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the eis is required by the national environmental policy act ( nepa ) , the act that governs the process by which most major projects in the united states are evaluated . the eis is also , in large part , a determining factor in the overall permitting timeline which commenced in 2012 for donlin gold . this document is comprised of four main sections which : · outline the purpose and need for the development of the proposed mine and the benefit it would bring to the stakeholders of donlin gold 's alaska native corporation partners , calista corporation and the kuskokwim corporation ( tkc ) . · identify and analyze a reasonable range of alternatives to the mine development proposed by donlin gold which comprise variations on certain mine site facility designs , as well as local transportation and power supply options . · prepare an environmental analysis of the proposed action and reasonable alternatives ( including a no action alternative ) , which identifies and characterizes the potential physical , biological , social , and cultural impacts relative to the existing baseline conditions . this portion constitutes the most extensive part of the eis . · describe potential mitigation measures intended to reduce or eliminate the environmental impacts described in the impact analysis section . the corps filed the draft eis in november 2015. following the filing of the draft eis , the corps conducted 17 meetings in communities across the yukon-kuskokwim ( y-k ) region and in anchorage . the six-month public comment period for the draft eis was completed on may 31 , 2016. the public comment meetings gave the corps an opportunity to present an overview of the draft eis , which evaluates the potential environmental , social and economic impacts of the proposed project together with alternatives . the meetings also served as an excellent platform for stakeholders to ask questions and provide comments on the draft eis . the corps received comments from federal and state agencies , local and tribal governments , alaska native organizations , businesses , special interest groups/non-governmental organizations , and individuals . working sessions were held with the cooperating agencies to review and discuss four key topics raised during the draft eis comment period including : water resources and management , tailings management and spill risks , mercury fate and transport and barging operations . the corps is reviewing the comments on the draft eis and will respond to all comments in a final eis which the corps ' current schedule anticipates will be published in early 2018. . the final eis is required before the corps can issue a record of decision on donlin gold 's clean water act section 404 ( wetland ) and 10 ( rivers and harbors ) permit application . all donlin gold eis documents , including the corps ' time table for the donlin gold eis process , can be found on their website at www.donlingoldeis.com . in addition to actively participating in the nepa process , donlin gold continues to advance other major permits and approvals , including : · incorporating field work completed during 2016 into an updated preliminary jurisdictional determination which donlin gold will submit to the corps to support the section 404 permit application . 57 novagold resources inc. · working with calista and other interested parties in developing a compensatory mitigation plan for wetland impact associated with the project ; · submission of major state of alaska permit applications ( e.g. , air quality permit to construct , integrated waste management plan , reclamation plan , and water discharge permit ) which the state anticipates issuing draft permits for public comment in 2017 ; · the pipeline and hazardous materials safety administration opened a docket for donlin gold 's special permit to construct the natural gas pipeline ; · the state of alaska conducted public scoping and received comments on donlin gold 's applications for proposed uses of state of alaska lands for development of the project , and · donlin gold continues to work with state and federal agencies to advance issuance of all other required permits , including dam safety approvals , water use permits and authorizations , fish habitat permits , and land and shoreline lease and right-of-way approvals . an extensive list of additional federal and state government permits and approvals must be obtained before construction can begin on the donlin gold project . preparation of the applications for some of these permits and approvals requires additional , more detailed engineering that was not part of the donlin gold feasibility study . completion of this engineering will require a significant investment of funds , time , and other resources by donlin gold and its contractors . also , the donlin gold board must approve a construction program and budget before proceeding with the development of the donlin gold project . the timing of the required engineering work and the donlin gold board 's approval of a construction program and budget , the receipt of all required governmental permits and approvals , and the availability of financing , among other factors , will affect the decision and timing to develop the donlin gold project . among other reasons , project delays could occur as a result of public opposition , litigation challenging permit decisions , requests for additional information or analysis , limitations in agency staff resources during regulatory review and permitting , or project changes made by donlin gold . donlin gold remains actively engaged in extensive outreach efforts with local stakeholders , providing sponsorship activities at the community level , supporting local youth in leadership endeavors , visiting communities in the y-k region and executing its workforce development strategy . story_separator_special_tag as the donlin gold eis and permitting processes progress , the owners ( barrick gold corporation and novagold ) continue to study ways to further enhance the project 's value and minimize initial capital through enhanced project design and execution , engagement of third-party operators for certain activities and potential for third-party financing of some capital intensive infrastructure . to date , these additional studies have identified opportunities that have the potential to benefit the project when the owners decide to update the feasibility study , which was completed in 2011 , and to initiate the engineering work necessary to advance the project design from feasibility level to basic and then detailed engineering . the owners will take all of this work into account before reaching a construction decision . our share of funding for donlin gold in 2016 was $ 8.7 million for permitting , community engagement and development efforts . our 50 % share of the 2017 work program is expected to be approximately $ 10 million . the 2017 work program and budget includes funds to continue to advance the permitting process through issuance of the final eis . in addition , donlin gold will continue to maintain its engagement with communities in the y-k region . we record our interest in the donlin gold project as an equity investment , which results in our 50 % share of donlin gold 's expenses being recorded in the income statement as an operating loss . the investment amount recorded on the balance sheet primarily represents unused funds advanced to donlin gold . galore creek project in 2016 , the galore creek partnership continued to advance technical studies to optimize the project design . final reports were completed on the first phase of the tunneling evaluation for access and material handling as well as enhancements to the mining , waste rock and water management plans . we expect this effort to further improve the value and marketability of the galore creek project , which we continue to be open to monetizing , in whole or in part , to strengthen our balance sheet and to contribute toward the development of the donlin gold project . 58 novagold resources inc. our share of cash funding for galore creek was $ 1.0 million in 2016 , primarily for technical studies , care and maintenance , and supporting community initiatives . in 2017 , our 50 % share of the work program is expected to be approximately $ 2 million to continue to advance technical studies , support community initiatives and provide site care and maintenance . we record our interest in the galore creek partnership as an equity investment , which results in our 50 % share of expenses being recorded in the income statement as an operating loss . the investment amount recorded on the balance sheet primarily represents the fair value of our investment in the galore creek partnership in 2011 , recorded upon completion of the earn-in by teck resources limited , as well as unused funds advanced to the partnership , all in canadian dollars , and translated to u.s. dollars at the current exchange rate . maintained our strong financial position cash and term deposits decreased by $ 21.5 million in 2016 , $ 3.5 million less than originally planned and , excluding the $ 15.8 million repayment of the remaining convertible notes in 2015 , was $ 1.3 million less than in the prior year . cash and term deposits totaled $ 105.3 million at november 30 , 2016. outlook our goals for 2017 include : · advance the donlin gold project toward a construction/production decision . · advance galore creek mine planning and project design . · maintain a healthy balance sheet . · maintain an effective corporate social responsibility program . · evaluate opportunities to monetize the value of galore creek . we do not currently generate operating cash flows . at november 30 , 2016 , we had cash and cash equivalents of $ 30.3 million and term deposits of $ 75.0 million . at present , we believe that these balances are sufficient to cover the anticipated funding at the donlin gold and galore creek projects in addition to general and administrative costs through completion of permitting of the donlin gold project . additional capital will be necessary if permits are received for the donlin gold project and a decision to commence engineering and construction is reached . future financings to fund construction are anticipated through debt , equity , project specific debt , and or other means . our continued operations are dependent on our ability to obtain additional financing or to generate future cash flows . however , there can be no assurance that we will be successful in our efforts to raise additional capital . for further information , see section item 1a , risk factors - our ability to continue the exploration , permitting , development , and construction of the donlin gold and galore creek projects , and to continue as a going concern , will depend in part on our ability to obtain suitable financing , above . in 2017 , we expect to spend approximately $ 23 million , including $ 11 million for general and administrative costs , $ 10 million to fund our share of expenditures at the donlin gold project and $ 2 million at the galore creek project . funding requirements for our share of joint donlin gold studies with barrick will be determined later in 2017. summary of consolidated financial performance replace_table_token_14_th 59 novagold resources inc. story_separator_special_tag justify ; margin : 0pt 0 '' > outstanding share data as of january 17 , 2017 , we had 321,529,277 common shares issued and outstanding .
| our share of losses at the donlin gold project decreased by $ 3.0 million , as 2015 activities continued to focus primarily on permitting . at the galore creek project , our share of losses decreased by $ 1.5 million due to reduced activity and a gain on the sale of surplus equipment . evaluation expense includes $ 0.4 million for the company 's share of the donlin gold project joint studies with barrick . net loss decreased from $ 40.5 million ( $ 0.13 per share – basic and diluted ) in 2014 to $ 32.0 million ( $ 0.10 per share – basic and diluted ) in 2015. the decrease resulted primarily from the $ 6.3 million reduction in the loss from operations in 2015 compared to 2014 and $ 1.7 million lower interest expense due to the repayment of the remaining convertible notes in 2015. liquidity , capital resources and capital requirements replace_table_token_15_th replace_table_token_16_th during 2016 , cash and cash equivalents decreased by $ 11.5 million and term deposits decreased by $ 10.0 million . the total decrease in cash and term deposits of $ 21.5 million was primarily related to $ 11.7 million used in operating activities for administrative costs and $ 9.7 million to fund our share of the donlin gold and galore creek projects . during 2015 , cash and cash equivalents decreased by $ 28.6 million and term deposits decreased by $ 10.0 million . the total decrease in cash and term deposits of $ 38.6 million was primarily related to the repayment of $ 15.8 million of the remaining convertible notes , $ 11.4 million used in operating activities including administrative costs and interest payments , and $ 11.0 million to fund our share of the donlin gold and galore creek projects . the u.s. dollar denominated term deposits are held at canadian chartered banks . we have sufficient working capital available to advance the donlin gold project through the expected remaining permitting process . 60
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other revenues and fees the increase in other revenues and fees was primarily due to higher lease cancellation income of $ 5.7 million in 2016 , partially offset by a $ 2.5 million acquisition break-up fee received in 2015. property operating expenses the decrease in property operating expenses was primarily due to lower repairs and maintenance costs and lower utility costs . ground rent expenses the ground rent expense was consistent with 2015. general and administrative expenses the increase in general and administrative expenses was due to $ 5.2 million related to higher 2016 incentive compensation bonus accruals and salaries , $ 4.2 million related to higher equity compensation expense and $ 1.7 million of incremental legal costs pertaining to formation transactions litigation . observatory expenses the decrease in observatory expenses primarily reflects lower personnel costs and lower professional fees . construction expenses the construction business ceased operations in 2015 , which is reflected in the elimination of construction expenses . real estate taxes the increase in real estate taxes was primarily attributable to higher assessed values for several properties . acquisition expenses acquisition expenses were consistent with 2015. depreciation and amortization the decrease in depreciation and amortization was primarily attributable to assets that became fully depreciated during 2015 and 2016. interest expense the increase in interest expense was due to higher interest rates . in march 2015 , we issued $ 350.0 million of senior unsecured notes with a weighted average fixed interest rate of 4.08 % . the proceeds were partially used to repay our unsecured revolving credit facility which had a variable interest rate of 1.33 % in the first quarter 2015. income taxes the increase in income tax expense was attributable to activities within our taxable reit subsidiaries , primarily due to higher observatory taxable income . private perpetual preferred unit distributions represents distributions to holders of private perpetual preferred units which were issued in august 2014 . 53 net income attributable to non-controlling interests the increase is due to an increase in net income offset by a lower non-controlling ownership percentage due to issuance of new class a common shares and redemption of operating partnership units into class a common shares . year ended december 31 , 2015 compared to the year ended december 31 , 2014 the following table summarizes the historical results of operations for years ended december 31 , 2015 and 2014 ( amounts in thousands ) : replace_table_token_14_th rental revenue the increase in rental income was primarily attributable to the acquisition of two properties during july 2014 which increased rental income by $ 38.6 million . the remaining increase is primarily due to increased rental rates . tenant expense reimbursement the increase in tenant expense reimbursement was primarily attributable to the acquisition of two properties during july 2014 which increased tenant expense reimbursements by $ 6.1 million . higher real estate tax reimbursements , electric submeter expense reimbursements and cleaning reimbursements also contributed to the increase . 54 observatory revenue 2015 observatory revenues were consistent with the 2014 revenues . construction revenue the construction business ceased operations during 2015 , which is reflected in the decline in construction revenues . third-party management and other fees the decrease in third party management and other fees revenue was primarily due to the acquisition of two properties during july 2014 and the subsequent elimination of fees due to the consolidation of these properties . other revenues and fees the decrease in other revenues and fees was primarily due to lower lease cancellation income of $ 4.1 million offset by $ 2.5 million acquisition break-up fee income and increased parking income of $ 0.7 million . property operating expenses the increase in property operating expenses was primarily attributable to the acquisition of two properties during july 2014 which increased property operating expenses by $ 10.1 million . ground rent expenses the increase in ground rent expenses was attributable to the acquisition of two properties during july 2014. general and administrative expenses the variance was primarily due to private perpetual preferred exchange offering costs of $ 1.4 million which were incurred in the year ended 2014 and no such costs in 2015. observatory expenses 2015 observatory expenses were consistent with the 2014 expenses . construction expenses the decline in construction expenses correlated with the lower revenues due to the construction business ceasing operation in 2015. construction expenses in 2015 included severance expenses of $ 0.9 million . real estate taxes the increase in real estate taxes was primarily attributable to the acquisition of two properties during july 2014 which increased real estate taxes by $ 5.9 million , as well as higher taxes of $ 5.1 million resulting from higher assessed values and rates for several properties . acquisition expenses the decrease in acquisition expenses was primarily attributable to the acquisition of two properties during july 2014. depreciation and amortization the increase in depreciation and amortization was primarily attributable to the acquisition of two properties during july 2014 which increased depreciation and amortization by $ 23.4 million . interest expense the increase in interest expense was attributable to the acquisition of two properties during july 2014 and the write-off of $ 1.7 million of deferred finance costs related to the recast of the credit facility and the early repayments of mortgage loans . these higher expenses were partially offset by reductions in interest rates for debt refinanced during 2014 and 2015 . 55 income taxes income taxes decreased due to taxable income activities within our trss , primarily lower taxable income related to our construction operations and observatory operations . private perpetual preferred unit distributions represents distributions to holders of private perpetual preferred units which were issued in august 2014. net income attributable to non-controlling interests the increase is due to an increase in net income offset by a lower non-controlling ownership percentage due to redemption of operating partnership units into class a common shares . story_separator_special_tag liquidity and capital resources liquidity is a measure of our ability to meet potential cash requirements , including ongoing commitments to repay borrowings , fund and maintain our assets and operations , including lease-up costs , fund our redevelopment and repositioning programs , acquire properties , make distributions to our securityholders and other general business needs . based on the historical experience of our management and our business strategy , in the foreseeable future we anticipate we will generate positive cash flows from operations . in order to qualify as a reit , we are required under the code to distribute to our securityholders , on an annual basis , at least 90 % of our reit taxable income , determined without regard to the deduction for dividends paid and excluding net capital gains . we expect to make quarterly distributions to our securityholders . while we may be able to anticipate and plan for certain liquidity needs , there may be unexpected increases in uses of cash that are beyond our control and which would affect our financial condition and results of operations . for example , we may be required to comply with new laws or regulations that cause us to incur unanticipated capital expenditures for our properties , thereby increasing our liquidity needs . even if there are no material changes to our anticipated liquidity requirements , our sources of liquidity may be fewer than , and the funds available from such sources may be less than , anticipated or needed . our primary sources of liquidity will generally consist of cash on hand and cash generated from our operating activities , debt issuances and unused borrowing capacity under our unsecured revolving credit facility . we expect to meet our short-term liquidity requirements , including distributions , operating expenses , working capital , debt service , and capital expenditures from cash flows from operations , debt issuances , and available borrowing capacity under our unsecured revolving credit facility . the availability of these borrowings is subject to the conditions set forth in the applicable loan agreements . we expect to meet our long-term capital requirements , including acquisitions , redevelopments and capital expenditures through our cash flows from operations , our unsecured revolving credit facility , mortgage financings , debt issuances , common and or preferred equity issuances and asset sales . our properties require periodic investments of capital for individual lease related tenant improvements allowances , general capital improvements and costs associated with capital expenditures . our overall leverage will depend on our mix of investments and the cost of leverage . our charter does not restrict the amount of leverage that we may use . at december 31 , 2016 , we had approximately $ 554.4 million available in cash and cash equivalents and there was $ 1.1 billion available under our unsecured revolving credit facility . on august 23 , 2016 , qia purchased 29,610,854 newly issued class a common shares at $ 21.00 per share , equivalent to a 9.9 % economic interest in us on a fully diluted basis ( representing a 19.4 % ownership of class a common shares ) , however , qia can only vote shares equivalent to 9.9 % of all voting securities , with the balance of their shares to be voted by us in accord with the votes of all other voting securities . qia has a top-up right to maintain their ownership stake at 9.9 % over time . we received approximately $ 621.8 million in gross proceeds from the sale . proceeds from the investment were used to pay down the $ 45.0 million balance on our revolving credit facility . we intend to use the remaining proceeds for general corporate purposes , including redevelopment of the portfolio and future investments . in addition , for an initial period of five years from august 23 , 2016 , qia will have a right of first offer to co-invest with us as a joint venture partner in real estate investment opportunities initiated by us where we have elected , at our discretion , to seek out a joint venture partner . the right of first offer period will be extended for 30 months so long as at least one joint venture transaction is consummated by us and qia during the initial term , and will be extended for a further 30-month term if at least one more joint venture transaction is consummated during such initial extension period . as of december 31 , 2016 , we had approximately $ 1.6 billion of total consolidated indebtedness outstanding , with a weighted average interest rate of 4.19 % and a weighted average maturity of 4.7 years . as of december 31 , 2016 , exclusive of 56 principal amortization , we have approximately $ 336.0 million of debt maturing in 2017 and approximately $ 262.2 million of debt maturing in 2018. given our current liquidity , including availability under our unsecured revolving credit facility , we believe we will be able to refinance the maturing debt . unsecured revolving credit facility on january 23 , 2015 , we entered into an unsecured revolving credit agreement , which is referred to herein as the “ unsecured revolving credit facility , ” with bank of america , merrill lynch , goldman sachs and the other lenders party thereto . merrill lynch acted as joint lead arranger ; bank of america acted as administrative agent ; and goldman sachs acted as syndication agent and joint lead arranger . amount . the unsecured revolving credit facility is comprised of a revolving credit facility in the maximum original principal amount of $ 800.0 million . the unsecured revolving credit facility contains an accordion feature that would allow us to increase the maximum aggregate principal amount to $ 1.25 billion under specified circumstances . on july 6 , 2016 , we partially exercised the accordion feature and increased our borrowing capacity under the unsecured revolving credit facility from $ 800 million to $ 1.1 billion . guarantors .
| increased the company 's committed borrowing capacity under the unsecured revolving credit facility from $ 800 million to $ 1.1 billion . 50 declared and paid aggregate dividends of $ 0.40 per share during 2016 , an 18 % increase from the previous year . as of december 31 , 2016 , our total portfolio , contained 10.1 million rentable square feet of office and retail space . we owned 14 office properties ( including three long-term ground leasehold interests ) encompassing approximately 9.4 million rentable square feet of office space . nine of these properties are located in the midtown manhattan market and aggregate approximately 7.6 million rentable square feet of office space , including the empire state building . our manhattan office properties also contain an aggregate of 501,653 rentable square feet of premier retail space on their ground floor and or contiguous levels . our remaining five office properties are located in fairfield county , connecticut and westchester county , new york , encompassing in the aggregate approximately 1.9 million rentable square feet . the majority of square footage for these five properties is located in densely populated metropolitan communities with immediate access to mass transportation . additionally , we have entitled land at the stamford transportation center in stamford , connecticut , adjacent to one of our office properties , that will support the development of an approximately 380,000 rentable square foot office building and garage , which we refer to herein as metro tower . as of december 31 , 2016 , our portfolio included four standalone retail properties located in manhattan and two standalone retail properties located in the city center of westport , connecticut , encompassing 204,452 rentable square feet in the aggregate . the empire state building is our flagship property . the empire state building provides us with a diverse source of revenue through its office and retail leases , observatory operations and broadcasting licenses , and related leased space . our observatory operations are a separate reporting segment . our observatory operations are subject to regular patterns of tourist activity in manhattan . during the past ten
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during the twelve months ended december 31 , 2016 and 2015 , we produced and sold 55.6 million gallons and 55.8 million gallons of ethanol and 372 thousand tons and 360 thousand tons of wdg , respectively . cost of goods sold substantially all of our feedstock is procured by j.d . heiskell . our cost of feedstock includes rail , truck , or ship transportation , local basis costs and a handling fee paid to j.d . heiskell . cost of goods sold also includes chemicals , plant overhead and out bound transportation . plant overhead includes direct and indirect costs associated with the operation of the keyes plant , including the cost of electricity and natural gas , maintenance , insurance , direct labor , depreciation and freight . transportation includes the costs of in-bound delivery of corn by rail , inbound delivery of milo by ship , rail , and truck , and out-bound shipments of ethanol and wdg by truck . in 2016 , the transportation cost for ethanol and wdg was approximately $ 0.05 per gallon and $ 7.50 per ton , respectively . pursuant to a corn procurement and working capital agreement with j.d . heiskell , we purchase all of our corn and milo from j.d . heiskell . title to the corn or milo passes to us when the corn is deposited into our weigh bin and entered into the production process . the credit term of the corn or milo purchased from j.d . heiskell is five days . j.d . heiskell purchases our ethanol and wdg on one-day terms . the price of corn is established by j.d heiskell based on chicago board of trade pricing including transportation and basis , plus a handling fee . sales , marketing and general administrative expenses ( sg & a ) sg & a expenses consist of employee compensation , professional services , travel , depreciation , taxes , insurance , rent and utilities , license and permit fees , penalties , and sales and marketing fees . our single largest expense is employee compensation , including related stock compensation , followed by sales and marketing fees paid in connection with the marketing and sale of ethanol and wdg . 25 in october 2010 , we entered into an exclusive marketing agreement with kinergy to market and sell our ethanol and an agreement with a.l . gilbert to market and sell our wdg . the agreements expire on august 31 , 2017 and december 31 , 2017 , respectively , and are automatically renewed for additional one-year terms . pursuant to these agreements , our marketing costs for ethanol and wdg are less than 2 % of sales . research and development expenses ( r & d ) in 2016 and 2015 , substantially all of our r & d expenses were related to research and development activities in maryland . india segment revenue substantially all of our india segment revenues during the years ended december 31 , 2016 and 2015 were from sales of biodiesel and refined glycerin . during the twelve months ended december 31 , 2016 , we sold 16.0 thousand metric tons of biodiesel and 4.4 thousand metric tons of refined glycerin . during the twelve months ended december 31 , 2015 , we sold 19.5 thousand metric tons of biodiesel and 4.7 thousand metric tons of refined glycerin . during 2014 , we completed upgrades to the kakinada plant for the distillation of biodiesel and testing of waste fats and oils for the production of distilled biodiesel for sales into international markets . cost of goods sold cost of goods sold consists primarily of feedstock oil , chemicals , direct costs ( principally labor and labor related costs ) and factory overhead . depending upon the costs of these inputs in comparison to the sales price of biodiesel and glycerin , our gross margins at any given time can vary from positive to negative . factory overhead includes direct and indirect costs associated with the kakinada plant , including the cost of repairs and maintenance , consumables , maintenance , on-site security , insurance , depreciation and inbound freight . we purchase nrpo , a non-edible feedstock , for our biodiesel unit from neighboring natural oil processing plants at a discount to refined palm oil . in addition , we purchase waste fats and oils from other processing plants in india . raw material is received by truck and title passes when the goods are loaded at our vendors ' facilities . credit terms vary by vendor ; however , we generally receive 15 days of credit on the purchases . we purchase crude glycerin in the international market on letters of credit or advance payment terms . sales , marketing and general administrative expenses ( sg & a ) sg & a expenses consist of employee compensation , professional services , travel , depreciation , taxes , insurance , rent and utilities , licenses and permits , penalties , and sales and marketing fees . pursuant to an operating agreement with secunderabad oils limited , we receive operational support and working capital . we compensate secunderabad oils limited with a percentage of the profits generated from operations . payments of interest are identified as interest income while payments of profits are identified as compensation for the operational support component of this agreement . we therefore include the portion of profits paid to secunderabad oils limited as a component of sg & a and our sg & a component will vary based on the profits earned by operations . in addition , we market our biodiesel and glycerin through our internal sales staff , commissioned agents and brokers . commissions paid to agents are included as a component of sg & a . research and development expenses ( r & d ) our india segment has no research and development activities . story_separator_special_tag story_separator_special_tag the decrease in gross profit was attributable mainly to our feedstock costs which averaged overall 62 % of the revenues causing the decrease of 16 % in overall revenues in the year ended december 31 , 2016 compared to the year ended december 31 , 2015. overall sales volume decreased by 15 % to 20.5 metric tons while the average feedstock cost increased by 14 % to $ 503 per metric ton . operating expenses r & d fiscal year ended december 31 ( in thousands ) replace_table_token_8_th r & d expenses decreased by 17 % during the year ended december 31 , 2016 due to decreases in salaries of $ 30 thousand and professional and other fees of $ 48 thousand . sg & a fiscal year ended december 31 ( in thousands ) replace_table_token_9_th selling , general and administrative expenses ( sg & a ) . sg & a expenses consist primarily of salaries and related expenses for employees , marketing expenses related to sales of ethanol and wdg in north america and biodiesel and other products in india , as well as professional fees , other corporate expenses , and related facilities expenses . north america . sg & a expenses as a percentage of revenue in the year ended december 31 , 2016 decreased to 8 % as compared to 9 % in the year ended december 31 , 2015. the slight decrease in overall sg & a expenses in the year ended december 31 , 2016 was primarily attributable to : ( i ) decrease in professional fees of $ 0.7 million , ( ii ) decrease in salary and stock compensation expenses of $ 0.2 million , offset by ( iii ) $ 0.6 million increase in taxes and utilities and office supplies and services , ( iv ) increase in marketing and travel of $ 0.1 million during year ended december 31 , 2016 . 28 india . sg & a expenses as a percentage of revenue in the year ended december 31 , 2016 increased slightly to 8 % as compared to 7 % in the year ended december 31 , 2015. the overall sg & a expense decreased by 8 % in the year ended december 31 , 2016 compared to the year ended december 31 , 2015. the decrease was due to a decrease in plant services , utilities , and professional fees by $ 0.1 million and marketing and other expenses by $ 0.1 million , offset by an increase in salaries by $ 0.1 million . other income/expense fiscal year ended december 31 ( in thousands ) replace_table_token_10_th other ( income ) /expense . other ( income ) expense consists primarily of interest , amortization and extinguishment expense attributable to debt facilities acquired by our parent company and our subsidiaries , and interest accrued on the judgments obtained by cordillera fund and the industrial company . the debt facilities include stock or warrants issued as fees . the fair value of stock and warrants are amortized as amortization expense , except when the extinguishment accounting method is applied , in which case refinanced debt costs are recorded as extinguishment expense . north america . interest expense was higher in the year ended december 31 , 2016 due to higher debt balances in 2016. the decrease in amortization expense was due to the amortization of several amendment fees under the third eye capital notes and subordinated note refinancing fees added in 2015 , offset by debt issuance costs associated with the amendment and refinancing of subordinated notes in 2016. the debt extinguishment costs were lower in the year ended december 31 , 2016 than in the corresponding period of 2015 as extinguishment accounting was not applied to two subordinated notes with two accredited investors in the 2016 period compared to the extinguishment accounting that was applied once to subordinated notes that were refinanced in the 2015 period . the increase in other income in the year ended december 31 , 2016 was due to receipt of $ 0.5 million from a mandated gas credit from pg & e offset by amortization of debt guarantee fee in the first three months of 2016 compared to increases in expenses due to amortization of a debt guarantee fee in 2015. india . interest expense decreased as a result of the payoff of the state bank of india loan during the year ended december 31 , 2016 and principal and interest payments of $ 5.0 million on working capital loan . the gain on debt extinguishment was caused by the relief of $ 2.0 million of accrued interest on state bank of india loan by paying the final stipulated amount under the one time settlement sanction letter on october 20 , 2016. the slight increase in other income was caused by other miscellaneous income and foreign exchange gains during the year ended december 31 , 2016. liquidity and capital resources cash and cash equivalents cash and cash equivalents were $ 1.5 million at december 31 , 2016 , of which $ 1.0 million was held in north america and $ 0.5 million was held in our indian subsidiary . our current ratio was 0.26 and 0.27 , respectively , at december 31 , 2016 and 2015. we expect that our future available capital resources will consist primarily of cash generated from operations , remaining cash balances , eb-5 program borrowings , amounts available for borrowing , if any , under our senior debt facilities and our subordinated debt facilities , and any additional funds raised through sales of equity . 29 liquidity cash and cash equivalents , current assets , current liabilities and debt at the end of each period were as follows ( in thousands ) : replace_table_token_11_th our principal sources of liquidity have been cash provided by operations and borrowings under various debt arrangements .
| thousand tons due to higher feedstock costs and lower production due to capital constraints while the average price slightly increased by 2 % to $ 739 per metric ton . refined glycerin sales volume decreased by 5 % to 4.4 thousand tons while the average price per metric ton also decreased by 13 % to $ 582 per metric ton . for the year ended december 31 , 2016 and 2015 , we generated approximately 82 % of revenue from sales of biodiesel ( methyl ester ) , and 18 % of revenue from sales of glycerin . cost of goods sold fiscal year ended december 31 ( in thousands ) replace_table_token_6_th north america . we ground 19.5 million bushels of corn which allowed us to operate the keyes plant at nearly its full plant capacity during the year ended december 31 , 2016 and 2015. our cost of feedstock on a per bushel basis decreased by 9 % to $ 4.58 per bushel for the year ended december 31 , 2016 as compared to 2015. india . the decrease in cost of goods sold reflects the 16 % decrease in sales of biodiesel and refined glycerin in 2016. the cost of nrpo feedstock increased an average of 28 % to $ 529 per metric ton while the volume decreased by 32 % to 13.8 thousand metric tons of nrpo and waste oils and fats compared to the year ended december 31 , 2015. the average price of crude glycerin decreased by 28 % to $ 418 per metric ton while the volume increased by 8 % to 4.3 thousand metric tons compared to the year ended december 31 , 2015. gross profit fiscal year ended december 31 ( in thousands ) replace_table_token_7_th 27 north america . gross profit increased by 274 % in the year ended december 31 , 2016 due to decreases in feedstock costs by 9 % and the usage of milo which allowed us to receive grant income . india .
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market revenues in new york as measured by miller kaplan arase llp ( “ miller kaplan ” ) , an independent public accounting firm used by the radio industry to compile revenue information , were up 2.6 % for the ten months ended december 31 , 2019 , but down 31.3 % for the year ended december 31 , 2020 , as compared 21 to the same perio d s of the prior year . during these period s , revenues for our new york cluster were up 9.5 % and down 42.1 % , respectively . o ur outperformance in the ten months ended december 31 , 2019 was principally due to record-setting ticket sales associated with our largest annual concert , summer jam , in june 2019 ; however , our underperformance in the year ended december 31 , 2020 was largely driven by the cancellation of that event in 2020 due to the covid-19 pandemic . as part of our business strategy , we continually evaluate potential acquisitions of businesses that we believe hold promise for long-term appreciation in value and leverage our strengths . however , mediaco 's long-term debt agreements substantially limit our ability to make acquisitions . we also regularly review our portfolio of assets and may opportunistically dispose of assets when we believe it is appropriate to do so . the company has been actively monitoring the covid-19 situation and its impact globally , as well as domestically and in the markets we serve . our priority has been the safety of our employees , as well as the informational needs of the communities that we serve . through the first few months of calendar 2020 , the disease became widespread around the world , and on march 11 , 2020 , the world health organization declared a pandemic . in an effort to mitigate the continued spread of covid-19 , many federal , state and local governments have mandated various restrictions , including travel restrictions , restrictions on non-essential businesses and services , restrictions on public gatherings and quarantining of people who may have been exposed to the virus . these restrictions , in turn , caused the united states economy to decline and businesses to cancel or reduce amounts spent on advertising , negatively impacting our advertising-based businesses . furthermore , the restrictions on public gatherings in and around new york city during 2020 forced us to cancel our largest annual concert , summer jam . in addition , some of our advertisers have seen a material decline in their businesses and may not be able to pay amounts owed to us when they come due . if the spread of covid-19 continues , or is suppressed but later reemerges as a variant strain , and public and private entities continue to implement restrictive measures , we expect that our results of operations , financial condition and cash flows will continue to be negatively affected , the extent to which is difficult to estimate at this time . critical accounting policies critical accounting policies are defined as those that encompass significant judgments and uncertainties , and potentially derive materially different results under different assumptions and conditions . we believe that our critical accounting policies are those described below . revenue recognition broadcasting revenue is recognized as advertisements are aired and outdoor revenue is recognized over the life of the applicable lease of each billboard . both broadcasting revenue and outdoor revenue recognition is subject to meeting certain conditions such as persuasive evidence that an arrangement exists and collection is reasonably assured . these criteria are generally met at the time the advertisement is aired for broadcasting revenue or displayed for outdoor revenue . broadcasting advertising revenues presented in the financial statements are reflected on a net basis , after the deduction of advertising agency fees , usually at a rate of 15 % of gross revenues . fcc licenses we have made acquisitions in the past for which a significant amount of the purchase price was allocated to fcc licenses and goodwill assets . as of december 31 , 2020 , we have recorded approximately $ 63.3 million in fcc licenses , which represents approximately 43 % of our total assets . in the case of our radio stations , we would not be able to operate the properties without the related fcc license for each property . fcc licenses are renewed every eight years ; consequently , we continually monitor our stations ' compliance with the various regulatory requirements . historically , all of our fcc licenses have been renewed at the end of their respective periods , and we expect that all fcc licenses will continue to be renewed in the future . we consider our fcc licenses to be indefinite-lived intangibles . we do not amortize indefinite-lived intangible assets , but rather test for impairment at least annually or more frequently if events or circumstances indicate that an asset may be impaired . when evaluating our radio broadcasting licenses for impairment , the testing is performed at the unit of accounting level as determined by accounting standards codification ( “ asc ” ) topic 350-30-35. in our case , radio stations in a geographic market cluster are considered a single unit of accounting . in the ten-month period ended december 31 , 2019 , we completed our annual impairment test on november 25 , 2019 , the date the stations were transferred by emmis . for the year ended december 31 , 2020 , we completed our annual impairment tests on october 1 and will continue to perform our assessments on this date in future years . valuation of indefinite-lived broadcasting licenses fair value of our fcc licenses is estimated to be the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date . to determine the fair value of our fcc licenses , the company considered both income and market valuation methods when it performed its impairment tests . story_separator_special_tag under the income method , the company projects cash flows that would be generated by each of its units of accounting assuming the unit of accounting was commencing operations in its respective market at the beginning of the valuation period . this cash flow stream is discounted to arrive at a value for the fcc license . the company assumes the competitive situation that exists in each market remains unchanged , with the exception that its unit of accounting commenced operations at the beginning of the valuation period . in doing so , the company extracts the value of going concern and any other assets acquired , and strictly values the fcc license . major assumptions involved in this analysis include market revenue , market revenue growth rates , unit of accounting audience share , unit of accounting revenue share and discount rate . each of these assumptions may change in the future based upon changes in general economic conditions , audience behavior , consummated transactions , and numerous other variables 22 that may be beyond our control . the projections incorporated into our license valuations take current economic conditions into consideration . under the market method , the company uses recent sales of comparable radio stations for which the sales value appeared to be concentrated entir ely in the value of the license , to arrive at an indication of fair value . below are some of the key assumptions used in our income method annual impairment assessments . in recent years , we have reduced long-term growth rates in the new york market in which we operate based on recent industry trends and our expectations for the market going forward . replace_table_token_2_th valuation of goodwill as a result of the fairway acquisition , the company has recorded $ 13.1 million of goodwill . this accounts for all goodwill on the consolidated balance sheet as of december 31 , 2020. the fairway acquisition closed on december 13 , 2019 and all assets acquired and liabilities assumed were valued as of that date , resulting in a goodwill valuation of $ 13.1 million . asc topic 350-20-35 requires the company to test goodwill for impairment at least annually . under asc 350 we have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value as a basis for determining whether it is necessary to perform an annual quantitative goodwill impairment test . given the macroeconomic environment as a result of the covid-19 pandemic we have elected not to perform the qualitative assessment . when performing a quantitative assessment for impairment , the company uses a market approach to determine the fair value of the reporting unit . management determines the fair value for the reporting unit by multiplying the cash flows of the reporting unit by an estimated market multiple . management believes this methodology for valuing outdoor advertising businesses is a common approach and believes that the multiples used in the valuation are reasonable given our peer comparisons , analyst reports , and market transactions . to corroborate the fair values determined using the market approach described above , management also uses an income approach , which is a discounted cash flow method to determine the fair value of the reporting unit . if the carrying value of a reporting unit 's goodwill exceeds its fair value , the company recognizes an impairment charge equal to the difference in the statement of operations . deferred 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 consequence of events that have been recognized in the company 's financial statements or income tax returns . income taxes are recognized during the year in which the underlying transactions are reflected in the consolidated statements of operations . deferred taxes are provided for temporary differences between amounts of assets and liabilities recorded for financial reporting purposes as compared to amounts recorded for income tax purposes . after determining the total amount of deferred tax assets , the company determines whether it is more likely than not that some portion of the deferred tax assets will not be realized . if the company determines that a deferred tax asset is not likely to be realized , a valuation allowance will be established against that asset to record it at its expected realizable value . 23 story_separator_special_tag style= '' text-align : right ; margin-bottom:0pt ; margin-top:0pt ; margin-left:0pt ; ; text-indent:0pt ; ; color : # 000000 ; font-size:10pt ; font-family : times new roman ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > 35 0.8 % corporate expenses excluding depreciation and amortization expense for the ten months ended december 31 , 2019 , mostly relate to nonrecurring transaction costs associated with the acquisition of a controlling interest in the company from emmis in november 2019 and two outdoor advertising businesses in december 2019. corporate expenses excluding depreciation and amortization expense for the year ended december 31 , 2020 , principally consist of the costs associated with being a public company , corporate staff to oversee the outdoor advertising business , and management fees paid to emmis .
| we acquired two outdoor advertising businesses principally located in southern georgia and eastern kentucky on december 13 , 2019 , so there is only minimal activity in our reported results for the ten months ended december 31 , 2019. operating expenses excluding depreciation and amortization expense : replace_table_token_4_th operating expenses excluding depreciation and amortization expense for our radio division decreased , despite two additional months of results in the current year . our largest outdoor concert , summer jam , is held annually in june , but due to the covid-19 pandemic , it was cancelled in 2020. therefore , we did not incur the costs of producing the event for the year ended december 31 , 2020. expenses also declined due to lower payroll costs in the second quarter as a result of the loan proceeds participation agreement with emmis , and cost reductions put in place in response to the decline in revenues caused by the covid-19 pandemic . we acquired two outdoor advertising businesses principally located in southern georgia and eastern kentucky on december 13 , 2019 , so there is only minimal activity in our reported results for the ten months ended december 31 , 2019 . 24 corporate expenses excluding depreciation and amortization expense : for the ten months ended december 31 , 2019 for the year ended december 31 , 2020 $ change % change ( as reported , amounts in thousands ) corporate expenses excluding depreciation and amortization expense $ 4,303 $ 4,338 $ < p
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we have accounted for the bornite property as a mineral property with acquisition costs capitalized and exploration costs expensed in accordance with our accounting policies . corporate developments board appointment in december 2017 , we announced the appointment of mr. william iggiagruk hensley to the company 's board of directors . mr. hensley is an alaska native leader who significantly contributed to the settlement of alaska 's native claims with the united states federal government in 1971. he was elected to the alaskan house of representatives , served four full terms as an alaskan senator and two further terms through an appointment by governor steve cowper . mr. hensley was a founder of nana , served for 20 years as a director , became the head of nana development corporation and finally president of nana . he was a founder of the alaska federation of natives and served as director , executive director , president and co-chair . financing on april 16 , 2018 , the company entered into an underwriting agreement with a syndicate of underwriters ( the `` underwriters '' ) led by cantor fitzgerald canada corporation , acting as sole lead underwriter and book-running manager , and including cormark securities inc. , bmo capital markets and roth capital partners , llc , under which the underwriters agreed to buy , on a bought deal underwritten basis , 21,551,724 common shares of the company at a price of $ 1.16 per common share for aggregate gross proceeds of approximately $ 25 million ( the `` offering '' ) . on april 20 , 2018 , we announced the closing of the offering of 24,784,482 common shares , including the exercise in full by the underwriters of the over-allotment option , at a price of $ 1.16 per common share for aggregate gross proceeds of approximately $ 28.7 million . certain large shareholders participated in the offering with south32 purchasing approximately 40 % or $ 11.5 million , electrum strategic opportunities fund l.p. taking approximately 20 % or $ 5.8 million , the baupost group llc taking approximately 10 % or $ 2.8 million , and selz capital llc taking approximately 4 % or $ 1.2 million of the common shares . south32 's involvement in this financing represented the maximum allocation of their rights to participate , to a minimum of 20 % to a maximum of 40 % , in future financings , private or public , subject to a maximum aggregate ownership of 19.9 % in the company . the company intends to use the net proceeds from the offering for an anticipated period of three years ( i ) to finance advancing the arctic project towards feasibility and permitting , ( ii ) for exploration in the ambler mining district , and ( iii ) for general corporate purposes . annual general meeting the annual general meeting of shareholders was held on may 15 , 2018. in a press release dated may 15 , 2018 , we were pleased to report all directors nominated by the company and standing for election were resoundingly elected by shareholders of the company . additions to the senior management team on may 31 , 2018 , we announced the additions of patrick ( “ pat ” ) donnelly as vice president , corporate communications and development and robert ( “ bob ” ) jacko as senior director , operations to the company 's senior management team . 67 project activities south32 option agreement on april 10 , 2017 , trilogy and trilogy metals us entered into an option agreement to form a joint venture with south32 group operations pty ltd. , a wholly-owned subsidiary of south32 limited , which agreement was later assigned by south32 operations to its affiliate , south32 usa exploration inc. ( “ south32 ” ) on the ukmp ( “ option agreement ” ) . under the terms of the option agreement , as amended , trilogy metals us granted south32 the right to form a 50/50 joint venture to hold all of trilogy metals us ' alaskan assets . upon exercise of the option , trilogy metals us will transfer its alaskan assets , including the ukmp , and south32 will contribute a minimum of $ 150 million , to a newly formed and jointly held , limited liability company ( “ llc ” ) . to maintain the option in good standing , south32 is required to fund a minimum of $ 10 million per year for up to a three-year period , which funds will be used to execute a mutually agreed upon program at the ukmp . the funds provided by south32 may only be expended in accordance with an approved program by a technical committee with equal representation from trilogy and south32 . south32 may exercise its option at any time over the three-year period to enter into the 50/50 joint venture . to subscribe for 50 % of the jv , south32 will contribute a minimum of $ 150 million , plus any amounts trilogy metals us spends at the arctic project or regional exploration over the three-year option period , to a maximum of $ 16 million over the three-year period ( the “ subscription price ” ) , less an amount of the initial funding contributed by south32 . option funding phase provided that all the exploration data and information has been made available to south32 by no later than december 31 of each year , south32 must decide by the end of january of the following year whether ; ( i ) to fund a further tranche of a minimum of $ 10 million , or ( ii ) to withdraw and not provide any further annual funding . if the election to fund a further tranche is not made in january , south32 has until the end of march to exercise the option to form the llc and make the subscription payment . if south32 elects to exercise the option , the subscription price less certain deductions for initial funding shall be paid in one tranche within 45 business days . story_separator_special_tag should south32 not make its annual minimum payment or elect to withdraw , the option will lapse and south32 will have no claim to ownership or the funds it had already spent . the option payment for the first year was paid by south32 in april 2017 and expended on the year 1 exploration program at the bornite project . early in december 2017 , south32 committed to fund the $ 10 million 2018 program for the bornite project . the funds , which represent the second tranche , maintain the option agreement in good standing , and were fully received on january 24 , 2018. an additional $ 0.80 million was received during the year ended november 30 , 2018 from south32 as an advance on the year three funding . on january 31 , 2019 , we announced the 2019 program and budgets with south32 committing to fund the $ 9.2 million budget for the bornite project . the funds , which represent the third and final tranche , maintains the option agreement in good standing , and will be received on or before february 12 , 2019. subscription funding phase at any time during the option funding phase of the agreement , south32 may elect to subscribe for a 50 % interest in a newly formed llc which will take transfer of , and hold , trilogy metals us ' alaskan assets . as part of the subscription price , south32 will match any spending expended by us at the arctic project or on regional exploration over 3 years ( 2017 , 2018 and 2019 ) , to a cumulative maximum of $ 16 million . depending on when the option is exercised , certain amounts of the initial funding will be deducted from the subscription price . trilogy estimates that the subscription price will fund the ukmp through feasibility and the permitting of the first mine to be developed in the ambler mining district . once the full amount of the subscription payment of approximately $ 150 million is expended , the parties will contribute funding pro rata , as contemplated by the operating agreement which will govern the llc ( the “ llc agreement ” ) . the llc agreement anticipates a general manager , chief financial officer and chief operating and technical officer to be appointed by the llc 's board , which will have equal representation from trilogy and south32 . as the initial option payments are credited against the future subscription price upon exercise , we have accounted for the payment received as deferred consideration . at such time as the option is exercised , the initial payments received to that date will be recognized as part of the consideration received for our contribution of the alaska assets , including the ukmp , into the joint venture . if south 32 withdraws from the option agreement , the consideration will be recognized in the statement of loss at that time . 68 bornite project in partnership with south32 we completed a 2018 exploration program directed by the joint trilogy-south32 technical committee at the bornite project with a total budget of $ 10.8 million , fully funded by south32 . the focus of this year 's program was to follow-up on the 2017 wide step-out exploration program . this year 's program comprised of 12 drill holes totaling approximately 10,123 meters ( 33,212 feet ) of exploration drilling through a combination of infill and expansion drill holes in and around the known deposit . the original drilling campaign was budgeted to be 8,000 meters utilizing 3 drill rigs at a cost of $ 10.0 million and was subsequently expanded to 10,000 meters with the addition of 2 more drill rigs for a revised budget of $ 10.8 million . the 2018 program followed up on drilling completed during the 2017 exploration program , which was one of the larger programs in the history of drilling at the bornite project . the objective of the 2018 drill campaign was to infill and expand the currently defined open pit and underground mineral resources . in addition , we completed a cobalt resource estimate at bornite released on june 5 , 2018. on august 23 , 2018 , the company announced initial assay results from the first drill holes , rc18-0247 , from the bornite project and subsequently , on october 9 , 2018 , the company announced assay results for three additional drill holes ( rc18-0243 , rc18-0244 , rc18-0246 as well as additional results for rc18-0247 ) . assay results from three additional drill holes ( rc18-0248 , rc18-0249 and rc18-0250 ) were released on november 19 , 2018 and assay results from the remaining five drill holes ( rc18-0251 , rc18-0252 , rc18-0254 , rc18-0255 and rc18-0256 ) were released on december 13 , 2018. hole rc18-0253 was abandoned before reaching its target depth and re-collared as rc18-0254 . a total of 12 holes were drilled at the bornite project during the 2018 summer exploration program . our actual costs were slightly over the revised budget of $ 10.8 million due to unexpected repair and maintenance costs at our remote camp site . in fiscal 2018 , we expended $ 10.9 million on the bornite project , consisting of $ 4.2 million in drilling and geochemistry , $ 2.9 million in project support expenses , $ 2.6 million in wages and benefits , $ 0.1 million in engineering studies , $ 1.0 million in geophysical programs , and $ 0.1 million in environmental studies . early in december 2017 , south32 committed to fund the 2018 program and budget of $ 10.0 million focused at the bornite project .
| the investment in shares and warrants to purchase shares in gmi ( formerly , brazil resources inc. ) that were acquired through the sale of sunward investments in 2016 were fully disposed of during the year ended november 30 , 2018. in summary , in 2015 the company acquired sunward resources inc. receiving approximately $ 20.0 million in cash and the titribi project valued at $ 3 million by issuing common shares of $ 23.0 million . in 2016 , the company sold the titribi project for consideration of 5 million shares of gmi . we have subsequently sold the gmi shares for total net proceeds of c $ 7.6 million . for the year ended november 30 , 2018 , we reported a net loss from continuing operations of $ 21.8 million ( or $ 0.18 basic and diluted loss from continuing operations per common share ) compared to a net loss for the corresponding period in 2017 of $ 21.1 million ( or $ 0.20 basic and diluted loss from continuing operations per common share ) and a net loss of $ 8.7 million for the corresponding period in 2016 ( or $ 0.08 basic and diluted loss from continuing operations per common share ) . the slight increase in the loss pertaining to 2018 relates to the size of the program undertaken at the ukmp in 2018. we executed a $ 16.5 million program at the ukmp in 2018 , with $ 10.8 million on the bornite project funded by south32 under the option agreement . the 2018 field program consisted of 10,123 meters of exploration drilling at the bornite project . at arctic , 593 meters of geotechnical drilling and 40 test pits were completed to provide additional geotechnical and hydrologic information for the waste rock dump , tailings management facility and surface infrastructure in the area . 70 comparably , the significant increase in the loss pertaining to 2017 relates to the size of the program undertaken at the ukmp in 2017. we executed a $ 15.1 million program at the ukmp in 2017 , with $ 10.0 million on the bornite project funded by south32 under the option agreement . the 2017 field program consisted of 8,437 meters of exploration drilling at the bornite project , 274 meters of geotechnical drilling
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interest expense net of interest income decreased to approximately $ 27,000 for the year ended december 31 , 2011 , from net interest expense of approximately $ 116,000 in 2010. the decrease in interest expense is primarily attributable to higher interest earned on excess cash balances , as well as lower interest paid on declining term debt balances . 17 the gain on sale of assets of approximately $ 839,000 in 2011 was derived primarily from the sale of real estate in alabama by udt . of this $ 839,000 gain , approximately $ 428,000 relates to non-controlling interests that have been deducted to determine net income attributable to ufp technologies , inc. , and $ 250,000 represents a one-time fee paid to the company for managing the transaction . the company recorded income tax expense as a percentage of income before income tax expense excluding net income attributable to non-controlling interests , of 31.3 % and 34.8 % for the years ended december 31 , 2011 , and 2010 , respectively . the decrease in the effective tax rate for the year ended december 31 , 2011 , is primarily attributable to the reversal in 2011 of approximately $ 385,000 in reserves previously established for uncertain tax benefits due to a favorable outcome on a concluded federal internal revenue service audit and the statute of limitations expiring on certain other federal income tax filings as well as increased deductions associated with domestic manufacturing . the non-controlling interest previously held in udt was not subject to corporate income tax . the company has deferred tax assets on its books associated with net operating losses generated in previous years . the company has considered both positive and negative available evidence in its determination that the deferred tax assets are more likely than not to be realized , and has not recorded a tax valuation allowance at december 31 , 2011. the company will continue to assess whether the deferred tax assets will be realizable and , when appropriate , will record a valuation allowance against these assets . the amount of the net deferred tax asset considered realizable , however , could be reduced in the near term , if estimates of future taxable income during the carry-forward period are reduced . liquidity and capital resources the company funds its operating expenses , capital requirements , and growth plan through internally-generated cash . as of december 31 , 2012 , and 2011 , working capital was approximately $ 51.2 and $ 48.6 million , respectively . the increase in working capital is primarily attributable to an increase in cash of approximately $ 3.6 million due to cash generated from operations ; increased receivables of approximately $ 2.2 million due to the purchase of packaging alternatives corporation ; and increased refundable income taxes of approximately $ 1 million due to overpayments of federal income taxes partially offset by an increase in accrued expenses of approximately $ 2.1 million due largely to the packaging alternatives corporation purchase holdback , compensation , and other accruals , and an increase in current installments of long-term debt of approximately $ 1 million due to new financing on the acquisition of new molded fiber equipment . net cash provided by operating activities was approximately $ 16.2 million and primarily consisted of net income of approximately $ 10.9 million , plus depreciation and amortization of approximately $ 2.9 million , share-based compensation of approximately $ 860,000 , and an increase in accrued expenses of approximately $ 2.1 million . net cash used in investing activities in 2012 was approximately $ 15.5 million and included approximately $ 12.0 million in additions to property , plant and equipment and approximately $ 3.6 million in cash used to acquire the net assets of packaging alternatives corporation . net cash provided by financing activities was approximately $ 3.0 million and consisted of proceeds from long-term borrowings of approximately $ 4.4 million , excess tax benefits related to share-based compensation of approximately $ 832,000 , partially offset by cash used for distributions to united development company partners of approximately $ 1.2 million , and cash used for principal repayments of long-term debt of approximately $ 740.000. on january 29 , 2009 , the company amended and extended its credit facility with bank of america , na . the facility is comprised of : ( i ) a revolving credit facility of $ 17 million ; ( ii ) a term loan of $ 2.1 million with a seven-year straight-line amortization ; ( iii ) a mortgage loan of $ 1.8 million with a 20 year straight-line amortization ; and ( iv ) a mortgage loan of $ 4.0 million with a 20-year straight-line amortization . extensions of credit under the revolving credit facility are based in part upon accounts receivable and inventory levels . therefore , the entire $ 17 million may not be available to the company . as of december 31 , 2012 , the company had no borrowings outstanding and availability of approximately $ 16.9 million based upon collateral levels in place as of that date . the credit facility calls for interest of libor plus a margin that ranges from 1.0 % to 1.5 % or , at the discretion of the company , the bank 's prime rate less a margin that ranges from 0.25 % to zero . in both cases the applicable margin is dependent upon company performance . the loans are collateralized by a first priority lien on all of the company 's assets , including its real estate located in georgetown , massachusetts , and in grand rapids , michigan . story_separator_special_tag under the credit facility , the company is subject to a minimum fixed-charge coverage 18 financial covenant , which the company was in compliance with as of december 31 , 2012. the company 's $ 17 million revolving credit facility matures november 30 , 2013. the company anticipates negotiating an extension of this facility . the company can not assure that such extension will be completed on favorable terms or on a timely basis , if at all ; the term loans are all due on january 29 , 2016. at december 31 , 2012 , the interest rate on these facilities was 1.2 % , and there were no borrowings outstanding on the line of credit . on october 11 , 2012 , the company entered into a loan agreement to finance the purchase of two new molded fiber machines . one of the machines is presently operational . the value of the loan is approximately $ 5 million . the annual interest rate is fixed at 1.83 % . as of december 31 , 2012 , approximately $ 4.4 million had been advanced on the loan and the outstanding balance is approximately $ 4.2 million . the loan will be repaid over a five-year term . the loan is secured by the related molded fiber machines . commitments , contractual obligations , and off-balance-sheet arrangements the following table summarizes the company 's contractual obligations at december 31 , 2012 : replace_table_token_5_th the company requires cash to pay its operating expenses , purchase capital equipment , and to service the obligations listed above . the company 's principal sources of funds are its operations and its revolving credit facility . although the company generated cash from operations in the year ended december 31 , 2012 , it can not guarantee that its operations will generate cash in future periods . subject to the risk factors set forth in part i , item 1a of this report and the general disclaimers set forth in our special note regarding forward-looking statements at the outset of this report , we believe that cash flow from operations will provide us with sufficient funds in order to fund our expected operations over the next twelve months . the company does not believe inflation has had a material impact on its results of operations in the last three years . the company had no off-balance-sheet arrangements in 2012 , other than operating leases . critical accounting policies the preparation of consolidated financial statements requires the company to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues , and expenses , and related disclosure of contingent assets and liabilities . on an ongoing basis , the company evaluates its estimates , including those related to product returns , bad debts , inventories , intangible assets , income taxes , warranty obligations , restructuring charges , contingencies , and litigation . the company bases its estimates on historical experience and on various other assumptions believed to be reasonable under the circumstances , including current and anticipated worldwide economic conditions , both in general and specifically in relation to the packaging industry , 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 significant accounting policies are described in note 1 to the consolidated financial statements included in item 8 of this form 10-k. the company believes the following critical accounting policies necessitated that significant judgments and estimates be used in the preparation of its consolidated financial statements . 19 the company has reviewed these policies with its audit committee . revenue recognition the company recognizes revenue at the time of shipment when title and risk of loss have passed to the customer , persuasive evidence of an arrangement exists , performance of its obligation is complete , its price to the buyer is fixed or determinable , and the company is reasonably assured of collection . if a loss is anticipated on any contract , a provision for the entire loss is made immediately . determination of these criteria , in some cases , requires management 's judgment . should changes in conditions cause management to determine that these criteria are not met for certain future transactions , revenue for any reporting period could be adversely affected . goodwill goodwill is tested for impairment annually , and will be tested for impairment between annual tests if an event occurs or circumstances change that would indicate that the carrying amount may be impaired . impairment testing for goodwill is done at a reporting unit level . reporting units are one level below the business segment level , but can be combined when reporting units within the same segment have similar economic characteristics . the company 's reporting units include its component products segment , packaging segment ( excluding its molded fiber operation ) , and its molded fiber operation . an impairment loss generally would be recognized when the carrying amount of the reporting unit 's net assets exceeds the estimated fair value of the reporting unit . the company assessed qualitative factors as of december 31 , 2012 , and determined that it was more likely than not that the fair value of both reporting units with goodwill exceeded their respective carrying amounts . factors considered for each reporting unit included financial performance , forecasts and trends , market cap , regulatory and environmental issues , foreign currency , market analysis , recent transactions , macro-economic conditions , industry and market considerations , raw material costs , management stability , and the degree by which the fair value of each reporting unit exceeded its carrying value in 2010 when the company last performed step 1 of the goodwill impairment test , which requires a comparison of each reporting
| gross profit as a percentage of sales ( gross margin ) increased to 29.2 % for the year ended december 31 , 2012 , from 28.5 % in 2011. the increase in gross margin is primarily attributable to an improved book of business relating to the sales increases in the medical market and of molded fiber packaging ( as a percentage of sales , material , and direct labor collectively decreased by 0.9 % in 2012 ) . selling , general , and administrative expenses ( sg & a ) increased slightly to $ 21.5 million for the year ended december 31 , 2012 , from $ 21.4 million in 2011. as a percentage of sales , sg & a decreased to 16.4 % for the year ended december 31 , 2012 from 16.8 % for the same period in 2011. the slight increase in sg & a for the year ended december 31 , 2012 , is primarily due to increased compensation programs of approximately $ 100,000 ( higher plant bonuses across both the component products and packaging segments due to improved performance ) and increased office and equipment depreciation expense of approximately $ 100,000 16 ( due to erp and other infrastructure computer hardware across both the component products and packaging segments ) , partially offset by a reduction of approximately $ 100,000 in professional and consulting fees ( prior year initiatives across both the component products and packaging segments ) . the reduction in sg & a as a percentage of sales is primarily due to relatively flat sg & a expenses measured against higher sales . interest expense net of interest income increased to approximately $ 90,000 for the year ended december 31 , 2012 , from net interest expense of approximately $ 27,000 in 2011. the increase in interest expense is primarily attributable to lower interest earned on excess cash balances , as well as increased debt associated with financing molded fiber equipment . the gain on sale of assets of approximately $ 839,000 in 2011 was derived primarily from the sale of real estate in
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valley bank ( together , the “ lenders ” ) in october 2016 , under which the company may borrow up to an additional $ 12.5 million subject to certain conditions . we expect to continue to incur significant expenses and increasing operating losses for at least the next several years . we anticipate that our expenses will increase substantially as we : continue the development of our lead drug candidate , azeliragon , for the treatment of ad ; seek to obtain regulatory approvals for azeliragon ; prepare for the potential commercialization of azeliragon ; begin outsourcing of the commercial manufacturing of azeliragon for any indications for which we receive regulatory approval ; 63 expand our research and development activities and advance our clinical programs , including our type 2 diabetes programs ttp399 and ttp273 ; and maintain , expand and protect our intellectual property portfolio . we do not expect to generate revenue from drug sales unless and until we successfully complete development and obtain marketing approval for one or more of our drug candidates , which we expect will take a number of years and will be subject to significant uncertainty . accordingly , we anticipate that we will need to raise additional capital in addition to the net proceeds of the ipo and the loan agreement prior to the commercialization of azeliragon or any of our other drug candidates . until such time that we can generate substantial revenue from product sales , we expect to finance our operating activities through a combination of equity offerings , debt financings , marketing and distribution arrangements and other collaborations , strategic alliances and licensing arrangements . nevertheless , we may be unable to raise additional funds or enter into such other arrangements when needed , on favorable terms or at all , which would have a negative impact on our liquidity and financial condition and could force us to delay , reduce the scope or eliminate one or more of our research and development programs or commercialization efforts . failure to receive additional funding could cause us to cease operations , in part or in full . financial overview revenue to date , we have not generated any revenue from drug sales . all of our revenue to date has been primarily derived from up-front proceeds and research fees under collaboration and license agreements and government grants . in the future , we may generate revenue from a combination of product sales , license fees , milestone payments and royalties from the sales of products developed under licenses of our intellectual property . we expect that any revenue we generate will fluctuate from quarter to quarter as a result of the timing and amount of license fees , milestone and other payments , and the amount and timing of payments that we receive upon the sale of our products , to the extent any are successfully commercialized . if we fail to complete the development of our drug candidates in a timely manner or obtain regulatory approval for them , our ability to generate future revenue and our results of operations and financial position will be materially adversely affected . research and development expenses since our inception , we have focused our resources on our research and development activities , including conducting preclinical studies and clinical trials , manufacturing development efforts and activities related to regulatory filings for our drug candidates . we recognize research and development expenses as they are incurred . our direct research and development expenses consist primarily of external costs such as fees paid to investigators , consultants , central laboratories and clinical research organizations ( “ cro ” s ) , in connection with our clinical trials , and costs related to acquiring and manufacturing clinical trial materials . our indirect research and development costs consist primarily of salaries , benefits and related overhead expenses for personnel in research and development functions and depreciation of leasehold improvements , laboratory equipment and computers . since we typically use our employee and infrastructure resources across multiple research and development programs such costs are not allocated to the individual projects . from the inception of our predecessors , through december 31 , 2016 , we have incurred approximately $ 502.2 million in research and development expenses . our research and development expenses by project for the years ended december 31 , 2016 , 2015 and 2014 were as follows ( in thousands ) : replace_table_token_5_th we plan to increase our research and development expenses for the foreseeable future as we continue the development of azeliragon and to further advance the development of our other drug candidates , subject to the availability of additional funding . 64 the successful development of our clinical and preclinical drug candidates is highly uncertain . at this time , we can not reasonably estimate the nature , timing or costs of the efforts that will be necessary to complete the remainder of the development of any of our clinical or preclinical drug candidates or the period , if any , in which material net cash inflows from these drug candidates may commence . this is due to the numerous risks and uncertainties associated with the development of our drug candidates , including : the uncertainty of the scope , rate of progress and expense of our ongoing , as well as any additional , clinical trials and other research and development activities ; the potential benefits of our candidates over other therapies ; our ability to market , commercialize and achieve market acceptance for any of our drug candidates that we are developing or may develop in the future ; future clinical trial results ; our ability to enroll patients in our clinical trials ; the timing and receipt of any regulatory approvals ; and the filing , prosecuting , defending and enforcing of patent claims and other intellectual property rights , and the expense of doing so . story_separator_special_tag a change in the outcome of any of these variables with respect to the development of a drug candidate could mean a significant change in the costs and timing associated with the development of that drug candidate . for example , if the fda or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development of a drug candidate , or if we experience significant delays in enrollment in any of our clinical trials , we could be required to expend significant additional financial resources and time with respect to the development of that drug candidate . general and administrative expenses general and administrative expenses consist primarily of salaries , benefits and related costs for employees in executive , finance , corporate development , human resources and administrative support functions . other significant general and administrative expenses include accounting and legal services , expenses associated with obtaining and maintaining patents , cost of various consultants , occupancy costs and information systems . our general and administrative expenses have increased and will continue to increase as we operate as a public company and commercialize our drug candidates . such increases have been driven by higher costs for director and officer liability insurance , costs related to the hiring of additional personnel and increased fees for outside consultants , lawyers and accountants . we also expect to incur additional costs in future periods as we continue to establish our investor relations function , implement a system of internal control over financial reporting and a system of disclosure controls and procedures that are compliant with applicable requirements and with corporate governance requirements and other rules of the stock exchange on which we are listed and other similar requirements applicable to public companies . interest expense , net for periods prior to the ipo and reorganization transactions , interest expense , net primarily consists of interest expense attributable to certain obligations that were not assumed by vtv therapeutics inc. through the reorganization transactions . beginning in october 2016 , interest expense , net primarily consists of our cash and non-cash interest expense related to our loan agreement . cash interest on the loan agreement is recognized at a floating interest rate equal to 10.5 % plus the amount by which the one-month london interbank offer rate ( “ libor ” ) exceeds 0.5 % . non-cash interest expense represents the amortization of the costs incurred in connection with the loan agreement , the allocated fair value of the warrants to purchase shares of our class a common stock issued in connection with the loan agreement ( the “ warrants ” ) and the accretion of the final interest payment ( which will be paid in cash upon loan maturity ) , all of which are recognized in our consolidated statement of operations using the effective interest method . other income ( expense ) , net other income ( expense ) , net primarily consists of expenses related to our capital structure prior to the ipo and reorganization transactions , such as expense related to interest expense on related party debt obligations and the change in the fair value of an obligation to make distributions to a former officer in exchange for the repurchase of the officer 's predecessor company units ( the “ contingent distributions ” ) . such expenses will no longer be recognized by us after fiscal 2015 as the related instruments were not assumed by vtv therapeutics inc. through the reorganization transactions . 65 story_separator_special_tag style= '' font-weight : bold ; font-style : italic ; font-family : times new roman ; font-size:10pt ; text-transform : none ; font-variant : normal ; '' > general and administrative expenses general and administrative expenses were $ 9.1 million and $ 11.7 million for the years ended december 31 , 2015 and 2014 , respectively . the decrease in general and administrative expenses during this period of $ 2.6 million , or 22.5 % , was primarily due to a decrease in compensation costs of approximately $ 3.4 million , which was largely driven by expense recognized in 2014 related to the departure of a former officer and director . such decrease was offset by higher professional and insurance costs associated with our transition to a public company in the latter half of fiscal 2015. other expense , net other expense , net primarily consisted of expenses related to our capital structure prior to the ipo and reorganization transactions , such as related party interest expense and other expense related to the change in the fair value of contingent distribution liability . such expenses will no longer be recognized by us after fiscal 2015 as many of the related instruments were not assumed by vtv therapeutics inc. through the reorganization transactions . for the years ended december 31 , 2015 and 2014 , related party interest expense was $ 1.7 million and $ 5.7 million , respectively , representing a decrease of $ 4.0 million . the decrease in interest expense was driven primarily by a $ 4.8 million decrease in the amortization of debt discount recognized by us , offset by an increase in related party interest expense for 2015 due to an increase in the amounts outstanding under the related agreements for seven months prior to the reorganization transactions . in addition , we recognized as other income $ 0.7 million as a result of the decrease in the fair value of the contingent distribution liability during the year ended december 31 , 2015. liquidity and capital resources we anticipate that we will continue to incur losses for at least the next several years as we continue our clinical trials . we believe that we will continue to meet our liquidity requirements through the first quarter of 2018 which is when we expect to receive results for part a of our steadfast study .
| million for ttp273 in 2016 , due to an increase of $ 2.5 million driven by the clinical trial costs incurred in 2016 related to the logra study , which began in january 2016 , that outweighed the reduction in compound manufacturing costs of $ 1.9 million driven by the manufacture of the drug product for the trial in 2015 ; and an increase in other research and development costs of $ 1.5 million , primarily driven by an increase in compensation costs as headcount was increased to support the management of the clinical trials mentioned above , and the expense related to share-based awards . general and administrative expenses general and administrative expenses were $ 9.9 million and $ 9.1 million for the years ended december 31 , 2016 and 2015 , respectively . the increase in general and administrative expenses during this period of $ 0.8 million , or 9.1 % , was primarily due to a $ 2.1 million increase in compensation costs related to the addition of personnel to support our compliance with public company requirements and the expense related to share-based awards . such increase was offset by reductions in legal and professional service expenses of $ 1.4 million as such expenses were higher in 2015 as we prepared for our ipo . 66 interest expense , net interest expense , net was $ 0.4 million and $ 0.1 million for the years ended december 31 , 2016 and 2015 , respectively . interest expense recognized in 2016 relates to our loan agreement which was entered into in late october 2016 and which bears interest at 10.5 % plus the amount by which the one-month libor exceeds 0.5 % . other expense , net other expense , net primarily consisted of expenses related to our capital structure prior to the ipo and reorganization transactions , such as related party interest expense and other expense related to the change in the
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for example , the issue of the potential transfer of increased antibacterial resistance in bacteria from food-producing animals to human pathogens , and the causality of that transfer , continue to be the subject of global scientific and regulatory discussion . antibacterials refer to small molecules that can be used to treat or prevent bacterial infections and are a sub-categorization of the products that make up our anti-infectives and medicated feed additives portfolios . in some countries , this issue has led to government restrictions and bans on the use of specific antibacterials in some food-producing animals , regardless of the route of administration ( in feed or injectable ) . these restrictions are more prevalent in countries where animal protein is plentiful and governments are willing to take action even when there is scientific uncertainty . our total revenue attributable to antibacterials for livestock was approximately $ 1.3 billion for the year ended december 31 , 2016 . we can not predict whether antibacterial resistance concerns will result in additional restrictions or bans , expanded regulations or public pressure to discontinue or reduce use of antibacterials in food-producing animals . the overall economic environment in addition to industry-specific factors , we , like other businesses , face challenges related to global economic conditions . growth in both the livestock and companion animal sectors is driven by overall economic development and related growth , particularly in many emerging markets . in recent years , certain of our customers and suppliers have been affected directly by economic downturns , which decreased the demand for our products and , in some cases , hindered our ability to collect amounts due from customers . the cost of medicines and vaccines to our livestock producer customers is small relative to other production costs , including feed , and the use of these products is intended to improve livestock producers ' economic outcomes . as a result , demand for our products has historically been more stable than demand for other production inputs . similarly , industry sources have reported that pet owners indicated a preference for reducing spending on other aspects of their lifestyle , including entertainment , clothing and household goods , before reducing spending on pet care . while these factors have mitigated the impact of recent downturns in the global economy , further economic challenges could increase cost sensitivity among our customers , which may result in reduced demand for our products , which could have a material adverse effect on our operating results and financial condition . competition the animal health industry is competitive . although our business is the largest by revenue in the animal health medicines and vaccines industry , we face competition in the regions in which we operate . principal methods of competition vary depending on the particular region , species , product category or individual product . some of these methods include new product development , quality , price , service and promotion to veterinary professionals , pet owners and livestock producers . our competitors include the animal health businesses of large pharmaceutical companies and specialty animal health businesses . in recent years , there has been an increase in consolidation in the animal health industry . there are also several new start-up companies working in the animal health area . in addition to competition from established market participants , there could be new entrants to the animal health medicines and vaccines industry in the future . in certain markets , we also compete with companies that produce generic products , but the level of competition from generic products varies from market to market . for example , the level of generic competition is higher in europe and certain emerging markets than in the united states . weather conditions and the availability of natural resources the animal health industry and demand for many of our animal health products in a particular region are affected by weather conditions , as usage of our products follows varying weather patterns and weather-related pressures from pests , such as ticks . as a result , we may experience regional and seasonal fluctuations in our results of operations . in addition , veterinary hospitals and practitioners depend on visits from and access to the animals under their care . veterinarians ' patient volume and ability to operate could be adversely affected if they experience prolonged snow , ice or other severe weather conditions , particularly in regions not accustomed to sustained inclement weather . furthermore , livestock producers depend on the availability of natural resources , including large supplies 32 | of fresh water . their animals ' health and their ability to operate could be adversely affected if they experience a shortage of fresh water due to human population growth or floods , droughts or other weather conditions . in the event of adverse weather conditions or a shortage of fresh water , veterinarians and livestock producers may purchase less of our products . for example , drought conditions could negatively impact , among other things , the supply of corn and the availability of grazing pastures . a decrease in harvested corn results in higher corn prices , which could negatively impact the profitability of livestock producers of cattle , pork and poultry . higher corn prices and reduced availability of grazing pastures contribute to reductions in herd or flock sizes that in turn result in less spending on animal health products . as such , a prolonged drought could have a material adverse impact on our operating results and financial condition . factors influencing the magnitude and timing of effects of a drought on our performance include , but may not be limited to , weather patterns and herd management decisions . disease outbreaks sales of our livestock products could be adversely affected by the outbreak of disease carried by animals . story_separator_special_tag outbreaks of disease may reduce regional or global sales of particular animal-derived food products or result in reduced exports of such products , either due to heightened export restrictions or import prohibitions , which may reduce demand for our products . also , the outbreak of any highly contagious disease near our main production sites could require us to immediately halt production of our products at such sites or force us to incur substantial expenses in procuring raw materials or products elsewhere . alternatively , sales of products that treat specific disease outbreaks may increase . for example , from december 2014 through june 2015 , highly pathogenic h5 avian influenza virus infections were reported in domestic poultry , captive birds and wild birds in the united states , with a majority of confirmed infections occurring in backyard and commercial poultry flocks . the egg and turkey industry were the most impacted by this occurrence of avian influenza . usda surveillance indicates that more than 48 million birds were affected ( either infected or exposed ) in at least 20 states . although no new h5 avian influenza infections have been detected in the united states since june 2015 , an outbreak of highly pathogenic h7 avian influenza infections was reported in a commercial turkey flock in indiana in january 2016 , and both forms of the virus continue to pose a threat to the poultry industry . in march 2016 , we were granted a conditional license from the usda for a vaccine to help prevent avian influenza , and in june 2016 , we were awarded a contract to supply the usda with this vaccine for the national veterinary stockpile . the vaccine is intended for use in chickens as an aid in the prevention of disease caused by the h5n1 subtype of the virus . the usda will determine if a vaccination program should be implemented . it is important to note that human infection with avian influenza viruses has not occurred from eating properly cooked poultry or poultry products . we are closely monitoring the developments as this situation unfolds . the impact on our 2016 global revenue was not significant . manufacturing and supply in order to sell our products , we must be able to produce and ship our products in sufficient quantities . many of our products involve complex manufacturing processes and are sole-sourced from certain manufacturing sites . minor deviations in our manufacturing or logistical processes , such as temperature excursions or improper package sealing , could result in delays , inventory shortages , unanticipated costs , product recalls , product liability and or regulatory action . in addition , a number of factors could cause production interruptions that could result in launch delays , inventory shortages , recalls , unanticipated costs or issues with our agreements under which we supply third parties . our manufacturing network may be unable to meet the demand for our products or we may have excess capacity if demand for our products changes . the unpredictability of a product 's regulatory or commercial success or failure , the lead time necessary to construct highly technical and complex manufacturing sites , and shifting customer demand increase the potential for capacity imbalances . foreign exchange rates significant portions of our revenue and costs are exposed to changes in foreign exchange rates . our products are sold in more than 100 countries and , as a result , our revenue is influenced by changes in foreign exchange rates . for the year ended december 31 , 2016 , approximately 46 % of our revenue was denominated in foreign currencies . we seek to manage our foreign exchange risk , in part , through operational means , including managing same-currency revenue in relation to same-currency costs and same-currency assets in relation to same-currency liabilities . as we operate in multiple foreign currencies , including the australian dollar , brazilian real , canadian dollar , euro , u.k. pound and other currencies , changes in those currencies relative to the u.s. dollar will impact our revenue , cost of goods and expenses , and consequently , net income . exchange rate fluctuations may also have an impact beyond our reported financial results and directly impact operations . these fluctuations may affect the ability to buy and sell our goods and services between markets impacted by significant exchange rate variances . for the year ended december 31 , 2016 , approximately 54 % of our total revenue was in u.s. dollars . our year-over-year revenue growth was unfavorably impacted by 2 % from changes in foreign currency values relative to the u.s. dollar . in february 2014 , the venezuelan government issued a law on fair pricing , establishing a maximum profit margin of 30 % . at the time of its issuance , there was uncertainty as to how the law would be interpreted and applied . the venezuelan government also recently issued new regulations relating to the publication of these fair prices to consumers . while we believe we are currently fully compliant with this new law , it is uncertain how this law may be interpreted and enforced in the future . effective march 10 , 2016 , the venezuelan government made the following changes to its foreign currency exchange mechanisms : ( i ) the three-tier exchange rate system existing in the country changed to a dual system with the elimination of the sicad rate , ( ii ) the official cencoex rate was replaced with dipro and was devalued from 6.3 to 10 venezuelan bolivars per u.s. dollar , and ( iii ) the simadi rate was replaced with dicom . as of november 30 , 2016 , the venezuelan bolivar to u.s. dollar exchange rates were the dipro rate of 10 and the dicom rate of 663. beginning in the second quarter of 2016 , we use the dicom rate to report our venezuela financial position , results of operations and cash flows .
