero-coupon u.s. treasury notes with remaining terms similar to the expected term of the options . dividend rate . we assumed the expected dividend to be zero as we have never paid dividends and have no current plans to do so . expected forfeiture rate . we are required to estimate forfeitures at the time of grant , and revise those estimates in subsequent periods if actual forfeitures differ from those estimates . we use historical data to estimate pre-vesting option forfeitures and record stock-based compensation expense only for those awards that are expected to vest .
| sg & a expenses increased $ 6.7 million to $ 10.2 million during the year ended december 31 , 2016 , compared to $ 3.5 million during the year ended december 31 , 2015. this increase was primarily attributable to a $ 3.0 million increase in headcount related expenses in preparation for u.s. commercialization , a $ 1.3 million increase in outside consultant expenses for sales and marketing activities in preparation for u.s. commercialization , and a $ 1.2 million increase in legal fees associated with increased intellectual property development and protection . the remaining year over year increase was primarily related to higher expenses due to becoming a public company . interest expense , net . interest expense , net remained consistent at $ 0.5 million for the year ended december 31 , 2016 and 2015 . 63 comparison of years ended december 31 , 2015 and 2014 total revenue . total revenue increased by $ 0.5 million to $ 4.0 million during the year ended december 31 , 2015 , compared to $ 3.5 million during the year ended december 31 , 2014. this increase was attributable to a $ 2.0 million increase in revenue , related party due to the increased volume sold in the middle eastern market during the year ended december 31 , 2015 as a result of our distributor selling to new territories , offset by a $ 1.5 million decrease in revenue , as we discontinued sales in europe and mexico beginning in the third quarter of 2015 and the volume sold in those regions decreased substantially . cost of revenue . cost of revenue decreased by $ 0.4 million to $ 2.5 million during the year ended december 31 , 2015 , compared to $ 2.9 million during the year ended december 31 , 2014. this decrease was primarily attributable to lower payroll and outside consulting expense associated with manufacturing our products . during the year ended december 31 , 2015 , we operated with a lower engineering and supervisory headcount in our manufacturing department compared to the year ended december 31 , 2014 .
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60 portfolio information real estate portfolio as of december 31 , 2019 , we own ed 128 commercial properties located in 34 states , comprising 5.4 million rentable square feet , which includes the rentable square feet of buildings on land subject to ground leases . as of december 31 , 2019 , these properties were 98.6 % leased ( including any month-to-month agreements ) with a weighted average remaining lease term of 10.7 years . the following table shows the property s tatistics of our real estate assets as of december 31 , 2019 and 2018 : replace_table_token_6_th ( 1 ) includes square feet of buildings on land that are subject to ground leases . ( 2 ) investment-grade tenants are those with a credit rating of bbb- or higher by standard & poor 's or a credit rating of baa3 or higher by moody 's . the ratings may reflect those assigned by standard & poor 's or moody 's to the lease guarantor or the parent company , as applicable . the weighted average credit rating is weighted based on annualized rental income , and is for only those tenants rated by standard & poor 's . the following table summarizes our real estate acquisition activity during the years ended december 31 , 2019 and 2018 : replace_table_token_7_th ( 1 ) includes square feet of buildings on land that are subject to ground leases . 61 the following table shows the tenant diversification of our real estate portfolio , based on annualized rental income , as of december 31 , 2019 : replace_table_token_8_th ( 1 ) includes leases which are master lease agreements . ( 2 ) includes square feet of buildings on land that is subject to ground leases . the following table shows the tenant industry diversification of our real estate portfolio , based on annualized rental income as of december 31 , 2019 : replace_table_token_9_th ( 1 ) includes leases which are master lease agreements . ( 2 ) includes square feet of buildings on land that is subject to ground leases . 62 the following table shows the geographic diversification of our real estate portfolio , based on annualized rental income , as of december 31 , 2019 : replace_table_token_10_th ( 1 ) includes square feet of buildings on land that is subject to ground leases . the following table shows the property type diversification of our real estate portfolio , based on annualized rental income , as of december 31 , 2019 : replace_table_token_11_th ( 1 ) includes square feet of buildings on land parcels subject to ground leases . leases although there are variations in the specific terms of the leases of our properties , the following is a summary of the general structure of our current leases . generally , the leases of the properties acquired provide for initial terms of ten or more years , and provide the tenant with one or more multi-year renewal options , subject to generally the same terms and conditions as the initial lease term . certain leases also provide that in the event we wish to sell the property subject to that lease , we first must offer the lessee the right to purchase the property on the same terms and conditions as any offer which we intend to accept for the sale of the property . the properties are generally leased under net leases pursuant to which the tenant bears responsibility for substantially all property costs and expenses associated with ongoing maintenance and operation , including utilities , property taxes and insurance , while certain of the leases require us to maintain the roof , structure and parking areas of the building . additionally , certain leases provide for increases in rent as a result of fixed increases , increases in the consumer price index , and or increases in the tenant 's sales volume . our leases , as of december 31 , 2019 , provided for annual base rental payments ( payable in monthly installments ) ranging from $ 12,000 to $ 3.4 million , and had an average annual base rental payment of $ 418,000 , with a weighted average remaining lease term of 10.7 years . 63 the following table shows lease expirations of our real estate portfolio as of december 31 , 2019 , during each of the next ten years and thereafter , assuming no exercise of renewal options : replace_table_token_12_th * represents less than 1 % of the total annual base rent . ( 1 ) includes leases which are master lease agreements . ( 2 ) includes square feet of buildings on land that is subject to ground leases . the following table shows the economic metrics of our real estate assets as of and for the years ended december 31 , 2019 and 2018 : replace_table_token_13_th ( 1 ) based on annualized rental income of our real estate portfolio as of the respective reporting date . ( 2 ) through the end of the next five years as of the respective reporting date . 64 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; background-color : # ffffff ; '' > increase in impairment of $ 823,000 during the year ended december 31 , 2019 , as compared to the same period in 2018 , was primarily due to impairment charges of $ 3.1 million related to one anchored shopping center and five retail properties during the year ended december 31 , 2019 , as compared to an impairment charge of $ 2.3 million relating to one anchored shopping center during the year ended december 31 , 2018 . story_separator_special_tag depreciation and amortization the increase in depreciation and amortization expenses of $ 1.8 million during the year ended december 31 , 2019 , as compared to the same period in 2018 , was primarily due to the acquisition of four additional rental income-producing properties for an aggregate purchase price of $ 78.6 million subsequent to december 31 , 2018 , as well as recognizing a full year of depreciation and amortization expenses on 19 properties acquired for an aggregate purchase price of $ 254.2 million in 2018 , partially offset by the disposition of 28 properties at an aggregate gross sales price of $ 91.1 million during the year ended december 31 , 2019 , as well as the disposition of six properties at an aggregate gross sales price of $ 49.1 million during the year ended december 31 , 2018 . advisory fees and expenses the advisory fees and expenses that we pay to our advisor are based upon our nav . advisory fees and expenses increased $ 2.0 million during the year ended december 31 , 2019 , as compared to the same period in 2018 , primarily due to an increase in our average total nav for all share classes of $ 59.3 million during the year ended december 31 , 2019 . the increase was also due to an increase in the advisory fee payable to cim income nav management from 0.90 % through the restructure date to 1.10 % after the restructure date and during the year ended december 31 , 2019 . 66 transaction-related expenses we reimburse cim income nav management or its affiliates for transaction-related expenses incurred in the process of acquiring a property , disposing of a property , or the origination or acquisition of a loan , so long as the total expenses relating to the transaction do not exceed 6.0 % of the contract purchase price , unless otherwise approved by a majority of our board , including a majority of our independent directors , as commercially competitive , fair and reasonable to us . our acquisitions qualify as asset acquisitions , and , as such , certain acquisition costs related to these asset acquisitions are capitalized . the decrease in transaction-related expenses of $ 541,000 during the year ended december 31 , 2019 , as compared to the same period in 2018 , was primarily due to a decrease in advisor reimbursement expenses related to a decrease in cumulative acquisition purchase price and disposition sales proceeds from $ 301.9 million during the year ended december 31 , 2018 to $ 166.7 million during the year ended december 31 , 2019 . general and administrative expenses the primary general and administrative expense items are certain expense reimbursements to our advisor , escrow and trustee fees and professional service fees . the decrease in general and administrative expenses of $ 75,000 for the year ended december 31 , 2019 , compared to the same period in 2018 , was primarily due to a decrease in valuation servicing fees as a result of our properties now being valued annually , rather than quarterly , pursuant to our amended valuation policy and a decrease in advisor reimbursements , partially offset by an increase in platform fees . interest expense and other , net the decrease in interest expense and other , net , of $ 169,000 for the year ended december 31 , 2019 , as compared to the same period in 2018 , was primarily due to a decrease in the weighted average interest rate from 3.97 % as of december 31 , 2018 to 3.90 % as of december 31 , 2019 , offset by an increase of $ 1.1 million in our average outstanding debt balance for the year ended december 31 , 2019 , compared to the year ended december 31 , 2018 . net operating income same store property net operating income decreased $ 1.5 million during the year ended december 31 , 2019 , as compared to the same period in 2018 . the decrease is primarily due to a decrease in same store occupancy from 99.3 % as of december 31 , 2018 to 97.8 % as of december 31 , 2019 , which is due to two same store tenants declaring bankruptcy . these bankruptcies accounted for $ 755,000 of the net decrease in net property income for the year ended december 31 , 2019 . the decrease is also due to increases in property operating expenses attributable to building repairs , including increased building costs in order to repair fire damage at one property . we expect to receive insurance proceeds to partially offset the building costs incurred . non-same store property net operating income increased $ 5.7 million during the year ended december 31 , 2019 , as compared to the same period in 2018 . the increase is primarily due to the acquisition of four rental income-producing properties subsequent to december 31 , 2018 , as well as recognizing a full period of net operating income for the 19 properties acquired during the year ended december 31 , 2018 . this increase was partially offset by the disposition of 28 properties subsequent to december 31 , 2018 . 67 distributions on a quarterly basis , our board authorizes a daily distribution for the succeeding quarter . our board authorized the following daily distribution amounts per share for the periods indicated below : replace_table_token_16_th ( 1 ) the daily distribution amount for each class of outstanding common stock is adjusted based on the relative nav of the various classes each day so that , from day to day , distributions constitute a uniform percentage of the nav per share of all classes . as a result , from day to day , the per share daily distribution for each outstanding class of common stock may be higher or lower than the daily distribution amount authorized by our board based on the relative nav of each class of common stock on that day .
| noi is considered by management to be a helpful supplemental performance measure , as it enables management to evaluate the impact of occupancy , rents , leasing activity , and other controllable property operating results at our real estate properties , and it provides a consistent method for the comparison of our properties . we define noi as operating revenues less operating expenses , which exclude ( i ) depreciation and amortization , ( ii ) interest expense and other non-property related revenue and expense items such as ( a ) general and administrative expenses , ( b ) advisory fees , ( c ) transaction-related expenses and ( d ) income from marketable securities . our noi may not be comparable to that of other reits and should not be considered to be more relevant or accurate in evaluating our operating performance than the current gaap methodology used in calculating net income . in determining the same store property pool , we include all properties that were owned for the entirety of both the current and prior reporting periods , except for properties during the current or prior year that were under development or redevelopment . comparison of the years ended december 31 , 2019 and 2018 the following table reconciles net income , calculated in accordance with gaap , to net operating income ( dollar amounts in thousands ) : replace_table_token_14_th 65 a total of 105 properties were acquired before january 1 , 2018 and represent our “ same store ” properties during the years ended december 31 , 2019 and 2018 . “ non-same store ” properties , for purposes of the table below , includes properties acquired on or after january 1 , 2018 . the following table details the components of net operating income broken out between same store and non-same store properties ( dollar amounts in thousands ) : replace_table_token_15_th ( 1 ) includes income from properties disposed of subsequent to january 1 , 2018 . gain on disposition of real estate , net the increase in gain on disposition of real estate , net of $ 9.2 million during the year ended december 31 , 2019 , as compared to the same period in 2018 was primarily due to the
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business highlights include the following : in january 2020 , we entered into an agreement to collaborate with professor jeremy siegel to design and launch two model portfolios—the siegel-wisdomtree global equity model and the siegel-wisdomtree longevity model . in december 2019 , we made an $ 8.1 million strategic investment in securrency , inc. , a leading developer of institutional-grade blockchain-based financial and regulatory technology , with plans to pursue the integration of blockchain technology into the etf ecosystem . in december 2019 , our full range of u.s. listed etfs were made available commission-free on lpl financial 's online trading platform . in december 2019 , we launched our first cryptocurrency product , the wisdomtree bitcoin etp , a physically-backed bitcoin etp which provides investors with a simple , secure and cost-efficient way to gain exposure to bitcoin while utilizing the best of traditional financial infrastructure and product structuring . in november 2019 , we entered into a definitive agreement to sell all of the outstanding shares of our wholly-owned canadian subsidiary to ci financial , allowing us to benefit from the scale and resources of ci financial and participate more cost effectively in the continued growth of the canadian etf market by providing index licenses for each of the wisdomtree canada etfs that currently track wisdomtree proprietary indexes . the transaction was completed on february 19 , 2020. in october 2019 , we completed the final stage of integration of the etfs acquired business , which included the unification of 224 products under one wisdomtree brand and closure of 192 duplicative or extraneous products across our full product set . in march and june 2019 , we expanded our offerings of our etps on swissquote 's and bny mellon 's pershing fundvest ® platforms . in april 2019 , we won two 2019 etf.com awards : index of the year —the wisdomtree u.s. multifactor index and best new asset allocation etf —the wisdomtree 90/60 u.s. balanced fund 47 ( ntsx ) . we also won two 2019 mutual fund industry & etf awards : etf of the year —the wisdomtree floating rate treasury fund ( usfr ) and esg/impact etf of the year —the wisdomtree emerging markets ex-state-owned enterprises fund ( xsoe ) . in march 2019 , we launched our investor solutions program and digital portfolio developer ( dpd ) in europe . building on the success of the advisor solutions program in the u.s. , the program aims to help investment managers to engage more effectively with clients and prospects and modernize portfolios to meet evolving investor needs . in march 2019 , we launched usfr on the london stock exchange , making u.s. floating rate notes available to european investors in an etf for the first time . we launched 5 new u.s. listed etfs and 4 new international listed etps . in connection with our capital management strategy , we used $ 21.0 million of our available capital to begin to pay down our debt and we returned approximately $ 22.7 million to our stockholders largely through our ongoing quarterly cash dividend and to a lesser extent , through stock repurchases . background market environment the following chart reflects the annual returns of the broad-based equity indexes and gold prices over the last three years . as shown below , while volatile , the broad-based equity market indexes and gold prices have all appreciated during this timeframe . source : factset 48 u.s. listed etf industry flows u.s. listed etf net flows for the year ended december 31 , 2019 were $ 328 billion . fixed income and u.s. equity gathered the majority of those flows . sources : bloomberg , investment company institute , wisdomtree . international etp industry flows international etp net flows were $ 140 billion for the year ended december 31 , 2019. fixed income and equities gathered the majority of those flows . source : morningstar industry developments competition and fee pressures the asset management industry is highly competitive and we face substantial competition in virtually all aspects of our business . factors affecting our business include fees for our products , investment performance , brand recognition , business reputation , quality of service and the continuity of our financial advisor and platform relationships . we compete directly with other etf sponsors and mutual fund companies and indirectly against other investment management firms , insurance companies , banks , brokerage firms and other financial institutions . the vast majority of the firms we compete with are subsidiaries of large diversified financial companies and many others are much larger in terms of aum , years in operations and revenues and , accordingly , have much larger sales organizations and budgets . in addition , these larger competitors may attract business through means that are not currently available to us , including retail bank offices , investment banking , insurance agencies and broker-dealers . 49 the etf industry is becoming significantly more competitive . existing players have broadened their suite of products offering strategies that are , in some cases , similar to ours and large traditional asset managers are also launching etfs , some with similar strategies as well . there also has been increased price competition in not only commoditized product categories such as traditional , market capitalization weighted index exposures , but also in fundamental or other non-market capitalization weighted or factor-based exposures . fee reduction by certain of our competitors has been a trend over the last few years and continues to persist and many of our competitors are well positioned to benefit from this trend . certain larger competitors are able to offer products at lower price points or otherwise as loss leaders due to other revenue sources available within such competitors that are currently unavailable to us . funds are being offered with fees of 20 bps or less , which have attracted approximately 76 % of the net flows globally during the last three years . story_separator_special_tag however , while the low-cost etfs have accumulated a significant amount of aum recently , we estimate these same funds represent only approximately 32 % of global revenues . in the etf industry , being a first mover , or one of the first providers of etfs in a particular asset class , can be a significant advantage , as the first etf in a category to attract scale in aum and trading liquidity is generally viewed as the most attractive etf . we believe that our early launch of etfs in a number of asset classes or strategies , including fundamental weighting and currency hedging along with gold and commodities and certain fixed income categories , positions us well to maintain our position as one of the leaders of the etf industry . additionally , we believe our affiliated indexing or “ self-indexing ” model , as well as our more recent active etfs , enable us to launch proprietary products that do not have exact competition and are positioned to generate alpha versus benchmarks . as investors increasingly become more comfortable with the etf structure , we believe there will be greater focus on after-fee performance rather than using etfs primarily as low-cost market access vehicles . while we have selectively lowered fee rates on certain products that have yet to attain scale , and there is no assurance that we will not lower fee rates on certain etfs in the future , our strategy continues to include launching new funds in the same category with a differentiated exposure at a lower fee rate , rather than reducing fees on existing etfs with a significant amount of aum , long performance track records , and secondary market liquidity . we generally believe we are well positioned from a product pricing perspective . while we are not immune to fee pressure , we believe our ability to successfully compete will depend largely on our competitive product offerings and our ability to offer exposure to compelling investment strategies with strong after-fee performance , develop distribution relationships , create new investment products , build trading volume , aum and outperforming track records in existing funds , offer a diverse platform of investment choices , promote thought leadership and a differentiated solutions program , build upon our brand and attract and retain talented sales professionals and other employees . custodial platforms recently , several of the largest custodial platforms and online brokerage firms eliminated trading commissions for etfs . our arrangements with these platforms had offered us preferred or exclusive access for our products , enabling investors to purchase our etfs without paying commissions . while exclusivity is no longer available , the elimination of commissions removes a component of trading costs previously affecting etfs and is therefore a positive development for the etf industry . etf sponsors are also now better positioned to target access to all platforms , thereby creating additional opportunities . we expect cost savings going forward from the elimination of these arrangements . regulatory developments the etf industry continues to evolve with the introduction of new rules and regulations , such as the following : etf rule . in september 2019 , the sec approved rule 6c-11 , commonly referred to as the “ etf rule , ” which became effective in december 2019 and etf issuers have one year to implement . the rule is 50 designed to simplify the rules governing etfs . the rule includes several items that will level the playing field for etf issuers , including removing the need to file for exemptive relief in order to issue most types of etfs , which historically has been a costly and time consuming process , removing the regulatory distinction between actively managed and index-based etfs ( including removing specific requirements associated with self-indexed etfs ) and making custom baskets available to all issuers subject to policy and procedure requirements . the rule also requires issuers to disclose a number of items in a standardized format on daily basis , including portfolio holdings and median bid-ask spread over the prior 30-day period . regulation best interest . in june 2019 , the sec adopted regulation best interest , which requires broker-dealers to act in the best interest of their retail customers when making a recommendation . the sec also adopted the form crs relationship summary , which requires registered investment advisers and broker-dealers to deliver to retail investors a succinct , plain english summary about the relationship and services provided by the firm and the required standard of conduct associated with the relationship and services . regulation best interest , form crs and the related rule became effective in september 2019 and compliance is required by june 30 , 2020. congress and individual state legislatures have continued to debate , and in some instances taken further action , in seeking to ensure heightened standards . non-transparent active etfs . during 2019 , the sec approved multiple proposals for non-transparent active etfs which are products that are not required to disclose their holdings daily , as most etfs currently are required to do . it is anticipated that the first non-transparent active etfs will launch by the summer of 2020. while the etf rule will further lower barriers to entry , we view the passage of the rule positively . the etf rule will allow for enhancements in indexes that we create and for broader product development opportunities associated with etfs tracking such indexes . wider use of custom baskets will promote efficiency in the creation and redemption process , which could lead to greater tax efficiency and liquidity and tighter bid-ask spreads . enhanced and uniform data disclosures also will increase transparency and help investors understand the costs and benefits of investing in etfs . in addition , we believe that the heightened focus on fiduciary and best interest standards will continue to raise investor awareness of the inherent benefits that etfs provide—transparency , tax efficiency and liquidity—which we believe will expand etfs ' competitiveness generally .
| these expenses were partly offset by interest income of $ 3.1 million and other gains , net of $ 0.3 million . international business segment operating revenues increased 41.0 % from $ 69.2 million during the year ended december 31 , 2018 to $ 97.6 million in the comparable period in 2019 primarily due to higher revenues earned from the etfs acquired business , which were recognized for the entire year of 2019. this increase was partly offset by a 3 basis point decrease in our average advisory fee due to aum mix shift . our average international listed advisory fee was 0.48 % and 0.45 % during the years ended december 31 , 2018 and 2019 , respectively . operating expenses increased 22.2 % from $ 60.4 million during the year ended december 31 , 2018 to $ 73.8 million in the comparable period in 2019 , primarily due higher expenses from etfs , which were recognized for the entire year of 2019. these increases were partly offset by lower acquisition and disposition-related costs . other income/ ( expenses ) were ( $ 25.5 ) million during the year ended december 31 , 2019 , which were comprised of interest expense of ( $ 10.5 ) million , a loss on revaluation of deferred consideration of ( $ 11.3 ) million and other net losses of ( $ 3.7 ) million . other net losses primarily arose from the reduction of a tax-related indemnification asset upon the expiration of the statute of limitations . other income/ ( expenses ) of the international business segment was $ 4.3 million during the year ended december 31 , 2018 , which was comprised of a gain on revaluation of deferred consideration of $ 12.2 million , partly offset by interest expense of ( $ 7.4 ) million and other losses of ( $ 0.5 ) million . year ended december 31 , 2018 compared to year ended december 31 , 2017 u.s. business segment operating revenues decreased 5.8 % from $ 217.5 million during the year ended december 31 , 2017 to $ 204.9 million in the comparable period in 2018. the decrease was
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our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors including , but not limited to , those discussed below and elsewhere in this annual report on form 10-k , particularly under the heading “ cautionary notes regarding forward-looking statements. ” on january 30 , 2020 , the world health organization ( “ who ” ) announced a global health emergency because of a new strain of coronavirus originating in wuhan , china ( the “ covid-19 outbreak ” ) and the risks to the international community as the virus spreads globally beyond its point of origin . in march 2020 , the who classified the covid-19 outbreak as a pandemic , based on the rapid increase in exposure globally . the full impact of the covid-19 outbreak continues to evolve as of the date of this report . as such , it is uncertain as to the full magnitude that the pandemic will have on the company 's financial condition , liquidity , and future results of operations . management is actively monitoring the global situation on its financial condition , liquidity , operations , suppliers , industry , and workforce . given the daily evolution of the covid-19 outbreak and the global responses to curb its spread , the company is not able to estimate the effects of the covid-19 outbreak on its results of operations , financial condition , or liquidity for fiscal year 2020. the following discussions are subject to the future effects of the covid-19 outbreak . overview in early 2018 , the company transitioned its operating platform from being primarily focused on the development and sale of residential homes to our current fee-based services model focused on commercial and mixed-use real estate primarily in the greater washington , d.c. region . we are a developer , operator , and asset manager of mixed-use and transit-oriented development properties in the greater washington , d.c. metropolitan area where we primarily focus on select high-growth urban and transitioning “ sub-urban ” markets . we also provide additional fee-based real estate services , including corporate planning , capital markets , brokerage , title insurance , design , and environmental consulting and remediation services , to properties in the company 's managed portfolio and to other clients in the u.s. mid-atlantic region recent accounting pronouncements information regarding recent accounting pronouncements is contained in note 2 in the accompanying consolidated financial statements . critical accounting policies and estimates our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the united states ( “ gaap ” ) , which require us to make certain estimates and judgments 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 periods . on an ongoing basis , we evaluate our estimates including those related to the consolidation of variable interest entities ( “ vies ” ) , revenue recognition and the fair value of equity method investments . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances . actual results may differ materially from these estimates . a summary of significant accounting policies is provided in note 2 in the accompanying consolidated financial statements . the following section is a summary of certain aspects of those accounting policies that require the most difficult , subjective or complex judgments and estimates . 13 goodwill impairment we test our goodwill for impairment on an annual basis , and more frequently when an event occurs , or circumstances indicate that the carrying value of the asset may not be recoverable . we believe the methodology that we use , including both a discounted cash flow model as well as a market multiple model , to review impairment of goodwill , which includes a significant amount of judgment and estimates , provides us with a reasonable basis to determine whether impairment has occurr ed . investments in real estate ventures at fair value for investments in real estate ventures reported at fair value , we maintain an investment account that is increased or decreased each reporting period by the difference between the fair value of the investment and the carrying value as of the balance sheet date . these fair value adjustments are reflected as gains or losses on the consolidated statements of operations . the fair value of these investments as of the balance sheet date is generally determined using a discounted cash flow ( “ dcf ” ) analysis , income approach , or sales comparable approach , depending on the unique characteristics of the real estate venture . revenue recognition revenues generated through real estate professional services such as asset management and administrative support , environmental design , engineering and remediation represent a series of daily performance obligations delivered over time due to the continuous transfer of control to our clients . for asset management and administrative support , pricing is generally in the form of monthly management fees based on a cost-plus agreement , property-level cash receipts , square footage under management or some other variable metric recognized over time . for real estate services , pricing is generally in the form of cost-plus contracts recognized over time . equity-based compensation compensation costs related to our equity-based compensation plans are recognized within our income statement or capitalized to real estate inventories reported in discontinued operations for awards issued to employees that are involved in production . the costs recognized are based on the grant-date fair value . story_separator_special_tag compensation costs for share-based grants are recognized on a straight-line basis over the requisite service period for the entire award ( from the date of grant through the period of the last separately vesting portion of the grant ) . the fair value of each option award is calculated on the date of grant using the black-scholes option pricing model which includes certain subjective assumptions . expected volatilities are calculated based on our historical trading activities . we recognize forfeitures as they occur . the risk-free rate for the periods is based on the u.s. treasury rates in effect at the time of grant . the expected term of options is based on the company 's historical experience . income taxes income taxes are accounted for under the asset and liability method in accordance with asc 740 , accounting for income taxes . deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . the effect of a change in tax rates on the deferred tax assets and liabilities is recognized in income in the period that includes the enactment date . we provide a valuation allowance when we consider it “ more likely than not ” ( greater than a 50 % probability ) that a deferred income tax asset will not be fully recovered . adjustments to the valuation allowance are a component of the deferred income tax expense or benefit in the consolidated statement of operations . use of estimates the preparation of the financial statements , in conformity with gaap , requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes . actual results could differ from those estimates . material estimates are utilized in the valuation of investments at fair value , valuation of deferred tax assets , analysis of goodwill impairment , valuation of equity-based compensation , capitalization of costs and consolidation of variable interest entities . 14 story_separator_special_tag style= '' margin-top:6pt ; margin-bottom:0pt ; text-indent:0 % ; font-style : italic ; font-size:10pt ; font-family : times new roman ; font-weight : normal ; text-transform : none ; font-variant : normal ; '' > income taxes during the year ended december 31 , 2019 , the company recognized an income tax expense related to continuing operations of $ 2 thousand . during the year ended december 31 , 2018 , the company recognized income tax benefit of $ 1.1 million primarily related to the conversion of comstock growth fund i & ii to series c preferred stock . refer to note 9 – debt to the consolidated financial statements for more information . liquidity and capital resources we finance our asset management and real estate services operations , capital expenditures , business acquisitions and real estate investments with internally generated funds , borrowings from our credit facilities and long-term debt . pursuant to master transfer agreement ( the “ mta ” ) , the company transferred to cds management of its class a membership interests in investors x , the entity owning the company 's residual homebuilding operations in exchange for residual cash flows estimated to be $ 7.5 million over the next three years . refer to note 13 – consolidation of variable interest entities for further discussion regarding the accounting related to discontinued operations . the associated debt obligations were also transferred to cds . see note 9 in the accompanying consolidated financial statements for more details on our debt and credit facilities . at december 31 , 2019 , $ 5.7 million of our notes payable to affiliates are set to mature prior to the end of 2020. these funds were originally obtained from entities wholly owned by our chief executive officer . on march 19 , 2020 , the company entered into a revolving line of credit with cds for $ 10 million . the company utilized a portion of the line of credit to retire the $ 5.7 million in notes payable to affiliates . see note 21 – subsequent events for additional information about the transaction . cash flow net cash provided by operating activities was $ 8.4 million for the year ended december 31 , 2019. the $ 8.4 million net cash provided by operations in 2019 was primarily due to $ 7.8 million in cash provided by discontinued operations . net cash used in investing activities attributable to continuing operations was immaterial for the years ended december 31 , 2019 and 2018. net cash used in financing activities attributable to continuing operations was immaterial for the year ended december 31 , 2019. net cash used in financing activities from discontinued operations was $ 5.9 million primarily as a result of note payoff related to each lot or unit sale in the investors x communities . net cash used in financing activities attributable to continuing operations was $ 4.7 million during the year ended december 31 , 2018. this was primarily attributable to the pay downs on notes payable of $ 3.1 million along with distributions of $ 1.8 million to the investor x class b members . 16 share repurchase program in november 2014 , our board of directors approved a new share repurchase program authorizing the company to repurchase up to 429,000 shares of our class a common stock in one or more open market or privately negotiated transactions . we made no share repurchases under our share repurchase program in 2019 or 2018. trends and uncertainties in december 2019 , a novel strain of coronavirus ( “ covid-19 ” ) surfaced in wuhan , china . through march 2020 , the spread of this virus has caused business disruption primarily in the
| cds pays the company and its subsidiaries annual fees equal to the greater of either ( i ) an aggregate amount equal to the sum of ( a ) an asset management fee equal to 2.5 % of revenues generated by properties included in the anchor portfolio ; ( b ) a construction management fee equal to 4 % of all costs associated with anchor portfolio projects in development ; ( c ) a property management fee equal to 1 % of the anchor portfolio revenues , ( d ) an acquisition fee equal to up to 0.5 % of the purchase price of acquired assets ; and ( f ) a disposition fee equal to 0.5 % of the sales price of an asset on disposition ( collectively , the “ market rate fee ” ) ; or ( ii ) an aggregate amount equal to the sum of ( x ) the employment expenses of personnel dedicated to providing services to the anchor portfolio pursuant to the 2019 ama , ( y ) the costs and expenses of the company related to maintaining the public listing of its shares and complying with related regulatory and reporting obligations , and ( z ) a fixed annual payment of $ 1,000,000 ( collectively the “ cost plus fee ” ) . the company believes that the cost-plus fee feature of the 2019 ama provides a stable foundation of revenue to enable the company to further expand its asset management business and aum . in addition to the annual payment of the greater of either the market rate fee or the cost plus fee , the company also is entitled on an annual basis to the following additional fees : ( i ) an incentive fee equal to 10 % of the free cash flow of each of the real estate assets comprising the anchor portfolio after calculating a compounding preferred return of 8 % on cds invested capital ( the “ incentive fee ” ) ; ( ii ) an investment origination fee equal to 1 % of raised capital , ( iii ) a leasing fee equal to $ 1.00/sf for new leases and $ 0.50/sf for renewals ; and ( iv ) mutually agreeable loan origination fees related to the anchor portfolio . revenue – real estate services revenue from real estate services for the years ended december 31 , 2019 and 2018 was $ 5.7 million and $ 3.0 million , respectively . the increase is primarily attributable to continued organic revenue growth within our comstock environmental business and closing financing transactions which generated incremental revenue of $ 1.1 million during the year ended december 31 , 2019. direct
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- 45 - due to significant over-supply of natural gas stemming from increased production from shale plays , natural gas prices fell precipitously in the fourth quarter of 2011 and the first half of 2012 , reaching a low of $ 1.82 in april 2012. since these lows , prices for natural gas in the united states improved subsequent to april 2012 , largely due to increased demand for natural gas for electrical power generation and switching from coal to gas , but continue to be weak due to the rise in production from unconventional natural gas resources in north america , specifically onshore shale production , resulting from the broad application of horizontal drilling and hydraulic fracturing techniques . natural gas prices are trading at approximately $ 3.30 per mcf as of february 19 , 2013. in addition , a considerable amount of natural gas is being derived as a by-product of drilling crude oil and natural gas liquids-oriented wells in liquids rich onshore basins . as a result , the u.s. gas-related working rig count has declined from more than 800 rigs at the beginning of 2012 to less than 430 rigs as of february 19 , 2013. although still overstocked , natural gas inventories in the u.s. have declined from 60 % above the 5-year average as of the end of the first quarter of 2012 to only 12 % above the 5-year average as of the end of 2012. any increases in the supply of natural gas , whether the supply comes from conventional or unconventional production or associated gas production from oil wells , could constrain prices for natural gas for an extended period and result in fewer rigs drilling for gas in the near-term . recent natural gas pricing trends are as follows : replace_table_token_10_th ( 1 ) source : natural gas prices from eia . chinese steel production growth has fallen this year as european economies have contracted and u.s. economic growth has been anemic , lowering demand for steel and steel inputs such as met coal and iron ore. as a result , prices for met coal and iron ore fell throughout 2012 , but appear to have stabilized at current levels . met coal prices have decreased from over $ 200/metric ton at the beginning of 2012 to approximately $ 160/metric ton at the end of 2012. depressed met coal prices have led to some coal mine closures as well as delays in the start-up of some coal mining projects in australia . various oil and gas industry analysts have projected increased 2013 global exploration and production expenditures compared to 2012. north american capital spending plans are likely to be lower year-over-year and are expected to be focused in oil-related onshore shale areas while international exploration and production budgets are expected to increase and primarily be spent on offshore projects . story_separator_special_tag font-size : 10pt '' > steel and steel input prices influence the pricing decisions of our octg suppliers , thereby impacting the pricing and margins of our tubular services segment . steel prices on a global basis declined precipitously during the recession in 2009. industry inventories increased materially as the rig count declined , and octg imports remained at high levels . these developments in the octg marketplace had a material detrimental impact on octg pricing and , accordingly , on our revenues and margins realized during the last half of 2009 in our tubular services segment . these negative trends moderated in 2010 because of a reduction in imports , largely due to the imposition of trade sanctions on chinese octg imports , coupled with increases in the u.s. rig count . - 47 - during 2011 and 2012 , octg marketplace supply and demand became more balanced compared to the previous two years . increased supplies of octg have met the increased demand created by expanded drilling activity . throughout 2011 and 2012 , imports of octg have increased , particularly goods imported from canada and korea followed by india , mexico and japan . additionally , domestic octg mill capacity increased in 2012. these increases in supply have been in response to increased well complexity coupled with the 2 % year-over-year increase in the drilling rig count in the u.s. the octg situation report suggests that industry octg inventory levels have increased throughout 2012 and currently stand at five to six months ' supply . ample industry inventory on the ground along with increasing imports and domestic production coupled with modestly declining drilling activity put downward pressure on octg prices throughout 2012. average octg prices declined 9 % during 2012. we remain focused on working capital management and generating returns on invested capital in our tubular services segment and will continue to monitor industry inventory levels , forecasted drilling and completion activity and octg prices . while global demand for oil and natural gas are significant factors influencing our business generally , certain other factors also influence our business , such as the pace of worldwide economic growth and the recovery in u.s. gulf of mexico drilling following the lifting of the government imposed drilling moratorium . although higher than 2011 , the drilling rig count in 2012 in the u.s. gulf of mexico remains below historical levels following the april 2010 macondo well incident and resultant oil spill in the u.s. gulf of mexico . beginning in the third quarter of 2011 , however , u.s. gulf of mexico drilling activity has shown signs of a slow but steady , recovery as permitting levels have improved . new well permitting has increased from 109 permits issued in 2011 to 179 permits issued in 2012. we continue to monitor the global economy , the demand for crude oil , met coal and natural gas and the resultant impact on the capital spending plans and operations of our customers in order to plan our business . our capital expenditures in 2012 totaled $ 488 million compared to 2011 capital expenditures of $ 487 million . story_separator_special_tag our 2012 capital expenditures included funding to expand our canadian oil sands and australian mining related accommodations facilities , to fund our other product and service offerings , and to upgrade our equipment and facilities . approximately two-thirds of our total 2012 capital expenditures were spent in our accommodations segment . in our well site services segment , we continue to monitor industry capacity additions and will make future capital expenditure decisions based on an evaluation of both the market outlook and industry fundamentals . we currently expect to spend a total of approximately $ 600 million to $ 650 million for capital expenditures during 2013. recent acquisitions on december 14 , 2012 , we acquired all of the equity of tempress for purchase price consideration of $ 48.3 million consisting of $ 32.5 million of cash and contingent consideration with a fair value of $ 15.8 million . the company funded escrow accounts totaling $ 25.3 million related to the contingent consideration and seller transaction indemnities which are classified as “ other noncurrent assets ” in our december 31 , 2012 consolidated balance sheet . liabilities for contingent consideration and escrowed amounts potentially due to the seller total $ 21.1 million at december 31 , 2012 and are classified as “ other noncurrent liabilities ” in our consolidated balance sheet . headquartered in kent , washington , tempress designs , develops and markets a suite of highly specialized , hydraulically-activated tools utilized during downhole completion activities . the operations of tempress have been included in our well site services segment since the acquisition date . on july 2 , 2012 , we acquired all of the operating assets of piper for total cash consideration of $ 48.0 million . headquartered in oklahoma city , oklahoma , piper designs and manufactures high pressure valves and manifold components for oil and gas industry projects located offshore ( both surface and subsea ) and onshore . the operations of piper have been included in our offshore products segment since the acquisition date . on november 1 , 2011 , we purchased an open camp accommodations facility located in carrizo springs , texas for total consideration of $ 2.2 million . this facility provides accommodations support to customers working in the eagle ford shale basin . the operations of the carrizo springs facility have been included in our accommodations segment since the acquisition date . - 48 - on december 30 , 2010 , we acquired all of the ordinary shares of the mac , through a scheme of arrangement ( the scheme ) under the corporations act of australia . the mac is headquartered in sydney , australia and supplies accommodations services to the australian natural resources market . under the terms of the scheme , each shareholder of the mac received $ 3.95 ( a $ 3.90 ) per share in cash . the total purchase price was $ 638 million , net of cash acquired plus debt assumed of $ 87 million . the mac 's operations have been included in our accommodations segment beginning in 2011. on december 20 , 2010 , we also acquired all of the operating assets of mountain west for total consideration of $ 47.1 million including estimated contingent consideration of $ 4.0 million . headquartered in vernal , utah , with operations in the rockies and the bakken shale region , mountain west provides remote site workforce accommodations to the oil and gas industry . mountain west has been included in our accommodations segment since the acquisition date . on october 5 , 2010 , we purchased all of the equity of acute for total consideration of $ 30.2 million . headquartered in houston , texas with additional operations in brazil , acute provides metallurgical and welding engineering , consulting and services to the oil and gas industry in support of critical , complex subsea component manufacturing and deepwater riser fabrication on a global basis . acute has been included in our offshore products segment since its date of acquisition . the company funded all of its acquisitions with cash on hand and or amounts available under our senior secured credit facilities . see note 8 to the consolidated financial statements included in this annual report on form 10-k for additional information on our senior secured bank facilities . - 49 - consolidated results of operations ( in millions ) replace_table_token_12_th year ended december 31 , 2012 compared to year ended december 31 , 2011 we reported net income attributable to the company for the year ended december 31 , 2012 of $ 448.6 million , or $ 8.10 per diluted share , including a gain of $ 17.9 million , or $ 0.23 per diluted share after-tax , from a favorable contract settlement reported in our u.s. accommodations business and a pre-tax gain of $ 2.5 million , or $ 0.03 per diluted share after-tax , related to insurance proceeds received in excess of net book value from the constructive total loss of a drilling rig lost in a fire that occurred in the first quarter of 2012. these results compare to net income attributable to the company of $ 322.5 million , or $ 5.86 per diluted share , reported for the year ended december 31 , 2011. revenues . consolidated revenues increased $ 933.9 million , or 27 % , in 2012 compared to 2011. our well site services segment revenues increased $ 59.7 million , or 9 % , in 2012 compared to 2011 primarily due to increases in both completion services revenues and drilling services revenues . our completion services revenues increased $ 34.6 million , or 7 % , in 2012 compared to 2011 primarily due to increased demand for our completion services supporting the 2 % increase in the u.s. rig count , a more favorable mix of higher value rentals and services and greater service intensity .
| we are expanding our australian accommodations capacity to meet increasing demand , notably in the bowen basin in queensland and in the gunnedah and hunter basins in new south wales to support coal production , and in western australia to support lng and other energy-related projects . accommodations deployed to support onshore u.s. drilling activity in several of the active shale play regions have also favorably contributed to our results . - 46 - our offshore products segment provides highly engineered products for offshore oil and natural gas drilling and production systems and facilities . sales of our offshore products and services depend primarily upon development of infrastructure for offshore production systems and subsea pipelines , repairs and upgrades of existing offshore drilling rigs and construction of new offshore drilling rigs and vessels . in this segment , we are particularly influenced by global deepwater drilling and production spending , which are driven largely by our customers ' longer-term outlook for oil and natural gas prices . in our well site services business segment , we predominantly provide completion services and , to a lesser extent , land drilling services . our completion services business provides equipment and service personnel utilized in the completion and initial production of new and recompleted wells . activity for the completion services business is dependent primarily upon the level and complexity of drilling , completion and workover activity throughout north america . well complexity has increased as the number of productive zones completed in connection with horizontal drilling has increased . demand for our drilling services is driven by land drilling activity in our primary drilling markets of west texas , where we primarily drill oil wells , and the rocky mountain area in the u.s. , where we drill both liquids-rich and natural gas wells . through our tubular services segment , we distribute a broad range of casing and tubing used in the drilling and completion of oil and natural gas wells primarily in the united states . accordingly , sales and gross
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expenses our primary operating expenses include the payment of fees to mc advisors under the investment advisory and management agreement ( management and incentive fees ) , and the payment of fees to mc management for our allocable portion of overhead and other expenses under the administration agreement and other operating costs . see note 5 to our consolidated financial statements and related party transactions below for additional information on our investment advisory and management agreement and administration agreement . our expenses also include interest expense on our revolving credit facility and our secured borrowings . we bear all other out-of-pocket costs and expenses of our operations and transactions . net gain ( loss ) on investments and secured borrowings we recognize realized gains or losses on investments based on the difference between the net proceeds from the disposition and the cost basis of the investment or derivative instrument without regard to unrealized gains or losses previously recognized . we record current period changes in fair value of investments and secured borrowings as a component of the net change in unrealized appreciation ( depreciation ) on investments and secured borrowings in the consolidated statements of operations . portfolio and investment activity during the year ended december 31 , 2013 , we invested $ 131.9 million in thirty new portfolio companies and $ 6.9 million in ten existing 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 . during the year ended december 31 , 2012 , we made $ 144.5 million on investments in new portfolio companies and had $ 11.9 million in aggregate amount of principal repayments resulting in net investment acquisitions of $ 132.6 million for the period . the following table shows the composition of the investment portfolio ( in thousands ) and associated yield data : replace_table_token_10_th 65 replace_table_token_11_th ( 1 ) based upon the par value of our debt investments . n/a not applicable the following table shows the portfolio composition by industry grouping at fair value ( dollars in thousands ) : replace_table_token_12_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 66 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 reviews and affirms such ratings . rating definition 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 . grade 5 indicates that the issuer is performing substantially below expectations and the investment risk has substantially increased since origination . most or all of the debt covenants are out of compliance or payments are substantially delinquent . investments graded 5 are not anticipated to be repaid in full and we will reduce the fair market value of the loan to the amount we expect to recover . our investment performance ratings do not constitute any ratings of investments by a nationally recognized statistical rating organization or reflect any third-party assessment of any of our investments . in the event of a delinquency or a decision to rate an investment grade 4 or grade 5 , the applicable analyst , in consultation with a member of the investment committee , will develop an action plan . such a plan may require a meeting with the borrower 's management or the lender group to discuss reasons for the default and the steps management is undertaking to address the under-performance , as well as required amendments and waivers that may be required . story_separator_special_tag in the event of a dramatic deterioration of a credit , mc advisors intends to form a team or engage outside advisors to analyze , evaluate and take further steps to preserve its value in the credit . in this regard , we would expect to explore all options , including in a private equity sponsored investment , assuming certain responsibilities for the private equity sponsor or a formal sale of the business with oversight of the sale process by us . several of monroe capital 's professionals are experienced in running work-out transactions and bankruptcies . 67 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 , 2013 ( dollars in thousands ) : replace_table_token_13_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 , 2012 ( dollars in thousands ) : replace_table_token_14_th story_separator_special_tag $ 200.0 million from $ 100.0 million ( subject to maintaining 200 % asset coverage , as defined in the 1940 act ) , ( c ) reduced pricing by 50 basis points , to libor plus 3.25 % per annum , with a further step-down to libor plus 3.00 % when equity capitalization exceeds $ 175.0 million , ( d ) extended the expiration of the revolving period from october 23 , 2015 to december 19 , 2016 , during which period we , subject to certain conditions , may make borrowings under the facility and ( e ) extended the stated maturity date from october 21 , 2016 to december 19 , 2017. as of december 31 , 2013 and 2012 , we had $ 76.0 million and $ 55.0 million outstanding , respectively , under the revolving credit facility . the revolving credit facility is secured by a lien on all of our assets , including cash on hand , but excluding the assets of our wholly-owned subsidiary , mcc sbic . our ability to 70 borrow under the credit facility is subject to availability under a defined borrowing base , which varies based on our portfolio characteristics and certain eligibility criteria and concentration limits , as well as required valuation methodologies . we may make draws under the revolving credit facility to make or purchase additional investments through december 2016 and for general working capital purposes until the maturity date of the revolving credit facility . borrowings under the revolving credit facility bear interest , at our election , at an annual rate of libor plus 3.25 % ( 3.75 % prior to december 19 , 2013 ) or at a daily rate equal to 2.25 % ( 2.75 % prior to december 19 , 2013 ) per annum plus the greater of the prime interest rate , the federal funds rate plus 0.5 % or libor plus 1.0 % . in addition to the stated interest rate on borrowings under the revolving credit facility , we are required to pay a fee of 0.5 % per annum on any unused portion of the revolving credit facility if the unused portion of the facility is less than 50 % of the then available maximum borrowing or a fee of 1.0 % per annum on any unused portion of the revolving credit facility if the unused portion of the facility is greater than or equal to 50 % of the then available maximum borrowing . the weighted average interest rate of the revolving credit facility borrowings ( excluding debt issuance costs ) for the year ended december 31 , 2013 was 4.1 % . the weighted average fee rate on the company 's unused portion of the revolving credit facility for the year ended december 31 , 2013 was 0.7 % . our ability to borrow under the revolving credit facility is subject to availability under our borrowing base , which permits us to borrow up to 70 % of the fair market value of our portfolio company investments depending on the type of the investment we hold and whether the investment is quoted . our ability to borrow is also subject to certain concentration limits , and our continued compliance with the representations , warranties and covenants given by us under the revolving credit facility . our revolving credit facility contains certain financial and restrictive covenants , including , but not limited to , the maintenance of : ( 1 ) a minimum consolidated net worth at least equal to the greater of ( a ) 55 % of our assets on the last day or each quarter or ( b ) 80 % of the net proceeds to us from our initial offering plus 50 % of the net proceeds of the sales of our securities after the effectiveness of the revolving credit facility ; ( 2 ) a ratio of our total assets ( less total liabilities other than indebtedness ) to total indebtedness of not less than 2.15 times ; and ( 3 ) a ratio of our earnings before interest and taxes to our interest expense of at least 2.5 times . the revolving credit facility also requires us to undertake customary indemnification obligations with respect to ing capital , llc and other members of the lending group and to reimburse the lenders for expenses associated with entering into the revolving credit facility . the revolving credit facility also has customary provisions regarding events of default , including events of default for nonpayment , change in control transactions at both monroe capital corporation and mc advisors , failure to comply with our financial and negative covenants , and failure to maintain our relationship with mc advisors . if we incur an event of default under our revolving credit facility and fail to remedy such default under any applicable grace period , if any , then our entire revolving credit facility could become immediately due and payable , which would materially and adversely affect our liquidity , financial condition , results of operations and cash flows .