| operational revenue increased $ 130 million , or 5 % , reflecting growth of approximately $ 43 million in livestock products and growth of approximately $ 87 million in companion animal products . livestock revenue growth was driven primarily by the acquisition of pharmaq , with sales primarily in chile and norway . growth also benefited from swine performance in china , as well as cattle performance in certain emerging markets . growth was partially offset by our operational efficiency initiative , which includes product rationalization and the impact of our business decisions in venezuela and india . companion animal revenue growth resulted from increased sales of apoquel ® , other new product launches , and demand for our vaccines portfolio in china , due to increased field force expansions and positive medicalization rates . international segment earnings increased by $ 113 million , or 12 % , in 2016 compared with 2015. operational earnings growth was $ 159 million , or 17 % , primarily due to higher revenue , improved gross margin , and lower operating expenses . 2015 vs. 2014 u.s. operating segment u.s. segment revenue increased by $ 269 million , or 13 % , in 2015 compared with 2014 , of which approximately $ 88 million resulted from growth in livestock products and approximately $ 181 million resulted from growth in companion animal products . livestock revenue growth was driven by increased sales across the cattle , poultry , and swine portfolios . sales of cattle products grew across multiple categories , including premium brands , as a result of favorable market conditions . cattle sales also benefited from new product launches . growth in sales of poultry products was driven by the re-introduction of a medicated feed additive . sales of swine products grew due to the continued recovery in the pig population following the pedv outbreak in the previous year . companion animal revenue growth was driven by the addition of products acquired from abbott animal health , as well
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inputs used in the valuation of the warrants at the story_separator_special_tag overview the following discussion of the financial condition and results of operations should be read in conjunction with the financial statements and the related notes included elsewhere in this annual report . this discussion contains forward-looking statements , which are based on assumptions about the future of the company 's business . the actual results could differ materially from those contained in the forward-looking statements . please read “ forward-looking statements ” included elsewhere in this report for additional information regarding forward-looking statements . company overview we are a clinical-stage biopharmaceutical company focused on developing novel , proprietary therapeutics and delivery methods for the treatment of breast cancer and other breast conditions . our lead program is the development of endoxifen , which is an active metabolite of tamoxifen , an fda-approved drug to treat and prevent breast cancer . we are developing an oral and topical form of endoxifen . our endoxifen is being developed to potentially treat a number of conditions , including : mammographic breast density ( or , mbd ) ; breast cancer in the “ window of opportunity ” between diagnosis of breast cancer and surgery ; gynecomastia , which is male breast enlargement ; and the recurrence of breast cancer in patients who do not benefit from taking tamoxifen meaning that they are “ refractory ” to tamoxifen . we are also developing our patented intraductal microcatheter technology to potentially target the delivery of therapies , including fulvestrant , immunotherapies and chimeric antigen receptor t-cell therapies ( car-t therapies ) , directly to the site of breast cancer . in 2017 , we completed a phase 1 placebo-controlled clinical study of our proprietary oral and topical formulations of endoxifen in 48 healthy women . all objectives were met : there were no clinically significant safety signals and no clinically significant adverse events , and both the oral and topical endoxifen were well tolerated . in the topical arm of the study , low but measurable endoxifen levels were detected in the blood in a dose-dependent fashion . in the oral arm of the study , participants exhibited dose-dependent endoxifen levels that met or exceeded the published therapeutic level . the median time for patients in the study to reach the steady-state serum levels of endoxifen while taking daily doses of oral endoxifen was 7 days . published literature indicates that it takes approximately 50-200 days for patients to reach steady-state endoxifen levels from daily doses of oral tamoxifen . in september 2018 , we completed a phase 1 placebo-controlled clinical study of our proprietary topical endoxifen in 24 healthy men . all of our objectives of safety , tolerability and pharmacokinetics were successfully met . we are currently conducting two phase 2 studies of our proprietary endoxifen : one in stockholm , sweden using our topical endoxifen for reduction of mbd and another in australia using our oral endoxifen for patients in the window of opportunity between diagnosis of breast cancer and surgery . in october 2018 , the mbd study in sweden was fully-enrolled with all 90 participants : 60 participants on two different dose levels and 30 participants on placebo . we expect dosing in this study to be completed in april 2019 and to report preliminary results in the second quarter 2019. in december 2018 , we began providing our oral endoxifen to a pre-menopausal , estrogen-receptor positive ( er+ ) , lacking cyp2d6 function , breast cancer patient under an fda-approved `` expanded access '' program . the purpose of this therapeutic approach was to reduce activity of the cancer cells prior to surgery . the patient received daily doses of our oral endoxifen for approximately three weeks prior to surgery . there were no safety or tolerability issues and her surgery was successfully completed . the cancer cell biological activity was reduced , based on the estrogen receptor activity of the tumor cells and a 50 % reduction in ki-67 . under the fda expanded access ind program , the use of our proprietary oral endoxifen is restricted solely to this patient . we are currently conducting a phase 2 study at montefiore medical center , bronx , new york , using our intraductal microcatheter technology to deliver fulvestrant directly to the site of the tumor via the breast ducts . our program to use our intraductal microcatheters to deliver car-t and other immunotherapies is in the pre-clinical phase . 42 research and development phase we are in the research and development phase and are not currently marketing any products or services . we do not anticipate generating revenue unless and until we develop and launch our pharmaceutical programs . commercial lease agreements on november 1 , 2018 , the company entered into an operating lease to pay $ 3,660 monthly rent for a term of 22 months with ww 107 spring street llc to lease office space at 107 spring street , seattle , washington . critical accounting policies and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states , or gaap . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities and expenses . on an ongoing basis , we evaluate these estimates and judgments , including those described below . we base our estimates on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances . story_separator_special_tag these estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results and experiences may differ materially from these estimates . while our significant accounting policies are more fully described in note 3 to our financial statements , we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our reported financial results and affect the more significant judgments and estimates that we use in the preparation of our financial statements . 43 financial instruments with characteristics of both liabilities and equity during the year ended december 31 , 2017 , the company issued certain financial instruments , consisting of warrants to purchase common stock , which have characteristics of both liability and equity . financial instruments such as warrants that are classified as liabilities are fair valued upon issuance and are re-measured at fair value at subsequent reporting periods with the resulting change in fair value recorded in “ change in fair value of common stock warrants ” in the consolidated statements of operations . the fair value of warrants is estimated using valuation models that require the input of subjective assumptions including stock price volatility , expected life , and the probability of future equity issuances and their impact to the price protection feature . no warrants that are classified as liabilities were outstanding at december 31 , 2017 and 2018. share-based payments we follow the provisions of asc 718 , compensation – stock compensation , which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees , non-employee directors , and consultants , including employee stock options . stock compensation expense based on the grant date 's fair value was estimated in accordance with the provisions of asc 718 and is recognized as an expense over the requisite service period with forfeitures recognized when they occur . the fair value of each option grant is estimated using the black-scholes option-pricing model , which requires assumptions regarding the expected volatility of our stock options , the expected life of the options , an expectation regarding future dividends on our common stock , and estimation of an appropriate risk-free interest rate . our expected common stock price volatility assumption is based upon the volatility of our stock price . the expected life assumption for stock option grants was based upon the simplified method provided for under asc 718-10 , which averages the contractual term of the options of ten years with the average vesting term of one to four years . the dividend yield assumption of zero is based upon the fact that we have never paid cash dividends and presently have no intention of paying cash dividends in the future . the risk-free interest rate used for each grant was based upon prevailing short-term interest rates over the expected life of the options . 44 story_separator_special_tag font-family : `` times new roman '' , times , serif ; font-size : 10pt ; ' > net cash flows from operating activities : net cash used in operating activities was $ 8,962,000 for the year ended december 31 , 2018 , an increase of $ 2,368,000 , or 36 % , compared to net cash used in operating activities for the year ended december 31 , 2017 of $ 6,594,000. the increase in the 2018 period as compared to 2017 resulted primarily from increased spending on r & d activities . we spent approximately $ 4.2 million on research and development for the year ended december 31 , 2018 , compared to $ 2.3 million in 2017. increases in compensation expense also contributed to the increase in cash used in operations over 2017. net cash flows from investing activities : net cash used in investing activities for the year ended december 31 , 2018 was $ 111,000. there was no comparable spending for the year ended december 31 , 2017. the increase was attributable to the purchase of fixed asset equipment and the replacement of our website during 2018. net cash flows from financing activities : net cash provided by financing activities was $ 12,291,000 for the year ended december 31 , 2018 , an increase of $ 1,508,000 , or 14 % , compared to net cash provided by financing activities of $ 10,783,000 , for the year ended december 31 , 2017. the increase was attributable to higher financing proceeds received in 2018 as compared to proceeds received from 2017 financings . 46 funding requirements we expect to incur ongoing operating losses for the foreseeable future as we continue to develop our planned therapeutic programs including related clinical studies and other programs in the pipeline . we expect that our existing resources combined with the $ 11.3 million proceeds from the march 2019 warrant exercise will be sufficient to fund our planned operations for at least the next 12 to 18 months from the date of this report . if we meet certain requirements , we may sell securities that are registered on our form s-3 registration statement ( file no . 333-220572 ) , and by raising capital through sales of securities to third parties and existing stockholders . if we are unable to raise additional capital when needed , however , we could be forced to curtail or cease operations . our future capital uses and requirements will depend on the time and expenses needed to begin and continue clinical trials for our new drug developments . additional funding may not be available to us on acceptable terms or at all .
| general and administrative expenses : g & a expenses were $ 7,224,000 for the year ended december 31 , 2018 , an increase of $ 2,365,000 , or 49 % from the total g & a expenses for the year ended december 31 , 2017 , of $ 4,859,000. g & a expenses consist primarily of personnel and related benefit costs , facilities , professional services , insurance , and public company related expenses . the increase in g & a expenses for year ended december 31 , 2018 , is mainly attributed to an increase in stock-based compensation expense of approximately $ 1,049,000 , payroll expenses resulting from salary increases , one-time bonus payments of $ 350,000 and increased legal and professional consulting expenses of approximately $ 600,000 over the prior year . impairment of intangible assets : during the years ended december 31 , 2017 , we evaluated our acueity intangible assets for impairment and concluded that the fair values as of december 31 , 2017 , were below the carrying values of $ 462,000. therefore , we reduced the carrying value of these assets to zero as of december 31 , 2017. there were no write downs of intangible assets during the year ended december 31 , 2018. warrant financing costs and change in fair value of common stock warrants : the company 's april 2017 financing included the issuance of common stock liability warrants , which were exercised during 2017 and were no longer outstanding as december 31 , 2017. the company incurred financing costs associated with these common stock liability warrants of $ 192,817 upon issuance . the company also recorded changes in the fair value of the liability warrants during the year ended december 31 , 2017 , of $ 280,747. there were no common stock liability warrants issued during the year ended december 31 , 2018. income taxes : we have incurred net operating losses from inception ; we did not record an income tax benefit for our incurred losses for the years ended december 31 , 2018 and 2017 , due to uncertainty regarding utilization of our net operating carryforwards and due to our history of losses . 45 liquidity and capital resources the company has incurred
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story_separator_special_tag style= '' line-height:120 % ; padding-top:5px ; font-size:10pt ; '' > our net sales for fiscal 2014 increased $ 287 million , or 2 percent , compared with fiscal 2013 primarily due to an increase in net sales at old navy and athleta ; partially offset by the unfavorable impact of foreign exchange of about $ 130 million and a decrease in net sales at gap . the unfavorable impact of foreign exchange was primarily due to the weakening of the canadian dollar and japanese yen against the u.s. dollar . the foreign exchange impact is the translation impact if net sales for fiscal 2013 were translated at exchange rates applicable during fiscal 2014. on this basis , our net sales for fiscal 2014 increased 3 percent compared with fiscal 2013. we believe this metric enhances the visibility of underlying sales trends by excluding the impact of foreign currency exchange rate fluctuations . cost of goods sold and occupancy expenses replace_table_token_9_th cost of goods sold and occupancy expenses increased 2.1 percentage points in fiscal 2015 compared with fiscal 2014 . cost of goods sold increased 1.3 percent as a percentage of net sales in fiscal 2015 compared with fiscal 2014 , primarily driven by increased markdown activities , the charges incurred related to the strategic actions , and incremental shipping costs partially due to the u.s. west coast port congestion . cost of goods sold as a percentage of net sales in fiscal 2015 for our foreign subsidiaries was also negatively impacted by foreign exchange as our merchandise purchases are primarily in u.s. dollars . occupancy expenses increased 0.8 percentage points in fiscal 2015 compared with fiscal 2014 , primarily driven by the decrease in net sales without a corresponding decrease in occupancy expenses . cost of goods sold and occupancy expenses increased 0.7 percentage points in fiscal 2014 compared with fiscal 2013 . cost of goods sold increased 0.4 percent as a percentage of net sales in fiscal 2014 compared with fiscal 2013 , primarily driven by increased promotional activities and markdowns ; partially offset by the reclassification of a portion of income related to our credit card program from operating expenses to cost of goods sold . cost of goods sold as a percentage of net sales in fiscal 2014 for our foreign subsidiaries was also negatively impacted by foreign exchange as our merchandise purchases are primarily in u.s. dollars . occupancy expenses increased 0.3 percentage points in fiscal 2014 compared with fiscal 2013 , primarily driven by the incremental cost related to new stores without a corresponding increase in total net sales . in fiscal 2016 , we expect that gross margins will continue to be negatively impacted by the continuing depreciation of the canadian dollar , japanese yen , and other foreign currencies as our merchandise purchases are primarily in u.s. dollars . 22 operating expenses and operating margin replace_table_token_10_th operating expenses decreased $ 10 million , but increased 1.0 percent as a percentage of net sales , in fiscal 2015 compared with fiscal 2014 . the decrease in operating expenses was primarily due to a decrease in marketing expenses mainly at gap and banana republic , lower bonus expense , and a favorable translation impact as a result of foreign exchange rate fluctuations ; partially offset by charges incurred related to the strategic actions , as well as the gain on sale of a building recognized in fiscal 2014. operating expenses increased $ 62 million , but decreased 0.1 percent as a percentage of net sales , in fiscal 2014 compared with fiscal 2013. the increase in operating expenses was primarily due to the reclassification of a portion of income related to our credit card program from operating expenses to cost of goods sold and an increase in store payroll ; partially offset by the gain on sale of a building owned but no longer occupied by the company and lower bonus expense . interest expense replace_table_token_11_th interest expense for fiscal 2015 includes $ 74 million of interest on overall borrowings and obligations mainly related to our $ 1.25 billion long-term debt , offset by a reversal of approximately $ 15 million of interest expense primarily resulting from a favorable foreign tax ruling and actions of foreign tax authorities related to transfer pricing matters in fiscal 2015. interest expense for fiscal 2014 includes interest on overall borrowings and obligations mainly related to our $ 1.25 billion long-term debt . interest expense for fiscal 2013 includes $ 75 million of interest on overall borrowings and obligations mainly related to our $ 1.25 billion long-term debt , offset by a net reversal of $ 14 million of interest expense resulting from the favorable resolution of tax matters in fiscal 2013. income taxes replace_table_token_12_th the increase in the effective tax rate for fiscal 2015 compared with fiscal 2014 was primarily due to the recognition of foreign tax credits upon a distribution of certain foreign earnings that occurred during the third quarter of fiscal 2014 , partially offset by the impact of the indefinite reinvestment of certain fiscal 2015 foreign earnings , which will be used to fund our international businesses and their growth . the decrease in the effective tax rate for fiscal 2014 compared with fiscal 2013 was primarily due to the recognition of foreign tax credits upon a distribution of certain foreign earnings that occurred during the third quarter of fiscal 2014 . 23 liquidity and capital resources our largest source of cash flows is cash collections from the sale of our merchandise . our primary uses of cash include merchandise inventory purchases , occupancy costs , personnel-related expenses , share repurchases , purchases of property and equipment , and payment of taxes . we consider the following to be measures of our liquidity and capital resources : replace_table_token_13_th as of january 30 , 2016 , over half of our cash and cash equivalents were held in the united states and are generally accessible without any limitations . story_separator_special_tag in october 2015 , the company entered into a $ 400 million unsecured term loan ( the `` term loan '' ) . the term loan matures and is payable in full on october 15 , 2016 , but may be extended until october 15 , 2017. in january 2014 , the company entered into a 15 billion japanese yen , four -year , unsecured term loan ( `` japan term loan '' ) due january 2018 . a repayment of 2.5 billion japanese yen ( $ 21 million as of january 30 , 2016 ) is payable on january 15 , 2017. working capital as of january 30 , 2016 is impacted by the decrease in the operating cash flows discussed below and the adoption of the financial accounting standards board ( `` fasb '' ) , accounting standard update ( `` asu '' ) no . 2015-17 , income taxes . the adoption of the asu was applied prospectively and reduced the current portion of deferred tax assets as a result of classifying all net deferred tax assets as noncurrent as of january 30 , 2016. we believe that current cash balances and cash flows from our operations will be sufficient to support our business operations , including growth initiatives , planned capital expenditures , and repayment of debt , for the next 12 months and beyond . we are also able to supplement near-term liquidity , if necessary , with our $ 500 million revolving credit facility or other available market instruments . cash flows from operating activities net cash provided by operating activities during fiscal 2015 decreased $ 535 million compared with fiscal 2014 , primarily due to the following : a decrease of $ 342 million in net income ; a decrease of $ 107 million related to other current assets and other long-term assets primarily due to the change in timing of payments received related to our credit card program , which resulted in increased cash inflow in fiscal 2014 ; and a decrease of $ 150 million related to lease incentives and other long-term liabilities primarily due to the receipt of an upfront payment in fiscal 2014 related to the amendment of our credit card program agreement with the third-party financing company , which is being amortized into income over the term of the contract ; partially offset by an increase of $ 63 million related to income taxes payable , net of prepaid and other tax-related items , primarily due to timing of payments . net cash provided by operating activities during fiscal 2014 increased $ 424 million compared with fiscal 2013 , primarily due to the following : an increase of $ 284 million related to other current assets and other long-term assets primarily due to the change in timing of payments received related to our credit card program , which resulted in increased cash inflow in fiscal 2014 ; 24 an increase of $ 132 million related to lease incentives and other long-term liabilities primarily due to the receipt of an upfront payment in fiscal 2014 related to the amendment of our credit card program agreement with the third-party financing company , which is being amortized into income over the term of the contract ; and an increase of $ 184 million related to merchandise inventory primarily due to timing of receipts ; partially offset by a decrease of $ 146 million related to accounts payable primarily due to timing of payments ; a decrease of $ 28 million related to accrued expenses and other current liabilities primarily due to timing of payments ; and a decrease of $ 18 million in net income . we fund inventory expenditures during normal and peak periods through cash flows from operating activities and available cash . our business follows a seasonal pattern , with sales peaking during the end-of-year holiday period . the seasonality of our operations may lead to significant fluctuations in certain asset and liability accounts between fiscal year-end and subsequent interim periods . cash flows from investing activities net cash used for investing activities during fiscal 2015 increased $ 134 million compared with fiscal 2014 , primarily due to the following : $ 121 million of proceeds from the sale of a building owned but no longer occupied by the company in fiscal 2014 ; and $ 12 million more property and equipment purchases . net cash used for investing activities during fiscal 2014 decreased $ 28 million compared with fiscal 2013 , primarily due to the following : $ 121 million of proceeds from the sale of a building owned but no longer occupied by the company in fiscal 2014 ; partially offset by $ 50 million less maturities of short-term investments ; and $ 44 million more property and equipment purchases . in fiscal 2015 , cash used for purchases of property and equipment was $ 726 million . in fiscal 2016 , we expect cash spending for purchases of property and equipment to be about $ 650 million . cash flows from financing activities net cash used for financing activities during fiscal 2015 decreased $ 517 million compared with fiscal 2014 , primarily due to the following : $ 400 million proceeds from the issuance of short-term debt in fiscal 2015 ; and $ 164 million less repurchases of common stock ; partially offset by $ 4 million net cash out flows for fiscal 2015 compared with $ 38 million net cash inflows for fiscal 2014 related to issuance under share-based compensation plans and withholding tax payments related to vesting of stock units .
| if a store was in closed status for three or more days in the prior year , the store will be in non-comp status for the same days the following year . online comp sales are defined as sales through online channels in those countries where we have existing comp store sales . current year foreign exchange rates are applied to both current year and prior year comp sales to achieve a consistent basis for comparison . store count and square footage information net sales per average square foot is as follows : replace_table_token_7_th ( 1 ) excludes net sales associated with our online and franchise businesses . 20 store count , openings , closings , and square footage for our stores are as follows : replace_table_token_8_th gap and banana republic outlet and factory stores are reflected in each of the respective brands . in fiscal 2016 , we expect net openings of about 40 company-operated store locations . we expect square footage for company-operated stores to be about flat in fiscal 2016 compared with fiscal 2015 . 21 net sales discussion our net sales for fiscal 2015 decreased $ 638 million , or 4 percent , compared with fiscal 2014 primarily due to the unfavorable impact of foreign exchange of about $ 363 million and a decrease in net sales primarily at gap and banana republic ; partially offset by an increase in net sales at old navy . the unfavorable impact of foreign exchange was primarily driven by the weakening of the canadian dollar and japanese yen against the u.s. dollar . the foreign exchange impact is the translation impact if net sales for fiscal 2014 were translated at exchange rates applicable during fiscal 2015 . on this basis , our net sales for fiscal 2015 decreased 2 percent compared with fiscal 2014 . we believe this metric enhances the visibility of underlying sales trends by excluding the impact of foreign
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our market share of this program was approximately 3.5 times our overall national deposit market share , as measured by deposits . we attribute this success to two key factors : ◦ we leveraged our relationship-based , high-touch approach to banking . during the development and roll-out of the ppp loans , many of our employees worked long hours to call on customers , and to ensure their questions were answered and that the process was as efficient as possible . ◦ we rapidly deployed technology solutions that expedited the flow of applications . this was made possible due to the streamlining and advancements we have made in technology in recent years . we originated $ 3.5 billion of residential mortgages in 2020 , enabling many consumers to lower their monthly payments . this record origination volume was made possible in part by our investments in residential mortgage banking technology and operations over the past several years . we were able to quickly transition more than 70 % of our employees to a work-from-home environment to help reduce the spread of the covid-19 virus , and to keep our employees and communities safe . for our banking branches , we modified the hours of operation and limited lobby visits through scheduled in-branch appointments and expanded use of drive-through banking facilities . in recent years , we invested significantly in technology that enabled customers to open accounts without visiting a branch or office . mobile and online banking for retail customers increased 10 % in 2020 from 31 zions bancorporation , national association and subsidiaries 2019 , as measured by total logins , thereby enabling customers to fulfill many of their banking needs from the convenience of their mobile devices and computers . executive summary of our financial performance net earnings applicable to common shareholders ( in millions ) diluted eps adjusted ppnr ( in millions ) efficiency ratio the decline in net earnings applicable to common shareholders in 2020 from 2019 was primarily due to a higher provision for credit losses . although earnings for 2020 decreased 35 % when compared with 2019 , diluted eps declined by 27 % , due to our repurchasing 1.7 million shares , and the expiration of 29.2 million out-of-the-money warrants during 2020. average diluted shares from the warrants were 1.6 million , 9.9 million , and 12.0 million shares in 2020 , 2019 , and 2018 , respectively . the decline in adjusted ppnr was primarily the result of lower benchmark interest rates and their downward pressure on our net interest income and margin , and lower fees , due to fee waivers and reduced business activity . all of this was attributable to the effects of the pandemic . we successfully offset a portion of the revenue decline with income from ppp loans and lower adjusted noninterest expense . our efficiency ratio for 2020 was affected by the $ 30 million charitable contribution . excluding this contribution , our efficiency ratio for 2020 would have been 58.3 % . the financial performance of 2020 relative to 2019 reflects : moderate reduction in net interest income due to interest rate-driven compression of the net interest margin ( “ nim ” ) , which was partially offset by an increase in earning asset balances due to ppp loan originations . a strong increase in average deposits . an increase in customer-related noninterest income , primarily attributable to strong residential mortgage loan originations and sales . a decrease in adjusted noninterest expense . excluding infrequent items such as severance , restructuring , and pension termination , noninterest expense declined 2 % , compared with 2019. a deterioration of asset quality and a significant increase in the allowance for credit losses . the allowance for credit losses increased $ 309 million from january 1 , 2020 , which resulted in an increase in the provision for credit losses of $ 375 million from the prior year . net loan and lease charge-offs were $ 105 million , or 0.2 % , of average non-ppp loans , up from $ 37 million , or 0.1 % , of average loans in the prior year . the net result of the above factors yielded a 35 % decrease in net earnings applicable to common shareholders to $ 505 million for 2020 , from $ 782 million for 2019. earnings per diluted share of $ 3.02 for 2020 declined by 27 % , compared with $ 4.16 for 2019 . 32 zions bancorporation , national association and subsidiaries schedule 5 key drivers of performance replace_table_token_5_th 1 includes loans held for sale . net interest income and net interest margin net interest income is the difference between interest earned on interest-earning assets and interest paid on interest-bearing liabilities and is approximately 79 % of our net revenue . net interest income is derived from both the volume of interest-earning assets and interest-bearing liabilities and their respective yields and rates . schedule 6 interest-earning assets , interest-bearing liabilities , and net interest margin — 2020 vs. 2019 replace_table_token_6_th 1 rates are calculated using amounts in thousands and a tax rate of 21 % for the periods presented . the taxable-equivalent rates used are the rates that were applicable at the time of each respective reporting period . net interest income and taxable-equivalent net interest income were both $ 2.2 billion during 2020 , a decrease of $ 0.1 billion , or 4 % , compared with $ 2.3 billion during 2019. the tax rate used for calculating all taxable-equivalent adjustments was 21 % for 2020 and 2019. yields on loans and securities decreased by 88 bps and 36 bps , respectively , while yields on deposits and borrowed funds decreased by 50 bps and 125 bps , respectively . the impact of lower interest rates was partially offset by loan growth from ppp activity , and a shift in liability balances from federal funds purchased and other short-term borrowings to lower-cost deposits . 33 zions bancorporation , national association and subsidiaries the nim compressed to 3.15 % in 2020 , compared with 3.54 % in 2019. story_separator_special_tag due to the lower interest rate environment , the net impact of noninterest-bearing sources of funds on the nim decreased to 0.18 % in 2020 , compared with 0.46 % in 2019. average interest-earning assets increased $ 6.2 billion , or 10 % , in 2020 , from 2019 , with the average yield decreasing 80 bps . the yield on average interest-earning assets includes the dilutive effect of $ 4.5 billion ( 6 % of earning assets ) of ppp loans with a yield of 3.22 % , as compared with a yield on the non-ppp loan portfolio of 3.96 % . average loans increased in 2020 , primarily due to ppp loan originations , which were funded mainly through deposit growth . the average loan yield decreased 88 bps over the same prior year period , with decreases of 75 bps , 124 bps , and 51 bps in non-ppp commercial loans , cre , and consumer loans , respectively . recently , as benchmark interest rates have settled at a lower level , yields on new loans have been only modestly lower than yields on maturing loans . during 2020 , we provided assistance to many small businesses through the ppp . loan processing fees paid to us by the sba are accounted for as loan origination fees , which are deferred with the loan origination costs , and are recognized over the life of the loan as a yield adjustment . toward the end of the third quarter of 2020 , we extended the maturity dates of ppp loans with an initial two-year maturity to five years , which lengthened the period of time the remaining unamortized net deferred fees are recognized into interest income as a yield adjustment . when a ppp loan is paid off or forgiven by the sba prior to its maturity date , the remaining unamortized net deferred fees are immediately recognized into interest income at that time , and impact the ppp loan portfolio yield in that period . as of december 31 , 2020 , there were approximately $ 102 million of unamortized net origination fees related to the ppp loans . the ppp loan yield in 2020 was 3.22 % . beginning in october 2020 , the sba initiated forgiveness of the ppp loans . during 2020 , about 9,900 ppp loans , totaling $ 1.3 billion , received forgiveness by the sba and contributed $ 26 million of interest income through accelerated recognition of net unamortized deferred fees on these loans . additionally , on december 27 , 2020 , the consolidated appropriations act was signed into law , which extended the ppp and provided government funding for additional forgivable ppp loans . these developments , and other potential future program changes , will affect ppp interest income and the effective yield of the ppp loans in future periods . 34 zions bancorporation , national association and subsidiaries benchmark interest rates decreased in 2020 and 2019 , resulting in the previously described negative effect on yields . a portion of our variable-rate loans , such as those with longer initial fixed-rate periods or longer reset frequencies ( e.g. , five- and seven-year fixed-rate adjustable mortgages ) , have not yet been affected by declines in benchmark interest rates . generally , a larger portion of our interest-earning assets reprice when compared with our funding sources , partly because nearly half of our deposits are noninterest-bearing . average available-for-sale ( “ afs ” ) securities balances decreased by $ 181 million in 2020. yields on average afs securities decreased by 36 bps over the same time period . the duration of the afs securities portfolio is 3.1 % . principal repayment volume on afs securities during 2020 was $ 4.4 billion , or 32 % of the december 31 , 2019 balance . we purchased $ 6.2 billion of afs securities during 2020. average interest-bearing liabilities increased $ 563 million in 2020 , from 2019 , and the average rate paid on interest-bearing liabilities decreased 69 bps to 40 bps . average total deposits were $ 63.7 billion at an average cost of 17 bps during 2020 , compared with $ 55.1 billion at an average cost of 46 bps during 2019. various government stimulus programs have provided additional liquidity to individuals and small businesses , which has indirectly contributed to deposit growth . average interest-bearing deposits grew 10 % , and were $ 34.8 billion at an average cost of 30 bps during 2020 , compared with $ 31.7 billion at an average cost of 80 bps during 2019. average borrowed funds decreased $ 2.5 billion during 2020 , from 2019 , with average short-term borrowings decreasing $ 2.8 billion , and average long-term borrowings increasing $ 308 million during the same period . strong deposit growth allowed us to reduce short-term borrowings and to repurchase $ 429 million of our outstanding long-term debt maturing in 2021 and 2022. during 2020 , the average interest rate paid on short-term borrowings and the rate paid on long-term debt decreased by 184 bps and 124 bps , respectively , due to lower short-term rates and interest rate hedges on our long-term fixed-rate debt . the 29 bps decline in the cost of total deposits and the 50 bps decline in the cost of interest-bearing deposits can be largely attributed to the previously mentioned decline in benchmark market rates which reduced competitive pricing pressure for deposits . although we utilize a wide variety of sources for our funding needs , we benefit from access to deposits from a significant number of small- to mid-sized business customers , which provides us with a low cost of funds that has a positive impact on our nim . because many of our deposit accounts are of an operating nature for businesses and households , we expect our noninterest-bearing deposits to remain a competitive advantage .
| each common stock warrant was convertible into 1.10 shares at an exercise price of $ 33.31. total shareholders ' equity has increased moderately and was $ 7.9 billion at december 31 , 2020 , compared with $ 7.4 billion at december 31 , 2019. the increase during 2020 was primarily due to net income of $ 539 million and a $ 229 million after-tax increase in unrealized gains on afs securities , which was due largely to changes in the interest rate environment . the increase was partially offset by $ 259 million of common and preferred stock dividends paid and $ 75 million of repurchases of our common stock from our publicly announced plans . common stock and additional paid-in capital decreased $ 49 million , or 2 % , during 2020 , primarily due to common stock repurchases . during 2020 , we repurchased 1.7 million shares of common stock from our publicly announced plans , or 1 % , of common stock outstanding as of december 31 , 2019 , for $ 75 million at an average price of $ 45.02 per share . beginning in the second quarter of 2020 , we suspended share repurchase activity due to the onset of the covid-19 pandemic . in february 2021 , we repurchased 1.0 million shares of common stock from our publicly announced plans with a fair value of $ 50 million at an average price of $ 49.78. we expect to maintain the appropriate amount of capital to cover inherent risk . the timing and amount of any additional common stock repurchases will be subject to various factors , including our financial performance , business needs , prevailing economic conditions , stress testing , and occ approval . the magnitude , timing , and form of capital return will be determined by the board . shares may be repurchased occasionally in the open market , through privately negotiated transactions , utilizing rule 10b5-1 plans or otherwise . under the occ 's “ earnings limitation rule , ” our dividend payments are restricted to an amount equal to the sum of the total of ( 1 ) our net income for that year ,
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critical accounting policies and estimates the increasing complexity of the business environment and applicable authoritative accounting guidance requires us to closely monitor our accounting policies . our significant accounting policies are described in item 8 . `` financial statements and supplementary data , notes to consolidated financial statements , note 1 , nature of operations and significant accounting policies . '' we have identified critical accounting policies that are complex and require significant judgment and estimates about matters that are inherently uncertain . a summary of our critical accounting policies is intended to enhance the reader 's ability to assess our financial condition and results of operations and the potential volatility due to changes in estimates and changes in guidance . the identification , selection and disclosure of critical accounting estimates and policies have been discussed with the audit committee of the board of directors . valuation and impairment of fixed income investments fixed maturities . fixed maturities include bonds , redeemable preferred stock and certain non-redeemable preferred stock . we classify our fixed maturities as either available-for-sale or trading and , accordingly , carry them at fair value in the consolidated statements of financial position . the fair values of our public fixed maturities are primarily based on market prices from independent pricing services . we have regular interactions with these vendors to ensure we understand their pricing methodologies and to confirm they are utilizing observable market information . in addition , 22 % of our invested asset portfolio is invested in fixed maturities that are private placement assets , where there are no readily available market quotes to determine the fair market value . the majority of these assets are valued using a spread pricing matrix that utilizes observable market inputs . securities are grouped into pricing categories that vary by asset class , sector , rating and average life . each pricing category is assigned a risk spread based on studies of observable public market data or market clearing data from the investment professionals assigned to specific security classes . the expected cash flows of the security are then discounted back at the current treasury curve plus the appropriate risk spread . certain market events that could impact the valuation of securities include issuer credit ratings , business climate , management changes , litigation and government actions among others . see item 8 . `` financial statements and supplementary data , notes to consolidated financial statements , note 14 , fair value measurements '' for further discussion . if we are unable to price a fixed maturity security from third party pricing vendors we may obtain a broker quote or utilize an internal pricing model specific to the asset utilizing relevant market information to the extent available . less than 1 % of our fixed maturities were valued using internal models . a rate increase based on the combined movement of interest rates and credit spreads of 100 basis points would produce a total value of approximately $ 41.8 billion , as compared to the recorded amount of $ 43.9 billion related to our fixed maturity , available-for-sale assets held by the principal life general account as of december 31 , 2012. we had a $ 1,529.6 million increase in net unrealized gains within the u.s. fixed maturities , available-for-sale portfolio for the year ended december 31 , 2012 , of which an approximate $ 0.2 billion net unrealized gain can be attributed to an approximate 7 basis points decrease in interest rates in addition to other market factors that increased unrealized gains . we had a $ 741.5 million increase in net unrealized gains for the year ended december 31 , 2011 , of which an approximate $ 2.2 billion net unrealized gain can be attributed to an approximate 98 basis points decrease in interest rates offset in part by net unrealized losses related to other market factors , primarily from widening of credit spreads . fixed maturities classified as available-for-sale are subject to impairment reviews . when evaluating fixed maturities for impairment , we consider relevant facts and circumstances in evaluating whether a credit or interest-related impairment is other than temporary . relevant facts and circumstances considered include : ( 1 ) the extent and length of time the fair value has been below cost ; ( 2 ) the reasons for the decline in value ; ( 3 ) the financial position and access to capital of the issuer , including the current and future impact of any specific events ; ( 4 ) for structured securities , the adequacy of the expected cash flows and ( 5 ) our intent to sell a security or whether it is more likely than not we will be 37 required to sell the security before recovery of its amortized cost which , in some cases , may extend to maturity . when it is determined that the decline in value is other than temporary the carrying value of the security is reduced to its fair value , and a corresponding impairment loss is reported primarily in net income , with noncredit impairment losses for certain fixed maturities we do not intend to sell reported in other comprehensive income . there are a number of significant risks and uncertainties inherent in the process of monitoring impairments and determining if an impairment is other than temporary . these risks and uncertainties include : ( 1 ) the risk that our assessment of an issuer 's ability to meet all of its contractual obligations will change based on changes in the credit characteristics of that issuer ; ( 2 ) the risk that the economic outlook will be worse than expected or have more of an impact on the issuer than anticipated ; ( 3 ) the risk that our investment professionals are making decisions based on fraudulent or misstated information in the financial statements provided by issuers and ( 4 ) the risk that new information obtained by us or changes in other facts and circumstances lead us to change our intent to hold the security until it recovers in value story_separator_special_tag . any of these situations could result in a charge to net income in a future period . at december 31 , 2012 , we had $ 4,996.9 million in available-for-sale fixed maturities with gross unrealized losses totaling $ 871.1 million . included in the gross unrealized losses are losses attributable to both movements in market interest rates as well as movement in credit spreads . net income would be reduced by approximately $ 871.1 million , on a pre-tax basis , if all the securities in an unrealized loss position were deemed to be other than temporarily impaired and our intent was to sell all such securities . mortgage loans . mortgage loans consist primarily of commercial mortgage loans . at december 31 , 2012 , the carrying value of our commercial mortgage loans was $ 10,183.3 million . commercial mortgage loans are generally reported at cost adjusted for amortization of premiums and accrual of discounts , computed using the interest method and net of valuation allowances . commercial mortgage loans are considered impaired when , based on current information and events , it is probable that we will be unable to collect all amounts due according to contractual terms of the loan agreement . when we determine that a loan is impaired , a valuation allowance is created for the difference between the carrying amount of the mortgage loan and the estimated value less cost to sell . estimated value is based on either the present value of the expected future cash flows discounted at the loan 's effective interest rate , the loan 's observable market price or the fair value of the collateral . the determination of the calculation and the adequacy of the mortgage loan valuation allowance and mortgage impairments are subjective . our periodic evaluation and assessment of the adequacy of the mortgage loan valuation allowance and the need for mortgage impairments is based on known and inherent risks in the portfolio , adverse situations that may affect the borrower 's ability to repay , the estimated value of the underlying collateral , composition of the loan portfolio , current economic conditions , loss experience and other relevant factors . the calculation for determining mortgage impairment amounts requires estimating the amounts and timing of future cash flows expected to be received on specific loans , estimating the value of the collateral and gauging changes in the economic environment in general . the total valuation allowance can be expected to increase when economic conditions worsen and decrease when economic conditions improve . for more detailed information concerning mortgage loan valuation allowances and impairments , see `` investments u.s. investment operations mortgage loans , '' and item 8 . `` financial statements and supplementary data , notes to consolidated financial statements , note 4 , investments mortgage loan valuation allowance . '' we have a large experienced commercial real estate staff centrally located in des moines , which includes commercial mortgage underwriters , loan closers , loan servicers , engineers , appraisers , credit analysts , research staff , legal staff , information technology personnel and portfolio managers . experienced commercial real estate senior management adheres to a disciplined process in reviewing all transactions for approval on a consistent basis . the typical commercial mortgage loan for us averages in the mid 48 % percent loan-to-value range at origination with a net operating income coverage ratio of 3.2 times the annual debt service and is internally rated a+ on a bond equivalent basis . based on the most recent analysis , our commercial mortgage loan portfolio , excluding mortgage loans held in our principal global investors segment , has an overall loan-to-value ratio of 54 % with a 2.2 times debt service coverage . the large equity cushion and strong debt service coverage in our commercial mortgage investments will help insulate us from stress during times of weak commercial real estate fundamentals . derivatives we primarily use derivatives to hedge or reduce exposure to market risks . the fair values of exchange-traded derivatives are determined through quoted market prices . the fair values of over-the-counter derivative instruments are determined using either pricing valuation models that utilize market observable inputs or broker quotes . on an absolute fair value basis , 92 % of our over-the-counter derivative assets and liabilities are valued using pricing valuation models , while the remaining 8 % are valued using broker quotes . see item 8 . `` financial statements and supplementary data , notes to consolidated financial statements , note 14 , fair value measurements '' for further discussion . the fair values of our derivative instruments can be impacted by changes in interest rates , foreign exchange rates , credit spreads , equity indices , and volatility , as well as other contributing factors . 38 we also issue certain annuity contracts and other insurance contracts that include embedded derivatives that have been bifurcated from the host contract . they are valued using a combination of historical data and actuarial judgment . see item 8 . `` financial statements and supplementary data , notes to consolidated financial statements , note 14 , fair value measurements '' for further discussion . we include our assumption for own non-performance risk in the valuation of these embedded derivatives . as our credit spreads widen or tighten , the fair value of the embedded derivative liabilities decrease or increase , leading to an increase or decrease in net income . if the current market credit spreads reflecting our own creditworthiness move to zero ( tighten ) , the reduction to net income would be approximately $ 10.7 million , net of dpac and income taxes , based on december 31 , 2012 , reported amounts . the use of risk margins for the valuation of embedded derivatives increases the fair value of the embedded derivative liabilities . the accounting for derivatives is complex and interpretations of the applicable accounting standards continue to evolve . judgment is applied in determining the availability and application of hedge accounting designations and the appropriate accounting treatment .
| hsbc afore , s.a. de c.v. on august 8 , 2011 , we finalized the purchase of our 100 % interest in hsbc afore , s.a. de c.v. ( `` hsbc afore '' ) , a mexican pension business , from hsbc bank for $ 206.1 million . in addition , we have established a distribution arrangement with hsbc bank for the distribution of principal afore 's products through hsbc bank 's extensive network in mexico . hsbc afore was merged into our principal afore pension company , which is consolidated within the principal international segment . finisterre capital llp and finisterre holdings limited . on july 1 , 2011 , we finalized the purchase of a 51 % interest in finisterre capital llp and finisterre holdings limited , ( together `` finisterre capital '' ) , an emerging markets debt investor based in london . the initial payment was $ 84.6 million , with a possible additional contingent payment of up to $ 30.0 million in 2013 , dependent upon performance targets . finisterre capital had $ 1.7 billion in aum at the time of acquisition and is accounted for on the equity method within the principal global investors segment . other actuarial assumption updates . during the third quarter of 2012 , we reviewed and updated assumptions that are inputs to the models for dpac and other actuarial balances . we also reviewed our actuarial models and made improvements as necessary . as a result of these actions , we had an unlocking of dpac and other actuarial balances that decreased total company net income by $ 96.7 million for the year ended december 31 , 2012. we updated our actuarial models to reflect the lower interest rate environment in our u.s. operations . the updates to our long-term interest rate assumptions and related refinements to the interest rate component of our actuarial models resulted in an unlocking that negatively impacted operating earnings . the negative unlocking from the lower interest rates was partially offset by the positive impact from the increased expected persistency in our individual annuities business .
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we also revised operating margins for europe from a target of 10 % by the end of 2020 , which includes approximately 2 % of net sales in costs associated with the sap implementation , to a range of 6 % to 7 % , including the same 2 % of sap implementation costs . higher material costs have also contributed to this revision yet it still reflects a 700-800 basis point improvement from 2016 and substantial progress towards this target . since 2016 , we have reduced our inventory in north america , which is the bulk of our total inventory , by nearly 8 % in pounds on hand , including an approximate 17 % reduction in finished goods , while total dollars on hand increased by over 5 % . we accomplished this reduction in inventory in pounds on hand even as three particular factors have transpired since october of 2017 when we released the 2020 plan that have required us to build more inventory than expected : we pro-actively increased our anchor inventory in anticipation of potential tariffs on our mechanical anchor finished goods from china , as well as in anticipation of additional demand related to the home depot , inc. ( “ home depot ” ) rollout ; we bought an additional allotment of steel in order to mitigate the potential impact of availability ; and 27 we have inventory levels to ensure we can meet our customer needs as we continue our sap roll-out . since 2016 , our weighted average cost per pound of total inventory on hand and raw materials on hand in north america , which we can not control , increased . as a result , there has not been a marked improvement in our inventory turns based on dollars and we no longer believe we can achieve a targeted inventory turn rate of four-times per year by the end of 2020. we continue to strive to effectively manage our inventory as a way of improving our use of working capital . through execution on the 2020 plan , we target to achieve a return on invested capital ( 1 ) by the end of fiscal 2020 within the range of 17 % to 18 % from 10.5 % in 2016. given the pressure on gross margins , we updated our expectation for return on invested capital to be in a range of 15 % to 16 % by 2020. the company 's return on invested capital was 15.3 % for the last four quarters ended december 31 , 2019 . meeting the targeted return on invested capital is dependent on the company 's ability to return capital to our stockholders , usually in the form of cash dividends or share repurchases of the company 's common stock , which may or may not occur at the same levels as prior years . nonetheless , we remain committed to returning 50 % of our cash flows from operations through the end of fiscal 2020. we believe our ability to achieve industry-leading gross profit margins and operating income margins is due to the high level of value-added services that we provide to our customers . aside from our strong brand recognition and trusted reputation , the company is unique due to our extensive product testing capabilities and our state-of-the-art test lab ; strong customer support and education for engineers , builders and contractors ; a deep 40-plus year relationships with engineers that get our products specified on the blueprint and pulled through to the job site ; product availability with delivery , typically , in 24 hours to 48 hours ; and an active involvement with code officials to improve building codes and construction practices . based on current information , we expect the competitive environment to be relatively stable with u.s. single-family housing starts to grow in the low single digits for 2020 compared to 2019. for the purposes of re-defining our 2020 plan objectives , during years 2017 to 2020 we assume u.s. single-family housing starts growing , as a percentage , in the low-single digits on average . prior to the 2020 plan , acquisitions were part of a dual-fold approach to growth . our strategy since has primarily focused on organic growth , supported by strategic capital investments in the business . as such , we have and will continue to focus less on acquisitions activities , especially in the concrete repair space . however , we will from time to time evaluate acquisition opportunities and if the right opportunity arises we are open to acquisitions in other areas of our business , such as in our core fastener space , which is an area where we believe it would be beneficial to gain additional production capacity to support our wood business or to enhance our wood and concrete product portfolio with additional value–added products , we may pursue the opportunities . factors affecting our results of operations unlike lumber or other products that have a more direct correlation to housing starts , our products are used to a greater extent in areas that are subject to natural forces , such as seismic or wind events . our products are generally used in a sequential process that follows the construction process . residential , light industrial and commercial construction begins with the foundation , followed by the wall and the roof systems , and then the installation of our products , which flow into a project or a house according to these schedules . our sales also tend to be seasonal , with operating results varying from quarter to quarter . with some exceptions , our sales and income have historically been lower in the first and fourth quarters than in the second and third quarters of a fiscal year , as our customers tend to purchase construction materials in the late spring and summer months for the construction season . story_separator_special_tag weather conditions , such as extended cold or wet weather , which affect and sometimes delay installation of some of our products , could negatively affect our results of operations . political , economic events such as tariffs and the possibility of additional tariffs on imported raw materials or finished goods or such as labor disputes can also have an effect on our gross and operating profits as well as the amount of inventory on-hand . erp integration in july 2016 , our board of directors ( the “ board ” ) approved a plan to replace our current in-house enterprise resource planning ( “ erp ” ) and externally sourced accounting platforms with a fully integrated erp platform from sap america , inc. ( “ sap ” ) in multiple phases by location at all facilities plus our headquarters , with a focus on configuring , instead of customizing , the standard sap modules . we went live with our first wave of the sap implementation project in february of 2018 , and we implemented sap at two additional locations in 2019. we are tracking toward rolling out sap technology in our remaining u.s. branches by mid-2020 , and company-wide completion of the sap roll-out is currently targeted for the end of 2021. while we believe the sap implementation will be beneficial to the company over time , annual operating expenses have and are expected to continue to increase through 2024 as a 28 result of the sap implementation , primarily due to increases in training costs and the depreciation of previously capitalized costs . as of december 31 , 2019 , we have capitalized $ 19.3 million and expensed $ 25.8 million of the costs , including depreciation of capitalized costs associated with the sap implementation . business segment information historically our north america segment has generated more revenues from wood construction products compared to concrete construction products . during 2019 , economic conditions and wet weather resulted in lower than projected single-family housing starts in the first half of the year , which decreased wood construction product sales volumes over the same time period . wood construction product sales volume increased slightly compared to the year ended december 31 , 2018 , partly due to increased housing starts in the second half of 2019. concrete construction product sales volume increased compared to 2018 , which was primarily due to increased sales volumes . our wood construction product net sales increased 5 % for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 , primarily due to both increased sales volumes and higher average sales prices . our concrete construction product net sales increased 18 % for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 also mostly due to increased sales volumes and higher average prices . our europe segment also generates more revenues from wood construction products than concrete construction products . in local currency , europe net sales increased primarily due to increases in average product prices . in united states dollars , wood construction product sales decreased 3.3 % for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 . concrete construction product sales are mostly project based , and net sales increased nearly 1.0 % for the year ended 2019 compared to the year ended 2018. europe net sales were negatively affected by foreign currency translations resulting from europe currencies weakening against the united states dollar . operating expenses decreased $ 4.8 million for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 , which was partly due the negative affect by foreign currency translations . see “ europe ” below . our asia/pacific segment has generated revenues from both wood and concrete construction products . we believe that the asia/pacific segment is not significant to our overall performance . ( 1 ) when referred to above , the company 's return on invested capital ( “ roic ” ) for a fiscal year is calculated based on ( i ) the net income of that year as presented in the company 's consolidated statements of operations prepared pursuant to generally accepted accounting principles in the u.s. ( “ gaap ” ) , as divided by ( ii ) the average of the sum of total stockholders ' equity and total long-term interest bearing liabilities , ( which for the company are long-term capital lease obligations ) , at the beginning of and at the end of such year , as presented in the company 's consolidated balance sheets prepared pursuant to gaap for that applicable year . as such , the company 's roic , a ratio or statistical measure , is calculated using exclusively financial measures presented in accordance with gaap . business outlook based on current information and subject to future events and circumstances the company estimates that its full year 2020 : gross margin will be between approximately 43.5 % and 44.5 % . effective tax rate will be approximately 25.0 % and 26.0 % , including both federal and state income tax rates . 29 story_separator_special_tag the following table shows gross profit percentages by segment for the years ended december 31 , 2018 and 2019 , respectively : replace_table_token_9_th * the statistic is not meaningful or material . north america net sales increased 6.8 % primarily due to increased sales volume and average unit price in the united states . canada 's net sales were negatively affected by approximately $ 1.2 million due to foreign currency translation . in local currency , canada net sales increased primarily due to increases in sales volume . gross profit margin decreased to 44.8 % from 46.3 % , primarily due to increased raw material and labor costs .
| concrete construction product net sales , including sales of adhesives , chemicals , mechanical anchors , powder actuated tools and reinforcing fiber materials , represented 16 % of the company 's total net sales in both years . gross profit increased to $ 492.1 million from $ 480.3 million . gross profit margins decreased to 43.3 % from 44.5 % , which was lower than our expected gross profit margins of 43.5 % to 44.0 % . this was due to a shortfall in expected net sales and increased warehousing costs during the quarter ended december 31 , 2019. the gross profit margins , including some intersegment expenses , which were eliminated in consolidation , and excluding other expenses that are allocated according to product group , decreased to 42.9 % from 45.2 % for wood construction products and increased to 42.2 % from 37.2 % for concrete construction products . research and development and other engineering expense increased 9.3 % to $ 47.1 million from $ 43.1 million , primarily due to increases of $ 5.1 million in personnel costs , which was mostly due to reclassifying certain employees from general and administrative to research and development and engineering . this was partly offset by decreases of $ 0.6 million in supply expense , $ 0.5 million in cash profit sharing expense and $ 0.3 million in stock-based compensation . selling expense increased 2.4 % to $ 112.6 million from $ 109.9 million , primarily due to increases of $ 4.9 million in personnel costs , $ 0.5 million in advertising and promotional costs and $ 0.5 million in professional fees , which was partly offset by decreases of $ 2.0 million in sales and agent commissions and $ 0.6 million in cash profit sharing expense . general and administrative expense decreased 0.8 % to $ 157.3 million from $ 158.6 million , primarily due to decreases of $ 2.1 million in consulting and legal expenses mostly due to a $ 3.8 million legal settlement reported in 2018 , $ 2.1 million in cash profit sharing expense
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for fixed-price contracts that provide for the delivery of a specific product , revenues are recognized either over time as costs are incurred or at a point in time based on delivery . time-and-materials contracts - we are reimbursed for labor at fixed hourly rates and generally reimbursed separately for allowable materials , costs and expenses at cost . we recognize revenues under time-and-materials contracts by multiplying the number of direct labor hours expended by the contract billing rates and adding the effect of other billable direct costs under a right to invoice model . for additional information on revenue recognition methods , including methods used prior to the adoption of asc 606 on january 1 , 2018 , see note 2 `` summary of significant accounting policies '' to our consolidated financial statements in item 8. our contract mix varies from year-to-year due to numerous factors , including our business strategies and u.s. government procurement objectives . the following table shows revenues from each of these types of contracts as a percentage of total revenues for the periods presented . replace_table_token_2_th under cost-reimbursable contracts , there is limited financial risk , because we are reimbursed for all allowable direct and indirect costs . however , profit margins on this type of contract tend to be lower than on time-and-materials and fixed-price contracts . cost of services cost of services primarily includes direct costs incurred to provide services and solutions to our customers . the most significant portion of these costs are direct labor costs , including salaries and wages , plus associated fringe benefits of our employees directly serving customers , in addition to the related management , facilities and infrastructure costs . cost of services also includes other direct costs , such as the costs of subcontractors and outside consultants and third-party materials , including hardware or software that we purchase and provide to the customer as part of an integrated solution . changes in the mix of services and equipment provided under our contracts can result in variability in our contract margins . as we earn higher profits on our own labor services , we expect the ratio of cost of services as a percentage of revenues to decline when our labor services mix increases relative to subcontracted labor or third-party materials . conversely , as subcontracted labor or third-party material purchases for customers increases relative to our own labor services , we expect the ratio of cost of services as a percentage of revenues to increase . the proportion that cost of services bears to revenues varies in part based on our mix of revenues by contract type . in general , cost-reimbursable contracts are the least profitable of our government contracts but offer the lowest risk of loss . under time-and-materials contracts , to the extent that our actual labor costs are higher or lower than the billing rates under the contract , our profit under the contract may either be greater or less than we anticipated or we may suffer a loss under the contract . in general , we realize a higher profit margin on work performed under time-and-materials contracts than cost-reimbursable contracts . fixed-price contracts generally offer higher profit margin opportunities but can involve greater financial risk because we bear the impact of cost overruns in return for the full benefit of any cost savings . 23 general and administrative expenses general and administrative expenses include the salaries and wages , plus associated fringe benefits of our employees not performing work directly for customers , and associated facilities costs . among the functions covered by these costs are corporate business development , bid and proposal , contracts administration , finance and accounting , legal , corporate governance and executive and senior management . in addition , we included stock-based compensation , as well as depreciation and amortization expenses related to the general and administrative function . depreciation and amortization expenses include the depreciation of computers , furniture and other equipment , the amortization of third party software we use internally , leasehold improvements and intangible assets . intangible assets include customer relationships and contract backlogs acquired in business combinations , and are amortized over their estimated useful lives . interest expense interest expense is primarily related to interest expense incurred or accrued under our outstanding borrowings on our debt and deferred financing charges . interest income interest income is primarily from cash on hand and late invoice payments by the government . story_separator_special_tag ended december 31 , 2017 from a re-measurement of our existing deferred tax assets and liabilities . for additional information concerning the re-measurement adjustment see note 12 `` income taxes '' to our consolidated financial statements in item 8. our effective tax rate was also favorably impacted by tax benefits from the stock based compensation and deferred compensation plans . backlog for the years ended december 31 , 2018 , 2017 and 2016 our backlog was $ 8.4 billion , $ 7.1 billion and $ 4.9 billion , respectively , of which $ 1.3 billion , $ 1.4 billion and $ 1.0 billion , respectively , was funded backlog . the increase in our backlog is due to our receipt of new contract awards . the current trend is that contracts are awarded for a longer term , which increases the time over which backlog will be recognized as revenue . backlog represents estimates that we calculate on a consistent basis . for additional information on how we compute backlog , see “ backlog ” in item 1 “ business. ” liquidity and capital resources historically , our primary liquidity needs have been the financing of acquisitions , working capital , payment under our cash dividend program and capital expenditures . our primary sources of liquidity are cash provided by operations and our revolving credit facility . on december 31 , 2018 , our cash and cash equivalents balance was $ 5.3 million . there were $ 7.5 million in outstanding borrowings under our revolving credit facility at december 31 , 2018 . story_separator_special_tag at december 31 , 2018 , we were contingently liable under letters of credit totaling $ 9.6 million , which reduced our ability to borrow under our revolving credit facility by that amount . the maximum available borrowings under our revolving credit facility at december 31 , 2018 were $ 482.9 million . generally , cash provided by operating activities is adequate to fund our operations , including payments under our regular cash dividend program . due to short-term fluctuations in our cash flows and level of operations , it may become necessary from time-to-time to increase borrowings under our revolving credit facility to meet cash demands . cash flows from operating activities our operating cash flow is primarily affected by our ability to invoice and collect from our clients in a timely manner , our ability to manage our vendor payments and the overall profitability of our contracts . we bill most of our customers monthly after services are rendered . our accounts receivable days sales outstanding ( dso ) were 73 and 61 for the quarters ended december 31 , 2018 and 2017 , respectively . for the years ended december 31 , 2018 , 2017 and 2016 , our net cash flows from operating activities were $ 93.4 million , $ 153.0 million and $ 95.8 million , respectively . the decrease in net cash flows from operating activities during the year ended december 31 , 2018 when compared to the same period in 2017 was primarily due to an increase in accounts receivable related to the timing of collections , with some delays in payments due to the government shutdown . the increase in net cash flows from operating activities during the year ended december 31 , 2017 compared to the same period in 2016 was primarily due to an increase in net income , timing of receivables , accounts payable and accrued salaries and other related expenses , offset by an increase in income tax payments . cash used in investing activities our cash used in investing activities consists primarily of business combinations , purchases of property and equipment and investments in capitalized software for internal use . for the years ended december 31 , 2018 , 2017 and 2016 , our net cash used in investing activities were $ 44.3 million , $ 219.0 million and $ 72.1 million , respectively . for the year ended december 31 , 2018 , our net cash used in investing activities were primarily due to capitalized expenditures . for the year ended december 31 , 2017 , our net cash used in investing activities were primarily due to the acquisition of infozen and capital expenditures . the increase in capital expenditures was primarily due to the upfront purchases of equipment and infrastructure in support of a managed it services contract . for the year ended december 31 , 2016 , our net cash used in investing activities were primarily due to the acquisition of oceans edge , inc. , cyber division and edaptive systems llc as well as capital expenditures . 27 cash flows from ( used in ) financing activities for the years ended december 31 , 2018 , 2017 and 2016 , our net cash flows from ( used in ) financing activities were $ ( 53.3 ) million , $ 10.6 million and $ ( 10 ) thousand , respectively . for the year ended december 31 , 2018 , our net cash used in financing activities were primarily due to repayment of borrowings and payments of dividends which were partially offset by proceeds from the exercise of stock options . for the year ended december 31 , 2017 , our net cash flows from financing activities were primarily due to net borrowings under our revolving credit facility to fund the acquisition of infozen and proceeds from the exercise of stock options , which were partially offset by dividend payments and debt issuance costs related the amendment of our credit facility . for the year ended december 31 , 2016 , our net cash used in financing activities were primarily due to dividends paid offset by the proceeds from the exercise of stock options and the excess tax benefits from the exercise of stock options . revolving credit facility we maintain a credit agreement with a syndicate of lenders led by bank of america , n.a. , as sole administrative agent . the credit agreement provides for a $ 500 million revolving credit facility , with a $ 75 million letter of credit sublimit and a $ 30 million swing line loan sublimit . the credit agreement also includes an accordion feature that permits us to arrange with the lenders for the provision of additional commitments . the maturity date is august 17 , 2022 . borrowings under our credit agreement are collateralized by substantially all the assets of us and our material subsidiaries ( as defined in the credit agreement ) and bear interest at one of the following variable rates as selected by us at the time of borrowing : a london interbank offer rate ( libor ) based rate plus market spreads ( 1.25 % to 2.25 % based on our consolidated total leverage ratio ) or bank of america 's base rate plus market spreads ( 0.25 % to 1.25 % based on our consolidated total leverage ratio ) . the terms of the credit agreement permit prepayment and termination of the loan commitments at any time , subject to certain conditions . the credit agreement requires us to comply with specified financial covenants , including the maintenance of certain consolidated leverage ratios and a certain consolidated coverage ratio . the credit agreement also contains various covenants , including affirmative covenants with respect to certain reporting requirements and maintaining certain business activities , and negative covenants that , among other things , may limit or impose restrictions on our ability to incur liens , incur additional indebtedness , make investments , make acquisitions and undertake certain other actions .
| in 2019 , we expect general and administrative expenses as a percentage of revenues to decrease slightly as compared to 2018 . ( provision ) benefit for income taxes our effective tax rate is affected by recurring items , such as the relative amount of income we earn in various taxing jurisdictions and their tax rates . it is also affected by discrete items that may occur in any given year , but are not consistent from year-to-year . our effective income tax rate was 26 % and ( 17 ) % for the years ended december 31 , 2018 and 2017 , respectively . the tax cuts and jobs act , enacted on december 22 , 2017 , reduced the u.s. corporate tax rate from 35 % to 21 % beginning in 2018. due to the enactment of the tax cuts and jobs act , our income tax expense was reduced by $ 50.6 million for the year ended december 31 , 2017 from a re-measurement of our existing deferred tax assets and liabilities . for additional information concerning the re-measurement adjustment see note 12 `` income taxes '' to our consolidated financial statements in item 8. in 2017 , our effective tax rate was also favorably impacted by tax benefits from the exercise and vesting stock based awards and the performance of our deferred compensation plan . in 2018 , our effective tax rate was adversely impacted by the non-deductibility of excess executive compensation and by the performance of our deferred compensation plan . 25 year ended december 31 , 2017 compared to year ended december 31 , 2016 consolidated statements of income the following table sets forth certain items from our consolidated statements of income and the relative percentages that certain items of expense and earnings bear to revenues as well as the year-over-year change from december 31 , 2016 to december 31 , 2017 . replace_table_token_4_th revenues the primary driver of our increase in revenues relates to revenues from new contract awards , growth on existing contracts and our acquisitions , which were offset by
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we received a total of $ 121.1 million in combined net proceeds and principal repayments from the aforementioned portfolio company exits as well as from existing portfolio companies during the year ended september 30 , 2016. this activity resulted in a net reduction in our overall portfolio by three portfolio companies to 45 and a net decrease of 7.4 % in our portfolio at cost since september 30 , 2015. our continued focus in 2017 will be to rebuild our investment portfolio by making new investments and to exit challenged and non-strategic investments in our portfolio in an orderly manner over the next several quarters . since our initial public offering in august 2001 , we have made 439 different loans to , or investments in , 206 companies for a total of approximately $ 1.5 billion , before giving effect to principal repayments on investments and divestitures . during the year ended september 30 , 2016 , the following significant transactions occurred : in october 2015 , allison publications , llc paid off at par for proceeds of $ 8.2 million . in october 2015 , we sold our investment in funko , llc ( funko ) , which resulted in dividend and prepayment fee income of $ 0.3 million and a realized gain of $ 16.9 million . in connection with the sale , we received net cash proceeds of $ 15.3 million , full repayment of our debt investment of $ 9.5 million , and a continuing preferred and common equity investment in funko acquisition holdings , llc , with a combined cost basis and fair value of $ 0.3 million at the close of the transaction . additionally , we recorded a tax liability for the net unrealized built-in gain of $ 9.8 million that was realized upon the sale , of which $ 9.4 million has been subsequently paid . the remaining tax liability of $ 0.4 million is included within other liabilities on the accompanying consolidated statement of assets and liabilities as of september 30 , 2016. in october 2015 , ameriqual group , llc paid off at par for proceeds of $ 7.4 million . in october 2015 , we sold our investment in first american payment systems , l.p. for net proceeds of $ 4.0 million , which resulted in a net realized loss of $ 0.2 million . in november 2015 , we restructured our investment in legend communications of wyoming , llc ( legend ) resulting in a $ 2.7 million pay down on the existing loan and a new $ 3.8 million investment in drumcree , llc . in march 2016 , legend paid off at par for proceeds of $ 4.0 million . in december 2015 , we sold our investment in heartland communications group ( heartland ) for net proceeds of $ 1.5 million , which resulted in a realized loss of $ 2.4 million . heartland was on non-accrual status at the time of the sale . in january 2016 , we invested $ 8.5 million in lcr contractors , inc. through secured first lien debt . in february 2016 , our investment in targus group international , inc. ( targus ) was restructured , which resulted in a realized loss of $ 5.5 million and a new investment in targus cayman holdco limited . in march 2016 , we invested $ 10.0 million in travel sentry , inc. through secured first lien debt . in march 2016 , j. america paid off at par for proceeds of $ 5.1 million . in april 2016 , we received net proceeds of $ 8.0 million related to the sale of ashland acquisition llc ( ashland ) , which resulted in a realized gain of approximately $ 0.1 million . 43 in may 2016 , we invested $ 2.0 million in netsmart technologies , inc. through secured second lien debt . in june 2016 , we invested $ 30.0 million in ia tech , llc through secured first lien debt . in june 2016 , vision solutions , inc. paid off at par for proceeds of $ 8.0 million . in june 2016 , gtcr valor companies , inc. paid off at par for proceeds of $ 3.0 million . in august 2016 , we invested $ 10.0 million in merlin international , inc. through secured second lien debt . in september 2016 , we invested $ 7.5 million in canopy safety brands , llc through a combination of secured first lien debt and equity . in september 2016 , we invested $ 2.0 million in datapipe , inc. through secured second lien debt . in september 2016 , we sold our investment in westland technologies , inc. ( westland ) for net proceeds of $ 5.3 million , which resulted in a net realized gain of $ 0.9 million . in september 2016 , we sold our investment in southern petroleum laboratories , inc. ( southern petroleum laboratories ) for net proceeds of $ 9.8 million , which resulted in a realized gain of $ 0.9 million . in september 2016 , we restructured our investment in precision acquisition group holdings , inc. ( precision ) which resulted in a realized loss of $ 3.8 million and a new $ 4.0 million investment in pic 360 , llc and a new $ 1.6 million investment in precision international , llc . refer to note 15 subsequent events in the accompanying consolidated financial statements included elsewhere in this annual report on form 10-k for portfolio activity occurring subsequent to september 30 , 2016. capital raising despite the challenges in the economy for the past several years , we met our capital needs through the extension , expansion and enhancement to our credit facility and by accessing the capital markets in the form of public offerings of common stock . story_separator_special_tag in may 2015 , through business loan , we entered into a fifth amended and restated credit agreement , which increased the commitment amount under our credit facility from $ 137.0 million to $ 140.0 million , extended the revolving period end date by three years to january 19 , 2019 , decreased the marginal interest rate added to 30-day libor from 3.75 % to 3.25 % per annum , set the unused commitment fee at 0.50 % on all undrawn amounts , expanded the scope of eligible collateral , and amended certain other terms and conditions . in june 2015 , through business loan , we entered into certain joinder and assignment agreements , adding three new lenders to the credit facility to increase borrowing capacity by $ 30.0 million to $ 170.0 million . refer to liquidity and capital resources revolving credit facility of this item 7 for further discussion of our credit facility . we issued shares of our common stock in an overnight offering in october 2015 , with the overallotment option closing in november 2015 , at a public offering price of $ 8.55 per share , which was below the then current net asset value ( nav ) of $ 9.06 per share . the resulting proceeds provided us with additional equity capital to help ensure continued compliance with regulatory tests . most recently , we issued additional shares of our common stock in an overnight offering in october 2016 , with an overallotment option closing in november 2016 , at a public offering price of $ 7.98 per share , which was below our september 30 , 2016 nav of $ 8.62 per share . the resulting proceeds , in part , will provide us with additional equity capital to help ensure continued compliance with regulatory tests and will allow us to grow the portfolio and generate additional income through new investments . refer to liquidity and capital resources equity common stock of this item 7 for further discussion of our common stock offerings . although we were able to access the capital markets over the last year , we believe uncertain market conditions continue to affect the trading price of our capital stock and thus may inhibit our ability to finance new investments through the issuance of equity . the current volatility in the credit market and the uncertainty surrounding the u.s. economy have led to significant stock market fluctuations , particularly with respect to the stock of financial services companies like ours . during times of increased price volatility , our common stock may be more likely to trade at a price below our nav per share , which is not uncommon for bdcs like us . 44 on november 18 , 2016 , the closing market price of our common stock was $ 8.10 , a 6.0 % discount to our september 30 , 2016 , nav per share of $ 8.62. when our stock trades below nav per common share , as it has fairly consistently over the last several years , our ability to issue equity is constrained by provisions of the 1940 act , which generally prohibits the issuance and sale of our common stock below nav per common share without first obtaining approval from our stockholders and our independent directors , other than through sales to our then-existing stockholders pursuant to a rights offering . at our annual meeting of stockholders held on february 11 , 2016 , our stockholders approved a proposal which authorizes us to sell shares of our common stock at a price below our then current nav per common share subject to certain limitations ( including , but not limited to , that the number of shares issued and sold pursuant to such authority does not exceed 25.0 % of our then outstanding common stock immediately prior to each such sale ) for a period of one year from the date of approval , provided that our board of directors makes certain determinations prior to any such sale . we completed the abovementioned 2016 common stock offering as a result of the stockholder approval of the proposal at our 2016 annual meeting of stockholders and additional board of directors approval . regulatory compliance our ability to seek external debt financing , to the extent that it is available under current market conditions , is further subject to the asset coverage limitations of the 1940 act , which require us to have an asset coverage ratio ( as defined in section 18 ( h ) of the 1940 act ) of at least 200 % on our senior securities representing indebtedness and our senior securities that are stock. as of september 30 , 2016 , our asset coverage ratio on our senior securities representing indebtedness was 462.3 % and our asset coverage ratio on our senior securities that are stock was 249.5 % . recent developments common stock offering in october 2016 , we completed a public offering of 2.0 million shares of our common stock . in november 2016 , the underwriters partially exercised their overallotment option to purchase an additional 173,444 shares of our common stock . gross proceeds totaled $ 17.3 million and net proceeds , after deducting underwriting discounts and offering costs borne by us , were approximately $ 16.4 million . refer to liquidity and capital resources equity common stock of this item 7 for further discussion of our common stock offerings . distributions on october 11 , 2016 , our board of directors declared the following monthly cash distributions to common and preferred stockholders : replace_table_token_8_th 45 story_separator_special_tag margin-bottom:0pt ; font-size:10pt ; font-family : times new roman '' > 48 net unrealized appreciation of investments during the year ended september 30 , 2016 , we recorded net unrealized depreciation of investments in the aggregate amount of $ 15.3 million .