| , respectively . during july of 2013 , we completed a public offering as described in further detail within liquidity and capital resources below . the new capital raised during the third quarter was initially used to repay borrowings under our revolving credit facility , and has since been redeployed into new portfolio investments . liquidity and capital resources as of december 31 , 2013 , we had $ 14.6 million in cash and cash equivalents and $ 76.0 million of total debt outstanding on our revolving credit facility and $ 34.0 million available for additional borrowings on our revolving credit facility . see borrowings credit facility below for additional information . cash flows for the year ended december 31 , 2013 , we experienced a net increase in cash and cash equivalents of $ 10.5 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 69 investments . during the same period , we generated $ 73.4 million from financing activities , principally from our secondary offering during july , net borrowings on our revolving credit facility and increases in secured borrowings , partially offset by distributions to stockholders and repurchases of our common stock . for the year ended december 31 , 2012 , we experienced a net increase in cash and cash equivalents of $ 4.0 million . during the same period we used $ 131.8 million in operating activities , primarily as a result of purchases of portfolio investments , partially offset by sales of and principal repayments on portfolio investments . during the same period , we generated $ 135.8 million from financing activities , principally from proceeds from our initial public offering and net borrowings on our revolving credit facility . capital resources as a bdc , we distribute substantially all of our net income to our stockholders and have an ongoing
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for the year ended december 31 , 2013 , interest expense increased $ 1.6 million , or 2.5 % , as compared to 2012. the following table shows interest expense , the average outstanding debt balance , and the average cost of debt for the years ended december 31 , 2013 and 2012 : replace_table_token_19_th for the year ended december 31 , 2013 , the increase in interest expense was primarily due to an increase in the average outstanding debt balance partially offset by a decrease in our average cost of debt . the average outstanding debt balance increased compared to the same period in 2012 due to the use of the debt proceeds to fund the growth in new consumer loan assignments and stock repurchases . the decrease in our average cost of debt was primarily a result of a change in the mix of our outstanding debt . provision for claims . for the year ended december 31 , 2013 , provision for claims increased $ 6.0 million , or 17.2 % , as compared to 2012. the increase was due to an increase in the size of our reinsurance portfolio , as well as an increase in the amount of claims paid per reinsured vehicle service contract . 30 provision for income taxes . for the year ended december 31 , 2013 , the effective tax rate of 36.4 % was generally consistent with the effective tax rate of 36.0 % in 2012. year ended december 31 , 2012 compared to year ended december 31 , 2011 the following table highlights changes in net income for the year ended december 31 , 2012 , as compared to 2011 : replace_table_token_20_th ( 1 ) operating expenses consist of salaries and wages , general and administrative , and sales and marketing expenses . finance charges . for the year ended december 31 , 2012 , finance charges increased $ 77.6 million , or 16.8 % , as compared to 2011. the increase was primarily the result of an increase in the average net loans receivable balance partially offset by a decrease in the average yield on our loan portfolio , as follows : replace_table_token_21_th the following table summarizes the impact each component had on the increase in finance charges for the year ended december 31 , 2012 : ( in millions ) for the year ended impact on finance charges : december 31 , 2012 due to an increase in the average net loans receivable balance $ 120.2 due to a decrease in the average yield ( 42.6 ) total increase in finance charges $ 77.6 the increase in the average net loans receivable balance was primarily due to growth in new consumer loan assignments in recent years , which resulted in the dollar volume of new consumer loan assignments exceeding the principal collected on loans throughout 2011 and 2012. the growth in new consumer loan assignments in recent years was the result of an increase in active dealers , partially offset by a decline in volume per active dealer . the average yield on our loan portfolio for the year ended december 31 , 2012 decreased as compared to the same period in 2011 due to higher advance rates on new consumer loan assignments , partially offset by improvements in forecasted collection rates throughout 2011 and 2012. premiums earned . for the year ended december 31 , 2012 , premiums earned increased $ 7.1 million , or 17.8 % , as compared to 2011. the increase is primarily due to growth in the size of our reinsurance portfolio which resulted from growth in new consumer loan assignments throughout 2011 and 2012 . 31 other income . for the year ended december 31 , 2012 , other income decreased $ 0.7 million , or 2.8 % , as compared to 2011. the decrease in other income was primarily the result of the following : · a $ 5.5 million decrease in gap profit sharing income , which was a result of the following : · additional income recognized during 2011 as a result of a change we made to our revenue recognition during 2011 to begin recognizing this income as earned over the life of the gap contracts . · a change made to our profit sharing income arrangement during 2012 that increased the total amount of income earned per gap contract but reduced the amount recognized as other income . this reduction was more than offset by a higher fee per gap contract that is recognized as finance charges . · a $ 3.9 million increase in gps-sid fee income due to increases in both the fee earned per unit and the number of units purchased by dealers from tpps . · a $ 1.1 million increase in vehicle service contract profit sharing income as a result of a new profit sharing arrangement we entered into with one of our tpps during 2012. operating expenses . for the year ended december 31 , 2012 , operating expenses increased $ 31.7 million , or 28.3 % , as compared to the same period in 2011. the change in operating expenses is due to the following : · an increase in salaries and wages expense of $ 19.2 million , or 30.5 % , comprised of the following : · an increase of $ 10.3 million in stock-based compensation expense primarily attributable to the 15 year stock award granted to our chief executive officer during the first quarter of 2012 . · an increase of $ 6.9 million in salaries and wages , excluding the increase in stock-based compensation and fringe benefits , related to increases of $ 4.2 million for our servicing function , $ 2.2 million for our support function and $ 0.5 million for our originations function . story_separator_special_tag · an increase of $ 2.0 million in fringe benefits , primarily related to medical claims . · an increase in sales and marketing expense of $ 7.6 million , or 32.2 % , primarily as a result of the increase in the size of the field sales force . · an increase in general and administrative expense of $ 4.9 million , or 19.1 % , primarily due to an increase in information technology expenses , an expense incurred related to the termination of our relationship with a tpp during the fourth quarter of 2012 , an increase in legal fees and higher taxes primarily as a result of a property tax refund recognized in the first quarter of 2011. provision for credit losses . for the year ended december 31 , 2012 , the provision for credit losses decreased $ 5.0 million , or 17.2 % , as compared to 2011. during the year ended december 31 , 2012 , overall consumer loan performance exceeded our expectations at the start of the year . however , the performance of certain loan pools declined from our expectations during the year , resulting in a provision for credit losses of $ 24.0 million for the year ended december 31 , 2012 , of which $ 27.1 million related to dealer loans partially offset by a reversal of provision of $ 3.1 million related to purchased loans . the provision for credit losses related to dealer loans includes $ 2.8 million in expense related to an enhancement made to the computations used to account for dealer loans during the fourth quarter of 2012. for additional information , see note 5 to the consolidated financial statements contained in item 8 of this form 10-k , which is incorporated herein by reference . during the year ended december 31 , 2011 overall consumer loan performance exceeded our expectations at the start of the year . however , the performance of certain loan pools declined from our expectations during the year , resulting in a provision for credit losses of $ 29.0 million for the year ended december 31 , 2011 , of which $ 29.7 million related to dealer loans partially offset by a reversal of provision of $ 0.7 million related to purchased loans . interest . for the year ended december 31 , 2012 , interest expense increased $ 6.2 million , or 10.8 % , as compared to 2011. the following table shows interest expense , the average outstanding debt balance , and the average cost of debt for the year ended december 31 , 2012 : replace_table_token_22_th for the year ended december 31 , 2012 , the increase in interest expense is primarily due to the increase in the average outstanding debt balance , partially offset by a decline in our average cost of debt . the average outstanding debt balance increased compared to the same period in 2011 due to the use of the debt proceeds to fund the growth in new consumer loan assignments and stock repurchases . the decline in our average cost of debt was primarily a result of a change in the mix of our outstanding debt . 32 provision for claims . for the year ended december 31 , 2012 , provision for claims increased $ 4.4 million , or 14.5 % , as compared to 2011. the increase was due to an increase in the size of our reinsurance portfolio partially offset by a decrease in claims paid per reinsured vehicle service contract . provision for income taxes . for the year ended december 31 , 2012 , the effective tax rate of 36.0 % was generally consistent with the effective tax rate of 36.6 % in 2011. critical accounting estimates our consolidated financial statements are prepared in accordance with gaap . the preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . on an ongoing basis , we review our accounting policies , assumptions , estimates and judgments to ensure that our financial statements are presented fairly and in accordance with gaap . our significant accounting policies are discussed in note 2 to the consolidated financial statements contained in item 8 of this form 10-k , which is incorporated herein by reference . we believe that the following accounting estimates are the most critical to aid in fully understanding and evaluating our reported financial results , and involve a high degree of subjective or complex judgment , and the use of different estimates or assumptions could produce materially different financial results . finance charge revenue & allowance for credit losses nature of estimates required . we estimate the amount and timing of future collections and dealer holdback payments . these estimates impact loans receivable and allowance for credit losses on our balance sheet and finance charges and provision for credit losses on our income statement . assumptions and approaches used . for accounting purposes , we are not considered to be an originator of consumer loans , but instead are considered to be a lender to our dealers for consumer loans assigned under our portfolio program , and a purchaser of consumer loans assigned under our purchase program . as a result of this classification , our accounting policies for recognizing finance charge revenue and determining our allowance for credit losses may be different from other lenders in our market , who , based on their different business models , may be considered to be a direct lender to consumers for accounting purposes . for additional information regarding our classification as a lender to our dealers for accounting purposes , see note 1 to the consolidated financial statements contained in item 8 of this form 10-k , which is incorporated herein by reference
| the average yield on our loan portfolio for the year ended december 31 , 2013 decreased as compared to the same period in 2012 due to higher advance rates on new consumer loan assignments , partially offset by improvements in forecasted collection rates throughout 2012 and 2013. premiums earned . for the year ended december 31 , 2013 , premiums earned increased $ 4.4 million , or 9.3 % , as compared to 2012. the increase was primarily due to growth in the size of our reinsurance portfolio , which was the result of premiums written on vehicle service contracts from new consumer loan assignments throughout 2012 and 2013. other income . for the year ended december 31 , 2013 , other income increased $ 16.3 million , or 68.2 % , as compared to 2012. the increase was primarily due to : · a $ 7.6 million increase in gps-sid fee income due to an increase in the fee earned per unit purchased by dealers from tpps . · a $ 6.0 million increase in vehicle service contract profit sharing income primarily as a result of a new profit sharing arrangement we entered into with one of our tpps during 2012 . 29 operating expenses . for the year ended december 31 , 2013 , operating expenses increased $ 12.3 million , or 8.5 % , as compared to 2012. the change in operating expenses was primarily due to the following : · an increase in salaries and wages expense of $ 5.1 million , or 6.2 % , comprised of the following : · an increase of $ 8.8 million , excluding stock-based compensation , primarily related to increases of $ 4.9 million for our servicing function and $ 4.2 million for our support function . · a decrease of $ 3.7 million in stock-based compensation expense primarily due to a change in the expected vesting period of performance-based stock awards . · an increase in general and administrative expenses of $ 3.9 million , or 12.8 % , primarily as a result of an increase related to legal fees . · an increase in sales and marketing expense of $ 3.3 million , or 10.6 % , primarily as a result of an increase in
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the decrease in the international segment was largely driven by unfavorable foreign currency translation impacts of $ 52.5 million in 2015. on a constant currency basis , excluding the late 2014 transition of a customer from a buy/sell to a fee-for-service arrangement , international segment revenues declined approximately 3.5 % for the year ended december 31 , 2015 , compared to prior year . this decline was largely a result of the previously announced exit from a u.k. customer contract , as well as other lost business . cost of goods sold . for the years ended december 31 , change ( dollars in thousands ) 2015 2014 $ % cost of goods sold $ 8,558,373 $ 8,270,216 $ 288,157 3.5 % cost of goods sold includes the cost of the product ( net of supplier incentives and cash discounts ) and all costs incurred for shipments of products from manufacturers to our distribution centers for all customer arrangements where we are the primary obligor , bear risk of general and physical inventory loss and carry all credit risk associated with sales . these are sometimes referred to as distribution or buy/sell contracts . beginning in the fourth quarter of 2014 , cost of goods sold also includes direct and certain indirect labor , material and overhead costs associated with our cps operations . there is no cost of goods sold associated with our fee-for-service business . as a result of the increase in sales activity , cost of goods sold increased from the prior year by $ 288.2 million . replace_table_token_12_th the improvement in gross margin for the year ended december 31 , 2015 , compared to the prior year was largely attributable to revenue growth in the domestic segment , higher benefits from certain manufacturer product price changes compared to prior year and the full year activity from the late 2014 acquisitions . these benefits were unfavorably affected by $ 40.6 million from foreign currency translation . we value domestic segment inventory under the lifo method . had inventory been valued under the first-in , first-out ( fifo ) method , gross margin as a percentage of net revenue would have been the same in 2015 and higher by 8 basis points in 2014. replace_table_token_13_th distribution , selling and administrative ( ds & a ) expenses include labor and warehousing costs associated with our distribution and logistics services and all costs associated with our fee-for-service arrangements . shipping and handling costs are included in ds & a expenses and include costs to store , move , and prepare products for shipment , as well as costs to deliver products to customers . the costs to convert new customers to our information systems are included in ds & a and are generally incurred prior to the recognition of revenues from the new customers . depreciation and amortization , previously reported as a separate financial statement line item in the consolidated statements of income is now included in distribution , selling and administrative expenses for all periods presented . 19 the change in ds & a expenses compared to the prior year was largely attributable to increased expenses associated with incremental sales activity , higher accrued incentive compensation and full year impacts from the late 2014 acquisitions . these impacts were largely offset by benefits from cost control initiatives , lower fuel costs compared to prior year and favorable foreign currency translation impacts of $ 37.6 million , all of which contributed to a 27 basis point reduction in ds & a expenses as a percentage of net revenue compared to 2014. the domestic segment also incurred $ 3.7 million for the year ended december 31 , 2015 , in costs associated with the recruitment and transition of our new chief executive officer . the decrease in other operating income , net for the year ended december 31 , 2015 compared to 2014 was primarily related to 1 ) the prior year benefit of $ 5.3 million from the settlement of a direct purchaser anti-trust class action lawsuit , as well as a gain on the sale of an investment , 2 ) the prior year gain of $ 6.7 million from a fair value adjustment to contingent consideration related to the movianto acquisition purchase price , offset by 3 ) a prior year loss of $ 3.9 million related to the settlement of a contract claim in the united kingdom , of which $ 1.5 million was recovered through insurance in 2015 and 4 ) an increase in 2015 of expenses associated with on-going legal matters . a discussion of the acquisition-related and exit and realignment charges is included above in the overview section . replace_table_token_14_th the changes in interest expense and effective interest rate in the year ended december 31 , 2015 compared to 2014 was the result of the new senior notes issued on september 16 , 2014. replace_table_token_15_th the change in the effective tax rate compared to 2014 , including income taxes on acquisition-related and exit and realignment charges , resulted from a higher percentage of the company 's pretax income earned in lower tax rate jurisdictions compared to prior year and the non-deductibility of certain acquisition-related charges for income tax purposes . 20 financial condition , liquidity and capital resources financial condition . we monitor operating working capital through days sales outstanding ( dso ) and merchandise inventory turnover . we estimate a hypothetical increase ( decrease ) in dso of one day would result in a decrease ( increase ) in our cash balances , an increase ( decrease ) in borrowings against our revolving credit facility , or a combination thereof of approximately $ 26 million . the majority of our cash and cash equivalents are held in cash depository accounts with major banks in the united states and europe or invested in high-quality , short-term liquid investments . changes in our working capital can vary in the normal course of business based upon the timing of inventory purchases , collection of accounts receivable , and payment to suppliers . story_separator_special_tag replace_table_token_16_th ( 1 ) based on year end accounts receivable and net revenue for the fourth quarter ( 2 ) based on average annual inventory and costs of goods sold for the years ended december 31 , 2016 and 2015 liquidity and capital expenditures . the following table summarizes our consolidated statements of cash flows : replace_table_token_17_th cash provided by ( used for ) operating activities in 2016 , 2015 and 2014 reflected improvements in net income , changes in working capital , including the effects of a customer exit in 2016 , and the timing of payments to vendors in 2014. cash used for investing activities in 2016 and 2015 included capital expenditures of $ 30.1 million and $ 36.6 million for our strategic and operational efficiency initiatives , particularly initiatives relating to information technology enhancements and optimizing our distribution network . cash used for investing activities in 2016 was partially offset by $ 5.4 million in proceeds from the sale of property . cash used for investing activities in 2014 included cash paid for the acquisitions of medical action and arcroyal of approximately $ 261.6 million plus assumed third-party debt ( capital lease obligations ) of $ 13.4 million and capital expenditures of $ 70.8 million primarily related to distribution center and logistics facility moves and modifications and information technology initiatives . cash used in financing activities included dividend payments of $ 63.4 million , $ 63.7 million and $ 63.1 million and repurchases of common stock under our share repurchase programs for $ 71.0 million , $ 20.0 million and $ 9.9 million in the years ended december 31 , 2016 , 2015 and 2014. financing activities in 2015 also included the repayment of $ 33.7 million in borrowings on our amended credit agreement . in 2014 , cash provided by financing activities included proceeds from borrowings of $ 581.4 million offset by the repayment of long-term debt of $ 217.4 million . 21 capital resources . our sources of liquidity include cash and cash equivalents and a revolving credit facility . on september 17 , 2014 , we amended our existing credit agreement with wells fargo bank , n.a. , jpmorgan chase bank , n.a. , bank of america , n.a . and a syndicate of financial institutions ( the amended credit agreement ) increasing our borrowing capacity from $ 350 million to $ 450 million and extending the term through 2019. under the amended credit agreement , we have the ability to request two one -year extensions and to request an increase in aggregate commitments by up to $ 200 million . the interest rate on the amended credit agreement , which is subject to adjustment quarterly , is based on the london interbank offered rate ( libor ) , the federal funds rate or the prime rate , plus an adjustment based on the better of our debt ratings or leverage ratio ( credit spread ) as defined by the amended credit agreement . we are charged a commitment fee of between 12.5 and 25.0 basis points on the unused portion of the facility . the terms of the amended credit agreement limit the amount of indebtedness that we may incur and require us to maintain ratios for leverage and interest coverage , including on a pro forma basis in the event of an acquisition . we may utilize the revolving credit facility for long-term strategic growth , capital expenditures , working capital and general corporate purposes . if we were unable to access the revolving credit facility , it could impact our ability to fund these needs . based on our leverage ratio at december 31 , 2016 , the interest rate under the credit facility is libor plus 1.375 % . at december 31 , 2016 , we had no borrowings and letters of credit of approximately $ 4.9 million outstanding under the amended credit agreement , leaving $ 445 million available for borrowing . we also have a $ 1.1 million and a $ 1.2 million letter of credit outstanding as of december 31 , 2016 and 2015 , respectively , which supports our facilities leased in europe . on september 16 , 2014 , we issued $ 275 million of 3.875 % senior notes due 2021 ( the “ 2021 notes ” ) and $ 275 million of 4.375 % senior notes due 2024 ( the “ 2024 notes ” ) . the 2021 notes were sold at 99.5 % of the principal amount with an effective yield of 3.951 % . the 2024 notes were sold at 99.6 % of the principal amount with an effective yield of 4.422 % . interest on the 2021 notes and 2024 notes is payable semiannually in arrears , commencing on march 15 , 2015 and december 15 , 2014 , respectively . we have the option to redeem the 2021 notes and 2024 notes in part or in whole prior to maturity at a redemption price equal to the greater of 100 % of the principal amount or the present value of the remaining scheduled payments discounted at the treasury rate plus 30 basis points . we have $ 3.5 million of deferred costs associated with the issuance of the 2021 notes and 2024 notes which were unamortized as of december 31 , 2016. we used a portion of the proceeds from the 2021 notes and the 2024 notes to complete the medical action and arcroyal acquisitions in the fourth quarter of 2014 for a combined purchase price of $ 261.6 million , net of cash acquired , and including debt assumed of $ 13.4 million ( capitalized lease obligations ) . we also used a portion of the proceeds in 2014 to fund the early retirement of all of our 2016 notes , which included the payment of a $ 17.4 million redemption premium . we recorded a net loss on the early retirement of our 2016 notes of $ 14.9 million , which included the redemption premium offset by the recognition of a gain on previously settled interest rate swaps .
| in general , the measures exclude items and charges that ( i ) management does not believe reflect our core business and relate more to strategic , multi-year corporate activities ; or ( ii ) relate to activities or actions that may have occurred over multiple or in prior periods without predictable trends . management uses these non-gaap financial measures internally to evaluate our performance , evaluate the balance sheet , engage in financial and operational planning and determine incentive compensation . management provides these non-gaap financial measures to investors as supplemental metrics to assist readers in assessing the effects of items and events on our financial and operating results and in comparing our performance to that of our competitors . however , the non-gaap financial measures used by us may be calculated differently from , and therefore may not be comparable to , similarly titled measures used by other companies . the non-gaap financial measures disclosed by us should not be considered a substitute for , or superior to , financial measures calculated in accordance with gaap , and the financial results calculated in accordance with gaap and reconciliations to those financial statements set forth above should be carefully evaluated . the following items have been excluded in our non-gaap financial measures : ( 1 ) acquisition-related charges , pre-tax , were $ 1.2 million in 2016 , $ 9.8 million in 2015 and $ 16.1 million in 2014. the current year amount related primarily to costs incurred to settle certain obligations and address other on-going matters associated with the acquisitions of arcroyal and medical action which were partially offset on a year-to-date basis by the first quarter gain on the sale of property acquired with medical action . charges in 2015 consisted primarily of costs to continue the integration of medical action and arcroyal which were acquired in the fourth quarter of 2014 including certain severance and contractual payments to the former owner and costs to transition information technology and other administrative functions . charges in 2014 consisted primarily of transaction costs incurred to perform due diligence and analysis related to these acquisitions , as well as costs to resolve certain contingencies with the former movianto owner . exit and realignment charges ( income ) , pre-tax ,
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our obligations under the registration rights agreement with respect to any holder will cease upon the earliest to occur of : ( i ) the date on which such securities are disposed of pursuant to an effective registration statement or ( ii ) the date on which such securities are disposed of , or after one ( 1 ) year from the closing date , may be disposed of without limitation as to volume or manner of sale requirements pursuant to rule 144 ( or any similar provision then in effect ) promulgated under the securities act . factors affecting our results of operations retail platform the chart below sets forth certain information regarding our retail presence and number of states served via the internet as of and for the years ended december 31 , 2017 , 2018 , and 2019 : december 31 , december 31 , december 31 , 2017 2018 2019 # of locations beginning of period 518 489 471 opened ( a ) 47 — 23 closed 76 18 10 end of period 489 471 484 number of states licensed for our internet operations 30 29 28 ( a ) includes leases assumed from unrelated entities that terminated their business operations . the following table provides the geographic composition of our retail locations as of december 31 , 2017 , 2018 and 2019 : replace_table_token_2_th 51 in addition , the company is licensed to provide internet financial services in the following states : alabama , alaska , california , delaware , florida , hawaii , idaho , indiana , kansas , louisiana , minnesota , mississippi , missouri , nevada , new mexico , north dakota , ohio , oklahoma , oregon , rhode island , south carolina , tennessee , texas , utah , virginia , washington , wisconsin , and wyoming . changes in legislation & regulation the cfpb arbitration rule on july 10 , 2017 , the consumer financial protection bureau ( “ cfpb ” ) adopted the final rule prohibiting the use of mandatory arbitration clauses with class action waivers in consumer financial services contracts , or the anti‑arbitration rule . the anti‑arbitration rule was published in the federal register on july 19 , 2017 , and overturned by congress on october 24 , 2017 , based on the congressional review act . on november 1 , 2017 , president trump signed congress 's resolution repealing the cfpb 's anti‑arbitration rule , officially invalidating it . as a result of the anti‑arbitration rule having been disapproved under the congressional review act , the cfpb is prevented from reissuing the disapproved rule in substantially the same form or from issuing a new rule that is substantially the same , unless the reissued or new rule is specifically authorized by a law enacted after the date of the resolution of disapproval . the cfpb payday , vehicle title and certain high-cost installment loans rules on july 21 , 2010 , the dodd‑frank act was signed into law . among other things , this act created the cfpb and granted it the authority to regulate companies that provide consumer financial services . the cfpb has examined both our retail and internet operations . the findings from these exams did not result in any material change to our business practices . we expect to be periodically examined in the future by the cfpb as well as other regulatory agencies . on june 2 , 2016 , the cfpb released its proposed rules addressing payday , vehicle title and certain high‑cost installment loans . the cfpb accepted comments on the proposed rules through october 7 , 2016. on october 5 , 2017 , the cfpb released its final rule applicable to payday , title and certain high‑cost installment loans ( the “ cfpb rule ” ) . the cfpb rule is being challenged in a lawsuit filed by the community financial services association ( “ cfsa ” ) of america and consumer service alliance of texas on april 9 , 2018 , and pending in the u.s. district court for the western district of texas , austin division , which we refer to as the cfsa litigation . the cfpb rule was published in the federal register on november 17 , 2017 , and but for the cfpb 's june 6 , 2019 , rule that delayed compliance of the underwriting provisions of the cfpb rule until november 19 , 2020 , and the stay issued in the cfsa litigation , those rules , would have become fully effective in august of 2019. further , it is possible that some or all of the cfpb rule will be subject to legal challenge by trade groups or other private parties . for example , on october 18 , 2019 , the united states supreme court agreed to hear an appeal of a decision issued by the ninth circuit court of appeals in seila law llc v. cfpb . the case presents the opportunity for the supreme court to determine whether the cfpb 's structure is unconstitutional . if the cfpb 's structure is found unconstitutional , the effects , including on the cfpb rule described below , are unclear . although the stay issued in the cfsa litigation , the seila case , and the cfpb 's june 6 , 2019 , rule make the ultimate determination about the underwriting provisions of the cfpb rule unclear , the cfpb 's fall rule making agenda indicated an intention to finalize the cfpb rule in april of 2020. the currently proposed cfpb rule includes ability‑to‑repay , or atr , requirements for “ covered short‑term loans ” and “ covered longer‑term balloon‑payment loans , ” as well as payment limitations on these loans and “ covered longer‑term loans ” remain subject to rule-making or judicial determination . covered short‑term loans are consumer loans with a term of 45 days or less . story_separator_special_tag covered longer‑term balloon payment loans include consumer loans with a term of more than 45 days where ( i ) the loan is payable in a single payment , ( ii ) any payment is more than twice any other payment , or ( iii ) the loan is a multiple advance loan that may not fully amortize by a specified date and the final payment could be more than twice the amount of other minimum payments . covered longer‑term loans are consumer loans with a term of more than 45 days where ( i ) the total cost of credit exceeds an annual rate of 36 % , and ( ii ) the lender obtains a form of “ leveraged payment mechanism ” giving the lender a right to initiate transfers from the consumer 's account . post‑dated checks , authorizations to initiate automated clearing house or ach payments and authorizations to initiate prepaid or debit card payments are all leveraged payment mechanisms under the cfpb rule . a covered lender would be required to choose between the following two options : a “ full payment test , ” under which the lender must make a reasonable determination of the consumer 's ability to repay the loan in full and cover major financial obligations and living expenses over the term of the loan and the succeeding 30 days . under this test , the lender must take account of the consumer 's basic living expenses and obtain and generally verify evidence of the consumer 's income and major financial obligations . however , in circumstances where a lender determines that a reliable income record is not reasonably available , such as when a consumer receives and spends income in cash , the lender may reasonably rely on the consumer 's statements alone as evidence of income . further , unless a housing debt obligation appears on a national consumer report , the lender may reasonably rely on the 52 consumer 's written statement regarding his or her housing expense . as part of the atr determination , the cfpb rule permits lenders and consumers in certain circumstances to rely on income from third parties , such as spouses , to which the consumer has a reasonable expectation of access , and to consider whether another person is regularly contributing to the payment of major financial obligations or basic living expenses . a 30‑day cooling off period applies after a sequence of three covered short‑term or longer‑term balloon payment loans . a “ principal‑payoff option , ” under which the lender may make up to three sequential loans , or so‑called section 1041.6 loans , without engaging in an atr analysis . the first section 1041.6 loan in any sequence of section 1041.6 loans without a 30‑day cooling off period between loans is limited to $ 500 , the second is limited to a principal amount that is at least one‑third smaller than the principal amount of the first , and the third is limited to a principal amount that is at least two‑thirds smaller than the principal amount of the first . a lender may not use this option if ( i ) the consumer had in the past 30 days an outstanding covered short‑term loan or an outstanding longer‑term balloon payment loan that is not a section 1041.6 loan , or ( ii ) the new section 1041.6 loan would result in the consumer having more than six covered short‑term loans ( including section 1041.6 loans ) during a consecutive 12‑month period or being in debt for more than 90 days on such loans during a consecutive 12‑month period . for section 1041.6 loans , the lender can not take vehicle security or structure the loan as open‑end credit . the portion of the cfpb rule 's addressing the “ penalty fee prevention ” provisions requires : if two consecutive attempts to collect money from a particular account of the borrower , made through any channel ( e.g. , paper check , ach , prepaid card ) are unsuccessful due to insufficient funds , the lender can not make any further attempts to collect from such account unless and until the lender has provided a new notice to the borrower and the borrower has provided a new and specific authorization for additional payment transfers . the cfpb rule contains specific requirements and conditions for the authorization . while the cfpb has explained that these provisions are designed to limit bank penalty fees to which consumers may be subject , and while banks do not charge penalty fees on card authorization requests , the cfpb rule nevertheless treats card authorization requests as payment attempts subject to these limitations . a lender generally must give the consumer at least three business days ' advance notice before attempting to collect payment by accessing a consumer 's checking , savings , or prepaid account . the notice must include information such as the date of the payment request , payment channel and payment amount ( broken down by principal , interest , fees , and other charges ) , as well as additional information for “ unusual attempts , ” such as when the payment is for a different amount than the regular payment , initiated on a date other than the date of a regularly scheduled payment or initiated in a different channel than the immediately preceding payment attempt . other legislative and regulatory changes the cfpb has proposed new rules affecting debt collection and announced tentative plans to propose rules affecting debt accuracy and verification . also , during the past few years , legislation , ballot initiatives and regulations have been proposed or adopted in various states that would prohibit or severely restrict our short‑term consumer lending . for a discussion of the potential impact of the cfpb rule on the company , see “ risk factors ” .
| revenue from check cashing fees for the year ended december 31 , 2019 , increased $ 6.3 million , or 14.1 % , compared to the same period in 2018 , primarily as the result of an increase in the face amount of the average check . revenue from prepaid debt card services for the year ended december 31 , 2019 , increased $ 2.3 million , or 27.9 % , compared to the same period in 2018 , primarily due to an increase in the commission rate earned on card services . other income for the year ended december 31 , 2019 , increased $ 5.1 million , or 37.4 % , compared to the same period in 2018 , primarily as the result of commissions earned for bill pay services in certain markets . operating expenses replace_table_token_8_th total operating expenses , net of depreciation , for the year ended december 31 , 2019 , decreased $ 0.7 million , or 0.3 % , compared to the same period in the prior year , primarily due to the increase in provision for loan losses are offset by decreases in most operating expense categories . income from operations , net of depreciation , decreased $ 10.7 million , or 10.3 % , for the year ended december 31 , 2019 , as compared to the same period in the prior year . the provision for loan losses increased by $ 2.0 million , or 2.1 % , for the year ended december 31 , 2019 , as compared to the same period in the prior year primarily as the result of recording a liability for purchasing defaulted third-party lender loans . depreciation increased by $ 16.0 million , or 207.6 % , for the year ended december 31 , 2019 , as compared to the prior period , primarily as a result of the $ 43.1 million fair value adjustment recorded for property , leasehold improvements and equipment , in connection with the 2018 restructuring . 59 corporate and other expenses replace_table_token_9_th total corporate and other expenses decreased by $ 23.5 million , or 16.1 % , and as a percentage of revenue from
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replace_table_token_2_th revenue total revenue for the year ended december 31 , 2016 was $ 2,121,600 , which represented an increase of $ 1,876,702 , or 766 % , compared to total revenue of $ 244,898 for the year ended december 31 , 2015. the increase primarily resulted from a full year of business for the year ended december 31 , 2016 , as compared to less activity from october 25 , 2015 ( inception ) to december 31 , 2015. in addition , the company increased its client base through new contracts . 14 cost of revenue cost of revenue for the years ended december 31 , 2016 and 2015 primarily consisted of hourly compensation for security personal . cost of revenue increased by $ 1,615,332 , or 735 % , for the year ended december 31 , 2016 , to $ 1,835,156 , as compared to $ 219,824 for the year ended december 31 , 2015. the increase primarily resulted from a full year of business for the year ended december 31 , 2016 , as compared to less activity from october 25 , 2015 ( inception ) to december 31 , 2015. in addition , the company added employees to align with the increase in the number of active company clients . operating expenses our operating expenses encompass selling , general and administrative expenses , salaries and wages , professional and legal fees and depreciation . selling , general and administrative expenses consist primarily of rent/moving expenses , advertising and travel expenses . salaries and wages is composed of non-revenue generating employees . professional services are principally comprised of outside legal , audit , information technology consulting , marketing and outsourcing services as well as the costs related to being a publicly traded company . our operating expenses during the year ended december 31 , 2016 and 2015 were $ 2,813,412 and $ 350,593 , respectively . the overall $ 2,462,819 increase in operating expenses was primarily attributable to the following increases in operating expenses of : ● general and administrative expenses – $ 368,436 ● salaries and wages – $ 384,265 ● professional and legal fees – $ 1,655,249 increase ● depreciation and amortization – $ 54,869 increase the $ 368,436 increase in general and administrative expenses resulted in increases in rent expense , advertising and travel expenses resulting from a full year of business for the year ended december 31 , 2016. the $ 384,265 increase in salaries and wages resulted from a significant increase in administrative headcount . the $ 1,655,249 increase in professional and legal fees resulted from costs associates with being a public company , along with a non-cash stock compensation expense for non-employees of $ 1,390,826. the $ 54,869 increase in depreciation and amortization was due to the acquisition of vehicles and certain intangible assets during 2016. other income ( expense ) , net other income ( expense ) , net consisted of change in fair value of convertible note , change in fair value of convertible note – related party , interest expense , loss on fair value of liability of shares to be issued , loss on induced conversion of convertible note and loss on impairment of intangibles . other income ( expense ) , net during the year ended december 31 , 2016 and 2015 was $ ( 4,677,088 ) and $ 9,564 , respectively . the $ 4,686,652 increase in other expense was primarily attributable to a loss on induced conversion of convertible notes of $ ( 2,830,143 ) , loss on fair value of liability of shares to be issued of ( $ 415,366 ) and loss on impairment of intangibles of ( $ 1,278,323 ) . the loss on induced conversion of convertible notes was a one-time non-cash charge based on convertible notes amended and converted at a share price lower than market . net ( loss ) income for the foregoing reasons , we had a net loss of $ 7,204,056 for the year ended december 31 , 2016 , or $ ( 0.27 ) per share ( basic and diluted ) , compared to net loss of $ 315,955 for the year ended december 31 , 2015 , or $ ( 0.20 ) per share ( basic and diluted ) . liquidity , capital resources and cash flows going concern the accompanying consolidated financial statements have been prepared assuming that we will continue as a going concern , which contemplates , among other things , the realization of assets and satisfaction of liabilities in the ordinary course of business . 15 as of december 31 , 2016 , we had a cash balance of $ 57,841 , accounts receivable , net of $ 257,974 and $ 1,110,007 in current liabilities . at the current cash consumption rate , we may need to consider additional funding sources toward the end of fiscal 2017. we are taking proactive measures to reduce operating expenses , drive growth in revenue and expeditiously resolve any remaining legal matters . the successful outcome of future activities can not be determined at this time and there is no assurance that , if achieved , we will have sufficient funds to execute our intended business plan or generate positive operating results . the consolidated financial statements do not include any adjustments related to this uncertainty and as to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should we be unable to continue as a going concern . capital resources the following table summarizes total current assets , liabilities and working capital for the periods indicated : replace_table_token_3_th as of december 31 , 2016 and 2015 , we had a cash balance of $ 57,841 and $ 154,282 , respectively . story_separator_special_tag in the company 's existing accounts receivable . allowance for doubtful accounts was $ 31,767 and $ 0 at december 31 , 2016 and 2015 , respectively . story_separator_special_tag 17 accounting for acquisitions in accordance with the guidance for business combinations , the company determines whether a transaction or other event is a business combination , which requires that the assets acquired and liabilities assumed constitute a business . each business combination is then accounted for by applying the acquisition method . if the assets acquired are not a business , the company accounts for the transaction or other event as an asset acquisition . under both methods , the company recognizes the identifiable assets acquired , the liabilities assumed , and any noncontrolling interest in the acquired entity . in addition , for transactions that are business combinations , the company evaluates the existence of goodwill or a gain from a bargain purchase . the company capitalizes acquisition-related costs and fees associated with asset acquisitions and immediately expense acquisition-related costs and fees associated with business combinations . revenue recognition the company recognizes revenue when : ( 1 ) persuasive evidence of an arrangement exists , ( 2 ) the services have been rendered to the customer , ( 3 ) the sales price is fixed or determinable and , ( 4 ) collectability is reasonably assured . the company 's revenues are principally derived from providing security services to its clientele . the security services revenue is generated from performing armed and unarmed guarding which is contracted for on an hourly basis . revenues associated with these contracted services are recognized under time-based arrangements as services are provided . additionally , the company provides transportation security services , which are generally contracted for on a per run basis and sometimes additional fees and surcharges are also billed to the client depending on the length of the run . revenues associated with these services are recognized as the transportation service is provided . the company generates advertising revenues from consumer advertising on its cannabase platform . revenue is recognized over the contract period associated with each specific advertising campaign . income taxes the company accounts for income taxes under the asset and liability method , which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements . under this method , deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse . valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized . the company has incurred net operating loss for financial-reporting and tax-reporting purposes . accordingly , for federal and state income tax purposes , the benefit for income taxes has been offset entirely by a valuation allowance against the related federal and state deferred tax asset for the years ended december 31 , 2016 and 2015. distinguishing liabilities from equity the company relies on the guidance provided by asc topic 480 , distinguishing liabilities from equity , to classify certain redeemable and or convertible instruments . the company first determines whether a financial instrument should be classified as a liability . the company will determine the liability classification if the financial instrument is mandatorily redeemable , or if the financial instrument , other than outstanding shares , embodies a conditional obligation that the company must or may settle by issuing a variable number of its equity shares . once the company determines that a financial instrument should not be classified as a liability , the company determines whether the financial instrument should be presented between the liability section and the equity section of the balance sheet ( “ temporary equity ” ) . the company will determine temporary equity classification if the redemption of the financial instrument is outside the control of the company ( i.e . at the option of the holder ) . otherwise , the company accounts for the financial instrument as permanent equity . 18 initial measurement the company records its financial instruments classified as liability , temporary equity or permanent equity at issuance at the fair value , or cash received . subsequent measurement - financial instruments classified as liabilities the company records the fair value of its financial instruments classified as liabilities at each subsequent measurement date . the changes in fair value of its financial instruments classified as liabilities are recorded as other expense/income . share-based compensation in accordance with asc 718 , compensation – stock based compensation , and asc 505 , equity based payments to non-employees , the company accounts for share-based payment using the fair value method . common shares issued to third parties for non-cash consideration are valued based on the fair market value of the services provided or the fair market value of the common stock on the measurement date , whichever is readily determinable . recently issued accounting pronouncements in may 2014 , the fasb issued asu 2014-09 , revenue from contracts with customers ( topic 606 ) . the core principle of asu 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services . this standard is effective for fiscal years and interim reporting periods beginning after december 15 , 2016. in august 2015 , the fasb issued asu 2015-14 , revenue from contracts with customers ( topic 606 ) : deferral of the effective date . the amendments in this update deferred the effective date for implementation of asu 2014-09 by one year and is now effective for annual reporting periods beginning after december 15 , 2017. early application is permitted only as of annual reporting periods beginning after december 15 , 2016 including interim reporting periods within that period .
| net cash provided by financing activities for the year ended december 31 , 2016 was $ 1,436,643 , which resulted from proceeds from the issuance of convertible notes of $ 850,000 , proceeds of $ 510,143 from the issuance of common stock pursuant to share purchase agreements and advances from shareholders of $ 76,500. net cash provided by financing activities for the year ended december 31 , 2015 was $ 151,721 , which resulted from the issuance of convertible notes of $ 100,000 and the proceeds of $ 51,700 from the issuance of common stock pursuant to share purchase agreements . off-balance sheet arrangements we do not have any outstanding off-balance sheet guarantees , interest rate swap transactions or foreign currency forward contracts . furthermore , we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit , liquidity or market risk support to such entity . we do not have any variable interest in an unconsolidated entity that provides financing , liquidity , market risk or credit support to us or that engages in leasing , hedging or research and development services with us . critical accounting policies and estimates the preparation of financial statements and related disclosures in conformity with u.s. gaap , and our discussion and analysis of its financial condition and operating results require our management to make judgments , assumptions and estimates that affect the amounts reported in its consolidated financial statements and accompanying notes . note 3 , “ summary of significant accounting policies ” of the notes to consolidated financial statements in part ii , item 8 of this annual report on form 10-k describes the significant accounting policies and methods used in the preparation of our consolidated financial statements . management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities . actual results may differ from these estimates and such differences may be material . management believes
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shanghai tch provided various forms of investments and properties for the project including cash , hardware , software , equipment , major components and devices . in return , shanghai tch obtained all the rights , titles , benefits and interests that yingfeng originally had under the project contract , including but not limited to the regular cash payments made by xingtai and other property rights and interests . on october 31 , 2007 , shanghai tch entered an asset-transfer agreement with yingfeng to transfer from yingfeng to shanghai tch all electricity-generating related assets owned by yingfeng . according to the transferred contracts , shanghai tch installed and owns two trt systems and leases them to xingtai for five years , commencing on january 25 , 2007 and ending on january 25 , 2012. during the lease , xingtai will pay shanghai tch monthly rent of $ 0.13 million ( rmb 0.9 million ) to use the systems . assuming all amounts due under the lease have been paid , shanghai tch will transfer the title of the systems to xingtai free of charge . all amounts due under the lease were paid ; therefore , shanghai tch transferred the title of the systems to xingtai free of charge . shengda project on march 15 , 2011 , the company incorporated a new wholly owned subsidiary pingshan county shengda energy technology co. , ltd ( “ shengda ” ) . xi'an tch contributed cash of $ 4,559,271 ( rmb 30,000,000 ) into shengda as initial capital . shengda was set up in order to undertake waste energy recycling projects from a steel and chemical company in pingshan county in accordance with and pursuant to a recycling economy projects cooperative framework agreement entered into by the parties . the final terms for the projects have not been reached and entered , and shengda is not currently operational . shanxi zhangzhi steel group project under the joint-operation agreement discussed above , shanghai tch and yingfeng also jointly pursued a project contract , which was entered into between yingfeng and zhangzhi iron and steel company , ltd. ( “ zhangzhi ” ) on june 22 , 2006 , to design , construct , install and operate a trt system for zhangzhi iron . shanghai tch provided various forms of investments and properties for the project including cash , hardware , software , equipment , major components and devices . in return , shanghai tch obtained all the rights , titles , benefits and interests that yingfeng originally had under the project contract , including but not limited to the regular cash payments made by xingtai and other property rights and interests . on october 31 , 2007 , shanghai tch acquired this contract as part of its asset-transfer agreement with yingfeng as discussed above . according to the transferred contracts , shanghai tch installed and owns a trt system and leases it to zhangzhi for 13 years , from july 25 , 2007 to july 25 , 2020. during the lease term , zhangzhi will pay shanghai tch a monthly rent of $ 0.16 million ( rmb 1.1 million ) . after the term is over and all due rents are paid , shanghai tch will transfer the title of the system to zhangzhi free of charge . 34 shengwei group – tongchuan project in november 2007 , shanghai tch signed a cooperative agreement with shengwei group to build two sets of 12mw cement low temperature heat power generation systems for shengwei 's two 2,500-tons-per-day cement manufacturing lines in jin yang and for a 5,000-tons-per-day cement manufacturing line in tong chuan . at the end of 2008 , construction of the cement low temperature heat power generation in tong chuan was completed at a cost of $ 6,191,000 ( rmb 43,000,000 ) and put into operation . under the original agreement , the ownership of the cement low temperature heat power generation systems would belong to shengwei from the date the projects were put into service . shanghai tch is responsible for the daily maintenance and repair of the projects , and charges shengwei a monthly electricity fee based on the actual power generated by the projects at 0.4116 rmb per kwh for an operating period of five years with the assurance from shengwei of a properly functioning 5,000-tons-per-day cement manufacturing line and not less than 7,440 heat hours per year for the electricity generator system . shengwei group collateralized the cement manufacturing line in tong chuan to guarantee its obligations to provide the minimum electricity income from the power generator system under the agreement during the operating period . at the end of the five-year operating period , shanghai tch will have no further obligations under the cooperative agreement . on may 20 , 2009 , shanghai tch entered into a supplementary agreement with shengwei group to amend the timing for title transfer to shenwei at the end of the lease term . in addition , the supplementary agreement provided that shanghai tch will charge shengwei based on actual power usage subject to a minimum of $ 0.31 million ( rmb 2.1 million ) per month during the operating period . shengwei group – jin yang project on june 29 , 2009 , construction of the cement low temperature heat power generation system in jin yang was completed at a cost of $ 7,318,000 ( rmb 50,000,000 ) and put into operation . shanghai tch charges shengwei a technical service fee of $ 336,600 ( rmb 2,300,000 ) monthly for the sixty months of the lease term . shengwei has the right to purchase the ownership of the cement low temperature heat power generation system for $ 29,000 ( rmb 200,000 ) at the end of lease term . shengwei is required to provide assurance of properly functioning two 2,500-tons-per-day cement manufacturing lines and not less than 7,440 heat hours per year for the cement low temperature heat power generation . story_separator_special_tag shengwei group collateralized the cement manufacturing lines in jin yang to guarantee its obligations to provide the minimum electricity income from the waste energy power generator system under the agreement during the operating period . effective july 1 , 2009 , shanghai tch outsourced the operation and maintenance of the cement low temperature heat power generation systems in tong chuan and jinyang to a third party for $ 732,000 ( rmb 5,000,000 ) per year . shenmu project on september 30 , 2009 , xi'an tch delivered to shenmu county jiujiang trading co. , ltd. ( “ shenmu ” ) a set of three 6 mw capacity waste gas power generation systems pursuant to a cooperative contract on coke-oven gas power generation project ( including its supplementary agreement ) and a gas supply contract for coke-oven gas power generation project ( the “ contracts ” ) . the contracts are for 10 years and state that xi'an tch will recycle coke furnace gas from the coke-oven plant of shenmu to generate power , which will be supplied back to shenmu . shenmu agreed to supply xi'an tch the coke-oven gas free of charge . under the contracts , shenmu will pay xi'an tch an annual “ energy-saving service fee ” of approximately $ 5.6 million in equal monthly installments for the life of the contracts , as well as such additional amount as may result from the supply of power to shenmu in excess of 10.8 million kilowatt hours per month . we are responsible for operating the projects and will do so through an unrelated third party . shenmu guarantees that monthly gas supply will not be less than 21.6 million standard cubic meters . if gas supply is less , shenmu agrees to pay xi'an tch the energy-saving service fee described above for up to 10.8 million kilowatt-hours per month . xi'an tch maintains the ownership of the project throughout the term of the contracts , including the already completed investment , design , equipment , construction and installation as well as the operation and maintenance of the project . at the end of the 10-year term , ownership of the projects transfers to shenmu at no charge . shenmu gave a lien on its production line to guarantee its performance under the contracts . shenmu 's three major stockholders provided an unlimited joint liability guarantee to xi'an tch for shenmu 's performance under the contracts and the yulin huiyuan group , an independent third party , provides a guarantee to xi'an tch for shenmu 's performance under the contracts . 35 on december 31 , 2011 , xi'an tch entered into a repurchase agreement for the coke-oven gas power generation project with shenmu . under the repurchase agreement , shenmu will purchase the set of 18 megawatt capacity power generating systems ( the “ system ” ) from xi'an tch and pay outstanding energy saving service fees of $ 3.08 million ( rmb 19.44 million ) to xi'an tch within 3 working days from the date of the repurchase agreement . xi'an tch will transfer the systems to shenmu for a price of $ 18.75 million ( rmb 120 million ) ( the “ purchase price ” ) . shenmu shall pay the first 30 % of the repurchase price within 5 working days from the date of the repurchase agreement , the second 30 % of repurchase price within 90 days from date of repurchase agreement and the remaining 40 % of the repurchase price within 180 days from the date of repurchase agreement . the ownership of the systems will be transferred to shenmu when the entire repurchase price has been paid . the cooperative contract will be terminated upon shenmu 's payment of the entire repurchase price . in january 2012 , the company received $ 3.08 million ( rmb 19.44 million ) outstanding energy saving service fees , and $ 5.71 million ( rmb 36 million ) , the first 30 % of repurchase price from shenmu . erdos projects on april 14 , 2009 , the company incorporated a joint venture ( “ jv ” ) with erdos metallurgy co. , ltd. ( “ erdos ” ) to recycle waste heat from erdos ' metal refining plants to generate power and steam , which will then be sold back to erdos . the name of the jv is inner mongolia erdos tch energy saving development co. , ltd ( “ erdos tch ” ) with a term of 20 years , and initial registered capital of $ 2,635,000 ( rmb 18,000,000 ) . as of december 31 , 2011 , total registered capital was increased to $ 17.55 million ( rmb 120 million ) , of which $ 16.37 million ( rmb 112 million ) was contributed by xi'an tch and $ 1.18 million ( rmb 8 million ) was from erdos metallurgy . total investment for the project is estimated at approximately $ 79 million ( rmb 500 million ) with an initial investment of $ 17.55 million ( rmb 120,000,000 ) . as of december 31 , 2011 , erdos contributed 7 % of the total investment of the project , and xi'an tch contributed 93 % of the total investment . with respect to profit distribution , xi'an tch and erdos will receive 80 % and 20 % of the profit from the jv , respectively , until xi'an tch has received the complete return of its investment . xi'an tch and erdos will then receive 60 % and 40 % of the profit from the jv , respectively . the profits to be distributed will be computed based on chinese generally accepted accounting principles . the principal difference between us gaap and chinese gaap with regards to the erdos tch project is that a sales-type lease under us gaap is treated as an operating lease under chinese gaap . when the term of the jv expires , xi'an tch will transfer its equity in the jv to erdos at no additional cost .