| for the year ended september 30 , 2016 , other income consisted primarily of $ 3.4 million in success fees recognized , $ 0.3 million in dividend income received , and $ 0.2 million in prepayment fees received . for the year ended september 30 , 2015 , other income consisted primarily of $ 1.9 million in success fees recognized , $ 0.9 million in dividend income , and $ 0.3 million in settlement fees . the following tables list the investment income for our five largest portfolio company investments at fair value during the respective years : replace_table_token_10_th ( a ) new investment during applicable period . expenses expenses , net of credits from the adviser , decreased for the year ended september 30 , 2016 , by 3.6 % as compared to the prior year . this decrease was primarily due to decreases in our net base management fees to the advisor and interest expense on borrowings , partially offset by an increase in the net incentive fee to the adviser . interest expense decreased by $ 0.9 million , or 24.3 % , during the year ended september 30 , 2016 , as compared to the prior year , primarily due to decreased borrowings outstanding throughout the period on our credit facility . the weighted average balance outstanding on our credit facility during the year ended september 30 , 2016 , was approximately $ 64.0 million , as compared to $ 92.5 million in the prior year period , a decrease of 30.8 % . net base management fee earned by the adviser decreased by $ 0.6 million , or 10.5 % , during the year ended september 30 , 2016 , as compared to the prior year period , resulting from a decrease in the average total assets outstanding and a decrease in the annual base management fee from 2.0 % to 1.75 % , which was effective july 1 , 2015. the base management , loan servicing and incentive fees and associated unconditional , non-contractual , and irrevocable voluntary credits are computed quarterly , as described under investment advisory and management agreement and loan servicing fee pursuant to credit agreement in note 4 of the notes to our accompanying
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this table does not include our skilled nursing facility , pharmacies , family health center , rural health clinic , and physical therapy clinics through our facility-based services segment . replace_table_token_4_th ( 1 ) 2018 acquired locations for home health and hospice were updated to reflect location counts identified upon completing the integration of almost family locations into our single instance of homecare homebase . recent developments home health services 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 increased to $ 3,154.27 in 2019. the rule estimated an impact of 2.2 % increase in payments due to the rate and policy changes proposed in the rule . the rule implemented 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 . the final rule also established 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. on october 31 , 2019 , cms issued its final rule regarding medicare reimbursements for the calendar year 2020. beginning on january 1 , 2020 , cms implemented the pdgm prospective payment system , as mandated by the bipartisan budget act of 2018. under pdgm , the initial certification of medicare patient eligibility , plan of care , and comprehensive assessment will remain valid for 60-day episodes of care , but payments for medicare home health services will be made based upon 30-day payment periods . the national , standardized 30-day medicare payment amount will be $ 1,864.03 , resulting in a 1.3 % increase in payments . the rule implements the 1.5 % medicare home health payment update mandated by the bipartisan budget act of 2018 , offset by a 0.2 % decrease due to the rural add-on . the final rule also adjusts pdgm case-mix weights , which implements the removal of therapy thresholds for payments . for medicare payments associated with lupas under pdgm , the threshold will vary for a 30-day period depending on the pdgm payment group . the 30-day payment amounts will be for 30-day periods of care beginning on and after january 1 , 2020. there will be a transition period for home health episodes that span the implementation date of january 1 , 2020 , whereby payments for those services rendered during those episodes will be made under the national , standardized 60-day episode payments . cms will also reduce a request for rap payments to 20 % for existing home health providers . cms finalized its proposal to eliminate rap payments for calendar year 2021 , and will require home health providers to submit `` no pay '' raps during that year . beginning january 1 , 2021 , home health providers will be required to submit a notice of admission ( `` noa '' ) within five calendar days of the first 30-day period and within five calendar days of the day 31 for the second , subsequent 30-day period . cms also finalized a policy allowing therapy assistants to provide maintenance therapy services in the home and modified certain requirements relating to the home health plan of care . the final rule also includes the public reporting of total performance score ( `` tps '' ) and tps percentile ranking for each home health agency in the nine model states that qualifies for a payment adjustment under the home health value-based purchasing model for fiscal year 2020. cms also made some changes to the home health quality reporting program . hospice 43 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 received 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 was $ 29,205.44 ( 2018 cap amount of $ 28,689.04 increased by 1.8 % ) . additionally , this rule finalized 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 ended september 30 , 2019 : replace_table_token_5_th on july 31 , 2019 , cms issued a final rule , which would update the hospice wage index , payment rates , and cap amount for fiscal year 2020. cms finalized a net 2.6 % market basket update , which is calculated from the 2020 hospital market basket update of 3.0 % , reduced by multifactor productivity adjustment , as mandated by the affordable care act , of 0.4 percentage points . cms is also rebasing payments for continuous home care , inpatient respite care , and general inpatient care to approximate costs in a budget neutral manner , which will result in a 2.7 % decrease in rates for routine home care to achieve budget neutrality . story_separator_special_tag also , 2020 hospice cap amount will be $ 29,964.98. cms finalized the removal of the one year wage index lag and will use the current year 's wage index to geographically wage adjust hospice payments , and changes to the hospice election statement . the following table shows the hospice medicare payment rates for fiscal year 2020 , which will began on october 1 , 2019 and will end september 30 , 2020 : replace_table_token_6_th home and community-based services hcbs 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 : medicare discharges from ltachs will continue to be paid at full ltach pps rates if : ◦ the patient spent at least three days in a stch intensive care unit during a stch stay that immediately preceded the ltach stay , or 44 ◦ 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 . all other medicare discharges from ltachs will be paid at a new “ site neutral ” rate , which is the lesser of the ( `` ipps '' ) comparable per diem amount determined using the formula in the short-stay outlier regulation at 42 c.f.r . § 412.529 ( d ) ( 4 ) plus applicable outlier payments , or 100 % of the estimated cost of the services involved . the above new payment policy will be effective for ltach cost reporting periods beginning on or after october 1 , 2015 , and the site neutral payment rate will be phased-in over two years . for cost reporting periods beginning on or after october 1 , 2015 , discharges paid at the site neutral payment rate or by a medicare advantage plan ( part c ) will be excluded from the ltach average length-of-stay calculation . for cost reporting periods beginning in fiscal year 2016 and later , cms will notify ltachs of their “ ltach discharge payment percentage ” ( i.e. , the number of discharges not paid at the site neutral payment rate divided by the total number of discharges ) . for cost reporting periods beginning in fiscal year 2020 and later , ltachs with less than 50 % of their discharges paid at the full ltach pps rates will be switched to payment under the ipps for all discharges in subsequent cost reporting periods . however , cms will set up a process for ltachs to seek reinstatement of ltach pps rates for applicable discharges . medpac will study the impact of the above changes on quality of care , use of hospice and other post-acute care settings , different types of ltachs and growth in medicare spending on ltachs . medpac is to submit a report to congress with any recommendations by june 30 , 2019. the report is to also include medpac 's assessment of whether the 25 percent rule should continue to be applied . on august 2 , 2016 , cms released the final rule to update fiscal year 2017 ltach reimbursement and policies under the ltach pps , which affects discharges occurring in cost reporting periods beginning on or after october 1 , 2016. this estimated decrease is attributable to the statutory decrease in payment rates for site neutral ltach pps cases that do not meet the clinical criteria to qualify for higher ltach rates in cost reporting years beginning on or after october 1 , 2016. cases that do qualify for higher ltach pps rates will see a payment rate increase of 0.7 % ( including a market basket update of 2.8 % reduced by a multi-factor productivity adjustment of 0.3 % , minus an additional adjustment of 0.75 percentage point in accordance with the ppaca , for a net market basket of 1.75 % ) . the ltach pps standard federal payment rate for fiscal year 2017 is $ 42,476.41 ( increased from $ 41,762.85 in fiscal year 2016 ) . site-neutral discharges will have a 23 % reduction in payments . cms also proposes to begin enforcement of the 25 percent rule which will cap the number of patients treated at an ltach who have been referred from all locations of a hospital . grandfathered ltach facilities are exempt from the 25 percent rule , while rural ltachs will have a threshold of 50 % and msa-dominant hospitals will have a threshold between 25 % and 50 % . the 25 percent rule will apply to discharges occurring after october 1 , 2016. cms will have two separate outlier pools and thresholds for ltach-appropriate patients and for site-neutral patients . for 2017 , cms finalized an increase of its fixed-loss threshold to $ 21,943 from 2016 's $ 16,423 , to limit outlier spending at no more than 8 % of total ltach spending ( 2016 outlier payments may reach 9.0 % ) . cms is applying the proposed inpatient fixed-loss threshold of $ 23,570 for site neutral patients . cms also finalized four new measures for the ltach quality reporting program to meet the requirements of the improving medicare post-acute care transformation ( `` impact '' ) act . for the fiscal year 2018 ltach quality reporting program , cms added quality measures for medicare spending per beneficiary , discharge to community and potentially-preventable 30-day post-discharge readmissions .
| ( 2 ) 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. almost family locations remained counted as acquired locations due to system integrations , which were completed at the end of 2019. revenue and patient days decreased in our ltachs during the twelve months ended december 31 , 2019 due to the closures of two ltachs during 2018. 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 49 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 , 2019 and 2018 ( amounts in thousands ) : replace_table_token_12_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_13_th consolidated cost of service revenue for the year ended december 31 , 2019 was $ 1,324.9 million compared to $ 1,156.4 million for the same period in 2018 , an increase of approximately $ 168.5 million , or 14.6 % . the improvement from 2018 to 2019 as a percentage of net service revenue was the result of our ability to continue to experience synergies and improved operational efficiencies associated with the integration of the afam locations . the dollar increase was the result of the 50 merger and the exclusion of expenses until april 1 , 2018 , when the merger was completed , and 2019 acquisitions . the reduction of total costs in the facility-based services segment was due to the closure of two ltach locations . 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 ) :
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the trial will enroll up to 50 hospitalized adult patients critically ill with covid-19 at several sites across the u.s. we expect to report topline data from this trial in the first half of 2021. since our inception , we have devoted substantially all of our resources to organizing and staffing our company , business planning , raising capital , acquiring and developing product and technology rights , and conducting research and development . we have incurred recurring losses and negative cash flows from operations and have funded our operations primarily through the sale and issuance of equity and proceeds received under the amended and restated purchase and sale agreement , which we refer to as the royalty agreement , with clarus iv galera royalty aiv , l.p. , clarus iv-a , l.p. , clarus iv-b , l.p. , clarus iv-c , l.p. and clarus iv-d , l.p. , or collectively , blackstone or blackstone life sciences ( formerly known as clarus ventures ) , receiving aggregate gross proceeds of $ 273.1 million through december 31 , 2020. in november 2019 , we completed our initial public offering , or ipo , which resulted in the issuance and sale of 5,000,000 shares of common stock at the ipo price of $ 12.00 per share , generating net proceeds of $ 53.0 million after deducting underwriting discounts and other offering costs . on december 9 , 2019 , in connection with the partial exercise of the over-allotment option granted to the underwriters of our ipo , 445,690 additional shares of common stock were sold at the ipo price of $ 12.00 per share , generating net proceeds of $ 5.0 million after deducting underwriting discounts and other offering costs . our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our current or future product candidates . our net loss was $ 74.2 million and $ 51.9 million for the years ended december 31 , 2020 and 2019 , respectively . as of december 31 , 2020 , we had $ 72.8 million in cash , cash equivalents and short-term investments and an accumulated deficit of $ 235.6 million . we expect to continue to incur significant expenses and operating losses for the foreseeable future as we operate as a public company , advance our product candidates through all stages of development and clinical trials and , ultimately , seek regulatory approval . in addition , if we obtain marketing approval for any of our product candidates , we expect to incur significant commercialization expenses related to product manufacturing , marketing , sales and distribution . as a result , we will need to raise substantial additional capital to support our continuing operations and pursue our growth strategy . until such time as we can generate significant revenue from product sales , if ever , we plan to finance our operations through the sale of equity , debt financings or other capital sources , which may include collaborations with other companies or other strategic transactions . there is no assurance that we will be successful in obtaining an adequate level of financing as and when needed to finance our operations on terms acceptable to us or at all . if we are unable to secure adequate additional funding as and when needed , we may have to significantly delay , scale back or discontinue the development and commercialization of one or more product candidates or delay our pursuit of potential in-licenses or acquisitions . because of the numerous risks and uncertainties associated with product development , we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability . even if we are able to generate product sales , we may not become profitable . if we fail to become profitable or are unable to sustain profitability on a continuing basis , then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations . we expect our existing cash , cash equivalents and short-term investments as of december 31 , 2020 , together with the expected payments from blackstone in the amount of $ 57.5 million upon the achievement of certain clinical enrollment milestones in the roman trial and the anti-cancer program in combination with sbrt under the amended royalty agreement , will enable us to fund our operating expenses and capital expenditure requirements into the second half of 2022. we expect to achieve these clinical enrollment milestones in the first half of 2021. see “ royalty agreement with blackstone life sciences ( formerly known as clarus ventures ) ” below . 104 business update regarding covid-19 the current covid-19 pandemic continues to present a substantial public health and economic challenge around the world and is affecting our employees , communities , clinical trial sites and business operations , as well as the u.s. economy and international financial markets . the full extent to which the covid-19 pandemic will directly or indirectly impact our business , results of operations and financial condition will depend on future developments that are highly uncertain and can not be accurately predicted , including new information that may emerge concerning covid-19 , the actions taken to contain it or treat its impact , including the effectiveness of vaccines and vaccine distribution efforts , and the economic impact on local , regional , national and international markets . see “ risk factors—other risks related to our business—the covid-19 pandemic caused by the novel strain of coronavirus has adversely impacted , and could continue to adversely impact , our business , including our preclinical studies and clinical trials , results of operations and financial condition ” in part i , item 1a of this annual report on form 10-k. while we are currently continuing our ongoing clinical trials , the covid-19 pandemic and related precautions have directly or indirectly impacted the timeline for certain of our clinical trials . story_separator_special_tag we delayed the initiation of the eusom trial due to concerns with clinical trial enrollment in europe during the covid-19 pandemic . the first patient was dosed in this trial in june 2020 , and target enrollment was decreased to approximately 35 patients due to the delay . this trial was expected to contribute to the safety database for avasopasem in patients with hnc receiving radiotherapy . as a result of the delay in initiating the trial in europe , the target enrollment for the roman trial was increased to approximately 450 patients in order to ensure we are positioned to maintain the planned size of the safety database in a timely manner . we have since completed enrollment in the eusom trial and continue to monitor the covid-19 pandemic in europe and any potential impact on the data readout for this trial , which is expected in the second half of 2021. completion of enrollment for the roman trial is expected in the first half of 2021 and topline data is expected in the second half of 2021 , subject to the continuing impact of the covid-19 pandemic on our business . mitigation activities to minimize covid-19-related operation disruptions are ongoing given the severity and evolving nature of the situation , and we are continuing to monitor the impact of the covid-19 pandemic on our operations and ongoing clinical development activity , generally . our third-party contract manufacturing partners continue to operate at or near normal levels . while we currently do not anticipate any material interruptions in our clinical trial supply or manufacturing scale-up activities , it is possible that the covid-19 pandemic and response efforts may have an impact in the future on our third-party suppliers and contract manufacturing partners ' ability to manufacture our clinical trials supply or progress manufacturing scale-up activities . we have also implemented measures designed to protect the health and safety of our workforce , including a work-from-home policy in line with state and local requirements for employees who can perform their jobs offsite . we are continuing our essential research and development activities at our laboratory and are taking precautionary measures to protect our employees working in our facilities in such capacities . critical accounting policies our management 's discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles . the preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , and expenses and the disclosure of contingent assets and liabilities in our financial statements . on an ongoing basis , we evaluate our estimates and judgments , including those related to accrued expenses and stock-based compensation . we base our estimates on historical experience , known trends and events , and various other factors that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . 105 while our significant accounting policies are described in more detail in note 2 to our consolidated financial statements included elsewhere in this annual report on form 10-k , we believe the following accounting policies are the most critical to the judgments and estimates used in the preparation of our financial statements . in-process research and development and goodwill intangible assets acquired in a business combination are recognized separately from goodwill and are initially recognized at their fair value at the acquisition date . intangible assets related to in-process research and development , or ipr & d , are treated as indefinite lived intangible assets and not amortized until they are placed into service , typically upon regulatory approval . at that time , we will determine the useful life of the intangible asset and begin amortization . ipr & d assets are reviewed for impairment annually or more frequently if indicators of potential impairment exist . there were no impairments of ipr & d assets for the years ended december 31 , 2020 and 2019. goodwill represents the excess of the purchase price over the estimated fair value of the identifiable assets acquired and liabilities assumed in a business combination . we evaluate goodwill for impairment annually or more frequently upon the occurrence of triggering events or substantive changes in circumstances that could indicate a potential impairment . an impairment loss is recognized when the fair value of the reporting unit to which the goodwill relates is below its carrying value for the difference between the fair value and its carrying amounts . there was no impairment of goodwill for the years ended december 31 , 2020 and 2019. royalty purchase liability pursuant to our amended royalty agreement with blackstone life sciences , we received a cash payment of $ 20.0 million in each of november 2018 , april 2019 and february 2020 and are eligible to receive up to an additional $ 57.5 million from blackstone based upon the achievement of the remaining specified clinical milestones . we have accounted for the amended royalty agreement under accounting standards codification topic 470 , debt . the proceeds received are recorded as long-term debt obligations . interest expense on such obligation is imputed by estimating risk adjusted future royalty payments over the term of the amended royalty agreement which takes into consideration the probability of obtaining fda approval . other significant assumptions include adjustments to estimated gross revenues to arrive at net product sales from which a royalty payment can be estimated . the non-cash interest expense recorded increases the balance of our royalty obligation . the royalty obligation will be reduced when royalty payments are made , if any .
| interest expense we recognized $ 4.9 million and $ 3.0 million in non-cash interest expense during the years ended december 31 , 2020 and 2019 , respectively , in connection with the royalty agreement with blackstone . liquidity and capital resources we do not currently have any approved products and have never generated any revenue from product sales . through december 31 , 2020 , we have funded our operations primarily through the sale and issuance of equity and $ 60.0 million of proceeds received under the royalty agreement with blackstone life sciences , receiving 111 aggregate gross proceeds of $ 273.1 million . in november 2019 , we completed our ipo , which resulted in the issuance and sale of 5,000,000 shares of common stock at a public offering price of $ 12.00 per share , generating net proceeds of $ 53.0 million after deducting underwriting discounts and other offering costs . on december 9 , 2019 , in connection with the partial exercise of the over-allotment option granted to the underwriters of our ipo , 445,690 additional shares of common stock were sold at the ipo price of $ 12.00 per share , generating net proceeds of approximately $ 5.0 million after deducting underwriting discounts and other offering costs . as of december 31 , 2020 , we had $ 72.8 million in cash , cash equivalents and short-term investments and an accumulated deficit of $ 235.6 million . we have no ongoing material financing commitments , such as lines of credit or guarantees , that are expected to affect our liquidity over the next five years . in december 2020 , we entered into an open market sales agreement , or the sales agreement , with jefferies llc , or jefferies , as sales agent , pursuant to which we may , from time to time , issue and sell common stock with an aggregate value of up to $ 50.0 million in “ at-the-market ” offerings under our registration statement on form s-3 ( file no . 333-251061 ) filed with the sec on december 1 , 2020. sales of common stock , if any ,
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the non-gaap information provided is used by valvoline 's management and may not be comparable to similar measures disclosed by other companies , because of differing methods used by other companies in calculating ebitda , adjusted ebitda and free cash flow . ebitda , adjusted ebitda , and free cash flow provide a supplemental presentation of valvoline 's operating performance . for a reconciliation of non-gaap measures , refer to the “ results of operations ” and “ financial position , liquidity and capital resources ” sections below . due to depreciable assets associated with the nature of the company 's operations and interest costs associated with valvoline 's capital structure , management believes ebitda is an important supplemental measure to evaluate the company 's operating results between periods on a comparable basis . management believes adjusted ebitda provides investors with a meaningful supplemental presentation of valvoline 's operating performance . adjusted ebitda excludes the impact of the following : 31 key items - key items consist of income or expenses associated with certain unusual , infrequent or non-operational income or expenses not directly attributable to the underlying business , which management believes impacts the comparability of operational results between periods . key items may consist of adjustments related to : the impairment of an equity investment ; legacy businesses , including the separation from ashland and associated impacts of related indemnities ; significant acquisitions or dispositions , restructuring-related matters , and other matters that are non-operational or unusual in nature . key items are considered by management to be outside the comparable operational performance of the business and are also often related to legacy matters or market-driven events that are not directly related to the underlying business and do not have an immediate , corresponding impact on the company 's ongoing performance . details with respect to the composition of key items recognized during the respective periods presented herein are set forth below in the “ ebitda and adjusted ebitda ” section of “ results of operations ” that follows . net pension and other postretirement plan income - net pension and other postretirement plan income includes several elements impacted by changes in plan assets and obligations that are primarily driven by changes in the debt and equity markets , as well as those that are predominantly legacy in nature and related to prior service to the company from employees ( e.g. , retirees , former employees , current employees with frozen benefits ) . these elements include ( i ) interest cost , ( ii ) expected return on plan assets , ( iii ) actuarial gains/losses , and ( iv ) amortization of prior service cost/credit . significant factors that can contribute to changes in these elements include changes in discount rates used to remeasure pension and other postretirement obligations on an annual basis or upon a qualifying remeasurement , differences between actual and expected returns on plan assets , and other changes in actuarial assumptions , such as the life expectancy of plan participants . accordingly , management considers that these elements are more reflective of changes in current conditions in global financial markets ( in particular , interest rates ) and are outside the operational performance of the business and are also primarily legacy amounts that are not directly related to the underlying business and do not have an immediate , corresponding impact on the compensation and benefits provided to eligible employees for current service . adjusted ebitda will continue to include pension and other postretirement service costs related to current employee service as well as the costs of other benefits provided to employees for current service . management uses free cash flow as an additional non-gaap metric of cash flow generation . by including capital expenditures and certain other adjustments as applicable , management is able to provide a better indication of the ongoing cash being generated that is ultimately available for both debt and equity holders as well as other investment opportunities . unlike cash flow from operating activities , free cash flow includes the impact of capital expenditures , providing a more complete picture of cash generation . free cash flow has certain limitations , including that it does not reflect adjustments for certain non-discretionary cash flows , such as mandatory debt repayments . the amount of mandatory versus discretionary expenditures can vary significantly between periods . valvoline 's results of operations are presented based on valvoline 's management structure and internal accounting practices . the structure and practices are specific to valvoline ; therefore , valvoline 's financial results , ebitda , adjusted ebitda and free cash flow are not necessarily comparable with similar information for other comparable companies . ebitda , adjusted ebitda and free cash flow each have limitations as analytical tools and should not be considered in isolation from , or as an alternative to , or more meaningful than , net income and cash flows from operating activities as determined in accordance with u.s. gaap . because of these limitations , net income and cash flows from operating activities should primarily be relied upon as determined in accordance with u.s. gaap and ebitda , adjusted ebitda , and free cash flow should be used only as supplements . in evaluating ebitda , adjusted ebitda , and free cash flow , one should be aware that in the future valvoline may incur expenses/income similar to those for which adjustments are made in calculating ebitda , adjusted ebitda , and free cash flow . valvoline 's presentation of ebitda , adjusted ebitda , and free cash flow should not be construed as a basis to infer that valvoline 's future results will be unaffected by unusual or nonrecurring items . story_separator_special_tag 32 results of operations story_separator_special_tag related to $ 75 million in new borrowings on the accounts receivable securitization facility entered into in the first fiscal quarter of 2017 and the issuance of notes in the aggregate principal amount of $ 400 million in the fourth fiscal quarter of 2017. income tax expense 2018 compared to 2017 income tax expense was $ 166 million for fiscal 2018 , or an effective tax rate of 50.0 % , compared to expense of $ 186 million , or an effective tax rate of 38.0 % for fiscal 2017. the increase in the effective tax rate is primarily due to the enactment of u.s. and kentucky tax reform legislation in fiscal 2018 , which resulted in a net increase in income tax expense of approximately $ 78 million 35 largely related to remeasurement of net deferred tax assets that more than offset benefits of the related reduction in the federal income tax rate for fiscal 2018 . 2017 compared to 2016 income tax expense for fiscal 2017 was $ 186 million , or an effective tax rate of 38.0 % , compared to an expense of $ 148 million , or an effective tax rate of 35.2 % for 2016. in fiscal 2017 , the effective tax rate was impacted by increased net pension and other postretirement plan income that generated income in higher tax rate jurisdictions , income tax expense resulting from the tax matters agreement activity with ashland , certain non-deductible separation costs , and the partial loss of certain tax deductions from the $ 394 million voluntary contribution to the u.s. qualified pension plan , partially offset by a benefit from a state valuation allowance release . ebitda and adjusted ebitda the following table reconciles net income to ebitda and adjusted ebitda for the years ended september 30 : replace_table_token_10_th ( a ) net pension and other postretirement plan income includes remeasurement gains and losses and recurring non-service pension and other postretirement net periodic income , which consists of interest cost , expected return on plan assets and amortization of prior service credit . refer to note 13 of the notes to consolidated financial statements included in item 8 of part ii of this annual report on form 10-k for further details . the increase in adjusted ebitda of $ 19 million in fiscal 2018 was primarily due to the performance of the quick lubes and international reportable segments that had favorable changes in volume , premium mix improvements in core north america and quick lubes , acquisitions in quick lubes , as well as the benefits from currency exchange and increased equity and other income , partially offset by higher planned investments in selling , general and administrative expense . the increase in adjusted ebitda of $ 7 million from fiscal 2016 to 2017 was primarily due to solid performance by the reportable segments , led by quick lubes , and offset by investments in the company 's stand-alone public company infrastructure . reportable segment review valvoline 's business is managed within the following three reportable segments : core north america - sells engine and automotive maintenance products in the united states and canada to retailers , installers and heavy-duty customers to service vehicles and equipment . quick lubes - services the passenger car and light truck quick lube market in the united states and canada through company-owned and independent franchised retail quick lube service center stores , as well as express care stores where independent operators service vehicles with valvoline products . international - sells engine and automotive maintenance products in approximately 140 countries outside of the united states and canada for the maintenance of consumer and commercial vehicles and equipment . results of valvoline 's reportable segments are presented based on how operations are managed internally , including how the results are reviewed by the chief operating decision maker . the structure and practices are specific to valvoline ; therefore , the financial results of its reportable segments are not necessarily comparable with similar information for other comparable companies . valvoline 's reportable segments are measured for profitability based on operating income ; therefore , valvoline does not generally allocate items to each reportable segment below operating income , such as net pension and other postretirement income , interest expense or income tax expense . valvoline allocates all items above operating income to its reportable segments except for certain significant corporate and 36 non-operational matters , including , but not limited to , company-wide restructuring activities and adjustments related to legacy businesses that valvoline no longer operates . due to the freeze of u.s. pension benefits effective september 30 , 2016 , continuing service costs are limited to certain international pension plans , and are reported in the reportable segment and caption of the consolidated statements of comprehensive income as the related employee payroll expenses . all remaining non-service and remeasurement components of pension and other postretirement benefits costs are recorded below operating income and attributed to unallocated and other . the following table presents sales , operating income and statistical operating information by reportable segment for the years ended september 30 : replace_table_token_11_th ( a ) gross profit is defined as sales , less cost of sales . ( b ) excludes volumes from unconsolidated subsidiaries . 37 core north america 2018 compared to 2017 core north america sales increased $ 31 million , or 3 % , to $ 1,035 million during fiscal 2018 , which was driven by higher product pricing as a result of the pass through of raw material cost increases . gross profit decreased approximately $ 25 million during fiscal 2018 compared to 2017. this decline was primarily related to higher raw material costs as compared to the prior year period and the lag between cost and price increases , which more than offset the benefits of pricing actions and premium product mix improvements .
| gross profit gross profit increased $ 30 million in fiscal 2018 compared to fiscal 2017 , and gross profit increased $ 28 million in fiscal 2017 compared to fiscal 2016. the following table provides a reconciliation of the changes : replace_table_token_8_th 33 2018 compared to 2017 the increase in gross profit was primarily driven by overall favorable changes in volume and premium mix , acquisitions of quick lubes service center stores , and favorable currency exchange . these increases were partially offset by the lag between cost and price increases during fiscal 2018. overall , gross profit benefited from performance in the quick lubes and international reportable segments , which was partially offset by margin pressures driven by raw material cost inflation and competitive pressures in the core north america reportable segment . gross profit margin was 35.3 % for fiscal 2018 compared to 37.2 % for fiscal 2017. the decrease in gross profit margin was primarily due to higher raw material costs , some of which had been passed through pricing , but had a dilutive effect to margin rate . 2017 compared to 2016 the increase in gross profit was primarily driven by overall favorable volume , changes in mix and acquisitions of quick lubes service center stores . these increases were partially offset by the lag between cost and price increases primarily due to base oil price increases in fiscal 2017. overall , gross profit benefited from performance in the quick lubes and international reportable segments , which was partially offset by margin pressures driven by raw material inflation in the core north america reportable segment . gross profit margin was 37.2 % for fiscal 2017 compared to 38.8 % for fiscal 2016. the decrease in gross profit margin was primarily due to higher raw material costs during 2017. the changes to reportable segment gross profit and the drivers thereof are discussed in further detail in “ reportable segment review ” below . net operating expenses the table below provides details of the components of net operating expenses during the years ended september 30 : replace_table_token_9_th 2018 compared to 2017 selling , general and administrative expenses increased $ 34 million during fiscal 2018 compared to 2017. acquisitions , depreciation and amortization as well as currency exchange contributed $ 14 million to the year-over-year increase . the remaining increases were primarily the result of planned investments in
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the declining commodity prices have adversely affected the revenues we receive for our royalty interests and could affect our ability to access the capital markets on terms favorable to us . additionally , in response to the declining commodity prices , many operators on our properties substantially reduced their capital expenditures during 2020 and have announced similarly reduced capital expenditures for 2021 and beyond , which has adversely affected the development of our properties and will continue to affect the development of our properties into 2021 and beyond . while these lower commodity prices initially resulted in some of the company 's operators shutting in or curtailing production from wells on its properties during the second quarter of 2020 , the company saw a majority of its operators resume production for previously curtailed and shut in wells in connection with the improvement of commodity prices in the third and fourth quarters of 2020. as a result of the shut-ins in the second quarter of 2020 and the depressed commodity prices , our revenues , cash flows from operations and dividend amounts 63 we are able to pay our stockholders have continued to be negatively impacted . we can not predict the extent and duration of these and other impacts on our business from the covid-19 pandemic , efforts to fight the pandemic and other market events . in connection with the previously mentioned covid-19 pandemic and resulting market and commodity price challenges experienced during 2020 , we saw reduced levels of potential acquisition opportunities , which could potentially delay our ability to execute on our growth strategy . with an improvement in commodity prices along with our financial strength , we are well positioned to capture attractive opportunities in 2021 that will generate shareholder value . given that our capital allocation is within our control , we believe that the liquidity provided by our cash flow from operations and borrowings under our revolving credit facility will provide us with sufficient capital to execute our current strategy . operational update mineral and royalty interest ownership update during the year ended december 31 , 2020 , the company completed 81 transactions acquiring 4,635 net royalty acres ( standardized to a 1/8th royalty interest ) for $ 66.5 million , in the permian , scoop/stack/merge , williston and dj basins . the company deployed approximately 92 % of its mineral acquisition capital in 2020 to the permian basin ( 70 % delaware and 22 % midland ) , 4 % to the anadarko basin , 2 % to the williston basin and 2 % to the dj basin . the acquired minerals are expected to deliver near-term production and cash flow growth with the addition of 165 gross ducs ( 0.6 net ducs ) and 97 gross permits ( 0.3 net permits ) to our inventory counts . as of december 31 , 2020 , the company owned roughly 86,285 net royalty acres , encompassing 13,496 gross ( 116.3 net ) undeveloped horizontal locations , across 37 counties in what the company views as the core of the permian basin in west texas and new mexico , the scoop/stack plays in the anadarko basin of oklahoma , the dj basin in colorado and wyoming and the williston basin in north dakota . the table below summarizes the company 's mineral and royalty interest ownership as of the dates indicated and changes in such ownership on an annual basis . replace_table_token_13_th operating activity update duc conversions in 2020 , the company identified approximately 628 gross ducs ( 4.7 net ducs ) converted to production , representing 70 % of its gross duc inventory ( 79 % of its net ducs ) as of year-end 2019 . 2020 conversions of gross wells by status are summarized in the graph below : drilling activity 64 during 2020 the company saw 381 gross ( 2.6 net ) wells spud on its acreage . 54 % of gross ( 70 % net ) wells spud were in the permian basin , with 35 % gross ( 60 % net ) wells spud in the delaware basin and 19 % gross ( 10 % net ) wells spud in the midland basin : duc and permit inventory the company expects any near-term production growth will be driven by the continued conversion of its duc and permit inventory . brigham 's duc and permit inventory as of december 31 , 2020 by basin is outlined in the table below : replace_table_token_14_th ( 1 ) individual amounts may not total due to rounding . how we evaluate our operations we use a variety of operational and financial measures to assess our performance . among the measures considered by management are the following : volumes of oil , natural gas and ngls produced ; number of rigs on location , permits , spuds , completions and wells turned-in-line ; commodity prices ; and adjusted ebitda and adjusted ebitda ex lease bonus . 65 volumes of oil , natural gas and ngls produced in order to track and assess the performance of our assets , we monitor and analyze our production volumes from the various resource plays that comprise our portfolio of mineral and royalty interests . we also regularly compare projected volumes to actual reported volumes and investigate unexpected variances . number of rigs on location , permits , spuds , completions and wells turned-in-line in order to track and assess the performance of our assets , we monitor and analyze the number of rigs currently drilling our properties . we also constantly monitor the number of permits , spuds , completions and wells on production that are applicable to our mineral and royalty interests in an effort to evaluate near-term production growth from the various basins and resource plays that comprise our asset base . commodity prices historically , oil , natural gas and ngl prices have been volatile and may continue to be volatile in the future . story_separator_special_tag during the past five years , the posted price for wti has ranged from a historic , record low price of negative ( $ 36.98 ) per barrel in april 2020 to a high of $ 77.41 per barrel in june 2018. the henry hub spot market price for natural gas has ranged from a low of $ 1.33 per mmbtu in september 2020 to a high of $ 6.24 per mmbtu in january 2018. as of december 31 , 2020 , the posted price for oil was $ 48.35 per barrel and the henry hub spot market price of natural gas was $ 2.36 per mmbtu . lower prices may not only decrease our revenues , but also potentially the amount of oil , natural gas and ngls that our operators can produce economically . the prices we receive for oil , natural gas and ngls vary by geographical area . the relative prices of these products are determined by factors affecting global and regional supply and demand dynamics , such as economic and geopolitical conditions , production levels , availability of transportation , weather cycles and other factors . in addition , realized prices are influenced by product quality and proximity to consuming and refining markets . any differences between realized prices and nymex prices are referred to as differentials . all of our production is derived from properties located in the united states . oil . the substantial majority of our oil production is sold at prevailing market prices , which fluctuate in response to many factors that are outside of our control . nymex light sweet crude oil , commonly referred to as wti , is the prevailing domestic oil pricing index . the majority of our oil production is priced at the prevailing market price with the final realized price affected by both quality and location differentials . the chemical composition of crude oil plays an important role in its refining and subsequent sale as petroleum products . as a result , variations in chemical composition relative to the benchmark crude oil , usually wti , will result in price adjustments , which are often referred to as quality differentials . the characteristics that most significantly affect quality differentials include the density of the oil , as characterized by its api gravity , and the presence and concentration of impurities , such as sulfur . location differentials generally result from transportation costs based on the produced oil 's proximity to consuming and refining markets and major trading points . natural gas . the nymex price quoted at henry hub is a widely used benchmark for the pricing of natural gas in the united states . the actual volumetric prices realized from the sale of natural gas differ from the quoted nymex price as a result of quality and location differentials . quality differentials result from the heating value of natural gas measured in btus and the presence of impurities , such as hydrogen sulfide , carbon dioxide and nitrogen . natural gas containing ethane and heavier hydrocarbons has a higher btu value and will realize a higher volumetric price than natural gas that is predominantly methane , which has a lower btu value . natural gas with a higher concentration of impurities will realize a lower volumetric price due to the presence of the impurities in the natural gas when sold or the cost of treating the natural gas to meet pipeline quality specifications . natural gas , which currently has a limited global transportation system , is subject to price variances based on local supply and demand conditions and the cost to transport natural gas to end-user markets . ngls . ngl pricing is generally tied to the price of oil , but varies based on differences in liquid components and location . oil and gas properties 66 under the full cost method of accounting , total capitalized costs of oil and natural gas properties , net of accumulated depletion and related deferred income taxes , may not exceed an amount equal to the present value of future net revenues from proved reserves , discounted at 10 % per annum ( `` pv-10 '' ) , plus the cost of unevaluated properties , less related income tax effects ( full cost ceiling limitation ) . a write-down of the carrying value of the full cost pool ( `` impairment charge '' ) is a noncash charge that reduces earnings and impacts equity in the period of occurrence and typically results in lower depletion expense in future periods . a ceiling limitation is calculated at each reporting period . the ceiling limitation calculation is prepared using an unweighted arithmetic average of oil prices ( `` sec oil price '' ) and natural gas prices ( `` sec gas price '' ) as of the first day of each month for the trailing 12-month period ended , as required under the guidelines established by the sec . as of december 31 , 2020 , 2019 and 2018 , the sec oil prices were $ 39.57 , $ 55.65 , and $ 65.66 , respectively , per barrel for oil , adjusted by area for energy content , transportation fees and regional price differentials , and the sec gas prices were $ 2.00 , $ 2.60 , and $ 3.12 , respectively , per mmbtu for natural gas , adjusted by area for energy content , transportation fees and regional price differentials .
| oil revenues for the year ended december 31 , 2020 decreased by 17 % , or $ 14.1 million , compared to the year ended december 31 , 2019. the decrease in oil revenues was primarily attributable to the 31 % decrease in realized oil price to $ 37.26 per barrel resulting in a decrease in revenue of $ 30.8 million . this was partially offset by a 20 % increase in oil production volumes to 4,980 barrels per day resulting in a $ 16.7 million increase in oil revenues . the increase in oil production volumes for the period was primarily attributable to increased drilling and completion activity on our properties in the permian basin . natural gas revenues for the year ended december 31 , 2020 increased by 7 % , or $ 0.7 million compared to the year ended december 31 , 2019. the increase in natural gas revenues was primarily attributable to the 23 % increase in natural gas production volume to 15,871 mcf/d resulting in a $ 2.3 million increase in natural gas sales . the increase in natural gas production volumes for the period was primarily attributable to increased drilling and completion activity on our properties in the permian basin . this was partially offset by a 13 % decrease in realized natural gas price to $ 1.80 per mcf resulting in a decrease in revenue of $ 1.6 million . ngl revenues for the year ended december 31 , 2020 increased by 29 % , or $ 1.8 million compared to the year ended december 31 , 2019. the increase in ngl revenues was primarily attributable to the 67 % increase in ngl volumes to 1,858 boe/d resulting in a $ 4.1 million increase in ngl sales was primarily attributable to increased drilling and completion activities on our properties in the permian basin . this was partially offset by a 23 % decrease in ngl prices to $ 11.61 per barrel resulting in a decrease in revenue of $ 2.3 million . lease bonus revenues for the year ended december 31 , 2020 increased by 51 % , or $ 1.8 million compared to the year ended december 31 , 2019. the increase was primarily attributable to an increase in leasing activity on our interests in texas , partially offset by
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00-21 , revenue arrangements with multiple deliverables , which requires us to satisfy the following before revenue can be recognized : ( 1 ) the delivered items have value to the customer on a stand-alone basis , ( 2 ) any undelivered items have objective and reliable evidence of fair value , and ( 3 ) delivery or performance is probable and within our control for any delivered items that have a right of return . we have determined that for these contracts the manufacturing and the research and development activities can be accounted for as separate units of accounting and we allocate the revenue to each unit based on relative fair value . we classify advance payments received in excess of amounts earned as deferred revenue . estimated restructure charges associated with the bothell facility we follow the provisions of statement of financial accounting standards no . 146 , or sfas no . 146 , accounting for costs associated with exit or disposal activities , as it relates to our facility in bothell , washington and we have recorded restructure charges on the related operating lease . accrued restructure charges , and in particular , those charges associated with exiting a facility , are subject to many assumptions and estimates . under sfas no . 146 , an accrued liability for lease termination costs is initially measured at fair value , based on the remaining lease payments due under the lease and other costs , reduced by sublease rental income that could be reasonably obtained from the property , and discounted using a credit-adjusted risk-free interest rate . our assumptions of estimated sublease rental income and the period of time and concessions that we estimate will be necessary to enter into a sublease can significantly impact our accrual for restructure charges and may differ from what actually occurs . we periodically evaluate these restructure estimates and assumptions and record additional restructure charges as necessary to reflect current market conditions and delays in subleasing the bothell facility . changes to our restructure estimates and assumptions can be material . in the fourth quarter of 2007 , we updated our sublease expectations to reflect our evaluation of our ability to sublease the bothell facility in light of tightening credit markets and deteriorating conditions in the bothell real estate market . based on a number of factors , including a continued increase in vacancy rates in the bothell market and an increase in available office space in the competing downtown real estate markets , we concluded that we will not be able to successfully sublease the facility . we removed our assumptions related to sublease income and the related tenant 32 improvements and recorded additional restructure charges of $ 1.2 million . as a result of periodic evaluations and updates , we have recorded $ 8.5 million in restructure charges for this property since december 2002 when we first established a restructure reserve for exiting the bothell facility . we also record accretion expense based upon the estimated remaining lease costs and the present value of these costs at an assumed discount rate of 10 % . we recorded accretion expense as a restructure charge of $ 727,000 in 2007 , $ 751,000 in 2006 and $ 577,000 in 2005. we will continue to evaluate any additional information that may become available with respect to the estimates and assumptions as they relate to the facility . if circumstances with the lease change , or if we decide to resume use of this facility , any remaining accrued restructure charges related to the facility will be reversed . this reversal would be reflected as a reduction of restructure expenses and a non-recurring gain in the period in which use is resumed . we are unable to determine the likelihood of any future adjustments to our accrued restructure charges . goodwill and other intangible assets when we purchased genovo , inc. in 2000 we recorded intangible assets of $ 39.5 million on our financial statements , which represented know-how , an assembled workforce and goodwill . between 2000 and 2002 we recognized $ 8.1 million of amortization of the goodwill and intangible assets and in 2002 we adopted sfas no . 142 , goodwill and other intangible assets , or sfas no . 142. sfas no . 142 discontinued amortization of goodwill and requires us to perform goodwill impairment tests annually or more frequently if events and changes in business conditions indicate that the carrying amount of our goodwill may not be recoverable . we assess any potential impairment using a two-step process . since we have only one reporting unit for purposes of applying sfas no . 142 , the first step requires us to compare the fair value of our total company as measured by market capitalization to the company 's net book value . if our fair value is greater , then no impairment is indicated . if our fair value is less than the net carrying value of our assets , we are required to perform the second step to determine the amount , if any , of goodwill impairment . in step two , the implied fair value of goodwill is calculated and compared to its carrying amount . if the goodwill carrying amount exceeds the implied fair value , an impairment loss must be recognized equal to that excess . the implied goodwill amount is determined by allocating our fair value to all of our assets and liabilities , including intangible assets such as in process research and development and developed technology as if the company had been acquired in a hypothetical business combination as of the date of the impairment test . in 2006 , we engaged an independent valuation firm to assist with the valuation , including the assessment of our estimated fair value and the hypothetical purchase price allocations . story_separator_special_tag as a result of an interim goodwill impairment test performed in 2006 , we recognized a non-cash loss on impairment of goodwill of $ 23.7 million based on an assessment that the implied value of goodwill was $ 7.9 million . since 2006 , based on our 2007 annual evaluation , we have had no further indications of impairment on our goodwill balance . the process of evaluating the potential impairment of goodwill is subjective and requires significant judgment . in estimating our fair value , we make estimates and judgments about our future revenues and cash flows , application of a discount rate , and the potential control premium relative to the market price of our stock at the valuation date . in estimating the fair value of our net assets , including intangible assets , we make estimates and judgments relating to the fair value of specific assets and liabilities . these estimates generally involve projections of the cash flows which may be provided by specific assets such as in process research and development , completed technology and trademarks and trade names , including assumptions as to the probability of bringing drug candidates to market , the timing of product development , the market size addressed by our potential products , and the application of discount rates . changes in these estimates could affect our conclusion as to whether an impairment has occurred and could significantly impact the amount of impairment recorded . 33 stock-based compensation prior to january 1 , 2006 , we had applied the intrinsic value method of accounting for stock awards granted to our employees and directors under the provisions of accounting principles board , or apb , opinion no . 25 , accounting for stock issued to employees , and related interpretations , as permitted by sfas no . 123 , accounting for stock-based compensation. accordingly , in 2005 we did not recognize any stock-based compensation expense for stock awards granted to employees or directors because we granted all options at fair market value on the date of grant . on january 1 , 2006 , we adopted sfas no . 123r , share-based payment , or sfas no . 123r . we have adopted the sfas no . 123r fair value recognition provisions using the modified prospective transition method . under the modified prospective method , compensation expense includes : ( a ) compensation cost for all share-based stock awards granted prior to , but not yet vested as of january 1 , 2006 , based on the grant-date fair value used for prior pro forma disclosures adjusted for forfeitures and ( b ) compensation cost for all stock awards granted subsequent to january 1 , 2006 , based on the grant-date fair value estimate in accordance with the provisions of sfas no . 123r . according to the guidelines of sfas no . 123r , we have not restated results for periods prior to january 1 , 2006. as a result of adopting sfas no . 123r , we recorded stock compensation expense of $ 966,000 for the year ended december 31 , 2007 and $ 861,000 for the year ended december 31 , 2006. this expense is classified as follows : replace_table_token_4_th determining the appropriate fair value model and calculating the fair value of stock awards requires the input of highly subjective assumptions , including the expected life of the share-based payment awards and stock price volatility . we based our volatility and expected life estimates on our historical data . the assumptions used in calculating the fair value of share-based payment awards represent our best estimates , but these estimates involve inherent uncertainties and the application of judgment . as a result , if factors change and we use different assumptions , our future stock-based compensation expense could be materially different from the amounts currently recorded in our financial statements . for example , in the fourth quarter of 2007 , we booked an additional $ 229,000 of stock-based compensation due to refinements to our estimates of forfeitures . in addition , we are required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest . if our actual forfeiture rate is materially different from our estimate , the stock-based compensation expense could be significantly different from what we have recorded in the current period . see note 1 of the notes to our consolidated financial statements for a further discussion on stock-based compensation . application of new accounting standards in september 2006 , the financial accounting standards board , or fasb , issued sfas no . 157 , fair value measurements , or sfas no . 157. sfas no . 157 provides guidance for using fair value to measure assets and liabilities and requires expanded information about the extent to which companies measure assets and liabilities at fair value , the information used to measure fair value , and the effect of fair value measurements on earnings . the standard applies whenever other standards require ( or permit ) assets or liabilities to be measured at fair value . the standard does not expand the use of fair value in any new circumstances . sfas no . 157 is effective for fiscal years beginning after november 15 , 2007. we are in the process of evaluating the effect of the adoption of sfas no . 157. in february 2007 , the fasb issued sfas no . 159 , the fair value option for financial assets and financial liabilities including an amendment of fasb statement no . 115 , or sfas no . 159. sfas no . 159 permits entities to choose to measure certain financial assets and liabilities at fair value . unrealized gains and losses on items for which the fair value option has been elected are reported in 34 earnings . sfas no .
| our research and development activity in support of this project began in the first quarter of 2006. revenue from our iavi collaboration decreased to $ 2.3 million in 2006 from $ 5.6 million in 2005 due to the progress of planned development activities and scheduled product manufacturing and the shift of the program toward support of clinical trials . we recognized $ 1.8 million in licensing revenue in 2006 from a license fee received from amt for a non-exclusive license to certain of our aav1 vector gene delivery system patent rights . we expect our 2008 revenue to consist primarily of research and development revenue from our collaboration with celladon and the niaid-funded hiv/aids vaccine subcontract with chop and nch . we expect that our revenue for 2008 will decrease from 2007 as our partnered programs emphasize clinical development in 2008 which results in fewer resources devoted to the manufacturing aspects of development . we expect our 2008 revenue generated from our celladon collaboration will be at approximately the same level as in 2007. our hiv/aids vaccine development revenue from the iavi and niaid-funded projects fluctuate year to year depending upon the scope of development efforts underway within each separate but complimentary program . for 2008 , our hiv/aids efforts are focused on advancing the niaid-funded hiv/aids vaccine efforts . accordingly we expect no levels of activity within the iavi-funded portion of our hiv/aids development work and we expect revenue under our niaid-funded hiv/aids vaccine collaboration to decrease compared to 2007 due to less development activity as the project will be focused primarily on clinical activities in 2008. our revenue for the next several years will depend on the successful achievement of milestones in our current product development collaborations and whether we enter into any new product development collaborations , manufacturing arrangements or licenses . operating expenses research and development . research and development expenses totaled $ 17.7 million in 2007 , compared to $ 14.5 million in 2006. this increase is due to increased research and development costs for the niaid-funded hiv/aids vaccine program in collaboration with chop and nch and costs incurred to support the initiation of clinical trials in may 2007
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annual highlights our net sales for fiscal 2012 increased by $ 26.4 million , or 3.9 % , to $ 700.6 million from net sales of $ 674.2 million for fiscal 2011. fiscal 2011 , a fifty-three week year , included the impact from an additional week of net sales of approximately $ 12.6 million . gross profit increased by $ 22.9 million and our gross profit margin , as a percentage of net sales , increased to 15.3 % from 12.5 % for fiscal 2011. total operating expenses for fiscal 2012 increased by $ 0.1 million from fiscal 2011. operating expenses for fiscal 2011 included $ 5.7 million for goodwill impairment . the total value of inventories on hand at the end of fiscal 2012 increased by $ 17.4 million , or 13.5 % , in comparison to the total value of inventories on hand at the end of fiscal 2011. nut acquisition costs remain at levels that are significantly higher than historical averages for most tree nuts and peanuts . we successfully implemented cashew product price increases during the second quarter of fiscal 2012 in response to higher cashew acquisition costs during the first quarter of fiscal 2012. as we anticipated , walnut commodity prices continued to increase during the third quarter of fiscal 2012. while we completed our 22 procurement of the current year crop of inshell walnuts during the second quarter of fiscal 2012 , the total payments to our walnut growers were not determined until the third quarter of fiscal 2012 , which is typical . the final prices paid to the walnut growers were based upon current market prices and other factors , such as crop quality . a final payment of less than $ 0.1 million remains to be paid to walnut growers as of june 28 , 2012 and is not subject to revision . peanut market prices for the 2011 crop have increased over 100 % in comparison to peanut market prices for the 2010 crop . this significant increase in peanut market prices was due to reduced acreage , reduced yields caused by drought conditions in the majority of the peanut growing areas in the united states and the poor quality of the 2010 crop carryover stocks . as a peanut sheller , we leveraged our longstanding relationships with our peanut farmers so that sufficient peanut acreage was planted to meet the majority of our peanut requirements . additionally , because we entered into forward purchase contracts with our peanut farmers prior to planting in february and march of 2011 and fixed our purchase costs at that time , we were therefore able to avoid a considerable portion of the year-over-year peanut market price increase . the reduced supply of domestic peanuts required us to purchase peanuts from argentina during the latter portion of fiscal 2012. we anticipate that peanut prices for the 2012 crop will decrease compared to prices for the 2011 crop since the major domestic peanut growing areas are not experiencing drought conditions , and planted acreage increased significantly . we anticipate that consumer demand for peanuts will return to historical levels as peanut prices decline . story_separator_special_tag to the ovh acquisition . income from operations . due to the factors discussed above , our income from our operations was $ 33.0 million , or 4.7 % of net sales , for fiscal 2012 , compared to $ 10.3 million , or 1.5 % of net sales , for fiscal 2011. interest expense . interest expense was $ 5.4 million for fiscal 2012 compared to $ 6.4 million for fiscal 2011. the decrease in interest expense was due primarily to lower average short-term borrowings and lower average interest rates on our short-term borrowings . rental and miscellaneous expense , net . net rental and miscellaneous expense was $ 1.4 million for fiscal 2012 compared to $ 1.0 million for fiscal 2011. income tax expense ( benefit ) . income tax expense was $ 9.1 million , or 34.7 % of income before income taxes , for fiscal 2012 compared to income tax benefit of ( $ 0.05 ) million , or ( 1.8 % ) of income before income taxes for fiscal 2011. the impact of the rate reconciling items for fiscal 2011 is greater than fiscal 2012 primarily because income before income taxes was lower in fiscal year 2011. the 2011 effective tax rate was impacted by the following : ( i ) $ 0.5 million favorable impact of state tax benefits due to favorable resolution of state tax audit , expected utilization of state investment tax credits , state tax rate changes and other tax provision adjustments ; ( ii ) $ 0.2 million favorable impact due to recognizing current year research and development credit and reinstatement of the prior year credit ; ( iii ) $ 0.3 million favorable impact related to the domestic producers deduction which increased to 9 % in 2011 from 6 % in 2010 ; and ( iv ) $ 0.1 million favorable impact due to a lower level of current year federal taxable income which is taxed at 34 % . consequently , we recognized a $ 0.05 million income tax benefit for fiscal 2011 despite reporting income before income taxes of $ 2.8 million . net income . net income was $ 17.1 million , or $ 1.60 basic and $ 1.58 diluted per common share , for fiscal 2012 , compared to $ 2.8 million , or $ 0.27 basic and $ 0.26 diluted per common share , for fiscal 2011 , due to the factors discussed above . fiscal 2011 compared to fiscal 2010 net sales . story_separator_special_tag our net sales increased 20.0 % to $ 674.2 million for fiscal 2011 from $ 561.6 million for fiscal 2010. including sales volume associated with ovh products , sales volume for fiscal 2011 increased by 3.8 % in comparison to sales volume for fiscal 2010. the increase in net sales was attributable primarily to price increases implemented during fiscal 2011. the sales volume increase primarily was driven by volume increases in the consumer and contract packaging distribution channel . the increase in sales volume in the consumer channel was attributable to sales of ovh products . the increase in sales volume in the contract packaging distribution channel was attributable to higher sales of chocolate covered products and peanuts . 25 the following table shows a comparison of sales by distribution channel ( dollars in thousands ) : replace_table_token_7_th the following summarizes sales by product type as a percentage of total gross sales . the information is based upon gross sales , rather than net sales , because certain adjustments , such as promotional discounts , are not allocable to product type . replace_table_token_8_th for both fiscal 2011 and fiscal 2010 , the largest component of the other product type was trail and snack mixes which include nut products . net sales in the consumer distribution channel increased by 25.0 % in dollars and 7.5 % in volume in fiscal 2011 compared to fiscal 2010. excluding ovh sales , sales volume decreased by 2.0 % in fiscal 2011 compared to fiscal 2010. private label consumer sales volume increased by 8.2 % in fiscal 2011 compared to fiscal 2010 due to ovh business . fisher brand sales volume decreased by 7.4 % in fiscal 2011 compared to fiscal 2010 , primarily due to decreases in fisher snack nut and fisher peanut butter business . net sales in the commercial ingredients distribution channel increased by 13.7 % in dollars , but decreased 6.4 % in sales volume in fiscal 2011 compared fiscal 2010. the sales volume decrease was primarily due to lower pecan and walnut sales resulting mainly from a limited supply of pecans and walnuts available for the commercial ingredients distribution channel and lower peanut sales to other peanut processors . these decreases were partially offset by higher peanut butter sales . net sales in the contract packaging distribution channel increased by 22.3 % in dollars and 18.9 % in volume in fiscal 2011 compared to fiscal 2010. the sales volume increase was due to increased sales of chocolate covered products and peanuts to our major contract packaging customer . net sales in the export distribution channel decreased by 4.0 % in dollars and 10.4 % in volume in fiscal 2011 compared to fiscal 2010. the decrease in sales volume was due primarily to lost business at a major export retail customer . gross profit . gross profit decreased 11.2 % to $ 84.2 million in fiscal 2011 from $ 94.8 million in fiscal 2010. our gross profit margin , as a percentage of net sales , decreased to 12.5 % for fiscal 2011 from 16.9 % for fiscal 2010. the decrease in the gross profit margin was almost entirely attributable to significantly higher acquisition costs for tree nuts , beginning in the second quarter of fiscal 2011 , to the extent that they were not offset by price increases implemented 26 during those periods . price increases were not fully implemented until the third quarter of fiscal 2011. increased global demand for tree nuts was the primary driver for the increase in acquisition costs . the decrease in gross profit margin was also due to lower gross profit margins on sales of walnuts and pecans because of the need to purchase high cost shelled walnuts and pecans in the spot market during the first quarter of fiscal 2011. the prices for shelled walnuts and pecans during the first quarter of fiscal 2011 were unusually high due to low inventories in the industry . shelled walnut purchases were made during the first quarter of fiscal 2011 to supply an increase in sales volume with existing customers that in many cases exceeded forecasted volume by a considerable amount . shelled pecan purchases were made during the first quarter of fiscal 2011 to supply new pecan business that started shipping in the fourth quarter of fiscal 2010 and continued into fiscal 2011 , and to supplement a shortfall in inshell pecan purchases from the 2009 crop due to the unprecedented amount of inshell pecans that were exported to china . the purchase of shelled walnuts and shelled pecans described in the preceding two sentences were generally made at prices that exceeded or were almost equal to the price at which we sold the products to our customers , which negatively impacted our gross profit margins . gross profit margins also declined on sales of cashews because of significantly higher acquisition costs . we also incurred $ 0.8 million in moving expenses in relocating ovh 's operations to our locations in gustine , california and elgin , illinois . operating expenses . selling and administrative expenses for fiscal 2011 decreased to 10.1 % of net sales from 11.6 % of net sales for fiscal 2010. selling expenses for fiscal 2011 were $ 44.3 million , an increase of $ 3.9 million , or 9.5 % , over the amount recorded for fiscal 2010. increases in selling expenses related to ( i ) compensation expense of $ 0.7 million , ( ii ) freight costs of $ 3.9 million , and ( iii ) marketing and promotional expenses of $ 1.4 million , which were partially offset by a $ 3.0 million decrease in incentive compensation expense , $ 0.7 million of which relates to the estimated forfeiture in fiscal 2011 of amounts previously accrued for incentive compensation in fiscal 2010. administrative expenses for fiscal 2011 were $ 23.9 million , a decrease of $ 0.7 million , or 2.8 % , from the amount recorded for fiscal 2010. increases in administrative expenses included ( i ) a $ 1.7 million increase in the projected earn-out payments
| the following summarizes sales by product type as a percentage of total gross sales . the information is based upon gross sales , rather than net sales , because certain adjustments from gross sales to net sales , such as promotional discounts , are not allocable to product type . replace_table_token_6_th for both fiscal 2012 and fiscal 2011 , the largest component of the other product type was trail and snack mixes which include nut products . net sales in the consumer distribution channel increased by 1.0 % in dollars , but decreased 12.7 % in sales volume in fiscal 2012 compared to fiscal 2011. private label consumer sales volume decreased by 10.3 % in fiscal 2012 compared to fiscal 2011 due primarily to the loss of low margin business at two customers who elected not to accept price increases . fisher brand sales volume decreased by 17.5 % in fiscal 2012 compared to fiscal 2011 , primarily due to decreases in fisher baking and snack nut business . however , recent market data has indicated that fisher baking nuts have gained significant market share in the overall baking nut category . sales volume for both private label and branded nut products were negatively affected by a decrease in consumer demand for nuts and nut products due to higher selling prices caused by higher commodity acquisition costs . sales volume , as measured in pounds sold to customers , also decreased due to the extra week in fiscal 2011 and a reduction in individual package sizes to lessen the impact of price increases . net sales in the commercial ingredients distribution channel increased by 9.8 % in dollars , but decreased 2.3 % in sales volume in fiscal 2012 compared fiscal 2011. in addition to the effect of the extra week in fiscal 2011 , the sales volume decrease was primarily due to lower pecan and walnut sales mainly from a limited supply of pecans and walnuts available for the commercial ingredients distribution
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research and development expense was as follows ( in thousands ) : replace_table_token_6_th 2012 v. 2011 research and development expense decreased $ 2.1 million , or 9 % from 2011 to 2012. the decrease was primarily attributable to a benefit of $ 3.5 million recognized in 2012 partially offset by an increase in non-recurring engineering expense of $ 1.3 million . the benefit recognized and the increase in non-recurring engineering expense are both related to the co-development agreement . the decrease was also attributable to a decrease of $ 0.3 million in outside services expense due to the timing of development activities and a decrease of $ 0.2 million from a reduction in direct labor costs and allocated overhead associated with the utilization of research and development engineers on license revenue agreements ; these costs were recorded in cost of revenue . these decreases were partially offset by an increase in compensation expense due to annual merit salary increases and variable compensation expense . 2011 v. 2010 research and development expense increased $ 0.1 million from 2010 to 2011. the increase is primarily attributable to a $ 1.1 million increase in compensation expense due primarily to annual merit salary increases . the increase is also due to a $ 0.8 million increase in depreciation and amortization expense due to intellectual property and engineering software tool additions . these increases were partially offset by a $ 1.3 million decrease in non-recurring engineering and outside services expense due to the timing of development activities . selling , general and administrative selling , general and administrative expense includes compensation and related costs for personnel , sales commissions , allocations for facilities and information technology expenses , travel , outside services and other general expenses incurred in our sales , marketing , customer support , management , legal and other professional and administrative support functions . selling , general and administrative expense was as follows ( in thousands ) : replace_table_token_7_th 2012 v. 2011 selling , general and administrative expense decreased $ 0.3 million , or 2 % , from 2011 to 2012. the decrease in selling , general and administrative expense is attributable primarily to a decrease in several expense categories as the company focused on cost management . the decrease is also attributable in part to decreases in compensation expense achieved by reduced headcount and a decrease in vacation expense . however , these reductions in compensation expense were partially offset by annual merit salary increases and increased variable compensation expense . 2011 v. 2010 selling , general and administrative expense increased $ 0.1 million , or 1 % , from 2010 to 2011. the increase in selling , general and administrative expense is primarily attributable to a $ 0.7 million increase in compensation expense due to annual merit salary increases and a $ 0.3 million increase in stock compensation expense . these increases were offset by a general decrease in most other expense categories as the company focused on cost management . 33 other income ( expense ) , net net other income ( expense ) consisted of the following ( in thousands ) : replace_table_token_8_th 1 interest expense and other , net consists of interest expense , interest income and amortization of debt issuance costs . the decrease from 2012 compared to 2011 and from 2011 compared to 2010 is primarily due to a decrease in interest expense and amortization of debt issuance costs attributable to the repayment of our convertible subordinated debentures in the second quarter of 2011 . 2 in the first quarter of 2011 , we sold certain patents and related rights and materials for proceeds and a net gain of $ 1.6 million . all of the patents were originally obtained by us during our june 2005 acquisition of equator technologies , inc. , and the underlying technologies pertain to markets that we no longer pursue . provision ( benefit ) for income taxes the provision ( benefit ) for income taxes was as follows ( in thousands ) : replace_table_token_9_th the income tax benefit recorded for the year ended december 31 , 2012 is comprised of a benefit of $ 1.5 million for the reversal of previously recorded tax contingencies due to the expiration of the applicable statute of limitations , partially offset by $ 0.9 million in current and deferred tax expense for our profitable cost-plus foreign entities and accruals for tax contingencies in foreign jurisdictions . the income tax expense recorded for the year ended december 31 , 2011 is comprised of $ 1.1 million in current and deferred tax expense for our profitable cost-plus foreign entities and accruals for tax contingencies in foreign jurisdictions , partially offset by a benefit of $ 1.0 million for the reversal of previously recorded tax contingencies due to the expiration of the applicable statutes of limitation . the income tax benefit recorded for the year ended december 31 , 2010 of $ 5.4 million was primarily due to the reversal of previously recorded tax contingencies due to the expiration of the applicable statutes of limitation , partially offset by current and deferred tax expense in profitable cost-plus foreign jurisdictions . we continue to record a full valuation allowance against our u.s. and canadian net deferred tax assets at december 31 , 2012 and 2011 as it is not more likely than not that we will realize a benefit from these assets in a future period . we have not provided a valuation allowance against any of our other foreign net deferred tax assets as we have concluded it is more likely than not that we will realize a benefit from these assets in a future period because our subsidiaries in these jurisdictions are cost-plus taxpayers . story_separator_special_tag as of december 31 , 2012 , we have federal , state and foreign net operating loss carryforwards of approximately $ 187.0 million , $ 32.8 million and $ 1.1 million , respectively , which will expire between 2013 and 2032. as of december 31 , 2012 , we have available federal , state and foreign research and experimentation tax credit carryforwards of approximately $ 7.7 million , $ 2.9 million and $ 1.9 million , respectively , which begin expiring in 2019. we have a general foreign tax credit of $ 2.9 million which will begin expiring in 2016. our ability to utilize our federal net operating losses may be limited by section 382 of the internal revenue code of 1986 , as amended ( the `` code '' ) , which imposes an annual limit on the ability of a corporation that undergoes an `` ownership change '' to use its net operating loss carryforwards to reduce its tax liability . an ownership change is generally defined as a greater than 50 % point increase in equity ownership by 5 % shareholders in any three-year period . 34 liquidity and capital resources cash and short- and long-term marketable securities our cash and cash equivalent and short- and long-term marketable securities were as follows ( in thousands ) : replace_table_token_10_th total cash and marketable securities decreased $ 1.7 million from 2011 to 2012. the decrease resulted primarily from $ 1.8 million used for payments on property and equipment and $ 2.1 million in payments on other asset financing , partially offset by $ 1.8 million provided by operating activities due primarily to changes in working capital . total cash and marketable securities decreased $ 14.7 million from 2010 to 2011. the decrease resulted primarily from $ 15.8 million used to repurchase our outstanding debentures , $ 3.0 million used to repay the outstanding balance on our line of credit , $ 2.8 million in payments on other asset financing , $ 2.7 million for purchases of property and equipment and other assets and $ 0.7 million used in operations . these decreases were partially offset by $ 8.3 million in net proceeds from our equity offering and $ 1.6 million in proceeds from the sale of patents . as of december 31 , 2012 , our cash and cash equivalents balance of $ 13.4 million consisted of $ 0.3 million in cash and $ 13.1 million in u.s. denominated money market funds . although we did not hold short- or long-term investments as of december 31 , 2012 , our investment policy requires that our portfolio maintains a weighted average maturity of less than 12 months . additionally , no maturities can extend beyond 24 months and concentrations with individual securities are limited . investments must be rated at least a-1 / p-1 / f-1 by at least two nationally recognized statistical rating organizations , and our investment policy is reviewed at least annually by our audit committee . although cash balances held at our foreign subsidiaries would be subject to u.s. taxes if repatriated , we have sufficient u.s. net operating losses to eliminate the liability associated with any such repatriation and foreign taxes due upon repatriation would not be significant . accounts receivable , net accounts receivable , net decreased to $ 3.8 million at december 31 , 2012 from $ 4.6 million at december 31 , 2011 . average number of days sales outstanding increased to 25 days at december 31 , 2012 from 24 days at december 31 , 2011 . inventories inventories decreased to $ 2.7 million at december 31 , 2012 from $ 4.1 million at december 31 , 2011 . inventory turnover decreased to 7.3 at december 31 , 2012 from 8.0 at december 31 , 2011 , primarily due to decreased cost of goods sold during the fourth quarter of 2012 compared to the fourth quarter of 2011. inventory turnover is calculated based on annualized quarterly operating results and average inventory balances during the quarter . capital resources short-term line of credit on december 21 , 2010 , we entered into a loan and security agreement ( the `` revolving loan agreement '' ) with silicon valley bank ( the `` bank '' ) . on december 14 , 2012 , we and the bank entered into amendment no . 1 to the revolving loan agreement . the revolving loan agreement , as amended , provides a secured working capital-based revolving line of credit ( the `` revolving line '' ) in an aggregate amount of up to the lesser of ( i ) $ 10.0 million , or ( ii ) $ 1.0 million plus 80 % of eligible domestic accounts receivable and certain foreign accounts receivable . in addition , the revolving loan agreement , as amended , provides for non-formula advances of up to $ 10.0 million which may be made solely during the last five business days of any fiscal month or quarter and which must be repaid by the company on or before the fifth business day after the applicable fiscal month or quarter end . due to their repayment terms , non-formula advances do not provide the company with usable liquidity . 35 the revolving loan agreement , as amended , contains customary affirmative and negative covenants as well as customary events of default . the occurrence of an event of default could result in the acceleration of the company 's obligations under the revolving loan agreement , as amended , and an increase to the applicable interest rate , and would permit the bank to exercise remedies with respect to its security interest . as of december 31 , 2012 , we were in compliance with all of the terms of the revolving loan agreement , as amended .
| 2011 v. 2010 net revenue decreased $ 4.9 million , or 7 % , from 2010 to 2011. revenue related to ic product sales was $ 63.6 million and $ 69.5 million for 2011 and 2010 , respectively . revenue related to the license of ip was $ 1.0 million 2011. there was no revenue related to the license of ip in 2010 the decrease in revenue related to ic product sales was attributable to a 24 % decrease in asp , partially offset by a 20 % increase in units sold . the decrease in asp was primarily due to a greater proportion of unit sales of our motionengine® co-processor ics , which have a lower price point than our other product lines . the decrease was also attributable to reduced pricing on our earlier generation digital projector products and changes in the mix of digital projector product sales . the increase in units sold was primarily attributable to increased sales into the advanced television market of our motionengine® co-processor ics as sales associated with recent design wins ramped in volume at top-tier advanced television market customers . this increase was partially offset by a decrease in digital projector unit sales which was primarily due to an inventory correction during the first half of 2011 . 31 cost of revenue and gross profit cost of revenue and gross profit were as follows ( in thousands ) : replace_table_token_5_th 1 includes purchased materials , assembly , test , labor , employee benefits , warranty expense and royalties . 2 includes direct labor costs and allocated overhead associated with license revenue arrangements . 3 includes charges to reduce inventory to lower of cost or market . 4 includes stock-based compensation and additional amortization of a non-cancelable prepaid royalty . 2012 v. 2011 cost of revenue decreased to 50 % of revenue in 2012 from 53 % of revenue in 2011. the decrease in cost of revenue as a percentage of revenue was due primarily to an increase in the recognition of higher margin licensing revenue during 2012 compared to 2011. the decrease was also due
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loans not individually reviewed are evaluated as a group using reserve factor percentages based on historical loss experience and the qualitative factors described above . in determining the appropriate level of the general pooled allowance , management makes estimates based on internal risk ratings , which take into account such factors as debt service coverage , loan-to-value ratios and external factors . estimates are periodically measured against actual loss experience . this evaluation is inherently subjective as it requires material estimates including , among others , exposure at default , the amount and timing of expected future cash flows on impaired loans , value of collateral , estimated losses on our commercial , construction and residential loan portfolios and historical loss experience . all of these estimates may be susceptible to significant change . while management analyzed its allowance in light of the covid-19 pandemic , such analysis will need to be continually refined and reviewed in light of the ongoing nature of the effects of the covid-19 pandemic . while management uses the best information available to make loan loss allowance evaluations , adjustments to the allowance may be necessary based on changes in economic and other conditions or changes in accounting guidance . in addition , the department and the fdic , as an integral part of their examination processes , periodically review our allowance for loan losses . the department and the fdic may require the recognition of adjustments to the allowance for loan losses based on their judgment of information available to them at the time of their examinations . to the extent that actual outcomes differ from management 's estimates , additional provisions to the allowance for loan losses may be required that would adversely affect earnings in future periods . investment and mortgage-backed securities available for sale . where quoted prices are available in an active market , securities are classified within level 1 of the valuation hierarchy . if quoted market prices are not available , then fair values are estimated using quoted prices of securities with similar characteristics or discounted cash flows and are classified within level 2 of the fair value hierarchy . in certain cases where there is limited activity or less transparency around inputs to the valuation , securities are classified within level 3 of the valuation hierarchy , although there were no securities with that classification as of september 30 , 2020 or 2019 . 54 management evaluates securities for other-than-temporary impairment at least on a quarterly basis , and more frequently when economic or market concerns warrant such evaluation . in light of the covid-19 pandemic , management is taking into account the effects the pandemic may have on securities and their impairment . the company determines whether the unrealized losses are temporary or are considered other than temporary . the company determines whether the unrealized losses are temporary in accordance with u.s. gaap . the evaluation is based upon factors such as the creditworthiness of the issuers/guarantors , the underlying collateral , if applicable , and the continuing performance of the securities . in addition , the company also considers the likelihood that the security will be required to be sold by a regulatory agency , our internal intent not to dispose of the security prior to maturity and whether the entire cost basis of the security is expected to be recovered . in determining whether the cost basis will be recovered , management evaluates other facts and circumstances that may be indicative of an other-than-temporary impairment condition . this includes , but is not limited to , an evaluation of the type of security , length of time and extent to which the fair value has been less than cost , and near-term prospects of the issuer . in addition , certain assets are measured at fair value on a non-recurring basis ; that is , the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances ( for example , when there is evidence of impairment ) . the company measures impaired loans and loans transferred into real estate owned at fair value on a non-recurring basis . valuation techniques and models utilized for measuring financial assets and liabilities are reviewed and validated by the company at least quarterly . derivatives . the company uses interest rate swaps and caps as part of its interest rate risk management strategy . interest rate swaps designated as cash flow hedges involve the payment of either fixed or variable-rate amounts in exchange for the receipt of variable or fixed-rate amounts from a counterparty , respectively . the company uses interest rate swaps to manage its exposure to changes in fair value . interest rate swaps designated as fair value hedges involve the receipt of variable-rate payments from a counterparty in exchange for the company making fixed-rate payments over the life of the agreements without the exchange of the underlying notional amount . income taxes . the company accounts for income taxes in accordance with u.s. gaap . the company records deferred income taxes that 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 . management exercises significant judgment in the evaluation of the amount and timing of the recognition of the resulting tax assets and liabilities . the judgments and estimates required for the evaluation are updated based upon changes in business factors and the tax laws . if actual results differ from the assumptions and other considerations used in estimating the amount and timing of tax recognized , there can be no assurance that additional expenses will not be required in future periods . in evaluating our ability to recover deferred tax assets , we consider all available positive and negative evidence , including our past operating results and our forecast of future taxable income . story_separator_special_tag in determining future taxable income , we make assumptions for the amount of taxable income , the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies . these assumptions require us to make judgments about our future taxable income and are consistent with the plans and estimates we use to manage our business . any reduction in estimated future taxable income may require us to record an additional valuation allowance against our deferred tax assets . an increase in the valuation allowance would result in additional income tax expense in the period and could have a significant impact on our future earnings . u.s. gaap prescribes a minimum probability threshold that a tax position must meet before a financial statement benefit is recognized . the company recognizes , when applicable , interest and penalties related to unrecognized tax benefits in the provision for income taxes in the consolidated income statement . assessment of uncertain tax positions requires careful consideration of the technical merits of a position based on management 's analysis of tax regulations and interpretations . significant judgment may be involved in the assessment of the tax position . 55 recent accounting pronouncements information regarding recent accounting pronouncements is included in note 2 to the consolidated financial statements set forth in item 8 hereto . derivative financial instruments , contractual obligations and other off balance sheet arrangements derivative financial instruments include futures , forwards , interest rate swaps , option contracts , and other financial instruments with similar characteristics . to remain competitive in our local lending area and to support the company 's asset/liability positioning , on occasion the bank enters into interest rate swap contracts to control its funding costs . in addition , these instruments involve , to varying degrees , elements of credit and interest rate risk in excess of the amount recognized in the consolidated statements of financial condition . commitments to extend credit generally have fixed expiration dates and may require additional collateral from the borrower if deemed necessary . commitments to extend credit are not recorded as an asset or liability by us until the instrument is exercised . commitments the following table summarizes our outstanding commitments to originate loans and to advance additional amounts pursuant to outstanding letters of credit , lines of credit and undisbursed construction loans at september 30 , 2020 . replace_table_token_27_th contractual cash obligations the following table summarizes our contractual cash obligations at september 30 , 2020 . replace_table_token_28_th average balances , net interest income , and yields earned and rates paid . the following table shows for the periods indicated the total dollar amount of interest from average interest-earning assets and the resulting yields , as well as the interest expense on average interest-bearing liabilities , expressed both in dollars and rates , and the net 56 interest margin . all average balances are based on monthly balances . management does not believe that the monthly averages differ significantly from what the daily averages would be . replace_table_token_29_th ( 1 ) tax-exempt yields have been adjusted to a tax-equivalent basis . ( 2 ) includes nonaccrual loans during the respective periods . calculated net of deferred fees and discounts , loans in process and the allowance for loan losses . ( 3 ) equals net interest income divided by average interest-earning assets . rate/volume analysis . the following table shows the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities affected our interest income and expense during the periods indicated . for each category of interest-earning assets and interest-bearing liabilities , information is provided on changes attributable to ( 1 ) changes in rate , which is the change in rate multiplied by prior year volume , and ( 2 ) changes in 57 volume , which is the change in volume multiplied by prior year rate . the combined effect of changes in both rate and volume has been allocated proportionately to the change due to rate and the change due to volume . replace_table_token_30_th comparison of financial condition at september 30 , 2020 and september 30 , 2019 the company had total assets of $ 1.2 billion at september 30 , 2020 compared to $ 1.3 billion at september 30 , 2019. at september 30 , 2020 , the investment portfolio had decreased by $ 138.3 million to $ 443.2 million as compared to $ 581.5 million at september 30 , 2019 primarily as a result of investment securities sales , calls and paydowns of amortizing mortgage-backed securities . net loans receivable increased slightly by $ 2.8 million to $ 588.3 million at september 30 , 2020 from $ 585.5 million at september 30 , 2019 due primarily to the continued intense competition for quality loans combined with the uncertain economic climate created by the covid-19 pandemic . in addition , the company sold a $ 14.0 million package of long-term , fixed-rate mortgage loans as part of its strategy to address interest-rate margin compression as well as sold the ppp loans generated in the third quarter of fiscal 2020 as discussed below . total liabilities were $ 1.1 billion at both september 30 , 2020 and september 30 , 2019. deposits increased by $ 25.5 million to $ 770.9 million at september 30 , 2020 from $ 745.4 million at september 30 , 2019. the increase was primarily in demand deposit and money market products . fhlb borrowings decreased by $ 91.7 million to $ 285.3 million at september 30 , 2020 from $ 376.9 million at september 30 , 2020 as the company allowed higher costing fhlb borrowings to run-off as they mature in order to reduce its cost of funds . total stockholders ' equity decreased by $ 10.5 million to $ 129.1 million at september 30 , 2020 from $ 139.6 million at september 30 , 2019. the decrease was primarily due to treasury stock purchases , net of stock plan activity , totaling $ 9.5
| the increase in interest expense was due to a $ 74.7 million increase in the average balance of interest-bearing liabilities used to fund growth during fiscal 2020. the weighted average cost of borrowings and deposits decreased by 12 basis points to 1.79 % for fiscal 2020 from 1.91 % for fiscal 2019 . 2019 vs. 2018. for the fiscal year ended september 30 , 2019 , net interest income increased by $ 37,000 to $ 24.8 million as compared to $ 24.7 million for fiscal 2018. the $ 9.2 million , or 26.4 % , increase in interest income in fiscal 2019 , was offset by a $ 9.2 million , or 90.3 % , increase in interest paid on deposits and borrowings . the increase in interest income was primarily due to the increase in the average balance of earning assets and the emphasis on increased investment in commercial real estate and construction and land development loans . the average balance of interest-earning assets increased by $ 200.9 million , or 21.8 % , from fiscal 2018. the weighted-average yield on interest-earning assets increased by 15 basis points to 3.92 % for the fiscal year ended september 30 , 2019 from 3.77 % for fiscal 2018. the weighted average cost of borrowings and deposits increased to 1.91 % during the fiscal year ended september 30 , 2019 from 1.23 % for fiscal 2018 primarily due to increases in market rates of interest , reflecting in part the competitive market for deposits , particularly time deposits , in the areas in which the company operates , as well increases in market rates of interest . provision for loan losses . 2020 vs. 2019 . the company recorded provisions for loan losses of $ 3.0 million for the fiscal year ended september 30 , 2020 , compared to a $ 100,000 provision for loan losses for fiscal 2019 , primarily due to the continued uncertainty associated with the economic effects of the covid-19 pandemic , especially in light of the increasing level of cases of covid-19 in recent months , and the potential credit deterioration caused thereby .