| three 9mw units ; and ( 5 ) contingent rental income of $ 1.32 million from actual usage of the electricity in addition to the minimum lease payments from our shengwei group - tongchuan project , erdos project and shenmu project . for the sales-type lease , sales and cost of sales are recorded at the time of leases ; interest income from the sales-type leases is our other major revenue source in addition to sales revenue . 41 cost of sales . cost of sales for the year ended december 31 , 2011 was $ 23.01 million while our cost of sales for 2010 was $ 57.03 million , a decrease of $ 34.02 million . the decrease was primarily attributable to the fact that the 3rd 9mw capacity power station for the erdos phase ii project and the shenqiu biomass power generation system were both completed and sold during the year ended december 31 , 2011 , compared to the year of 2010 when cost of sales consisted of the second 9mw capacity power station of erdos phase i project , the first and the third 9mw recycling waste heat power generation system of erdos phase ii project , the pucheng biomass power generation system and the zhongbao whpg system . gross profit . gross profit was $ 8.28 million for 2011 compared to $ 18.57 million for 2010 , a gross margin of 26 % and 25 % for 2011 and 2010 , respectively . interest income on sales type leases . interest income on sales-type leases for 2011 was $ 22.10 million , a $ 6.96 million increase from $ 15.14 million for 2010. during 2011 , interest income was derived from thirteen systems : two trt systems , two chpg systems , one wgpg system , two systems with erdos phase i project and three systems of erdos phase ii project , the pucheng biomass power generation system , shenqiu biomass power generation system and zhongbao whpg system . during
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the results from the mad study were presented in 2019 at both the european cystic fibrosis society clinical meeting and the north american cystic fibrosis conference ( nacfc ) . the results have also been published in the journal of clinical pharmacology in drug development in january of 2021. the results from the renal impairment study were presented at the 2019 american society of nephrology ( asn ) kidney week and published in december 2020 in the journal of clinical pharmacology . the results from the renal impairment study provide d support for both continuing our clinical development programs and evaluating the suitability of our ersg library for development in additional renal di seases , including adpkd . our research and development strategy targets rare or ultra-rare diseases where a high unmet medical need exists , a nonsense mutation-bearing patient population is established , preclinical read-through can be established in predictive personalized medicine models , and a defined path through orphan drug development , regulatory approval , patient access and commercialization is identified . we believe patient advocacy is an important element of patient focused drug development , and we seek opportunities to collaborate with patient advocacy groups throughout the discovery and development process . our current clinical program for our lead investigational drug product candidate , elx-02 , consists of phase 2 studies in cystic fibrosis . we intend to be the global leader in the application of the science of translational read-through and the associated pathway of nonsense mediated decay ( nmd ) . we believe that expanding our expertise across these basic science areas of mrna regulation , ribosomal function , and protein translation forms a solid foundation to support our discovery and development activities . our ersg compounds modulate the activity of the ribosome , a ribonucleoprotein complex of rnas and proteins responsible for protein production ( a process also known as translation ) . these novel small molecule ersg compounds are designed to allow the ribosome to read-through a nonsense mutation in mrna ( which is transcribed from the dna sequence ) , to restore the translation process to produce full-length , functional proteins and increase the amount of mrna that would otherwise be degraded as part of a phenomenon called nonsense mediated mrna decay . as our ersg compounds target the general mechanism for protein production in the cell , we believe they have the potential to treat numerous genetic diseases where nonsense mutations have impaired gene function . since nonsense mutations may occur at different positions within a given gene , a potential advantage of the small molecule ersg approach is being able to use one molecule to address a range of mutations within a given disease state . our subcutaneously injected ersg molecules have the potential to be self-administered for systemic disease and to be active across many of the body 's tissues . we believe that our library of related novel small molecules holds the potential to be disease-modifying therapies that may change the course of numerous genetic diseases and improve the lives of patients . our early preclinical data in animal models of nonsense mutations suggests that drug product candidates from our read-through compound ersg library may have potential beneficial effects for each of the following diseases : cystic fibrosis , nephropathic cystinosis , adpkd , a variety of irds ( including usher syndrome ) , primary ciliary dyskinesia , mucopolysaccharidosis type 1 , duchenne muscular dystrophy and rett syndrome , and have demonstrated the potential for beneficial effects in multiple organs such as the brain , eye , kidney , lungs , muscles and others . of the novel compounds in our ersg library , approximately 30 compounds have been selected , based on read-through activity , for continued preclinical research and we anticipate additional compounds advancing toward investigational new drug ( ind ) filings . our scientific manuscript titled “ elx-02 generates protein via premature stop codon read-through without inducing native stop codon read-through protein ” was published in the august 2020 issue of the journal of pharmacology and experimental therapeutics ( jpet ) . this manuscript demonstrates that while elx-02 mediates read-through of premature stop codons , the fidelity of native stop codons found at the end of healthy transcripts is maintained . this indicates that translation integrity is preserved with target-therapeutic exposure of elx-02 , consistent with the favorable tolerability profile across our preclinical and clinical data sets . currently , the clinical program for our lead investigational drug candidate , elx-02 , is focused on development for cystic fibrosis patients with diagnosed nonsense mutations . we have completed a phase 1 single ascending dose ( sad ) trial , a multiple ascending dose ( mad ) trial , and a renal impairment study with healthy volunteers as well as volunteers having mild , moderate and severe renal impairment . the results of the sad study were published in clinical pharmacology in drug development in january 2019. the results from the mad study were presented in 2019 at both the european cystic fibrosis society clinical meeting and the north american cystic fibrosis conference ( nacfc ) . the results have also been published in the journal of clinical pharmacology in drug development in january of 2021. the results from the renal impairment study were presented at the 2019 american society of nephrology ( asn ) kidney week and published in december 2020 in the journal of clinical pharmacology . 57 our scientific review written by professor eitan kerem , m . d . , senior attending physician at the hadassah cf center in jerusalem , israel and senior medical consultant to eloxx , titled “ elx-02 : an investigational read-through agent for the treatment of nonsense mutation-related genetic disease ” was published in october 2020 by the j ournal expert opinion on investigational drugs . this manuscript details the development of elx-02 for the restoration of functional protein in nonsense-mediated disease in support of our ongoing phase 2 trials . story_separator_special_tag our scientific manuscript titled “ targeting g542x cftr nonsense alleles with elx-02 restores cftr function in human-derived intestinal organoids ” was published in the journal of cystic fibrosis in february 2021 . this manuscript reviews the results of our evaluation of elx-02 mediated read-though , using the cftr-dependent forskolin-induced swelling ( fis ) assay across a selection of g542x homozygous and heterozygous patient-derived organoids , elx-02 increased cftr activity in a dose-dependent fashion across a variety of forskolin induction concentrations . the functional increases are similar to those obtained with tezacaftor/ivacaftor in an f508del homozygous organoid . additionally , elx-02 treatment of these patient-derived organoids results in a 5-fold increase in cftr mrna when compared with vehicle treated , resulting in normalization of cftr mrna as measured using nanostring . our phase 2 cystinosis trial involved two sequential cohorts with three escalating doses in three patients per cohort . the first cohort enrolled three homozygous w138x patients ages 23 to 38 , with prior kidney transplants and varying degrees of renal insufficiency . in january 2020 , we announced positive data from the first cohort of the phase 2 study of elx-02 in the treatment of patients with nonsense mutation-mediated nephropathic cystinosis . the results of the first cohort met the primary safety endpoint and the reductions in white blood cell ( wbc ) cystine provided a clear indication of biologic activity in these patients at nominal doses > 0.5 mg/kg/day . following review of the safety and pharmacokinetic data by an independent safety review committee ( src ) , the src approved progressing to the second cohort that would enable enrolling patients ages 12 and older . due to study design limitations , patients across all dose groups had elevated and uncontrolled pretreatment wbc cystine levels which made it difficult to fully evaluate elx-02-mediated wbc cystine reductions . therefore , we have discontinued this study and will not proceed with the second cohort as contemplated in the original protocol . we plan to continue to review these data with a panel of scientific and clinical experts to determine appropriate modifications for a possible new study design . the clear indications of biologic activity in this study provide human clinical proof of concept for elx-02 and de-risk other clinical applications of our ersg library using this dosage range . these encouraging results also provide a basis for expansion to studies of additional kidney diseases caused by nonsense mutations , such as adpkd . our phase 2 cystic fibrosis clinical trial program for elx-02 is being conducted at leading global investigator sites in europe , israel and the united states . on march 25 , 2020 , we announced that enrollment in these trials had been paused temporarily in response to the global covid-19 pandemic in order to avoid unnecessary exposure in at-risk populations , to maintain the integrity of our study data and to support global healthcare providers in their commitment to ensure patient safety . on june 17 , 2020 , we announced that enrollment had been resumed in israel and europe , and on august 12 , 2020 , we announced that enrollment had been resumed in the u.s. the covid-19 pandemic continues to evolve , and we continue to work closely with our clinical sites and investigators . we are also evaluating additional clinical sites in other countries where patient enrollment may be feasible . we remain committed to completing enrollment in these phase 2 proof of concept clinical trials and reporting top line data in the first half of 2021 , which is contingent on no further disruptions due to the covid-19 pandemic . several planned safety review committee meetings have occurred and allowed dose escalation up to the top dose level with no drug-related serious adverse events reported to date . multiple patients have progressed through the four-dose escalation range . the cystic fibrosis foundation ( “ cf foundation ” ) is providing funding for a portion of the u.s. program and in december of 2020 , expanded its support to include our global clinical trial program . we have since formed a joint program advisory group with the cf foundation focused on the development of elx-02 for cystic fibrosis . the cystic fibrosis therapeutics development network ( “ tdn ” ) has sanctioned the phase 2 study protocol , which is being conducted at tdn member sites . additional information about our clinical trials can be found at www.clinicaltrials.gov ( identifiers : nct04126473 and nct04135495 ) . 58 professor eitan kerem , m.d. , former head of the division of pediatrics , children 's hospital , hadassah medical center in israel , has joined eloxx as a senior medical consultant . for the u.s. trial , dr. ahmet uluer , director of the adult cystic fibrosis program at the boston children 's hospital/brigham and women 's hospital cf center , is the lead study investigator . the protocols have been sanctioned by the tdn in the u . s . and the european cystic fibrosis society clinical trial network ( which has given our europe/israel trial a “ high priority ” ranking ) . during october 2019 , we completed an interim cmc review meeting with the u.s. food and drug administration ( the “ fda ” ) and we have gained alignment with the agency on our manufacturing formulation and process , which we believe will be suitable for our expected drug supply needs through completion of our pivotal trials . the in - person ecfs conference in l y on , france scheduled for june 2020 was cancelled , and we withdrew our abstract . we presented data from two scientific abstracts at the north american cystic fibrosis virtual conference ( nacfc ) . the two abstracts were also showcased in the nacfc virtual poster gallery and electronically published as a supplement to pediatric pulmonology . the live sessions and discussions took place through october 23 , 2020. these virtual posters are available to registered attendees on the nacfc online conference platform .
| these decreases were all primarily related to the realignment actions taken by our board of directors in february 2020 , including reductions in general and administrative headcount and in external spending . restructuring charges restructuring charges of $ 4.0 million for the year ended december 31 , 2020 resulted from the leadership and organizational realignment during the first quarter of 2020. the total included $ 1.9 million related to contract termination and employee separation costs ( primarily severance and benefits ) and $ 2.1 million of non-cash stock compensation , relating to accelerated vesting of executive stock awards . there were no similar charges during the year ended december 31 , 2020. other expense ( income ) , net we recorded $ 1.1 million in other expense , net for the year ended december 31 , 2020 compared to $ 0.3 million for the year ended december 31 , 2019 , an increase of $ 0.8 million . the increase was primarily due a decrease in interest income of $ 0.7 million and investment income of $ 0.3 million , offset by a $ 0.2 million decrease in debt issuance costs and interest expense related to the commencement of principal repayments on the term loan in february 2020 . 61 provision for income taxes and n et operating loss carryforwards there were no provisions for or benefits from income taxes recorded in the years ended december 31 , 2020 and 2019. as of december 31 , 2020 , we had u.s. federal and state net operating loss ( “ nol ” ) carryforwards of $ 108.9 million and $ 13.7 million , respectively , and federal research tax credit carryforwards of $ 3.6 million . certain u.s. net operating loss carryforwards will begin to expire , if not utilized , beginning in 2021 through 2037 , and the research tax credits will expire beginning in 2027 through 2037. these nol carryforwards could expire unused and be unavailable to offset future income tax liabilities . included in these u.s. federal nol carryforwards are $ 34.9 million of nols generated after the effective date of the tax cuts and
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there can be no assurance that the company will be successful in defending its position . initially , the company withheld from the dividend paid to foreign shareholders an amount equal to the tax liability associated with such dividend . on april 7 , 2010 , upon a request made to the company by its foreign controlling shareholder , s & t , the company entered into an agreement with s & t ( the agreement ) , whereby the company returned to s & t on april 7 , 2010 that portion of the funds withheld for taxes from the dividend paid on march 24 , 2010 to s & t , which the company believes is not subject to u.s. tax based on the company 's good-faith estimate of its accumulated earnings and profits . the agreement includes provisions pursuant to which s & t agreed to indemnify the company for any liability imposed on it as a result of the company 's agreement not to withhold such funds for s & t 's possible tax liability and a pledge of stock as collateral . the company continues to assert that such dividend is largely not subject to u.s. tax based on the company 's good-faith estimate of its accumulated earnings and profits . in addition , the company also continues to assert that this transaction results in an off-balance sheet arrangement and a possible contingent tax liability of the company , which , if recognized , would be offset in part by the calling by the company on s & t of the indemnification provisions of the agreement . in february 2011 , upon the request of s & t to the company , the company and s & t agreed that the collateral pledged as a part of the agreement would no longer be required and such collateral was returned by the company to s & t in march 2011 and the agreement was amended and restated to remove the collateral requirement but retain the indemnification provisions . the agreement , as amended ( the amended agreement ) , remains in effect as of today . in the event that ( i ) the company is not successful in establishing with the irs that the company 's calculations were correct and ( ii ) s & t is unable or unwilling to pay the additional taxes due or indemnify the company under the terms of the amended agreement , the company may be liable to pay such additional taxes which would have a material adverse effect on the company 's financial condition and results of operations . income tax issues concerning overseas income on april 15 , 2013 and june 5 , 2013 , emerson received correspondence from the irs including a ( i ) form 5701 and form 886-a regarding adjusted sales income ( collectively referred to as nopa 1 ) and ( ii ) form 5701 and form 886-a regarding adjusted subpart f-foreign base company sales income ( collectively referred to as nopa 2 ) . with respect to nopa 1 , the irs is ( i ) challenging the position of the company with respect to the way the company 's controlled foreign corporation in macao ( the macao cfc ) recorded its product sales during fiscal 2010 and fiscal 2011 and ( ii ) asserting that an upward adjustment to the company 's fiscal 2010 and fiscal 2011 taxable income of $ 4,981,520 and $ 5,680,182 , respectively , is required . with respect to nopa 2 , the irs is challenging the position of the company with respect to the fact that the company considered the service fee paid by the company to the macao cfc to be non-taxable in the u.s. the irs has taken the position that the service fee paid to the macao cfc by the company constitutes foreign base company sales income ( fbcsi ) . the irs asserts that the service fee earned by the macao cfc in connection with its sales of products to the company should be taxable to the company as fbcsi . as a result , the irs determined that an upward adjustment to the company 's fiscal 2010 and fiscal 2011 taxable income of $ 1,553,984 and $ 1,143,162 , respectively , is required . 22 the company has evaluated the determinations made by the irs as set forth in each of nopa 1 and nopa 2 in order to decide ( a ) how it will proceed and ( b ) the potential impact on the company 's financial condition and operations . furthermore , although nopa 1 and nopa 2 represent potential adjustments to fiscal 2010 and fiscal 2011 only , the company believes it is likely that the irs will take the position that the same type of adjustments should be made for each of the company 's subsequent fiscal years . the assessment and payment of such additional taxes , penalties and interest would have a material adverse effect on the company 's financial condition and results of operations . with respect to nopa 1 , the company is appealing the proposed adjustment with the irs . in the event that the company is not successful in its appeal , the company estimates that it could be liable for a maximum in taxes , penalties and interest of approximately $ 13.3 million pertaining to nopa 1 , in the aggregate , for its fiscal 2010 , fiscal 2011 , fiscal 2012 and fiscal 2013 periods . story_separator_special_tag however , because the company 's current assessment is that its appeal of nopa 1 is more likely than not to be successful , the company has not recorded any liability to its march 31 , 2013 balance sheet related to nopa 1. with respect to nopa 2 , the company agrees in principle with the irs ' position that the service fee paid to the macao cfc by the company would be treated as fbcsi and taxable to the company but the company does not agree with the adjustment to the company 's taxable income as calculated by the irs . however , the company has estimated as approximately $ 1.1 million the amount of taxes , penalties and interest for which it would be liable for its fiscal 2010 , fiscal 2011 , fiscal 2012 and fiscal 2013 periods using the adjustments to taxable income as proposed by the irs , and recorded such amount as a liability to its march 31 , 2013 balance sheet . credit arrangements letters of credit the company utilizes hang seng bank to issue letters of credit on behalf of the company , as needed , on a 100 % cash collateralized basis . at march 31 , 2013 the company had outstanding letters of credit totaling $ 0.1 million . a like amount of cash , which was posted by the company as collateral against these outstanding letters of credit , at march 31 , 2013 , has been classified by the company as restricted cash on the balance sheet . short-term liquidity in fiscal 2013 , products representing approximately 46 % of net sales were imported directly to the company 's customers . the direct importation of product by the company to its customers significantly benefits the company 's liquidity because this inventory does not need to be financed by the company . the company 's principal existing sources of cash are generated from operations . the company believes that its cash on hand and existing sources of cash will be sufficient to support its existing operations over the next 12 months . as of march 31 , 2013 , there were no capital expenditure or other commitments other than the normal purchase orders used to secure product . off-balance sheet arrangements on april 7 , 2010 , upon a request made to the company by its foreign controlling stockholder , s & t , the company entered into an agreement with s & t whereby the company returned to s & t on april 7 , 2010 that portion of the taxes that the company had withheld from the dividend paid on march 24 , 2010 to s & t , as the company believes the dividend paid is not subject to u.s. tax based on the company 's good-faith estimate of its accumulated earnings and profits , and received collateral ( in the form of shares in the company ) which was sufficient to cover any claims for taxes on the dividend paid ( the agreement ) . the company believes this transaction resulted in an off-balance sheet arrangement , which is comprised of a possible contingent tax liability of the company , which , if recognized , would be offset by the calling by the company on s & t of the indemnification provisions of the agreement . in february 2011 , upon the request of s & t to the company , the company and s & t agreed the collateral pledged as a part of the agreement would no longer be required and this collateral was returned by the company to s & t in march 2011 ( see note 3 related party transactions ) . critical accounting policies the discussion and analysis of the company 's financial condition and results of operations are based upon its consolidated financial statements , which have been prepared in accordance with accounting principles that are generally accepted within the united states . the preparation of the company 's financial statements requires management to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses . management considers certain accounting policies related to inventories , trade accounts receivables , impairment of long-lived assets , valuation of deferred tax assets , sales return reserves and sales allowance accruals to be critical policies due to the estimation processes involved in each . 23 revenue recognition . revenues from product distribution are recognized at the time title passes to the customer . under the direct import program , title passes in the country of origin . under the domestic program , title passes primarily at the time of shipment . estimates for possible returns are based upon historical return rates and netted against revenues . except in connection with infrequent sales with specific arrangements to the contrary , returns are not permitted unless the goods are defective . in addition to the distribution of products , the company grants licenses for the right to use the company 's trademarks for a stated term for the manufacture and or sale of consumer electronics and other products under agreements which require payment of either i ) a non-refundable minimum guaranteed royalty or , ii ) the greater of the actual royalties due ( based on a contractual calculation , normally comprised of actual product sales by the licensee multiplied by a stated royalty rate , or sales royalties ) or a minimum guaranteed royalty amount . in the case of ( i ) , such amounts are recognized as revenue on a straight-line basis over the term of the license agreement . in the case of ( ii ) , sales royalties in excess of guaranteed minimums are accounted for as variable fees and are not recognized as revenue until the company has ascertained that the licensee 's sales of products have exceeded the guaranteed minimum . in effect , the company recognizes the greater of sales royalties earned to date or the straight-line amount of minimum guaranteed royalties to date .