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an amount attributable to contract claims is included in revenues when realization is probable and the amount can be reasonably estimated . the company generally provides a one to two-year warranty for workmanship under its contracts . warranty claims historically have been insignificant . the accuracy of our revenue and profit recognition in a given period is dependent on the accuracy of our estimates of the revenues and costs to finish uncompleted contracts . our estimates for all of our significant contracts use a highly detailed “ bottom up ” approach , and we believe our experience allows us to produce reliable estimates . however , our projects can be highly complex , and in almost every case , the profit margin estimates for a contract will either increase or decrease to some extent from the amount that was originally estimated at the time of bid . because we have a large number of projects of varying levels of size and complexity in process at any given time , these changes in estimates can sometimes offset each other without materially impacting our overall profitability . however , large changes in revenue or cost estimates can have a significant effect on profitability . there are a number of factors that can contribute to changes in estimates of contract cost and profitability . the most significant of these include the completeness and accuracy of the original bid , recognition of costs associated with scope changes , extended overhead due to customer-related and weather-related delays , subcontractor and supplier performance issues , site conditions that differ from those assumed in the original bid ( to the extent contract remedies are unavailable ) , the availability and skill level of workers in the geographic location of the project and changes in the availability and proximity of materials . the foregoing factors , as well as the stage of completion of contracts in process and the mix of contracts at different margins , may cause fluctuations in gross profit between periods , and these fluctuations may be significant . results for 2011 were adversely affected by a $ 11.8 million net charge as a result of revisions to estimated profitability on a number of construction projects . see “ recent developments ― financial results for 2011 , operational issues and outlook for 2012 financial results ” above and “ results of operations ― fiscal year ended december 31 , 2011 compared with fiscal year ended december 31 , 2010 for further discuss of the impact on our financial results . contracts receivable , including retainage contracts receivable are generally based on amounts billed to the customer . at december 31 , 2011 and 2010 , contracts receivable included $ 22.6 million and $ 22.9 million of retainage , respectively , discussed below , which is being withheld by customers until completion of the contracts , and at december 31 , 2010 , there were $ 3.7 million of unbilled receivables on contracts completed or substantially completed at that date . all other contracts receivable include only balances approved for payment by the customer . many of the contracts under which the company performs work contain retainage provisions . retainage refers to that portion of billings made by the company but held for payment by the customer pending satisfactory completion of the project . unless reserved , the company assumes that all amounts retained by customers under such provisions are fully collectible . retainage on active contracts is classified as a current asset regardless of the term of the contract and is generally collected within one year of the completion of a contract . based upon a review of outstanding contracts receivable , historical collection information and existing economic conditions , management has determined that all contracts receivable at december 31 , 2011 and 2010 are fully collectible , and , accordingly , no allowance for doubtful accounts against contracts receivable is necessary . contracts receivable are written off based on individual credit evaluation and specific circumstances of the customer , when such treatment is warranted . 30 valuation of long-lived assets . long-lived assets , which include property , equipment and acquired intangible assets , including goodwill , are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . impairment evaluations involve fair values and management estimates of useful asset lives and future cash flows . actual useful lives and cash flows could be different from those estimated by management , and this could have a material effect on operating results and financial position . goodwill must be reviewed for impairment at least annually , and we completed our annual impairment review for historical goodwill during the fourth quarter of 2011. it indicated an impairment in goodwill of $ 67.0 million , which has been recognized as a charge in 2011. at december 31 , 2011 , we had goodwill with a remaining carrying amount of approximately $ 54.1 million . income taxes . deferred tax assets and liabilities are recognized based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities . we regularly review our deferred tax assets for recoverability and , where necessary , establish a valuation allowance . we are subject to the alternative minimum tax , or amt , and payments of amt result in a reduction of our deferred tax liability . segment reporting . we operate in one segment and have only one reportable segment and one reporting unit component , heavy civil construction . in making this determination , we considered that each project has similar characteristics , includes similar services and similar types of customers and is subject to similar regulatory and economic environments . we organize , evaluate , and manage our financial information around each project when making operating decisions and assessing overall performance . story_separator_special_tag even if our local offices were to be considered separate components of our heavy civil construction operating segment , those components could be aggregated into a single reporting unit for purposes of testing goodwill for impairment under asc 280 and eitf d-101 because our local offices all have similar economic characteristics and are similar in all of the following areas : · the nature of the products and services — each of our local offices perform similar construction projects — they build , reconstruct and repair roads , highways , bridges , light and commuter rail and water , waste water and storm drainage systems . · the nature of the production processes — our heavy civil construction services rendered in the construction production process for each of our construction projects performed by each local office is the same — they excavate dirt , remove existing pavement and pipe , lay aggregate or concrete pavement , pipe and rail and build bridges and similar large structures in order to complete our projects . · the type or class of customer for products and services — substantially all of our customers are state departments of transportation , cities , counties , and regional water , rail and toll-road authorities . a substantial portion of the funding for the state departments of transportation to finance the projects we construct is furnished by the federal government . · the methods used to distribute products or provide services — the heavy civil construction services rendered on our projects are performed primarily with our own field work crews ( laborers , equipment operators and supervisors ) and equipment ( backhoes , loaders , dozers , graders , cranes , pug mills , crushers , and concrete and asphalt plants ) . · the nature of the regulatory environment — we perform substantially all of our projects for federal , state and municipal governmental agencies , and all of the projects that we perform are subject to substantially similar regulation under u.s. and state department of transportation rules , including prevailing wage and hour laws ; codes established by the federal government and municipalities regarding water and waste water systems installation ; and laws and regulations relating to workplace safety and worker health of the u.s. occupational safety and health administration and to the employment of immigrants of the u.s. department of homeland security . the economic characteristics of our local offices are similar . while profit margin objectives included in contract bids have some variability from contract to contract , our profit margin objectives are not differentiated by our chief operating decision maker or our office management based on local office location . instead , the projects undertaken by each local office are primarily competitively-bid , fixed-unit or negotiated lump-sum price contracts , all of which are bid based on achieving gross margin objectives that reflect the relevant skills required , the contract size and duration , the availability of our personnel and equipment , the makeup and level of our existing backlog , our competitive advantages and disadvantages , prior experience , the contracting agency or customer , the source of contract funding , anticipated start and completion dates , construction risks , penalties or incentives and general economic conditions . 31 story_separator_special_tag text-indent : 18pt ; display : block ; margin-left : 0pt ; margin-right : 0pt '' > · delays in quickly identifying and taking measures to address issues which arose during production . at december 31 , 2011 , we had approximately 83 contracts-in-progress which were less than 90 % complete of various sizes , of different expected profitability and in various stages of completion . the nearer a contract progresses toward completion , the more visibility we have in refining our estimate of total revenues ( including incentives , delay penalties and change orders ) , costs and gross profit . thus gross profit as a percent of revenues can increase or decrease from comparable and sequential quarters due to variations among contracts and depending upon the stage of completion of contracts . general and administrative expenses , net of other income . general and administrative expenses for 2011 included $ 0.7 million related to litigation and acquisition related costs which are shown separately in the table above . in addition , 2011 included the general and administrative expenses of the two companies we acquired on august 1 , 2011 as well as an increase in salaries , wages and related benefits primarily resulting from added positions . offsetting these increases was a decrease in bonus compensation resulting from lower earnings for the period . as a percent of revenues , general and administrative expenses decreased to 5.1 % in 2011 compared with 5.4 % in 2010. goodwill impairment . during the fourth quarter of 2011 , the company completed an evaluation of the carrying value of goodwill resulting in an impairment charge of $ 67.0 million . this charge had an impact of $ 41.8 million on the net loss attributable to sterling common stockholders ( net of the related tax benefits and reduced for the amount attributable to noncontrolling interest owners ) or $ 2.55 per diluted share . see note 8. income taxes . our effective income tax rates for 2011 and 2010 were 32.9 % and 28.1 % , respectively , and varied from the statutory rate primarily as a result of net income attributable to noncontrolling interest owners which is taxed to those owners rather than sterling . in addition , the effective tax rate for 2011 was impacted by the portion of the goodwill impairment attributable to goodwill that is not deductible for tax purposes . net income attributable to noncontrolling interests . net income attributable to noncontrolling interest owners decreased in 2011 compared with 2010 as a result of the $ 6.7 million impact for the impairment of goodwill attributable to noncontrolling interest owners .
| we believe that the company is in sound financial condition and has the resources and management experience to weather current market conditions and to continue to compete successfully for projects as they become available at acceptable profit margin levels . see “ item 1. business — markets and customers — our markets ” for a more detailed discussion of our markets and their funding sources . fiscal year ended december 31 , 2011 compared with fiscal year ended december 31 , 2010. replace_table_token_5_th nm – not meaningful . revenues . revenues increased 9.0 % or $ 41.3 million in fiscal year 2011 compared with fiscal year 2010. this increase was primarily due to increased production levels in 2011 as a result of execution on contracts awarded in our texas markets in 2010 , increased revenues resulting from a higher level of activity on joint ventures in which we participate , primarily in utah , and $ 19.5 million in revenues in arizona and california attributable to the jbc and myers which were acquired on august 1 , 2011. revenues for our nevada operations declined from the prior year due to fewer construction contracts , and in texas the increase in revenues between the periods was less than expected due to severe adverse weather conditions during the first quarter of 2011 and delays by the customer in starting two sizable contracts . 32 gross profit . gross profit decreased $ 22.8 million for 2011 compared with the prior year and gross margins declined to 8.0 % from 13.6 % in 2010 due to net downward revisions of estimated revenues and gross margins on a number of construction projects , primarily in texas . the net revisions to contract estimates were the result of different factors affecting various contracts , some positively and some negatively . while there are a number of factors which cause the costs incurred and gross profit realized on our contracts to vary , sometimes substantially , from our original projections , the primary factors which caused the net charge in 2011 were : · onsite conditions that differed from those assumed
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we believe some of the most important trends in our industry are the continued long-term growth in internet traffic and a decline in internet access prices on a per megabit basis . the effective price per megabit for our corporate customers is declining as the bandwidth utilization and connection size of our corporate customer connections increases . as internet traffic continues to grow and prices per unit of traffic continue to decline , we believe we can continue to load our network and gain market share from less efficient network operators . however , continued erosion in internet access prices will likely have a negative impact on the rate at which we can increase our revenues and our profitability . our revenue may also be negatively affected if we are unable to grow our internet traffic or if the rate of growth of internet traffic does not offset the expected decline in per unit pricing . we do not know if internet traffic will increase or decrease , or the rate at which it will grow or decrease . changes in internet traffic will be a function of the number of users , the amount of time users spend on the internet , the applications for which the internet is used , the bandwidth intensity of these applications and the pricing of internet services , and other factors . the growth in internet traffic has a more significant impact on our net-centric customers who represent the majority of the traffic on our network and who tend to consume the majority of their allocated bandwidth on their connections . net-centric customers tend to purchase their service on a price per megabit basis . our corporate customers tend to utilize a small portion of their allocated bandwidth on their connections and tend to purchase their service on a per connection basis . we are a facilities-based provider of internet access and communications services . facilities-based providers require significant physical assets , or network facilities , to provide their services . typically when a facilities-based network services provider begins providing its services in a new jurisdiction losses are incurred for several years until economies of scale have been achieved . our foreign operations are in europe , canada , mexico and japan . europe accounts for roughly 75 % of our foreign operations . our european operations have incurred losses and will continue to do so until our european customer base and revenues have grown sufficiently to achieve economies of scale . due to our strategic acquisitions of network assets and equipment , we believe we are well positioned to grow our revenue base . we continue to purchase and deploy network equipment to parts of our network to maximize the utilization of our assets and to expand and increase the capacity of our network . our future capital expenditures will be based primarily on the expansion of our network , the 28 addition of on-net buildings and the concentration and growth of our customer base . we plan to continue to expand our network and to increase the number of on-net buildings we serve including multi-tenant office buildings and carrier neutral data centers . many factors can affect our ability to add buildings to our network . these factors include the willingness of building owners to grant us access rights , the availability of optical fiber networks to serve those buildings , the cost to connect buildings to our network and equipment availability . story_separator_special_tag style= '' font-family : times ; '' > income tax benefit ( expense ) . our income tax benefit was $ 49.7 million for 2013 and our income tax expense was $ 0.8 million for 2012. the net income tax benefit for 2013 includes income tax benefits of approximately $ 50.2 million resulting primarily from the reduction of the valuation allowance on net deferred tax assets related to our operations in the united states , and $ 0.5 million of income tax expense related to our european and canadian operations . at each balance sheet date , we assess the likelihood that we will be able to realize our deferred tax assets . we consider all available positive and negative evidence in assessing the need for a valuation allowance . as of december 31 , 2013 , we recorded an income tax benefit of $ 50.2 million ( including $ 49.3 million related to our us federal deferred tax assets ) since we determined that we no longer required a valuation allowance against our us deferred tax assets . we continue to maintain a valuation allowance against our european and other foreign deferred tax assets and our deferred tax assets limited under section 382 of the internal revenue code in the united states . section 382 limits the utilization of net operating losses when ownership changes , as defined by that section , occur . we have performed an analysis of our section 382 ownership changes and we have determined that the utilization of certain of our net operating loss carryforwards in the united states is limited . our net operating losses related to our foreign operations are generally not subject to similar limitations . the net income tax expense for 2012 includes united states state income taxes of $ 1.4 million and a state income tax benefit of $ 2.4 million resulting from the reversal of uncertain tax benefits due to the expiration of specific state statutes of limitation and the closing of a state income tax audit , $ 1.7 million of income tax expense related to our canadian operations and $ 0.1 million of income tax expense related to our european operations . buildings on-net . as of december 31 , 2013 and 2012 we had a total of 1,990 and 1,867 on-net buildings connected to our network , respectively . story_separator_special_tag year ended december 31 , 2012 compared to the year ended december 31 , 2011 our management reviews and analyzes several key financial measures in order to manage our business and assess the quality of and variability of our service revenue , operating results and cash flows . the following summary tables present a comparison of our results of operations for the years 31 ended december 31 , 2012 and 2011 with respect to certain key financial measures . the comparisons illustrated in the tables are discussed in greater detail below . replace_table_token_7_th nmnot meaningful ( 1 ) includes non-cash equity-based compensation expense of $ 529 and $ 510 for 2012 and 2011 , respectively , which , if excluded would have resulted in a period-to-period change of 8.7 % . ( 2 ) includes non-cash equity-based compensation expense of $ 7,794 and $ 7,185 for 2012 and 2011 , respectively , which , if excluded would have resulted in a period-to-period change of 3.3 % . replace_table_token_8_th service revenue . our service revenue increased 3.8 % from $ 305.5 million for 2011 to $ 317.0 million for 2012. exchange rates negatively impacted the increase in service revenue by approximately $ 5.4 million . all foreign currency comparisons herein reflect results for 2012 translated at the average foreign currency exchange rates for 2011. for 2012 and 2011 , on-net , off-net and non-core revenues represented 73.4 % , 25.8 % and 0.8 % and 76.3 % , 22.8 % and 0.9 % of our service revenue , respectively . in january 2012 , our largest ( net-centric ) customer , who represented approximately 5.5 % of our 2011 service revenue , was indicted by the us government and as a result our on-net service to this customer and the associated revenue terminated in january 2012. the loss of this on-net net-centric customer negatively impacted our revenue growth rate in 2012. revenue from our corporate and net-centric customers represented 51.5 % and 48.5 % of our service revenue , respectively , for 2012 , and represented 48.9 % and 51.1 % of our service revenue , 32 respectively , for 2012. revenue from corporate customers increased 9.2 % from $ 149.4 million for 2011 to $ 163.1 million for 2012. revenue from our net-centric customers decreased 1.4 % from $ 156.1 million for 2011 to $ 153.8 million for 2012. the decrease in net-centric revenue is attributed to the loss of our largest net-centric customer noted above . our on-net revenue decreased 0.2 % from $ 233.0 million for 2011 to $ 232.6 million for 2012. we increased the number of our on-net customer connections by 17.1 % to 29,875 at december 31 , 2012 from 25,518 at december 31 , 2011. the loss of our largest on-net customer in january 2012 and the negative impact of foreign exchange negatively impacted our on-net revenue growth rate from 2011 to 2012. additionally , our on-net customer connections increased at a greater rate than our on-net revenue due to a 16.4 % decline in our on-net arpu , resulting primarily from an arpu reduction for our net-centric customers . arpu is determined by dividing revenue for the period by the average customer connections for that period . our average price per megabit for our installed base of customers is determined by dividing the aggregate monthly recurring fixed charges for those customers by the aggregate committed data rate for those customers . the decline in on-net arpu is partly attributed to volume and term based pricing discounts . further , our on-net customers who cancel their service from our installed base of customers , in general , have an arpu that is greater than the arpu from our new on-net customers primarily due to declining prices for our on-net services sold to our net-centric customers . these trends and events resulted in a 16.4 % reduction to our on-net arpu and a 6.4 % decline in our average price per megabit . our off-net revenue increased 17.6 % from $ 69.6 million for 2011 to $ 81.9 million for 2012. our off-net customer connections increased 14.0 % from 3,915 at december 31 , 2011 to 4,465 at december 31 , 2012. our off-net revenue increased at a greater rate than our off-net customer connections due to a 4.5 % increase in our off-net arpu . during 2012 , our off-net customers who canceled their service with us , in general , had an arpu that was lower than our new off-net customers who generally purchased higher-bandwidth connections which carry a higher arpu . our non-core revenue decreased 13.7 % from $ 2.8 million for 2011 to $ 2.5 million for 2012. the number of our non-core customer connections decreased 16.6 % from 565 at december 31 , 2011 to 471 at december 31 , 2012. we do not actively market these acquired non-core services and expect that the service revenue associated with them will continue to decline . network operations expenses . network operations expenses include the costs of personnel associated with service delivery , network management , and customer support , network facilities costs , fiber and equipment maintenance fees , leased circuit costs , and access and facilities fees paid to building owners . non-cash equity-based compensation expense is included in network operations expenses consistent with the classification of the employee 's salary and other compensation . our network operations expenses , including non-cash equity-based compensation expense , increased 8.7 % from $ 132.2 million for 2011 to $ 143.6 million for 2012. the increase is primarily attributable to an increase in costs related to our network and facilities expansion activities and the increase in our off-net revenue . when we provide our off-net services we also assume the cost of the associated tail-circuits . the impact of exchange rates resulted in a decrease of network operations expenses for 2012 of approximately $ 2.4 million . selling , general , and administrative expenses ( `` sg & a '' ) .
| million for 2013. our on-net revenue increased 9.6 % from $ 232.6 million for 2012 to $ 255.0 million for 2013. we increased the number of our on-net customer connections by 16.1 % to 34,671 at december 31 , 2013 from 29,875 at december 31 , 2012. on-net customer connections increased at a greater rate than on-net revenues due to a 5.9 % decline in our on-net arpu , primarily a decline in arpu for our net centric customers . arpu is determined by dividing revenue for the period by the average customer connections for that period . our average price per megabit for our installed base of customers is determined by dividing the aggregate monthly recurring fixed charges for those customers by the aggregate committed data rate for those customers . the decline in on-net arpu is partly attributed to volume and term based pricing discounts . additionally , on-net customers who cancel their service from our installed base of customers , in general , have an arpu that is greater than the arpu for our new customers due to declining prices primarily for our on-net services sold to our net-centric customers . these trends resulted in a 5.9 % reduction to our on-net arpu and a 22.9 % decline in our average price per megabit . our off-net revenue increased 11.2 % from $ 81.9 million for 2012 to $ 91.1 million for 2013. our off-net customer connections increased 14.0 % from 4,465 at december 31 , 2012 to 5,088 at december 31 , 2013. our off-net customer connections increased at a greater rate than our off-net revenue due to the 2.4 % decrease in our off-net arpu . our non-core revenue decreased 22.4 % from $ 2.5 million for 2012 to $ 1.9 million for 2013. the number of our non-core customer connections decreased 11.9 % from 471 at december 31 , 2012 to 415 at december 31 , 2013. we do not actively market these acquired non-core services and expect that the service
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affordable add-on implementation services to help them accomplish their key `` jobs-to-be-done . '' the leader in me online service provides our education clients with a portal to access content and tools as well as a coach to help schools successfully develop , implement , and effectively utilize the leader in me program . during fiscal 2018 , we invested significant capital to expand our subscription-based business , including additional implementation specialists , new innovations in the aap and leader in me membership , including the translation of aap content into 15 new languages , and to enhance the client experience with our subscription-based business . business acquisition integration during may 2017 , we acquired the assets of robert gregory partners , llc ( rgp ) , a corporate coaching firm with expertise in executive coaching , transition acceleration coaching , leadership development coaching , implementation coaching , and consulting . in july 2017 , we acquired the stock of jhana education ( jhana ) , a company that specializes in the creation and dissemination of relevant , bite-sized content and learning tools for leaders and managers . during fiscal 2018 we sought to integrate the operations of rgp and jhana into our various services and offerings . we believe these services and offerings provide significant benefits to our clients . china direct offices during fiscal 2017 , we opened four new sales offices in china . these offices are located in beijing , shanghai , guangzhou , and shenzhen . we continue to see growth from our investment in china , and 26 during fiscal 2018 we recognized $ 12.3 million in sales from these new offices . prior to fiscal 2017 , our sales operations in china were managed by an independent licensee partner . we believe that our significant fiscal 2018 investments and innovations to our aap and leader in me portals , combined with the integration of recent business acquisitions and new china sales offices will provide continued growth opportunities in future periods . the following is a description of the impact that these developments had on our financial results for the fiscal year ended august 31 , 2018. financial overview during fiscal 2018 , we continued to grow and develop our subscription-based business , which is focused on the expansion of all access pass and the leader in me online service sales . as expected , the transition from our legacy business to a subscription-based model has been disruptive , especially in fiscal 2017 as we deferred a substantial amount of revenue , which was recognized over the lives of the underlying contracts . the recognition of previously deferred revenues combined with new contracts produced increased sales during fiscal 2018. we believe that the ongoing transition to a subscription model is working very well , as our net sales in fiscal 2018 grew $ 24.5 million , or 13 percent , to $ 209.8 million compared with $ 185.3 million in fiscal 2017. our fiscal 2018 fourth-quarter sales remained strong and totaled $ 64.8 million , compared with $ 59.5 million in the fourth quarter of fiscal 2017. these improvements were primarily driven by strong performance from our enterprise division during fiscal 2018. our gross profit and gross margins also improved in fiscal 2018 when compared with the prior year . however , these improvements were partially offset by increased operating expenses as we are transitioning to this new business model and investing in new personnel , technology , and content to improve the client experience and drive future growth opportunities . for fiscal 2018 , our subscription and subscription-related revenue grew 36 percent compared with fiscal 2017. at august 31 , 2018 , we had $ 52.9 million of deferred revenue , compared with $ 41.5 million at august 31 , 2017. at august 31 , 2018 , we had $ 24.5 million of unbilled deferred revenue compared with $ 17.5 million of unbilled deferred revenue at the end of fiscal 2017. unbilled deferred revenue represents business that is contracted , but unbilled and therefore excluded from our balance sheet . the following table sets forth our consolidated net sales by category and by reportable segment for the fiscal years indicated ( in thousands ) : replace_table_token_3_th consolidated cost of sales in fiscal 2018 totaled $ 61.5 million compared with $ 62.6 million in the prior year . our gross profit for the fiscal year ended august 31 , 2018 increased to $ 148.3 million , compared with $ 122.7 million in the prior year . the increase in gross profit was primarily due to sales activity as 27 described above , including the recognition of previously deferred subscription service revenues . our gross margin , which is gross profit as a percent of sales , increased to 70.7 percent compared with 66.2 percent in fiscal 2017. the improvement in gross margin was primarily due to a change in the mix of revenues as higher margin subscription revenues , such as the all access pass , continue to grow as a percentage of our total revenues . for the fiscal year ended august 31 , 2018 , our operating expenses increased $ 20.1 million compared with fiscal 2017. the increase was primarily due to a $ 20.0 million increase in selling , general , and administrative ( sg & a ) expenses ; $ 1.8 million of increased amortization expense from fiscal 2017 business acquisitions ; and a $ 1.3 million increase in depreciation expense primarily related to capital spending on our new aap portal and erp system . the increase in sg & a expenses was primarily related to investments in new personnel , including additional aap implementation specialists , higher commissions on increased sales , new personnel from businesses acquired in the third and fourth quarters of fiscal 2017 , and increased computer costs primarily related to our new aap portal and erp system . these increases were partially offset by a $ 1.5 million decrease in contract termination costs and a $ 1.5 million decrease in restructuring expenses in fiscal 2018. story_separator_special_tag our loss from operations in fiscal 2018 was $ ( 3.4 ) million , compared with a loss of $ ( 8.9 ) million in fiscal 2017. pre-tax loss for fiscal 2018 decreased to $ ( 5.5 ) million compared with a $ ( 10.9 ) million loss in the prior year . for fiscal 2018 , we recognized net tax expense on our pre-tax loss compared with a net benefit in fiscal 2017. our consolidated income tax provision was unfavorably affected by a $ 3.0 million valuation allowance against our fiscal 2011 foreign tax credit carryforward . sales of the all access pass and other subscription services have generated , and will likely to continue to generate , substantial amounts of deferred revenue for both book and tax purposes . this situation has produced taxable losses for the past two fiscal years and a more-likely-than-not presumption that insufficient taxable income will be available to realize the fiscal 2011 foreign tax carryforward , which expires at the end of fiscal 2021. net loss for the year ended august 31 , 2018 was $ ( 5.9 ) million , or $ ( .43 ) per share , compared with a loss of $ ( 7.2 ) million , or $ ( .52 ) per share , in the prior year . further details regarding these items can be found in the comparative analysis of fiscal 2018 with fiscal 2017 as discussed within this management 's discussion and analysis . during fiscal 2018 , we invested our available cash and proceeds from our secured credit facility to make substantial and significant investments in our business that we believe will drive results and provide benefits in future periods . we invested $ 6.5 million of cash to purchase property and equipment , which was primarily comprised of software for a significant upgrade to our aap portal and the completion of our new erp system , which successfully launched in fiscal 2018. we also invested $ 3.0 million during fiscal 2018 for curriculum development and additional new offerings . our liquidity position remained healthy during fiscal 2018 and we had $ 10.2 million of cash at august 31 , 2018 , with $ 18.7 million of available credit on our revolving credit facility , compared with $ 8.9 million of cash at august 31 , 2017. at august 31 , 2018 , we had $ 12.8 million of term loans payable to the lender on our secured credit facility . for further information regarding our liquidity and cash flows refer to the liquidity and capital resources discussion found later in this management 's discussion and analysis . key growth objectives we believe that our best-in-class offerings , combined with flexible delivery modalities and worldwide sales and distribution capabilities are the foundation for future growth at franklin covey . building on this foundation , we have identified the following key drivers of growth in fiscal 2019 and beyond : 28 · new subscription service sales and the renewal of existing client contracts – we are focused on sales of subscription service contracts , such as the all access pass , and have restructured our domestic sales force and sales support functions to more effectively sell and support these services . we believe we are well positioned to expand our subscription service revenues in the united states and canada and reach new clients . we have translated aap content into 15 new languages and expect this new feature will attract additional clients in future years both from large multinational entities and smaller clients that are served by our international direct offices and international licensee partners . · education segment – our education segment has consistently grown over the past several years . we intend to continue to invest in new content and additional sales personnel to reach out to new educational institutions while retaining existing the leader in me schools . we believe there are significant growth opportunities , both domestically and internationally , for our education segment and its well-known the leader in me offering . · growth of our direct office and international licensee segments – we are actively focused on growing the size and productivity of our direct office segment through expansion of our sales force to reach potential clients . in addition , we believe the acquisition of robert gregory partners , llc in fiscal 2017 will open new opportunities as we seek to expand our coaching business . we are also actively seeking to expand the size and productivity of our international licensee partners through the development of additional content , such as the translated aap offerings , and additional licensee support activities . another of our underlying strategic objectives is to consistently deliver quality results to our clients . this concept is focused on ensuring that our content and offerings are best-in-class , and that they have a measurable , lasting impact on our clients ' results . we believe that measurable improvement in our clients ' organizations is key to retaining current clients and to obtaining new sales opportunities . other key factors that influence our operating results include : the size and productivity of our sales force ; the number and productivity of our international licensee operations ; the number of organizations that are active customers ; the number of people trained within those organizations ; the continuation or renewal of existing services contracts , especially all access pass renewals ; the availability of budgeted training spending at our clients and prospective clients , which , in certain content categories , can be significantly influenced by general economic conditions ; and our ability to manage operating costs necessary to develop and provide meaningful training and related services and products to our clients . results of operations the following table sets forth , for the fiscal years indicated , the percentage of total sales represented by the line items through income or loss before income taxes in our consolidated statements of operations .
| our net working capital ( current assets less current liabilities ) was $ 5.3 million at august 31 , 2018 compared with $ 11.2 million at august 31 , 2017. the reduction in our net working capital was primarily due to a $ 11.4 million increase in deferred revenues resulting primarily from increased subscription service sales and increased current term note payable . our primary sources of liquidity are cash flows from the sale of services in the normal course of business and available proceeds from our secured credit facility . our primary uses of liquidity include payments for operating activities , capital expenditures ( including curriculum development ) , debt payments , payments resulting from the acquisition of businesses , purchases of new content , working capital expansion , and purchases of our common stock . the following table summarizes our cash flows from operating , investing , and financing activities for the past three years ( in thousands ) : replace_table_token_8_th our amended and restated credit agreement on may 24 , 2016 , we entered into the fifth modification agreement to our existing amended and restated secured credit agreement ( the restated credit agreement ) with our existing lender . the primary purposes of the fifth modification agreement were to ( i ) obtain a term loan from the lender for $ 15.0 million ( the term loan ) ; ( ii ) increase the maximum principal amount of the revolving line of credit from $ 30.0 million to $ 40.0 million ; ( iii ) extend the maturity date of the restated credit agreement ; ( iv ) permit us to convert balances outstanding from time to time under the revolving line of credit to term loans ; and ( v ) adjust the fixed charge coverage ratio from 1.40 to 1.15. during fiscal 2017 , we entered into the sixth , seventh , and eighth modification agreements to the restated credit agreement . the sixth modification and eighth modification agreements adjusted the definition of
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u.s. gaap represents a comprehensive set of accounting and disclosure rules and requirements , and applying these rules and requirements requires management judgments and estimates including , in certain circumstances , choices between acceptable u.s. gaap alternatives . the following is a discussion of our most critical accounting policies , judgments and uncertainties that are inherent in our application of u.s. gaap . use of estimates the preparation of financial statements in conformity with u.s. gaap requires management to make estimates using assumptions that affect the reported amounts of assets and liabilities , the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of sales and expenses during the reporting periods . actual results could differ from those estimates . - 56 - as applicable to these consolidated financial statements , the most significant estimates and assumptions relate to inventory valuations , assessing the likelihood of exercise of options to extend the lease term and legal contingencies . concentration of credit risk and allowance for doubtful accounts financial instruments that may potentially subject us to a concentration of credit risk consist of cash and cash equivalents , which are deposited in major financially sound institutions in the united states , israel and germany , and trade accounts receivable . our trade accounts receivable is derived from revenues earned from customers from various countries . we perform ongoing credit evaluations of our customers ' financial condition and , generally , require no collateral from customers . we also have a credit insurance policy for some customers . we maintain an allowance for doubtful accounts receivable based upon the expected ability to collect the accounts receivable . we review our allowance for doubtful accounts quarterly by assessing individual accounts receivable and all other balances based on historical collection experience and an economic risk assessment . if we determine that a specific customer is unable to meet its financial obligations to us , we provide an allowance for credit losses to reduce the receivable to the amount management reasonably believes will be collected , which is netted against “ accounts receivable — trade ” . inventory inventories are stated at the lower of cost ( cost is determined on a “ first-in , first-out ” basis ) or net realizable value . our inventories generally have a limited shelf life and are subject to impairment as they approach their expiration dates . we regularly evaluate the carrying value of our inventories and when , based on such evaluation , factors indicate that impairment has occurred , we impair the inventories ' carrying value . leases in february 2016 , the fasb established asc topic 842 , leases ( topic 842 ) , by issuing asu no . 2016-02 , which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements . the new standard establishes a right-of-use ( rou ) model that requires a lessee to recognize a rou asset and lease liability on the balance sheet . leases will be classified as finance or operating , with classification affecting the pattern and classification of expense recognition in the statement of operations . we adopted the new standard on january 1 , 2019 using the modified retrospective transition method and we did not restate comparative periods . the new standard provides a number of optional practical expedients in transition . we have elected the ‘ package of practical expedients ' , which permit it not to reassess under the new standard its prior conclusions about lease identification , lease classification and initial direct costs for leases entered into prior to adoption of topic 842. additionally , we did not separate lease and non-lease components for all of our leases . we elected the short-term lease recognition exemption for all leases that qualify . this means , for those leases that qualify , we will not recognize rou assets or lease liabilities , and this includes not recognizing rou assets or lease liabilities for existing short-term leases of those assets in transition . instead , we will continue to recognize the lease payments for those leases in profit or loss on a straight-line basis over the lease term . - 57 - the new standard had a material effect on our financial statements . the most significant effects of adoption relate to ( 1 ) the recognition of new operating lease rou assets and operating lease liabilities on its balance sheet for real estate operating ; and ( 2 ) providing significant new disclosures about its leasing activities . upon adoption , we recognized additional operating lease liabilities , of approximately $ 1.2 million based on the present value of the remaining lease payments under current leasing standards for existing operating leases . we also recognized corresponding rou assets of approximately $ 1.2 million . lease terms may include options to extend or terminate the lease when we are reasonably certain that the option will be exercised . lease expense is recognized on a straight-line basis over the lease term . our leases may include variable payments based on measures that include changes in price index which are expensed as incurred and presented as operating expense on the condensed consolidated statements of operations in the same line item as expense arising from fixed lease payments . revenue recognition a contract with a customer exists only when : 1 ) the parties to the contract have approved it and are committed to perform their respective obligations , 2 ) we can identify each party 's rights regarding the distinct goods or services to be transferred ( “ performance obligations ” ) , 3 ) we can determine the transaction price for the goods or services to be transferred , 4 ) the contract has commercial substance and 5 ) it is probable that we will collect the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer . story_separator_special_tag revenues are recorded in the amount of consideration to which we expect to be entitled in exchange for performance obligations upon transfer of control to the customer , excluding sales taxes . revenue from sales of goods , including sales to distributors , is recognized when the customer obtains control of the product , once we have a present right to payment , legal title , and risk and rewards of ownership are obtained by the customer . this occurs when products are shipped . we recognize the incremental costs of obtaining contracts as an expense since the amortization period of the assets that we otherwise would have recognized is one year or less . the costs are recorded under selling and marketing expenses . we recognize revenue net of value added tax ( vat ) . research and development costs research and development costs are charged to the statement of operations as incurred . share-based compensation employee option awards are classified as equity awards and accounted for using the grant-date fair value method . the fair value of share-based awards is estimated using the black-scholes valuation model and expensed over the requisite service period , net of estimated forfeitures . we elected to account for forfeitures as they occur . we elected to recognize compensation expenses for awards with only service conditions that have graded vesting schedules using the accelerated multiple option approach . fair value measurement we measure fair value and disclose fair value measurements for financial assets and liabilities . fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date . the accounting standard establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels , which are described below : level 1 : quoted prices ( unadjusted ) in active markets that are accessible at the measurement date for assets or liabilities . the fair value hierarchy gives the highest priority to level 1 inputs . - 58 - level 2 : observable prices that are based on inputs not quoted on active markets , but corroborated by market data . level 3 : unobservable inputs are used when little or no market data is available . the fair value hierarchy gives the lowest priority to level 3 inputs . in determining fair value , we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and consider counterparty credit risk in our assessment of fair value . story_separator_special_tag font-size : 10pt '' > tax expenses ( income ) . for the twelve months ended december 31 , 2020 , tax expenses decreased by $ 20,000 compared to the twelve months ended december 31 , 2019. net loss . our net loss increased by $ 504,000 , or 5.0 % , to $ 10,544,000 , for the twelve months ended december 31 , 2020 , from $ 10,040,000 during the twelve months ended december 31 , 2019. the increase in net loss resulted primarily from a decrease of $ 673,000 in gross profit , offset , in part , by a decrease of $ 109,000 in operating expenses , a decrease of $ 40,000 in financial expenses and a decrease of $ 20,000 in tax expenses . liquidity and capital resources as of the date of issuance of the consolidated financial statements , we have the ability to fund our planned operations for at least the next 12 months . however , we expect to continue incurring losses and negative cash flows from operations until our products ( primarily cguard eps ) reach commercial profitability . therefore , in order to fund our operations until such time that we can generate substantial revenues , we may need to raise additional funds . equity financings on april 8 , 2019 , we closed an underwritten public offering of 486,957 shares of our common stock at a price to the public of $ 5.00 per share . we received net proceeds of approximately $ 2.0 million from the offering , after deducting underwriter discounts and commissions and offering expenses payable by us . as a result of such offering , the conversion price for each of our series b preferred stock and series c preferred was reduced to $ 5.00 per share . in connection with this public offering , on april 12 , 2019 , the underwriter partially exercised its over-allotment option and purchased an additional 12,393 shares of our common stock at a price to the public of $ 5.00 per share . we received net proceeds of approximately $ 47,000 from the exercise of the over-allotment option . on september 24 , 2019 , we closed an underwritten public offering of ( i ) 539,000 common units , with each common unit being comprised of one share of our common stock and one series e warrant to purchase one share of common stock and ( ii ) 2,238,777 pre-funded units , with each pre-funded unit being comprised of one pre-funded warrant to purchase one share of common stock and one series e warrant . in connection with this public offering , the underwriter partially exercised its over-allotment option and purchased an additional 194,444 series e warrants to purchase 194,444 shares of common stock . the offering price to the public was $ 1.80 per common unit and $ 1.79 per pre-funded unit . the net proceeds to us from the offering of common units and pre-funded units and the exercise of the underwriter 's option to purchase 194,444 additional series e warrants to purchase an aggregate of 194,444 shares of common stock was approximately $ 4.2 million , excluding the proceeds , if any , from the exercise of the series e warrants and the pre-funded warrants sold in the offering , and after deducting underwriting discounts and commissions and payment of other estimated expenses associated with the offering that were payable by us .
| with respect to regions , the decrease in revenue was primarily attributable to a decrease of $ 985,000 in revenue from sales made in europe ( driven by $ 580,000 decrease of the settlement with a former distributor and $ 329,000 decrease of cguard eps and $ 76,000 decrease of mguard prime eps for the reasons discussed in the paragraph above ) , a decrease of $ 131,000 in revenue of cguard from sales made in asia due to the same covid-19-related factor , as well as a decrease of $ 79,000 in revenue from sales made in latin america ( primarily driven by a $ 68,000 decrease of mguard prime eps sales due to the same covid-19-related factor ) . gross profit . for the twelve months ended december 31 , 2020 , gross profit ( revenue less cost of revenues ) decreased by 89.0 % , or $ 673,000 , to $ 83,000 , compared to a $ 756,000 for the same period in 2019. this decrease in gross profit resulted from the impact of the $ 580,000 settlement with our former distributor in 2014 as well as $ 198,000 decrease in revenues less the related material and labor costs ( as mentioned above ) . this decrease was partially offset by a decrease of $ 69,000 in expenses related to upgrades made to our production facilities during the year ended december 31 , 2019 , which did not reoccur during the year ended december 31 , 2020 and a decrease of $ 36,000 in miscellaneous expenses during the year ended december 31 , 2020. gross margin ( gross profits as a percentage of revenue ) decreased to 3.3 % during the year ended december 31 , 2020 from 20.3 % during the year ended december 31 , 2019 , driven mainly by a negative effect on gross margin of 18.3 % due to the settlement with our former distributor offset by a 1.3 % gross margin increase due to the upgrades made to our production facilities and miscellaneous expenses as mentioned above . research and development expenses . for the twelve months ended december 31 , 2020 , research and development expenses decreased by 24.4 % , or $ 721,000 , to $ 2,233,000 , from $ 2,954,000 during the twelve months ended december 31 , 2020. this decrease resulted primarily from : a decrease of $ 861,000 in clinical expenses associated with cguard eps , mainly related to the ide approval process , of which an approval from the fda was received on
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furthermore , we signed a go to market agreement with aruba to deliver an open , converged enterprise network solution by integrating aruba mobility solutions with juniper enterprise switches and routers , delivering ongoing product innovation to enterprise customers . for security , we announced firefly perimeter a virtual version of our srx series service gateway , new advancements in our spotlight secure threat intelligence platform , junos space virtual director , an application that automates the management and deployment of firefly perimeter , as well as juniper argon secure , an advanced anti-malware service . due to the recent underperformance of our security products and efforts to refocus our security offerings , we recorded a goodwill impairment charge of $ 850.0 million in the fourth quarter of 2014. we intend to focus on stabilizing revenues in our security reporting unit in 2015 , and , as a result , we are pivoting our security strategy to focus on building integrated solutions that focus on network resiliency and business continuity across cloud , data center , branch , campus , and service provider mobile infrastructure , by taking advantage of the existing and ongoing innovation of our junos-based srx platform . in 2014 , we implemented a series of initiatives designed to streamline our organization , improve operational efficiencies , rationalize our product portfolios , and return capital to our shareholders . these actions were largely completed by the end of 2014. in the first quarter of 2014 , we realigned our organization into a one-juniper structure , which included consolidating each of our research and development ( `` r & d '' ) and go-to-market functions to reduce complexity , increase clarity of responsibilities , and improve efficiency . to improve operational efficiency , in 2014 , we implemented various restructuring activities and structural cost saving actions across research and development , sales and marketing , and general and administrative expenses . we completed the 2014 restructuring plan through workforce reductions , facility consolidations or closures , asset write-downs , contract terminations and other actions . as a result , we recorded a total restructuring charge of $ 207.7 million in cost of sales and restructuring and other charges . in connection with the rationalization of our product portfolio , we completed the sale of junos pulse for total consideration of $ 230.7 million which resulted in a gain of $ 19.6 million in other income ( expense ) , net in the consolidated statement of operations . as a result of these cost management actions , we achieved our total annualized operating expense savings commitment of $ 260.0 million compared to the fourth quarter of 2013. in addition to these cost reduction activities , we introduced a capital allocation program to return capital to our stockholders through share repurchases and dividends . in 2014 , we returned $ 2.3 billion of capital to our stockholders through the completion of a $ 1.2 billion accelerated share repurchase program ( `` asr '' ) and the repurchase of $ 1.1 billion of our common stock subsequent to the asr . we also paid two quarterly cash dividends of $ 0.10 per share for an aggregate amount of $ 86.0 million and issued $ 350.0 million aggregate principal amount of 4.50 % senior notes due 2024 ( `` 2024 notes '' ) , which allowed us to partially fund the asr . we intend to return $ 1.0 billion of aggregate share repurchases by the end of the second quarter of 2015 subject to raising additional debt financing . 35 financial results and key performance metrics overview the following table provides an overview of our key financial metrics for the years ended december 31 , 2014 , 2013 , and 2012 ( in millions , except per share amounts , percentages , days sales outstanding ( `` dso '' ) , and book-to-bill ) : replace_table_token_6_th ( * ) dso and book-to-bill are for the fourth quarter ended december 31 , 2014 , 2013 , and 2012. net revenues : during 2014 , net revenues were slightly down , compared to 2013 , as a result of a decline in net revenues from us carriers , partially offset by growing demand from cloud providers in the americas , as well as improving demand among service provider in emea . the year-over-year decline in our net revenues was primarily due to a decrease in net revenues from our routing and security products , partially offset by an increase in our switching products revenue and service revenue . during 2013 , compared to 2012 , we experienced net revenue growth in the americas , in both service provider and enterprise , offset by a decline in revenue in apac and emea . the year-over-year increase in our net revenues during 2013 was primarily due to increases in edge routing , switching , and service revenue , partially offset by a decline in our security products revenue . gross margin : our gross margin as a percentage of net revenues decreased during 2014 , compared to 2013 , as a result of higher inventory charges driven by product rationalizations in connection with our 2014 restructuring plan and charges related to an industry-wide memory product quality defect for a component from a third party supplier . during 2013 , compared to 2012 , our gross margin as a percentage of net revenues increased primarily due to higher restructuring and other charges recorded in 2012 , partially offset by higher inventory provisions in 2013 for legacy platforms . story_separator_special_tag operating ( loss ) income : during 2014 , compared to 2013 , we experienced a decline in operating ( loss ) income as a percentage of net revenues , primarily due to an $ 850.0 million goodwill impairment charge related to the security reporting 36 unit recorded in the fourth quarter of 2014 , restructuring and other charges of $ 207.7 million , related to severance , facility consolidations and closures , asset-write-offs , and contract terminations in connection with our 2014 restructuring plan , as well as a component remediation charge of $ 20.7 million relating to the memory product quality defect . our operating income as a percentage of revenues increased in 2013 , compared to 2012 , primarily due to growth in net revenues . also contributing to the increase in operating income were lower restructuring and other charges of $ 52.2 million compared to 2012. cash dividends declared per common stock : during 2014 , we declared two quarterly cash dividends of $ 0.10 per share , payable on september 23 , 2014 and on december 23 , 2014 to stockholders of record as of the close of business on september 2 , 2014 and december 2 , 2014 , respectively , in the aggregate amount of $ 86.0 million . we had not previously paid cash dividends . stock repurchase plan activity : under our stock repurchase program , we repurchased approximately 96.1 million shares of our common stock in the open market at an average price of $ 23.41 per share for an aggregate purchase of $ 2,250.0 million during the year ended december 31 , 2014 . operating cash flows : operating cash flows decreased in 2014 , compared to 2013 , primarily due to lower cash collections from customers , higher payments primarily related to our 2014 restructuring plans , higher taxes paid , and lower prepayments compared to prior year . operating cash flows increased in 2013 , compared to 2012 , primarily due to the timing of payments to our vendors , higher deferred revenue , and lower taxes paid , partially offset by the timing of payments for incentive compensation to our employees and the timing of receipts from our customers . dso : dso is calculated as the ratio of ending accounts receivable , net of allowances , divided by average daily net sales for the preceding 90 days . dso for the quarter ended december 31 , 2014 increased by 8 days , or 20 % compared to the quarter ended december 31 , 2013. during 2014 , we transitioned certain distribution partners from a third party financing program to juniper 's commercial payment terms . going forward , we expect dso to be in the range of 45 to 55 days . dso increased by 6 days or 17 % for the quarter ended december 31 , 2013 compared to the quarter ended december 31 , 2012. the increase was primarily due to large multi-year service renewals at the end of the period which increased our outstanding receivables compared to the same period in 2012. book-to-bill : book-to-bill represents the ratio of product orders booked divided by product revenues during the respective period . book-to-bill was greater than one for the quarters ended december 31 , 2014 , 2013 and 2012 , indicating strong product demand . deferred revenue : total deferred revenue increased slightly by $ 6.4 million to $ 1,075.7 million as of december 31 , 2014 , compared to $ 1,069.3 million as of december 31 , 2013 , primarily due to an increase in deferred service revenue of $ 25.8 million , primarily driven by the execution of several multi-year support agreements and annual agreement renewals . the increase in deferred service revenue was partially offset by a decrease in deferred product revenue of $ 19.4 million as a result of lower distributor inventory and multiple revenue releases in relation to previously deferred product revenue . as of december 31 , 2013 compared to december 31 , 2012 , total deferred revenue increased by $ 145.9 million , primarily due to an increase in deferred service revenue driven by the execution of several multi-year support agreements , and to a lesser extent an increase in annual agreement renewals , slightly offset by a decrease in deferred product revenue . critical accounting policies and estimates the preparation of the financial statements and related disclosures in conformity with u.s. gaap requires us to make judgments , assumptions , and estimates that affect the amounts reported in the consolidated financial statements and the accompanying notes . on an ongoing basis , we evaluate our estimates , including those related to sales returns , pricing credits , warranty costs , allowance for doubtful accounts , impairment of long-term assets , especially goodwill and intangible assets , contract manufacturer exposures for carrying and obsolete material charges , assumptions used in the valuation of share-based compensation , and litigation . we base our estimates and assumptions on current facts , historical experience , and various other factors that we believe are 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 . for further information about our significant accounting policies , see note 2 , 37 significant accounting policies , in notes to consolidated financial statements in item 8 of part ii of this report , which describes the significant accounting policies and methods used in the preparation of the consolidated financial statements . the accounting policies described below are significantly affected by critical accounting estimates . such accounting policies require significant judgments , assumptions , and estimates used in the preparation of the consolidated financial statements and actual results could differ materially from the amounts reported based on these policies . to the extent there are material differences between our estimates and the actual results , our future consolidated results of operations may be affected . goodwill .
| 2013 compared to 2012 net cash used in investing activities decreased by $ 34.6 million in 2013 , compared to 2012 , primarily due to lower spending on acquisitions and asset purchases as well as lower capital expenditures as we completed our phased sunnyvale campus build-out , partially offset by higher purchases of investments . financing activities 2014 compared to 2013 net cash used in financing activities increased by $ 1,422.5 million in 2014 , compared to 2013 , primarily due to purchases and retirement of our common stock and payment of cash dividends , partially offset by the issuance of the 2024 notes . 2013 compared to 2012 net cash used in financing activities decreased by $ 146.6 million in 2013 , compared to 2012 , primarily due to lower purchases and retirement of our common stock , partially offset by an increase in proceeds from employee stock option exercises as well as proceeds from customer financing arrangements . stock repurchase activities in february 2014 , the board approved a stock repurchase program that authorized us to repurchase up to $ 2.1 billion of our common stock ( `` 2014 stock repurchase program '' ) . in october 2014 , the board authorized a $ 1.3 billion increase to the 2014 stock repurchase program for a total of $ 3.4 billion . as of december 31 , 2014 , there was $ 1.2 billion of authorized funds remaining under the 2014 stock repurchase program . we intend to repurchase $ 1.0 billion of our common stock by the end of the second quarter of 2015 as part of our three year capital return program , subject to raising additional debt financing . future share repurchases will be subject to a review of the circumstances at that time and will be made from time to time in private transactions or open market purchases as permitted by securities laws and other legal requirements . our stock repurchase programs may be discontinued at any time . 50 the following table summarizes our stock repurchase activities ( in millions ,
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we foster an environment of learning and development through structured programs focused on enhancing functional and technical skills where employees are engaged in our business and committed to their own , as well as the company 's , success . 33 index to financial statements business environment the dramatic fall in commodity prices , which started during the second half of 2014 , continued throughout 2015. the u.s. oil rig count declined over 60 percent and crude oil production declined well below its peak which was set during the second quarter of 2015. additionally , the discount for u.s. benchmark west texas intermediate ( wti ) vs. the international benchmark brent narrowed over the course of 2015 as logistical constraints between oil producing areas and major refining centers were incrementally removed during the year . falling commodity prices have had a variety of impacts , both favorable and unfavorable , on our downstream businesses that vary by segment . earnings in the midstream segment , which includes our 50 percent equity investment in dcp midstream , are closely linked to ngl prices , natural gas prices and crude oil prices . ngl prices weakened throughout 2015 as ngl production growth from liquids-rich shale plays outpaced domestic demand growth from the petrochemical industry while export capacity remained constrained—driving prices lower and pushing inventories higher . natural gas prices weakened throughout 2015 as well , as natural gas production growth continued and unseasonably warm weather limited demand . during 2015 , our chemicals segment , which consists of our 50 percent equity investment in cpchem , continued to benefit from feedstock cost advantages associated with manufacturing ethylene in regions of the world with significant ngl production . the chemicals and plastics industry is mainly a commodity-based industry where the margins for key products are based on supply and demand , as well as cost factors . the petrochemicals industry continues to experience lower ethylene cash costs in regions of the world where ethylene manufacturing is based upon ngl rather than crude oil-derived feedstocks . in particular , companies with north american light ngl-based crackers have benefited from lower-priced feedstocks ; however , the ethylene-to-polyethylene chain margins were compressed in 2015 because of the significant decline in crude oil prices that began in 2014. our refining segment is driven by several factors including refining margins , cost control , refinery throughput and product yields . refinery margins , often referred to as crack spreads , are measured as the difference between market prices for refined petroleum products and crude oil . during 2015 , the u.s. 3:2:1 crack spread ( three barrels of crude oil producing two barrels of gasoline and one barrel of diesel ) improved over 2014 across all quarters , largely attributable to strong gasoline crack spreads which were driven by robust demand growth both in the u.s. and globally . the diesel crack spread weakened throughout 2015 , driven by growing product inventories as a result of high refinery utilization to capture robust gasoline cracks and an unseasonably warm fourth quarter . the u.s. west coast crack spread increased year over year as a result of significant refinery planned/unplanned maintenance in the region . european refineries benefited during 2015 as domestic and export gasoline demand expanded considerably . northwest european crack spreads on average increased in the first three quarters of the year and declined in the fourth quarter resulting in an average increase in 2015 compared to 2014. strong margins were driven by the strength in gasoline margins which offset subdued diesel cracks during much of the year as large volumes of imported diesel from the united states , india , asia pacific and russia kept diesel margins under pressure throughout the second half of the year . results for our marketing and specialties ( m & s ) segment depend largely on marketing fuel margins , lubricant margins and other specialty product margins . while m & s margins are primarily based on market factors , largely determined by the relationship between supply and demand , marketing fuel margins , in particular , are primarily determined by the trend of spot prices for refined products . generally speaking , a downward trend of spot prices has a favorable impact on marketing fuel margins , while an upward trend of spot prices has an unfavorable impact on marketing fuel margins . 34 index to financial statements story_separator_special_tag style= '' font-family : inherit ; font-size:10.5pt ; text-decoration : underline ; '' > provision for income taxes and effective tax rates . 37 index to financial statements segment results midstream replace_table_token_10_th * based on index prices from the mont belvieu and conway market hubs that are weighted by ngl component and location mix . replace_table_token_11_th * pipelines represent the sum of volumes transported through each separately tariffed pipeline segment , including our share of equity volumes from yellowstone pipe line company and lake charles pipe line company . * * represents 100 percent of dcp midstream 's volumes . * * * excludes dcp midstream . the midstream segment gathers , processes , transports and markets natural gas ; and transports , fractionates and markets ngl in the united states . in addition , this segment transports crude oil and other feedstocks to our refineries and other locations , delivers refined and specialty products to market , and provides terminaling and storage services for crude oil and petroleum products . the midstream segment includes our master limited partnership , phillips 66 partners lp , as well as our 50 percent equity investment in dcp midstream . 2015 vs. 2014 earnings from the midstream segment decreased $ 494 million in 2015 , compared with 2014 . the decrease was primarily due to lower earnings from dcp midstream and our ngl business , partially offset by higher earnings from our transportation business . story_separator_special_tag transportation earnings increased $ 55 million in 2015 , compared with 2014. this increase reflects the startup of our bayway and ferndale crude oil rail unloading facilities in the second half of 2014 , as well as a full year of operations from the beaumont terminal acquired in 2014. increased railcar fleet activities , higher terminal revenues , and improved earnings from equity affiliates also benefited earnings in 2015. these benefits were partially offset by higher earnings attributable to noncontrolling interests . 38 index to financial statements earnings associated with our investment in dcp midstream decreased $ 459 million in 2015 , compared with 2014. the decrease in 2015 mainly resulted from lower ngl , crude oil , and natural gas prices , partially offset by increased volumes due to asset growth , and lower operating costs as a result of cost saving initiatives . in addition , goodwill and other asset impairments recorded by dcp midstream in 2015 contributed to the loss recognized from our investment in dcp midstream . dcp midstream performed a goodwill impairment assessment and other asset impairment assessments based on internal discounted cash flow models taking into account various observable and non-observable factors , such as prices , volumes , expenses and discount rates . the impairment tests resulted in dcp midstream 's recognition of a $ 460 million goodwill impairment and $ 342 million in other asset impairments , net of tax impacts . together , these impairments reduced our equity earnings from dcp midstream by $ 232 million after-tax . dcp midstream partners , lp ( dcp partners ) , a master limited partnership formed by dcp midstream , periodically issues limited partner units to the public . these issuances benefited our equity in earnings from dcp midstream , on an after-tax basis , by approximately $ 1 million in 2015 , compared with approximately $ 45 million in 2014. the earnings from our ngl business decreased $ 90 million in 2015 , compared with 2014. the decrease was primarily driven by lower realized margins and higher earnings attributable to noncontrolling interests . we also incurred higher tax expense in 2015 , driven by a lower manufacturing deduction resulting from bonus depreciation associated with the start-up of sweeny fractionator one . these decreases were partially offset by higher earnings from equity affiliates . see the “ business environment and executive overview ” section for information on market factors impacting this year 's results . as previously disclosed , in early 2015 we and our co-venturer in dcp midstream agreed to forgo cash distributions from dcp midstream due to the significant decrease in commodity prices since mid-2014 . the sustained weak commodity price environment during 2015 caused dcp midstream to impair its goodwill in 2015 by $ 460 million , and impair certain assets and in-process capital projects in the fourth quarter of 2015 by an additional $ 342 million . to strengthen its balance sheet , during the fourth quarter of 2015 we contributed $ 1.5 billion of cash to dcp midstream , while our co-venturer contributed its interests in certain operating assets held as equity investments . at december 31 , 2015 , the carrying value of our investment in dcp midstream was approximately $ 2.3 billion . we will continue to monitor dcp midstream 's operations and the continued weak commodity price environment for any further impacts on dcp midstream or the carrying value of our investment . 2014 vs. 2013 earnings from the midstream segment increased $ 38 million in 2014 , compared with 2013. the improvement was primarily driven by higher earnings from our transportation and ngl businesses , partially offset by lower earnings from dcp midstream . transportation earnings increased $ 34 million in 2014 , compared with 2013. this increase primarily resulted from increased throughput fees , as well as higher earnings associated with railcar activity in 2014. these increases were partially offset by higher earnings attributable to noncontrolling interests , reflecting the contribution of previously wholly owned assets to phillips 66 partners . the $ 75 million decrease in earnings of dcp midstream in 2014 primarily resulted from a decrease in ngl and crude prices in the latter part of 2014. ngl and crude prices have continued to decline in the early part of 2015. in addition , earnings decreased as costs associated with asset growth and maintenance increased in 2014 , compared with 2013. earnings further declined due to dcp midstream 's contribution of assets to dcp partners . following the contribution , a percentage of the earnings from these assets are attributable to public unitholders , thus decreasing income attributable to dcp midstream and , thereby , phillips 66. see the “ business environment and executive overview ” section for additional information on market factors impacting dcp midstream 's results . dcp partners unit issuances benefited our equity in earnings from dcp midstream , on an after-tax basis , by approximately $ 45 million in 2014 , compared with approximately $ 62 million in 2013 . 39 index to financial statements earnings from the ngl business increased $ 79 million , compared with 2013. the increase was primarily due to improved margins driven by strong propane prices in early 2014. additionally , 2014 earnings benefited from gains related to seasonal propane and butane storage activity . also , earnings improved due to higher equity earnings from dcp sand hills , llc ( sand hills ) and dcp southern hills , llc ( southern hills ) . these increases were partially offset by an increase in costs associated with growth projects . chemicals replace_table_token_12_th the chemicals segment consists of our 50 percent interest in cpchem , which we account for under the equity method . cpchem uses ngl and other feedstocks to produce petrochemicals . these products are then marketed and sold or used as feedstocks to produce plastics and other chemicals . we structure our reporting of cpchem 's operations around two primary business segments : olefins and polyolefins ( o & p ) and specialties , aromatics and styrenics ( sa & s ) .