| the major elements which contributed to the overall decrease in net product sales were as follows : i ) houseware product net sales decreased $ 28.8 million , or 19.7 % , to $ 117.6 million in fiscal 2013 as compared to $ 146.4 million in fiscal 2012 , principally driven by a decrease in sales of all products offered by the company in the category , which is comprised of microwave ovens , compact refrigerators and wine coolers ; and ii ) audio product net sales were $ 4.1 million in fiscal 2013 compared to $ 10.6 million in fiscal 2012 , a decrease of $ 6.5 million , or 61.5 % , resulting from decreased net sales of all products offered by the company in the category , which is comprised of clock radios and portable audio products . as reported by the company in a form 8-k filed with the sec on october 19 , 2012 , the company was informed by its customer wal-mart , that , commencing with the spring of 2013 , wal-mart would discontinue purchasing from emerson two microwave oven products that had been currently sold by the company to wal-mart . during the year ended march 31 , 2012 ( fiscal 2012 ) , these two microwave oven products comprised , in the aggregate , approximately $ 48.4 million , or 31 % , of the company 's net product sales . emerson continued shipping these two products throughout the remainder of fiscal 2013 ( the year ending march 31 , 2013 ) , with sales of such products declining through the fourth quarter of fiscal 2013. during fiscal 2013 , these two microwave oven products comprised , in the aggregate , approximately $ 36.1 million , or 29.7 % , of the company 's net product sales . emerson anticipates that the full impact of wal-mart 's decision will be realized by the company in fiscal 2014 , which began on april 1 , 2013. as previously disclosed by the company , the complete loss of , or significant reduction in , business with either of the company 's key customers will have a material adverse effect on the company 's business and results of operations . accordingly , wal-mart 's decision will have a material adverse effect on the company 's business and results of operations . there can be no assurance that the company will be able to increase sales of such products at levels sufficient to offset the adverse impact of wal-mart 's decision , if at all . 19 licensing revenue licensing revenue in fiscal 2013 was $ 6.8 million as compared to $ 6.3 million for fiscal 2012 , an increase of $ 0.5
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sce did not develop a restart plan for unit 3. permanent retirement on june 6 , 2013 sce decided to permanently retire units 2 and 3. sce concluded that despite the nrc 's extensive review of sce 's restart plan for unit 2 starting in october 2012 , there still remained considerable uncertainty about when the review process would be concluded . given the considerable uncertainty of when or whether sce would be permitted to restart unit 2 , sce concluded that it was in the best interest of its customers , shareholders and other stakeholders to permanently retire the units and focus on planning for the replacement resources which will eventually be required for grid reliability . sce also concluded that its decision to retire the units would facilitate more orderly planning for california 's energy future without the uncertainty of whether , when or how long san onofre would continue to operate . 26 cpuc review in october 2012 the cpuc issued an order instituting investigation ( `` oii '' ) that consolidated all san onofre issues in related regulatory proceedings to consider appropriate cost recovery for all san onofre costs , including among other costs , the cost of the steam generator replacement project , substitute market power costs , capital expenditures , operation and maintenance costs , and seismic study costs . the oii requires that all san onofre-related costs incurred on and after january 1 , 2012 be tracked in a memorandum account and , to the extent collected in rate levels authorized in the 2012 grc or other proceedings , be subject to refund . the order also states that the cpuc will determine whether to order the immediate removal , effective as of the date of the oii , of costs and rate base related to san onofre from sce 's rates . various other parties have filed testimony in the oii asking for disallowance of some or all of the san onofre-related costs , including costs in excess of the amount impaired by sce , as described below . the first phase of the oii was focused on 2012 costs , including 2012 capital and operation and maintenance costs and the appropriate calculation to measure 2012 substitute market power costs . a proposed decision in the first phase of the oii was issued in november 2013. the proposed decision would allow $ 45 million in planned unit 2 refueling outage costs but would disallow approximately $ 74 million in operation and maintenance costs authorized in rates plus 20 % of the 2012 revenue requirement related to capital expenditures incurred during the extended outage for both units . the disallowance would be subject to possible further review in the third phase of the oii . the proposed decision would permit recovery of routine operation and maintenance expense through may 2012 but defers a decision on recovery of incremental expenses incurred by sce to the third phase of the oii . a final decision in the first phase is expected in the first quarter of 2014. the second phase was focused on whether to adjust customer rates to remove the plant from rate base and hearings were held in october 2013. a proposed decision in the second phase is expected in the first quarter of 2014. the third and fourth phases of the oii will focus on the steam generator replacement project itself , including the reasonableness of the project 's costs , and the san onofre 2013 revenue requirement , respectively , and have not yet been scheduled . a summary of financial items related to san onofre and implicated in the oii are as follows : approximately $ 1.25 billion of sce 's authorized revenue requirement collected since january 1 , 2012 ( subject to refund ) is associated with operating and maintenance expenses , depreciation , taxes and return on sce 's investment in unit 2 , unit 3 and common plant . in 2013 , sce recorded approximately $ 39 million in severance costs associated with its decision to retire both units . until funding of post june 6 , 2013 activities related to the permanent closure of the plant is transitioned from base rates to sce 's nuclear decommissioning trusts established for that purpose , sce will continue to record these costs through the san onofre oii memorandum account , subject to reasonableness review . at may 31 , 2013 , sce 's net investment associated with san onofre is set forth in the following table : replace_table_token_5_th 1 includes net book value of the replacement steam generators of $ 542 million . in 2005 , the cpuc authorized expenditures of approximately $ 525 million ( $ 665 million based on sce 's estimate after adjustment for inflation using the handy-whitman index ) for sce 's 78.21 % share of the costs to purchase and install the four new steam generators in units 2 and 3 and remove and dispose of their predecessors . sce has spent $ 602 million on the steam generator replacement project , not including inspection , testing and repair costs subsequent to the replacement steam generator leak in unit 3. as a result of outages associated with the steam generator inspection and repair , electric power and capacity normally provided by san onofre were purchased in the market by sce . these market power costs will be reviewed as part of the cpuc 's oii proceeding . estimated market power costs calculated in accordance with the oii methodology were approximately $ 680 million as of june 6 , 2013 , excluding avoided nuclear fuel costs which are no longer included as a reduction due to sce 's decision to permanently retire units 2 and 3. such amount includes costs of approximately $ 65 million associated with planned outage periods . sce believes that such costs should be excluded as they would have been incurred even had the replacement steam generators performed as expected . story_separator_special_tag estimated market power costs calculated in accordance with the oii methodology from june 7 , 2013 through december 31 , 2013 were approximately $ 333 million . 27 such amount includes costs of approximately $ 30 million associated with planned outage periods . sce views the market power costs incurred from june 7 , 2013 to be purchases made in the ordinary course to meet its customers ' needs as authorized by the cpuc-approved procurement plan rather than power or capacity that was acquired for cost recovery purposes as a replacement for san onofre . the cpuc will ultimately determine a final methodology for estimating market power costs as it continues its review of the issues in the oii . through december 31 , 2013 , sce 's share of incremental inspection and repair costs totaled $ 115 million for both units ( not including payments made by mhi as described below ) . sce recorded its share of payments made to date by mhi ( $ 36 million ) as a reduction of incremental inspection and repair costs in 2012. sce continues to believe that the actions taken and costs incurred in connection with the san onofre replacement steam generators , outages and permanent retirement have been prudent . nevertheless , sce can not provide assurance that the cpuc will not disallow costs incurred or order refunds to customers of amounts collected in rates or that sce will be successful in recovering amounts from third parties . disallowances of costs and or refund of amounts received from customers could be material and adversely affect sce 's financial condition , results of operations and cash flows . accounting for early retirement of san onofre units 2 and 3 as a result of the decision to early retire san onofre units 2 and 3 , gaap requires reclassification of the amounts recorded in property , plant and equipment and related tangible operating assets to a regulatory asset to the extent that management concludes it is probable of recovery through future rates . regulatory assets may also be recorded to the extent management concludes it is probable that direct and indirect costs incurred to retire units 2 and 3 as of each reporting date are recoverable through future rates . these costs may include , but are not limited to , severance benefits to reduce the workforce at san onofre to the staffing required to safely store and secure the plant prior to conducting decommissioning activities , losses on termination of purchase contracts , including nuclear fuel , and losses on disposition of excess inventory . gaap also requires recognition of a liability to the extent management concludes it is probable sce will be required to refund amounts from authorized revenues previously collected from customers . in assessing whether to record regulatory assets as a result of the decision to retire san onofre units 2 and 3 early and whether to record liabilities for refunds to customers , sce considered the interrelationship of recovery of costs and refunds to customers for accounting purposes , as such matters are being considered by the cpuc on a consolidated basis in the san onofre oii . sce also considered that it will continue to use certain portions of the plant ( such as fuel storage , security facilities and buildings ) as part of ongoing activities at the site . sce additionally reviewed relevant regulatory precedents and statutory provisions regarding the regulatory recovery of early retired assets previously placed in service and related materials , supplies and fuel . such precedents have generally permitted cost recovery of the remaining net investment in early retired assets , absent a finding of imprudency . such precedents vary on whether a full , partial or no rate of return is allowed on the investment in such assets , but generally provide accelerated recovery when less than a full return is authorized . furthermore , once the units are removed from rate base , under normal principles of cost of service ratemaking and relevant statutory provisions , sce should , absent imprudence , recover the costs it incurs to purchase power that might otherwise have been produced by san onofre . sce continues to believe that the actions it has taken and the costs it has incurred in connection with the san onofre replacement steam generators and outages have been prudent . as a result of such considerations , sce considered a number of potential outcomes for the matters being considered by the cpuc in the san onofre oii , none of which are assured , but a number of which in sce 's opinion appeared to be more likely than a number of other outcomes . sce considered the likelihood of outcomes to determine the amount deemed probable of recovery . these outcomes included a number of variables , including recovery of and return on the components of sce 's net investment , and the potential for refunds to customers for either substitute power or operating costs occurring over different time periods . sce also included in its consideration of possible outcomes , the requirement under gaap to discount future cash flows from recovery of assets without a return at its incremental borrowing rate . as a result of the foregoing assessment , sce : reclassified $ 1,521 million of its total investment in san onofre at may 31 , 2013 as described above to a regulatory asset ( “ san onofre regulatory asset ” ) . included in the san onofre regulatory asset is approximately $ 404 million of property , plant and equipment , including construction work in progress , which is expected to support ongoing activities at the site . in addition , to the extent the san onofre regulatory asset includes excess nuclear fuel and material and supplies , sce will , if possible , sell such excess amounts to third parties and reduce the amount of the regulatory asset by such proceeds .
| an increase in cpuc-related revenue of $ 60 million primarily related to the increase in authorized revenue to support rate base growth and operating expenses which was partially offset by the lower cpuc-adopted 2013 return on common equity and edison smartconnect ® revenue , resulting from the full deployment of the program in 2012. an increase in ferc-related revenue of $ 170 million primarily related to rate base growth and higher operating costs . lower operation and maintenance expense of $ 170 million was primarily due to the following : $ 170 million decrease in san onofre-related expense , as discussed below . $ 95 million decrease in expense in 2013 due to the full deployment of the edison smartconnect ® program in 2012 . $ 40 million decrease in severance costs due to the reductions in workforce ( excluding san onofre ) that commenced in 2012 . $ 85 million of higher operating costs primarily related to information technology , safety , legal and insurance costs . $ 45 million of planned outage costs at mountainview , repair costs at four corners , and higher operating costs on cpuc- and ferc-related projects . higher depreciation , decommissioning and amortization expense of $ 60 million was primarily related to increased transmission and distribution investments , including capitalized software costs , offset by the impact from ceasing depreciation on the san onofre assets , beginning in june 2013 . $ 575 million impairment charge ( $ 365 million after tax ) in 2013 related to the permanent retirement of san onofre units 2 and 3. lower interest income and other of $ 46 million primarily due to lower afudc equity related to lower rates and construction work in progress balances in 2013 , including sce no longer accruing afudc on construction work in progress balances for san onofre , pending the outcome of the san onofre oii . in addition , sce had higher other expenses due to a $ 20 million penalty that resulted from the malibu fire order instituting investigation settlement that was imposed by the cpuc in 2013. see `` item 8. notes to consolidated financial statements—note 15. interest and other income and other expenses . '' higher interest expense of $ 25 million
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we seek to fill the financing gap for lmm businesses , which , historically , have had limited access to financing from commercial banks and other traditional sources . the underserved nature of the lmm creates the opportunity for us to meet the financing needs of lmm companies while also negotiating favorable transaction terms and equity participations . our ability to invest across a company 's capital structure , from secured loans to equity securities , allows us to offer portfolio companies a comprehensive suite of financing options , or a `` one stop '' financing solution . providing customized , `` one stop '' financing solutions is important to lmm portfolio companies . we generally seek to partner directly with entrepreneurs , management teams and business owners in making our investments . our lmm portfolio debt investments are generally secured by a first lien on the assets of the portfolio company and typically have a term of between five and seven years from the original investment date . our middle market portfolio investments primarily consist of direct investments in or secondary purchases of interest-bearing debt securities in privately held companies that are generally larger in size than the companies included in our lmm portfolio . our middle market portfolio debt investments are generally secured by either a first or second priority lien on the assets of the portfolio company and typically have an expected duration of between three and seven years from the original investment date . our private loan portfolio investments are primarily debt securities in privately held companies which have been originated through strategic relationships with other investment funds on a collaborative basis , and are often referred to in the debt markets as `` club deals . '' private loan investments are typically similar in size , structure , terms and conditions to investments we hold in our lmm portfolio and middle market portfolio . our private loan portfolio debt investments are generally secured by either a first or second priority lien on the assets of the portfolio company and typically have a term of between three and seven years from the original investment date . our other portfolio ( `` other portfolio '' ) investments primarily consist of investments which are not consistent with the typical profiles for our lmm , middle market or private loan portfolio investments , including investments which may be managed by third parties . in our other portfolio , we may incur indirect fees and expenses in connection with investments managed by third parties , such as investments in other investment companies or private funds . our external asset management business is conducted through the external investment manager . the external investment manager earns management fees based on the assets of the funds under management and may earn incentive fees , or a carried interest , based on the performance of the funds managed . we have entered into an agreement with the external investment manager to share employees in connection with its asset management business generally , and specifically for its relationship with hms income fund , inc. ( `` hms income '' ) . through this agreement , we share employees with the external investment manager , including their related infrastructure , business relationships , management expertise and capital raising capabilities . 56 the following tables provide a summary of our investments in the lmm , middle market and private loan portfolios as of december 31 , 2019 and 2018 ( this information excludes the other portfolio investments and the external investment manager which are discussed further below ) : replace_table_token_7_th ( a ) at december 31 , 2019 , we had equity ownership in approximately 99 % of our lmm portfolio companies , and the average fully diluted equity ownership in those portfolio companies was approximately 42 % . ( b ) the weighted average annual effective yields were computed using the effective interest rates for all debt investments at cost as of december 31 , 2019 , including amortization of deferred debt origination fees and accretion of original issue discount but excluding fees payable upon repayment of the debt instruments and any debt investments on non-accrual status . weighted average annual effective yield is higher than what an investor in shares of our common stock will realize on its investment because it does not reflect our expenses or any sales load paid by an investor . ( c ) the average ebitda is calculated using a simple average for the lmm portfolio and a weighted-average for the middle market and private loan portfolios . these calculations exclude certain portfolio companies , including three lmm portfolio companies , two middle market portfolio company and three private loan portfolio companies , as ebitda is not a meaningful valuation metric for our investments in these portfolio companies , and those portfolio companies whose primary purpose is to own real estate . replace_table_token_8_th ( a ) at december 31 , 2018 , we had equity ownership in approximately 99 % of our lmm portfolio companies , and the average fully diluted equity ownership in those portfolio companies was approximately 40 % . ( b ) the weighted average annual effective yields were computed using the effective interest rates for all debt investments at cost as of december 31 , 2018 , including amortization of deferred debt origination fees and accretion of original issue discount but excluding fees payable upon repayment of the debt instruments and any debt investments on non-accrual status . weighted average annual 57 effective yield is higher than what an investor in shares of our common stock will realize on its investment because it does not reflect our expenses or any sales load paid by an investor . ( c ) the average ebitda is calculated using a simple average for the lmm portfolio and a weighted-average for the middle market and private loan portfolios . story_separator_special_tag these calculations exclude certain portfolio companies , including two lmm portfolio companies , one middle market portfolio company and four private loan portfolio companies , as ebitda is not a meaningful valuation metric for our investments in these portfolio companies , and those portfolio companies whose primary purpose is to own real estate . as of december 31 , 2019 , we had other portfolio investments in eleven companies , collectively totaling approximately $ 106.7 million in fair value and approximately $ 118.4 million in cost basis and which comprised approximately 4.1 % of our investment portfolio ( as defined in `` critical accounting policies basis of presentation '' below ) at fair value . as of december 31 , 2018 , we had other portfolio investments in eleven companies , collectively totaling approximately $ 108.3 million in fair value and approximately $ 116.0 million in cost basis and which comprised approximately 4.4 % of our investment portfolio at fair value . as previously discussed , the external investment manager is a wholly owned subsidiary that is treated as a portfolio investment . as of december 31 , 2019 , there was no cost basis in this investment and the investment had a fair value of approximately $ 74.5 million , which comprised approximately 2.9 % of our investment portfolio at fair value . as of december 31 , 2018 , there was no cost basis in this investment and the investment had a fair value of approximately $ 65.7 million , which comprised approximately 2.7 % of our investment portfolio at fair value . our portfolio investments are generally made through mscc and the funds . mscc and the funds share the same investment strategies and criteria , although they are subject to different regulatory regimes . an investor 's return in mscc will depend , in part , on the funds ' investment returns as they are wholly owned subsidiaries of mscc . the level of new portfolio investment activity will fluctuate from period to period based upon our view of the current economic fundamentals , our ability to identify new investment opportunities that meet our investment criteria , and our ability to consummate the identified opportunities . the level of new investment activity , and associated interest and fee income , will directly impact future investment income . in addition , the level of dividends paid by portfolio companies and the portion of our portfolio debt investments on non-accrual status will directly impact future investment income . while we intend to grow our portfolio and our investment income over the long term , our growth and our operating results may be more limited during depressed economic periods . however , we intend to appropriately manage our cost structure and liquidity position based on applicable economic conditions and our investment outlook . the level of realized gains or losses and unrealized appreciation or depreciation on our investments will also fluctuate depending upon portfolio activity , economic conditions and the performance of our individual portfolio companies . the changes in realized gains and losses and unrealized appreciation or depreciation could have a material impact on our operating results . because we are internally managed , we do not pay any external investment advisory fees , but instead directly incur the operating costs associated with employing investment and portfolio management professionals . we believe that our internally managed structure provides us with a beneficial operating expense structure when compared to other publicly traded and privately held investment firms which are externally managed , and our internally managed structure allows us the opportunity to leverage our non-interest operating expenses as we grow our investment portfolio . for both of the years ended december 31 , 2019 and 2018 , the ratio of our total operating expenses , excluding interest expense , as a percentage of our quarterly average total assets was 1.4 % . during may 2012 , we entered into an investment sub-advisory agreement with hms adviser , lp ( `` hms adviser '' ) , which is the investment advisor to hms income , a non-listed bdc , to provide certain investment 58 advisory services to hms adviser . in december 2013 , after obtaining required no-action relief from the sec to allow us to own a registered investment adviser , we assigned the sub-advisory agreement to the external investment manager since the fees received from such arrangement could otherwise have negative consequences on our ability to meet the source-of-income requirement necessary for us to maintain our ric tax treatment . under the investment sub-advisory agreement , the external investment manager is entitled to 50 % of the base management fee and the incentive fees earned by hms adviser under its advisory agreement with hms income . the external investment manager agreed to waive the historical incentive fees otherwise earned through december 31 , 2018. during the years ended december 31 , 2019 , 2018 and 2017 , the external investment manager earned $ 13.1 million , $ 11.6 million and $ 10.9 million , respectively , in fee income , which consisted of $ 11.1 million of base management fees and $ 2.0 million in incentive fees in 2019 compared to $ 11.6 million and $ 10.9 million of base management fees for the comparable period in 2018 and 2017 , respectively , under the sub-advisory agreement with hms adviser . during april 2014 , we received an exemptive order from the sec permitting co-investments by us and hms income in certain negotiated transactions where co-investing would otherwise be prohibited under the 1940 act . we have made , and in the future intend to continue to make , such co-investments with hms income in accordance with the conditions of the order . the order requires , among other things , that we and the external investment manager consider whether each such investment opportunity is appropriate for hms income and , if it is appropriate , to propose an allocation of the investment opportunity between us and hms income .
| 65 investment income for the year ended december 31 , 2019 , total investment income was $ 243.4 million , a 4 % increase over the $ 233.4 million of total investment income for the corresponding period of 2018. this comparable period increase was principally attributable to ( i ) a $ 10.3 million net increase in interest income primarily related to higher average levels of investment portfolio debt investments , partially offset by decreased levels of prepayment , repricing and other activities involving existing investment portfolio debt investments and by decreases in the average effective yields of the investment portfolio debt investments , and ( ii ) a $ 3.3 million increase in dividend income from investment portfolio equity investments , partially offset by a $ 3.6 million decrease in fee income . the $ 10.0 million increase in total investment income in the year ended december 31 , 2019 is net of the net negative impact ( i ) a decrease of $ 8.0 million related to elevated dividend income activity in 2018 from certain investment portfolio equity investments that was considered to be less consistent on a recurring basis or non-recurring and ( ii ) a decrease of $ 4.0 million related to lower accelerated prepayment , repricing and other activity for certain investment portfolio debt investments in 2019. expenses for the year ended december 31 , 2019 , total expenses increased to $ 86.0 million from $ 76.7 million for the corresponding period of 2018. this comparable period increase in operating expenses was principally attributable to ( i ) a $ 6.8 million increase in interest expense , primarily due to an $ 9.7 million increase as a result of the issuances of our 5.20 % notes ( as defined below ) in april 2019 and december 2019 , partially offset by ( a ) a $ 1.5 million decrease from the redemption of the 6.125 % notes ( as defined below ) effective april 1 , 2018 , ( b ) a $ 0.7 million decrease from the repayment of the 4.50 % notes due 2019 ( as defined below ) effective december 1 , 2019 and ( c ) a $ 0.7 million decrease relating to our multi-year revolving credit facility ( the `` credit facility '' ) primarily due to the lower average balance outstanding , ( ii ) a $ 0.9 million increase in share-based compensation expense , ( iii ) $ 0.8 million increase in compensation expense and ( iv ) a $ 0.7 million increase in general and administrative expenses during the year ended december 31 , 2019. the $ 0.8 million
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additionally , we recognize revenue based on the facilities and administrative cost rate reimbursable per the terms of the grant awards . research and development expenses and accruals research and development expenses include personnel and facility-related expenses , outside contracted services including clinical trial costs , manufacturing and process development costs , research costs and other consulting services , and non-cash stock-based compensation . research and development costs are expensed as incurred . for agreements with third parties for clinical trials , manufacturing and process development , research 35 and other consulting activities entered into prior to january 1 , 2008 , costs were expensed upon the earlier of when non-refundable amounts were due or as services were performed . amounts due under such arrangements may be either fixed fee or fee for service , and may include upfront payments , monthly payments , and payments upon the completion of milestones or receipt of deliverables . non-refundable advance payments under agreements entered into after january 1 , 2008 are capitalized and expensed as the related goods are delivered or services are performed . our accruals for clinical trials are based on estimates of the services received and efforts expended pursuant to contracts with clinical trial centers and clinical research organizations . we contract with third parties to perform various clinical trial activities in the on-going development of potential products . the financial terms of these agreements are subject to negotiation and vary from contract to contract and may result in uneven payment flows to our vendors . payments under the contracts depend on factors such as the achievement of certain events , successful enrollment of patients , completion of portions of the clinical trial , or similar conditions . we may terminate these contracts upon written notice and we are generally only liable for actual effort expended by the organizations to the date of termination , although in certain instances we may be further responsible for termination fees and penalties . stock-based compensation determining the appropriate fair value model and calculating the fair value of stock-based awards at the grant date requires judgment and estimates . the fair value of each option is amortized on a straight-line basis over the option 's vesting period , assuming an annual forfeiture rate of 15 % for both the executive level and non-executive level employee groups , and is estimated on the date of grant using the black-scholes option valuation model , which requires the input of highly subjective assumptions , including the expected life of the option and expected stock price volatility . the expected life of options granted is estimated based on historical option exercise and employee termination data . executive level and non-executive level employees were grouped and considered separately for valuation purposes . in 2008 , based on employee termination data we adjusted the expected life of the options for both groups of employees to 4 years , which remains consistent for fiscal years ended december 31 , 2009 and 2010. expected volatility is based on historical volatility of our stock and comparable peer data over the life of the options granted to executive and non-executive level employees . goodwill and other intangible assets goodwill is recorded as the excess purchase price over tangible assets , liabilities and intangible assets acquired based on their estimated fair value , by applying the acquisition method of accounting . the ongoing evaluation for impairment of goodwill requires significant management estimates and judgment . the company operates in one segment and we evaluate goodwill for impairment on an annual basis and on an interim basis if events or changes in circumstances between annual impairment tests indicate that the asset might be impaired . impairment of long-lived assets long-lived assets to be held and used , including property and equipment and identified intangible assets , are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable . factors we consider important that could indicate the need for an impairment review include the following : significant changes in the strategy for our overall business ; significant underperformance relative to expected historical or projected future operating results ; significant changes in the manner of our use of acquired assets ; significant negative industry or economic trends ; significant decline in our stock price for a sustained period ; 36 a current expectation that , more likely than not , a long lived asset ( asset group ) will be sold or otherwise disposed of significantly before the end of its previously estimated useful life ; and our market capitalization relative to net book value . determination of recoverability is based on an estimate of undiscounted cash flows resulting from the use of the asset and its eventual disposition . measurement of impairment charges for long-lived assets that management expects to hold and use are based on the fair value of such assets . consolidation of variable interest entities arrangements that are not controlled through voting or similar rights are accounted for as variable interest entities ( vies ) . an enterprise is required to consolidate a vie if it is the primary beneficiary of the vie . the enterprise that is deemed to absorb a majority of the expected losses or receive a majority of expected residual returns of the vie is considered the primary beneficiary . we have concluded that under certain circumstances when we enter into agreements that contain an option to purchase assets or equity securities from an entity , or enter into an arrangement with a financial partner for the formation of joint ventures which engage in research and development projects , a vie may be created . for each vie created , we compute expected losses and residual returns based on the probability of future cash flows . if we are determined to be the primary beneficiary of the vie , the assets , liabilities and operations of the vie will be consolidated with our financial statements . story_separator_special_tag prior to the acquisition of all of the outstanding equity of sdi pursuant to the amended purchase option on december 30 , 2009 , our consolidated financial statements include the accounts of sdi , a vie , of which we were the primary beneficiary . story_separator_special_tag deferred transaction costs and commitment fees related to the deerfield loan agreement dated july 18 , 2007 ( the loan agreement ) and accretion of the note payable issued to holdings in connection with our acquisition of sdi . the following is a summary of our interest income , interest expense , other income ( expense ) and loan forgiveness ( in thousands , except for percentages ) : replace_table_token_8_th 39 interest income for the year ended december 31 , 2010 decreased by $ 0.1 million , or 52 % , compared to the same period in 2009 due primarily to lower returns on our investment portfolio resulting from market conditions . interest income for the year ended december 31 , 2009 decreased by $ 1.5 million , or 89 % , compared to the same period in 2008 due primarily to lower investment balances and the decline in returns on our investment portfolio resulting from market conditions . interest expense for the year ended december 31 , 2010 increased by $ 1.5 million compared to the same period in 2009 due primarily to interest from the accretion of the note payable to holdings . interest expense for the year ended december 31 , 2009 decreased by $ 9.0 million , or 99 % , compared to the same period in 2008 due primarily to the termination of the loan agreement with deerfield in august 2008. other income ( expense ) for the year ended december 31 , 2010 primarily includes the impact of the anti-dilution provision associated with the common stock and warrants issued to symphony in april 2010 , the warrant liability remeasured through june 30 , 2010 , which resulted in non-operating expense of $ 11.0 million , partially offset by a gain of $ 2.2 million for the change in fair value of the long-term contingent liability to symphony . following the expiration date of symphony 's anti-dilution protection of june 30 , 2010 , the value of the april 2010 warrants were reclassified in stockholders ' equity in the consolidated balance sheet . additionally , in 2010 we received $ 0.7 million in grants under the patient protection and affordable care act of 2010 , awarded to us to cover research and development costs from 2009 and 2010 for our qualified therapeutic discovery projects including heplisav . loan forgiveness in 2008 represents a $ 5.0 million portion of the loan from deerfield that was forgiven upon termination of the loan agreement . losses attributable to noncontrolling interest in symphony dynamo , inc. pursuant to the agreements that we entered into with sdi ( a vie ) in april 2006 , the results of operations of sdi have been included in our consolidated financial statements from the date of formation on april 18 , 2006. we have deducted the losses attributed to the noncontrolling interest in the determination of net loss in our consolidated statements of operations through december 30 , 2009 , the date we acquired all the outstanding equity of sdi . for the fiscal years ended december 31 , 2010 , 2009 and 2008 , the losses attributable to the noncontrolling interest were zero , $ 4.2 million and $ 5.7 million , respectively . consideration paid in excess of carrying value of the noncontrolling interest in symphony dynamo , inc. upon closing of the acquisition of all of the outstanding equity of sdi pursuant to the amended purchase option , we recorded the acquisition as a capital transaction that did not affect our net loss . however , because the acquisition was accounted for as a capital transaction , the excess consideration transferred over the carrying value of the noncontrolling interest in sdi was treated as a deemed dividend for purposes of reporting net loss and net loss per share attributable to us , increasing net loss and net loss per share attributable to our common stockholders by $ 19.7 million or $ 0.76 per share for the year ended december 31 , 2009. recent accounting pronouncements accounting standards update 2010-17 in march 2010 , the fasb reached a consensus on accounting standards update ( asu ) no . 2010-17 , milestone method of revenue recognition , or asu 2010-17. asu 2010-17 provides guidance on applying the milestone method to milestone payments for achieving specified performance measures when those payments are related to uncertain future events . under the consensus , entities can make an accounting policy election to recognize arrangement consideration received for achieving specified performance measures during the period in which the milestones are achieved , provided certain criteria are met . the scope of this issue is limited to 40 transactions involving research or development . this new guidance is effective for fiscal years beginning on or after june 15 , 2010 , and we will adopt it prospectively as of january 1 , 2011 such that it will be applicable to revenue arrangements entered into or materially modified on or after that date . while we do not expect the adoption of this standard to have a material impact on our financial position and results of operations , this standard may impact us in the event we complete future transactions or modify existing collaborative relationships . accounting standards update 2010-06 in january 2010 , the fasb issued asu no . 2010-06 , improving disclosures about fair value measurements or asu 2010-06 , which is included in the asc topic 820 ( fair value measurements and disclosures ) . asu 2010-06 requires new disclosures on the amount and reason for transfers in and out of level 1 and 2 fair value measurements .