| lower equity earnings from dcp midstream , reflecting the sharp drop in ngl and crude oil prices in the second half of 2014. discontinued operations in 2014 included the recognition of a noncash $ 696 million after-tax gain related to the phillips specialty products inc. ( pspi ) share exchange . see the “ segment results ” section for additional information on our segment results . income statement analysis 2015 vs. 2014 sales and other operating revenues decreased 39 percent in 2015 , while purchased crude oil and products decreased 46 percent . the decreases were primarily due to lower average prices for petroleum products , crude oil and ngl . equity in earnings of affiliates decreased 36 percent in 2015 , primarily resulting from decreased earnings from dcp midstream , cpchem and wrb . equity in earnings of dcp midstream decreased $ 676 million in 2015. the decrease was primarily due to lower ngl , crude oil and natural gas prices . in addition , dcp midstream recorded goodwill and other asset impairments in 2015 due to the significant downturn in commodity prices since mid-2014 . equity in earnings of cpchem decreased 19 percent , primarily due to lower ethylene margins and lower equity earnings from cpchem 's equity affiliates , partially offset by lower utility costs . equity in earnings of wrb decreased 13 percent , primarily driven by its lower realized refining margins , resulting from lower feedstock advantage partially offset by higher secondary product margins . impairments in 2015 were $ 7 million , compared with $ 150 million in 2014. there were no significant impairments in 2015 , compared with a $ 131 million impairment of the whitegate refinery recorded in 2014. for additional information , see note 10—impairments , in the notes to consolidated financial statements . interest and debt expense increased 16 percent in 2015. the increase was mainly due to a higher average debt principal balance in 2015 , partially offset by increased capitalized interest . see note 21—income taxes , in the notes to consolidated financial statements , for information regarding our provision for income taxes and effective tax rates . 2014 vs. 2013 sales and other operating revenues decreased 6 percent in 2014 , while
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49 in august 2011 , we acquired from shell its 64.3 % interest in the fairway f ield along with a like interest in the associated yellowhammer gas treatment plant . internal estimates of proved reserves associated with the fairway properties as of the acquisition date were 8.9 mmboe ( 53.5 bcfe ) , comprised of approximately 72 % natural gas , 27 % ngls and less than 1 % oil , all of which were classified as proved developed producing . including adjustments from an effective date of september 1 , 2010 , the adjusted purchase price was $ 42.9 million and we assumed the aro associated with the fairway properties , which we have estimated to be $ 7.8 million . the acquisition was funded from borrowings under our revolving bank credit facility . see financial statements – note 2 – acquisitions and divestitures under part ii , item 8 of this form 10-k for additional information on acquisitions . from time to time , as part of our business strategy , we sell various properties that we consider non-core assets . in 2013 , we sold non-operated working interest in the green canyon 60 field , green canyon 19 field and west delta area block 29 , all located in the gulf of mexico . the combined net proceeds of these sales combined with other transactions were $ 11.9 million and in connection with these sales , we reversed $ 19.6 million of aro . also in 2013 , we received $ 9.1 million in conjunction with a payment to us for an option exercised by a counterparty . in 2012 , we sold our non-operated working interest in the south timbalier 41 field located in the gulf of mexico for $ 30.5 million and in connection with this sale , we reversed $ 4.0 million of aro . in 2011 , there were no property sales of significance . see financial statements – note 2 – acquisitions and divestitures under part ii , item 8 of this form 10-k for additional information on divestitures . 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 2013 were comprised of approximately 39 % oil and condensate , 12 % ngls and 49 % natural gas , determined using the energy-equivalent ratio of six mcf of natural gas to one bbl 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 2013 , our combined total production of oil , ngls and natural gas was approximately 5.0 % higher on a mcfe basis than during the same period in 2012. during 2013 , sales volumes were negatively impacted by various pipeline outages , shut downs for maintenance , tropical storm karen and various operational issues . during 2012 , sales volumes were impacted by various pipeline outages , hurricane isaac and tropical storm debbie . during 2013 , our average realized oil sales price decreased slightly to $ 102.44 per barrel compared to $ 104.35 per barrel in 2012. two comparable oil price benchmarks are the unweighted average daily posted spot price of west texas intermediate ( “ wti ” ) crude oil , which increased 4.2 % from 2012 , and the unweighted average daily posted spot price of brent crude oil , which decreased 2.8 % from the comparable period . 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 plus a premium depending on the type of crude oil . most of our oil production is from offshore gulf of mexico , which is comprised of various crudes including light louisiana sweet , heavy louisiana sweet , poseidon and others . starting in the first quarter of 2011 and continuing through third quarter 2013 , these various crudes sold at a significant premium relative to wti . the average premium in 2013 was $ 11.00 per barrel , with premiums ranging from $ 2.00 to $ 22.00. during 2012 , average premium was $ 16.00 per barrel and premiums ranged between $ 10.00 and $ 22.00 per barrel . in the second quarter of 2013 , the premiums began to decline and continued to decline through the fourth quarter of 2013. for the fourth quarter of 2013 , premiums were between $ 2.00 and $ 3.00 , which are similar to premiums prior to 2011. the infrastructure to transport crude oil within the united states has seen a major change over the past few years . 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 ) . 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 until october 2013. since that time , the premiums that the gulf of mexico crude oil had been experiencing declined as the crude being moved to the u.s. gulf coast increased and imports continued . the structural changes that have occurred as a result of new pipeline and rail infrastructure will impact u.s. gulf coast crude oil pricing going forward . rail receiving capacity has also been expanding rapidly on the east coast and to some extent on the u.s. gulf coast . the spread between brent and wti continues to be wide due to high u.s. crude oil inventory due to both crude oil imports and increased domestic production . story_separator_special_tag spreads are expected to remain volatile and certain u.s. gulf coast crudes are selling at a discount to wti due to excess supplies of certain crudes . oil prices are affected by world events , such as political unrest in the middle east , the threat of hostilities , demand changes in various countries and world economic growth . thus , crude oil prices will likely continue to be volatile . for 2013 , wti crude oil prices ranged from $ 87.00 to $ 111.00 per barrel and brent crude oil prices ranged from $ 97.00 to $ 119.00 per barrel . the u.s. energy information administration ( “ eia ” ) estimates that the average wti crude spot price was $ 98.00 per barrel in 2013 and will be $ 93.00 per barrel in 2014 and $ 90.00 per barrel in 2015. eia estimates the average brent crude oil spot price was $ 109.00 per barrel in 2013 and projects the average price to be $ 105.00 and $ 102.00 per barrel in 2014 and 2015 , respectively . eia expects world-wide supply and consumption for oil and liquids fuels to be fairly equal for 2014 and 2015 , resulting in minor inventory withdrawals or builds . 50 our average realized ngls sales prices decreased 11.8 % during 2013 compared to 2012. according to industry sources , domestic ngls production significantly increased over 2012 levels which affected price realizations . the two major components of our ngls are ethane and propane , which typically make up over 70 % of a ngl barrel . during 2013 , prices for domestic ethane decreased 25 % and domestic propane prices were flat compared to 2012 prices . price changes for other domestic ngls ranged from flat to a 21 % increase . as long as ethane inventories and production continue to be high , we would expect prices for ethane to be weak . in addition , as long as the crude to natural gas price ratio remains wide ( as measured on a six to one energy equivalency ) , the production of ngls may continue to be high relative to historical norms and would , in turn , suggest downward price pressure on the price of ethane . many natural gas processing facilities are re-injecting ethane back into the natural gas stream after processing due to excess ethane supplies . this in turn has increased natural gas supplies and negatively impacted natural gas pricing . propane is used as a heating fuel and , during the winter of early 2014 , propane inventories declined significantly and propane prices strengthened during the january to february 2014 timeframe . the remainder of the ngl barrel ( iso butane , normal butane and pentane ) has also shown price strength in the early winter months . ngls inventories and prices are expected to be volatile in the short term with weather being the major influencing factor on a portion of the ngl barrel . over the longer term , overall ngls prices are expected to be weak to moderate until more infrastructure is built and demand increases from construction of petrochemical plants that consume ngls and from exports . prices for natural gas in the u.s. improved during 2013 compared to 2012 largely due to above-average storage withdrawals in response to the colder winter weather , which was primarily in march 2013 , lower net imports from canada and higher industrial demand . the cold weather in december 2013 and january 2014 also has had significant effects on demand , supply and prices across the country , with one week in december having the largest storage withdrawal since record keeping began in 1994. natural gas prices are more affected by domestic issues ( as compared to crude oil prices ) , such as weather ( particularly extreme heat or cold ) , supply , local demand issues , other fuel competition ( coal ) and domestic economic conditions , and they have historically been subject to substantial fluctuation . during 2013 , the average realized sales price for our natural gas production increased 20.7 % from 2012 to $ 3.55 per mcf . a comparable benchmark is the henry hub unweighted average daily posted spot price , which increased 35.3 % from the comparable period . although the price of natural gas has increased significantly on a percentage basis , it is still weak from an overall economic standpoint and we expect continued weakness in natural gas prices for a number of reasons , including ( i ) producers continuing to drill in order to secure and to hold large lease positions before expiration , particularly in shale and similar resource plays , ( ii ) natural gas storage levels building during the injection season , ( iii ) natural gas continuing to be produced as a by-product in conjunction with the high level of oil drilling , ( iv ) increasing availability of liquefied natural gas , ( v ) production efficiency gains being achieved in the shale gas areas resulting from better hydraulic fracturing , horizontal drilling and production techniques and ( vi ) re-injecting ethane into the natural gas stream as indicated above , which increases the natural gas supply . per eia , natural gas working inventories at the end of 2013 were estimated at 2,876 billion cubic feet , which is 16 % below 2012 's level and 12 % below last quarter 's projected level for year-end 2013. eia estimates the henry hub natural gas spot price , which averaged $ 2.75 per mmbtu in 2012 , was $ 3.73 per mmbtu in 2013 and forecasts $ 3.89 per mmbtu in 2014 and $ 4.11 per mmbtu in 2015. eia projects u.s. supply to be higher than consumption for both 2014 and 2015. according to baker hughes , the u.s. natural gas rig count decreased from 809 rigs at the beginning of 2012 to 431 by the end of 2012. the rig count continued to decrease further and by the end of 2013 had decreased to 372
| specifically , production at mississippi canyon 506 ( wrigley ) continues to be deferred as a result of maintenance at shell 's cognac platform and related pipelines . also , production was deferred at our fairway field due to well and maintenance issues and a turnaround at our yellowhammer plant . during 2012 , we also experienced production deferrals primarily due to hurricane isaac and various pipeline outages , but not near the same magnitude as in 2013. revenues from oil and liquids as a percent of our total revenues were 80.5 % for 2013 compared to 81.7 % for 2012. ngls realized sales prices as a percent of oil realized prices decreased to 34.2 % for 2013 compared to 38.1 % for 2012 . 53 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 , increased $ 38.6 million to $ 270.8 million in 2013 compared to 2012. on a per mcfe basis , lease operating expenses increased to $ 2.51 per mcfe during 2013 compared to $ 2.26 per mcfe during 2012. on a component basis , workover expense increased $ 25.0 million primarily as a result of rig workovers on wells at our ship shoal 349/359 field and our main pass 69 field . base lease operating expenses increased $ 14.5 million primarily as a result of the acquisition of the newfield properties , expanded onshore operations , ad valorem tax refunds received in 2012 , partially offset by increased processing fees charged to third-parties . facilities maintenance expense increased $ 5.1 million primarily attributable to a shutdown for scheduled maintenance at our yellowhammer plant . partially offsetting these increases were decreases in insurance premiums of $ 4.6 million and hurricane costs net of insurance claims of $ 1.5 million . production taxes . production taxes increased to $ 7.1 million during 2013 compared to $ 5.8 million in 2012 primarily due to onshore production and are currently not a large component of our operating costs . most
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under his employment arrangement , mr. rice is entitled to receive a monthly salary of $ 9,000 , and he is eligible to receive medical and dental benefits , life insurance , and long term and short term disability coverage . further , mr. rice is eligible under his employment arrangement to participate in the company 's 2013 equity incentive plan , with equity compensation to mr. rice to be determined by our compensation committee at a later date . effective story_separator_special_tag critical accounting policies the preparation of financial statements in conformity with accounting principles generally accepted in the united states requires management to make estimates and assumptions that affect the reported assets , liabilities , sales and expenses in the accompanying financial statements . critical accounting policies are those that require the most subjective and complex judgments , often employing the use of estimates about the effect of matters that are inherently uncertain . such critical accounting policies , including the assumptions and judgments underlying them , are disclosed in note 1 to the financial statements included in this annual report . however , we do not believe that there are any alternative methods of accounting for our operations that would have a material effect on our financial statements . story_separator_special_tag as a result of february 2017 public offering , the restructuring of debt in october 2017 , and the december 2017 conversions by two debt instrument holders . this compares to a $ 354,644 positive contribution from revaluation of derivatives in 2016. offsetting these noncash adjustments was positive contribution in 2017 from an $ 102,865 increase in the amount of cash incentives received from the state of new mexico and $ 40,107 of interest income earned on loans we made . these were largely offset by a $ 121,624 increase in interest expense on the $ 1,000,000 note originated in october of 2016. sigma 's net loss for fiscal 2017 increased $ 2,380,682 overall and totaled $ 4,577,516 , as compared to $ 2,196,834 for fiscal 2016. the 2017 net operating loss component of the overall loss being $ 1,578,252 higher than in 2016 and the other income and expenses component being a $ 802,430 higher loss . liquidity and capital resources as of december 31 , 2017 , we had $ 1,515,674 in cash and a working capital surplus of $ 2,273,801 , as compared to $ 398,391 in cash and a working capital surplus of $ 110,799 as of december 31 , 2016. on march 28 , 2018 , sigma received $ 535,000 in full payment of the outstanding morf3d note receivable and accrued interest . on april 6 , 2018 , the company closed a private placement of equity securities resulting in net proceeds of approximately $ 840,000 , after deducting commissions and other offering expenses payable by the company . during the remainder of 2018 , we expect to further ramp up our operations and our commercialization and marketing efforts , which will increase the amount of cash we will use in our operations . we expect that our continued development of our ipqa®-enabled printrite3d® technology will enable us to further commercialize this technology for the am metal market in 2018. however , until commercialization of our full suite of printrite3d® technologies , we plan to continue funding our development activities and operating expenses by licensing our printrite3d® systems and supporting field services , as applicable , and providing printrite3d®-enabled engineering consulting services concerning our areas of expertise ( materials and manufacturing quality assurance and process control technologies ) and contract manufacturing for metal am , and through the use of proceeds from sales of our securities . 26 cash used in operating activities in 2017 increased to $ 2,791,406 from $ 1,962,314 in 2016 due primarily to increases in payroll , and in outside services costs related to both the $ 5,250,000 capital raise and increased research and development activities in 2017. the company anticipates fewer losses in 2018 , due to expected increased revenues , offset by increased salaries and related expenses in connection with additional employees and potential acquisitions ( although there are no agreements with respect to the acquisition by the company of any third party , and there can be no assurance that any agreements will be entered into or , if entered into , that any acquisition or other transaction will be consummated ) . cash flows used in investing activities increased from $ 79,104 in 2016 to $ 928,960 in 2017 primarily due to the layout of $ 788,500 in exchange for notes receivable issued to two customers in 2017. cash flows provided by financing activities in 2017 were $ 4,837,649 compared to $ 900,000 in 2016. the increase resulted from the issuance of shares of common stock and warrants in february 2017 that raised net proceeds of $ 5,250,000 and the exercise of warrants in december 2017 that raised an additional $ 112,000 in proceeds , offset by $ 500,000 principal payments on debt securities in october 2017 as opposed to net proceeds of $ 900,000 raised in october 2016 through a private offering of debt securities . we have no credit lines as of april 10 , 2018 , nor have we ever had a credit line since our inception . based on the funds we have as of april 10 , 2018 , and the proceeds we expect to receive under our printrite3d®-enabled engineering consulting agreements , from selling or licensing our printrite3d® systems and software , sales of contract am manufacturing for metal am parts and the payment of loans made by sigma , we believe that we will have sufficient funds to pay our administrative and other operating expenses through 2018. until we are able to generate significant revenues and royalties from licensing our printrite3d®-enabled technologies and our contact am manufacturing services , our ability to continue to fund our liquidity and working capital needs will be dependent upon revenues from existing story_separator_special_tag under his employment arrangement , mr. rice is entitled to receive a monthly salary of $ 9,000 , and he is eligible to receive medical and dental benefits , life insurance , and long term and short term disability coverage . further , mr. rice is eligible under his employment arrangement to participate in the company 's 2013 equity incentive plan , with equity compensation to mr. rice to be determined by our compensation committee at a later date . effective story_separator_special_tag critical accounting policies the preparation of financial statements in conformity with accounting principles generally accepted in the united states requires management to make estimates and assumptions that affect the reported assets , liabilities , sales and expenses in the accompanying financial statements . critical accounting policies are those that require the most subjective and complex judgments , often employing the use of estimates about the effect of matters that are inherently uncertain . such critical accounting policies , including the assumptions and judgments underlying them , are disclosed in note 1 to the financial statements included in this annual report . however , we do not believe that there are any alternative methods of accounting for our operations that would have a material effect on our financial statements . story_separator_special_tag as a result of february 2017 public offering , the restructuring of debt in october 2017 , and the december 2017 conversions by two debt instrument holders . this compares to a $ 354,644 positive contribution from revaluation of derivatives in 2016. offsetting these noncash adjustments was positive contribution in 2017 from an $ 102,865 increase in the amount of cash incentives received from the state of new mexico and $ 40,107 of interest income earned on loans we made . these were largely offset by a $ 121,624 increase in interest expense on the $ 1,000,000 note originated in october of 2016. sigma 's net loss for fiscal 2017 increased $ 2,380,682 overall and totaled $ 4,577,516 , as compared to $ 2,196,834 for fiscal 2016. the 2017 net operating loss component of the overall loss being $ 1,578,252 higher than in 2016 and the other income and expenses component being a $ 802,430 higher loss . liquidity and capital resources as of december 31 , 2017 , we had $ 1,515,674 in cash and a working capital surplus of $ 2,273,801 , as compared to $ 398,391 in cash and a working capital surplus of $ 110,799 as of december 31 , 2016. on march 28 , 2018 , sigma received $ 535,000 in full payment of the outstanding morf3d note receivable and accrued interest . on april 6 , 2018 , the company closed a private placement of equity securities resulting in net proceeds of approximately $ 840,000 , after deducting commissions and other offering expenses payable by the company . during the remainder of 2018 , we expect to further ramp up our operations and our commercialization and marketing efforts , which will increase the amount of cash we will use in our operations . we expect that our continued development of our ipqa®-enabled printrite3d® technology will enable us to further commercialize this technology for the am metal market in 2018. however , until commercialization of our full suite of printrite3d® technologies , we plan to continue funding our development activities and operating expenses by licensing our printrite3d® systems and supporting field services , as applicable , and providing printrite3d®-enabled engineering consulting services concerning our areas of expertise ( materials and manufacturing quality assurance and process control technologies ) and contract manufacturing for metal am , and through the use of proceeds from sales of our securities . 26 cash used in operating activities in 2017 increased to $ 2,791,406 from $ 1,962,314 in 2016 due primarily to increases in payroll , and in outside services costs related to both the $ 5,250,000 capital raise and increased research and development activities in 2017. the company anticipates fewer losses in 2018 , due to expected increased revenues , offset by increased salaries and related expenses in connection with additional employees and potential acquisitions ( although there are no agreements with respect to the acquisition by the company of any third party , and there can be no assurance that any agreements will be entered into or , if entered into , that any acquisition or other transaction will be consummated ) . cash flows used in investing activities increased from $ 79,104 in 2016 to $ 928,960 in 2017 primarily due to the layout of $ 788,500 in exchange for notes receivable issued to two customers in 2017. cash flows provided by financing activities in 2017 were $ 4,837,649 compared to $ 900,000 in 2016. the increase resulted from the issuance of shares of common stock and warrants in february 2017 that raised net proceeds of $ 5,250,000 and the exercise of warrants in december 2017 that raised an additional $ 112,000 in proceeds , offset by $ 500,000 principal payments on debt securities in october 2017 as opposed to net proceeds of $ 900,000 raised in october 2016 through a private offering of debt securities . we have no credit lines as of april 10 , 2018 , nor have we ever had a credit line since our inception . based on the funds we have as of april 10 , 2018 , and the proceeds we expect to receive under our printrite3d®-enabled engineering consulting agreements , from selling or licensing our printrite3d® systems and software , sales of contract am manufacturing for metal am parts and the payment of loans made by sigma , we believe that we will have sufficient funds to pay our administrative and other operating expenses through 2018. until we are able to generate significant revenues and royalties from licensing our printrite3d®-enabled technologies and our contact am manufacturing services , our ability to continue to fund our liquidity and working capital needs will be dependent upon revenues from existing
| by september 1 , 2017 , the company strategy led to a policy requiring 100 % sales and marketing focus on prospective customers who are already producing am metal parts in production runs , who realize they have low yields and , in some cases , worry that perhaps they are unwittingly shipping parts that are invisibly below specification . concurrent with this new policy of customer focus , the company worked to integrate sales and marketing more closely with product development . this integration included creating a dedicated sigma customer support team for in-field hands-on support of printrite3d® assessments and demonstrations to enable sigma and its newly targeted customer group to cooperate in a simple defined process that provides customers with a demonstration of how to calibrate their am equipment using printrite3d® and how to improve quality using printrite3d® , as substantiated by using a third party laboratory to affirm , part by part , the quality test results . we generated revenues and financed our operations in fiscal 2017 and fiscal 2016 primarily from engineering consulting services we provided to third parties during these periods and through sales of our common stock and debt securities . we expect that our revenue will increase in future periods as we seek , as discussed above , to further commercialize and expand our market presence for our printrite3d®-related technologies , and obtain new contract manufacturing orders in connection with our eos m290 , and continue to provide our services under our contracts with honeywell aerospace for the darpa period 2 program . 25 sigma 's operating expenses for fiscal 2017 were $ 4,420,667 as compared to $ 3,211,258 for fiscal 2016. our operating expenses principally include internal operating and sales expenses , outside service fees , and research & development costs . these three operating expense areas are responsible for $ 1,133,513 or 94 % of the increased operating costs in 2017. personnel costs , specifically the payroll and stock-based compensation components of personnel costs ,
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excluding interest in cost of home sales and purchase price accounting , our adjusted homebuilding gross margin percentage was 21.7 % for the year ended december 31 , 2016 , as compared to 21.9 % for the year ended december 31 , 2015. the nominal decrease in adjusted gross margin is attributed to a wider geographic mix of home deliveries in 2016 as compared to 2015 . we believe the above information is meaningful as it isolates the impact that indebtedness and acquisitions have on homebuilding gross margin and allows for comparability of our gross margins to previous periods and our competitors . selling , general and administrative expense replace_table_token_9_th our selling , general and administrative costs increased $ 34.4 million for the year ended december 31 , 2016 as compared to 2015. the increase was primarily attributable to the following : ( 1 ) an increase of $ 10 . 6 million in our compensation-related expenses , including incentive compensation , resulting largely from an increase in headcount , ( 2 ) an increase of $ 10 . 5 million in commission expense to $ 39.4 million for the year ended december 31 , 2016 , resulting from a 34.9 % increase in home sales revenues , ( 3 ) an increase of $ 2.7 million related to advertising costs associated with our increased number of homes delivered , ( 4 ) an increase of $ 1.2 million related to depreciation and amortization as a result of an increased property plant and equipment balance year over year , ( 5 ) an increase of $ 3.4 37 million in legal costs , ( 6 ) an increase of $ 1.1 million in information technology expenses related to the growth of the company , and ( 7 ) an increase of $ 4.9 million related to increases in rent , model expenses , other corporate expenses , and feasibility related costs . other income ( expense ) other income ( expense ) remained consistent at $ 1.3 million for the year s ended december 31 , 2016 and 2015 . income tax expense our income tax expense for the year ended december 31 , 2016 was $ 2 3.6 million , as compared to $ 20.4 million for the year ended december 31 , 2015 . our income tax expense for the year ended december 31 , 2016 results in an effective tax rate of 32.3 % , as compared to an effective tax ra te of 33.8 % for the year ended december 31 , 2015 . our effective tax rate is driven by our blended federal and state statutory rate of 37 . 4 % . our blended federal and state statutory tax rate is reflective of the states in which we operate , including nevada and texas which generally do not have corporate income tax . our blended federal and state statutory tax rate is partially offset by benefits from additional deductions for domestic production activities and federal energy credits allowed for under the internal revenue code . segment assets replace_table_token_10_th ( 1 ) includes $ 4.9 million related to lots purchased and held in charlotte , north carolina as of december 31 , 2016 . replace_table_token_11_th of our total lots owned and controlled as of december 31 , 2016 , 47.3 % were owned and 52.7 % were controlled , as compared to 68.4 % owned and 31.6 % controlled as of december 31 , 2015. total assets increased by $ 89.8 million , or 9.8 % , to $ 1.0 billion at december 31 , 2016. the increase is primarily driven by increased investments in our atlanta and nevada operating segments as well as our entrance into the utah market and our purchase of lots in the charlotte , north carolina market . 38 other homebuilding operating data replace_table_token_12_th net new home contracts ( new home contracts net of cancellations ) for the year ended december 31 , 2016 increased by 504 homes , or 21.4 % , to 2 , 860 , as compared to 2,356 for the year ended december 31 , 2015 . the increase in our net new home contracts was driven by overall positive market conditions in the markets in which we operate . our overall monthly “ absorption rate ” ( the rate at which home orders are contracted , net of cancelations ) for the years ended december 31 , 2016 and 2015 by segment are included in the table below : replace_table_token_13_th our absorption rate increased by 12.5 % to 2.7 per month during the year ended december 31 , 2016 , as compared to 2.4 per month for the same period in 2015. the increase in absorption rate is attributable to the strong homebuilding environment as a result of positive economic trends in most of our markets . 39 replace_table_token_14_th our sel ling communities increased by one communit y to 89 communities at december 31 , 201 6 , as compared to 88 communities at december 31 , 201 5 . replace_table_token_15_th backlog reflects the number of homes , net of actual cancellations experienced during the period , for which we have entered into a sales contract with a customer but for which we have not yet delivered the home . at december 31 , 2016 , we had 749 homes in backlog with a total value of $ 3 02.8 million , which represents an increase of 4.9 % and 1 1.7 % , respectively , as compared to december 31 , 2015. the increase in backlog and backlog value is primarily attributable to the increase in the demand for new homes in the markets in which we operate . story_separator_special_tag t he increase in average sales price of homes in backlog is driven by increases acro ss all of our operating segments except houston , as a result of pricing strength due to positive market trends as well as product mix towards higher priced communities . 40 results of operations december 31 , 2015 and 2014 during the year ended december 31 , 2015 , we delivered 2,401 homes , with an average sales price of $ 302.1 thousand . during the same period , we generated approximately $ 725.4 million in home sales revenue , approximately $ 60.3 million in income before tax expense , and approximately $ 39.9 million in net income . for the year ended december 31 , 2015 , our net new home contracts totaled 2,356 homes , a 126.1 % increase over the same period in 2014. on december 31 , 2015 , we had a backlog of 714 sold but unclosed homes , consisting of approximately $ 271.1 million in sales value , a 10.1 % increase over the same period in 2014. our results of operations are significantly impacted by our acquisitions of peachtree communities group , inc. and its affiliates and subsidiaries ( which we refer to as “ peachtree ” ) in november 2014 , grand view builders ( which we refer to as “ grand view ” ) in august 2014 , and las vegas land holdings , llc ( which we refer to as “ lvlh ” ) in april 2014. subsequent to our acquisition , these operations became our atlanta , houston and nevada operating segments , respectively . the following table summarizes our results of operation for the years ended december 31 , 2015 and 2014. replace_table_token_16_th 41 results of operations by operating segment ( dollars in thousands ) replace_table_token_17_th atlanta in our atlanta operating segment , our income before income tax increased by $ 22.7 million to $ 23.6 million for the year ended december 31 , 2015 , as compared to $ 0.9 million for the same period in 2014. this increase is related to our acquisition of peachtree in 2014. we had an additional 1,001 home deliveries in 2015 coupled with an increase of $ 17.0 thousand in the average selling price during the year ended december 31 , 2015 , as compared to the same period in 2014 . central texas in our central texas operating segment , our income before income tax remained relatively unchanged for the year ended december 31 , 2015 , as compared to 2014. our revenue from home sales increased to $ 74.6 million during the year ended december 31 , 2015 , as compared to $ 55.8 million for the same period in 2014. this increase is related to an additional 28 home deliveries , as well as an increase of $ 43.6 thousand in the average selling price during the year ended december 31 , 2015 , as compared to the same period in 2014 . colorado in our colorado operating segment , our income before income tax increased by $ 7.2 million to $ 37.1 million for the year ended december 31 , 2015 , as compared to $ 29.9 million for the same period in 2015. this increase is related an additional 187 home deliveries , as well as an increase of $ 13.8 thousand in the average selling price during the year ended december 31 , 2015 , as compared to the same period in 2014 . houston in our houston operating segment , our loss before income tax remained relatively unchanged for the year ended december 31 , 2015 , as compared 2014. our revenue from home sales increased to $ 38.2 million during the year ended december 31 , 2015 , as compared to $ 17.5 million for the same period in 2014. this increase is related to our acquisition of grand v iew in 2014. we had an additional 86 home deliveries , with an increase of $ 13.4 thousand in the average selling price during the year ended december 31 , 2015 , as compared to the same period in 2014 . nevada in our nevada operating segment , our income before income tax increased by $ 3.8 million to $ 12.4 million for the year ended december 31 , 2015 , as compared to $ 8.6 million for the same period in 2014. the increase is related to our acquisition of lvlh in 2014. we had an additional 53 home deliveries with an increase of $ 10.3 thousand in the average selling price during the year ended december 31 , 2015 , as compared to the same period in 2014. additionally , we generated approximately $ 5.6 million in golf course and other revenue during the year ended december 31 , 2015 , which were partially offset by costs associated with the golf courses of $ 5.0 million . corporate our corporate operating segment generated $ 17.0 million in loss during the year ended december 31 , 2015 , as compared to a loss of $ 12.7 million for the same period in 2014. as our business has grown year over year , the corporate expenses have grown accordingly . 42 homebuilding gross margin homebuilding gross margin represents home sales revenue less cost of home sales revenues . our homebuilding gross margin percentage , which represents homebuilding gross margin divided by home sales revenues , decreased for the year ended december 31 , 2015 to 20.2 % as compared to 21.4 % for the year ended december 31 , 2014. the decrease is primarily driven by our entry into the atlanta and houston markets , which have lower average sales prices and lower average homebuilding gross margins than our existing markets , and the impact of an increase of previously capitalized interest costs in cost of sales as a result of higher outstanding debt balances .
| colorado in our colorado operating segment , our income before income tax increased by $ 14.6 million to $ 5 1 .7 million for the year ended december 31 , 2016 , as compared to $ 37.1 million for the same period in 2015. this increase is related to an additional 171 home deliveries with an increase in the average selling price of $ 36.3 thousand during the year ended december 31 , 2016 , as compared to the same period in 2015 . houston in our houston operating segment , our loss before income tax increased by $ 2.0 million to $ 2.8 million for the year ended december 31 , 2016 , as compared to $ 0.8 million for the same period in 2015. this increase is related to 47 fewer home deliveries , partially offset by an increase in the average selling price of $ 91.3 thousand during the year ended december 31 , 2016 , as compared to the same period in 2015. additionally , we disposed of land in our houston operating segment for $ 1.2 million with a carrying basis of $ 1.0 million during the year ended december 31 , 2016 . nevada in our nevada operating segment , our income before income tax increased by $ 3.2 million to $ 15.6 million for the year ended december 31 , 2016 , as compared to $ 12.4 million for the same period in 2015. this increase is related to an additional 146 home deliveries with an increase in the average selling price of $ 20.7 thousand during the year ended december 31 , 2016 , as compared to the same period in 2015 . additionally , we generated approximately $ 3.9 million and $ 5.6 million in golf course and other revenue during the year ended december 31 , 2016 and 2015 , respectively , which were partially offset by costs associated with the golf courses of $ 3.6 million and $ 5.0 million , respectively . the decrease in golf course revenues and costs are a result of operating one golf course in 2016 as compared to two golf courses in 2015 . 36 utah we began operations in our utah operating segment during 2016. we had seven home deliveries with an average selling
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these expenditures , which include advertising costs and costs to maintain our central reservations and property management systems , help to enhance awareness and increase consumer preference for our brands and deliver guests to our franchisees . greater awareness and preference promotes long-term growth in business delivery to our franchisees and increases the desirability of our brands to hotel owners and developers , which ultimately increases franchise fees earned by the company . our company articulates its mission as a commitment to our franchisees ' profitability by providing our franchisees with hotel franchises that strive to generate the highest return on investment of any hotel franchise . we have developed an operating system dedicated to our franchisees ' success that focuses on delivering guests to our franchised hotels and reducing costs for our hotel owners . we believe that executing our strategic priorities creates value for our shareholders . our company focuses on two key goals : profitable growth . our success is dependent on improving the performance of our hotels , increasing our system size by selling additional hotel franchises , effective royalty rate improvement and maintaining a disciplined cost structure . we attempt to improve our franchisees ' revenues and overall profitability by providing a variety of products and services designed to increase business delivery to and or reduce operating and development costs for our franchisees . these products and services include national marketing campaigns , maintaining a guest loyalty program , a central reservation system , property and yield management programs and systems , revenue management services , quality assurance standards and qualified vendor relationships . we believe that healthy brands , which deliver a compelling return on investment for franchisees , will enable us to sell additional hotel franchises and raise royalty rates . we have established multiple brands that meet the needs of many types of guests , and can be developed at various price points and applied to both new and existing hotels . this ensures that we have brands suitable for creating growth in a variety of market conditions . improving the performance of the hotels under franchise , growing the system through additional franchise sales and improving franchise agreement pricing while maintaining a disciplined cost structure are the keys to profitable growth . 39 maximizing financial returns and creating value for shareholders . our capital allocation decisions , including capital structure and uses of capital , are intended to maximize our return on invested capital and create value for our shareholders . we believe our strong and predictable cash flows create a strong financial position that provides us a competitive advantage . currently , our business does not require significant capital to operate and grow . therefore , we can maintain a capital structure that generates high financial returns and use our excess cash flow to increase returns to our shareholders primarily through share repurchases , dividends or investing in growth opportunities . historically , we have returned value to our shareholders through share repurchases and dividends . in 1998 , we instituted a share repurchase program which has generated substantial value for our shareholders . since the program 's inception through december 31 , 2017 , we have repurchased 48.7 million shares ( including 33.0 million prior to the two-for-one stock split effected in october 2005 ) of common stock at a total cost of $ 1.3 billion . considering the effect of the two-for-one stock split , the company has repurchased 81.7 million shares at an average price of $ 15.38 per share . the company purchased 3,100 shares of common stock under the share repurchase program at a total cost of $ 0.2 million for the year ended december 31 , 2017 . at december 31 , 2017 , we had approximately 4.0 million shares remaining under the current share repurchase authorization . we currently believe that our cash flows from operations will support our ability to complete the current repurchase authorization . upon completion of the current authorization , our board of directors will evaluate the advisability of additional share repurchases . the company commenced paying quarterly dividends in 2004 and in 2012 the company elected to pay a special cash dividend totaling approximately $ 600 million . the company currently maintains the payment of a quarterly dividend on its common shares outstanding , however the declaration of future dividends is subject to the discretion of the board of directors . during the year ended december 31 , 2017 , the company paid cash dividends totaling approximately $ 48.7 million . we expect to continue to pay dividends in the future , subject to declaration by our board of directors as well as future business performance , economic conditions , changes in income tax regulations and other factors , including limitations in the company 's credit facility . based on our present dividend rate and outstanding share count , we expect that aggregate annual regular dividends for 2018 would be approximately $ 48.7 million . the company also allocates capital to exploring growth opportunities in business areas that are adjacent or complementary to our core hotel franchising business , which leverage our core competencies and are additive to our franchising business model . the timing and amount of these investments are subject to market and other conditions and include the following : our board of directors authorized a program which permits us to offer financing , investment and guaranty support to qualified franchisees as well as allows us to acquire and resell real estate to incent franchise development for certain brands in strategic markets . as a result , over the next several years we expect to deploy capital pursuant to this program opportunistically to promote growth of our emerging brands . the amount and timing of the investment in this program will be dependent on market and other conditions and we generally expect to recycle these investments within a five-year period . story_separator_special_tag in march 2013 , the company announced the launch of a new division , skytouch technology ( `` skytouch '' ) , which develops and markets cloud-based technology products for the hotel industry . from inception through 2016 , the company made significant investments in product development and sales efforts to expand its customer base . as a result , the division incurred significant costs in excess of revenues . beginning in 2017 , the same level of investment in product development and sale efforts was no longer required . as a result , the losses from the skytouch division have been significantly reduced . in august 2015 , the company completed the acquisition of a company that provides software as a service solution for vacation rental management companies . this business provides central reservations systems , property management systems and integrated software applications including point-of-sale . the transaction has been accounted for using the acquisition method of accounting and accordingly , assets acquired and liabilities assumed were recorded at their fair values as of the acquisition date . the results of this business have been consolidated with the company since august 2015. notwithstanding investments in skytouch and other alternative growth strategies , the company expects to continue to return value to its shareholders over time through a combination of share repurchases and dividends . we believe these investments and strategic priorities , when properly implemented , will enhance our profitability , maximize our financial returns and continue to generate value for our shareholders . the ultimate measure of our success will be reflected in the items below . results of operation : royalty fees , operating income , net income and diluted earnings per share ( `` eps '' ) represent key measurements of these value drivers . these measurements are primarily driven by the operations of our hotel franchise system and therefore , our analysis of the company 's operations is primarily focused on the size , performance and potential growth of the franchise system as well as our variable overhead costs . since our hotel franchising activities represent approximately 99 % of total revenues , our discussion of our results from operations primarily relate to our hotel franchising activities . 40 refer to md & a heading `` operations review '' for additional analysis of our results . liquidity and capital resources : historically , the company has generated significant cash flows from operations . since our business has not historically required significant reinvestment of capital , we typically utilize cash in ways that management believes provide the greatest returns to our shareholders which include share repurchases and dividends . however , we may determine to utilize cash for acquisitions and other investments in the future . we believe the company 's cash flow from operations and available financing capacity is sufficient to meet the expected future operating , investing and financing needs of the business . refer to md & a heading `` liquidity and capital resources '' for additional analysis . inflation : inflation has been moderate in recent years and has not had a significant impact on our business . non-gaap financial statement measurements the company utilizes certain measures which do not conform to generally accepted accounting principles accepted in the united states ( `` gaap '' ) when analyzing and discussing its results with the investment community . this information should not be considered as an alternative to any measure of performance as promulgated under gaap . the company 's calculation of these measurements may be different from the calculations used by other companies and therefore , comparability may be limited . we have included a reconciliation of these measures to the comparable gaap measurement below as well as our reasons for reporting these non-gaap measures . hotel franchising revenues : the company utilizes franchising revenues , which exclude revenues from marketing and reservation system activities , the skytouch technology division , vacation rental activities including operations that provides software as a service technology solutions to vacation rental management companies , and revenue generated from the ownership of an office building that is leased to a third-party , rather than total revenues when analyzing the performance of the business . marketing and reservation activities are excluded from franchising revenues since the company is contractually required by its franchise agreements to use the fees collected for marketing and reservation activities ; as such , no income or loss to the company is generated . cumulative marketing and reservation system fees not expended are recorded as a liability in the company 's financial statements and are carried over to the next fiscal year and expended in accordance with the franchise agreements . cumulative marketing and reservation expenditures incurred in excess of fees collected for marketing and reservation activities are deferred and recorded as an asset in the company 's financial statements and recovered in future periods . skytouch is a division of the company that develops and markets cloud-based technology products , including inventory management , pricing and connectivity to third party channels , to hoteliers not under franchise agreements with the company . skytouch and our vacation rental technology solutions provider operations are excluded from hotel franchising revenues since those operations do not reflect the company 's core hotel franchising business but represent adjacent , complimentary lines of business . this non-gaap measure is a commonly used measure of performance in our industry and facilitates comparisons between the company and its competitors . calculation of hotel franchising revenues replace_table_token_15_th 41 operations review comparison of 2017 and 2016 operating results summarized financial results for the years ended december 31 , 2017 and 2016 are as follows : replace_table_token_16_th results of operations the company recorded income before income taxes of $ 224.0 million for the year ended december 31 , 2017 , a $ 24.0 million or 12 % increase from the same period of the prior year .
| system-wide revpar increased due to a 3.0 % increase in average daily rates accompanied by a 50 basis point increase in occupancy rates . 47 the company 's effective royalty rate of the domestic hotel system increased from 4.30 % for the year ended december 31 , 2015 , to 4.41 % for the year ended december 31 , 2016. the increase in the effective royalty rate is attributable to improved royalty rate pricing on recently executed domestic franchise agreements as well as annual contractual royalty rate increases contained in existing franchise agreements . a summary of the company 's domestic franchised hotels operating information for the years ending december 31 , 2016 and 2015 is as follows : replace_table_token_20_th _ * totals for the year ended december 31 , 2015 have been revised from previous disclosures to include the operating statistics for the cambria hotel & suites brand . operating statistics for cambria hotel & suites have been excluded for 2015 since the brand had fewer than 25 units open and operating for the 12 month period . the number of domestic rooms on-line increased by 1.0 % to 404,498 rooms as of december 31 , 2016 from 400,372 as of december 31 , 2015. the total number of domestic hotels on-line increased by 1.6 % to 5,362 as of december 31 , 2016 , from 5,276 as of december 31 , 2015. our unit growth has outpaced the growth in our rooms primarily due to the company 's multi-year strategy to rejuvenate the comfort family of brands by terminating under-performing hotels that no longer meet the comfort brand standards . hotels terminated from the comfort brand family may be repositioned to a more suitable brand within the company 's family of brands or exit our franchise system . as a result of this strategy our unit growth has been driven primarily by brands with lower average room counts than the comfort family of brands . a summary of the domestic hotels and available rooms at december 31 , 2016 and 2015 by brand
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the increase in average c & i loans and leases also reflects organic growth in equipment finance leases , automobile dealer floorplan lending , and corporate banking . $ 1.8 billion , or 20 % , increase in average automobile loans , which reflects continued strength in new and used automobile originations , while maintaining our underwriting consistency and discipline . this increase was also impacted by the firstmerit acquisition and was partially offset by the $ 1.5 billion auto loan securitization during the 2016 fourth quarter . average noninterest-bearing demand deposits increased $ 2.7 billion , or 17 % , while average total interest-bearing liabilities increased $ 9.8 billion , or 22 % , primarily reflecting : $ 4.4 billion , or 67 % , increase in average interest-bearing demand deposits . $ 2.8 billion , or 53 % , increase in savings and other domestic deposits , reflecting continued banker focus across all segments on obtaining our customers ' full deposit relationship . $ 2.4 billion , or 44 % increase in average long-term debt , reflecting the issuance of $ 2.0 billion of senior debt during 2016 , as well as $ 0.5 billion of subordinate debt assumed during the acquisition of firstmerit . the 1 basis point increase in nim primary reflected : 9 basis point positive impact from the mix and yield on earning assets , a 3 basis point increase in the benefit from noninterest-bearing funds , partially offset by an 11 basis point increase in funding costs . 2015 vs. 2014 fully-taxable equivalent net interest income for 2015 increased $ 118 million , or 6 % , from 2014. this reflected the impact of 9 % earning asset growth , partially offset by 7 % interest-bearing liability growth and an 8 basis point decrease in the nim to 3.15 % . average earning assets increased $ 5.3 billion , or 9 % , from the prior year , driven by : $ 1.8 billion , or 15 % , increase in average securities , primarily reflecting additional investment in lcr level 1 qualifying securities . the 2015 average balance also included $ 1.7 billion of direct purchase municipal instruments originated by our commercial segment , up from $ 1.0 billion in the year-ago period . $ 1.4 billion , or 8 % , increase in average c & i loans and leases , primarily reflecting the $ 0.9 billion increase in asset finance , including the $ 0.8 billion of equipment finance leases acquired in the huntington technology finance transaction at the end of the 2015 first quarter . $ 1.1 billion , or 14 % , increase in average automobile loans , as originations remained strong . $ 0.3 billion , or 6 % , increase in average residential mortgage loans . average noninterest-bearing demand deposits increased $ 2.4 billion , or 17 % , while average total interest-bearing liabilities increased $ 3.1 billion , or 7 % , primarily reflecting : $ 1.5 billion , or 8 % , increase in money market deposits , reflecting continued banker focus across all segments on obtaining our customers ' full deposit relationship . 38 $ 0.7 billion , or 11 % , increase in average interest-bearing demand deposits . the increase reflected growth in both consumer and commercial accounts . $ 0.7 billion , or 11 % , increase in average total debt , reflecting a $ 2.1 billion , or 60 % , increase in average long-term debt partially offset by a $ 1.4 billion , or 51 % , reduction in average short-term borrowings . the increase in average long-term debt reflected the issuance of $ 3.1 billion of bank-level senior debt during 2015 , including $ 0.9 billion during the 2015 fourth quarter , as well as $ 0.5 billion of debt assumed in the huntington technology finance acquisition at the end of the 2015 first quarter . $ 0.6 billion , or 29 % , increase in brokered deposits and negotiated cds , which were used to efficiently finance balance sheet growth while continuing to manage the overall cost of funds . partially offset by : $ 0.7 billion , or 21 % , decrease in average core certificates of deposit due to the strategic focus on changing the funding sources to low- and no-cost demand deposits and money market deposits . the primary items impacting the decrease in the nim were : 6 basis point negative impact from the mix and yield on earning assets , primarily reflecting lower rates on loans and the impact of an increase in total securities balances . 3 basis point negative impact from the mix and yield of total interest-bearing liabilities . partially offset by : 1 basis point increase in the benefit to the margin of noninterest-bearing funds . provision for credit losses ( this section should be read in conjunction with the credit risk section . ) the provision for credit losses is the expense necessary to maintain the alll and the aulc at levels appropriate to absorb our estimate of credit losses inherent in the loan and lease portfolio and the portfolio of unfunded loan commitments and letters-of-credit . the provision for credit losses in 2016 was $ 191 million , up $ 91 million , or 91 % , from 2015 . the higher provision expense was due to several factors , including the migration of the acquired loan portfolio to the originated portfolio , which requires a reserve build , portfolio growth and transitioning the firstmerit portfolio to our reserve methodology . ncos represented 19 basis points of average loans and leases , consistent with 2015 , and below our long-term target of 35 to 55 basis points . the provision for credit losses in 2015 was $ 100 million , up $ 19 million , or 23 % , from 2014 , reflecting a $ 37 million , or 30 % , decrease in ncos . the provision for credit losses in 2015 was $ 12 million more than total ncos . story_separator_special_tag 39 noninterest income the following table reflects noninterest income for the past three years : replace_table_token_14_th 2016 vs. 2015 noninterest income increased $ 111 million , or 11 % , from the prior year , primarily reflecting : $ 44 million , or 16 % , increase in service charges on deposit accounts , reflecting the benefit of continued new customer acquisition . $ 26 million , or 18 % , increase in cards and payment processing income , due to higher card related income and underlying customer growth . $ 16 million , or 15 % , increase in mortgage banking income , reflecting a 24 % increase in mortgage origination volume . $ 14 million , or 43 % , increase in gain on sale of loans primarily reflecting an increase of $ 6 million in sba loan sales gains . in addition , there was a $ 7 million gain on non-relationship c & i and cre loan sales , which was related to the balance sheet optimization strategy completed in the 2016 fourth quarter . 2015 vs. 2014 noninterest income increased $ 60 million , or 6 % , from the prior year , primarily reflecting : $ 37 million , or 35 % , increase in cards and payment processing income due to higher card related income and underlying customer growth . $ 27 million , or 32 % , increase in mortgage banking income primarily driven by a $ 33 million , or 58 % , increase in origination and secondary marketing revenue . $ 12 million , or 57 % , increase in gain on sale of loans primarily reflecting an increase of $ 7 million in sba loan sales gains and the $ 5 million automobile loan securitization gain during the 2015 second quarter . $ 10 million , or 23 % , increase in capital market fees primarily related to customer foreign exchange and commodities derivatives products . partially offset by : $ 17 million , or 96 % decrease in securities gains as we adjusted the mix of our securities portfolio to prepare for the lcr requirements during the 2014 first quarter . 40 $ 10 million , or 9 % , decrease in trust services primarily related to our fiduciary trust businesses moving to a more open architecture platform and a decline in assets under management in proprietary mutual funds . during the 2015 fourth quarter , huntington sold haa , hasi , and unified . replace_table_token_15_th replace_table_token_16_th 41 replace_table_token_17_th 2016 vs. 2015 noninterest expense increased $ 433 million , or 22 % , from 2015 : $ 227 million , or 20 % , increase in personnel costs , primarily reflecting a 31 % increase in the number of average full-time equivalent employees largely related to the in-store branch expansion and the addition of colleagues from firstmerit . $ 73 million , or 32 % , increase in outside data processing and other services , primarily reflecting $ 46 million of acquisition-related expense and ongoing technology investments . $ 55 million , or 109 % , increase in professional services , primarily reflecting $ 58 million of acquisition-related expense . $ 40 million , or 32 % , increase in equipment expense , primarily reflecting $ 25 million of acquisition-related expense . $ 31 million , or 26 % , increase in net occupancy expense , primarily reflecting $ 15 million of acquisition-related expense . partially offset by : $ 17 million , or 8 % , decrease in other expense , primarily reflecting a $ 42 million reduction to litigation reserves which was mostly offset by a $ 40 million contribution in the 2016 fourth quarter to achieve the philanthropic plans related to firstmerit . 2015 vs. 2014 noninterest expense increased $ 94 million , or 5 % , from 2014 : $ 73 million , or 7 % , increase in personnel costs . excluding the impact of significant items , personnel costs increased $ 88 million , or 9 % , reflecting a $ 79 million increase in salaries related to the 2015 second quarter implementation of annual merit increases , the addition of huntington technology finance , and a 3 % increase in the number of average full-time equivalent employees , largely related to the build-out of the in-store strategy . $ 26 million , or 15 % , increase in other noninterest expense . excluding the impact of significant items , other noninterest expense increased $ 10 million , or 7 % , due to an increase in operating lease expense related to huntington technology finance . $ 19 million , or 9 % , increase in outside data processing and other services . excluding the impact of significant items , outside data processing and other services increased $ 20 million , or 10 % , primarily reflecting higher debit and credit card processing costs and increased other technology investment expense , as we continue to invest in technology supporting our products , services , and our continuous improvement initiatives . partially offset by : $ 11 million , or 29 % , decrease in amortization of intangibles reflecting the full amortization of the core deposit intangible at the end of the 2015 second quarter from the sky financial acquisition . 42 $ 9 million , or 16 % , decrease in professional services . excluding the impact of significant items , professional services decreased $ 12 million , or 21 % , reflecting a decrease in outside consultant expenses related to strategic planning . $ 6 million , or 5 % , decrease in net occupancy . excluding the impact of significant items , net occupancy remained relatively unchanged . provision for income taxes ( this section should be read in conjunction with note 17 of the notes to consolidated financial statements . ) 2016 versus 2015 the provision for income taxes was $ 208 million for 2016 compared with a provision for income taxes of $ 221 million in 2015 .
| service charges on deposit accounts increased $ 44 million , or 16 % , reflecting the benefit of continued new customer acquisition . in addition , cards and payment processing income increased $ 26 million , or 18 % , due to higher card related income and underlying customer growth . also , mortgage banking income increased $ 16 million , or 15 % , reflecting a 24 % increase in mortgage origination volume . finally , gain on sale of loans increased $ 14 million , or 43 % , primarily reflecting an increase of $ 6 million in sba loan sales gains and the $ 7 million gains on non-relationship c & i and cre loan sales , both of which were related to the balance sheet optimization strategy completed in the 2016 fourth quarter . noninterest expense was $ 2.4 billion , up $ 433 million , or 22 % . reported noninterest expense was impacted by firstmerit acquisition-related expenses totaling $ 282 million . personnel costs increased $ 227 million , or 20 % , primarily reflecting $ 76 million of acquisition-related expense and a 31 % increase in the number of average full-time equivalent employees largely related to the in-store branch expansion and the addition of colleagues from firstmerit . in addition , outside data processing and other services , professional services , equipment expense , and net occupancy expense all increased as a result of acquisition-related expenses . also , other expense decreased $ 17 million , or 8 % , primarily reflecting a $ 42 million reduction to litigation reserves , which was mostly offset by a $ 40 million contribution in the 2016 fourth quarter to achieve the philanthropic plans related to firstmerit . 30 the tangible common equity to tangible assets ratio was 7.16 % , down 66 basis points . the cet1 risk-based capital ratio was 9.56 % , down 23 basis points . the regulatory tier 1 risk-based capital ratio
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for products that ship directly from suppliers to customers , we act as the principal in the transaction and recognize revenue on a gross basis . revenue for integrated supply services is recognized over time based on hours incurred as the transfer of control occurs as the services are being performed . we generally satisfy our performance obligations within a year or less . we generally do not have significant financing terms associated with our contracts ; payments are normally received within 60 days . there are generally no significant costs associated with obtaining customer contracts . we generally pass through warranties offered by manufacturers or suppliers to our customers . sales taxes ( and value added taxes in foreign jurisdictions ) collected from customers and remitted to governmental authorities are excluded from net sales . supplier volume rebates we receive rebates from certain suppliers based on contractual arrangements with such suppliers . since there is a lag between actual purchases and the rebates received from suppliers , we estimate and accrue the approximate amount of rebates available at a specific date based on forecasted purchases and the rebate provisions of the various supplier contracts . we record the amounts as other accounts receivable in the consolidated balance sheets and the corresponding rebate income is recorded as a reduction of cost of goods sold . allowance for doubtful accounts we maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments . we have a systematic procedure using historical data and reasonable assumptions of collectability made at the local branch level and on a consolidated corporate basis to estimate allowances for doubtful accounts . 17 excess and obsolete inventory we write down our inventories to the lower of cost and net realizable value based on internal factors derived from historical analysis of actual losses . we use past data to identify items in excess of 36 months supply relative to demand or movement . we then analyze the ultimate disposition of identified excess inventories as they are sold , returned to supplier , or scrapped . this historical item-by-item analysis allows us to develop an estimate of the likelihood that an item identified as being in excess supply ultimately becomes obsolete . we apply the estimate to inventories currently in excess of 36 months supply , and reduce the carrying value of inventories by the derived amount . we revisit and test our assumptions on a periodic basis . historically , we have not had material changes to our assumptions , nor do we anticipate any material changes in the future . goodwill and indefinite-lived intangible assets goodwill and indefinite-lived intangible assets are tested for impairment annually during the fourth quarter using information available at the end of september , or more frequently if triggering events occur , indicating that their carrying value may not be recoverable . we test for goodwill impairment on a reporting unit level and the evaluation involves comparing the fair value of each reporting unit to its carrying value . the fair values of the reporting units are determined using a combination of a discounted cash flow analysis and market multiples . assumptions used for these fair value techniques are based on a combination of historical results , current forecasts , market data and recent economic events . we evaluate the recoverability of indefinite-lived intangible assets using the relief-from-royalty method based on projected financial information . the determination of fair value involves significant management judgment and we apply our best judgment when assessing the reasonableness of financial projections . fair values are sensitive to changes in underlying assumptions and factors . as a result , there can be no assurance that the estimates and assumptions made for purposes of the annual goodwill and indefinite-lived intangible impairment tests will prove to be an accurate prediction of future results . we performed our annual impairment tests of goodwill and indefinite-lived intangible assets during the fourth quarter . a possible indicator of goodwill impairment is the relationship of a company 's market capitalization to its book value . as of december 31 , 2018 , our market capitalization exceeded our book value and the fair values of our reporting units exceeded their carrying values . accordingly , there were no impairment losses identified as a result of our annual test . intangible assets we account for certain economic benefits purchased as a result of our acquisitions , including customer relations , distribution agreements , technology and trademarks , as intangible assets . most trademarks have an indefinite life . we amortize all other intangible assets over a useful life determined by the expected cash flows produced by such intangibles and their respective tax benefits . useful lives vary between 2 and 20 years , depending on the specific intangible asset . income taxes we account for income taxes under the asset and liability method , which requires the recognition of deferred income taxes for events that have future tax consequences . under this method , deferred income taxes are recognized ( using enacted tax laws and rates ) based on the future income tax effects of differences in the carrying amounts of assets and liabilities for financial reporting and tax purposes . the effect of a tax rate change on deferred tax assets and liabilities is recognized in income in the period of change . we recognize deferred tax assets at amounts that are expected to be realized . to make such determination , management evaluates all positive and negative evidence , including but not limited to , prior , current and future taxable income , tax planning strategies and future reversals of existing temporary differences . a valuation allowance is recognized if it is “ more-likely-than-not ” that some or all of a deferred tax asset will not be realized . we regularly assess the realizability of deferred tax assets . we account for uncertainty in income taxes using a `` more-likely-than-not '' recognition threshold . story_separator_special_tag due to the subjectivity inherent in the evaluation of uncertain tax positions , the tax benefit ultimately recognized may materially differ from the estimate . we recognize interest and penalties related to uncertain tax benefits as part of interest expense and income tax expense , respectively . the tcja imposed a one-time tax on the deemed repatriation of undistributed foreign earnings ( the `` transition tax '' ) . except for a portion of the previously taxed foreign earnings that have been repatriated , we continue to assert that the remaining undistributed earnings of our foreign subsidiaries , the majority of which were subject to the transition tax , are indefinitely reinvested . we believe we are able to maintain a sufficient level of liquidity for our domestic operations and commitments without repatriating cash held by these foreign subsidiaries . upon any future repatriation , additional income taxes may be incurred ; however , it is not practicable to determine the amount at this time . the provisions of the tcja also introduced u.s. taxation on certain global intangible low-taxed income ( `` gilti '' ) . we have elected to account for gilti tax as a component of income tax expense . 18 future adjustments ( if any ) resulting from additional regulatory guidance regarding the accounting for the income tax effects of tcja will be recognized as discrete income tax expense or benefit in the period in which guidance is issued . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > 2017 . the lower effective tax rate for 2018 was primarily due to the permanent reduction of the u.s. federal statutory income tax rate from 35 % to 21 % , effective january 1 , 2018 , as well as the completion of the accounting for the income tax effects of the tcja . in 2017 , the effective tax rate was negatively impacted by the discrete income tax expense of $ 26.4 million related to the application of the tcja . net income . net income increased by $ 62.2 million , or 38.1 % , to $ 225.4 million in 2018 , compared to $ 163.1 million in 2017 . the increase in net income was primarily due higher sales volume and lower income taxes . net loss attributable to noncontrolling interests . net loss attributable to noncontrolling interests in 2018 and 2017 was $ 2.0 million and $ 0.3 million , respectively . the change in net loss attributable to noncontrolling interests was primarily due to the effect of foreign currency . net income attributable to wesco international . net income and earnings per diluted share attributable to wesco international were $ 227.3 million and $ 4.82 per share , respectively , in 2018 , compared with $ 163.5 million and $ 3.38 per share , respectively , in 2017 . 2017 compared to 2016 net sales . net sales in 2017 increased 4.7 % to $ 7.7 billion , compared with $ 7.3 billion in 2016. foreign exchange rates and acquisitions positively impacted net sales by 0.4 % and 0.2 % , respectively , and were partially offset by a 0.4 % impact from the number of workdays , resulting in organic sales growth of 4.5 % . the following table sets forth organic sales growth : twelve months ended december 31 , organic sales growth : 2017 change in net sales 4.7 % less : impact from acquisitions 0.2 % less : impact from foreign exchange rates 0.4 % less : impact from number of workdays ( 0.4 ) % organic sales growth 4.5 % note : organic sales growth is a non-gaap financial measure of sales performance . organic sales growth is calculated by deducting the percentage impact from acquisitions in the first year of ownership , foreign exchange rates and number of workdays from the overall percentage change in consolidated net sales . 20 cost of goods sold . cost of goods sold increased 5.2 % in 2017 to $ 6.2 billion , compared with $ 5.9 billion in 2016. cost of goods sold as a percentage of net sales was 80.7 % and 80.3 % in 2017 and 2016 , respectively . the increase in cost of goods sold as a percentage of net sales was primarily due to geographic mix and competition . sg & a expenses . sg & a expenses include costs associated with personnel , shipping and handling , travel , advertising , facilities , utilities and bad debts . sg & a expenses increased by $ 50.8 million , or 4.8 % , to $ 1.1 billion in 2017. as a percentage of net sales , sg & a expenses were consistent at 14.3 % in 2017 and 2016. sg & a expenses increased primarily as a result of higher variable compensation expense . sg & a payroll expenses for 2017 of $ 776.3 million increased by $ 40.0 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 decreased $ 2.8 million to $ 64.0 million in 2017 , compared with $ 66.9 million in 2016. income from operations . income from operations decreased by $ 11.5 million to $ 319.0 million in 2017 , compared to $ 330.6 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 and other .
| sg & a expenses in creased by $ 50.3 million , or 4.6 % , to $ 1.2 billion in 2018 . sg & a expenses increased primarily as a result of higher payroll expenses and higher operating costs , which were required to support sales volume growth . sg & a expenses as a percentage of net sales improved to 14.1 % in 2018 from 14.3 % in 2017 . 19 sg & a payroll expenses for 2018 of $ 804.2 million increased by $ 27.9 million compared to 2017 . the increase in sg & a payroll expenses was primarily due to increases in salaries , variable compensation and healthcare benefits , which were partially offset by a reclassification of certain labor costs from selling , general and administrative expenses to cost of goods sold . the remaining sg & a expenses for 2018 of $ 347.8 million increased by $ 22.5 million compared to 2017 . the increase in the remaining sg & a expenses was primarily due to higher costs driven by sales volume growth and a bad debt charge related to a canadian customer that ceased operations . these increases were partially offset by gains from the sale of certain long-lived assets . depreciation and amortization . depreciation and amortization de creased $ 1.0 million to $ 63.0 million in 2018 , compared with $ 64.0 million in 2017 . income from operations . income from operations in creased by $ 33.4 million to $ 352.4 million in 2018 , compared to $ 319.0 million in 2017 . income from operations as a percentage of net sales was 4.3 % and 4.2 % in 2018 and 2017 , respectively . income from operations as a percentage of net sales increased primarily as a result of higher sales volume , as well as operational efficiencies and cost discipline . net interest and other . net interest and other totaled $ 71.4 million in 2018 , compared with $ 66.6 million in 2017
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we expect that our expenses and capital funding requirements will increase substantially in connection with our ongoing activities , particularly if a nd as we : generate clinical proof-of-concept data with tk216 in ewing sarcoma , an orphan pediatric cancer indication ; advance cirmtuzumab through clinical development , initially in mcl , cll and breast cancer ; advance our ror1-targeting car-t therapy candidate to clinical testing , initially in hematological cancers and then in solid tumors ; evaluate cirmtuzumab in additional ror1-positive solid tumors such as lung , ovarian , liver and prostate cancers , as well as in additional hematological malignancies ; evaluate tk216 in additional tumors with ets fusion proteins or overexpression , such as prostate cancer , lymphoma and aml ; continue to develop additional product candidates ; acquire or in‑license other product candidates and technologies ; maintain , expand and protect our intellectual property portfolio ; establish a commercial manufacturing source and secure supply chain capacity sufficient to provide commercial quantities of any product candidates for which we may obtain regulatory approval ; seek regulatory approvals for any product candidates that successfully complete clinical trials ; establish a sales , marketing and distribution infrastructure to commercialize any products for which we may obtain regulatory approval ; and add operational , financial and management information systems and personnel , including personnel to support our planned product development and future commercialization efforts , as well as to support our transition to a public reporting company . we will not generate product sales revenue unless and until we successfully complete clinical development and obtain regulatory approval for our product candidates . if we obtain regulatory approval for any of our product candidates and do not enter into a commercialization partnership , we expect to incur significant expenses related to developing our internal commercialization capability to support product sales , marketing and distribution . in addition , we expect to incur additional costs associated with operating as a public company . as a result , we believe we will need substantial additional funding to support our continuing operations and pursue our business strategy . until such time as we can generate significant product sales revenue , if ever , we expect to finance our operations through a combination of equity offerings , debt financings , government funding , or other sources , including potentially collaborations , licenses and other similar arrangements . we may not be able to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms , or at all . if we fail to raise capital or enter into such agreements as and when needed , we may have to significantly delay , reduce or eliminate the development and commercialization of one or more of our product candidates or delay our pursuit of potential in‑licenses or acquisitions . 104 because of the numerous risks and uncertainties associated with product development , we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability . even if we are able to generate product sales , we may not become profitable . if we fail to become profitable or are unable to sustain profitability on a continuing basis , then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations . we expect that our existing cash and cash equivalents will be sufficient to fund our operating expenses and capital expenditure requirements into the third quarter of 2020. we have based this estimate on assumptions that may prove to be wrong , and we could exhaust our available capital resources sooner than we expect . see “ liquidity and going concern . ” beyond that point , we will need to raise additional capital to finance our operations , which can not be assured . we have concluded that this circumstance raises substantial doubt about our ability to continue as a going concern within one year after march 16 , 2020 , the issuance date of our annual consolidated financial statements for the year ended december 31 , 2019. see note 1 of our consolidated financial statements and the related notes and other financial information included elsewhere in this annual report . similarly , in our report on our financial statements for the year ended december 31 , 2019 , our independent registered public accounting firm included an explanatory paragraph stating that our recurring losses from operations and required additional funding to finance our operations raise substantial doubt about our ability to continue as a going concern . merger with gtx on march 6 , 2019 , we , then operating as gtx , inc. ( “ gtx ” ) , entered into an agreement and plan of merger and reorganization , as amended ( the “ merger agreement ” ) , with privately-held oncternal therapeutics , inc. ( “ private oncternal ” ) and grizzly merger sub , inc. , our wholly-owned subsidiary ( “ merger sub ” ) . under the merger agreement , merger sub merged with and into private oncternal , with private oncternal surviving as our wholly-owned subsidiary ( the “ merger ” ) . on june 7 , 2019 , the merger was completed . gtx changed its name to oncternal therapeutics , inc. , and private oncternal , which remains as our wholly-owned subsidiary , changed its name to oncternal oncology , inc. on june 10 , 2019 , the combined company 's common stock began trading on the nasdaq capital market under the ticker symbol “ onct. ” pursuant to the terms of the merger agreement , each outstanding share of private oncternal common stock outstanding immediately prior to the closing of the merger was converted into approximately 0.073386 shares of our common stock ( the “ exchange ratio ” ) , after taking into account a one-for-seven reverse stock split of our then-outstanding common stock ( the “ reverse stock split ” ) . story_separator_special_tag immediately prior to the closing of the merger , all shares of private oncternal preferred stock then outstanding were exchanged into shares of common stock of private oncternal . in addition , all outstanding options exercisable for common stock of private oncternal and warrants exercisable for convertible preferred stock of private oncternal became options and warrants exercisable for the same number of shares of common stock of the company multiplied by the exchange ratio . immediately following the merger , stockholders of private oncternal owned approximately 77.5 % of the outstanding common stock of the combined company . the par value and the authorized shares of our common stock were not adjusted as a result of the reverse stock split . the transaction was accounted for as a reverse asset acquisition in accordance with generally accepted accounting principles in the united states of america ( “ gaap ” ) . under this method of accounting , private oncternal was deemed to be the accounting acquirer for financial reporting purposes . this determination was primarily based on the facts that , immediately following the merger : ( i ) private oncternal 's stockholders owned a substantial majority of the voting rights in the combined company , ( ii ) private oncternal designated a majority of the members of the initial board of directors of the combined company , and ( iii ) private oncternal 's senior management holds all key positions in the senior management of the combined company . as a result , as of the closing date of the merger , ( i ) the merger is being treated as the equivalent of private oncternal issuing stock to acquire the net assets of gtx , ( ii ) the net assets of gtx are recorded based upon the fair values in the financial statements at the time of closing and ( iii ) the reported historical operating results of the combined company prior to the merger will be those of private oncternal . 105 prior to the merger , we had been evaluating enobosarm , a selective androgen receptor modulator ( “ sarm ” ) , for the treatment of post-menopausal women with stress urinary incontinence ( “ sui ” ) . however , based on the results of the astrid trial in 2018 , we determined that there was not a sufficient path forward to warrant additional clinical development of enobosarm to treat sui , and discontinued further development of enobosarm to treat sui , as well as our sarm technology generally . on december 31 , 2019 , we provided notice of terminat ion of the amended and restated license agreement ( the “ sarm license agreement ” ) , dated july 24 , 2007 , by and between us and the university of tennessee research foundation related to the development of the sarm technology , which termination will be effective three months following such notice . we have the right to terminate the sarm license agreement at any time , effective upon three months ' notice . following termination , we will no longer have the obligation to make further payments under the sarm license agreement , including payments for patent prosecution and maintenance , and we will no longer have any rights to develop or sublicense the sarm technology . we will not incur any early termination penalties due to the termination of the sarm license agreement . components of results of operations grant revenue we have not and do not expect to generate any product sales revenue in the foreseeable future . if our development efforts for our product candidates are successful and result in regulatory approval , we may generate product sales revenue in the future . we can not predict if , when , or to what extent we will generate revenue from the commercialization and sale of our product candidates . we may never succeed in obtaining regulatory approval for any of our product candidates . our total revenue to date has been derived from a california institute for regenerative medicine ( “ cirm ” ) grant subaward with uc san diego . in august 2017 , cirm awarded an $ 18.3 million grant to researchers at uc san diego to advance our phase 1/2 clinical trial evaluating cirmtuzumab in combination with ibrutinib for the treatment of patients with b-cell lymphoid malignancies , including mcl and cll . oncternal is conducting this study in collaboration with uc san diego and estimates it will receive approximately $ 14.0 million in development milestones under research subaward agreements throughout the award project period , estimated to be from october 1 , 2017 to march 31 , 2022. in addition , we are committed to certain co-funding requirements and are required to provide uc san diego progress and financial update reports throughout the award project period . we received subaward payments of $ 6.2 million and $ 0.5 million in the years ended december 31 , 2019 and 2018 , respectively . as of december 31 , 2019 , we believe we have met our obligations under the cirm award and uc san diego subawards . operating expenses research and development research and development expenses consist primarily of costs incurred for the preclinical and clinical development of our product candidates , cirmtuzumab , tk216 and our ror1-targeting car-t therapy candidate , which include : expenses under agreements with third-party contract organizations , investigative clinical trial sites that conduct research and development activities on our behalf , and consultants ; costs related to develop and manufacture preclinical study and clinical trial material ; salaries and employee-related costs , including stock-based compensation ; costs incurred under our collaboration and third-party licensing agreements ; and laboratory and vendor expenses related to the execution of preclinical and clinical trials . we accrue all research and development costs in the period they are incurred . costs for certain development activities are recognized based on an evaluation of the progress towards completion of specific tasks using information and data provided to us by our vendors , collaborators and third-party service providers .
| direct expenses other increased $ 0.4 million for the year ended december 31 , 2019 , compared to the year ended december 31 , 2018 , primarily due to a $ 0.4 million increase in research activities for other program initiatives . unallocated expenses increased $ 1.2 million for the year ended december 31 , 2019 , compared to the year ended december 31 , 2018 , primarily due to higher personnel costs . in-process research and development expenses in-process research and development expenses increased $ 18.1 million for year ended december 31 , 2019 , compared to the year ended december 31 , 2018 , due solely to the merger . general and administrative expenses general and administrative expenses for the years ended december 31 , 2019 and 2018 were $ 7.3 million and $ 1.8 million , respectively , an increase of $ 5.5 million . the increase is primarily due to higher : ( i ) legal fees of $ 1.8 million incurred to expand our intellectual property portfolios on our platforms and product candidates in 2019 and for additional services incurred as a public company , ( ii ) personnel-related costs and professional fees of $ 2.3 million related primarily to additional headcount and other activities to operate as a publicly-traded company , ( iii ) director and officer liability insurance costs of $ 0.6 million , and ( iv ) other operating expenses of $ 0.8 million . other income ( expense ) other expense was ( $ 1.1 ) million for the year ended december 31 , 2019 , compared to other income of $ 1.0 million for the year ended december 31 , 2018 , a change of ( $ 2.1 ) million in additional expense . the change was primarily due to a $ 2.0 million increase in the fair value of the preferred stock warrant liability prior to the merger closing . liquidity and going concern from our inception through december 31 , 2019 , we have devoted substantially all of our efforts to organizational activities including raising capital , building infrastructure ,
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in addition , we may never successfully complete development of any of our product candidates , obtain adequate patent protection for our technology , obtain necessary regulatory approval 77 for our product candidates or achieve commercial viability for any approved product candidates . adequate additional financing may not be available to us on acceptable terms , or at all . our inability to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy . we will need to generate significant revenue to achieve profitability , and we may never do so . financial operations overview revenue we have not generated any revenue from product sales since our inception and do not expect to generate any revenue from the sale of products in the near future . if our development efforts result in clinical success and regulatory approval or collaboration agreements with third parties for our product candidates , we may generate revenue from those product candidates . operating expenses our operating expenses since inception have consisted primarily of research and development activities and general and administrative costs . research and development expenses research and development expenses , which consist primarily of costs associated with our product research and development efforts , are expensed as incurred . research and development expenses consist primarily of : personnel costs , including salaries , related benefits , stock-based compensation and related travel expenses for employees engaged in scientific research and development functions ; expenses incurred under agreements with contract research organizations , or cros , and investigative sites that conduct our non-clinical studies and clinical trials ; expenses associated with manufacturing clinical study materials and developing external manufacturing capabilities ; costs of outside consultants , including their fees , stock-based compensation and related travel expenses ; other expenses related to our non-clinical studies and expenses related to our regulatory activities ; and payments made under our third-party licensing agreements . costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and our clinical sites . we have been developing sage-547 , sage-689 and sage-217 and focusing on other research and development programs related to exploratory efforts , target validation , and lead optimization for our earlier-validated programs . our direct research and development expenses are tracked on a program-by-program basis and consist primarily of external costs , such as fees paid to investigators , central laboratories , cros and contract manufacturing organizations , or cmos in connection with our non-clinical studies and clinical trials ; third-party license fees related to our product candidates ; fees paid to outside consultants who perform work on our programs ; and costs related to manufacturing or purchasing clinical trial materials . we do not allocate employee-related costs and other indirect costs to specific research and development programs because these costs are deployed across multiple product programs under research and development and , as such , are separately classified as unallocated research and development expenses . 78 the following table summarizes our research and development expenses by program : replace_table_token_4_th research and development activities are central to our business . product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later-stage clinical trials . we expect that our research and development expenses will continue to increase in the foreseeable future as we initiate clinical trials for certain product candidates and pursue later stages of clinical development of our product candidates . we can not determine with certainty the duration and completion costs of the current or future clinical trials of our product candidates or if , when , or to what extent we will generate revenue from the commercialization and sale of any of our product candidates that obtain regulatory approval . we may never succeed in achieving regulatory approval for any of our product candidates . the duration , costs , and timing of clinical trials and development of our product candidates will depend on a variety of factors , including : the scope , rate of progress , and expense of our ongoing as well as any additional non-clinical studies , clinical trials and other research and development activities ; future clinical trial results ; uncertainties in clinical trial enrollment rate or design ; significant and changing government regulation ; and the timing and receipt of any regulatory approvals . a change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate . for example , if the fda or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development of a product candidate , or if we experience significant delays in enrollment in any of our clinical trials , we could be required to expend significant additional financial resources and time on the completion of clinical development . general and administrative expenses general and administrative expenses consist primarily of personnel costs , consisting of salaries , related benefits , stock-based compensation and related travel expenses of our executive , finance , business and corporate development and other administrative functions . general and administrative expenses also include expenses incurred under agreements with third parties relating to initial commercial evaluation and planning ; facilities and other expenses , including rent , depreciation , maintenance of facilities , insurance and supplies ; and professional fees for audit , tax and legal services , including legal expenses to pursue patent protection of our intellectual property . we anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support the expected growth in our research and development activities and the potential commercialization of our product candidates . story_separator_special_tag we also anticipate increased expenses associated with being a public company , including costs related to audit , legal , regulatory and tax-related services associated with 79 maintaining compliance with exchange listing and sec requirements , director and officer insurance premiums , and investor relations costs . additionally , if and when we believe that a regulatory approval of the first product candidate appears likely , we anticipate an increase in payroll and related expenses as a result of our preparation for commercial operations , especially as it relates to the sales and marketing of our product candidates . other income ( expense ) interest income ( expense ) , net . interest income ( expense ) , net consists of interest earned on our cash and cash equivalents and interest expense on prior debt . our interest income has not been significant due to low interest earned on invested balances . we anticipate that our interest income will increase in the future due to increased balances from the net proceeds of $ 146.8 million we received from our series b and series c preferred stock financings in the first quarter of 2014 and our ipo on july 23 , 2014. other income ( expense ) , net . other income ( expense ) , net consists of the realized and unrealized net gains and losses from foreign currency-denominated vendor payables . critical accounting policies and significant judgments and estimates our financial statements are prepared in accordance with generally accepted accounting principles in the united states . the preparation of our financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amount of assets , liabilities , revenue , costs and expenses , and related disclosures . we believe that the estimates and assumptions involved in the accounting policies described below may have the greatest potential impact on our financial statements and , therefore , consider these to be our critical accounting policies . we evaluate our estimates and assumptions on an ongoing basis . our actual results may differ from these estimates under different assumptions and conditions . while our significant accounting policies are described in more detail in the notes to our consolidated financial statements appearing elsewhere in this annual report on form 10-k , we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements . accrued research and development expenses as part of the process of preparing our financial statements , we are required to estimate our accrued research and development expenses . this process involves reviewing open contracts and purchase orders , communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated costs incurred for the services when we have not yet been invoiced or otherwise notified of the actual costs . the majority of our service providers invoice us in arrears for services performed , on a pre-determined schedule or when contractual milestones are met ; however , some require advanced payments . we make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time . examples of estimated accrued research and development expenses include fees paid to : cros in connection with performing research and development services on our behalf ; investigative sites or other providers in connection with clinical trials ; vendors in connection with non-clinical development activities ; and vendors related to product manufacturing , development and distribution of clinical supplies . we base our expenses related to clinical trials on our estimates of the services received and efforts expended pursuant to contracts with multiple cros that conduct and manage clinical trials on our behalf . the financial terms of these agreements are subject to negotiation , vary from contract to contract and may result in uneven 80 payment flows . there may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the clinical expense . payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones . in accruing service fees , we estimate the time period over which services will be performed , enrollment of patients , number of sites activated and level of effort to be expended in each period . if the actual timing of the performance of services or the level of effort varies from our estimate , we adjust the accrual or prepaid accordingly . although we do not expect our estimates to be materially different from amounts actually incurred , our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in us reporting expenses that are too high or too low in any particular period . to date , we have not made any material adjustments to our prior estimates of accrued research and development expenses . stock-based compensation we measure stock-based awards granted to our employees and nonemployee directors at fair value on the date of grant and recognize the corresponding compensation expense of those awards , net of estimated forfeitures , over the requisite service period , which is generally the vesting period of the respective award . generally , we issue stock options and restricted stock with only service-based vesting conditions and record the expense for these awards using the straight-line method . we have historically granted stock options with exercise prices equivalent to the fair value of our common stock as of the date of grant . we measure stock-based awards granted to nonemployee consultants at the fair value of the award on the date at which the related service is complete . compensation expense is recognized over the period during which services are rendered by such nonemployee consultants until completed .
| 83 general and administrative expenses replace_table_token_8_th general and administrative expenses for the year ended december 31 , 2014 were $ 9.7 million , compared to $ 3.9 million for the year ended december 31 , 2013. the increase of $ 5.8 million in general and administrative expenses was primarily due to the $ 2.6 million increase in personnel related costs due to the effects of hiring additional , full-time employees during 2014 to support operations , finance , human resources , and early commercial planning activities as well as an increase in stock compensation expense costs and $ 2.5 million increase in professional fees associated with being a public company , including costs related to audit , legal , regulatory and tax-related services associated with maintaining compliance with exchange listing and sec requirements , and investor relations costs . other income ( expense ) , net interest income ( expense ) , net and other income ( expense ) , net were insignificant for the years ended december 31 , 2014 and 2013. comparison of the years ended december 31 , 2013 and 2012 the following table summarizes our results of operations for the years ended december 31 , 2013 and 2012 : replace_table_token_9_th 84 research and development expenses replace_table_token_10_th research and development expenses for the year ended december 31 , 2013 were $ 14.4 million , compared to $ 7.2 million for the year ended december 31 , 2012. the increase of $ 7.1 million year over year was primarily due to the following : an increase of $ 3.8 million in expenses of our sage-547 program , consisting primarily of external clinical and drug manufacturing costs associated with the preparation of our phase 1/2 clinical trial of sage-547 , as compared to only $ 0.1 million being spent on the program in 2012 ; an increase of $ 1.7 million in expenses of our sage-689 program , consisting primarily of external costs related to ind-enabling toxicology and safety pharmacology testing and manufacturing activities that were incurred as that program progressed into non-clinical studies during the second half of 2013 ; $ 1.1 million of expenses of our sage-217 program , consisting primarily of costs for external drug discovery efforts ; a net decrease $ 0.1 million in expenses of our other research and development programs , which consist of our chemistry platform-related work and other research programs ;
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f- 10 7. equity transactions from january story_separator_special_tag the following discussion and analysis should be read in conjunction with our financial statements and the related notes . our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties , such as our plans , objectives , expectations and intentions . actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors , including those set forth under the risk factors , forward-looking statements and business sections in this registration statement . we use words such as “ anticipate , ” “ estimate , ” “ plan , ” “ project , ” “ continuing , ” “ ongoing , ” “ expect , ” “ believe , ” “ intend , ” “ may , ” “ will , ” “ should , ” “ could , ” and similar expressions to identify forward-looking statements . overview water now , inc. was incorporated in texas on february 10 , 2016 to develop and commercialize a patent-pending , gas/diesel powered , portable device that processes and purifies contaminated water . our business strategy was conceived as a result of the growing global water crisis . today , many countries and regions are experiencing acute water shortages and we believe our technology and products are capable of generating safe drinking water from many available water sources . our product lines are designed to consist of portable units capable of providing a cost-effective , safe and efficient method of water purification . our products require no pre- or post-treatment of the source water , no filters , no membranes and no chemicals . the quality of water purified by products has been tested to meet or exceed the world health organization 's ( “ who ” ) drinking water standards . 17 financial overview revenue as of december 31 , 2017 , we had generated revenues of approximately $ 36,000. our ability to increase revenues will depend on the successful manufacturing and commercialization of our water purification units . reorganization expenses during 2017 , we incurred no reorganization expenses . during 2016 , we incurred reorganization expenses in connection with our merger with vcab , and related transactions , as described under “ business – merger of vcab one corporation into water now , inc. ” reorganization expenses primarily consisted of the fair value of the plan shares issued in connection with those transactions , as well as legal expenses incurred in connection therewith . all reorganization expenses in connection with those transactions have been incurred , and no additional expenses with respect thereto are anticipated . research and development expenses the company expenses r & d costs as incurred . the company 's r & d activities related to activities undertaken to adapt the water purification technology contributed by david king for commercial-scale manufacturing and the development of additional products . general and administrative expenses general and administrative ( “ g & a ” ) expenses consist primarily of salaries and related costs for personnel , including stock-based compensation expense . to date , we have estimated the fair value of stock-based awards issued to employees , directors and non-employees based on prices paid by unrelated third-parties for the purchases of our common stock . other g & a expenses include patent costs , and professional fees for legal , finance and accounting services . we anticipate that our g & a expenses will increase in future periods to support increases in our research and development activities and as a result of increased headcount , expanded infrastructure , increased legal , compliance , accounting and investor and public relations expenses associated with being a public company and increased insurance premiums , among other factors . interest expense interest expense consists of interest incurred on borrowings . 18 significant accounting policies and recent accounting pronouncements 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 accounting principles generally accepted in the united states of america ( “ gaap ” ) . the preparation of financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . on an on-going basis , we evaluate our estimates , including those related to revenue recognition , stock-based compensation , impairment of financing receivables and long-lived assets , valuation of warrants , income taxes and contingencies and litigation , among others . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . the accounting estimates and assumptions discussed in this section are those that we consider to be the most critical to an understanding of our financial statements because they inherently involve significant judgments and uncertainties . for a discussion of our significant accounting policies , refer to note 3 – “ summary of significant accounting policies ” in the notes to our financial statements for the year ended december 31 , 2017 , included in this annual report . cash and cash equivalents cash and cash equivalents consist primarily of deposit accounts with original maturities of three months or less . inventories inventory includes manufacturing parts and work in process for the company 's water purification equipment . story_separator_special_tag inventories are carried at the lower of cost ( on a first-in , first-out ( “ fifo ” ) ) basis , or net realizable value . use of accounting estimates the preparation of the financial statements in conformity with gaap requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes . actual results could differ from those estimates . the most significant estimates and assumptions made by management related to determining the value of stock-based expenses . income taxes income taxes are accounted for under the asset and liability method . deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities for a change in tax rate is recognized in income in the period that includes the enactment date . valuation allowances are established when necessary to reduce deferred tax assets to the amounts more likely than not to be realized . 19 we account for uncertain tax positions in accordance with financial accounting standards board 's ( “ fasb ” ) accounting standards codification ( “ asc ” ) 740-10 , “ income taxes. ” asc 740-10 provides several clarifications related to uncertain tax positions . most notably , a “ more likely-than-not ” standard for initial recognition of tax positions , a presumption of audit detection and a measurement of recognized tax benefits based on the largest amount that has a greater than 50 percent likelihood of realization . asc 740-10 applies a two-step process to determine the amount of tax benefit to be recognized in the financial statements . first , we must determine whether any amount of the tax benefit may be recognized . second , we determine how much of the tax benefit should be recognized ( this would only apply to tax positions that qualify for recognition ) . no additional liabilities have been recognized as a result of the implementation . accordingly , we have not recognized any penalty , interest or tax impact related to uncertain tax positions . stock-based expenses we account for stock-based expenses under the provisions of asc 718 , “ compensation—stock compensation ” , which requires the measurement and recognition of expense for stock-based awards made to employees and directors based on estimated fair values on the grant date . the value of the portion of the award that is ultimately expected to vest is recognized as expense over the shorter of the period over which services are to be received or the vesting period . we account for stock-based expenses awards to non-employees in accordance with asc 505-50 , “ equity-based payments to non-employees . ” in accordance with asc 505-50 , we determine the fair value of stock-based expenses awards granted as either the fair value of the consideration received or the fair value of the equity instruments issued , whichever is more reliably measurable . we estimated the fair value of stock-based awards issued to employees , directors and non-employees based on prices paid by unrelated third-parties for the purchases of our common stock during the applicable period . research and development costs we expense research and development costs as incurred in accordance with asc 730 , “ research and development. ” our research and development activities related to activities undertaken to adapt the water purification technology contributed by david king for commercial-scale manufacturing and the development of additional products . earnings ( loss ) per share basic earnings ( loss ) per share are computed by dividing the net income ( loss ) by the weighted-average number of shares of common stock and common stock equivalents such as outstanding stock options and warrants . common stock equivalents represent the dilutive effect of the assumed exercise of the outstanding stock options and warrants , using the treasury stock method . the calculation of fully diluted earnings ( loss ) per share assumes the dilutive effect of the exercise of outstanding options and warrants at either the beginning of the respective period presented or the date of issuance , whichever is later . 20 recently adopted accounting pronouncements going concern — in august 2014 , the fasb issued accounting standards update ( “ asu ” ) 2014-15 – “ presentation of financial statements – going concern – disclosure of uncertainties about an entity 's ability to continue as a going concern ” , which requires management to perform interim and annual assessments of an entity 's ability to continue as a going concern within one year of the date the financial statements are issued . an entity must provide certain disclosures if conditions or events raise substantial doubt about the entity 's ability to continue as a going concern . the updated accounting guidance was effective for the company on december 31 , 2016. we have implemented this new accounting standard and we will update our liquidity disclosures as necessary . revenue — in may 2014 , the fasb issued asu 2014-09 , revenue from contracts with customers , which outlines a single , comprehensive model for entities to use in accounting for revenue arising from contracts with customers . asu 2014-09 is effective for reporting periods beginning after december 15 , 2017. the company is currently evaluating the impact of the new guidance . leases — in february 2016 , the fasb issued asu 2016-02 “ leases ” .
| 23 other income ( expense ) below is a summary of our other income ( expense ) for the fiscal year ended december 31 , 2017 and for the period from february 10 , 2016 ( inception ) through december 31 , 2016 , respectively . replace_table_token_2_th there was an increase in interest expenses paid on the note payable – related parties . see note 4 of the notes to condensed financial statements for the period ended december 31 , 2017. net losses we incurred net losses of $ 1,726,000 and $ 1,883,000 for the fiscal year ended december 31 , 2017 and for the period from february 10 , 2016 ( inception ) through december 31 , 2016 , respectively , because of the factors discussed above . net loss per share for the fiscal year ended december 31 , 2017 and for the period from february 10 , 2016 ( inception ) through december 31 , 2016 was approximately $ ( 0.06 ) and $ ( 0.07 ) , respectively , based on the weighted-average number of shares issued and outstanding during the period . it is anticipated that future operating expenses will increase as the company complies with its periodic reporting requirements . such expenses would also increase if the company were to effects a business combination , although there can be no assurance that the company will be successful in effecting a business combination . liquidity and capital resources sources of liquidity through december 31 , 2017 , we have generated revenues of $ 36,000. from february 10 , 2016 ( inception ) through december 31 , 2016 , we had a net loss of $ 1,883,000 , resulting in an accumulated deficit as of december 31 , 2017 of $ 3,609,000. as of december 31 , 2017 , we had cash and cash equivalents of $ 2,000. our auditors issued a going concern opinion with respect to our financial statements as of and for the period ended december 31 , 2017 due to the incurrence of significant operating losses , which raise substantial doubt about our ability to continue as a going concern . we have financed our operations to date
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our contract management process involves the use of contract estimates-at-completion ( eacs ) that are generally prepared and evaluated on a bottoms-up basis at least annually and reviewed on a quarterly basis over the contract 's period of performance . these eacs include an estimated contract operating margin based initially on the contract award amount , adjusted to reflect estimated risks related to contract performance . these risks typically include technical risk , schedule risk and performance risk based on our evaluation of the contract effort . similarly , the eacs include identified opportunities for operating margin rate improvement . over the contract 's period of performance , our program management organizations perform evaluations of contract performance and adjust the contract revenue and cost estimates to reflect the latest reliable information available . our business and program management organizations are comprised of skilled professional managers whose objective is to satisfy the customer 's expectations , deliver high quality products and services , and manage contract risks and opportunities to achieve an appropriate operating margin rate on the contract . our comprehensive business and contract management process is a coordinated process involving personnel with expertise from various disciplines including production control , contracts , cost management , mission assurance and quality , finance and supply chain , among others . as part of this overall contract management function , these personnel monitor compliance with our critical accounting policies related to contract accounting and compliance with u.s. government regulations . contract operating income and period-to-period contract operating margin rates are adjusted over the contract 's period of performance to reflect the latest estimated revenue and cost for the contract , including changes in the risks and opportunities affecting the contract . such adjustments may have a favorable or unfavorable effect on operating income depending upon the specific conditions affecting each contract . in evaluating our operating performance , we look primarily at changes in sales and operating income , including the effects of meaningful changes in operating income as a result of changes in contract estimates . where applicable , significant fluctuations in operating performance attributable to individual contracts or programs , or changes in a specific cost element across multiple contracts are described in our analysis . based on this approach and the nature of our operations , the discussion of results of operations first focuses around our four segments before distinguishing between products and services . changes in sales are generally described in terms of volume , deliveries or other indicators of sales activity , and contract mix . for purposes of this discussion , volume generally refers to increases or decreases in cost or sales from production/service activity levels or delivery rates . performance refers to changes in contract margin rates for the period , primarily related to the changes in estimates referred to above . consolidated operating results selected financial highlights , excluding the results of discontinued operations , are presented in the table below : replace_table_token_8_th 25 northrop grumman corporation consolidated operating results for the year ended december 31 , 2012 , reflect our customer 's overall lower spending levels , lower sales due to our portfolio shaping actions and our focus on working capital . our margin rates and cash provided by operating activities demonstrate strong operating performance , and our continued focus on performance and affordability , as further discussed below . segment operating income , as reconciled below , is a non-gaap measure and is used by management as an internal measure of the financial performance of our individual operating segments . replace_table_token_9_th the table below reconciles segment operating income to total operating income : replace_table_token_10_th for financial statement purposes , we account for our employee pension plans in accordance with gaap under financial accounting standards ( fas ) . we charge the costs of these plans to our contracts in accordance with the far and the related cost accounting standards ( cas ) that govern such plans . the net fas/cas pension adjustment is pension expense determined in accordance with gaap less pension expense charged to contracts and included in segment operating income . unallocated corporate expenses generally include the portion of corporate expenses , other than fas pension costs , not considered allowable or allocable under applicable cas and far rules , and therefore not allocated to the segments , such as a portion of management and administration , legal , environmental , certain compensation and retiree benefits , and other expenses . sales 2012 – sales for 2012 decreased $ 1.2 billion , or 5 percent , as compared to 2011 , reflecting lower sales in three of our four operating segments . 2011 – sales for 2011 decreased $ 1.7 billion , or 6 percent , as compared to 2010 , reflecting lower sales at all four operating segments . the table below shows the variances in segment sales from the respective prior years : replace_table_token_11_th for further information by segment refer to the segment operating results below , and for product and service detail , refer to the product and service analysis section that follows . 26 northrop grumman corporation operating costs and expenses operating costs and expenses are primarily comprised of labor , material , subcontractor , and overhead costs , and are generally allocated to contracts as they are incurred . in accordance with industry practice and the regulations that govern cost accounting requirements for government contracts , most general management and corporate expenses incurred at the segment and corporate locations are considered allowable and allocable costs . these general and administrative costs are generally allocated on a systematic basis to contracts in progress . operating costs and expenses consist of the following : replace_table_token_12_th 2012 – product and service costs for 2012 decreased $ 1.1 billion , or 6 percent , as compared to 2011 . the primary driver of the reduction in product and service costs was reduced volume at electronic systems , information systems and technical services . general and administrative expenses as a percentage of total sales increased to 9.7 story_separator_special_tag percent in 2012 , from 8.9 percent in 2011 ; the increase includes the impact of lower sales , higher indirect costs related to compensation accruals and cost classification changes to standardize cost accounting practices at one of our segments , as well as higher bid and proposal expenses . 2011 – product and service costs for 2011 decreased $ 2.1 billion , or 9 percent , as compared to 2010. the primary driver of the reduction in product and service costs is reduced volume at all four of our segments , with aerospace systems , information systems and technical services driving the majority of the decrease . general and administrative expenses as a percentage of total sales was comparable at 8.9 percent . for the product and service costs detail , see the product and service analysis section that follows . operating income we define operating income as sales less operating costs and expenses , which includes general and administrative expenses . changes in estimated sales , operating costs and expenses , and the resulting operating income related to our contracts accounted for using the percentage-of-completion method are recorded using the cumulative catch-up method of accounting . the aggregate effects of these favorable and unfavorable changes in our estimated costs at completion , across our portfolio of contracts , can have a significant effect upon our reported sales and operating income in each of our reporting periods . cumulative catch-up operating income adjustments are presented in the table below : replace_table_token_13_th cost reduction initiatives to increase our competitiveness contributed to the net favorable operating income adjustments . our cost management activities have led to overall improved contract performance , reflected in both increased favorable adjustments and lower unfavorable adjustments . segment operating income segment operating income is defined as operating income less certain corporate-level expenses that are not considered allowable or allocable under applicable cas and far and the net fas/cas pension difference . 27 northrop grumman corporation the table below shows the variances in segment operating income from the respective prior years : replace_table_token_14_th 2012 - segment operating income in 2012 increased $ 121 million , or 4 percent , as compared to 2011 , driven by a number of factors including improved performance , particularly at electronic systems . improved performance reflects mitigation of contract risks and cost reduction initiatives , as well as portfolio shaping efforts . the increase in segment operating margin rate reflects this improved segment performance on lower revenue . 2011 - segment operating income in 2011 increased $ 45 million , or 1 percent , as compared to 2010 , driven by improved program performance , which more than offset the impact of lower sales . net pension adjustment the net fas/cas pension adjustment in 2012 decreased $ 268 million , as compared to 2011 , primarily due to increased gaap pension expense resulting from amortization of prior year actuarial losses and decreased cas pension expense allocated to the operating segments due to the design change in the company 's defined benefit pension plans adopted in december 2011. the net fas/cas pension adjustment in 2011 increased $ 390 million , as compared to 2010 , primarily due to decreased gaap pension expense , primarily resulting from higher than estimated returns on a larger amount of pension plan assets as of the beginning of the year . unallocated corporate expenses unallocated corporate expenses for 2012 were comparable with the prior year . unallocated corporate expenses for 2011 decreased $ 16 million , or 9 percent , as compared with 2010 , primarily due to a decrease in stock-based compensation . interest expense interest expense declined in both 2012 and 2011 by $ 9 million and $ 48 million , respectively , as compared to the respective prior years . the decrease from 2010 to 2011 is primarily due to a lower weighted average interest rate resulting from our debt refinancing in november 2010. federal and foreign income taxes 2012 – our effective tax rate on earnings from continuing operations for 2012 was 33.3 percent , as compared with 32.3 percent in 2011. the higher effective tax rate reflects the change in net tax benefits related to the absence of research tax credits , which expired at the end of 2011. although the american taxpayer relief act of 2012 extended the research tax credit through 2013 , it was not enacted until january 2013. therefore , the 2012 research credit will be recorded in the first quarter of 2013 . 2011 – our effective tax rate on earnings from continuing operations for 2011 was 32.3 percent , as compared with 19.5 percent in 2010. in 2010 , we recognized net tax benefits of $ 298 million to reflect the final approval from the irs and the u.s. congressional joint committee on taxation of the irs ' examination of our tax returns for the years 2004 through 2006. diluted earnings per share 2012 – our diluted earnings per share increased by $ 0.29 , or 4 percent . the higher diluted earnings per share reflects the full impact of 2011 share repurchases , which were largely purchased in the second half of 2011 , the effect of our 2012 share repurchases and the higher segment operating income , partially offset by lower earnings reflecting the lower net fas/cas pension adjustment . 2011 – our diluted earnings per share increased by $ 0.70 , or 10 percent . the higher diluted earnings per share reflects higher earnings and the effects of our share repurchases . cash provided by continuing operations 2012 – cash provided by continuing operations for 2012 was $ 2.6 billion , as compared with $ 2.3 billion in 2011. cash provided by continuing operations reflects lower pension contributions , partially offset by higher income taxes 28 northrop grumman corporation paid .
| additionally , there was higher volume of approximately $ 200 million on the f-35 program due to deliveries on lrip 5 , the first f-35 contract accounted for under the units-of-delivery method . these increases were offset by the termination of a weather satellite program , which reduced sales by approximately $ 175 million , as well as lower sales on the joint surveillance target attack radar system ( jstars ) , f/a-18 and certain restricted space programs . operating income and margin rate for 2012 were comparable to the prior year . the operating income and margin rate reflect approximately $ 90 million lower operating income from the f/a-18 program 's lower volume and transition from the multi-year 2 contract to the lower margin multi-year 3 contract , principally offset by performance improvements in space systems and higher margin rates and volume on sales of unmanned systems . 2011 - aerospace systems sales for 2011 decreased $ 472 million , or 5 percent , as compared with 2010. the decrease was primarily due to approximately $ 430 million lower sales in space systems due to reduced funding for weather satellite programs and the james webb space telescope ( jwst ) , as well as lower volume for several other space programs . military aircraft systems declined approximately $ 130 million primarily due to lower volume on the f-35 program , which transitioned to a units-of-delivery revenue recognition method beginning with low rate initial production lot 5 , the completion of the aerial targets program and lower volume on ea-18g growler , offset by higher volume on long endurance multi-intelligence vehicle ( lemv ) and jstars . these decreases were partially offset by higher sales at advanced concepts and technology , primarily due to increased volume on restricted programs . 29 northrop grumman corporation operating income for 2011 was comparable with the prior year , and operating margin rate increased to 12.2 percent from 11.6 percent . the increase is primarily due to improved performance across several programs at aerospace systems and lower amortization expense on purchased intangibles , partially offset by
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26 during 2016 , we will continue to invest funds toward the achievement of entitlements for our land and for master project infrastructure and vertical development within our active commercial and industrial developments . securing entitlements for our land is a long , arduous process that can take several years and often involves litigation . during the next few years , our net income will fluctuate from year-to-year based upon commodity prices , production within our farming segment , and the timing of sales of land and the leasing of land within our industrial developments . this management 's discussion and analysis of financial condition and results of operations provides a narrative discussion of our results of operations . it contains the results of operations for each operating segment of the business and is followed by a discussion of our financial position . it is useful to read the business segment information in conjunction with note 16 ( business segments ) of the notes to consolidated financial statements . critical accounting policies the preparation of our consolidated financial statements in accordance with generally accepted accounting principles , or “ gaap , ” requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . we consider an accounting estimate to be critical if : ( 1 ) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made , and ( 2 ) changes in the estimates that are likely to occur from period to period , or use of different estimates that we reasonably could have used in the current period , would have a material impact on our financial condition or results of operations . on an on-going basis , we evaluate our estimates , including those related to revenue recognition , impairment of long-lived assets , capitalization of costs , profit recognition related to land sales , stock compensation , our future ability to utilize deferred tax assets , and defined benefit retirement plans . we base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . management has discussed the development and selection of these critical accounting estimates with the audit committee of our board of directors and the audit committee has reviewed the foregoing disclosure . in addition , there are other items within our financial statements that require estimation , but are not deemed critical as defined above . changes in estimates used in these and other items could have a material impact on our financial statements . see also note 1 ( summary of significant accounting policies ) of the notes to consolidated financial statements , which discusses accounting policies that we have selected from acceptable alternatives . we believe the following critical accounting policies reflect our more significant judgments and estimates used in the preparation of the consolidated financial statements : revenue recognition – the company 's revenue is primarily derived from lease revenue from our rental portfolio , royalty revenue from mineral leases , sales of farm crops , sales of water , and land sales . revenue from leases with rent concessions or fixed escalations is recognized on a straight-line basis over the initial term of the related lease unless there is a considerable risk as to collectability . the financial terms of leases are contractually defined . lease revenue is not accrued when a tenant vacates the premises and ceases to make rent payments or files for bankruptcy . royalty revenues are contractually defined as to the percentage of royalty and are tied to production and market prices . our royalty arrangements generally require payment on a monthly basis with the payment based on the previous month 's activity . we accrue monthly royalty revenues based upon estimates and adjust to actual as we receive payments . from time to time the company sells easements over its land . the easements are either in the form of rights of access granted for such things as utility corridors or are in the form of conservation easements that generally require the company to divest its rights to commercially develop a portion of its land , but do not result in a change in ownership of the land or restrict the company from continuing other revenue generating activities on the land . sales of conservation easements are accounted for in accordance with staff accounting bulletin topic 13 - revenue recognition , or sab topic 13. since conservation easements generally do not impose any significant continuing performance obligations on the company , revenue from conservation easement sales have been recognized when the four criteria outlined in sab topic 13 have been met , which generally occurs in the period the sale has closed and consideration has been received . in recognizing revenue from land sales , the company follows the provisions in accounting standards codification 976 , or asc 976 , “ real estate – retail land ” to record these sales . asc 976 provides specific sales recognition criteria to determine when land sales revenue can be recorded . for example , asc 976 requires a land sale to be consummated with a sufficient down payment of at least 20 % to 25 % of the sales price depending upon the type and timeframe for development of the property sold , and that any receivable from the sale can not be subject to future subordination . in addition , the seller can not retain any material continuing involvement in the property sold or be required to develop the property in the future . story_separator_special_tag 27 at the time farm crops are harvested , contracted , and delivered to buyers and revenues can be estimated , revenues are recognized and any related inventoried costs are expensed , which traditionally occurs during the third and fourth quarters of each year . it is not unusual for portions of our almond or pistachio crop to be sold in the year following the harvest . orchard ( almond and pistachio ) revenues are based upon the contract settlement price or estimated selling price , whereas vineyard revenues are typically recognized at the contracted selling price . estimated prices for orchard crops are based upon the quoted estimate of what the final market price will be by marketers and handlers of the orchard crops . these market price estimates are updated through the crop payment cycle as new information is received as to the final settlement price for the crop sold . these estimates are adjusted to actual upon receipt of final payment for the crop . this method of recognizing revenues on the sale of orchard crops is a standard practice within the agribusiness community . actual final crop selling prices are not determined for several months following the close of our fiscal year due to supply and demand fluctuations within the orchard crop markets . adjustments for differences between original estimates and actual revenues received are recorded during the period in which such amounts become known . capitalization of costs - the company capitalizes direct construction and development costs , including predevelopment costs , interest , property taxes , insurance , and indirect project costs that are clearly associated with the acquisition , development , or construction of a project . costs currently capitalized that in the future would be related to any abandoned development opportunities will be written off if we determine such costs do not provide any future benefits . should development activity decrease , a portion of interest , property taxes , and insurance costs would no longer be eligible for capitalization , and would be expensed as incurred . allocation of costs related to land sales and leases – when we sell or lease land within one of our real estate developments , currently trcc , and we have not completed all infrastructure development related to the total project , we follow asc 976 to determine the appropriate costs of sales for the sold land and the timing of recognition of the sale . this treatment currently applies to sales and leases of land within trcc . in the calculation of cost of sales or allocations to leased land , we use estimates and forecasts to determine total costs at completion of the development project . these estimates of final development costs can change as conditions in the market and costs of construction change . in preparing these estimates , we use internal budgets , forecasts , and engineering reports to help us estimate future costs related to infrastructure that has not been completed . these estimates become more accurate as the development proceeds forward , due to historical cost numbers and to the continued refinement of the development plan . these estimates are updated periodically throughout the year so that , at the ultimate completion of development , all costs have been allocated . any increases to our estimates in future years will negatively impact net profits and liquidity due to an increased need for funds to complete development . if , however , this estimate decreases , net profits as well as liquidity will improve . we believe that the estimates used related to cost of sales and allocations to leased land are critical accounting estimates and will become even more significant as we continue to move forward as a real estate development company . the estimates used are very susceptible to change from period to period , due to the fact that they require management to make assumptions about costs of construction , absorption of product , and timing of project completion , and changes to these estimates could have a material impact on the recognition of profits from the sale of land within our developments . impairment of long-lived assets – we evaluate our property and equipment and development projects for impairment when events or changes in circumstances indicate that the carrying value of assets contained in our financial statements may not be recoverable . the impairment calculation compares the carrying value of the asset to the asset 's estimated future cash flows ( undiscounted ) . if the estimated future cash flows are less than the carrying value of the asset , we calculate an impairment loss . the impairment loss calculation compares the carrying value of the asset to the asset 's estimated fair value , which may be based on estimated future cash flows ( discounted ) . we recognize an impairment loss equal to the amount by which the asset 's carrying value exceeds the asset 's estimated fair value . if we recognize an impairment loss , the adjusted carrying amount of the asset will be its new cost basis . for a depreciable long-lived asset , the new cost basis will be depreciated ( amortized ) over the remaining useful life of that asset . restoration of a previously recognized impairment loss is prohibited . we currently operate in five segments , commercial/industrial real estate development , resort/residential real estate development , mineral resources , farming , and ranch operations . at this time , there are no assets within any of our segments that we believe are in danger of being impaired due to market conditions . we believe that the accounting estimate related to asset impairment is a critical accounting estimate because it is very susceptible to change from period to period ; it requires management to make assumptions about future prices , production , and costs , and the potential impact of a loss from impairment could be material to our earnings .
| at december 31 , 2015 , total capitalization at book value was $ 405,346,000 consisting of $ 74,038,000 of debt , net of deferred financing costs , and $ 331,308,000 of equity , resulting in a debt-to-total-capitalization ratio of approximately 18.2 % , which is a slight decrease when compared to the debt-to-total-capitalization ratio of 18.7 % at december 31 , 2014 . the increase in the use of debt in 2014 is primarily tied to the purchase of our former partner 's membership interest in tmv llc and is not indicative of a trend to materially increase the use of long-term debt . on october 13 , 2014 , the company as borrower , entered into an amended and restated credit agreement , a term note and a revolving line of credit note , with wells fargo , or collectively the credit facility . the credit facility amends and restates our existing credit facility dated as of november 5 , 2010 and extended on december 4 , 2013 . the credit facility adds a $ 70,000,000 term loan , or term loan , to the existing $ 30,000,000 revolving line of credit , or rlc . funds from the term loan were used to finance the company 's purchase of dmb tmv llc 's interest in mv as disclosed in the current report on form 8-k filed on july 16 , 2014 . any future borrowings under the rlc will be used for ongoing working capital requirements and other general corporate purposes . to maintain availability of funds under the rlc , undrawn amounts under the rlc will accrue a commitment fee of 10 basis points per annum . the company 's ability to borrow additional funds in the future under the rlc is subject to compliance with certain financial covenants and making certain representations and warranties . at the company 's option , the interest rate on the rlc can float at 1.50 % over a selected libor rate or can be fixed at 1.50 % above libor for a fixed rate term . during the term of this credit facility ( which matures in september 2019 ) , we can borrow at any time and partially or wholly repay any outstanding
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we base our estimates and judgments on historical experience and on various other assumptions that we believe to be reasonable under the circumstances . actual results may differ from these estimates . we believe the following accounting policies are critical to the judgments and estimates we use in preparing our financial statements . revenue recognition the company adopted accounting standards codification topic 606 ( “ asc 606 ” ) , revenue from contracts with customers , on january 1 , 2018 using the modified retrospective method . upon adoption of the new revenue guidance , the company recorded a cumulative-effect reduction to accumulated deficit of $ 0.3 million on january 1 , 2018 relating primarily to the deferral of previously expensed costs to obtain a contract . the company capitalized sales commissions paid in connection with multi-year service contracts and is amortizing such asset over the economic life of those contracts . previously , sales commissions on multi-year service contracts were expensed as incurred . the impact of this change on operating expenses in any given period will depend , in part , on the amount of such commissions incurred and capitalized in relation to the amount of ongoing amortization expense . we generate revenue from the initial capital sales of systems as well as recurring revenue from the sale of our proprietary disposable devices , from royalties paid to the company on the sale by biosense webster of co-developed catheters , and from other recurring revenue including ongoing software updates and service contracts . we account for a contract with a customer when there is a legally enforceable contract between the company and the customer , the rights of the parties are identified , the contract has commercial substance , and collectability of the contract consideration is probable . we record our revenue based on consideration specified in the contract with each customer , net of any taxes collected from customers that are remitted to government authorities . for contracts containing multiple products and services the company accounts for individual products and services as separate performance obligations if they are distinct , which is if a product or service is separately identifiable from other items in the bundled package , and if a customer can benefit from it on its own or with other resources that are readily available to the customer . the company recognizes revenues as the performance obligations are satisfied by transferring control of the product or service to a customer . for multiple performance obligations , revenue is allocated to each performance obligation based on its relative standalone selling price . standalone selling prices are based on observable prices at which the company separately sells the products or services . if a standalone selling price is not directly observable , then the company estimates the standalone selling price considering market conditions and entity-specific factors including , but not limited to , features and functionality of the products and services and market conditions . the company regularly reviews standalone selling prices and updates these estimates if necessary . our revenue recognition policy affects the following revenue streams in our business as follows : systems : contracts related to the sale of systems typically contain separate obligations for the delivery of system ( s ) , installation and an implied obligation to provide software enhancements if and when available for one year following installation . revenue is recognized when the company transfers control to the customer , which is generally at the point when acceptance occurs that indicates customer acknowledgment of delivery or installation , depending on the terms of the arrangement . revenue from the implied obligation to deliver software enhancements if and when available is recognized ratably over the first year following installation of the system as the customer receives the right to software updates throughout the period . revenue from this performance obligation is included in other recurring revenue . the company 's system contracts generally do not provide a right of return . systems are generally covered by a one-year assurance type warranty ; however , warranty costs were not material for the periods presented . 28 disposables : revenue from sales of disposable products is recognized when control is transferred to the customers , which generally occurs at the time of shipment , but can also occur at the time of delivery depending on the customer arrangement . disposable products are covered by an assurance type warranty that provides for the return of defective products . warranty costs were not material for the periods presented . royalty : the company is entitled to royalty payments from biosense webster , payable quarterly based on net revenues from sales of the co-developed catheters . other recurring revenue : other recurring revenue includes revenue from product maintenance plans , other post warranty maintenance , and the implied obligation to provide software enhancements if and when available for one year following installation . revenue from services and software enhancements is deferred and amortized over the service or update period , which is typically one year . revenue related to services performed on a time-and-materials basis is recognized when performed . sublease revenue : the adoption of new lease accounting guidance as of january 1 , 2019 requires the company to record sublease income as revenue beginning in 2019. the company invoices its customers based on the billing schedules in its sales arrangements . contract assets primarily represent the difference between the revenue that was recognized based on the relative selling price of the related performance obligations and the contractual billing terms in the arrangements . deferred revenue is primarily related to service contracts , for which the service fees are billed up-front , generally quarterly or annually , and for amounts billed in advance for system contracts for which some performance obligations remain outstanding . for service contracts , the associated deferred revenue is generally recognized ratably over the service period . for system contracts , the associated deferred revenue is recognized when the remaining performance obligations are satisfied . story_separator_special_tag see note 2 to the financial statements included elsewhere in this document for additional detail on deferred revenue . the company did not have any impairment losses on its contract assets for the periods presented . assets recognized from the costs to obtain a contract with a customer the company has determined that sales incentive programs for the company 's sales team meet the requirements to be capitalized as the company expects to generate future economic benefits from the related revenue generating contracts after the initial capital sales transaction . the costs capitalized as contract acquisition costs included in prepaid expenses and other assets in the company 's balance sheets were $ 0.3 million as of december 31 , 2019 and december 31 , 2018. the company did not incur any impairment losses during any of the periods presented . leases on january 1 , 2019 , the company adopted asu no . 2016-02 “ leases ” ( topic 842 ) and all subsequent asus that modified topic 842. a lease is defined as a contract , or part of a contract , that conveys the right to control the use of identified property , plant or equipment for a period of time in exchange for consideration . the company determines if a contract contains a lease at inception . for contracts where the company is the lessee , operating leases are included in operating lease right-of-use ( “ rou ” ) assets and operating lease liability on the company 's balance sheet . the company currently does not have any finance leases . operating lease rou assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date . rou assets also include any initial direct costs incurred and any lease payments made at or before the lease commencement date , less lease incentives received . the company uses its incremental borrowing rate based on the information available at the commencement date in determining the lease liabilities as the company 's leases generally do not provide an implicit rate . lease terms may include options to extend or terminate when the company is reasonably certain that the option will be exercised . lease expense is recognized on a straight-line basis over the lease term . the company also has lease arrangements with lease and non-lease components . the company elected the practical expedient not to separate non-lease components from lease components for the company 's operating leases . additionally , the company applies the short-term lease measurement and recognition exemption in which right of use assets and lease liabilities are not recognized for leases less than twelve months . cost of contracts costs of systems revenue include direct product costs , installation labor and other costs , estimated warranty costs , and initial training and product maintenance costs . these costs are recorded at the time of sale . costs of disposable revenue include direct product costs and estimated warranty costs and are recorded at the time of sale . cost of revenue from services and license fees are recorded when incurred . cost of sublease revenue is recorded on a straight-line basis . 29 stock-based compensation stock compensation expense , which is a non-cash charge , results from stock option and stock appreciation rights grants made to employees , and directors at the fair value of the option granted , and from grants of restricted shares and units to employees , directors , and third-party consultants . the fair value of options and stock appreciation rights granted was determined using the black-scholes valuation method which gives consideration to the estimated value of the underlying stock at the date of grant , the exercise price of the option , the expected dividend yield and volatility of the underlying stock , the expected life of the option and the corresponding risk-free interest rate . the fair value of the grants of restricted shares and units was determined based on the closing price of our stock on the date of grant . stock compensation expense for options , stock appreciation rights and for time-based restricted share grants and units is amortized on a straight-line basis over the vesting period of the underlying issue , generally over four years except for grants to directors which are generally earned in periods ranging from six months to two years . stock compensation expense for performance-based restricted shares , if any , is amortized on a straight-line basis over the anticipated vesting period and is subject to adjustment based on the actual achievement of objectives . compensation expenses related to grants to non-employees are re-measured quarterly through the vesting date . compensation expense is recognized only for those options expected to vest , net of actual forfeitures . estimates of the expected life of options have been based on the average of the vesting and expiration periods , which is the simplified method under general accounting principles for share-based payments . estimates of volatility utilized in calculating stock-based compensation have been prepared based on historical data . actual experience to date has been consistent with these estimates . the amount of compensation expense to be recorded in future periods may increase if we make additional grants of options , stock appreciation rights or restricted shares . the amount of expense to be recorded in future periods may decrease if the requisite service periods are not completed . valuation of inventory we value our inventory at the lower of the actual cost of our inventory , as determined using the first-in , first-out ( fifo ) method , or its current estimated market value . we periodically review our physical inventory for excess , obsolete , and potentially impaired items and reserve accordingly . our reserve estimate for excess and obsolete is based on expected future use . our reserve estimates have historically been consistent with our actual experience as evidenced by actual sale or disposal of the goods .
| cost of revenue for systems sold decreased to $ 1.4 million for the year ended december 31 , 2019 , from $ 1.8 million for the year ended december 31 , 2018 and gross margin for systems increased to 32 % for the year ended december 31 , 2019 from ( 13 % ) for the year ended december 31 , 2018 primarily due to decreased product costs and reductions in prior period inventory related charges . cost of revenue for disposable interventional devices , service and accessories decreased to $ 3.7 million for the year ended december 31 , 2019 , from $ 3.9 million for the year ended december 31 , 2018 , r esulting in gross margin of approximately 86 % in the current year and prior year periods . the adoption of new lease accounting guidance as of january 1 , 2019 required the company to record $ 1.0 million of cost of sublease for the year ended december 31 , 2019. research and development expense . research and development expense increased to $ 9.0 million for the year ended december 31 , 2019 , from $ 8.2 million for the year ended december 31 , 2018 , an increase of approximately 10 % . this increase was primarily due to higher project-based spending . sales and marketing expense . sales and marketing expense decreased to $ 12.7 million for the year ended december 31 , 2019 from $ 13.0 million for the year ended december 31 , 2018 , a decrease of approximately 2 % . this decrease was primarily due to a more efficient distribution of clinical adoption and marketing resources favorably impacting both headcount and professional fees as well as the impact of fully depreciated marketing assets . 30 general and administrative expense . general and administrative expenses include finance , information systems , legal , and general management expenses . general and administrative expense increased to $ 5.8 million for the year ended december 31 , 2019 from $ 4.9 million for the year ended december 31 , 2018 , an increase of approximately 19 % . this increase was primarily driven by higher administrative costs and professional service fees . other income ( expense ) .
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the economic recovery slowly advanced , helped by improving housing prices and gains in employment , although the unemployment rate remains elevated , and as a result , the federal reserve has remained committed to accommodative policy , tying interest rates to specific levels of employment and inflation . credit indices rose sharply in 2012 , with the high yield index up 15 % and the leveraged loan index rising 9 % . benchmark rates remain at/near historic lows and high yield spreads narrowed nearly 200 basis points . debt capital markets were very strong and issuance rose to record levels in both the investment grade and leveraged finance markets . equity capital markets saw increased issuance levels in 2012 , although were more sensitive to broader global macroeconomic conditions . in commercial real estate , performance metrics remain healthy across all of our real estate investment types . in the office and industrial sectors , limited supply and a decrease in vacancies has resulted in gradual increases in rental rates . in the retail sector , mall retailers have experienced sustained growth in same-store sales . home prices have increased 5.8 % nationally in 2012. in addition , hospitality metrics remain positive , with u.s. industry revpar ( revenue per available room ) up 6.8 % for 2012. blackstone 's businesses are materially affected by conditions in the financial markets and economic conditions in the u.s. , western europe , asia and , to a lesser extent , elsewhere in the world . significant transactions on january 5 , 2012 , gso completed the acquisition of harbourmaster , a leading european leveraged loan manager and adviser . in august 2012 , blackstone issued $ 400 million of 4.75 % senior notes due 2023 and $ 250 million of 6.25 % senior notes due 2042. key financial measures and indicators our key financial measures and indicators are discussed below . 69 revenues revenues primarily consist of management and advisory fees , performance fees , investment income , interest and dividend revenue and other . please refer to part i. item 1. businessincentive arrangements / fee structure and critical accounting policies , revenue recognition for additional information regarding the manner in which base management fees and performance fees are generated . management and advisory fees management and advisory fees are comprised of management fees , including base management fees , transaction and other fees , management fee reductions and offsets , and advisory fees . the partnership earns base management fees from limited partners of funds in each of its managed funds , at a fixed percentage of assets under management , net asset value , total assets , committed capital or invested capital or , in some cases , a fixed fee . base management fees are based on contractual terms specified in the underlying investment advisory agreements . transaction and other fees ( including monitoring fees ) are fees charged directly to managed funds and portfolio companies . the investment advisory agreements generally require that the investment adviser reduce the amount of management fees payable by the limited partners to the partnership ( management fee reductions ) by an amount equal to a portion of the transaction and other fees directly paid to the partnership by the portfolio companies . the amount of the reduction varies by fund , the type of fee paid by the portfolio company and the previously incurred expenses of the fund . management fee offsets are reductions to management fees payable by our limited partners , which are granted based on the amount they reimburse blackstone for placement fees . advisory fees consist of advisory retainer and transaction-based fee arrangements related to merger , acquisition , restructuring and divestiture activities and fund placement services for alternative investment funds . advisory retainer fees are recognized when services for the transactions are complete , in accordance with terms set forth in individual agreements . transaction-based fees are recognized when ( a ) there is evidence of an arrangement with a client , ( b ) agreed upon services have been provided , ( c ) fees are fixed or determinable and ( d ) collection is reasonably assured . fund placement fees are recognized as earned upon the acceptance by a fund of capital or capital commitments . accrued but unpaid management and advisory fees , net of management fee reductions and management fee offsets , as of the reporting date , are included in accounts receivable or due from affiliates in the consolidated statements of financial condition . performance fees performance fees earned on the performance of blackstone 's hedge fund structures ( incentive fees ) are recognized based on fund performance during the period , subject to the achievement of minimum return levels , or high water marks , in accordance with the respective terms set out in each hedge fund 's governing agreements . accrued but unpaid incentive fees charged directly to investors in blackstone 's offshore hedge funds as of the reporting date are recorded within due from affiliates in the consolidated statements of financial condition . accrued but unpaid incentive fees on onshore funds as of the reporting date are reflected in investments in the consolidated statements of financial condition . incentive fees are realized at the end of a measurement period , typically annually . once realized , such fees are not subject to clawback . in certain fund structures , specifically in private equity , real estate and certain credit-focused funds ( carry funds ) , performance fees ( carried interest ) are allocated to the general partner based on cumulative fund performance to date , subject to a preferred return to limited partners . at the end of each reporting period , the partnership calculates the carried interest that would be due to the partnership for each fund , pursuant to the fund agreements , as if the fair value of the underlying investments were realized as of such date , irrespective of whether such amounts have been realized . story_separator_special_tag as the fair value of underlying investments varies between reporting periods , it is necessary to make adjustments to amounts recorded as carried interest to reflect either ( a ) positive performance 70 resulting in an increase in the carried interest allocated to the general partner or ( b ) negative performance that would cause the amount due to the partnership to be less than the amount previously recognized as revenue , resulting in a negative adjustment to carried interest allocated to the general partner . in each scenario , it is necessary to calculate the carried interest on cumulative results compared to the carried interest recorded to date and make the required positive or negative adjustments . the partnership ceases to record negative carried interest allocations once previously recognized carried interest allocations for such fund have been fully reversed . the partnership is not obligated to pay guaranteed returns or hurdles , and therefore , can not have negative carried interest over the life of a fund . accrued but unpaid carried interest as of the reporting date is reflected in investments in the consolidated statements of financial condition . carried interest is realized when an underlying investment is profitably disposed of and the fund 's cumulative returns are in excess of the preferred return . carried interest is subject to clawback to the extent that the carried interest actually distributed to date exceeds the amount due to blackstone based on cumulative results . as such , the accrual for potential repayment of previously received performance fees , which is a component of due to affiliates , represents all amounts previously distributed to blackstone holdings and non-controlling interest holders that would need to be repaid to the blackstone funds if the blackstone carry funds were to be liquidated based on the current fair value of the underlying funds ' investments as of the reporting date . generally , the actual clawback liability does not become realized until the end of a fund 's life or one year after a realized loss is incurred , depending on the terms of the fund . investment income ( loss ) investment income ( loss ) represents the unrealized and realized gains and losses on the partnership 's principal investments , including its investments in blackstone funds that are not consolidated , its equity method investments , and other principal investments . investment income ( loss ) is realized when the partnership redeems all or a portion of its investment or when the partnership receives cash income , such as dividends or distributions , from its non-consolidated funds . unrealized investment income ( loss ) results from changes in the fair value of the underlying investment as well as the reversal of unrealized gain ( loss ) at the time an investment is realized . interest and dividend revenue interest and dividend revenue comprises primarily interest and dividend income earned on principal investments held by blackstone . other revenue other revenue consists of miscellaneous income and foreign exchange gains and losses arising on transactions denominated in currencies other than u.s. dollars . expenses compensation and benefitscompensation compensation and benefits consists of ( a ) employee compensation , comprising salary and bonus , and benefits paid and payable to employees and senior managing directors and ( b ) equity-based compensation associated with the grants of equity-based awards to employees and senior managing directors . compensation cost relating to the issuance of equity-based awards to senior managing directors and employees is measured at fair value at the grant date , taking into consideration expected forfeitures , and expensed over the vesting period on a straight line basis . equity-based awards that do not require future service are expensed immediately . cash settled equity-based awards are classified as liabilities and are re-measured at the end of each reporting period . compensation and benefitsperformance fee performance fee compensation consists of carried interest and incentive fee allocations , and may in future periods also include allocations of investment income from blackstone 's firm investments , to employees and senior managing directors participating in certain profit sharing initiatives . such compensation expense is subject to both positive and negative adjustments . unlike carried interest and incentive fees , compensation expense is based on the performance of individual investments held by a fund rather than on a fund by fund basis . 71 other operating expenses other operating expenses represent general and administrative expenses including interest expense , occupancy and equipment expenses and other expenses , which consist principally of professional fees , public company costs , travel and related expenses , communications and information services and depreciation and amortization . fund expenses the expenses of our consolidated blackstone funds consist primarily of interest expense , professional fees and other third-party expenses . non-controlling interests in consolidated entities non-controlling interests in consolidated entities represent the component of partners ' capital in consolidated blackstone funds and side-by-side entities held by third party investors and employees . the percentage interests held by third parties and employees is adjusted for general partner allocations and by subscriptions and redemptions in funds of hedge funds and certain credit-focused funds which occur during the reporting period . in addition , all non-controlling interests in consolidated blackstone funds are attributed a share of income ( loss ) arising from the respective funds and a share of other comprehensive income , if applicable .
| for the mezzanine funds and 15.7 % for the rescue lending funds for the year ended december 31 , 2012. the increase in management and advisory fees was primarily attributable to an increase in fee-earning assets under management of 23 % during the current year across the segments . the increase in investment income is primarily due to the increases in unrealized appreciation due to the increase in fair value of investments . total revenues were $ 3.3 billion for the year ended december 31 , 2011 , an increase of $ 133.2 million compared to $ 3.1 billion for the year ended december 31 , 2010. the increase in revenues was primarily driven by an increase of $ 227.0 million in management and advisory fees and an increase in performance fees of $ 244.8 million , partially offset by a decrease of $ 347.8 million in investment income ( loss ) . the increase in management and advisory fees was primarily attributable to ( a ) increases in management fees in our private equity segment , driven by fees generated from bcp vi and bep funds , which commenced their investment periods during the first and third quarters of 2011 , respectively , ( b ) increases in transaction fees in our real estate segment , driven by the continued increase in investment activity in our brep funds , primarily as a result of brep vi 's acquisition of the u.s. assets of centro in the second quarter of 2011 , and management fees earned from the management of an acquired asian real estate platform , and ( c ) increases in management fees in our credit and hedge fund solutions segments due to higher fee-earning assets under management . the increase in performance fees was due to improved operating performance and projected cash flows resulting in the appreciation in the fair value of the investments across our real estate carry funds and the impact of the catch-up provisions of the real
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the value attributed to other intangible assets was based on the time period over which they are expected to generate economic benefits . the excess of the purchase price for acquisitions over the fair value of the net assets acquired , including other intangible assets , was recorded as goodwill . goodwill is not amortized but is tested for impairment at the reporting unit level , defined as the segment level , at least annually in the fourth quarter or more frequently whenever events or circumstances occur that indicate that it is more-likely-than-not that an impairment loss has occurred . in assessing impairment , the corporation has the option to perform a qualitative analysis to determine whether the existence of events or circumstances leads to a determination that it is more-likely-than-not that the fair value of the reporting unit is less than its carrying amount . if , after assessing the totality of such events or circumstances , we determine it is not more-likely-than-not that the fair value of a reporting unit is less than its carrying amount , then we would not be required to perform a two-step impairment test . the corporation has not opted to perform this qualitative analysis . goodwill is tested for impairment using the two-step quantitative impairment analysis described below . the first step ( “ step 1 ” ) of the quantitative impairment analysis requires a comparison of each reporting unit 's fair value to its carrying value to identify potential impairment . the second step ( “ step 2 ” ) of the analysis is necessary only if a reporting unit 's carrying amount exceeds its fair value . step 2 is a more detailed analysis , which involves measuring the excess of the fair value of the reporting unit , as determined in step 1 , over the aggregate fair value of the individual assets , liabilities , and identifiable intangibles as if the reporting unit was being acquired in a business combination . goodwill impairment exists when a reporting unit 's carrying value of goodwill exceeds its implied fair value . significant judgment is applied when goodwill is assessed for impairment . this judgment includes , but may not be limited to , the selection of appropriate discount rates , the identification of relevant market comparables and the development of cash flow projections . the selection and weighting of the various fair value techniques may result in a higher or lower fair value . judgment is applied in determining the weightings that are most representative of fair value . washington trust has two reporting units : the commercial banking segment and the wealth management services segment . for both segments of the corporation , goodwill was assessed for impairment in 2016 by performing a discounted cash flow analysis ( “ income approach ” ) and utilizing estimates of selected market information ( “ market approach ” ) . the income approach measures the fair value of an interest in a business by discounting expected future cash flows to a present value . the market approach takes into consideration fair values of comparable companies operating in similar lines of business that are potentially subject to similar economic and environmental factors and could be considered reasonable investment alternatives . the results of the income approach and the market approach were weighted equally . step 1 results of the 2016 impairment analysis indicated that the fair value significantly exceeded the carrying value for both reporting units . other intangible assets with definite lives are tested for impairment whenever events or circumstances occur that indicate that the carrying amount may not be recoverable . if applicable , the corporation tests each of the intangibles by comparing the carrying value of the intangible asset to the sum of undiscounted cash flows expected to be generated by the asset . if the carrying amount of the asset exceeded its undiscounted cash flows , then an impairment loss would be recognized for the amount by which the carrying amount exceeds its fair value . the fair value of other intangible assets was estimated using valuation techniques , based on a discounted cash flow analysis . these intangible assets are being amortized over the period the assets are expected to contribute to the cash flows of the corporation , which reflects the expected pattern of benefit . impairment would be recognized if the carrying value exceeded the sum of the undiscounted expected future cash flows from the intangible assets . impairment would result in a write-down to the estimated fair value based on the anticipated discounted future cash flows . the remaining - 33 - useful life of the intangible assets that are being amortized is also evaluated to determine whether events and circumstances warrant a revision to the remaining period of amortization . the corporation makes certain estimates and assumptions that affect the determination of the expected future cash flows from the intangible assets . for intangible assets such as wealth management advisory contracts , these estimates and assumptions include account attrition , market appreciation for wealth management assets under administration and anticipated fee rates , estimated revenue growth , projected costs and other factors . significant changes in these estimates and assumptions could cause a different valuation for these intangible assets . changes in the original assumptions could change the amount of the intangible assets recognized and the resulting amortization . subsequent changes in assumptions could result in recognition of impairment of these intangible assets . these assumptions used in the impairment tests of goodwill and intangible assets are susceptible to change based on changes in economic conditions and other factors . any change in the estimates which the corporation uses to determine the carrying value of the corporation 's goodwill and identifiable intangible assets , or which otherwise adversely affects their value or estimated lives could adversely affect the corporation 's results of operations . see note 9 to the consolidated financial statements for additional information . story_separator_special_tag assessment of investment securities for impairment securities that the corporation has the ability and intent to hold until maturity are classified as held to maturity and are accounted for using historical cost , adjusted for amortization of premiums and accretion of discounts . securities available for sale are carried at fair value , with any unrealized gains and losses , net of taxes , reported as accumulated other comprehensive income or loss in shareholders ' equity . the fair values of securities may be based on either quoted market prices or third party pricing services . when the fair value of an investment security is less than its amortized cost basis , the corporation assesses whether the decline in value is other-than-temporary . the corporation considers whether evidence indicating the cost of the investment is recoverable outweighs evidence to the contrary . evidence considered in this assessment includes the reasons for impairment , the severity and duration of the impairment , changes in the value subsequent to the reporting date , forecasted performance of the issuer , changes in the dividend or interest payment practices of the issuer , changes in the credit rating of the issuer or the specific security , and the general market condition in the geographic area or industry in which the issuer operates . future adverse changes in market conditions , continued poor operating results of the issuer , projected adverse changes in cash flows , which might impact the collection of all principal and interest related to the security , or other factors could result in further losses that may not be reflected in an investment 's current carrying value , possibly requiring an additional impairment charge in the future . in determining whether an other-than-temporary impairment has occurred for debt securities , the corporation compares the present value of cash flows expected to be collected from the security with the amortized cost of the security . if the present value of expected cash flows is less than the amortized cost of the security , then the entire amortized cost of the security will not be recovered ; that is , a credit loss exists , and an other-than-temporary impairment shall be considered to have occurred . when an other-than-temporary impairment has occurred , the amount of the other-than-temporary impairment recognized in earnings for a debt security depends on whether the corporation intends to sell the security or if it is more-likely-than-not that the corporation will be required to sell the security before recovery of its amortized cost less any current period credit loss . if the corporation intends to sell the security or it is more-likely-than-not that it will be required to sell the security before recovery of its amortized cost , the other-than-temporary impairment shall be recognized in earnings equal to the entire difference between the amortized cost and fair value of the security . if the corporation does not intend to sell or it is more-likely-than-not that it will not be required to sell the security before recovery of its amortized cost , the amount of the other-than-temporary impairment related to credit loss shall be recognized in earnings and the noncredit-related portion of the other-than-temporary impairment shall be recognized in other comprehensive income . defined benefit pension plans the determination of the defined benefit obligation and net periodic benefit cost related to our defined benefit pension plans requires estimates and assumptions such as discount rates , mortality , rates of return on plan assets and compensation increases . washington trust evaluates the assumptions annually and uses an actuarial firm to assist in making these - 34 - estimates . changes in assumptions due to market conditions , governing laws and regulations , or circumstances specific to the corporation could result in material changes to defined benefit pension obligation and net periodic benefit cost . see note 17 to the consolidated financial statements for additional information . overview washington trust offers a comprehensive product line of banking and financial services to individuals and businesses , including commercial , residential and consumer lending , retail and commercial deposit products , and wealth management services through its offices in rhode island , eastern massachusetts and connecticut ; its automated teller machines ( “ atms ” ) ; telephone banking ; mobile banking and its internet website ( www.washtrust.com ) . our largest source of operating income is net interest income , the difference between interest earned on loans and securities and interest paid on deposits and other borrowings . in addition , we generate noninterest income from a number of sources including wealth management services , mortgage banking activities and deposit services . our principal noninterest expenses include salaries and employee benefits , occupancy and facility-related costs , technology and other administrative expenses . our financial results are affected by interest rate fluctuations , changes in economic and market conditions , competitive conditions within our market area and changes in legislation , regulation and or accounting principles . adverse changes in economic growth , consumer confidence , credit availability and corporate earnings could negatively impact our financial results . we continued to leverage our strong , statewide brand to build market share in rhode island and bring select business lines to new markets with high-growth potential while remaining steadfast in our commitment to provide superior service . in 2016 , we opened a full-service branch in providence , rhode island , and a residential mortgage lending office in wellesley , massachusetts . in 2017 , we expect to open another full-service branch in coventry , rhode island . on august 1 , 2015 , washington trust completed the acquisition of halsey , a registered investment adviser firm located in new haven , connecticut . halsey specializes in providing investment counseling services to high-net-worth families , corporations , foundations and endowment clients . as of the acquisition date , halsey had approximately $ 840 million of assets under administration . see note 3 to the consolidated financial statements for additional disclosure related to the halsey acquisition .
| commercial banking noninterest expenses for 2016 , increased by $ 3.4 million , or 6 % , from 2015 , largely due to increases in salaries and employee benefit costs . - 38 - comparison of 2015 with 2014 the commercial banking segment reported net income of $ 31.2 million in 2015 , an increase of $ 3.6 million , or 13 % , from 2014 . net interest income for this operating segment increased by $ 4.3 million , or 5 % , from 2014 , primarily due to a favorable shift in the mix of deposits to lower cost categories . the provision for loan losses totaled $ 1.1 million , down by $ 800 thousand from 2014 , reflecting management 's assessment of loss exposure and credit quality trends . noninterest income derived from the commercial banking segment totaled $ 20.6 million for 2015 , up by $ 3.0 million , or 17 % , from 2014 . the increase in noninterest income was due to higher mortgage banking revenues and loan related derivative income , which was partially offset by a decrease in merchant processing fee revenue , due to the sale of this business line in march 2014. the decrease in merchant processing fee revenue corresponded to a decline in merchant processing costs included in this operating segment 's noninterest expenses . commercial banking noninterest expenses for 2015 , increased by $ 2.7 million , or 5 % , from 2014 , with increases in salaries and employee benefits costs , outsourced services and occupancy costs associated with a de novo branch opened in 2015 , partially offset by lower merchant processing costs . the following table presents a summarized statement of operations for the wealth management services business segment : replace_table_token_7_th comparison of 2016 with 2015 the wealth management services segment reported 2016 net income of $ 6.6 million , an increase of $ 1.9 million , or 39 % , from 2015 . noninterest income derived from the wealth management services segment was $ 37.6 million in
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the decrease in other cca revenue in 2019 was driven primarily by a $ 14.9 million decrease from contract manufactured heartworm preventive , tri-heart , as a result of reduced customer demand . we consider the cca segment to be our core business and devote most of our management time and other resources to improving the prospects for this segment . maintaining a continuing , reliable and economic supply of products we currently obtain from third parties is critical to our success in this area . virtually all of our sales and marketing expenses occur in the cca segment . the majority of our research and development spending is dedicated to this segment as well . all of our cca products are ultimately sold primarily to or through veterinarians . in many cases , veterinarians will mark up their costs to their customer . the acceptance of our products by veterinarians is critical to our success . cca products are sold directly to end users by us as well as through distribution relationships , such as the sale of kits to conduct blood testing to third-party veterinary diagnostic laboratories and independent third-party distributors . revenue from direct sales and distribution relationships represented approximately 74 % and 26 % , respectively , of cca 2019 revenue , 57 % and 43 % , respectively , of cca 2018 revenue and 58 % and 42 % , respectively , of cca 2017 revenue . ovp segment the ovp segment includes our approximately 160,000 square foot usda and fda licensed production facility in des moines , iowa . we view this facility as an asset which could allow us to control our cost of goods on any pharmaceuticals and vaccines that we may commercialize in the future . we have increased integration of this facility with our operations elsewhere . for example , virtually all our u.s. inventory , excluding our imaging products , is now stored at this facility and related fulfillment logistics are managed there . cca segment products manufactured at this facility are transferred at cost and are not recorded as revenue for our ovp segment . - 35 - historically , a significant portion of our ovp segment 's revenue has been generated from the sale of certain bovine vaccines , which have been sold primarily under the titanium® and masterguard® brands . we have an agreement with elanco for the production of these vaccines ( the `` elanco agreement '' ) . our ovp segment also produces vaccines and pharmaceuticals for other third parties . critical accounting estimates the discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with gaap . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . we evaluate our estimates on an ongoing basis . we base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates . `` part ii , item 8. note 1. summary of significant accounting policies '' to the consolidated financial statements included in this annual report on form 10-k describes the significant accounting policies used in preparation of these consolidated financial statements . we believe the following critical accounting estimates and assumptions may have a material impact on reported financial condition and operating performance and involve significant levels of judgment to account for highly uncertain matters or are susceptible to significant change . revenue recognition effective january 1 , 2018 , we adopted fasb accounting standards codification ( `` asc '' ) topic 606 , revenue from contracts with customers ( the `` new revenue standard '' ) , using the modified retrospective method for all contracts not completed as of the date of adoption . under the new revenue standard , revenue is recognized when , or as , performance obligations under the terms of a contract are satisfied , which occurs when control of the promised products or services is transferred to a customer . we exclude sales , use , value-added , and other taxes we collect on behalf of third parties from revenue . revenue is measured as the amount of consideration we expect to receive in exchange for transferring products or services to a customer . to meet the requirements of the new revenue standard and accurately present the consideration received in exchange for promised products or services , we applied the prescribed five-step model outlined below : 1. identification of a contract or agreement with a customer 2. identification of our performance obligations in the contract or agreement 3. determination of the transaction price 4. allocation of the transaction price to the performance obligations 5. recognition of revenue when , or as , we satisfy a performance obligation see `` part ii . item 8. financial statements and supplementary data , note 2. revenue recognition '' to the consolidated financial statements for the year ended december 31 , 2019 , included in this annual report on form 10-k for additional information about our revenue recognition policy and criteria for recognizing revenue . application of the various accounting principles in gaap related to the measurement and recognition of revenue requires us to make judgments and estimates . specifically , our subscription arrangements related to our point of care laboratory products provide our customers the right to use our instruments upon entering into multi-year agreements to purchase a minimum amount of consumables . story_separator_special_tag these types of agreements include an embedded lease , designated as either an operating-type lease ( `` otl '' ) or a sales-type lease ( `` stl '' ) , dependent upon individual contract terms , most often relating to the term of the contract relative to the life of the underlying instruments being placed under that contract . the determination of the amounts - 36 - allocated to each component of the contract are based upon fair value . changes in fair value in any period of the underlying components will impact that amount of revenue recognized . allowance for doubtful accounts we maintain an allowance for doubtful accounts receivable based on client-specific allowances , as well as a general allowance . specific allowances are maintained for clients which are determined to have a high degree of collectability risk based on such factors , among others , as : ( i ) the aging of the accounts receivable balance ; ( ii ) the client 's past payment history ; and ( iii ) a deterioration in the client 's financial condition , evidenced by weak financial condition and or continued poor operating results , reduced credit ratings and or a bankruptcy filing . in addition to the specific allowance , the company maintains a general allowance for credit risk in its accounts receivable which is not covered by a specific allowance . the general allowance is established based on such factors , among others , as : ( i ) the total balance of the outstanding accounts receivable , including considerations of the aging categories of those accounts receivable ; ( ii ) past history of uncollectable accounts receivable write-offs ; and ( iii ) the overall creditworthiness of the client base . a considerable amount of judgment is required in assessing the realizability of accounts receivable . should any of the factors considered in determining the adequacy of the overall allowance change , an adjustment to the provision for doubtful accounts receivable may be necessary . inventory valuation we write down the carrying value of inventory for estimated obsolescence by an amount equal to the difference between the cost of inventory and the estimated market value when warranted based on assumptions of future demand , market conditions , remaining shelf life or product functionality . if actual market conditions or results of estimated functionality are less favorable than those we estimated , additional inventory write-downs may be required , which would have a negative effect on results of operations . the inventory allowance was $ 1.3 million and $ 1.6 million as of december 31 , 2019 and 2018 , respectively . deferred tax assets – valuation allowance we evaluate our ability to realize the tax benefits associated with a deferred tax asset ( “ dta ” ) by analyzing our forecasted taxable income using both historical and projected future operating results , the reversal of existing temporary differences , taxable income in prior carry back years ( if permitted ) and the availability of tax planning strategies . a valuation allowance is required to be established unless management determines that it is more likely than not that we will ultimately realize the tax benefit associated with a deferred tax asset . as of december 31 , 2019 and 2018 , we had valuation allowances of approximately $ 5.7 million and $ 10.2 million , respectively . the change in the valuation allowance resulted from the expiration of deferred tax assets which were offset with a valuation allowance at december 31 , 2018. see `` part ii . item 8. financial statements and supplementary data , note 5. income taxes '' to the consolidated financial statements for additional information regarding our income taxes . business combinations we account for transactions that represent business combinations under the acquisition method of accounting , which requires us to allocate the total consideration paid for each acquisition to the assets we acquire and liabilities we assume based on their fair values as of the date of acquisition , including identifiable intangible assets . the allocation of the purchase price utilizes significant estimates in determining the fair values of identifiable assets acquired and liabilities assumed , especially with respect to intangible assets . we may refine our estimates and make adjustments to the assets acquired and liabilities assumed over a measurement period , not to exceed one year . - 37 - valuation of goodwill and intangibles we assess goodwill for impairment annually , at the reporting unit level , in the fourth quarter and whenever events or circumstances indicate impairment may exist . in evaluating goodwill for impairment , we have the option to first assess the qualitative factors to determine whether it is more-likely-than-not that the estimated fair value of the reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the comparison of the estimated fair value of the reporting unit to the carrying value . the more-likely-than-not threshold is defined as having a likelihood of more than 50 percent . if , after assessing the totality of events or circumstances , we determine that is it more-likely-than-not that the estimated fair value of a reporting is less than its carrying amount , we would then estimate the fair value of the reporting unit and compare it to the carrying value . if the carrying value exceeds the estimated fair value we would recognize an impairment for the difference ; otherwise , no further impairment test would be required . in contrast , we can opt to bypass the qualitative assessment for any reporting unit in any period and proceed directly to quantitative analysis . doing so does not preclude us from performing the qualitative assessment in any subsequent period . we performed qualitative assessments in the fourth quarters of 2019 , 2018 and 2017 and determined that no indications of impairment existed . we assess the realizability of intangible assets other than goodwill whenever events or changes in circumstances indicate that the carrying value may not be recoverable .
| this was partially offset by a 22 % decrease in revenue from point of care laboratory instruments due to lower sales-type lease instrument revenue recognition of $ 1.5 million and lower infusion pump sales of $ 1.3 million . ovp segment revenue decreased 13 % to $ 16.1 million in 2019 compared to $ 18.5 million in 2018 . the decrease was driven primarily by reduced customer requirements and supply issues with materials . ovp segment revenue decreased 23 % to $ 18.5 million in 2018 compared to $ 24.2 million in 2017 . the decrease was driven by decreased volume of sales under contract manufacturing arrangements . gross profit gross profit decreased 4 % to $ 54.4 million in 2019 compared to $ 56.6 million in 2018 . gross margin percent remained consistent at 44.4 % in 2019 compared to 44.4 % in 2018 . gross profit decreased 3 % to $ 56.6 million in 2018 compared to $ 58.3 million in 2017 . gross margin percent decreased to 44.4 % in 2018 compared to 45.0 % in 2017 . the decrease in both gross profit and gross margin percentage was driven primarily by unfavorable product mix and plant utilization charges in our ovp segment . operating expenses selling and marketing expenses increased 12 % to $ 27.7 million in 2019 compared to $ 24.7 million in 2018 . selling and marketing expenses increased 6 % to $ 24.7 million in 2018 compared to $ 23.2 million in 2017 . the increase in both periods was primarily driven by an increase in compensation , including stock-based compensation , benefits and commissions expense , which is mostly related to our commercial team expansion both domestically and internationally . the increase is in line with management expectations as we continue to invest in future growth and expanding the footprint of the company . research and development expenses increased 147 % to $ 8.2 million in 2019 , compared to $ 3.3 million in 2018 . research and development increased 66 % to $ 3.3 million in 2018
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certain of these components are available only from single-sources or a limited number of suppliers . in addition , a customer 's specifications may require the company to obtain components from a single-source or a small number of suppliers . the loss of any such suppliers could have a material impact on the company 's results of operations . further , the company could operate at a cost disadvantage compared to competitors who have greater direct buying power from suppliers . the company does not enter into long-term purchase agreements with major or single-source suppliers . the company believes that short-term purchase orders with its suppliers provides flexibility , given that the company 's orders are based on the changing needs of its customers . sales can be a misleading indicator of the company 's financial performance . sales levels can vary considerably among customers and products depending on the type of services ( consignment versus turnkey ) rendered by the company and the demand by customers . consignment orders require the company to perform manufacturing services on components and other materials supplied by a customer , and the company charges only for its labor , overhead and manufacturing costs , plus a profit . in the case of turnkey orders , the company provides , in addition to manufacturing services , the components and other materials used in assembly . turnkey contracts , in general , have a higher dollar volume of sales for each given assembly , owing to inclusion of the cost of components and other materials in net sales and cost of goods sold . variations in the number of turnkey orders compared to consignment orders can lead to significant fluctuations in the company 's revenue and gross margin levels . consignment orders accounted for less than 5 % of the company 's revenues for the year ended april 30 , 2013. in an effort to facilitate growth of our china operation , the company established a new chinese entity in october 2011 that allows the company to provide services competitively to the domestic market in china . nonetheless , in fiscal year 2012 and 2013 , the company continued to see a trend of chinese costs increasing , thereby making mexico a more competitive manufacturing location to service north america . indications suggest that this trend will continue . we feel the company 's international footprint provides our customers with flexibility within the company to manufacture in china , mexico or vietnam . we believe this strategy has continued to serve the company well during these difficult economic times as its customers continuously evaluate their supply chain strategies . 19 in the past , the timing of production and delivery of orders , primarily at the direction of its customers , has caused the company to experience significant quarterly fluctuations in its revenues and earnings . the company continued to experience pricing pressures from both its customer and suppliers . the company expects continuing pressure on margins until the economy achieves a sustained recovery . the company is hopeful to see that start the second half of calendar 2013. until that time , the company will continue to carefully manage its cost structure . the company continues to add new customers and new programs with existing customers . some are not launching or transitioning as quickly as initially forecasted by the company 's customers , but the company believes they will eventually add to its revenue base . we continue to work on integrating spitfire into sigmatron , which the company believes is proceeding on plan and has started to add to our menu of services that we can offer customers . due to the acquisition of spitfire , effective june 1 , 2012 , the company discontinued selling to spitfire and instead began selling directly to spitfires ' customers . on may 8 , 2012 , the company entered into a real estate lease agreement to relocate its tijuana , mexico operation to a new facility within tijuana , mexico . the relocation was completed in july 2012. as of april 30 , 2013 , the company has incurred approximately $ 424,000 in relocation expenses as a result of the move as of april 30 , 2013. all incentives realized under the lease will be recognized over the term of the lease , which is five years . critical accounting policies : management estimates and uncertainties - the preparation of consolidated financial statements in conformity with accounting principles generally accepted in the united states of america ( u.s . gaap ) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period . significant estimates made in preparing the consolidated financial statements include depreciation and amortization periods , the allowance for doubtful accounts , reserves for inventory and valuation of long-lived assets . actual results could materially differ from these estimates . revenue recognition - revenues from sales of the company 's electronic manufacturing services business are recognized when the finished good product is shipped to the customer . in general , and except for consignment inventory , it is the company 's policy to recognize revenue and related costs when the finished goods have been shipped from its facilities , which is also the same point that title passes under the terms of the purchase order . finished goods inventory for certain customers is shipped from the company to an independent warehouse for storage or shipped directly to the customer and stored in a segregated part of the customer 's own facility . upon the customer 's request for finished goods inventory , the inventory is shipped to the customer if the inventory was stored off-site , or transferred from the segregated part of the customer 's facility for consumption or use by the customer . the company recognizes revenue upon such shipment or transfer . story_separator_special_tag the company does not earn a fee for such arrangements . the company from time to time may ship finished goods from its facilities , which is also the same point that title passes under the terms of the purchase order , and invoice the customer at the end of the calendar month . this is done only in special circumstances to accommodate a specific customer . further , from time to time customers request the company hold finished goods after they have been invoiced to consolidate finished goods for shipping purposes . the company generally provides a 90 day warranty for workmanship only and does not have any installation , acceptance or sales incentives ( although the company has negotiated longer warranty terms in certain instances ) . the company assembles and tests assemblies based on customers ' specifications . historically , the amount of returns for workmanship issues has been de minimis under the company 's standard or extended warranties . inventories - inventories are valued at the lower of cost or market . cost is determined by the first-in , first-out method . in the event of an inventory write-down , the company records expense to state the inventory at lower of cost or market . the company establishes inventory reserves for valuation , shrinkage , and excess and obsolete inventory . the company records provisions for inventory shrinkage based on historical experience to account for unmeasured usage or loss . actual results differing from these estimates could significantly affect the company 's inventories and cost of products sold . the company records provisions for excess and obsolete inventories for the difference between the cost of inventory and its estimated realizable value based on assumptions about future product demand and market conditions . actual product demand or market conditions could be different than that projected by management . 20 goodwill - goodwill represents the purchase price in excess of the fair value of assets acquired in business combinations . financial accounting standards board ( fasb ) accounting standards codification ( asc ) 350 , goodwill and other intangible assets , requires the company to assess goodwill and other indefinite-lived intangible assets for impairment at least annually in the absence of an indicator of possible impairment and immediately upon an indicator of possible impairment . the company is permitted the option to first assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the fair value of any reporting unit is less than its corresponding carrying value . if , after assessing the totality of events and circumstances , the company concludes that it is not more likely than not that the fair value of any reporting unit is less than its corresponding carrying value then the company is not required to take further action . however , if the company concludes otherwise , then it is required to perform a quantitative impairment test , including computing the fair value of the reporting unit and comparing that value to its carrying value . if the fair value is less than its carrying value , a second step of the test is required to determine if recorded goodwill is impaired . the company also has the option to bypass the qualitative assessment for goodwill in any period and proceed directly to performing the quantitative impairment test . the company will be able to resume performing the qualitative assessment in any subsequent period . the company performed its annual goodwill impairment test as of february 1 , 2013 and determined no impairment existed as of the date of the impairment test . impairment of long-lived assets - the company reviews long-lived assets , including amortizable intangible assets for impairment . property , machinery and equipment and finite life intangible assets are reviewed whenever events or changes in circumstances occur that indicate possible impairment . if events or changes in circumstances occur that indicate possible impairment , the company 's impairment review is based on an undiscounted cash flow analysis at the lowest level at which cash flows of the long-lived assets are largely independent of other groups of its assets and liabilities . this analysis requires management judgment with respect to changes in technology , the continued success of product lines , and future volume , revenue and expense growth rates . the company conducts annual reviews for idle and underutilized equipment , and review business plans for possible impairment . impairment occurs when the carrying value of the assets exceeds the future undiscounted cash flows expected to be earned by the use of the asset group . when impairment is indicated , the estimated future cash flows are then discounted to determine the estimated fair value of the asset or asset group and an impairment charge is recorded for the difference between the carrying value and the estimated fair value . income tax - the company 's income tax expense , deferred tax assets and liabilities and reserves for unrecognized tax benefits reflect management 's best assessment of estimated future taxes to be paid . the company is subject to income taxes in both the u.s. and several foreign jurisdictions . significant judgments and estimates by management are required in determining the consolidated income tax expense assessment . deferred income taxes arise from temporary differences between the tax and financial statement recognition of revenue and expense and tax credit carryforwards . in evaluating our ability to recover our deferred tax assets within the jurisdiction from which they arise , the company considers all available positive and negative evidence , including scheduled reversals of deferred tax liabilities , projected future taxable income , tax planning strategies and recent financial operations . in projecting future taxable income , the company begins with historical results adjusted for the results of discontinued operations and changes in accounting policies , and incorporates assumptions including the amount of future state , federal and foreign pretax operating income , the reversal of temporary differences , and the implementation of feasible and prudent tax planning strategies .
| the company repaid the prior bank of america mortgage , which equaled $ 2,565,413 , as of january 8 , 2010 , using proceeds from the wells fargo mortgage and senior secured credit facility . the wells fargo note bears interest at a fixed rate of 6.42 % per year and is amortized over a sixty month period . a final payment of approximately $ 2,000,000 is due on or before january 8 , 2015. the outstanding balance as of april 30 , 2013 was $ 2,175,013. on january 19 , 2010 , the company entered into a leasing transaction with wells fargo equipment finance , inc. to refinance $ 1,287,407 of equipment . the term of the lease financing agreement extended to january 18 , 2012 with monthly payments of $ 55,872 and a fixed interest rate of 4.29 % . this lease financing arrangement was paid in full as of january 31 , 2012. the net book value of the equipment was $ 1,210,226 at april 30 , 2013. on august 20 , 2010 and october 26 , 2010 , the company entered into two capital leasing transactions ( a lease finance agreement and a sale leaseback agreement ) with wells fargo equipment finance , inc. , to purchase equipment totaling $ 1,150,582. the term of the lease finance agreement , with an initial principal amount of $ 315,252 , extends to september 2016 with monthly payments of $ 4,973 and a fixed interest rate of 4.28 % . the term of the sale leaseback agreement , with an initial principal payment amount of $ 835,330 , extends to august 2016 with monthly payments of $ 13,207 and a fixed interest rate of 4.36 % . at april 30 , 2013 , $ 188,955 and $ 478,417 was outstanding under the lease finance and sale leaseback agreements , respectively . the net book value at april 30 , 2013 of the equipment under each of the lease finance agreement and sale leaseback agreement was $ 247,385 and $ 626,791 , respectively . 24 on november 29 , 2010 , the company entered
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mergers and acquisitions including the related time and cost of implementing transactions and the potential failure to achieve expected gains , revenue growth or expense savings ; · credit risks of borrowers , including any increase in those risks due to changing economic conditions ; and · risks related to loans secured by real estate , including the risk that the value and marketability of collateral could decline . all written or oral forward-looking statements made by us or attributable to us are expressly qualified by this cautionary notice . we disclaim any obligation to update any factors or to announce publicly the result of revisions to any of the forward-looking statements included herein to reflect future events or developments . 36 impact of dodd-frank act on july 21 , 2010 , the dodd-frank act was signed into law . the dodd-frank act represents a significant overhaul of many aspects of the regulation of the financial services industry , although some of its provisions apply to companies that are significantly larger than us . the dodd-frank act directs applicable regulatory authorities to promulgate regulations implementing its provisions , and its effect on us and the financial services industry as a whole will be clarified as those regulations are issued . major elements of the dodd-frank act include : · a permanent increase in deposit insurance coverage to $ 250,000 per account , unlimited deposit insurance on noninterest bearing transaction accounts beginning december 31 , 2010 through december 31 , 2012 , and an increase in the minimum deposit insurance fund reserve requirement from 1.15 % to 1.35 % , with assessments to be based on assets as opposed to deposits ; · new disclosure and other requirements relating to executive compensation and corporate governance ; · new prohibitions and restrictions on the ability of a banking entity and nonbank financial company to engage in proprietary trading and have certain interests in , or relationships with , a hedge fund or private equity fund ; · amendments to the truth in lending act aimed at improving consumer protections with respect to mortgage originations , including originator compensation , minimum repayment standards , and prepayment considerations ; · the establishment of the financial stability oversight council , which will be responsible for identifying and monitoring systemic risks posed by financial firms , activities , and practices ; · the development of regulations to limit debit card interchange fees ; · the future elimination of newly issued trust preferred securities as a permitted element of tier 1 capital ; · the creation of a special regime to allow for the orderly liquidation of systemically important financial companies , including the establishment of an orderly liquidation fund ; · the development of regulations to address derivatives markets , including clearing and exchange trading requirements and a framework for regulating derivatives-market participants ; · enhanced supervision of credit rating agencies through the office of credit ratings within the sec ; · increased regulation of asset-backed securities , including a requirement that issuers of asset-backed securities retain at least 5 % of the risk of the asset backed securities ; and · the establishment of a bureau of consumer financial protection with centralized authority , including examination and enforcement authority , for consumer protection in the banking industry . regulatory agencies are still in the process of issuing regulations , rules and reporting requirements as mandated by the dodd-frank act . as a result , we are continuing to evaluate the potential impact of the dodd-frank act on our business , financial condition and results of operations and expect that some provisions may have adverse effects on us , such as the cost of complying with the numerous new regulations and reporting requirements mandated by the dodd-frank act . 37 critical accounting estimates our accounting and reporting estimates conform with u.s. generally accepted accounting principles ( “ gaap ” ) and general practices within the financial services industry . the preparation of financial statements in conformity with gaap requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes . actual results could differ from those estimates . we consider our critical accounting policies to include the following : allowance for losses on loans . the allowance for losses on loans represents our best estimate of probable losses inherent in the existing loan portfolio . the allowance for losses on loans is increased by the provision for losses on loans charged to expense and reduced by loans charged-off , net of recoveries . the provision for losses on loans is determined based on our assessment of several factors : reviews and evaluations of specific loans , changes in the nature and volume of the loan portfolio , current economic conditions and the related impact on specific borrowers and industry groups , historical loan loss experience , the level of classified and nonperforming loans and the results of regulatory examinations . the loan loss allowance is based on the most current review of the loan portfolio and is validated by multiple processes . the servicing officer has the primary responsibility for updating significant changes in a customer 's financial position . each officer prepares status updates on any credit deemed to be experiencing repayment difficulties which , in the officer 's opinion , would place the collection of principal or interest in doubt . our internal loan review department is responsible for an ongoing review of our loan portfolio with specific goals set for the loans to be reviewed on an annual basis . at each review , a subjective analysis methodology is used to grade the respective loan . categories of grading vary in severity from loans that do not appear to have a significant probability of loss at the time of review to loans that indicate a probability that the entire balance of the loan will be uncollectible . story_separator_special_tag if full collection of the loan balance appears unlikely at the time of review , estimates of future expected cash flows or appraisals of the collateral securing the debt are used to allocate the necessary allowances . the internal loan review department maintains a list of all loans or loan relationships that are graded as having more than the normal degree of risk associated with them . in addition , a list of specifically reserved loans or loan relationships of $ 50,000 or more is updated on a quarterly basis in order to properly allocate necessary allowance and keep management informed on the status of attempts to correct the deficiencies noted with respect to the loan . loans are considered impaired if , based on current information and events , it is probable that we will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement . the measurement of impaired loans is generally based on the present value of expected future cash flows discounted at the historical effective interest rate stipulated in the loan agreement , except that all collateral-dependent loans are measured for impairment based on fair value of the collateral . in measuring the fair value of the collateral , in addition to relying on third party appraisals , we use assumptions such as discount rates , and methodologies , such as comparison to the recent selling price of similar assets , consistent with those that would be utilized by unrelated third parties performing a valuation . changes in the financial condition of individual borrowers , economic conditions , historical loss experience and the conditions of the various markets in which collateral may be sold all may affect the required level of the allowance for losses on loans and the associated provision for loan losses . as of december 31 , 2011 , our review of the loan portfolio indicated that a loan loss allowance of $ 18.5 million was adequate to cover probable losses in the portfolio . refer to “ loan loss experience and allowance for loan losses ” and “ note 7 – loans and allowance for probable loan losses ” to our consolidated financial statements included in this report for a detailed description of our estimation process and methodology related to the allowance for loan losses . 38 estimation of fair value . the estimation of fair value is significant to a number of our assets and liabilities . in addition , gaap requires disclosure of the fair value of financial instruments as a part of the notes to the consolidated financial statements . fair values for securities are volatile and may be influenced by a number of factors , including market interest rates , prepayment speeds , discount rates and the shape of yield curves . fair values for most investment and mortgage-backed securities are based on quoted market prices , where available . if quoted market prices are not available , fair values are based on the quoted prices of similar instruments or estimates from independent pricing services . where there are price variances outside certain ranges from different pricing services for specific securities , those pricing variances are reviewed with other market data to determine which of the price estimates is appropriate for that period . for securities carried at fair value through income , the change in fair value from the prior period is recorded on our income statement as fair value gain ( loss ) – securities . at september 30 , 2008 and continuing at december 31 , 2011 , the valuation inputs for our available for sale ( “ afs ” ) trust preferred securities ( “ trups ” ) became unobservable as a result of the significant market dislocation and illiquidity in the marketplace . although we continue to rely on nonbinding prices compiled by third party vendors , the visibility of the observable market data ( level 2 ) to determine the values of these securities has become less clear . fair values of financial assets are determined in an orderly transaction and not a forced liquidation or distressed sale at the measurement date . while we feel the financial market conditions at december 31 , 2011 reflect the market illiquidity from forced liquidation or distressed sales for these trups , we determined that the fair value provided by our pricing service continues to be an appropriate fair value for financial statement measurement and therefore , as we verified the reasonableness of that fair value , we have not otherwise adjusted the fair value provided by our vendor . however , the severe decline in estimated fair value is caused by the significant illiquidity in this market which contrasts sharply with our assessment of the fundamental performance of these securities . therefore , we believe the estimate of fair value is still not clearly based on observable market data and will be based on a range of fair value data points from the market place as a result of the illiquid market specific to this type of security . accordingly , we determined that the trups security valuation is based on level 3 inputs . impairment of investment securities and mortgage-backed securities . investment and mortgage-backed securities classified as afs are carried at fair value and the impact of changes in fair value are recorded on our consolidated balance sheet as an unrealized gain or loss in “ accumulated other comprehensive income ( loss ) , ” a separate component of shareholders ' equity . securities classified as afs or held to maturity ( “ htm ” ) are subject to our review to identify when a decline in value is other-than-temporary .