| collaboration revenue for the year ended december 31 , 2009 included recognition of $ 28.5 million of the upfront payment from the merck collaboration following its termination , and $ 5.1 million of other revenue related to our collaboration with astrazeneca . grant revenue for the year ended december 31 , 2009 increased from the same period in 2008 due primarily to revenues earned from the niaid contract . services and license revenue for the year ended december 31 , 2009 decreased as compared to 2008 as a result of a decline in research and development services provided by rhein . research and development research and development expenses consist of compensation and related personnel costs which include benefits , recruitment , travel and supply costs ; outside services ; allocated facility costs and non-cash stock-based compensation . outside services relate to our preclinical experiments and clinical trials , regulatory filings , manufacturing our product candidates , and cost of sales relating to service and license revenue . the following is a summary of our research and development expense ( in thousands , except percentages ) : replace_table_token_6_th research and development expense for the year ended december 31 , 2010 increased by $ 15.0 million , or 39 % , as compared to 2009. the increase in outside services during 2010 is primarily due to continued clinical and manufacturing activities associated with heplisav . the increase in outside services expense was partially offset by a decrease in compensation and related personnel costs and stock-based compensation over the same period primarily due to the decline in employee headcount . research and development expenses for the year ended december 31 , 2009 decreased by $ 6.1 million , or 14 % , as compared to 2008. the decrease in outside services during 2009 resulted from reduced clinical development costs for heplisav during the period in which heplisav was on clinical hold and the discontinuation of clinical development for the tolamba ragweed allergy program . compensation and related personnel costs decreased in 2009 due to a reduction in the number of employees engaged in research and development . we expect research and development expenses in 2011 to be consistent with 2010 . 38 general and administrative general
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net income attributable to quest diagnostics ' stockholders was $ 645 million , or $ 4.51 per diluted share , in 2016 , compared to $ 709 million , or $ 4.87 per diluted share , in 2015. the decreases in net income attributable to quest diagnostics ' stockholders and diluted earnings per share in 2016 , compared to the prior year , were primarily a result of the gain on the clinical trials contribution and a deferred income tax benefit associated with winding down a subsidiary in 2015 , partially offset by the gain on the focus sale in 2016. two point strategy in november 2012 , we introduced a five-point business strategy to achieve our vision and our goals . at our investor day in november 2016 , we updated our strategy to reflect our progress , narrowing our focus to two elements . our two point strategy is described in detail in `` item 1. business : our strategy and strengths . '' we continued to execute on our strategy during 2016 as follows : acquisition of the outreach laboratory service business of clinical laboratory partners on february 29 , 2016 , we completed the acquisition of the outreach laboratory service business of clinical laboratory partners , llc ( `` clp '' ) , a wholly-owned subsidiary of hartford healthcare corporation , in an all-cash transaction for $ 135 million . the acquired outreach laboratory service business of clp is included in our dis business . the acquisition was funded using a combination of cash on-hand and borrowings under our secured receivables credit facility . for further details regarding our acquisitions , see note 5 to the consolidated financial statements . sale of focus diagnostics products in march 2016 , we signed a definitive agreement to sell the assets of our non-core focus diagnostics products business ( `` focus diagnostics '' ) to diasorin s.p.a. on may 13 , 2016 , we completed the sale of focus diagnostics for $ 300 million in cash , or $ 293 million net of transaction costs and working capital adjustments , which includes $ 25 million of proceeds held in escrow . for the year ended december 31 , 2016 , we recorded a $ 118 million pre-tax gain on disposition of business . we also recorded income tax expense of $ 84 million , consisting of $ 91 million of current income tax expense ( all of which was paid in 2016 ) and a deferred income tax benefit of $ 7 million . as a result of this transaction , we completed our exit from the diagnostics products business as part of our efforts to refocus on diagnostic information services . the proceeds from the focus sale were used to fund the repurchase of shares under the $ 250 million accelerated share repurchase agreement entered into in may 2016. for further details regarding our dispositions , see note 6 to the consolidated financial statements . retirement of debt in march 2016 , we completed a cash tender offer ( `` 2016 tender offer '' ) to purchase up to $ 200 million aggregate principal amount of our 6.95 % senior notes due july 2037 ( `` senior notes due 2037 '' ) and 5.75 % senior notes due january 2040 ( `` senior notes due 2040 '' ) . we purchased $ 73 million of our senior notes due 2037 and $ 127 million of our senior notes due 2040 using a combination of cash on-hand and borrowing under our secured receivables credit facility . the retirement of debt is expected to reduce future interest expense . in connection with this transaction , we recorded a pre-tax loss on retirement of debt of $ 48 million , principally comprised of premiums paid , for the year ended december 31 , 2016. for further details regarding our debt and related transactions , see note 13 to the consolidated financial statements . 57 senior notes offering in may 2016 , the company completed a $ 500 million senior notes offering ( “ 2016 senior notes ” ) , consisting of $ 500 million in aggregate principal of 3.45 % senior notes due june 2026 , issued at a discount of $ 1 million . the net proceeds from the 2016 senior notes were used to repay outstanding indebtedness under our senior unsecured revolving credit facility and our secured receivables credit facility and for general corporate purposes . for further details regarding our 2016 senior notes and our debt , see note 13 to the consolidated financial statements . accelerated share repurchase agreement ( `` asr '' ) in may 2016 , we entered into an asr with a financial institution to repurchase $ 250 million of our common stock as part of our share repurchase program . the asr was completed in the third quarter of 2016. under the asr , we paid $ 250 million to the financial institution and received 3.1 million shares of our common stock , resulting in a final price per share of $ 81.04. for further details regarding the asr and repurchases of our common stock , see note 15 to the consolidated financial statements and `` liquidity and capital resources : share repurchases `` below . dividend increase on november 11 , 2016 , we announced that our board of directors authorized a 12.5 % increase in our quarterly dividend from $ 0.40 per share to $ 0.45 per share , or $ 1.80 annually , commencing with the dividend payable in january 2017. for further details regarding our dividend program , see note 15 to the consolidated financial statements and `` liquidity and capital resources : dividend program `` below . invigorate program the clinical testing industry is labor intensive . employee compensation and benefits constitute approximately one-half of our total costs and expenses . in addition , performing clinical testing involves significant fixed costs for facilities and other infrastructure required to obtain , transport and test specimens . story_separator_special_tag therefore , relatively small changes in volume can have a significant impact on profitability in the short-term . we are engaged in a multi-year program called invigorate , which is designed to reduce our cost structure . we delivered more than $ 700 million in run-rate savings as we exited 2014. in november 2014 , we announced our goal to deliver total run-rate savings from the invigorate program of $ 1.3 billion as we exit 2017 , compared to 2011. we ended 2016 with more than $ 1.1 billion in run-rate savings and believe we are on track to achieve our $ 1.3 billion run-rate savings goal as we exit 2017. in november 2016 , we announced that we expect to drive operational excellence and achieve additional cost savings beyond 2017. invigorate has consisted of several flagship programs , with structured plans in each , to drive savings and improve performance across the customer value chain . these flagship programs include : organization excellence ; information technology excellence ; procurement excellence ; field and customer service excellence ; lab excellence ; and revenue services excellence . in addition to these programs , we identified key themes to change how we operate in order to meet our goal of delivering the $ 1.3 billion of run-rate savings as we exit 2017. these additional key themes include : standardizing our processes , information technology systems , equipment and data ; enhancing electronic enabling services ; and enhancing reimbursement for work we perform . we believe that our efforts to standardize our information technology systems , equipment and data also foster our efforts to strengthen our foundation for growth and support the value creation initiatives of our clinical franchises by enhancing our operational flexibility , empowering and enhancing the customer experience , facilitating the delivery of actionable insights and bolstering our large data platform . in january 2015 , we adopted a course of action related to this multi-year program . we developed a high-level estimate of the total pre-tax charges expected to be incurred in 2015 through 2017 in connection with the course of action for the program : $ 300 million . during 2015 and 2016 , we incurred $ 89 million and $ 63 million , respectively , of charges in connection with the courses of action . in february 2017 , we developed high-level estimates of the pre-tax charges expected to be incurred in connection with the new course of action under the program for 2017 totaling $ 60 million to $ 80 million , consisting of up to $ 10 million of employee separation costs and $ 60 million to $ 70 million of systems conversion and integration costs . all of the total estimated 58 pre-tax charges expected to be incurred in 2017 will result in cash expenditures . the actual charges incurred in connection with the course of action in 2017 could be materially different from these estimates . as detailed plans to implement the course of action are approved and executed , it will result in charges to earnings . from 2012 through 2014 , the cumulative charges incurred in connection with the invigorate program were $ 266 million , including $ 178 million of cumulative pre-tax employee separation costs and other restructuring related costs . from the beginning of 2015 through december 31 , 2016 , the cumulative charges incurred in connection with the invigorate program were $ 152 million , including approximately $ 50 million of cumulative pre-tax employee separation costs and other restructuring related costs . for further details regarding restructuring costs related to the invigorate program , see note 4 to the consolidated financial statements . outlook and trends the healthcare system in the united states is evolving ; significant change is taking place in the system . we expect that the evolution of the healthcare industry will continue , and that industry change is likely to be extensive . there are a number of key trends that are having , and that we expect will continue to have , a significant impact on the diagnostic information services business in the united states and on our business . these trends present both opportunities and risks . however , because diagnostic information services is an essential healthcare service , we believe that the industry will continue to grow over the long term and that we are well positioned to benefit from the long-term growth expected in the industry . we expect reimbursement pressure for our dis business will continue to be moderate in 2017 and consistent with the last few years at approximately 1 % . healthcare market participants , including governments , are focusing on controlling costs , including potentially by changing reimbursement for healthcare services ( including but not limited to a shift from fee for service to capitation ) , changing medical coverage policies ( e.g . , healthcare benefits design ) , pre-authorization of laboratory testing , requiring co-pays , introducing laboratory spend management utilities and payment and patient care innovations such as acos and patient-centered medical homes . as health plans and government programs require greater levels of patient cost-sharing , our patient collections could be negatively impacted and adversely impact our bad debt expense . as previously mentioned , there could be a shift to capitation arrangements where we agree to a predetermined monthly reimbursement rate for each member enrolled in a restricted plan , generally regardless of the number or cost of services provided by us . in both 2016 and 2015 , we derived approximately 11 % of our testing volume and 4 % of our dis revenues from capitated payment arrangements . historically , the medicare clinical laboratory fee schedule and the medicare physician fee schedule established under part b of the medicare program have been subject to change , including each year .
| results for the year ended december 31 , 2015 were affected by certain items that on a combined basis benefited earnings per diluted share by a net $ 0.48 as follows : pre-tax gain of $ 334 million , or $ 1.30 per diluted share , related to the clinical trials contribution recorded in gain on disposition of business ; pre-tax charges of $ 150 million ( $ 6 million in interest expense , net and $ 144 million in other ( expense ) income , net ) , or $ 0.62 per diluted share , related to the loss on retirement of debt and related refinancing charges in connection with the : march 2015 cash tender offer ( `` 2015 tender offer '' ) , in which we purchased $ 250 million aggregate principal amount of our senior notes due 2037 and senior notes due 2040 ; and the april 2015 redemption ( `` 2015 redemption '' ) , in which we redeemed all of our $ 500 million senior notes due november 2015 , $ 150 million , or 50 % , of our senior notes due april 2016 and all of our $ 375 million senior notes due july 2017 ; pre-tax charges of $ 110 million , or $ 0.46 per diluted share , related to restructuring costs primarily associated with workforce reductions , integration costs associated with acquisitions and professional fees associated with the further restructuring and integrating our business ( $ 63 million in cost of services , $ 42 million in selling , general and administrative expenses and $ 5 million in equity in earnings of equity method investees , net of taxes ) ; 66 a deferred income tax benefit of $ 58 million , or $ 0.40 per diluted share , associated with winding down a subsidiary ; and net pre-tax costs of $ 31 million ( $ 2 million in cost of services , $ 21 million in selling , general and administrative expenses , $ 10 million in other operating ( income ) expense , net and $ ( 2 ) million on other ( expense ) income , net ) , or $ 0.14 per diluted share ,
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these savings resulted from our reportable segments approximately as follows : integrated systems - 23 % ; aerospace structures - 72 % and product support - 5 % . a significant portion of the savings were reinvested in business development , research and development and capital improvements to help drive organic growth or to offset price reductions to customers . from fiscal 2014 through fiscal 2019 , our aerospace structures business unit had been performing design , development and initial manufacturing on several new programs , including the global 7500 , the embraer second generation e-jet ( `` e2-jets '' ) and more recently , the gulfstream g500/g600 programs . historically , low-rate production commences during flight testing , followed by an increase to full-rate production , assuming that successful testing and certification are achieved . while work progressed on these development programs , we have experienced difficulties in achieving estimated cost targets particularly in the areas of engineering and estimated recurring costs which resulted in forward losses . additionally , from fiscal 2015 to fiscal 2019 , our aerospace structures business unit experienced operating and forward losses on its production of the the boeing 747-8 fuselage for boeing , gulfstream g280 wing for israel aerospace industries , ltd ( `` iai '' ) and gulfstream g650 wing for gulfstream . further discussion is included below regarding each program 's impact on operations over the past three fiscal years . global 7500 the initial provision for forward losses recorded in fiscal 2016 on global 7500 resulted in the impairment of previously capitalized pre-production costs due to the combination of cost recovery uncertainty , higher than anticipated nonrecurring costs and increased forecasted costs on recurring production . the increases in costs were driven by several factors , including : changing technical requirements , increased spending on the design and engineering phase of the program and uncertainty regarding cost reduction and cost recovery initiatives with our customer and suppliers . on december 22 , 2016 , triumph aerostructures , llc , the wholly owned subsidiary of the company that was party to the global 7500 contract with bombardier ( “ triumph aerostructures ” ) , initiated litigation against bombardier in the quebec superior court , district of montreal . the lawsuit related to bombardier 's failure to pay to triumph aerostructures certain nonrecurring expenses incurred by triumph aerostructures during the development phase of a program pursuant to which triumph aerostructures agreed to design , manufacture , and supply the wing and related components for bombardier 's global 7500 business aircraft . in may 2017 , triumph aerostructures and bombardier entered into a comprehensive settlement agreement that resolved all outstanding commercial disputes between them , including all pending litigation , related to the design , manufacture and supply of wing components for bombardier 's global 7000 business aircraft . the settlement reset the commercial relationship between the companies and allowed each company to better achieve its business objectives going forward . during the fiscal year ended march 31 , 2019 , the company continued to experience increase in costs on the completion of the flight testing and anticipated ongoing production costs that resulted in additional forward loss charges of $ 60.4 million . in february 2019 , the company transitioned responsibility for the global 7500 wing program 24 manufacturing operations of aerospace structures to bombardier at which point bombardier assumed the program 's assets and obligations . e2-jets under our contract with embraer , we had the exclusive right to design , develop and manufacture the center fuselage section iii , rear fuselage section and various tail section components ( rudder and elevator ) for the e2-jets over the initial 600 ship sets . the contract provided for funding on a fixed amount of nonrecurring costs , to be paid over a specified number of production units . higher than expected spending on the e2-jets program resulted in a near break-even estimated profit margin percentage , with additional potential future cost pressures as well as opportunities for improved performance . risks related to additional engineering as well as the recurring cost profile remain on this program . during the fiscal year ended march 31 , 2018 , the company reached an agreement with aerospace technologies of korea inc. ( `` astk '' ) to optimize the supply chain under our portion of the e2 program . under this agreement , astk will build and transport fuselage shipsets to embraer and establish a facility in brazil to manage stock and repairs locally . at the time , the company maintained its role as the supply chain integrator on the program . in april 2019 , we announced an agreement to assign our contract with embraer for the manufacture of structural components for their program to astk . under this agreement , we will remain a supplier to astk for the rudder and elevator components . we anticipate completion of the assignment to astk in the second half of fiscal 2020. g500/g600 we are in the final development stages for the gulfstream g500/g600 programs , as these aircraft are expected to enter service in fiscal 2020. transition of each of these programs from development to recurring production levels is dependent upon the success of each program at achieving flight testing and certification , as well as the ability of the oem to generate acceptable levels of aircraft sales . further cost increases or an inability to meet revised recurring cost forecasts on the g500/g600 program may result in additional forward loss reserves in future periods , while improvements in future costs compared to current estimates or additional cost recovery may result in favorable adjustments if forward loss reserves are no longer required . boeing 747-8 as disclosed during fiscal 2016 , boeing announced a rate reduction to the 747-8 program , which lowered production to one plane every two months . story_separator_special_tag the impact of the rate reduction resulted in additional forward loss during the fiscal year ended march 31 , 2016. in march 2017 , the company settled several outstanding change orders and open pricing on a number of its programs with boeing . the agreement included pricing settlements , advanced payments , delivery schedule adjustments and the opportunity to extend the mutual relationship on future programs . the agreement also provided for continued build ahead on the 747-8 program through the end of the existing contract , resulting in a reduction to the previously recognized forward losses on the 747-8 program . this program has stabilized with no additional forward losses being recognized in the fiscal years ended march 31 , 2019 or 2018 and is anticipated to complete production by mid-fiscal 2021. g280 we acquired both the g280 and g650 wing programs in fiscal 2015 and received proceeds for $ 160.0 million as both contracts were operating at a loss . while operations have improved on the g650 since acquisition as noted further below , the cost profile of the g280 wing program has continued to result in forward loss charges , including $ 29.1 million in the fiscal year ended march 31 , 2019. in april 2019 , the company and iai reached an agreement to transition the manufacture of the g280 wing to iai . the two companies have developed detailed transition plans to enable a seamless transition of work . our contract with iai will terminate upon completion of the transition of work . our forward loss recognized in the fiscal year ended march 31 , 2019 , noted above includes the cost to transition , which is estimated to be completed in mid-fiscal 2021 . 25 g650 in the first quarter of fiscal 2019 , the company reached an agreement with gulfstream to optimize the supply chain on the company 's g650 work scope . the g650 wing box and wing completion work , which had been co-produced across three facilities at both companies , are being consolidated into gulfstream 's facilities in savannah , georgia . the company maintains its role as the supply chain integrator on the program and has since returned this contract to modest profitability . although none of the development or production programs noted above individually are expected to have a material impact on our net revenues , they do have the potential , either individually or in the aggregate , to materially and negatively impact our consolidated results of operations if future changes in estimates result in the need for a forward loss provision . absent any such loss provisions , we do not anticipate that any of these programs will significantly dilute our future consolidated margins . consistent with the company 's policy described in note 2 , the company performs an annual assessment in its fiscal fourth quarter and on an interim basis upon the occurrence of events or substantive changes in circumstances that indicate a reporting unit 's carrying value may be less than its fair value . during the fiscal year ended march 31 , 2018 , the company performed an interim assessment of the fair value of its goodwill due to the company 's decision to combine the aerospace structures and precision components reporting segments into one reporting segment . in accordance with asc 350-20-35-3c , there are several potential events and circumstances that could be indicators of goodwill impairment . a change in a company 's reporting unit structure is one of these events , and when this does occur , a company must perform a `` before and after '' test of the reporting units . additionally , the company 's enhanced visibility into its future cash flows based on its annual planning process was also an indicator . consistent with the company 's policy , it performed the goodwill impairment test which includes using a combination of both the market and income approaches to estimate the fair value of each reporting unit . after performing the `` before '' portion of the test of the reporting units the company concluded that the former precision components ' reporting unit had a fair value that was lower than its carrying value by an amount of $ 190.2 million . accordingly , the company recorded a non-cash impairment charge during the fiscal quarter ended december 31 , 2017 , of $ 190.2 million , which is presented on the accompanying consolidated statements of operations as impairment of intangible assets . the decline in fair value is the result of declining revenues from production rate reductions on sun-setting programs and the slower than previously projected ramp in our development programs and the timing of associated earnings and cash flows . the company then performed the `` after '' portion of the test of the reporting units and concluded that the new reporting unit of aerospace structures ' goodwill had a fair value that was lower than its carrying value by an amount that exceeded the remaining goodwill for the reporting unit . following the applicable accounting guidance , this impairment charge is deemed to have occurred during the company 's fiscal fourth quarter . therefore , the company recorded a non-cash impairment charge during the fiscal quarter ended march 31 , 2018 , of $ 345.0 million , which is presented on the consolidated statements of operations as impairment of intangible assets for the fiscal year ended march 31 , 2018. the decline in fair value is the result of declining revenues from production rate reductions on sun-setting programs and the slower than previously projected ramp in our development programs and the timing of associated earnings and cash flows ( see note 2 for definition of fair value levels ) . in the fourth quarter of the fiscal year ended march 31 , 2017 , we concluded that the goodwill related to the aerospace structures reporting unit was impaired as of the annual testing date .