| earnings per diluted share decreased $ 0.31 , or 11.6 % , to $ 2.37 for the year ended december 31 , 2010 , from $ 2.68 for the same period in 2009. financial condition our total assets increased $ 304.1 million , or 10.1 % , to $ 3.30 billion at december 31 , 2011 from $ 3.00 billion at december 31 , 2010. this increase was attributable to an increase in our mortgage-backed securities and , to a lesser extent , loan growth . our securities portfolio increased by $ 349.0 million , or 21.0 % , to $ 2.01 billion compared to $ 1.66 billion at december 31 , 2010. at december 31 , 2011 , loans were $ 1.09 billion compared to $ 1.08 billion at december 31 , 2010. the increase in our securities was comprised entirely of mortgage-backed and related securities . the increase in loans was funded by increases in deposits . our nonperforming assets at december 31 , 2011 decreased to $ 13.2 million , and represented 0.40 % of total assets , compared to $ 17.7 million , or 0.59 % of total assets at december 31 , 2010. nonaccruing loans decreased $ 4.2 million , to $ 10.3 million and the ratio of nonaccruing loans to total loans decreased to 0.95 % at december 31 , 2011 compared to $ 14.5 million and 1.35 % at december 31 , 2010. other real estate owned ( “ oreo ” ) increased to $ 453,000 at december 31 , 2011 from $ 220,000 at december 31 , 2010. accruing loans past due more than 90 days at december 31 , 2011 decreased to $ 5,000 compared to $ 7,000 at december 31 , 2010. repossessed assets decreased to $ 322,000 at december 31 , 2011 from $ 638,000 at december 31 , 2010. restructured performing loans at december 31 , 2011 decreased to $ 2.1 million compared to $ 2.3 million at december 31 , 2010. our deposits increased $ 187.2 million to $ 2.32 billion at december 31 , 2011 from $ 2.13 billion at december 31 , 2010. the increase in our deposits during 2011 was primarily due to an increase in deposits from
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our core technologies include our electrodynamic combustion control ( ecc ) and duplex technologies . our ecc technology introduces a computer-controlled electric field into a combustion system in order to better control gas-phase chemical reactions and improve system performance and cost-effectiveness . our duplex technology uses a unique refractory tile to homogenize the flame temperature and achieve very low emissions without the need of external flue gas recirculation , selective catalytic reduction , or higher excess air operation . to date , our operations have been funded primarily through sales of our common stock . we have earned no significant revenue since inception on january 23 , 2008. plan of operation we are pursuing development of our technology to enable future sales . these activities entail laboratory research , where we have successfully demonstrated our proprietary technology operating in our research facility with thermal output of 1,000,000 btus per hour , and business development and marketing activities with established manufacturers and other entities that use boilers , solid fuel burners , refinery heaters , and other combustion systems . we intend to enter into collaborative arrangements which would enable us to work closely with established companies in specific industries to apply developed solutions in laboratory and field settings . we currently are pursuing a broad development program with the cooperation of two companies involved in solid fuel combustion . further , we are seeking other solid fuel dependent companies to participate in this project . through december 31 , 2013 , we have received $ 93,000 in co-development revenue from covanta energy corporation , a waste-to-energy service company and subsidiary of covanta holding corporation , and a commercial wood pellet boiler unit from grandeg , a privately-owned original equipment manufacturer based in riga , latvia . however , there is no assurance that additional revenues will be realized , terms will be reached , or a final agreement executed between us and either of these companies . in april and may 2012 , we completed an initial public offering ( ipo ) of our common stock whereby we sold 3,450,000 shares of common stock at $ 4.00 per share , which included the exercise of the underwriter 's overallotment option , resulting in gross proceeds of $ 13.8 million and , after deducting certain costs paid with common stock , net proceeds of $ 11.6 million . the net proceeds have been used as follows through december 31 , 2013 : approximately $ 2,000,000 for the purchase of short-term certificates of deposit , $ 658,000 increased cash and money market funds , $ 6,731,000 for operations , $ 548,000 for capital expenditures primarily related to research and development machinery and equipment , $ 1,336,000 for patents , $ 238,000 for the payment of accrued compensation , and $ 129,000 for the repayment of short term indebtedness . we expected the net proceeds from the ipo to be sufficient to fund our activities at least through april 2014. in march 2014 , we completed a registered direct offering of our common stock whereby we sold 812,500 shares of common stock at $ 8.00 per share resulting in gross proceeds of $ 6.5 million and net proceeds of approximately $ 5.7 million . we currently intend to use the net proceeds from this offering as follows : approximately $ 2 million for research and development including capital expenditures , approximately $ 1 million for protection of intellectual property , approximately $ 1 million for business development and marketing , and the balance for working capital and general corporate purposes . we expect the net proceeds from the offering to be sufficient to fund our activities at least through january 2015 . 19 our anticipated costs include employee salaries and benefits , compensation paid to consultants , capital costs for research and other equipment , costs associated with development activities including travel and administration , legal expenses , sales and marketing costs , general and administrative expenses , and other costs associated with an early stage , publicly-traded technology company . we currently have 13 full-time employees and 2 part-time employees . we anticipate continuing to increase the number of employees required to support our activities in the areas of research and development , sales and marketing , and general and administrative functions . we expect to incur consulting expenses related to technology development commensurate with our current levels and we expect to incur increasing expenses to protect our intellectual property . we expect capital expenditures to be approximately $ 0.5 million annually , but these are highly dependent on the nature of the operations where co-development activities are ongoing . the amount that we spend for any specific purpose may vary significantly , and could depend on a number of factors including , but not limited to , the pace of progress of our commercialization and development efforts , actual needs with respect to product testing , development and research , market conditions , and changes in or revisions to our marketing strategies . research and development of new technologies is , by its nature , unpredictable . although we will undertake development efforts with commercially reasonable diligence , there can be no assurance that the net proceeds from our securities offerings will be sufficient to enable us to develop our technology to the extent needed to create future sales to sustain operations . story_separator_special_tag if the net proceeds from these offerings are insufficient for this purpose , we will consider other options to continue our path to commercialization , including , but not limited to : additional financing through follow-on equity offerings , debt financing , co-development agreements , sale or licensing of developed intellectual or other property , or other alternatives . if management is unable to implement its proposed business plan or employ alternative financing strategies , it does not presently have any alternative proposals . in that case , we may be required to scale back our development plans by reducing expenditures for employees , consultants , business development and marketing efforts , and other envisioned expenditures or curtail or even suspend our operations . we can not assure that our technology will be accepted , that we will ever earn revenues sufficient to support our operations , or that we will ever be profitable . furthermore , we have no committed source of financing and we can not assure that we will be able to raise money as and when we need it to continue our operations . if we can not raise funds as and when we need them , we may be required to severely curtail , or even to cease , our operations . critical accounting policies the following discussion and analysis of financial condition and results of operations is based upon our financial statements , which have been prepared in conformity with accounting principles generally accepted in the united states of america . certain accounting policies and estimates are particularly important to the understanding of our financial position and results of operations and require the application of significant judgment by our management or can be materially affected by changes from period to period in economic factors or conditions that are outside of our control . as a result , they are subject to an inherent degree of uncertainty . in applying these policies , our management uses their judgment to determine the appropriate assumptions to be used in the determination of certain estimates . those estimates are based on our historical operations , our future business plans and projected financial results , the terms of existing contracts , our observance of trends in the industry , information provided by our customers and information available from other outside sources , as appropriate . see note 2 to our unaudited condensed financial statements for a more complete description of our significant accounting policies . development stage enterprise . the company is a development stage company as defined in financial accounting standards board ( fasb ) accounting standards codification ( asc ) 915 , development stage entities . the company is devoting substantially all of its present efforts to design and develop new technologies in combustion systems and its planned principal operations have not yet commenced . the company has not generated any significant revenues from operations and has no assurance of any future revenues . all losses accumulated since january 23 , 2008 have been considered as part of the company 's development stage activities . 20 revenue recognition . the company recognizes revenue on co-development agreements using the percentage of completion method . under this method , the completion percentage is determined by dividing costs incurred to date by total estimated project costs . since our projects will require technological development to complete , which by its nature is difficult to predict , the actual cost required to complete contracted work may vary from estimates . estimated project costs are revised regularly which can alter the reported level of project profitability . any estimated project losses are recognized in the current reporting period . customer billings are recorded when cash receipts are probable and in accordance with the underlying co-development contract . if billings exceed recognized revenue , the difference is recorded as a current liability , while any recognized revenues exceeding billings are recorded as a current asset . recognized revenues are subject to revisions as the contract progresses to completion and actual revenue and cost become certain . revisions in revenue estimates are reflected in the period in which the facts that give rise to the revision become known . cost of revenue . cost of co-development revenue includes both direct and allocated indirect costs of completing the scope of work of co-development agreements . direct costs include labor , materials and other costs incurred directly in fulfilling co-development agreements . indirect costs include labor , rent , depreciation and other costs associated with operating the company . due to the nature of the work involved , the cost of co-development projects may fluctuate substantially from period to period . research and development . the cost of research and development is expensed as incurred . research and development costs consist of salaries , benefits , share based compensation , consulting fees , rent , utilities , depreciation , and consumables . stock-based compensation . the costs of all employee stock options , as well as other equity-based compensation arrangements , are reflected in the financial statements based on the estimated fair value of the awards on the grant date . that cost is recognized over the period during which an employee is required to provide service in exchange for the award . stock compensation for stock granted to non-employees is determined as the fair value of the consideration received or the fair value of equity instruments issued , whichever is more reliably measured . fair value of financial instruments . fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date . assets and liabilities measured at fair value are categorized based on whether or not the inputs are observable in the market and the degree that the inputs are observable . the categorization of financial assets and liabilities within the valuation hierarchy is based upon
| 21 liquidity and capital resources at december 31 , 2013 , our cash and cash equivalent balance totaled $ 2,688,000 compared to $ 8,027,000 at december 31 , 2012. this cash reduction reflected our continued costs in research and development of our technology and our business development and marketing efforts in forming co-development agreements to enable product commercialization and future revenue . in march 2014 , we completed the sale of 812,500 shares of our common stock resulting in net proceeds of approximately $ 5.7 million . we expect our cash to be sufficient to fund our activities at least through january 2015. although we are pursuing co-development agreements , there is no assurance that they will be adequate to fund our operations and to commercialize our technology . to the extent co-development agreement funding is insufficient for these purposes , we may undertake offerings of our securities , debt financing , selling or licensing our developed intellectual or other property , or other alternatives . the company filed a form s-3 shelf registration statement with the securities and exchange commission ( sec ) on may 6 , 2013 that was declared effective on may 30 , 2013. following the offering that closed in march 2014 , the registration statement allows the company to offer up to an aggregate of $ 23,500,000 of common stock , preferred stock or warrants from time to time as market conditions permit . this equity funding would be used to enable further investment in our technology and product development and to maintain a strong balance sheet as we pursue strategic joint development and marketing relationships and prepare to pursue significant opportunities in various segments of the market . this information does not constitute an offer of any securities for sale . at december 31 , 2013 , our current assets were in excess of current liabilities resulting in working capital of $ 1,923,000 compared to $ 7,643,000 at december 31 , 2012. this resulted primarily from cash used for operations in 2013 which served to reduce our cash and cash equivalent balance by
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25 story_separator_special_tag e believe that existing cash and investment balances , when combined with anticipated cash flows as noted above , will be adequate to meet our expected liquidity needs in both the short-term and the reasonably foreseeable future . any future growth strategy may require external financing , and we may from time to time seek to obtain external financing . we can not assure that additional sources of financing will be available to us on favorable terms , or at all , or that any such financing would not negatively impact our results of operations . impact of inflation and changing prices the consolidated financial statements and related data presented herein have been prepared in accordance with generally accepted accounting principles ( “ gaap ” ) , which requires the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation . our primary assets and liabilities are monetary in nature . as a result , interest rates have a more significant impact on performance than the effects of general levels of inflation . interest rates do not necessarily move in the same direction or with the same magnitude as the inflationary effect on the cost of paying losses and lae 's . insurance premiums are established before we know the amount of losses and lae 's and the extent to which inflation may affect such expenses . consequently , we attempt to anticipate the future impact of inflation when establishing rate levels . while we attempt to charge adequate premiums , we may be limited in raising premium levels for competitive and regulatory reasons . inflation may also affect the market value of our investment portfolio and the investment rate of return . any future economic changes that result in prolonged and increasing levels of inflation could cause increases in the dollar amount of incurred losses and lae 's and thereby materially adversely affect future liability requirements . 27 contractual obligations a summary of long-term contractual obligations as of december 31 , 2015 follows ( in thousands ) . the amounts represent estimates of gross undiscounted amounts payable over time . replace_table_token_7_th ( 1 ) loss and loss adjustment expense reserves do not have contractual maturity dates ; however , based on historical payment patterns , the amount presented is our estimate of the expected timing of these payments . the timing of payments is subject to significant uncertainty . we maintain a portfolio of marketable investments with varying maturities and a substantial amount of cash and cash equivalents intended to provide adequate cash flows for such payments . critical accounting policies the preparation of consolidated financial statements in conformity with gaap requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes . future events and their effects can not be determined with absolute certainty . therefore , the determination of estimates requires the exercise of judgment . actual results inevitably will differ from those estimates , and such differences may be material to the financial statements . we believe our most critical accounting estimates inherent in the preparation of our financial statements are : ( i ) fair value measurements of our investments , ( ii ) accounting for investments , ( iii ) premium and unearned premium calculation , ( iv ) reinsurance contracts , ( v ) the amount and recoverability of amortization of deferred acquisition costs ( “ dac ” ) , ( vi ) reserve for loss and losses adjustment expenses and ( vii ) income taxes . the accounting estimates that result require the use of assumptions about certain matters that are highly uncertain at the time of estimation . to the extent actual experience differs from the assumptions used , our financial condition , results of operations , and cash flows would be affected . fair value the fair value is the price that would be received to sell an asset or paid to transfer a liability between market participants in the principal market or in the most advantageous market when no principal market exists . adjustments to transaction prices or quoted market prices may be required in illiquid or disorderly markets in order to estimate fair value . alternative valuation techniques may be appropriate under the circumstances to determine the value that would be received to sell an asset or paid to transfer a liability in an orderly transaction . market participants are assumed to be independent , knowledgeable , able and willing to transact an exchange and not acting under duress . our nonperformance or credit risk is considered in determining the fair value of liabilities . considerable judgment may be required in interpreting market data used to develop the estimates of fair value . accordingly , estimates of fair value presented herein are not necessarily indicative of the amounts that could be realized in a current or future market exchange . investments investments consist of debt and equity securities . debt securities consist of securities with an initial fixed maturity of more than one year , which include corporate bonds , municipal bonds and united states government bonds . equity securities generally consist of securities that represent ownership interests in an enterprise . the company determines the appropriate classification of investments in debt and equity securities at the acquisition date and re-evaluates the classification at each balance sheet date . held-to-maturity investments are recorded at the amortized cost , reflecting the ability and intent to hold the securities to maturity . all other securities were classified as available-for-sale and recorded at fair value . unrealized gains and losses during the year , net of the related tax effect applicable to available-for-sale , are excluded from income and reflected in other comprehensive income , and the cumulative effect is reported as a separate component of shareholders ' equity until realized . story_separator_special_tag if a decline in fair value is deemed to be other-than-temporary , the investment is written down to its fair value and the amount of the write-down is recorded as an other-than-temporary impairment ( “ otti ” ) loss on the statement of income . in addition , any portion of such decline related to debt securities that is believed to arise from factors other than credit is recorded as a component of other comprehensive income rather than against income . 28 net realized gains and losses on investments are determined in accordance with the specific identification method . net investment income consists primarily of interest income from debt securities , cash and cash equivalents , including any premium amortization or discount accretion and dividend income from equity securities ; less expenses related to investments . premiums and unearned premiums premiums are recognized as revenue on a pro-rata basis over the term of an insurance policy . assumed reinsurance premiums written and earned are based on reports received from ceding companies for pro-rata treaty contracts and are generally recorded as written based on contract terms for excess-of-loss and quota share contracts . premiums are earned ratably over the terms of the related coverage . unearned premiums and ceded unearned premiums represent the portion of gross premiums written and ceded premiums written , respectively , relating to the unexpired terms of such coverage . premium receivable balances are reported net of an allowance for estimated uncollectible premium amounts . such allowance is based upon an ongoing review of amounts outstanding , length of collection periods , the creditworthiness of the insured and other relevant factors . amounts deemed to be uncollectible are written off against the allowance . reinsurance reinsurance is used to mitigate the exposure to losses , manage capacity and protect capital resources . reinsuring loss exposures does not relieve a ceding entity from its obligations to policyholders and cedants . reinsurance recoverables ( including amounts related to claims incurred but not reported ) and ceded unearned premiums are reported as assets . to minimize exposure to losses from a reinsurer 's inability to pay , the financial condition of such reinsurer is evaluated initially upon placement of the reinsurance and periodically thereafter . in addition to considering the financial condition of the reinsurer , the collectability of the reinsurance recoverables is evaluated ( and where appropriate , whether an allowance for estimated uncollectible reinsurance recoverables is to be established ) based upon a number of other factors . such factors include the amounts outstanding , length of collection periods , disputes , any collateral or letters of credit held and other relevant factors . to the extent that an allowance for uncollectible reinsurance recoverable is established , amounts deemed to be uncollectible are written off against the allowance for estimated uncollectible reinsurance recoverables . the company currently has no allowances for uncollectible reinsurance recoverables . ceded premiums written are recorded in accordance with applicable terms of the various reinsurance contracts and ceded premiums earned are charged against revenue over the period of the various reinsurance contracts . this also generally applies to reinstatement premiums paid to a reinsurer , which arise when contractually-specified ceded loss triggers have been breached . ceded commissions reduce commissions , brokerage and other underwriting expenses and ceded losses incurred reduce net loss and loss adjustment expense incurred over the applicable periods of the various reinsurance contracts with third party reinsurers . if premiums or commissions are subject to adjustment ( for example , retrospectively-rated or experience-rated ) , the estimated ultimate premium or commission is recognized over the period of the contract . amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured business and consistent with the terms of the underlying reinsurance contract . dac dac represent those costs that are incremental and directly related to the successful acquisition of new or renewal of existing insurance contracts . the company defers incremental costs that result directly from , and are essential to , the acquisition or renewal of an insurance contract . such dac generally include agent or broker commissions , premium taxes , medical and inspection fees that would not have been incurred if the insurance contract had not been acquired or renewed . each cost is analyzed to assess whether it is fully deferrable . the company also defers a portion of the employee total compensation and payroll-related fringe benefits directly related to time spent performing specific acquisition or renewal activities , including costs associated with the time spent on underwriting , policy issuance and processing , and sales force contract selling . 29 the acquisition costs are deferred and amortized over the period in which the related premiums written are earned , generally 12 months . it is grouped consistent with the manner in which the insurance contracts are acquired , serviced and measured for profitability and is reviewed for recoverability based on the profitability of the underlying insurance contracts . investment income is anticipated in assessing the recoverability of dac . the company assesses the recoverability of dac on an annual basis or more frequently if circumstances indicate impairment may have occurred . losses and loss adjustment expenses overview the estimation of the liability for unpaid loss and lae is inherently difficult and subjective , especially in view of changing legal and economic environments that impact the development of loss reserves , and therefore , quantitative techniques frequently have to be supplemented by subjective considerations and managerial judgment . in addition , trends that have affected development of liabilities in the past may not necessarily occur or affect liability development to the same degree in the future . each of our insurance companies establishes reserves on its balance sheet for unpaid loss and lae related to its property and casualty insurance and related reinsurance contracts . as of any balance sheet date , there are claims that have not yet been reported , and some claims may not be reported for many years after the date a loss occurs .
| our lower investment yield in 2013 primarily resulted from selling higher yielding and longer duration bonds and purchasing shorter duration and lower yielding bonds to protect our bond portfolio against principal erosion and our average cash holdings were much higher in 2013. net realized investment gains net realized investment gains were $ 4.4 million for the year ended december 31 , 2014 , compared with $ 2.9 million for the year ended december 31 , 2013. the increase is due to more favorable market conditions for the year ended december 2014 as compared to the year ended december 31 , 2013. other income other income increased $ 8.9 million , or 80.2 % , to $ 20.0 million for the year ended december 31 , 2014 , compared with $ 11.1 million for the year ended december 31 , 2013. the following table represents the other income detail as follows : replace_table_token_6_th the increase in policy fees is directly related to the increase in gross written premiums over the prior year . additionally , the change in commission increase is related to continued growth in our book of business as well as entering into a commission sharing agreement with our reinsurance intermediary . losses and lae losses and lae increased by $ 24.6 million or 43.6 % , to $ 81.0 million for the year ended december 31 , 2014 , compared with $ 56.4 million for the year ended december 31 , 2013. the increase reflects a significant increase in net premiums earned , offset by a decrease in the loss ratio to 47 % during the year ended december 2014 from 54 % during the year ended december 31 , 2013 , which was primarily driven by an increase in the amount of ceded premiums year over year . commissions and other underwriting expenses commissions and other underwriting expenses increased $ 13.5 million , or 35.0 % , to $ 52.1 million for the year ended december 31 , 2014 , compared with $ 38.6 million for the year ended december 31 , 2013. the increase is directly related to the significant increase in net premiums written and earned during the same period . 26 general and administrative expenses general and administrative expenses increased $ 2.8 million , or 36.4 % , to $ 10.3 million for the year ended december 31 , 2014 , compared with $ 7.5 million for the year ended december 31 , 2013. the change is due to an increase in salaries and benefits , including share-based compensation , and professional fees . professional fees include audit , tax and actuarial fees . the increased costs are in support of the significant growth in our gross and net premiums
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land acquisition , land development and common costs ( both incurred and estimated to be incurred ) are typically allocated to individual lots based on the total number of lots expected to be closed in each community or phase , or based on the relative fair value , the relative sales value or the front footage method of each lot . any changes to the estimated total development costs of a community or phase are allocated proportionately to the homes remaining in the community or phase and homes previously closed . the cost of individual lots is transferred to homes under construction when home construction begins . home construction costs are accumulated on a specific identification basis . costs of home deliveries include the specific construction cost of the home and the allocated lot costs . such costs are charged to cost of sales simultaneously with revenue recognition , as discussed above . when a home is closed , we typically have not yet paid all incurred costs necessary to complete the home . as homes close , we compare the home construction budget to actual recorded costs to date to estimate the additional costs to be incurred from our subcontractors related to the home . we record a liability and a corresponding charge to cost of sales for the amount we estimate will ultimately be paid related to that home . we monitor the accuracy of such estimates by comparing actual costs incurred in subsequent months to the estimate . although actual costs to complete a home in the future could differ from our estimates , our method has historically produced consistently accurate estimates of actual costs to complete closed homes . inventory is recorded at cost , unless events and circumstances indicate that the carrying value of the land is impaired , at which point the inventory is written down to fair value as required by financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) 360-10 , property , plant and equipment ( “ asc 360 ” ) . the company assesses inventory for recoverability on a quarterly basis if events or changes in local or national economic conditions indicate that the carrying amount of an asset may not be recoverable . in conducting our quarterly review for indicators of impairment on a community level , we evaluate , among other things , margins on sales contracts in backlog , the margins on homes that have been delivered , expected changes in margins with regard to future home sales over the life of the community , expected changes in margins with regard to future land sales , the value of the land itself as well as any results from third-party appraisals . from the review of all of these factors , we identify communities whose carrying values may exceed their estimated undiscounted future cash flows and run a test for recoverability . for those communities whose carrying values exceed the estimated undiscounted future cash flows and which are deemed to be impaired , the impairment recognized is measured by the amount by which the carrying amount of the communities exceeds the estimated fair value . due to the fact that the company 's cash flow models and estimates of fair values are based upon management estimates and assumptions , unexpected changes in market conditions and or changes in management 's intentions with respect to the inventory may lead the company to incur additional impairment charges in the future . because each inventory asset is unique , there are numerous inputs and assumptions used in our valuation techniques , including estimated average selling price , construction and development costs , absorption pace ( reflecting any product mix change strategies implemented or to be implemented ) , selling strategies , alternative land uses ( including disposition of all or a portion of the land owned ) , or discount rates , which could materially impact future cash flow and fair value estimates . as of december 31 , 2015 , our projections generally assume a gradual improvement in market conditions . if communities are not recoverable based on estimated future undiscounted cash flows , the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets . the fair value of a community is estimated by discounting management 's cash flow projections using an appropriate risk-adjusted interest rate . as of december 31 , 2015 , we utilized discount rates ranging from 13 % to 16 % in our valuations . the discount rate used in determining each asset 's estimated fair value reflects the inherent risks associated with the related estimated cash flow stream , as well as current risk-free rates available in the market and estimated market risk premiums . our quarterly assessments reflect management 's best estimates . due to the inherent uncertainties in management 's estimates and uncertainties related to our operations and our industry as a whole as further discussed in “ item 1a . risk factors ” in part i of this annual report on form 10-k , we are unable to determine at this time if and to what extent continuing future impairments will occur . additionally , due to the volume of possible outcomes that can be generated from changes in the various model inputs for each community , we do not believe it is possible to create a sensitivity analysis that can provide meaningful information for the users of our financial statements . land option or purchase agreements . in accordance with asc 810-10 , consolidation ( “ asc 810 ” ) , we analyze our land option or purchase agreements to determine whether the corresponding land seller is a variable interest entity ( “ vie ” ) and , if so , whether we are the primary beneficiary ( using an analysis similar to that described in note 1 of our consolidated financial statements within the description of our significant accounting policy for vies ) . story_separator_special_tag although we do not have legal title to the optioned land , 25 asc 810 requires a company to consolidate a vie if the company is determined to be the primary beneficiary . in cases where we are the primary beneficiary , even though we do not have title to such land , we are required to consolidate these purchase/option agreements and reflect such assets and liabilities as consolidated inventory not owned on our consolidated balance sheets . at both december 31 , 2015 and 2014 , we have concluded that we were not the primary beneficiary of any vies from which we are purchasing under land option or purchase agreements . please refer to note 1 of our consolidated financial statements and the “ off-balance sheet arrangements ” section below for additional information related to our off-balance-sheet arrangements . warranty reserves . we record warranty reserves to cover our exposure to the costs for materials and labor not expected to be covered by our subcontractors to the extent they relate to warranty-type claims . warranty reserves are established by charging cost of sales and crediting a warranty reserve for each home closed . the warranty reserves for the company 's home builder 's limited warranty ( “ hblw ” ) are established as a percentage of average sales price and adjusted based on historical payment patterns determined , generally , by geographic area and recent trends . factors that are given consideration in determining the hblw reserves include : ( 1 ) the historical range of amounts paid per average sales price on a home ; ( 2 ) type and mix of amenity packages added to the home ; ( 3 ) any warranty expenditures not considered to be normal and recurring ; ( 4 ) timing of payments ; ( 5 ) improvements in quality of construction expected to impact future warranty expenditures ; and ( 6 ) conditions that may affect certain projects and require a different percentage of average sales price for those specific projects . changes in estimates for warranties occur due to changes in the historical payment experience and differences between the actual payment pattern experienced during the period and the historical payment pattern used in our evaluation of the warranty reserve balance at the end of each quarter . actual future warranty costs could differ from our current estimated amount . our warranty reserves for our 30-year ( offered on all homes sold after april 25 , 1998 and on or before december 1 , 2015 in all of our markets except our texas markets ) , 15-year ( offered on all homes sold after december 1 , 2015 in all of our markets except our texas markets ) or 10-year ( offered on all homes sold in our texas markets ) transferable structural warranty programs are established on a per-unit basis . while the structural warranty reserve is recorded as each house closes , the sufficiency of the structural warranty per unit charge and total reserve is re-evaluated on an annual basis , with the assistance of an actuary , using our own historical data and trends , as well as industry-wide historical data and trends , and other project specific factors . the reserves are also evaluated quarterly and adjusted if we encounter activity that is not consistent with the historical experience used in the annual analysis . these reserves are subject to variability due to uncertainties regarding structural defect claims for products we build , the markets in which we build , claim settlement history , insurance and legal interpretations , among other factors . while we believe that our warranty reserves are sufficient to cover our projected costs , there can be no assurances that historical data and trends will accurately predict our actual warranty costs . please refer to note 1 of our consolidated financial statements for additional information related to our warranty reserves . self-insurance reserves . self-insurance reserves are made for estimated liabilities associated with employee health care , workers ' compensation , and general liability insurance . the reserves related to employee health care and workers ' compensation are based on historical experience and open case reserves . our workers ' compensation claims and our general liability claims are insured by a third party , except for workers compensation claims made in the state of ohio where the company is self-insured . the company records a reserve for general liability claims falling below the company 's deductible . the reserve estimate is based on an actuarial evaluation of our past history of general liability claims , other industry specific factors and specific event analysis . because of the high degree of judgment required in determining these estimated accrual amounts , actual future costs could differ from our current estimated amounts . please refer to note 1 of our consolidated financial statements for additional information related to our self-insurance reserves . stock-based compensation . we measure and recognize compensation expense associated with our grant of equity-based awards in accordance with asc 718 , compensation-stock compensation ( “ asc 718 ” ) , which generally requires that companies measure and recognize stock-based compensation expense in an amount equal to the fair value of share-based awards granted under compensation arrangements over the related vesting period . as discussed further in notes 1 and 2 of our consolidated financial statements , we have granted share-based awards to certain of our employees and directors in the form of stock options , director stock units and performance share units ( “ psu 's ” ) . determining the fair value of share-based awards requires judgment to identify the appropriate valuation model and develop the assumptions . the grant date fair value for stock option awards and psu 's with a market condition ( as defined in asc 718 ) is estimated using the black-scholes option pricing model and the monte carlo simulation methodology , respectively .
| per diluted share , which included $ 3.6 million of pre-tax impairment charges , a $ 7.8 million loss on early extinguishment of debt , and $ 4.9 million in dividend payments made to holders of our series a preferred shares . this compares to net income to common shareholders of $ 45.9 million , or $ 1.65 per diluted share , in 2014 , which included a $ 9.3 million accounting benefit from income taxes associated with the reversal of our remaining state deferred tax asset valuation allowance , $ 3.5 million of pre-tax impairment charges , and $ 4.9 million in dividend payments made to holders of our series a preferred shares . in 2015 , we recorded total revenue of $ 1.42 billion , of which $ 1.34 billion was from home deliveries , $ 40.3 million was from land sales , and $ 36.0 million was from our financial services operations . revenue from homes delivered increased 15 % from 2014 driven primarily by an 11 % increase in the average sales price of homes delivered in 2015 ( $ 33,000 per home delivered ) compared to 2014 , and 162 additional homes delivered in 2015 ( a 4 % increase ) . revenue from land sales increased $ 20.0 million from 2014 due primarily to land sales in both our mid-atlantic and southern regions . revenue from our financial services segment increased 19 % to $ 36.0 million in 2015 primarily due to the factors discussed below in our “ year over year comparisons ” section . total gross margin increased $ 47.4 million in 2015 compared to 2014 as a result of a $ 41.5 million improvement in the gross margin of our homebuilding operations and a $ 5.9 million improvement in the gross margin of our financial services operations . the improvement in the gross margin of our homebuilding operations was primarily due to a $ 37.9 million
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the company recognized a pretax gain of $ 97 ( $ 63 aftertax ) in the third quarter of 2016 , net of costs primarily related to site preparation . effective december 31 , 2015 , the company concluded it no longer met the accounting criteria for consolidation of its venezuelan subsidiary ( “ cp venezuela ” ) and began accounting for cp venezuela using the cost method of accounting . since january 1 , 2016 , under the cost method of accounting , the company no longer includes the local operating results of cp venezuela in its consolidated financial statements and includes income relating to cp venezuela only to the extent it receives cash for sales of inventory to cp venezuela or for dividends or royalties remitted by cp venezuela , all of which have been immaterial . although cp venezuela 's local operating results are no longer included in the company 's consolidated financial statements for accounting purposes , under current tax rules , the company is required to continue including cp venezuela in its consolidated u.s. federal income tax return . in the first quarter of 2016 , provision for income taxes included a $ 210 u.s. income tax benefit principally related to changes in venezuela 's foreign exchange regime implemented in march 2016. see note 11 , income taxes to the consolidated financial statements for additional details . the company 's restructuring program known as the “ global growth and efficiency program ” runs through december 31 , 2019 . the program 's initiatives are expected to help the company ensure sustained solid worldwide growth in unit volume , organic sales , operating profit and earnings per share and to enhance its global leadership positions in its core businesses . implementation of the global growth and efficiency program remains on track and is in its final year . the initiatives under the global growth and efficiency program are focused on the following areas : ▪ expanding commercial hubs ▪ extending shared business services and streamlining global functions ▪ optimizing global supply chain and facilities savings , substantially all of which are expected to increase future cash flows , are projected to be in the range of $ 590 to $ 635 pretax ( $ 550 to $ 575 aftertax ) annually , once all projects are approved and implemented . cumulative pretax charges resulting from the global growth and efficiency program , once all phases are approved and implemented , are estimated to be in the range of $ 1,820 to $ 1,870 ( $ 1,350 to $ 1,380 aftertax ) . 21 ( dollars in millions except per share amounts ) in 2018 , 2017 and 2016 , the company incurred aftertax costs of $ 125 , $ 246 and $ 168 , respectively , resulting from the global growth and efficiency program . for more information regarding the global growth and efficiency program , see “ restructuring and related implementation charges ” below and note 4 , restructuring and related implementation charges to the consolidated financial statements . effective january 1 , 2018 , as required by the financial accounting standards board ( “ fasb ” ) , the company adopted accounting standard update ( “ asu ” ) no . 2017-07 , “ compensation-retirement benefits ( topic 715 ) : improving the presentation of net periodic pension cost and net periodic postretirement benefit cost , ” on a retrospective basis . as a result , for all periods presented , only the service related component of pension and other postretirement benefit costs is included in operating profit . the non-service related components ( interest cost , expected return on assets and amortization of actuarial gains and losses ) are included in a new line item , “ non-service related postretirement costs , ” which is below operating profit . adoption of this standard had no effect on net income attributable to colgate-palmolive company , earnings per common share or cash flow . see note 2 , summary of significant accounting policies to the consolidated financial statements for additional information . as a result of adopting asu no . 2016-09 “ compensation–stock compensation ( topic 718 ) : improvements to employee share-based payment accounting , ” effective january 1 , 2017 , the company recognizes excess tax benefits from stock-based compensation ( resulting from an increase in the fair value of an award from the grant date to the vesting or exercise date , as applicable ) in the provision for income taxes as a discrete item . prior to january 1 , 2017 , excess tax benefits from stock-based compensation were recognized in equity . outlook looking forward , the company expects global macroeconomic and market conditions to remain challenging . while the company has recently seen improvement in category growth rates , the company expects category growth rates to remain below prior historical levels . while the global marketplace in which the company operates has always been highly competitive , the company continues to experience heightened competitive activity in certain markets from strong local competitors and from other large multinational companies , some of which have greater resources than the company does . such activities have included more aggressive product claims and marketing challenges , as well as increased promotional spending and geographic expansion . the company has also been negatively affected by changes in the policies or practices of its retail trade customers in key markets , such as inventory de-stocking , limitations on access to shelf space or delisting of the company 's products . in addition , the retail landscape in many of the company 's markets continues to be impacted by the rapid growth of e-commerce retailers , changing consumer preferences ( as consumers increasingly shop online ) and the emergence of alternative retail channels , such as subscription services and direct-to-consumer businesses . this rapid growth in e-commerce and emergence of alternative retail channels may create pricing pressures and or adversely affect the company 's relationships with its key retailers . story_separator_special_tag in addition , given that approximately 70 % of the company 's net sales originate in markets outside the u.s. , the company has experienced and may continue to experience volatile foreign currency fluctuations and high raw and packaging material costs . while the company has taken , and will continue to take , measures to mitigate the effect of these conditions , should they persist , they could adversely affect the company 's future results . in summary , the company believes it is well prepared to meet the challenges ahead due to its strong financial condition , experience operating in challenging environments and continued focus on the company 's key priorities : growing sales through engaging with consumers , developing world-class innovation and working with retail partners ; driving efficiency on every line of the income statement to increase margins ; generating strong cash flow performance and utilizing that cash effectively to enhance total shareholder return ; and leading to win by staying true to the company 's culture and focusing on its stakeholders . the company 's commitment to these priorities , together with the strength of the company 's global brands , its broad international presence in both developed and emerging markets and cost-saving initiatives , such as the company 's funding-the-growth initiatives and the global growth and efficiency program , should position the company well to increase shareholder value over the long term . 22 ( dollars in millions except per share amounts ) story_separator_special_tag style= '' line-height:120 % ; text-align : center ; font-size:10pt ; '' > 24 ( dollars in millions except per share amounts ) selling , general and administrative expenses selling , general and administrative expenses decreased to $ 5,389 in 2018 from $ 5,400 in 2017 . selling , general and administrative expenses in both periods included charges related to the global growth and efficiency program . excluding these charges in both periods , selling , general and administrative expenses increased to $ 5,356 in 2018 from $ 5,314 in 2017 , reflecting higher overhead expenses of $ 25 and increased advertising investment of $ 17 . selling , general and administrative expenses as a percentage of net sales decreased to 34.7 % in 2018 from 34.9 % in 2017 . excluding charges related to the global growth and efficiency program in both periods , selling , general and administrative expenses as a percentage of net sales were 34.5 % in 2018 , an increase of 10 bps as compared to 2017 . this increase as a percentage of net sales in 2018 was due to higher overhead expenses ( 10 bps ) , primarily driven by increased logistics costs . in 2018 , advertising investment increased 1 % to $ 1,590 as compared with $ 1,573 in 2017 , while as a percentage of net sales it was 10.2 % , even with 2017 . selling , general and administrative expenses increased 5 % to $ 5,400 in 2017 from $ 5,143 in 2016 . selling , general and administrative expenses in both periods included charges related to the global growth and efficiency program . excluding these charges in both periods , selling , general and administrative expenses increased to $ 5,314 in 2017 from $ 5,066 in 2016 , reflecting increased advertising investment of $ 145 and higher overhead expenses of $ 103 . selling , general and administrative expenses as a percentage of net sales increased to 34.9 % in 2017 from 33.8 % in 2016 . excluding charges related to the global growth and efficiency program in both periods , selling , general and administrative expenses as a percentage of net sales were 34.4 % , an increase of 110 bps as compared to 2016 . this increase in 2017 was driven by increased advertising investment ( 80 bps ) and higher overhead expenses ( 30 bps ) , both as a percentage of net sales . in 2017 , advertising investment increased 10.2 % to $ 1,573 as compared with $ 1,428 in 2016 , and increased as a percentage of net sales to 10.2 % from 9.4 % in 2016 . replace_table_token_4_th replace_table_token_5_th 25 ( dollars in millions except per share amounts ) other ( income ) expense , net other ( income ) expense , net was $ 148 , $ 173 and $ 25 in 2018 , 2017 and 2016 , respectively . the components of other ( income ) expense , net are presented below : replace_table_token_6_th other ( income ) expense , net was $ 148 in 2018 as compared to $ 173 in 2017 . other ( income ) expense , net in both periods included charges related to the global growth and efficiency program . other ( income ) expense , net was $ 173 in 2017 as compared to $ 25 in 2016 . other ( income ) expense , net in both periods included charges related to the global growth and efficiency program . other ( income ) expense , net in 2016 also included a gain on the sale of land in mexico and charges for a litigation matter . excluding the items described above in all periods , as applicable , other ( income ) expense , net was $ 60 in 2018 , $ 21 in 2017 and $ 12 in 2016 . replace_table_token_7_th 26 ( dollars in millions except per share amounts ) operating profit operating profit decreased to $ 3,694 in 2018 from $ 3,707 in 2017 . operating profit decreased 6 % to $ 3,707 in 2017 from $ 3,955 in 2016 . in 2018 , 2017 and 2016 , operating profit included charges related to the global growth and efficiency program . in 2016 , operating profit also included charges for a litigation matter and a gain on sale of land in mexico .
| the company ' s share of the global toothpaste market was 42.0 % for full year 2018 , down 1.3 share points from full year 2017 , and its share of the global manual toothbrush market was 32.3 % for full year 2018 , down 0.7 share points from full year 2017. full year 2018 market shares in toothpaste were down in north america , latin america , europe , asia pacific and africa/eurasia versus full year 2017. in the manual toothbrush category , full year 2018 market shares were up in north america and africa/eurasia and down in latin america , europe and asia pacific versus full year 2017. for additional information regarding the company 's use of market share data and limitations on such data , see “ market share information ” below . net sales for hill 's pet nutrition were $ 2,388 in 2018 , an increase of 4.0 % from 2017 , driven by volume growth of 1.5 % , net selling price increases of 2.0 % and positive foreign exchange of 0.5 % . organic sales for hill 's pet nutrition increased 3.5 % in 2018 . the increase in organic sales in 2018 versus 2017 was due to increases in organic sales in the prescription diet and advanced nutrition categories , partially offset by a decline in organic sales in the naturals category . worldwide net sales were $ 15,454 in 2017 , up 1.5 % from 2016 , driven by volume growth of 0.5 % , net selling price increases of 0.5 % and positive foreign exchange of 0.5 % . organic sales increased 1.0 % in 2017 . 23 ( dollars in millions except per share amounts ) gross profit/margin worldwide gross profit decreased 1 % to $ 9,231 in 2018 from $ 9,280 in 2017 . gross profit in both periods included charges related to the global growth and efficiency program . excluding these charges in both periods , gross profit decreased to $ 9,262 in 2018 from $ 9,355 in 2017 , reflecting a decrease of $ 147 resulting from lower gross profit margin , partially offset by an increase of $ 54 resulting from higher net sales . worldwide gross profit margin decreased to 59.4 % in 2018 from 60.0 % in 2017
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operational excellence we aim to improve our performance and margins by : leveraging our lower-cost position ; maintaining a stringent focus on reducing costs and optimizing our diversified asset base ; maximizing the benefits of our access to virgin fiber and managing our exposure to volatile recycled fiber ; pursuing our strategy of managing production and inventory levels and focusing production on our most profitable facilities and machines ; and capitalizing on our economical access to international markets to compensate for the secular decline in north american newsprint demand . disciplined use of capital we make capital management a priority . building on our focus to reduce manufacturing costs , we will continue our efforts to decrease overhead and spend our capital in a disciplined , strategic and focused manner , concentrated on our most successful sites . maintaining our strong financial position and financial flexibility is one of our primary financial goals . in 2011 and 2012 , we redeemed $ 349 million of principal amount of our then-outstanding 10.25 % senior secured notes due 2018 and a $ 90 million promissory note issued in connection with an acquisition in 2011. in 2012 , we also repaid and canceled fibrek 's term loan and credit facility , for a total of $ 112 million . in 2013 , we refinanced the remaining balance of our senior secured notes with 5.875 % senior unsecured notes due 2023. in addition to adding five years to maturity , the refinancing reduced our annual cash interest burden by $ 16 million and improves our financial flexibility . strategic initiatives we believe in taking an opportunistic approach to strategic initiatives , pursuing only those that reduce our cost position , improve our product diversification , provide synergies or allow us to expand into future growth markets . we anticipate continued consolidation in the paper and forest products industry , as we and our competitors continue to explore ways to increase efficiencies and grow into more favorable markets . by acquiring fibrek in 2012 , we grew our market pulp segment , increasing our presence in a market that we believe will grow over the long term . in addition to growing our pulp capacity by over 70 % , we 're in the process of building or refurbishing two 24 sawmills in northern ontario , canada . by the time they begin production in early 2015 , along with other capacity initiatives we 're working on , we expect our annualized sawmill capacity to be around 1.9 billion board feet , a 30 % increase above 2013. sustainable performance and development our sustainability strategy is based on a balanced approach to environmental , social and economic performance , designed to enhance our competitive position . it is supported by public commitments in a number of key performance areas , focusing primarily on : improving resource efficiency , which helps control fiber and power costs , two significant input costs in our industry ; adapting to our customers ' procurement policies and striving to anticipate trends in demand for environmentally-conscious forest products , which will enhance the long-term competitiveness of our product offering ; positioning resolute as a competitive employer in order to attract , engage and retain the best and brightest minds , promoting employee engagement , innovation and longevity ; and building solid community relations to support long-term regional prosperity and our own financial and operational success . our key sustainability commitments include : achieving an occupational safety and health administration ( or “ osha ” ) incident rate of 0.99 or below in 2014 , which is slightly below the 1.02 we achieved in 2013. though we strive to have zero injuries , our 2013 safety performance is generally considered to be world-class . we 're closing in , ahead of schedule , on the goal we set as a member of the world wildlife fund ( “ wwf ” ) climate savers program to reduce our scope 1 and 2 greenhouse gas ( or “ ghg ” ) emissions by 65 % by 2015 , compared to 2000 levels . maintaining 100 % certification of resolute-owned or managed woodlands to sustainable forest management ( sfm ) certification standards . for over five years now , 100 % of managed forests have been certified to either fsc® , sfi® and or csa . through 2015 , implementing new human resource practices to support workforce renewal and retention , engage employees in the company 's sustainability-focused vision and values , and ensure current and future staffing requirements . reducing the number of mill environmental incidents in 2014 by 10 % compared to 2013. power generation we produce electricity at seven cogeneration facilities and seven hydroelectric dams . the output is consumed internally , sold at contracted fixed prices and or sold on the spot market . this allows us to reduce our costs by generating energy internally at a lower cost compared to open market purchases , and by producing revenue from external sales of some of the power . this table provides a breakdown of the output capacity ( based on installed capacity and operating expectations in 2014 ) available for internal consumption at our existing production facilities : replace_table_token_7_th 25 this table shows the facilities where we currently produce electricity to sell externally as green power produced from renewable sources at favorable rates , almost all of which we buy back for use in our operations . replace_table_token_8_th business conditions 2013 highlights we made significant progress as an organization in 2013 , strengthening our financial position , enhancing the efficiency of our operations and improving our performance on safety and sustainability . story_separator_special_tag we strengthened our financial position in three key ways : we reached an agreement-in-principle with company stakeholders in québec and in ontario to replace the corrective measures mechanism under the existing funding relief regulations in favor of stable , predictable and balanced pension funding for our canadian plans , which represented about 75 % of our unfunded pension obligations as of december 31 , 2013. the rising interest rate environment , strong asset returns , 2013 funding , the favorable currency impact and amendments to opeb plans all contributed to the elimination of $ 672 million of net pension and opeb liabilities from our balance sheet compared to 2012. we refinanced , on a very timely basis , all of our outstanding secured debt with $ 600 million of unsecured notes , at 5.875 % interest , reducing our cash interest burden by $ 16 million annually , adding 5 more years to maturity and improving our financial flexibility . concerning operational excellence initiatives : since 2012 , we optimized newsprint capacity by idling two machines and restarting the gatineau mill , for a net reduction of about 285,000 metric tons on an annualized basis . in our specialty papers segment , we idled three machines and restarted the dolbeau mill , for a net reduction of about 220,000 metric tons on an annualized basis . we restructured manning at two more sites in 2013 , eliminating 170 positions , without reducing operating capacity . we 've grown our pulp capacity by over 70 % with our 2012 acquisition of fibrek , and by the time our new sawmills in northern ontario begin production in early 2015 , along with other capacity initiatives we 're working on , we expect our annualized sawmill operating capacity to be around 1.9 billion board feet , a 30 % increase above 2013. in 2013 , we finished bringing online all four of our cogeneration assets from which we sell electricity externally - dolbeau ( specialty papers ) , gatineau ( newsprint ) , saint-félicien ( market pulp ) , and thunder bay ( newsprint and market pulp ) . together , they reduced our costs by approximately $ 45 million , not including other operational efficiencies realized with the operation of the cogeneration assets , such as labor efficiencies . we 've restructured and significantly improved the performance of the three pulp mills we acquired with fibrek in 2012. after a challenging start because of the extensive catch-up maintenance and environmental work required at the saint-félicien mill , we 've made the three mills more competitive than before we acquired them . on safety and environment : we achieved an osha incident rate of 1.02 in 2013. though we strive to have zero injuries , our 2013 safety performance is generally considered to be world-class . we 're closing in , ahead of schedule , on the goal we set as a member of the wwf climate savers program to reduce our ghg emissions by 65 % by 2015 , compared to 2000 levels . 26 we fell short of our internal commitment to reduce environmental incidents by 10 % in 2013 compared to 2012 , but we 've developed an action plan to address gaps and improve performance . for 2014 , we set a goal of reducing the number of mill environmental incidents by 10 % compared to 2013. r esults of o perations consolidated earnings selected annual financial information replace_table_token_9_th ( 1 ) we 've included fibrek 's results of operations in our consolidated financial statements , in the market pulp segment , as of may 2 , 2012 , the date we acquired a controlling interest . fibrek 's sales , operating income and net income in our results for 2013 were $ 456 million , $ 40 million and $ 40 million , respectively . its sales , operating loss and net loss in our 2012 results were $ 268 million , $ 9 million and $ 9 million , respectively . ( 2 ) earnings before interest expense , income taxes and depreciation , or “ ebitda ” , adjusted ebitda and adjusted ebitda margin are not financial measures recognized under generally accepted accounting principles , or “ gaap ” . ebitda is calculated as net income ( loss ) including noncontrolling interests from the consolidated statements of operations , adjusted for interest expense , income taxes and depreciation and amortization . adjusted ebitda means ebitda , excluding special items such as foreign exchange translation gains and losses , severance costs , closure costs , impairment and other related charges , inventory write-downs related to closures , start up costs of idled mills , gains and losses on dispositions of assets , net loss on extinguishment of debt , transaction costs and other charges or credits that are excluded from our segments ' performance from gaap operating income ( loss ) . adjusted ebitda margin is adjusted ebitda expressed as a percentage of sales . we believe that using measures such as ebitda , adjusted ebitda and adjusted ebitda margin is useful because they are consistent with the indicators management uses internally to measure the company 's performance and it allows the reader to more easily compare our ongoing operations and financial performance from period to period . ( 3 ) return on equity , or “ roe ” , is a non-gaap financial measure , calculated by dividing net income ( loss ) , excluding the special items identified below , by adjusted shareholders ' equity . roe is a measure of profitability that shows how much profit the company generated as a percentage of shareholder money invested .
| the mill 's operational configuration was such that we did not believe it could be operated profitably following the loss of its key customer . cost of sales , excluding depreciation , amortization and distribution costs segment cos increased by $ 128 million in 2013 , mainly as a result of our fibrek acquisition . other than the effect of the weaker canadian dollar , manufacturing costs improved by $ 24 million , mostly because of : lower chip and recovered paper costs ( $ 22 million ) ; external power sales from the additional cogeneration capacity at the saint-félicien and thunder bay mills , and lower maintenance costs compared to the extensive catch-up maintenance at the saint-félicien mill in 2012 ( $ 18 million ) ; partially offset by : higher wood costs in the u.s. southeast due to the wet weather ( $ 8 million ) ; and higher fuel energy costs , mostly because of higher natural gas prices ( $ 8 million ) . 45 depreciation and amortization depreciation and amortization rose by $ 8 million , primarily as a result of the addition of the three fibrek mills . selling , general and administrative expenses segment sg & a allocation rose by $ 5 million as a result of higher allocation to the segment following the acquisition of fibrek . 2012 vs. 2011 operating ( loss ) income variance analysis sales sales in the market pulp segment increased $ 155 million , or 24 % , to $ 814 million in 2012. shipments rose 352,000 metric tons , including the additional volume ( $ 268 million ) with our acquisition of fibrek , which we began to consolidate in our results as of may . excluding fibrek , we experienced a $ 100 per metric ton decrease in average transaction price ( $ 86 million ) and a reduction in shipments compared to 2011 ( $ 27 million ) . overall , we took over 205,000 metric tons more downtime in the year , as we increased market downtime in response to softer market conditions compared to 2011 , and as a result of
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pursuant to the beigene agreement , we received an upfront cash payment of $ 3.0 million from beigene in exchange for granting beigene an option to an exclusive license to develop and commercialize dkn-01 in asia ( excluding japan ) , australia , and new zealand , and will be eligible to receive an additional payment upon beigene 's exercise of the option . additionally , we are eligible to receive payments of up to $ 132.0 million based upon the achievement of certain development , regulatory , and sales milestones as well as tiered royalties on any product sales of dkn-01 in the licensed territory . private placementjanuary 2020 on january 3 , 2020 , we entered into a securities purchase agreement ( the `` securities purchase agreement '' ) with institutional investors named therein ( collectively , the `` purchasers , '' and each , a `` purchaser '' ) , providing for a private placement transaction exempt from the registration requirements of the securities act of 1933 , as amended ( the `` securities act '' ) , pursuant to which we issued and sold 1,421,801 shares of our series a mandatorily convertible cumulative non-voting perpetual preferred stock , par value $ 0.001 per share ( the `` series a preferred stock '' ) , at a purchase price of $ 10.54 per share , and 1,137,442 shares of our series b mandatorily convertible cumulative non-voting perpetual preferred stock , par value $ 0.001 per share ( the `` series b preferred stock '' ) at a purchase price of $ 10.55 per share , and one ( 1 ) share of our special voting stock , par value $ 0.001 ( the `` special voting stock '' ) entitling the purchaser of series a preferred stock to elect one member of our board of directors for aggregate net proceeds to us of approximately $ 25.3 million ( the `` transaction '' ) . on march 5 , 2020 , our stockholders approved the conversion of the series a preferred stock into a pre-funded warrant to purchase 14,413,902 shares of common stock and the conversion of the series b preferred stock into 11,531,133 shares of common stock . each investor also received a warrant to purchase an equal number of shares at an exercise price of $ 2.11 per share . as of december 31 , 2019 , we had cash and cash equivalents of $ 3.9 million . we believe that our cash and cash equivalents as of december 31 , 2019 , together with the $ 25.3 million in net proceeds from the january 2020 private placement and the $ 3.0 million upfront cash payment received from beigene , will enable us to fund our operating expenses and capital expenditure requirements for at least 12 months from issuance of the financial statements included in this annual report on form 10-k. see `` liquidity and capital resources . '' financial overview research and development expenses our research and development activities have included conducting nonclinical studies and clinical trials , manufacturing development efforts and activities related to regulatory filings for dkn-01 and 69 trx518 . we recognize research and development expenses as they are incurred . our research and development expenses consist primarily of : salaries and related overhead expenses for personnel in research and development functions , including costs related to stock-based compensation ; fees paid to consultants and cros for our nonclinical and clinical trials , and other related clinical trial fees , including but not limited to laboratory work , clinical trial database management , clinical trial material management and statistical compilation and analysis ; costs related to acquiring and manufacturing clinical trial materials ; and costs related to compliance with regulatory requirements . we plan to increase our research and development expenses for the foreseeable future as we continue the development of dkn-01 and any other product candidates , subject to the availability of additional funding . our direct research and development expenses are tracked on a program-by-program basis and consist primarily of internal and external costs , such as employee costs , including salaries and stock-based compensation , other internal costs , fees paid to consultants , central laboratories , contractors and cros in connection with our clinical and preclinical trial development activities . we use internal resources to manage our clinical and preclinical trial development activities and perform data analysis for such activities . we participate , through our subsidiary in australia , in the australian government 's r & d incentive program , such that a percentage of our eligible research and development expenses are reimbursed by the australian government as a refundable tax offset and such incentives are reflected as other income . the percentage was 43.5 % for both the years ended december 31 , 2019 and 2018. the table below summarizes our research and development expenses incurred by development program and the r & d incentive income for the years ended december 31 , 2019 and 2018 : replace_table_token_2_th the successful development of our clinical product candidates is highly uncertain . at this time , we can not reasonably estimate the nature , timing or costs of the efforts that will be necessary to complete the remainder of the development of any of our product candidates or the period , if any , in which material net cash inflows from these product candidates may commence . this is due to the numerous risks and uncertainties associated with developing drugs , including the uncertainty of : the scope , rate of progress and expense of our ongoing , as well as any additional , clinical trials and other research and development activities ; future clinical trial results ; and the timing and receipt of any regulatory approvals . 70 a change in the outcome of any of these variables with respect to the development of a product candidate could result in a significant change in the costs and timing associated with the development of that product candidate . story_separator_special_tag for example , if the fda or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development of a product candidate , or if we experience significant delays in enrollment in any of our clinical trials , we could be required to expend significant additional financial resources and time on the completion of clinical development . general and administrative expenses general and administrative expenses consist primarily of salaries and related costs , including stock-based compensation , for personnel in executive , finance and administrative functions . general and administrative expenses also include direct and allocated facility-related costs as well as professional fees for legal , patent , consulting , accounting and audit services . we anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research activities and development of our product candidates . we also anticipate that we will incur increased accounting , audit , legal , regulatory , compliance , director and officer insurance costs as well as investor and public relations expenses associated with being a public company . interest income interest income consists primarily of interest income earned on cash and cash equivalents . during the years ended december 31 , 2019 and 2018 , interest income was $ 0.3 million and $ 0.4 million , respectively . research and development incentive income research and development incentive income includes payments under the r & d incentive program from the government of australia . the r & d incentive is one of the key elements of the australian government 's support for australia 's innovation system . it was developed to assist businesses to recover some of the costs of undertaking research and development . the research and development tax incentive provides a tax offset to eligible companies that engage in research and development activities . companies engaged in research and development may be eligible for either : a 43.5 % refundable tax offset for entities with an aggregated turnover of less than a $ 20 million per annum , or a 38.5 % non-refundable tax offset for all other entities . we recognize as other income the amount we expect to be reimbursed for qualified expenses . foreign currency translation adjustment foreign currency translation adjustment consists of gains ( losses ) due to the revaluation of foreign currency transactions attributable to changes in foreign currency exchange rates associated with our australian subsidiary . income taxes since our inception , we have not recorded any u.s. federal , state or foreign income tax benefits for the net losses we have incurred in each year , due to our uncertainty of realizing a benefit from those items . as of december 31 , 2019 , we had federal , state and foreign net operating loss carryforwards of $ 135.9 million , $ 117.6 million and $ 83.9 million , respectively . the federal and state net operating losses begin to expire in 2030 , while the foreign net operating losses carryforward indefinitely . 71 our federal net operating losses include $ 54.6 million which can be also carried forward indefinitely . we may be able to utilize our net operating loss carryforwards to reduce future federal and state income tax liabilities . however , these net operating losses are subject to various limitations under internal revenue code ( `` irc '' ) section 382 , which limits the use of net operating loss carryforwards to the extent there has been an ownership change of more than 50 percentage points . in addition , the net operating loss carryforwards are subject to examination by the taxing authorities and could be adjusted or disallowed due to such exams . although we have not undergone an irc section 382 analysis , it is possible that the utilization of our net operating loss carryforwards may be limited . as of december 31 , 2019 , we also had federal and state research and development tax credit carryforwards of $ 3.8 million and $ 0.6 million , respectively , which begin to expire in 2030 and whose future usage may also be limited to the extent there has been an ownership change of more than 50 percentage points . there is no provision for income taxes in the united states or israel , because we have historically incurred operating losses and maintain a full valuation allowance against our deferred tax assets in these jurisdictions . the deferred tax asset recorded in the consolidated balance sheets relates to our australian operations . critical accounting policies and significant judgments and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements , which we have prepared in accordance with u.s. generally accepted accounting principles ( `` gaap '' ) . the preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements , as well as the reported expenses during the reporting periods . we evaluate these estimates and judgments on an ongoing basis . we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . our actual results may differ from these estimates under different assumptions or conditions . while our significant accounting policies are more fully described in note 2 to our consolidated financial statements appearing elsewhere in this report , we believe that the following accounting policies are the most critical for fully understanding and evaluating our financial condition and results of operations . accrued research and development expenses as part of the process of preparing consolidated financial statements , we are required to estimate accrued research and development expenses .
| interest income we recorded interest income of $ 0.3 million and $ 0.4 million , respectively , for the years ended december 31 , 2019 and 2018. the decrease in interest income is primarily due to a higher average cash balance during the year ended december 31 , 2018 as compared to 2019. australian research and development incentives we recorded r & d incentive income of $ 0.1 million and $ 0.8 million for the years ended december 31 , 2019 and 2018 , respectively , based upon the applicable percentage of eligible research and development activities under the australian incentive program , net of our australia tax liability , which expenses included the cost of manufacturing of clinical trial material . we perform certain supporting research and development activity outside of australia when there are no australian facilities that support the activity ( `` overseas research and development activities '' ) . in october 2017 , the commonwealth of australia issued us a favorable ruling on our overseas research and development activities , considering such activities to be eligible research and development activities under the australian incentive program . during the year ended december 31 , 2019 , we received $ 0.8 million of research and development tax incentive payments from the commonwealth of australia as a result of the 2018 research and development activities . during the year ended december 31 , 2018 , we received $ 0.8 million of research and development tax incentive payments from the commonwealth of australia as a result of the 2017 research and development activities . the remaining r & d incentive receivable has been recorded as `` research and development incentive receivable '' in the consolidated balance sheets . foreign currency gains ( loss ) we recorded foreign currency gains ( losses ) of 0.1 million and ( $ 0.8 ) million , respectively , for the years ended december 31 , 2019 and 2018. the increase in foreign currency gains is due to the changes in the australian dollar exchange rate related to activities of the australian entity . interest expense we recorded an
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our oil and gas operations , like those of the industry , are subject to environmental risks such as oil spills , produced water spills , gas leaks and ruptures and discharges of substances or gases that could expose us to substantial liability for pollution or other environmental damage . our operations are also subject to numerous u.s. federal , state , local and foreign environmental laws and regulations . non‑compliance with these laws and regulations may subject us to administrative , civil or criminal penalties , remedial clean-ups and natural resource damages or other liabilities . in addition , increasingly stringent environmental regulations have resulted and will likely continue to result in higher capital expenditures and operating expenses for us and the oil and gas industry in general . similarly , we have material legal obligations to dismantle , remove and abandon production facilities and wells that will occur many years in the future , in most cases . these estimates may be impacted by future changes in regulations and other uncertainties . concerns have been raised in certain jurisdictions where we have operations concerning the safety and environmental impact of the drilling and development of shale oil and gas resources , particularly hydraulic fracturing , water usage , flaring of associated natural gas and air emissions . while we believe that these operations can be conducted safely and with minimal impact on the environment , regulatory bodies are responding to these concerns and may impose moratoriums and new 15 regulations on such drilling operations that would likely have the effect of prohibiting or delaying such operations and increasing their cost . climate change initiatives may result in significant operational changes and expenditures , reduced demand for our products and adversely affect our business . we recognize that climate change is a global environmental concern . continuing political and social attention to the issue of climate change has resulted in both existing and pending international agreements and national , regional or local legislation and regulatory measures to limit greenhouse gas emissions . these agreements and measures may require significant equipment modifications , operational changes , taxes , or purchase of emission credits to reduce emission of greenhouse gases from our operations , which may result in substantial capital expenditures and compliance , operating , maintenance and remediation costs . in addition , our production is used to produce petroleum fuels , which through normal customer use may result in the emission of greenhouse gases . regulatory initiatives to reduce the use of these fuels may reduce demand for crude oil and other hydrocarbons and have an adverse effect on our sales volumes , revenues and margins . the imposition and enforcement of stringent greenhouse gas emissions reduction targets could severely and adversely impact the oil and gas industry and significantly reduce the value of our business . our industry is highly competitive and many of our competitors are larger and have greater resources than we have . the petroleum industry is highly competitive and very capital intensive . we encounter competition from numerous companies in each of our activities , including acquiring rights to explore for crude oil and natural gas . many competitors , including national oil companies , are larger and have substantially greater resources . we are also in competition with producers of other forms of energy . increased competition for worldwide oil and gas assets could significantly increase the cost of acquiring oil and gas assets . in addition , competition for drilling services , technical expertise and equipment may affect the availability of technical personnel and drilling rigs , resulting in increased capital and operating costs . catastrophic events , whether naturally occurring or man‑made , may materially affect our operations and financial conditions . our oil and gas operations are subject to unforeseen occurrences which have affected us from time to time and which may damage or destroy assets , interrupt operations and have other significant adverse effects . examples of catastrophic risks include hurricanes , fires , explosions , blowouts , such as the third-party accident at the macondo prospect , pipeline interruptions and ruptures , severe weather , geological events , labor disputes or cyber‑attacks . although we maintain insurance coverage against property and casualty losses , there can be no assurance that such insurance will adequately protect us against liability from all potential consequences and damages . moreover , some forms of insurance may be unavailable in the future or be available only on terms that are deemed economically unacceptable . significant time delays between the estimated and actual occurrence of critical events associated with development projects may result in material negative economic consequences . we are involved in several large development projects and the completion of those projects may be delayed beyond what was originally anticipated . such examples include , but are not limited to , delays in receiving necessary approvals from project members or regulatory agencies , timely access to necessary equipment , availability of necessary personnel and unfavorable weather conditions . this may lead to delays and differences between estimated and actual timing of critical events . these delays could impact our future results of operations and cash flows . departures of key members from our senior management team , and or difficulty in recruiting and retaining adequate numbers of experienced technical personnel , could negatively impact our ability to deliver on our strategic goals . the derivation and monitoring of successful strategies and related policies may be negatively impacted by the departure of key members of senior management . moreover , an inability to recruit and retain adequate numbers of experienced technical and professional personnel in the necessary locations may prohibit us from executing our strategy in full or , in part , with a commensurate impact on shareholder value . we are dependent on oilfield service companies for items including drilling rigs , equipment , supplies and skilled labor . an inability or significant delay in securing these services , or a high cost thereof , may result in material negative economic consequences . story_separator_special_tag the availability and cost of drilling rigs , equipment , supplies and skilled labor will fluctuate over time given the cyclical nature of the e & p industry . as a result , we may encounter difficulties in obtaining required services or could face an increase in cost . these consequences may impact our ability to run our operations and to deliver projects on time with the potential for material negative economic consequences . we manage commodity price risk through our risk management function but such activities may impede our ability to benefit from commodity price increases and can expose us to similar potential counterparty credit risk as impacts amounts due from the sale of hydrocarbons . we may enter into commodity price hedging arrangements to protect us from commodity price declines . these arrangements may , depending on the instruments used and the level of increases involved , limit any potential upside from commodity price increases . in addition , as with accounts receivable we may be exposed to potential economic loss should a counterparty be unable or unwilling to perform their obligations under the terms of a hedging agreement . cyber‑attacks targeting computer , telecommunications systems , and infrastructure used by the oil and gas industry 16 may materiall y impact our business and operations . computers and telecommunication systems are used to conduct our exploration , development and production activities and have become an integral part of our business . we use these systems to analyze and store financial and operating data and to communicate within our company and with outside business partners . cyber ‑attacks could compromise our computer and telecommunications systems and result in disruptions to our business operations or the loss of our data and propr ietary information . in addition , computers control oil and gas production , processing equipment , and distribution systems globally and are necessary to deliver our production to market . a cyber ‑attack against these operating systems , or the networks and infrastructure on which they rely , could damage critical production , distribution and or storage assets , delay or prevent delivery to markets , and make it difficult or impossible to accurately account for production and settle transactions . as a result , a cyber-attack could have a material adverse impact on our cash flows and results of operations . we routinely experience attempts by external parties to penetrate and attack our networks and systems . although such attempts to date have not resulted in any material breaches , disruptions , or loss of business critical information , our systems and procedures for protecting against such attacks and mitigating such risks may prove to be insufficient in the future and such attacks could have an adverse impact on our business and operations . in addition , as technologies evolve and these attacks become more sophisticated , we may incur significant costs to upgrade or enhance our security measures to protect against such attacks . item 1b . unresolved staff comments none . item 3. legal proceedings we , along with many companies engaged in refining and marketing of gasoline , have been a party to lawsuits and claims related to the use of methyl tertiary butyl ether ( mtbe ) in gasoline . a series of similar lawsuits , many involving water utilities or governmental entities , were filed in jurisdictions across the u.s. against producers of mtbe and petroleum refiners who produced gasoline containing mtbe , including us . the principal allegation in all cases was that gasoline containing mtbe is a defective product and that these parties are strictly liable in proportion to their share of the gasoline market for damage to groundwater resources and are required to take remedial action to ameliorate the alleged effects on the environment of releases of mtbe . the majority of the cases asserted against us have been settled . in june 2014 , the commonwealth of pennsylvania and the state of vermont each filed independent lawsuits alleging that we and all major oil companies with operations in each respective state , have damaged the groundwater in those states by introducing thereto gasoline with mtbe . the pennsylvania suit has been removed to federal court and has been forwarded to the existing mtbe multidistrict litigation pending in the southern district of new york . the suit filed in vermont is proceeding there in a state court . an action brought by the commonwealth of puerto rico was settled in conjunction with the bankruptcy court 's confirmation of hovensa 's liquidation plan , which is described below . we received a directive from the new jersey department of environmental protection ( njdep ) to remediate contamination in the sediments of the lower passaic river and the njdep is also seeking natural resource damages . the directive , insofar as it affects us , relates to alleged releases from a petroleum bulk storage terminal in newark , new jersey we previously owned . we and over 70 companies entered into an administrative order on consent with the environmental protection agency ( epa ) to study the same contamination ; this work remains ongoing . we and other parties settled a cost recovery claim by the state of new jersey and also agreed with epa to fund remediation of a portion of the site . the epa is continuing to study contamination and remedial designs for other portions of the river . to that end , in april 2014 epa issued a focused feasibility study ( “ ffs ” ) proposing to conduct bank-to-bank dredging of the lower eight miles of the passaic river at an estimated cost of $ 1.7 billion . epa may issue a record of decision ( “ rod ” ) in 2016 selecting a remedy for the lower eight miles based on the ffs , but the ultimate remedy ( and associated cost ) for the lower passaic river remains uncertain at this stage . the rod is unlikely to address an additional nine miles of the passaic river , which may require additional remedial action .