| in calculating adjusted ebitda and adjusted ebitdap , we exclude from net loss the financial items that we believe should be separately identified to provide additional analysis of the financial components of the day-to-day operation of our business . we have outlined below the type and scope of these exclusions and the material limitations on the use of these non-gaap financial measures as a result of these exclusions . adjusted ebitda and adjusted ebitdap are not measurements of financial performance under u.s. gaap and should not be considered as a measure of liquidity , as an alternative to net loss , or as an indicator of any other measure of performance derived in accordance with u.s. gaap . investors and potential investors in our securities should not rely on adjusted ebitda or adjusted ebitdap as a substitute for any u.s. gaap financial measure , including net loss . in addition , we urge investors and potential investors in our securities to carefully review the reconciliation of adjusted ebitda and adjusted ebitdap to net loss set forth below , in our earnings releases and in other filings with the sec and to carefully review the u.s. gaap financial information included as part of our quarterly reports on form 10-q and our annual reports on form 10-k that are filed with the sec , as well as our quarterly earnings releases , and compare the u.s. gaap financial information with our adjusted ebitda and adjusted ebitdap . adjusted ebitda and adjusted ebitdap are used by management to internally measure our operating and management performance and by investors as a supplemental financial measure to evaluate the performance of our business that , when 27 viewed with our u.s. 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 have spent more than 20 years expanding our product and service capabilities , partially through acquisitions of complementary businesses . due to the expansion of our operations , which included acquisitions , our net loss has included
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revenue derived from paving and related services are recognized on the percentage-of-completion basis , measured by the cost incurred to date compared to estimated total cost of each project . this method is used because management considers cost incurred to be the best available measure of progress on these contracts . due to the inherent uncertainties in estimating costs , it is at least reasonably possible that the estimates used will change over the life of the contract . operating costs and expenses the key components of our operating costs and expenses consist of the following : cost of revenue ( excluding items shown separately ) cost of revenue consists of all production and delivery costs and primarily includes labor , repair and maintenance , utilities , raw materials , fuel , transportation , subcontractor costs , royalties and other direct costs incurred in the production and delivery of our products and services . our cost of revenue is directly affected by 57 fluctuations in commodity energy prices , primarily diesel fuel , liquid asphalt and other petroleum-based resources . as a result , our operating profit margins can be significantly affected by changes in the underlying cost of certain raw materials if they are not recovered through corresponding changes in revenue . we attempt to limit our exposure to changes in commodity energy prices by entering into forward purchase commitments when appropriate . in addition , we have sales price adjustment provisions that provide for adjustments based on fluctuations outside a limited range in certain energy-related production costs . these provisions are in place for most of our public infrastructure contracts , and we aggressively seek to include similar price adjustment provisions in our private contracts . general and administrative expenses general and administrative expenses consist primarily of salaries and personnel costs for our sales and marketing , administration , finance and accounting , legal , information systems , human resources and certain managerial employees . additional expenses include audit , consulting and professional fees , travel , insurance , rental costs , property taxes and other corporate and overhead expenses . goodwill impairment goodwill impairment charges consist of the amount by which the carrying value of a reporting unit exceeds its fair value . see critical accounting policiesgoodwill and goodwill impairment. depreciation , depletion , amortization and accretion our business is capital intensive . we carry property , plant and equipment on our balance sheet at cost , net of applicable depreciation , depletion and amortization . depreciation on property , plant and equipment is computed on a straight-line basis or based on the economic usage over the estimated useful life of the asset . the general range of depreciable lives by category , excluding mineral reserves , which are depleted based on the units of production method on a site-by-site basis , is as follows : buildings and improvements 7 - 40 years plant , machinery and equipment 20 - 40 years office equipment 3 - 6 years truck and auto fleet 5 - 10 years mobile equipment and barges 15 - 20 years landfill airspace and improvements 5 - 60 years other 2 - 10 years amortization expense is the periodic expense related to leasehold improvements and intangible assets , which were acquired with certain acquisitions . the intangible assets are generally amortized on a straight-line basis over the estimated useful lives of the assets . leasehold improvements are amortized over the lesser of the life of the underlying asset or the remaining lease term . accretion expense is the periodic expense recorded for the accrued mining reclamation liabilities and landfill closure and post-closure liabilities using the effective interest method . transaction costs transaction costs consist primarily of third party accounting , legal , valuation and financial advisory fees incurred in connection with acquisitions . 58 results of operations the following discussion of our results of operations is focused on the key financial measures we use to evaluate the performance of our business from both a consolidated and operating segment perspective . operating income and margins are discussed in terms of changes in volume , pricing and mix of revenue source ( i.e. , type of product sales or service revenue ) . we focus on operating margin , which we define as operating income as a percentage of revenue , as a key metric when assessing the performance of the business , as we believe that analyzing changes in costs in relation to changes in revenue provides more meaningful insight into the results of operations than examining operating costs in isolation . operating income ( loss ) reflects our profit ( loss ) from continuing operations after taking into consideration cost of revenue , general and administrative expenses , depreciation , depletion , amortization and accretion and transaction costs . cost of revenue generally increases ratably with revenue , as labor , transportation costs and subcontractor costs are recorded in cost of revenue . general and administrative costs as a percentage of revenue vary throughout the year due to the seasonality of our business . as a result of our revenue growth occurring primarily through acquisitions , general and administrative costs and depreciation , depletion , amortization and accretion have historically grown ratably with revenue . however , as volumes increase , we expect these costs , as a percentage of revenue , to decrease . our transaction costs fluctuate with the number and size of acquisitions completed each year . the table below includes revenue and operating income ( loss ) by segment for the periods indicated . operating income ( loss ) by segment is computed as earnings before interest , taxes and other income / expense . replace_table_token_8_th ( 1 ) corporate results primarily consist of compensation and office expenses for employees included in the company 's headquarters and $ 28.3 million of costs associated with the march 2015 ipo as well as incremental costs associated with being a public company . story_separator_special_tag revenue derived from paving and related services are recognized on the percentage-of-completion basis , measured by the cost incurred to date compared to estimated total cost of each project . this method is used because management considers cost incurred to be the best available measure of progress on these contracts . due to the inherent uncertainties in estimating costs , it is at least reasonably possible that the estimates used will change over the life of the contract . operating costs and expenses the key components of our operating costs and expenses consist of the following : cost of revenue ( excluding items shown separately ) cost of revenue consists of all production and delivery costs and primarily includes labor , repair and maintenance , utilities , raw materials , fuel , transportation , subcontractor costs , royalties and other direct costs incurred in the production and delivery of our products and services . our cost of revenue is directly affected by 57 fluctuations in commodity energy prices , primarily diesel fuel , liquid asphalt and other petroleum-based resources . as a result , our operating profit margins can be significantly affected by changes in the underlying cost of certain raw materials if they are not recovered through corresponding changes in revenue . we attempt to limit our exposure to changes in commodity energy prices by entering into forward purchase commitments when appropriate . in addition , we have sales price adjustment provisions that provide for adjustments based on fluctuations outside a limited range in certain energy-related production costs . these provisions are in place for most of our public infrastructure contracts , and we aggressively seek to include similar price adjustment provisions in our private contracts . general and administrative expenses general and administrative expenses consist primarily of salaries and personnel costs for our sales and marketing , administration , finance and accounting , legal , information systems , human resources and certain managerial employees . additional expenses include audit , consulting and professional fees , travel , insurance , rental costs , property taxes and other corporate and overhead expenses . goodwill impairment goodwill impairment charges consist of the amount by which the carrying value of a reporting unit exceeds its fair value . see critical accounting policiesgoodwill and goodwill impairment. depreciation , depletion , amortization and accretion our business is capital intensive . we carry property , plant and equipment on our balance sheet at cost , net of applicable depreciation , depletion and amortization . depreciation on property , plant and equipment is computed on a straight-line basis or based on the economic usage over the estimated useful life of the asset . the general range of depreciable lives by category , excluding mineral reserves , which are depleted based on the units of production method on a site-by-site basis , is as follows : buildings and improvements 7 - 40 years plant , machinery and equipment 20 - 40 years office equipment 3 - 6 years truck and auto fleet 5 - 10 years mobile equipment and barges 15 - 20 years landfill airspace and improvements 5 - 60 years other 2 - 10 years amortization expense is the periodic expense related to leasehold improvements and intangible assets , which were acquired with certain acquisitions . the intangible assets are generally amortized on a straight-line basis over the estimated useful lives of the assets . leasehold improvements are amortized over the lesser of the life of the underlying asset or the remaining lease term . accretion expense is the periodic expense recorded for the accrued mining reclamation liabilities and landfill closure and post-closure liabilities using the effective interest method . transaction costs transaction costs consist primarily of third party accounting , legal , valuation and financial advisory fees incurred in connection with acquisitions . 58 results of operations the following discussion of our results of operations is focused on the key financial measures we use to evaluate the performance of our business from both a consolidated and operating segment perspective . operating income and margins are discussed in terms of changes in volume , pricing and mix of revenue source ( i.e. , type of product sales or service revenue ) . we focus on operating margin , which we define as operating income as a percentage of revenue , as a key metric when assessing the performance of the business , as we believe that analyzing changes in costs in relation to changes in revenue provides more meaningful insight into the results of operations than examining operating costs in isolation . operating income ( loss ) reflects our profit ( loss ) from continuing operations after taking into consideration cost of revenue , general and administrative expenses , depreciation , depletion , amortization and accretion and transaction costs . cost of revenue generally increases ratably with revenue , as labor , transportation costs and subcontractor costs are recorded in cost of revenue . general and administrative costs as a percentage of revenue vary throughout the year due to the seasonality of our business . as a result of our revenue growth occurring primarily through acquisitions , general and administrative costs and depreciation , depletion , amortization and accretion have historically grown ratably with revenue . however , as volumes increase , we expect these costs , as a percentage of revenue , to decrease . our transaction costs fluctuate with the number and size of acquisitions completed each year . the table below includes revenue and operating income ( loss ) by segment for the periods indicated . operating income ( loss ) by segment is computed as earnings before interest , taxes and other income / expense . replace_table_token_8_th ( 1 ) corporate results primarily consist of compensation and office expenses for employees included in the company 's headquarters and $ 28.3 million of costs associated with the march 2015 ipo as well as incremental costs associated with being a public company .
| gross revenue by line of business was as follows : replace_table_token_13_th * revenue by product includes intercompany and intracompany sales transferred at market value . the elimination of intracompany transactions is included in other . revenue from the liquid asphalt terminals is included in asphalt revenue . 62 gross revenue for paving and related services decreased $ 25.8 million for the year ended january 2 , 2016 , primarily as a result of decreased activity in kansas , our exit of grading operations in kentucky , weather delays on jobs in texas , partially offset by increased activity in utah . detail of our volumes and average selling prices by product for the years ended january 2 , 2016 and december 27 , 2014 were as follows : replace_table_token_14_th ( 1 ) volumes are shown in tons for aggregates , cement and asphalt and in cubic yards for ready-mixed concrete . ( 2 ) pricing is shown on a per ton basis for aggregates , cement and asphalt and on a per cubic yard basis for ready-mixed concrete . aggregate volumes increased in each of our five key states , texas , kansas , utah , missouri and kansas as well as at our operations in british columbia , canada , which was acquired in september 2014. all of the 2014 and 2015 acquisitions in the west and east segments contributed to the growth in aggregate volumes . aggregates pricing improved 2.5 % despite the effects from the u.s./canadian exchange rate . absent the effect of foreign currency fluctuations , aggregates pricing would have increased 3.9 % for the year ended january 2 , 2016. our cement volumes increased as a result of the july 2015 acquisition of the davenport assets and prices increased as a result of an improved market and a higher proportion of sales to low-volume customers . ready-mixed concrete volumes were positively affected by the 2014 acquisitions in texas and , to a lesser extent , in kansas , and prices increased as a result
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results of operations fiscal 2012 compared with fiscal 2011 net revenue and operating loss the following table presents our consolidated revenue and operating results for the fiscal years ended march 31 , 2012 and 2011 : replace_table_token_6_th nm not meaningful . 18 the following table presents the percentage relationship of our consolidated statement of operations line items to our consolidated net revenues for the periods presented : replace_table_token_7_th 19 the following table presents our revenue and operating results by business segment for the fiscal years ended march 31 , 2012 and 2011 : replace_table_token_8_th nm not meaningful 20 net revenue . total net revenue increased $ 6.2 million or 3.1 % during fiscal 2012 compared to fiscal 2011. products revenue , support , maintenance and subscription services revenue and professional services revenue increased $ 0.4 million , $ 2.4 million and $ 3.4 million , respectively . hsg 's revenue decreased $ 7.6 million or 8.1 % in fiscal 2012 compared to fiscal 2011. the decrease in products revenue of approximately $ 10.1 million was driven by lower volumes in our remarketed products as well as a decline in perpetual software licenses with a shift in strategy to focus on selling subscription based services revenue which is typically recognized over a five year period . in addition , products revenue was negatively impacted by the errors identified in the manner in which we recognized revenue for certain software license and professional services arrangements in prior periods . the out of period impact for errors accumulated prior to fiscal 2012 was approximately $ 1.0 million ( see note 2 , summary of significant accounting policies , in the consolidated financial statements ) . the $ 3.0 million or 6.7 % increase in support , maintenance and subscription services in fiscal 2012 was the result of growth in both subscription based revenue and ongoing support from traditional proprietary products . rsg 's revenue increased $ 13.8 million or 12.7 % in fiscal 2012 compared to fiscal 2011. the increase in products and professional services revenue of approximately $ 10.5 million or 15.2 % and $ 3.9 million or 28.7 % , respectively , are the result of higher volumes associated with several multi-location , multi-year contracts for remarketed products . we experienced a decline in support , maintenance and subscription services revenue of approximately $ 0.6 million or 2.2 % as a result of not renewing certain support contracts that were less accretive to gross profit than desired . gross profit and gross profit margin . our total gross profit increased $ 4.2 million or 5.5 % for fiscal 2012 and total gross profit margin increased 90 basis points . products gross profit decreased $ 3.1 million and gross profit margin decreased 300 basis points . support , maintenance and subscription services gross profit increased $ 2.2 million and gross margin percentage increased 90 basis points . professional services gross margin increased $ 5.0 million and gross profit margin increased 1,410 basis points . hsg 's gross profit increased $ 0.7 million or 1.3 % for fiscal 2012 and gross profit margin improved 590 basis points to 64.1 % in fiscal 2012 from 58.2 % in fiscal 2011. this is primarily due to professional services gross profit margin improvement of 2,070 basis points as a result of efficient management of project labor within implementation services . in addition , products gross profit margin improved 80 basis points as a result of selling higher margin opportunities . the support , maintenance and subscription services gross profit margin declined less than 100 basis points as a result of additional labor resources being dedicated to product enhancement . rsg 's gross profit increased $ 3.5 million or 16.7 % for fiscal 2012 and gross profit margin increased 70 basis points to 20.0 % in fiscal 2012 compared with 19.3 % in fiscal 2011. this is primarily due to higher professional service margins yielding an improvement of 1,040 basis points as a result of improved labor efficiencies . the support gross profit margins increased approximately 130 basis points in line with our continued strategic initiatives focused on more profitable revenue streams . products gross profit margin declined less than 100 basis points consistent with price compression associated with remarketed products in the market . operating expenses operating expenses , excluding the one-time charges for asset impairments and related charges and restructuring and related charges , decreased $ 0.4 million or 0.4 % in fiscal 2012 compared with fiscal 2011. on a segment basis , hsg and rsg increased $ 2.1 million and $ 0.6 million , respectively , and corporate decreased $ 3.1 million . product development . product development includes all costs associated with research and development . product development increased $ 2.8 million or 10.1 % in fiscal 2012 compared with fiscal 2011. product development expenses increased $ 2.0 million in hsg and $ 0.8 million in rsg in fiscal 2012 compared to fiscal 2011. this increase at both segments is driven by the continued investment in internal resources to enhance the existing products and develop our future platforms as well as at rsg by the incremental costs associated with employee incentives due to over-achievement of operating unit targets . sales and marketing . sales and marketing increased $ 1.8 million or 8.1 % in fiscal 2012 compared with fiscal 2011. sales and marketing expenses increased $ 1.1 million in hsg and $ 0.7 million in rsg in fiscal 2012 compared to fiscal 2011. this increase in hsg is a result of investment in domestic and international sales resources as well , as a one-time specific bad debt expense of $ 0.4 million . the increase in rsg is associated with employee incentives due to over-achievement of operating unit targets . general and administrative . general and administrative decreased $ 4.2 million or 11.4 % in fiscal 2012 compared to fiscal 2011. general and administrative expenses decreased $ 1.1 million in hsg , $ 1.2 million in rsg and $ 1.9 million in corporate . story_separator_special_tag hsg and rsg expenses decreased as a result of lower employee related costs created by efficiencies in back-office processes . the corporate savings are a result of the restructuring and moving the corporate services from solon , ohio to alpharetta , georgia as well as certain one-time professional fees incurred in 2011 that did not repeat in fiscal 2012 associated with the post-implementation efforts of the oracle erp system . 21 depreciation of fixed assets . depreciation of fixed assets increased $ 0.7 million on a consolidated basis driven by the $ 0.3 million for leasehold improvements at our new corporate services offices in alpharetta , georgia and $ 0.3 million for additional depreciation related to the asset retirement obligation . amortization of intangibles . amortization of intangibles decreased $ 1.4 million or 28.0 % in fiscal 2012. this decrease is due to certain internal use software reaching their useful lives in fiscal 2011. asset impairments and related charges . we recorded asset impairments and related charges of $ 9.7 million and $ 1.0 million in fiscal 2012 and fiscal 2011 , respectively . during the fourth quarter of 2012 , it was determined that certain developed technologies would no longer be offered for sale . as a result , we have impaired the entire remaining assets of $ 8.6 million , and the accrued estimated costs associated with a transition plan for all of the existing customers off of this platform of $ 1.1 million . in fiscal 2011 , we concluded that certain internally developed software within hsg was no longer being sold . as a result , we recorded an impairment charge of $ 0.1 million . also in fiscal 2011 , we concluded that we were no longer using certain indefinite-lived intangible assets related to hsg trade names . accordingly , we recorded an impairment charge of $ 0.9 million . restructuring and related charges . we recorded restructuring and related charges of $ 15.9 million and $ 0.4 million during fiscal 2012 and 2011 , respectively . under the fiscal 2012 restructuring plan we recorded restructuring charges comprised of primarily $ 3.5 million of lease termination and related facility closing costs and $ 8.0 million of severance and related benefits in each segment . in addition , we incurred accelerated depreciation of $ 4.4 million of property and equipment that was due to the relocation of our previous corporate services in solon , ohio to alpharetta , georgia , and closing our facilities in emeryville , california and frederick , maryland in the fourth quarter of fiscal 2012. our restructuring actions are discussed further in the subsection of this md & a titled , restructuring and related charges and in note 4 to the consolidated financial statements titled , restructuring and related charges . the restructuring charges recorded in fiscal 2011 consist of settlement costs of $ 0.4 million related to the payment of an obligation under agilysys ' nonqualified executive retirement defined benefit pension plan for an executive officer ( the serp ) who was part of the fiscal 2009 restructuring actions . other ( income ) expenses replace_table_token_9_th interest income . interest income increased slightly during fiscal 2012 compared to fiscal 2011 as a result of interest earned from the investment in treasury notes with the cash proceeds from the sale of tsg during the third quarter of fiscal 2012. interest expense . interest expense consists of costs associated with our credit facility , the amortization of deferred financing fees , loans on corporate-owned life insurance policies , and capital leases . interest expense decreased $ 0.3 million in fiscal 2012 compared to fiscal 2011 due to the termination of the credit facility . we terminated the credit facility in july 2011 and immediately expensed approximately $ 0.4 million in unamortized deferred financing fees related to the former credit facility . other ( income ) expenses , net . in fiscal 2012 , the $ 0.2 million of other expense primarily consists of losses recognized as a result of movements in foreign currencies relative to the u.s. dollar . in fiscal 2011 , the $ 2.3 million in other income primarily included a gain of $ 2.1 million recorded on the $ 2.2 million in proceeds received as a death benefit from certain corporate-owned life insurance policies . 22 income taxes the following table compares our income tax ( benefit ) expense and effective tax rates for the fiscal years ended march 31 , 2012 and 2011 : replace_table_token_10_th nm not meaningful we recorded an effective tax rate benefit from continuing operations of 19.0 % in fiscal 2012 compared with an effective tax rate expense of 11.8 % in fiscal 2011. for the years ended march 31 , 2012 and 2011 , the effective tax rate was different than the statutory rate due primarily to the intra-period tax allocation rules associated with the discontinued operations and recognition of net operating losses as deferred tax assets , which were offset by increases in the valuation allowance . other items effecting the rate in the fiscal 2012 include foreign and state taxes , a decrease in unrecognized tax benefits attributable to expiration of statute of limitations , and other u.s. permanent book to tax differences . in fiscal 2011 , an increase in the valuation allowance was recorded due to the correction of an error , as more fully described in note 2 to the consolidated financial statements titled , story_separator_special_tag performance to plan in different reportable business segments and product groups . general and administrative . general and administrative increased $ 6.0 million or 19.3 % in fiscal 2011 compared to fiscal 2010. on a segment basis expenses increased $ 2.1 million in hsg , $ 1.6 million in rsg and $ 2.3 million in corporate . the increase in general and administrative expenses was primarily due to higher professional fees of $ 4.1 million across all segments and corporate .
| hsg 's revenue increased $ 10.9 million or 13.1 % in fiscal 2011 compared to fiscal 2010. hsg 's support , maintenance and subscription services revenue increased $ 6.0 million as a result of improved demand associated with our proprietary products , particularly in the food services market . products revenue also increased approximately $ 4.0 million or 12.9 % associated with increased volume in remarketed products , which also drove the professional services increase of $ 0.8 million or 6.2 % . rsg 's revenue decreased $ 1.7 million or 1.5 % in fiscal 2011 compared to the prior year due to a decline in products revenue and professional services revenue of $ 2.8 million or 3.8 % and $ 0.4 million or 2.9 % , respectively , which were offset by an increase in support , maintenance and subscription services revenue of $ 1.5 million or 6.1 % . the decrease in rsg 's products revenue is primarily due to a large customer order in fiscal 2010 that did not repeat in fiscal 2011 which also drove the lower professional services revenue . the increase in support , maintenance and subscription services revenue was driven by new hardware maintenance accounts , increased service parts sales , transition of software maintenance customers from warranty to support , and the addition of stores to existing accounts . gross profit and gross profit margin . our total gross profit increased $ 1.6 million or 2.2 % and total gross profit margin decreased 90 basis points for fiscal 2011. products gross profit increased $ 2.0 million and the gross profit margin increased 160 basis points . support , maintenance and subscription services gross profit increased $ 5.2 million and the gross profit margin increased 50 basis points . professional services revenue gross profit decreased $ 5.5 million and the gross profit margin decreased 2,090 basis points . hsg 's gross profit increased $ 3.2 million or 6.2 % and gross profit margin decreased 370 basis points to 58.2 % in fiscal 2011 from 61.9 % in fiscal 2010. products gross profit margin decreased 370 basis points due to revenue mix being more heavily weighted to remarketed products . in addition , we were unfavorably
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