| · at the valhall field in norway , net production averaged 33,000 boepd ( 2014 : 31,000 boepd ) , with the increase from prior-year primarily due to less facility downtime and new wells in the current period . during 2015 , the operator , bp , drilled one well and completed three wells , and continued to execute a multi-year well abandonment program . production from the valhall field is forecast to average approximately 30,000 boepd in 2016 , with the decrease from 2015 reflecting reduced drilling activity . · at block a‑18 of the joint development area of malaysia/thailand ( jda ) , the operator , carigali hess operating company , continued drilling production wells and progressed its booster compression project that is expected to be completed by the third quarter of 2016. production averaged 42,000 boepd ( 2014 : 42,000 boepd ) , including contribution from unitized acreage in malaysia . production from the jda is forecast to average approximately 35,000 boepd in 2016 due to lower entitlement and downtime associated with the booster compression project . · at the hess operated tubular bells field , we achieved our first full year of production following first oil in late 2014. in the second half of 2015 a subsurface safety valve stuck in the closed position at one well and two other wells experienced wellbore skin effects that reduced production rates . as a result , full-year 2015 production from tubular bells was restricted to 19,000 boepd and we estimate full-year 2016 net production to be approximately 20,000 boepd to 25,000 boepd . in 2016 , we intend to complete one water injector well , drill one production well , perform two wellbore stimulations , and complete a workover on a third well to open the stuck subsurface safety valve . · in the north malay basin ( nmb ) , in 2015 net production from the early production system averaged approximately 40 million cubic feet per day ( 2014 : 43 million cubic feet per day ) . in 2015 , we also progressed fabrication and installation
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the major factors considered can change from period to period and include items such as current trends in the real estate industry ( which management can assess although there is a time lag in the development of this data for use by the actuary ) , the size and types of claims reported and changes in our claims management process . if the recorded amount is not within a reasonable range of our third-party actuary 's point estimate , we will adjust the recorded reserves in the current period and reassess the provision rate on a prospective basis . once our reserve for title losses is recorded , it is reduced in future periods as a result of claims payments and may be increased or reduced by revisions to our estimate of the overall level of required reserves . large claims ( those exceeding $ 1.0 million on a single claim ) , including large title losses due to independent agency defalcations , are analyzed and reserved for separately due to the higher dollar amount of loss , lower volume of claims reported and sporadic reporting of such claims . large title losses due to independent agency defalcations typically occur when the independent agency misappropriates funds from escrow accounts under its control . such losses are usually discovered when the independent agency fails to pay off an outstanding mortgage loan at closing ( or immediately thereafter ) from the proceeds of the new loan . once the previous lender determines that its loan has not been paid off timely , it will file a claim against the title insurer . it is at this point that the title insurance underwriter is alerted to the potential theft and begins its investigation . as is industry practice , these claims are considered a 14 claim on the newly issued title insurance policy since such policy insures the holder ( in this case , the new lender ) that all previous liens on the property have been satisfied . accordingly , these claim payments are charged to policy loss expense . these incurred losses are typically more severe in terms of dollar value compared with traditional title policy claims since the independent agency is often able , over time , to conceal misappropriation of escrow funds relating to more than one transaction through the constant volume of funds moving through its escrow accounts . as long as new funds continue to flow into escrow accounts , an independent agency can mask one or more defalcations . in declining real estate markets , lower transaction volumes result in a lower incoming volume of funds , making it more difficult to cover up the misappropriation with incoming funds . thus , when the defalcation is discovered , it often relates to several transactions . in addition , the overall decline in an independent agency 's revenues , profits and cash flows increases the agency 's incentive to improperly utilize the escrow funds from real estate transactions . internal controls relating to independent agencies include , but are not limited to , pre-signing and periodic audits , site visits and reconciliations of policy inventories and premiums . the audits and site visits cover examination of the escrow account bank reconciliations and an examination of a sample of closed transactions . in some instances , the scope of our review is limited by attorney agencies that cite client confidentiality . certain states have mandated annual reviews of all agencies by their underwriter . we also determine whether our independent agencies have appropriate internal controls as defined by the american land title association and us . however , even with adequate internal controls in place , their effectiveness can be circumvented by collusion or improper override of the controls by management at the independent agencies . to aid in the selection of independent agencies to review , we have developed an agency risk model that aggregates data from different areas to identify possible problems . this is not a guarantee that all independent agencies with deficiencies will be identified . in addition , we are typically not the only underwriter for which an independent agency issues policies , and independent agencies may not always provide complete financial records for our review . due to the inherent uncertainty in predicting future title policy losses , significant judgment is required by both our management and our third party actuaries in estimating reserves . as a consequence , our ultimate liability may be materially greater or less than current reserves and or our third party actuary 's calculated estimate . agency revenues we recognize revenues on title insurance policies written by independent agencies ( agencies ) when the policies are reported to us . in addition , where reasonable estimates can be made , we accrue for revenues on policies issued but not reported until after period end . we believe that reasonable estimates can be made when recent and consistent policy issuance information is available . our estimates are based on historical reporting patterns and other information about our agencies . we also consider current trends in our direct operations and in the title industry . in this accrual , we are not estimating future transactions ; we are estimating revenues on policies that have already been issued by agencies but not yet reported to or received by us . we have consistently followed the same basic method of estimating unreported policy revenues for more than 10 years . our accruals for revenues on unreported policies from agencies were not material to our consolidated assets or stockholders ' equity as of december 31 , 2012 and 2011. the differences between the amounts our agencies have subsequently reported to us compared to our estimated accruals are substantially offset by any differences arising from prior years ' accruals and have been immaterial to consolidated assets and stockholders ' equity during each of the three prior years . we believe our process provides the most reliable estimate of the unreported revenues on policies and appropriately reflects the trends in agency policy activity . story_separator_special_tag 15 goodwill and other long-lived assets our evaluation of goodwill is normally completed annually in the third quarter using june 30 balances , but an evaluation may also be made whenever events may indicate impairment . this evaluation is based on a combination of a discounted cash flow analysis ( dcf ) and market approaches that incorporate market multiples of comparable companies and our own market capitalization . the dcf model utilizes historical and projected operating results and cash flows , initially driven by estimates of changes in future revenue levels , and risk-adjusted discount rates . our projected operating results are primarily driven by anticipated mortgage originations , which we obtain from projections by industry experts . fluctuations in revenues , followed by our ability to appropriately adjust our employee count and other operating expenses , or large and unanticipated adjustments to title loss reserves , are the primary reasons for increases or decreases in our projected operating results . our market-based valuation methodologies utilize ( i ) market multiples of earnings and or other operating metrics of comparable companies and ( ii ) our market capitalization and a control premium based on market data and factors specific to our ownership and corporate governance structure ( such as our class b common stock ) . to the extent that our future operating results are below our projections , or in the event of adverse market conditions , an interim review for impairment may be required , which may result in an impairment of goodwill . we evaluate goodwill based on five reporting units ( direct operations , agency operations , international operations , mortgage services and corporate ) . goodwill is assigned to these reporting units at the time the goodwill is initially recorded . once assigned to a reporting unit , the goodwill is pooled and no longer attributable to a specific acquisition . all activities within a reporting unit are available to support the carrying value of the goodwill . we also evaluate the carrying values of title plants and other long-lived assets when events occur that may indicate impairment . the process of determining impairment for our goodwill and other long-lived assets relies on projections of future cash flows , operating results , discount rates and overall market conditions , including our market capitalization . uncertainties exist in these projections and they are subject to changes relating to factors such as interest rates and overall real estate and financial market conditions , our market capitalization and overall stock market performance . actual market conditions and operating results may vary materially from our projections . based on these evaluations , we estimate and expense to current operations any loss in value of these assets . as part of our process , we have an option to assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount . if we decide not to use a qualitative assessment or if we fail the qualitative assessment , then we obtain input from third-party appraisers regarding the fair value of our reporting units . while we are responsible for assessing whether an impairment of goodwill exists , we utilize the input from third-party appraisers to assess the overall reasonableness of our conclusions . we utilized a qualitative assessment for our annual goodwill impairment test and , based on our analysis , determined it was not more-likely-than-not that the fair value of our reporting units were less than their carrying amounts as of june 30 , 2012. there were no impairment charges for goodwill or material impairment charges for other long-lived assets during the three years ended december 31 , 2012. operations . our business has three main operating segments : title insurance and related services , mortgage services and corporate . our primary business is title insurance and settlement-related services . we close transactions and issue title policies on homes , commercial and other real properties located in all 50 states , the district of columbia and international markets through policy-issuing offices and agencies . we also provide loan origination and servicing support ; loan review services ; loss mitigation ; reo asset management ; home and personal insurance services ; and technology to streamline the real estate process . 16 factors affecting revenues . the principal factors that contribute to changes in operating revenues for our title and mortgage services segments include : mortgage interest rates ; availability of mortgage loans ; ability of potential purchasers to qualify for loans ; inventory of existing homes available for sale ; ratio of purchase transactions compared with refinance transactions ; ratio of closed orders to open orders ; home prices ; volume of distressed property transactions ; consumer confidence ; demand by buyers ; number of households ; premium rates ; market share ; opening of new offices and acquisitions ; number of commercial transactions , which typically yield higher premiums ; government or regulatory initiatives , including tax incentives ; and number of reo and foreclosed properties and related debt . to the extent inflation causes increases in the prices of homes and other real estate , premium revenues are also increased . conversely , falling home prices cause premium revenues to decline . premiums are determined in part by the insured values of the transactions we handle . these factors may override the seasonal nature of the title insurance business . historically , our first quarter is the least active and our third and fourth quarters are the most active in terms of title insurance revenues . industry data . published mortgage interest rates and other selected residential data for the years ended december 31 , 2012 , 2011 and 2010 follow ( amounts shown for 2012 are preliminary and subject to revision ) . the amounts below may not relate directly to or provide accurate data for forecasting our operating revenues or order counts .
| direct operating revenues , excluding large commercial policies , decreased 1.5 % , while the average revenue per closing decreased 6.7 % in 2011 compared to 2010. revenues from independent agencies increased $ 130.2 million , or 14.8 % , in 2012 and decreased $ 37.4 million , or 4.1 % , in 2011. the largest increases in revenues from independent agencies in 2012 were in new york , texas , california and pennsylvania , partially offset by decreases in illinois , maryland , and minnesota . the largest increases in revenues from independent agencies in 2011 were in new york , illinois , michigan , and minnesota , partially offset by decreases in california , florida , new jersey , and utah . revenues from independent agencies net of amounts retained by those agencies increased 16.3 % in 2012 and declined 4.9 % in 2011. title revenues by geographic location . the approximate amounts and percentages of consolidated title operating revenues for the last three years were as follows : replace_table_token_9_th mortgage services revenues . mortgage services operating revenues increased $ 50.8 million , or 45.3 % , and $ 20.3 million , or 22.2 % , in 2012 and 2011 , respectively . the increases in 2012 and 2011 were primarily due to a significant rise in demand for our servicing support services , including loan modification services . the service offerings in our mortgage services segment continue to expand , with new servicing support projects driving the increase in revenues during 2012. the acquisition of pmh financial in the third quarter 2011 also contributed to the 2011 increase in mortgage services revenues . demand for mortgage services offerings are influenced by the number and scale of government programs and lender projects which may result in significant fluctuations in mortgage services revenues . demand from lenders is increasingly being driven by their desire to more broadly outsource aspects of their servicing support operations , a trend that we expect will continue in 2013. as the real estate market recovers and distressed servicing projects naturally retrench , new service offerings have been introduced which allow our customers to outsource various aspects of their servicing operations to us . our focus is on providing mortgage process outsourcing services which are
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securities , futures , commodities , investment , banking , savings and loan , or insurance activities , or to be associated with persons engaged in any such activity ; · been found by a court of competent jurisdiction in a civil action or by the sec or the commodity futures trading commission to have violated a federal or state securities or commodities law , and the judgment has not been reversed , suspended , or vacated ; · been the subject of , or a party to , any federal or state judicial or administrative order , judgment , decree , or finding , not subsequently reversed , suspended or vacated ( not including any settlement of a civil proceeding among private litigants ) , relating to an alleged violation of any federal or state securities or commodities law or regulation , any law or regulation respecting financial institutions or insurance companies including , but not limited to , a temporary or permanent injunction , order of disgorgement or restitution , civil money penalty or temporary or permanent cease-and-desist order , or removal or prohibition order , or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity ; or · been the subject of , or a party to , any sanction or order , not subsequently reversed , suspended or vacated , of any self-regulatory organization ( as defined in section 3 ( a ) ( 26 ) of the exchange act ( 15 u.s.c . 78c ( a ) ( 26 ) ) , any registered entity ( as defined in section 1 ( a ) ( 29 ) of the commodity exchange act ( 7 u.s.c . 1 ( a ) ( 29 ) ) , or any equivalent exchange , association , entity or organization that has disciplinary authority over its members or persons associated with a member . 26 except as set forth in our discussion below in “ certain relationships and related transactions , and director independence - transactions with related persons , ” none of our directors , director nominees or executive officers has been involved in any transactions with us or any of our directors , executive officers , affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the sec . audit committee and charter we do not currently have an audit committee . code of ethics we have not yet adopted a corporate code of ethics . when we do adopt a code of ethics , we will announce it via the filing of a current report on form 8-k. family relationships there are no family relationships among our officers , directors , or persons nominated for such positions . section 16 ( a ) beneficial ownership reporting compliance section 16 ( a ) of the securities exchange act of 1934 , as amended , requires our directors , executive officers , and stockholders holding more than 10 % of our outstanding common stock , to file with the securities and exchange commission initial reports of ownership and reports of changes in beneficial ownership of our common stock . executive officers , directors and greater-than-10 % stockholders are required by sec regulations to furnish us with copies of all section 16 ( a ) reports they file . based on a review of forms 3 , 4 , and 5 and amendments thereto furnished to the registrant during its most recent fiscal year ending august 31 , 2015 , the following represents each person who did not file on a timely basis reports required by section 16 ( a ) of the exchange act : name reporting person form 3/ # of transactions form 4/ # of transactions form 5/ # of transactions jeffrey canouse president , story_separator_special_tag forward looking statements this current report contains forward-looking statements relating to future events or our future financial performance . in some cases , you can identify forward-looking statements by terminology such as “ may ” , “ should ” , “ intends ” , “ expects ” , “ plans ” , “ anticipates ” , “ believes ” , “ estimates ” , “ predicts ” , “ potential ” , or “ continue ” or the negative of these terms or other comparable terminology . these statements are only predictions and involve known and unknown risks , uncertainties and other factors which may cause our or our industry 's actual results , levels of activity or performance to be materially different from any future results , levels of activity or performance expressed or implied by these forward-looking statements . although we believe that the expectations reflected in the forward-looking statements are reasonable , we can not guarantee future results , levels of activity or performance . you should not place undue reliance on these statements , which speak only as of the date that they were made . these cautionary statements should be considered with any written or oral forward-looking statements that we may issue in the future . except as required by applicable law , including the securities laws of the united states , we do not intend to update any of the forward-looking statements to conform these statements to actual results , later events or circumstances or to reflect the occurrence of unanticipated events . in this report unless otherwise specified , all dollar amounts are expressed in united states dollars and all references to “ common shares ” refer to the common shares of our capital stock . the management 's discussion and analysis of our financial condition and results of operations are based upon our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) . overview we were incorporated as “ atheron , inc. ” in the state of nevada on may 8 , 2006. story_separator_special_tag securities , futures , commodities , investment , banking , savings and loan , or insurance activities , or to be associated with persons engaged in any such activity ; · been found by a court of competent jurisdiction in a civil action or by the sec or the commodity futures trading commission to have violated a federal or state securities or commodities law , and the judgment has not been reversed , suspended , or vacated ; · been the subject of , or a party to , any federal or state judicial or administrative order , judgment , decree , or finding , not subsequently reversed , suspended or vacated ( not including any settlement of a civil proceeding among private litigants ) , relating to an alleged violation of any federal or state securities or commodities law or regulation , any law or regulation respecting financial institutions or insurance companies including , but not limited to , a temporary or permanent injunction , order of disgorgement or restitution , civil money penalty or temporary or permanent cease-and-desist order , or removal or prohibition order , or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity ; or · been the subject of , or a party to , any sanction or order , not subsequently reversed , suspended or vacated , of any self-regulatory organization ( as defined in section 3 ( a ) ( 26 ) of the exchange act ( 15 u.s.c . 78c ( a ) ( 26 ) ) , any registered entity ( as defined in section 1 ( a ) ( 29 ) of the commodity exchange act ( 7 u.s.c . 1 ( a ) ( 29 ) ) , or any equivalent exchange , association , entity or organization that has disciplinary authority over its members or persons associated with a member . 26 except as set forth in our discussion below in “ certain relationships and related transactions , and director independence - transactions with related persons , ” none of our directors , director nominees or executive officers has been involved in any transactions with us or any of our directors , executive officers , affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the sec . audit committee and charter we do not currently have an audit committee . code of ethics we have not yet adopted a corporate code of ethics . when we do adopt a code of ethics , we will announce it via the filing of a current report on form 8-k. family relationships there are no family relationships among our officers , directors , or persons nominated for such positions . section 16 ( a ) beneficial ownership reporting compliance section 16 ( a ) of the securities exchange act of 1934 , as amended , requires our directors , executive officers , and stockholders holding more than 10 % of our outstanding common stock , to file with the securities and exchange commission initial reports of ownership and reports of changes in beneficial ownership of our common stock . executive officers , directors and greater-than-10 % stockholders are required by sec regulations to furnish us with copies of all section 16 ( a ) reports they file . based on a review of forms 3 , 4 , and 5 and amendments thereto furnished to the registrant during its most recent fiscal year ending august 31 , 2015 , the following represents each person who did not file on a timely basis reports required by section 16 ( a ) of the exchange act : name reporting person form 3/ # of transactions form 4/ # of transactions form 5/ # of transactions jeffrey canouse president , story_separator_special_tag forward looking statements this current report contains forward-looking statements relating to future events or our future financial performance . in some cases , you can identify forward-looking statements by terminology such as “ may ” , “ should ” , “ intends ” , “ expects ” , “ plans ” , “ anticipates ” , “ believes ” , “ estimates ” , “ predicts ” , “ potential ” , or “ continue ” or the negative of these terms or other comparable terminology . these statements are only predictions and involve known and unknown risks , uncertainties and other factors which may cause our or our industry 's actual results , levels of activity or performance to be materially different from any future results , levels of activity or performance expressed or implied by these forward-looking statements . although we believe that the expectations reflected in the forward-looking statements are reasonable , we can not guarantee future results , levels of activity or performance . you should not place undue reliance on these statements , which speak only as of the date that they were made . these cautionary statements should be considered with any written or oral forward-looking statements that we may issue in the future . except as required by applicable law , including the securities laws of the united states , we do not intend to update any of the forward-looking statements to conform these statements to actual results , later events or circumstances or to reflect the occurrence of unanticipated events . in this report unless otherwise specified , all dollar amounts are expressed in united states dollars and all references to “ common shares ” refer to the common shares of our capital stock . the management 's discussion and analysis of our financial condition and results of operations are based upon our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) . overview we were incorporated as “ atheron , inc. ” in the state of nevada on may 8 , 2006.
| operating expenses for the years ended august 31 , 2015 and 2014 , we incurred $ 371,283 and $ 379,224 , respectively , in total operating expenses , a period-to-period decrease of $ 7,941. compensation expense related to series a preferred stock increased $ 156,349 from $ -0- as this related to the one-time event from the issuance of series a preferred stock in 2014. interest expense for the year ended august 31 , 2014 was $ 163,819 as compared to as compared to interest expense of $ 122,910 for the year ended august 31 , 2013. the increase was due to an increased level of debt . net loss our net loss for the year ended august 31 , 2014 was ( $ 737,408 ) as compared to ( $ 713,306 ) for the year ended august 31 , 2013 , respectively . off-balance sheet arrangements we have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that is material to stockholders . critical accounting policies 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 the accounting principles generally accepted in the united states of america . preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue , and expenses . these estimates and assumptions are 20 index to financial statements affected by management 's application of accounting policies . we believe that understanding the basis and nature of the estimates and assumptions involved with the following aspects of our financial statements is critical to an understanding of our financial statements . use of estimates the preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date the financial statements and the reported amount of revenues and expenses during the reporting period . actual results could differ from those estimates . basic loss per share basic loss per share has been calculated based on the weighted average number of shares of common stock outstanding during the
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bpx-601 is a gocar-t product candidate containing our proprietary imc , inducible myd88/cd40 , activation switch , designed to treat solid tumors expressing prostate stem cell antigen , or psca . preclinical data shows enhanced t-cell proliferation , persistence and in vivo anti-tumor activity compared to traditional car t therapies . the initial planned indication for bpx-601 development is non-resectable pancreatic cancer . bpx-401 is a cidecar product candidate incorporating our proprietary mc co-stimulatory domain and the caspacide safety switch , designed to target blood cancers expressing cd19 . on january 11 , 2016 , we submitted required documentation , including clinical trial protocols , for bpx-701 and bpx-601 for review by the national institutes of health , or nih , recombinant dna advisory committee ( rac ) . public review of those programs occurred at the rac meeting on march 9 , 2016. we expect to file investigational new drug applications , or inds , for our three most advanced car t and tcr adoptive cell therapy product candidates . inds for bpx-601 and bpx-701 are expected to be filed during the first half of 2016 and bpx-401 during the second half of the year . our ind-enabling activities for each of these preclinical product candidates include manufacturing key components and developing a robust process to produce cell products that comply with regulations of the fda and other regulatory agencies . we have developed an efficient and scalable process to manufacture genetically modified t cells of high quality . this process is currently being implemented by our third-party contract manufacturers to produce bpx-501 for our clinical trials . we expect to leverage this process , as well as our resources , capabilities and expertise for the manufacture of our car-t and tcr product candidates . we expect to begin enrolling patients in phase 1 trials of bpx-701 and bpx-601 in mid-2016 , and bpx-401 in the second half of 2016. recent developments on march 10 , 2016 , or the closing date , we entered into a loan and security agreement , or the loan agreement , with hercules capital , inc. , or hercules , as agent and a lender , hercules technology ii , l.p. , as a lender and hercules technology iii , l.p. , as a lender , under which we borrowed $ 15.0 million on the closing date and may borrow an additional $ 5.0 million on or prior to september 15 , 2016. subject to the terms and conditions of the loan agreement , including approval by hercules ' investment committee , and our achievement of specified milestones in the loan agreement , we may borrow an additional $ 10.0 million through march 15 , 2017. we intend to use the proceeds received under the loan agreement for funding the build out of our manufacturing facilities and general corporate purposes . license agreement - agensys , inc. ( agensys ) on december 10 , 2015 , we entered into a license agreement with agensys whereby agensys granted us an exclusive , worldwide license and sublicense to its patent rights directed to prostate stem cell antigen 1 , or psca , and related antibodies . we also granted agensys a non-exclusive , fully paid license to our patents directed to inventions that were made by us in the course of developing our licensed products , solely for use with agensys therapeutic products containing a soluble antibody that binds to psca or , to the extent not based upon our other proprietary technology , to non-therapeutic applications of antibodies not used within the field . for more information , see note 12 to the financial statements included herein . 60 license agreement - biovec on june 10 , 2015 , we entered into an agreement in which biovec agreed to supply us with certain proprietary cell lines and granted to us a non-exclusive , worldwide license to certain of its patent rights and related know-how related to such proprietary cell lines . see note 12 to the financial statements included herein . license agreement - leiden on april 23 , 2015 , we entered into a license agreement with academisch ziekenhuis leiden , or leiden , whereby leiden granted to us an exclusive , worldwide license to its patent rights covering high affinity t-cell receptors targeting preferentially-expressed antigen in melanoma , or prame , and pou2af1 epitopes . the license granted under the leiden agreement is subject to certain restrictions and to leiden 's retained right to use the licensed patents solely for academic research and teaching purposes , including research collaborations by leiden with academic , non-profit research third parties ; provided that leiden provides 30 days advance written notice to us of such academic research collaborations . for more information , see note 12 to the financial statements included herein . lease agreement in may 2015 , we entered into a lease agreement for approximately 27,000 additional square feet of space at our corporate headquarters for the manufacture of bpx-501 for clinical studies and to support the development of our expanding pipeline of tcr and car-t adoptive cell therapy product candidates . for more information , see note 12 to the financial statements included herein . financial operations overview grant revenue cancer research institute of texas ( cprit ) to date , we have only recognized revenue from government grants and we have not generated any product revenue . we have received funds from the cancer prevention and research institute of texas , or cprit , and the national institute of health , or nih , which are awarded based on the progress of the program being funded . in cases when the grant money is not received until expenses for the program are incurred , we accrue the revenue based on the costs incurred for the programs associated with the grant . story_separator_special_tag during 2011 , we entered into a grant agreement with cprit for approximately $ 5.7 million covering a three year period from july 1 , 2011 through june 30 , 2014. the grant initially allowed us to receive funds in advance of costs and allowable expenses being incurred . on a quarterly basis , we were required to submit a financial reporting package outlining the nature and extent of reimbursed costs under the grant . at the end of each period , any excess funds received in advance , or paid prior to reimbursement resulted in a deferred liability or grant receivable . the cprit grant expired as of june 30 , 2014. nih grant during 2013 , we entered into a grant agreement with the nih . the grant is a modular five year grant with funds being awarded each year based on the progress of the program being funded . grant money is not received until expenses for the program are incurred . we have been awarded approximately $ 1.0 million to date , of which $ 0.7 million has been received . we accrue the revenue based on the costs incurred for the programs associated with the grant . in the future , we may generate revenue from a combination of product sales , government or other third-party grants , marketing and distribution arrangements and other collaborations , strategic alliances and licensing arrangements or a combination of these approaches . we expect that any revenue we generate will fluctuate as a result of the timing and amount of license fees , milestone and other payments , and the amount and timing of payments that we receive upon the sale of our products , to the extent any are successfully commercialized . if we fail to complete the development of our product candidates in a timely manner or obtain regulatory approval of them , our ability to generate future revenue , and our results of operations and financial position , would be materially adversely affected . research and development expenses to date , our research and development expenses have related primarily to the development of our cid platform and the identification and development of our product candidates . research and development expenses consist of expenses incurred in performing research and development activities , including compensation and benefits for research and development employees and consultants , facilities 61 expenses , overhead expenses , cost of laboratory supplies , manufacturing expenses , fees paid to third parties and other outside expenses . research and development costs are expensed as incurred . clinical trial and other development costs incurred by third parties are expensed as the contracted work is performed . we accrue for costs incurred as the services are being provided by monitoring the status of the clinical trial or project and the invoices received from our external service providers . we adjust our accrual as actual costs become known . where contingent milestone payments are due to third parties under research and development arrangements , the milestone payment obligations are expensed when the milestone events are achieved . we utilize our research and development personnel and infrastructure resources across several programs , and many of our costs are not specifically attributable to a single program . accordingly , we can not state precisely our total costs incurred on a program-by-program basis . research and development activities are central to our business model . product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later-stage clinical trials . we expect our research and development expenses to increase over the next several years as we seek to conduct our ongoing and planned clinical trials for bpx-501 , bpx-701 , bpx-601 and bpx-401 and as we selectively develop additional product candidates . however , it is difficult to determine with certainty the duration and completion costs of our current or future preclinical programs and clinical trials of our product candidates . the duration , costs and timing of clinical trials and development of our product candidates will depend on a variety of factors that include , but are not limited to , the following : per patient clinical trial costs ; the number of patients that participate in the clinical trials ; the number of sites included in the clinical trials ; the process of collection , differentiation , selection and expansion of immune cells for our cellular immuno-therapies ; the countries in which the clinical trials are conducted ; the length of time required to enroll eligible patients ; the number of doses that patients receive ; the drop-out or discontinuation rates of patients ; potential additional safety monitoring or other studies requested by regulatory agencies ; the duration of patient follow-up ; and the efficacy and safety profile of the product candidates . the following table indicates our research and development expense by project/category for the periods indicated : replace_table_token_4_th the potential for success of any product candidate depends on numerous factors , including competition , manufacturing capability and commercial viability . we consider which programs to pursue and how much to fund each program based on scientific , clinical and competitive factors , as well as an assessment of each product candidate 's commercial potential 62 general and administrative expenses general and administrative expenses consist primarily of salaries and other related costs , including share-based compensation , for personnel in executive , finance , accounting , business development , legal and human resources functions . other significant costs include facility costs not otherwise included in research and development expenses , legal fees relating to patent and corporate matters , insurance costs and professional fees for consultancy , legal , accounting , audit and investor relations . we anticipate that our general and administrative expenses will increase in the future to support our continued research and development activities , potential commercialization of our product candidates and the increased costs of operating as a public company .
| the effect of the reclassification of the results for the twelve months ended december 31 , 2014 was to increase research and development expense and reduce general and administrative expense by $ 1.1 million with no change in total operating expense or net loss . license fees license fees were $ 3.2 million for the year ended december 31 , 2015 , compared to no license fees in 2014. the increase in license fees was primarily due to our new license agreement with agensys , as consideration for the rights granted to us under the agreement , whereby we paid agensys a non-refundable upfront fee of $ 3.0 million . for more information , see note 12 to the financial statements included herein . ariad license restructuring on october 3 , 2014 , we entered into an omnibus amendment agreement with ariad , under which we agreed to make payments of $ 50.0 million in exchange for an expansion of the license field , the termination of all obligations to make milestone and royalty payments to ariad in the future and the return of 677,463 shares of our common stock that ariad held . in connection with the amendment , we made an initial payment of $ 15.0 million and issued a promissory note to ariad for a principal amount of $ 35.0 million . per the promissory note terms , the principal would not accrue interest unless we were in default , in which case it would accrue at a rate of 10 % per annum . in december 2014 following our ipo , we paid the remaining $ 35.0 million and ariad returned all 677,463 shares of our common stock that ariad held . the license transaction was valued on the date of the transaction and the note was discounted to fair market value at a 10 % rate . this resulted in license expense of $ 43.2 million , repurchase of our common stock for $ 5.1 million , and interest expense of $
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a companion 81 mg dose of the same novel formulation — vazalore 81 mg — is in late-stage development and will be the subject of a snda , leveraging the already approved status of vazalore 325 mg. we are focused on manufacturing , scale-up and label finalization for vazalore 325 mg aspirin dosage form and preparing an snda for vazalore 81 mg maintenance dosage form . our goal is to begin selling both products in the united states by mid-2020 , subject to approval by the fda . our commercialization strategy will target both the otc and prescription markets , taking advantage of the existing otc distribution channels for aspirin while leveraging the fda approval of vazalore 325 mg and expected approval for vazalore 81 mg for otc and prescription use when recommended by physicians for cardiovascular disease treatment and prevention . given our clinical demonstration of better antiplatelet efficacy ( as compared with enteric-coated aspirin ) and better gi safety , we intend to use a physician-directed sales force to inform physicians — and , by extension , consumers — about our product 's clinical results in an effort to command both greater market share and a higher price for our next generation aspirin product . our product pipeline also includes other oral nsaids using the plxguard delivery system that may be developed , including a clinical-stage , gi-safer ibuprofen — pl1200 ibuprofen 200 mg — for pain and inflammation . 46 critical accounting policies our consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the united states of america ( “ u.s . gaap ” ) . the preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues and expenses . note 3 of the notes to consolidated financial statements included elsewhere herein describes the significant accounting policies used in the preparation of the financial statements . certain of these significant accounting policies are considered to be critical accounting policies , as defined below . a critical accounting policy is defined as one that is both material to the presentation of our financial statements and requires management to make difficult , subjective or complex judgments that could have a material effect on our financial condition and results of operations . specifically , critical accounting estimates have the following attributes : ( 1 ) we are required to make assumptions about matters that are highly uncertain at the time of the estimate ; and ( 2 ) different estimates we could reasonably have used , or changes in the estimate that are reasonably likely to occur , would have a material effect on our financial condition or results of operations . estimates and assumptions about future events and their effects can not be determined with certainty . we base our estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances . these estimates may change as new events occur , as additional information is obtained and as our operating environment changes . these changes have historically been minor and have been included in the financial statements as soon as they became known . based on a critical assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies , management believes that our financial statements are fairly stated in accordance with u.s. gaap and present a meaningful presentation of our financial condition and results of operations . we believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of our consolidated financial statements : use of estimates the preparation of our consolidated financial statements in conformity with u.s. 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 financial statements and the reported amount of revenues and expenses during the reporting period . in the accompanying consolidated financial statements , estimates are used for , but not limited to , determining the fair value of tangible and intangible assets and liabilities acquired in business combinations , the fair value of warrant liabilities , stock- based compensation , allowance for inventory obsolescence , allowance for doubtful accounts , contingent liabilities , fair value and depreciable lives of long-lived assets , and deferred taxes and associated valuation allowance . actual results could differ from those estimates . fair value measurements fair value is defined as the price that would be received in the sale of an asset or that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date . the company has categorized all investments recorded at fair value based upon the level of judgment associated with the inputs used to measure their fair value . hierarchical levels , directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities , are as follows : ● level 1 : quoted prices in active markets for identical assets or liabilities that the organization has the ability to access at the reporting date . 47 ● level 2 : inputs other than quoted prices included in level 1 , which are either observable or that can be derived from or corroborated by observable data as of the reporting date . ● level 3 : inputs include those that are significant to the fair value of the asset or liability and are generally less observable from objective resources and reflect the reporting entity 's assumptions about the assumptions market participants would use in pricing the asset or liability . story_separator_special_tag the company 's financial instruments ( cash and cash equivalents , receivables , accounts payable and accrued liabilities ) are carried in the consolidated balance sheet at cost , which reasonably approximates fair value based on their short-term nature . the company 's warrant liabilities are recorded at fair value , with changes in fair value being reflected in the statements of operations for the period of change . the fair value of the term loan approximates its face value of $ 7,500,000 based on the company 's current financial condition and on the variable nature of term loan 's interest feature as compared to current rates . research and development expenses costs incurred in connection with research and development activities are expensed as incurred . research and development expenses consist of direct and indirect costs associated with specific projects , manufacturing activities , and include fees paid to various entities that perform research related services for the company . stock -based compensation the company recognizes expense in the consolidated statements of operations for the fair value of all stock-based compensation to key employees , nonemployee directors and advisors , generally in the form of stock options and stock awards . the company uses the black-scholes option valuation model to estimate the fair value of stock options on the grant date . compensation cost is amortized on a straight-line basis over the vesting period for each respective award . the company adopted new accounting guidance , effective january 1 , 2017 , with respect to stock-based compensation and related income tax aspects , and now accounts for forfeitures as they occur rather than using an estimated forfeiture rate . the adoption did not have a material impact on our consolidated financial statements . adopted accounting guidance for a discussion of significant accounting guidance recently adopted or unadopted accounting guidance that has the potential of being significant , see note 3 of the notes to consolidated financial statements included elsewhere herein . r esults of operations r evenue total revenues were approximately $ 0.8 million for the years ended december 31 , 2018 and 2017. all the revenue recognized in 2018 and approximately $ 0.6 million of the revenue recognized in 2017 is attributable to work performed under an award of a national institutes of health grant , along with previously deferred revenue recognized upon the completion of effort . operating expenses total operating expenses were approximately $ 11.7 million during the year ended december 31 , 2018 , a 30 % decrease from operating expenses of approximately $ 16.6 million during the year ended december 31 , 2017. operating expenses for the years ended december 31 , 2018 and 2017 were as follows : replace_table_token_1_th 48 research and development expenses research and development expenses totaled approximately $ 3.9 million in the year ended december 31 , 2018 compared to $ 4.2 million in the prior year , a decrease of approximately $ 0.2 million . the expenses in both periods included continued product development and manufacturing activities for vazalore . story_separator_special_tag an impairment charge related to our acquired intangible assets of $ 2.3 million and ( vii ) approximately $ 0.6 million of noncash interest expense relating to a beneficial conversion feature . net cash provided by investing activities net cash provided by ( used in ) investing activities totaled approximately $ 0.7 million in net uses in the year ended december 31 , 2018 and primarily reflects capital expenditures for equipment purchases of $ 0.5 million and leasehold improvements of $ 0.2 million . net cash provided by investing activities totaled approximately $ 11.2 million in the year ended december 31 , 2017. in 2017 , cash acquired from dipexium in the merger totaled approximately $ 11.8 million and was partially offset by approximately $ 0.5 million of equipment purchases . net cash provided by financing activities net cash provided by financing activities totaled approximately $ 26.4 million in the year ended december 31 , 2017. net cash provided by financing activities in 2017 consisted of approximately $ 16.7 million of equity offering proceeds , $ 2.0 million pursuant to the note issued to dipexium prior to the merger , $ 7.1 million in net proceeds under a term loan from silicon valley bank , and approximately $ 0.6 million of proceeds pursuant to a convertible note which subsequently converted to old plx equity immediately prior to the closing of the merger . we had no cash flows from financing activities in 2018. future liquidity and needs as of december 31 , 2018 , we had working capital of approximately $ 10.1 million and cash and cash equivalents of approximately $ 14.3 million . in december 2018 , we entered into the purchase agreement with certain accredited investors in connection with the private placement , which closed on february 20 , 2019. based on our expected operating cash requirements and capital expenditures , we believe the company 's cash on hand at december 31 , 2018 , along with the proceeds from the private placement , is adequate to fund operations for at least twelve months from the date of filing of this form 10-k. we have not generated any revenue from the sale of products , have generated minimal revenue from licensing activities , and have incurred losses in each year since we commenced operations . as of december 31 , 2018 , we had an accumulated deficit of approximately $ 66.4 million . we expect to continue to incur significant expenses and increasing operating losses for the foreseeable future as we continue the development and commercialization of vazalore and our other product candidates . even if we do generate revenues , we may never achieve profitability , and even if we do achieve profitability in the future , we may not be able to sustain profitability in subsequent periods . our prior losses , combined with expected future losses , have had and will continue to have
| key features of the tax act effective in 2018 include : ● reduction of the corporate tax rate from 35 % to 21 % ; ● elimination of the alternative minimum tax ; ● changes in the deductibility of certain aspects of executive compensation ; ● changes in the deductibility of certain entertainment and recreation expenses ; and ● changes in incentive tax breaks for u.s production activities . because of the company 's existing federal net operating loss carryforwards and current expectations as to the recovery of its net deferred tax assets , the company believes that the tax act will not have a significant impact on its financial results and financial position , including on its liquidity , for the foreseeable future . liquidity and capital resources the following table summarizes the primary uses and sources of cash for the periods indicated : replace_table_token_2_th 49 net cash used in operating activities net cash used in operating activities of approximately $ 9.5 million for the year ended december 31 , 2018 primarily reflects our net income for the period of approximately $ 0.9 million adjusted for various non-cash charges and income , including ( i ) approximately $ 12.7 million change in fair value of warrant liability reflected as other income , partially offset by ( ii ) net operating asset/liability changes of $ 0.3 million , ( iii ) $ 0.8 million of stock-based compensation , ( iv ) an increase in the provision for obsolete inventory of $ 0.8 million , ( v ) depreciation and amortization expense of $ 0.2 million and ( vii ) $ 0.2 million of non-cash interest expense . net cash used in operating activities of approximately $ 13.3 million for the year ended december 31 , 2017 primarily reflects our net loss for the period of approximately $ 15.3 million adjusted for various non-cash charges and income , including ( i ) approximately $ 0.6 million change in fair value of warrant liability reflected as other income , ( ii ) net operating asset/liability changes of approximately $ 2.7 million , ( iii ) approximately $ 0.9 million deferred tax benefit resulting from the merger partially offset by ( iv ) approximately $ 1.3 million of offering expenses attributable to the warrant liability resulting from our june 2017 public offering , ( v ) approximately $ 1.6 million of stock-based compensation , ( vi )
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during fiscal 2021 , we saw an increase in the portion of our sales occurring through our subscription and saas offerings compared to the portion of our on-premises solutions sold with perpetual licenses . as this trend continues , a greater portion of our revenue will be recognized over time as subscription and saas revenue rather than license revenue , which is typically recognized in the fiscal period in which sales occur . as a result , the rate of growth in our license revenue , which has historically been viewed as a leading indicator of our business performance , may be less relevant and we believe that the overall growth rate of our combined license and subscription and saas revenue , as well as the growth in remaining performance obligations , will become better indicators of our future growth prospects . dell go-to-market initiatives we continue joint marketing , sales , branding and product development efforts with dell and other dell companies to enhance the collective value we deliver to our mutual customers . during fiscal 2021 , revenue from dell , including purchases of 39 products and services directly from us , as well as through our channel partners , accounted for 35 % of our consolidated revenue . these purchases included dell as an original equipment manufacturer ( “ oem ” ) , which accounted for 12 % of our revenue from dell , or 4 % of our consolidated revenue , during fiscal 2021. the remaining revenue from dell consisted of dell acting as a distributor to other non-dell resellers , reselling products and services as a reseller or purchasing products and services for its own internal use . on certain transactions , dell financial services ( “ dfs ” ) also provided financing to our end users at our end users ' discretion . covid-19 impact the worldwide spread of covid-19 has resulted in , and may continue to cause , a global slowdown of economic activity while also disrupting sales channels and marketing activities for an unknown period of time until the disease is contained . while the covid-19 pandemic has not had a material adverse financial impact on our operations to date , the future course of the pandemic , any resulting economic impact and the degree and rate of economic recovery remain highly uncertain and continue to rapidly evolve . although the pandemic has not had the level of financial impact on our business in fiscal 2021 we initially expected , we did experience negative impacts on our sales and certain of our financial results and there continues to be uncertainty regarding the economic effects of the covid-19 pandemic and the extent to which it will have a negative impact on our sales and our financial results into fiscal 2022. for example , license revenue decreased during fiscal 2021 due in part to the effects of covid-19 as a number of our customers ' business plans were impacted by the pandemic . we also expect our operating margin to benefit into fiscal 2022 from some of the short-term covid-19 impacts on our operating expenses , including travel- , employee- and facilities-related costs . we continue to closely monitor the impact of the pandemic on all aspects of our business . story_separator_special_tag style= '' margin-top:6pt '' > obligations include unearned revenue , multi-year contracts with future installment payments and certain unfulfilled orders against accepted customer contracts at the end of any given period . as of january 29 , 2021 , the aggregate transaction price allocated to remaining performance obligations was $ 11.3 billion , of which approximately 55 % is expected to be recognized as revenue over the next twelve months and the remainder thereafter . as of january 31 , 2020 , the aggregate transaction price allocated to remaining performance obligations was $ 10.3 billion , of which approximately 54 % was expected to be recognized as revenue during fiscal 2021 , and the remainder thereafter . backlog backlog is comprised of unfulfilled purchase orders or unfulfilled executed agreements at the end of a given period and is net of related estimated rebates and marketing development funds . backlog consists of licenses , subscription and saas , and services . as of january 29 , 2021 , our total backlog was $ 93 million , and our backlog related to licenses was $ 23 million . for our backlog related to licenses , we generally expect to deliver and recognize as revenue during the following quarter . backlog totaling $ 18 million as of january 29 , 2021 was excluded from the remaining performance obligations because such contracts are subject to cancellation until fulfillment of the performance obligation occurs . as of january 31 , 2020 , our total backlog was $ 18 million , and our backlog related to licenses was $ 5 million . the amount excluded from the remaining performance obligations because such contracts are subject to cancellation until fulfillment of the performance obligation occurs was not material as of january 31 , 2020. the amount and composition of backlog will fluctuate period to period , and backlog is managed based upon multiple considerations , including product and geography . we do not believe the amount of backlog is indicative of future sales or revenue or that the mix of backlog at the end of any given period correlates with actual sales performance of a particular geography or particular products and services . story_separator_special_tag cost of license revenue , cost of subscription and saas revenue , cost of services revenue and operating expenses our cost of services revenue and operating expenses primarily reflected increasing cash-based employee-related expenses , driven by incremental growth in salaries and headcount , both organic and through acquisitions , across most of our income statement expense categories , offset in part by decreased travel-related costs resulting from travel restrictions imposed in response to the covid-19 pandemic for fiscal 2021. cost of license revenue cost of license revenue primarily consists of the cost of fulfillment of our sd-wan offerings , royalty costs in connection with technology licensed from third-party providers and amortization of intangible assets . the cost of fulfillment of our software and hardware sd-wan offerings includes personnel costs and related overhead associated with delivery of our products . cost of license revenue during the periods presented was as follows ( dollars in millions ) : replace_table_token_7_th cost of license revenue remained relatively consistent in fiscal 2021 compared to fiscal 2020. cost of subscription and saas revenue cost of subscription and saas revenue primarily includes personnel costs and related overhead associated with hosted services supporting our saas offerings . additionally , cost of subscription and saas revenue also includes depreciation of equipment supporting our subscription and saas offerings . 42 cost of subscription and saas revenue during the periods presented was as follows ( dollars in millions ) : replace_table_token_8_th cost of subscription and saas revenue increased in fiscal 2021 compared to fiscal 2020. the increase was primarily due to increased amortization of intangible assets of $ 83 million and growth in costs associated with hosted services to support our saas offerings of $ 64 million . the increase was also driven by increased equipment and depreciation of $ 31 million , as well as growth in cash-based employee-related cost of $ 16 million , which was driven by incremental growth in headcount and salaries , both organic and through acquisitions . cost of services revenue cost of services revenue primarily includes the costs of personnel and related overhead to deliver technical support for our products and costs to deliver professional services . additionally , cost of services revenue includes depreciation of equipment supporting our service offerings . cost of services revenue during the periods presented was as follows ( dollars in millions ) : replace_table_token_9_th cost of services revenue increased in fiscal 2021 compared to fiscal 2020. the increase was primarily due to growth in cash-based employee-related expenses of $ 112 million , primarily driven by incremental growth in headcount and salaries , both organic and through acquisitions . the increase was also driven by increased stock-based compensation of $ 16 million , primarily driven by increased restricted stock unit awards granted to our employees . these increases were partially offset by decreased travel-related costs of $ 49 million , resulting from travel restrictions imposed in response to the covid-19 pandemic , as well as decreased facilities-related costs of $ 15 million . research and development expenses research and development expenses include the personnel and related overhead associated with the development of our product software and service offerings . we continue to invest in and focus on expanding our subscription and saas offerings . 43 research and development expenses during the periods presented were as follows ( dollars in millions ) : replace_table_token_10_th research and development expenses increased in fiscal 2021 compared to fiscal 2020. the increase was primarily due to growth in cash-based employee-related expenses of $ 237 million , primarily driven by incremental growth in headcount and salaries , both organic and through acquisitions , as well as increased stock-based compensation of $ 65 million , primarily driven by increased restricted stock unit awards granted to our employees . the increase was also driven by increased equipment and depreciation of $ 51 million . these increases were partially offset by decreased travel-related costs of $ 34 million resulting from travel restrictions imposed in response to the covid-19 pandemic , as well as a decrease in capitalized internal-use software development costs of $ 21 million and facilities-related costs of $ 13 million . sales and marketing expenses sales and marketing expenses include personnel costs , sales commissions and related overhead associated with the sale and marketing of our license , subscription and saas and services offerings , as well as the cost of product launches and marketing initiatives . a significant portion of our sales commissions are deferred and recognized over the expected period of benefit . sales and marketing expenses during the periods presented were as follows ( dollars in millions ) : replace_table_token_11_th sales and marketing expenses increased in fiscal 2021 compared to fiscal 2020. the increase was primarily due to growth in cash-based employee-related expenses of $ 154 million , primarily driven by incremental growth in headcount and salaries , both organic and through acquisitions , as well as increased stock-based compensation of $ 28 million , primarily driven by increased restricted stock unit awards granted to our employees . the increase was also driven by increased equipment and depreciation of $ 17 million . these increases were partially offset by decreased travel-related costs of $ 169 million resulting from travel restrictions imposed in response to the covid-19 pandemic . general and administrative expenses general and administrative expenses include personnel and related overhead costs to support the business . these expenses include the costs associated with finance , human resources , it infrastructure and legal , as well as expenses related to corporate costs and initiatives . 44 general and administrative expenses during the periods presented were as follows ( dollars in millions ) : replace_table_token_12_th general and administrative expenses decreased in fiscal 2021 compared to fiscal 2020. the decrease was primarily driven by a decrease in litigation expenses of $ 474 million due to the derecognition of accrued litigation loss of $ 237 million recognized in fiscal 2020 in connection with certain patent litigation , as well as decreased acquisition-related costs of $ 41 million .
| additionally , as customers adopt our cloud-based offerings , license revenue may be lower and subject to greater fluctuation in the future , driven by a higher percentage of cloud-based offerings being sold as well as the variability of large deals between fiscal quarters , which deals historically have had a large license revenue impact . subscription and saas revenue subscription and saas revenue increased during fiscal 2021 compared to fiscal 2020. revenue growth from our vcpp , workspace one , vmware tanzu , vmware cloud on aws and vmware carbon black cloud offerings continued to contribute to subscription and saas revenue growth during fiscal 2021 compared to fiscal 2020. services revenue during fiscal 2021 and fiscal 2020 , software maintenance revenue continued to benefit from maintenance contracts sold in previous periods . in each period presented , customers purchased , on a weighted-average basis , approximately three years of support and maintenance with each new license purchased . professional services revenue increased during fiscal 2021 compared to fiscal 2020. services we provide through our technical account managers and our continued focus on solution deployments , including our networking , security , cloud management and digital workspace offerings , contributed to the increase in professional services revenue . we continue to also focus on enabling our partners to deliver professional services for our solutions , and as such , our professional services revenue may vary as we continue to leverage our partners . timing of service engagements will also impact the amount of professional services revenue we recognize during a period . unearned revenue unearned revenue as of the periods presented consisted of the following ( table in millions ) : replace_table_token_6_th unearned subscription and saas revenue is generally recognized over time as customers consume the services or ratably over the term of the subscription , commencing upon provisioning of the service . unearned software maintenance revenue is attributable to our maintenance contracts and is generally recognized ratably over the contract duration . the weighted-average remaining contractual term as of january 29 , 2021 was approximately two years .
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we believe that we can successfully utilize the net proceeds to continue our asset growth and create a banking platform that will improve our profitability and create operational efficiencies for pathfinder bank . 34 `` '' · providing quality customer service . our strategy emphasizes providing quality customer service and meeting the financial needs of our customer base by offering a full complement of loan , deposit , financial services and online banking solutions ( i.e. , internet banking ) . our competitive advantage is our ability to make decisions , such as approving loans , more quickly than our larger competitors . customers enjoy , and will continue to enjoy , access to senior executives and local decision makers at pathfinder bank and the flexibility it brings to their businesses . application of critical accounting policies the company 's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the united states and follow practices within the banking industry . application of these principles requires management to make estimates , assumptions and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes . these estimates , assumptions and judgments are based on information available as of the date of the financial statements ; accordingly , as this information changes , the financial statements could reflect different estimates , assumptions and judgments . certain policies inherently have a greater reliance on the use of estimates , assumptions and judgments and as such have a greater possibility of producing results that could be materially different than originally reported . estimates , assumptions and judgments are necessary when assets and liabilities are required to be recorded at fair value or when an asset or liability needs to be recorded contingent upon a future event . carrying assets and liabilities at fair value inherently results in more financial statement volatility . the fair values , and information used to record valuation adjustments for certain assets and liabilities , are based on quoted market prices or are provided by other third-party sources , when available . when third party information is not available , valuation adjustments are estimated in good faith by management . the most significant accounting policies followed by the company are presented in note 1 to the consolidated financial statements . these policies , along with the disclosures presented in the other financial statement notes and in this discussion , provide information on how significant assets and liabilities are valued in the consolidated financial statements and how those values are determined . based on the valuation techniques used and the sensitivity of financial statement amounts to the methods , assumptions , and estimates underlying those amounts , management has identified the allowance for loan losses , deferred income taxes , pension obligations , the evaluation of investment securities for other than temporary impairment , the annual evaluation of the company 's goodwill for possible impairment , and the estimation of fair values for accounting and disclosure purposes to be the accounting areas that require the most subjective and complex judgments . these areas could be the most subject to revision as new information becomes available . allowance for loan losses . the allowance for loan losses represents management 's estimate of probable loan losses inherent in the loan portfolio . determining the amount of the allowance for loan losses is considered a critical accounting estimate because it requires significant judgment on the use of estimates related to the amount and timing of expected future cash flows on impaired loans , estimated losses on pools of homogeneous loans based on historical loss experience , and environmental factors , all of which may be susceptible to significant change . the company establishes a specific allowance for all commercial loans in excess of the total related credit threshold of $ 100,000 and single borrower residential mortgage loans in excess of the total related credit threshold of $ 300,000 identified as being impaired which are on nonaccrual and have been risk rated under the company 's risk rating system as substandard , doubtful , or loss . in addition , an accruing substandard loan could be identified as being impaired . the measurement of impaired loans is generally based upon the present value of future cash flows discounted at the historical effective interest rate , except that all collateral-dependent loans are measured for impairment based on the fair value of the collateral , less costs to sell . the majority of the company 's impaired loans are collateral-dependent . for all other loans , the company uses the general allocation methodology that establishes an allowance to estimate the probable incurred loss for each risk-rating category . note 1 to the consolidated financial statements describes the methodology used to determine the allowance for loan losses and a discussion of the factors driving changes in the amount of the allowance for loan losses is included in this report . 35 `` '' deferred income tax assets and liabilities . deferred income tax assets and liabilities are determined using the liability method . under this method , the net deferred tax asset or liability is recognized for the future tax consequences . this is attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases as well as net operating and capital loss carry forwards . deferred tax assets and liabilities are measured using enacted tax rates applied to taxable income in the years in which those temporary differences are expected to be recovered or settled . the affect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period that includes the enactment date . if current available evidence about the future raises doubt about the likelihood of a deferred tax asset being realized , a valuation allowance is established . story_separator_special_tag the judgment about the level of future taxable income , including that which is considered capital , is inherently subjective and is reviewed on a continual basis as regulatory and business factors change . a valuation allowance of $ 265,000 was maintained at december 31 , 2015 , as management believes it may not generate sufficient future taxable income in the form of capital gains in the future to offset its capital loss carry forward position before those potential tax benefits expire . the company 's effective tax rate differs from the statutory rate due primarily to non-taxable interest income and bank owned life insurance . see note 17 to the accompanying financial statements . pension obligations . pension and postretirement benefit plan liabilities benefits and expenses are based upon actuarial assumptions of future events , including fair value of plan assets , interest rates , and the length of time the company will have to provide those benefits . the assumptions used by management are discussed in note 14 to the consolidated financial statements contained herein . evaluation of investment securities for other-than-temporary-impairment ( `` otti '' ) . the company carries all of its available-for-sale investments at fair value with any unrealized gains or losses reported net of tax as an adjustment to shareholders ' equity and included in accumulated other comprehensive income ( loss ) , except for the credit-related portion of debt security impairment losses and otti of equity securities which are charged to earnings . the company 's ability to fully realize the value of its investments in various securities , including corporate debt securities , is dependent on the underlying creditworthiness of the issuing organization . in evaluating the debt security ( both available-for-sale and held-to-maturity ) portfolio for other-than-temporary impairment losses , management considers ( 1 ) if we intend to sell the security before recovery of its amortized cost ; ( 2 ) if it is `` more likely than not '' we will be required to sell the security before recovery of its amortized cost basis ; or ( 3 ) if the present value of expected cash flows is not sufficient to recover the entire amortized cost basis . when the fair value of a held-to-maturity or available-for-sale security is less than its amortized cost basis , an assessment is made as to whether otti is present . the company considers numerous factors when determining whether a potential otti exists and the period over which the debt security is expected to recover . the principal factors considered are ( 1 ) the length of time and the extent to which the fair value has been less than the amortized cost basis , ( 2 ) the financial condition of the issuer and ( guarantor , if any ) and adverse conditions specifically related to the security , industry or geographic area , ( 3 ) failure of the issuer of the security to make scheduled interest or principal payments , ( 4 ) any changes to the rating of the security by a rating agency , and ( 5 ) the presence of credit enhancements , if any , including the guarantee of the federal government or any of its agencies . evaluation of goodwill . management performs an annual evaluation of the company 's goodwill for possible impairment . based on the results of the 2015 evaluation , management has determined that the carrying value of goodwill is not impaired as of december 31 , 2015. the evaluation approach is described in note 10 of the consolidated financial statements . estimation of fair value . the estimation of fair value is significant to several of our assets ; including investment securities available-for-sale , interest rate derivative ( discussed in detail in note 22 of the consolidated financial statements ) , intangible assets , foreclosed real estate , and the value of loan collateral when valuing loans . these are all recorded at either fair value , or the lower of cost or fair value . fair values are determined based on third party sources , when available . furthermore , accounting principles generally accepted in the united states require disclosure of the fair value of financial instruments as a part of the notes to the consolidated financial statements . fair values on our available-for-sale securities may be influenced by a number of factors ; including market interest rates , prepayment speeds , discount rates , and the shape of yield curves . 36 `` '' fair values for securities available-for-sale are obtained from an independent third party pricing service . where available , fair values are based on quoted prices on a nationally recognized securities exchange . if quoted prices are not available , fair values are measured using quoted market prices for similar benchmark securities . management made no adjustments to the fair value quotes that were provided by the pricing source . the fair values of foreclosed real estate and the underlying collateral value of impaired loans are typically determined based on evaluations by third parties , less estimated costs to sell . when necessary , appraisals are updated to reflect changes in market conditions . recent events on december 18 , 2015 , the board of directors declared a quarterly dividend of $ 0.05 per common share . the dividend was payable on february 1 , 2016 to shareholders of record on january 11 , 2016. story_separator_special_tag > `` '' rate/volume analysis net interest income can also be analyzed in terms of the impact of changing interest rates on interest-earning assets and interest-bearing liabilities , and changes in the volume or amount of these assets and liabilities . the following table represents the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected the company 's interest income and interest expense during the periods indicated .
| partially offsetting these increases to net income was the increase in noninterest expense to $ 17.6 million in 2015 from $ 15.7 million in 2014 , due largely to the increase in salaries and employee benefits . the provision for income taxes decreased $ 82,000 between 2014 and 2015 due to a lower effective tax rate resulting from higher nontaxable income as a proportion to total income in 2015 as compared with the previous year , partially offset by the increase in income before taxes in 2015. total assets were $ 623.3 million at december 31 , 2015 as compared to $ 561.0 million at december 31 , 2014. the increase in total assets of $ 62.2 million , or 11.1 % , was the result of the increase in loans , largely commercial real estate and residential mortgages , and the increase in securities . the loan portfolio increased $ 42.9 million and the investment securities portfolio increased $ 14.3 million . the increase in total assets was funded largely by a $ 74.7 million increase in customer deposits partially offset by a net decrease in borrowings from the fhlbny of $ 24.8 million . loan delinquencies improved as did the ratio of allowance to loan losses to period end loans , and the ratio of nonperforming assets to total assets total past due loans as a percent of total loans decreased from 3.0 % to 2.1 % . all major loan product segments contributed to this improvement . the ratio of the allowance for loan losses to period end loans decreased from 1.38 % at december 31 , 2014 to 1.33 % at december 31 , 2015 as management 's estimate of the probable losses inherent in the current loan portfolio declined . additionally , the ratio of nonperforming loans to period end loans improved at december 31 , 2015 to 1.24 % as compared to 1.61 % at december 31 , 2014 as the level of nonperforming commercial real estate loans decreased $ 853,000. the ratio of net charge-offs to average loans stayed constant at 0.25 % for 2015 and 2014. this activity reflects charge-offs
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this is due to the numerous risks and uncertainties associated with developing medicines , including the uncertainty of : identifying a lead candidate for each of the hbv and microbiome programs ; establishing an appropriate safety profile with ind-enabling toxicology studies ; successful enrollment in , and completion of clinical trials ; receipt of marketing approvals from applicable regulatory authorities ; establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers ; 28 obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates ; launching commercial sales of the products , if and when approved , whether alone or in collaboration with others ; and a continued acceptable safety profile of the products following approval . a change in the outcome of any of these variables with respect to the development of any of our product candidates would significantly change the costs and timing associated with the development of that product candidate . research and development activities are central to our business model . product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later-stage clinical trials . we expect research and development costs to increase significantly for the foreseeable future as our product candidate development programs progress . however , we do not believe that it is possible at this time to accurately project total program-specific expenses through commercialization . there are numerous factors associated with the successful commercialization of any of our product candidates , including future trial design and various regulatory requirements , many of which can not be determined with accuracy at this time based on our stage of development . additionally , future commercial and regulatory factors beyond our control will impact our clinical development programs and plans . general and administrative expenses general and administrative expenses consist primarily of salaries and other related costs , including stock-based compensation , for personnel in executive , finance , accounting , business development , legal and human resources functions . other significant costs include facility costs not otherwise included in research and development expenses , legal fees relating to patent and corporate matters and fees for accounting and consulting services . we anticipate that our general and administrative expenses will increase in the future to support continued research and development activities , potential commercialization of our product candidates and increased costs of operating as a public company . these increases will likely include increased costs related to the hiring of additional personnel and fees to outside consultants , lawyers and accountants , among other expenses . additionally , we anticipate increased costs associated with being a public company including expenses related to services associated with maintaining compliance with exchange listing and sec requirements , insurance , and investor relations costs . interest income interest income consists of interest earned on our cash and cash equivalents and available-for-sale securities . critical accounting policies and significant judgments and estimates our management 's discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements , which we have prepared in accordance with accounting principles generally accepted in the united states . the preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , as well as the reported amounts of revenues and expenses during the reporting periods . on an ongoing basis , we evaluate our estimates and judgments , including those described in greater detail below . we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . while our significant accounting policies are described in more detail in the notes to our consolidated financial statements included elsewhere in this annual report on form 10-k , we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our financial condition and results of operations . goodwill and other intangible assets goodwill is the excess of purchase price over the fair value of identified net assets of businesses acquired . our intangible assets with an indefinite life are related to in-process research and development ( `` ipr & d '' ) programs acquired in the assembly merger , as we expect future research and development on these programs to provide us with substantial benefit for a period that extends beyond the foreseeable horizon . intangible assets with indefinite useful lives are measured at their respective fair values as of the acquisition date . we do not amortize goodwill and intangible assets with indefinite useful lives . intangible assets related to ipr & d projects are considered to be indefinite lived until the completion or abandonment of the associated r & d efforts . if and when development is complete , which generally occurs if and when regulatory approval to market a product is obtained , the associated assets would be deemed finite lived and would then be amortized based on their respective estimated useful lives at that point in time . 29 we review goodwill and indefinite-lived intangible assets at least annually for possible impairment . goodwill and indefinite-lived intangible assets are reviewed for possible impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit or the indefinite-lived intangible assets below their carrying values . story_separator_special_tag we test goodwill and indefinite-lived intangible assets each year on december 31. we review the carrying value of goodwill and indefinite-lived intangible assets utilizing a discounted cash flow model , and , where appropriate , a market value approach is also utilized to supplement the discounted cash flow model . we make assumptions regarding estimated future cash flows , discount rates , long-term growth rates and market values to determine each reporting unit 's estimated fair value accrued research and development expenses as part of the process of preparing our consolidated financial statements , we are required to estimate our accrued expenses . this process involves reviewing quotations and contracts , identifying services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost . the majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met . we make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time . we periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary . the significant estimates in our accrued research and development expenses include fees paid to cros in connection with research and development activities for which we have not yet been invoiced . we base our expenses related to cros on our estimates of the services received and efforts expended pursuant to quotes and contracts with cros that conduct research and development on our behalf . the financial terms of these agreements are subject to negotiation , vary from contract to contract and may result in uneven payment flows . there may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the research and development expense . in accruing service fees , we estimate the time period over which services will be performed and the level of effort to be expended in each period . if the actual timing of the performance of services or the level of effort varies from our estimate , we adjust the accrual or prepaid accordingly . although we do not expect our estimates to be materially different from amounts actually incurred , our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and could result in us reporting amounts that are too high or too low in any particular period . use of estimates the preparation of financial statements in conformity with u.s. gaap requires our management 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 as well as the reported revenue , if any , and expenses during the reporting periods . on an ongoing basis , management evaluates their estimates and judgments . management bases estimates on historical experience and on various other factors that they 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 might differ from these estimates under different assumptions or conditions . the company 's significant estimates and assumptions include the initial fair value , recoverability and useful lives of intangible assets , including goodwill and the grant date fair value of stock-based compensation . stock-based compensation we apply the fair value recognition provisions of financial accounting standards board accounting standards codification topic 718 , compensation-stock compensation , which we refer to as asc 718 , to account for stock-based compensation . we recognize stock-based compensation expense related to stock options granted to employees and directors for their services on the board of directors based on the estimated fair value of each stock option on the date of grant , net of estimated forfeitures , using the black-scholes option-pricing model . the grant date fair value of awards subject to service-based vesting , net of estimated forfeitures , is recognized on a straight-line basis over the requisite service period , which is generally the vesting period of the respective awards . in accordance with the asc 718 , stock options subject to both performance- and service-based vesting conditions are recognized using an accelerated recognition model if achievement of the performance requirements is considered to be probable . we account for stock options granted to non-employees , which primarily consist of consultants and members of our scientific advisory board , using the fair value method . stock options granted to non-employees are subject to periodic revaluation over their vesting terms and stock-based compensation expense is recognized using an accelerated recognition model . we use the black-scholes option pricing model to estimate the fair value of stock option awards using various assumptions that require management to apply judgment and make estimates , including : · the expected term of the stock option award , which we calculate using the simplified method , as prescribed by the securities and exchange commission staff accounting bulletin no . 107 , share-based payment , as we have insufficient historical information regarding our stock options to provide a basis for an estimate ; 30 · the expected volatility of the underlying common stock , which we estimate based on the historical volatility of a representative group of publicly traded biopharmaceutical companies with similar characteristics to us , including development candidates in earlier stages of drug development and areas of therapeutic focus ; · the risk-free interest rate , which we based on the yield curve of u.s. treasury securities with periods commensurate with the expected term of the options being valued ; · the expected dividend yield , which we estimate to be zero based on the fact that we have never paid cash dividends and have no present
| general and administrative expense general and administrative expense was $ 13,239,715 for the year ended december 2014 , an increase of $ 8,664,014 or 189.3 % from $ 4,575,701 for the same period in 2013. the primary reason was an increase of stock-based compensation expense of approximately $ 6,913,000 due to new stock options granted to employees and consultants , warrant expenses of $ 680,000 , merger expenses of $ 471,000 , accounting fees $ 78,000 , sign on bonus and senior management bonuses of $ 559,000 , d & o insurance of $ 55,000 ; offset by a decrease of $ 91,000 for consulting . interest expense and income there was no interest expense in 2014 or 2013. interest income was $ 167,653 for the year ended 2014 compared to $ 201,020 for the same period in 2013. liquidity and capital resources as a result of our significant research and development expenditures and the lack of any fda-approved products to generate product sales revenue , we have not been profitable and have generated operating losses since we were incorporated in october 2005. we have funded our operations through december 31 , 2014 principally with debt prior to our initial public offering , and thereafter with equity financing , raising an aggregate of $ 111.5 million in net proceeds from public offerings and private placements from inception to december 31 , 2014. in january 2014 , we sold an aggregate of 92,472 shares of common stock under the amended at-the-market common equity sales program , resulting in net proceeds of approximately $ 1,763,000. on october 6 , 2014 , we sold to various institutional investors an aggregate of 1,959,000 shares of common stock in a registered direct offering . the purchase price paid by the investors was $ 8.04 per share and an aggregate of approximately $ 14,963,000 in net proceeds were received . in connection with the offering , the company entered into a placement agent agreement with william blair & company , l.l.c. , who acted as sole placement agent in the offering , and pursuant to which the company paid a placement agent fee equal to 5.0 % of the gross proceeds of the offering . cash flows for the three years ended december 31 , 2014 and 2013
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47 interest expense increased by $ 41.6 million , or 51.7 % , to $ 122.1 million in 2018 , compared with $ 80.4 million in 2017 , primarily due to increased cost from time deposits , long term debt , and fhlb advances offset by decreases in securities sold under agreements to repurchase . the overall increase in interest expense was primarily due to increases in both volume and rates in interest bearing deposits , volume increases in long term debts and rate increases in other borrowings offset by decreases in both volume and rate on securities sold under agreements to repurchase and rate decreases in long term debt as discussed below : ● changes in volume : average interest bearing deposits increased $ 967.0 million , or 10.2 % , and average long term debt increased $ 65.1 million , or 50.5 % , offset by decreases in securities sold under agreements to repurchase of $ 87.3 million , or 63.8 % , and a decrease in fhlb advances and other borrowings of $ 2.7 million , or 1.0 % . the changes in volume caused an increase in interest expense of $ 11.6 million . ● changes in rate : the average costs of interest-bearing deposits and fhlb advances and other borrowings increased to 1.03 % and 1.98 % in 2018 from 0.70 % and 1.66 % in 2017 , respectively . the increased cost was offset by decreases in average costs of long term debt and securities sold under agreements to repurchase to 4.49 % and 2.92 % in 2018 from 4.73 % and 3.11 % in 2017 , respectively . the changes in rate caused interest expense to increase by $ 30.0 million . ● change in the mix of interest-bearing liabilities : average interest-bearing deposits of $ 10.4 billion increased to 95.4 % of total interest-bearing liabilities in 2018 compared to 94.8 % in 2017. average long-term debt of $ 194.1 million increased to 1.8 % of total interest-bearing liabilities . offsetting the increase , average securities sold under agreements to repurchase decreased to 0.5 % of total interest-bearing liabilities in 2018 compared to 1.4 % in 2017 and average fhlb advances and other borrowings of $ 253.7 million decreased to 2.3 % of total interest-bearing liabilities in 2018 compared to 2.6 % in 2017. net interest margin , defined as net interest income to average interest-earning assets , was 3.79 % in 2018 compared to 3.63 % in 2017. comparison of 2017 with 2016 net interest income increased $ 77.8 million , or 18.6 % , from $ 417.9 million in 2016 to $ 495.7 million in 2017. the increase in net interest income was due primarily to the increase in loan interest income , decrease in interest expense on securities sold under agreements to repurchase , and increase in interest income from interest bearing deposits , partially offset by increases in interest expense from money market accounts and time deposits . average loans for 2017 were $ 11.9 billion , a $ 1.3 billion , or a 12.4 % , increase from $ 10.6 billion in 2016. compared with 2016 , average residential mortgage loans increased $ 584.3 million , or 25.1 % , average commercial mortgage loans increased $ 564.6 million , or 10.2 % , average real estate construction loans increased $ 121.8 million , or 24.6 % , and average commercial loans increased $ 43.2 million , or 1.9 % . average investment securities were $ 1.3 billion in 2017 , a decrease of $ 64.8 million , or 4.7 % , from 2016. average interest-bearing cash on deposits with financial institutions increased $ 21.5 million , or 6.2 % , to $ 366.7 million in 2017 from $ 345.1 million in 2016 . 48 average interest-bearing deposits were $ 9.4 billion in 2017 , an increase of $ 893.2 million , or 10.4 % , from $ 8.6 billion in 2016 , primarily due to increases of $ 300.4 million , or 14.6 % , in money market deposits , $ 258.0 million , or 24.7 % , in interest-bearing demand deposits , $ 198.6 million , or 31.2 % , in saving deposits , and $ 136.3 million , or 2.8 % , in time deposits . average securities sold under agreements to repurchase decreased $ 245.1 million , or 64.2 % , to $ 136.8 million in 2017 from $ 381.9 million in 2016 , primarily due to maturities of securities sold under agreements to repurchase . average other borrowings increased $ 129.7 million , or 102 % , to $ 256.4 million in 2017 from $ 126.7 million in 2016 , primarily due to increases in fhlb advances . interest income increased $ 77.1 million , or 15.4 % , from $ 499.1 million in 2016 to $ 576.2 million in 2017 primarily due to increases in the volume of loans : ● changes in volume : average interest-earning assets increased $ 1.3 billion , or 10.4 % , to $ 13.6 billion in 2017 , compared with the average interest-earning assets of $ 12.4 billion in 2016. average loans increased $ 1.3 billion and average interest-bearing cash on deposits with financial institutions increased $ 21.5 million in 2017 which contributed to the increase in interest income . offsetting the above increases was a decrease of $ 64.8 million in investment securities . the increase of $ 59.9 million in interest income resulted primarily from a $ 60.2 million increase in interest income from the loan volume increase , offset by a $ 1.0 million decrease in interest income from the investment securities . story_separator_special_tag ● changes in rate : the average yield of interest-bearing assets increased to 4.22 % in 2017 from 4.04 % in 2016. increase in rate on loans contributed $ 15.4 million to interest income , increase in rate on deposit with other financial institutions contributed $ 2.5 million to interest income , and increase rate on investment securities contributed $ 122,000 to interest income , partially offset by decrease in rate on fhlb stock which caused a $ 868,000 decrease to interest income . the changes in rate contributed to interest income increase of $ 17.2 million . ● change in the mix of interest-earning assets : average gross loans , which generally have a higher yield than other types of investments , comprised 87.5 % of total average interest-earning assets in 2017 , an increase from 86.0 % in 2016. average investment securities comprised 9.6 % of total average interest-bearing assets in 2017 , a decrease from 11.1 % in 2016. interest expense decreased by $ 758,000 , or 0.9 % , to $ 80.4 million in 2017 , compared with $ 81.2 million in 2016 , primarily due to decreased cost from securities sold under agreements to repurchase offset by increased interest cost from money market accounts , time deposits and fhlb advances and other borrowings . the overall decrease in interest expense was primarily due to decreases in both volume and rates in securities sold under agreements to repurchase offset by increases in volume from all other interest bearing liabilities and increase in rate on time deposits and other borrowings from financial institutions as discussed below : ● changes in volume : average interest-bearing deposits increased $ 893.2 million , or 10.4 % , and average fhlb advances and other borrowings increased $ 129.7 million , or 102 % , partially offset by a $ 245.1 million , or 64.2 % , decrease in average securities sold under agreements to repurchase . the changes in volume caused a decrease in interest expense of $ 2.6 million . ● changes in rate : the average cost of securities sold under agreements to repurchase decreased to 3.11 % in 2017 from 4.01 % in 2016. the average cost of interest-bearing deposits increased to 0.70 % in 2017 from 0.69 % in 2016. the changes in rate caused interest expense to increase by $ 1.8 million . ● change in the mix of interest-bearing liabilities : average interest-bearing deposits of $ 9.4 billion increased to 94.8 % of total interest-bearing liabilities in 2017 compared to 93.2 % in 2016. average fhlb advances and other borrowings of $ 256.4 million increased to 2.6 % of total interest-bearing liabilities in 2017 compared to 0.5 % in 2016. offsetting the increase , average securities sold under agreements to repurchase decreased to 1.4 % of total interest-bearing liabilities in 2017 compared to 4.2 % in 2016. net interest margin , defined as net interest income to average interest-earning assets , was 3.63 % in 2017 compared to 3.38 % in 2016 . 49 the following table sets forth information concerning average interest-earning assets , average interest-bearing liabilities , and the yields and rates paid on those assets and liabilities . average outstanding amounts included in the table are daily averages . interest-earning assets and interest-bearing liabilities replace_table_token_3_th ( 1 ) yields and amounts of interest earned include loan fees . non-accrual loans are included in the average balance . ( 2 ) calculated by dividing net interest income by average outstanding interest-earning assets . 50 net interest income — changes due to rate and volume ( 1 ) replace_table_token_4_th ( 1 ) changes in interest income and interest expense attributable to changes in both volume and rate have been allocated proportionately to changes due to volume and changes due to rate . provision for credit losses the provision for credit losses represents the charge against current earnings that is determined by management , through a credit review process , as the amount needed to maintain an allowance for loan losses and an allowance for off-balance sheet unfunded credit commitments that management believes to be sufficient to absorb credit losses inherent in the bank 's loan portfolio and credit commitments . the bank recorded a reversal of $ 4.5 million provision for credit losses in 2018 compared with a reversal of $ 2.5 million in 2017 , and a reversal of $ 15.7 million in 2016. net recoveries for 2018 were $ 3.6 million , or 0.03 % of average loans , compared to net recoveries for 2017 of $ 6.8 million , or 0.06 % of average loans , and net charge-offs for 2016 of $ 4.3 million , or 0.04 % of average loans . non-interest income non-interest income decreased $ 4.6 million , or 12.7 % , to $ 31.7 million for 2018 , from $ 36.3 million for 2017 , compared to $ 33.4 million for 2016. non-interest income includes depository service fees , letters of credit commissions , securities gains ( losses ) , gains ( losses ) from loan sales , gains from sale of premises and equipment , gains on acquisition , and other sources of fee income . these other fee-based services include wire transfer fees , safe deposit fees , fees on loan-related activities , fee income from our wealth management division , and foreign exchange fees . comparison of 201 8 with 201 7 the decrease in non-interest income from 2017 to 2018 was primarily due to a decrease of $ 5.3 million in gain from acquisition of sinopac bancorp in 2017 and a $ 2.8 million increase in net losses from equity securities , offset by a $ 2.8 million increase in fees and commissions income from wealth management . no other-than-temporary write-down was recorded in 2018 and 2017 .
| average loans for 2018 were $ 13.3 billion , a $ 1.4 billion , or 11.8 % increase from $ 11.9 billion in 2017. compared with 2017 , average residential mortgage loans increased $ 653.3 million , or 22.4 % , average commercial mortgage loans increased $ 454.5 million , or 7.4 % , average commercial loans increased $ 250.0 million , or 11.0 % , and average real estate construction loans decreased $ 14.2 million , or 2.3 % . average investment securities were $ 1.3 billion in 2018 , an increase of $ 36.9 million , or 2.8 % , from 2017. average interest bearing cash on deposits with financial institutions decreased $ 89.7 million , or 24.5 % , to $ 277.0 million in 2018 from $ 366.7 million in 2017. average interest bearing deposits were $ 10.4 billion in 2018 , an increase of $ 967.0 million , or 10.2 % , from $ 9.4 billion in 2017 , primarily due to increases of $ 1.1 billion , or 21.9 % , in time deposits , $ 85.3 million , or 6.5 % , in interest bearing demand deposits , offset by decreases of $ 159.3 million , or 6.8 % , in money market accounts , and $ 43.0 million , or 5.2 % , in savings accounts . average securities sold under agreements to repurchase decreased $ 87.3 million , or 63.8 % , to $ 49.6 million in 2018 from $ 136.8 million in 2017. interest income increased $ 111.8 million , or 19.4 % , from $ 576.2 million in 2017 to $ 688.0 million in 2018 primarily due to increases in the volume of loans : ● changes in volume : average interest-earning assets increased $ 1.3 billion , or 9.6 % , to $ 14.9 billion in 2018 , compared with the average interest-earning assets of $ 13.6 billion in 2017. average loans increased $ 1.4 billion and average investment securities increased $ 36.9 million in 2018 which contributed to the increase in interest income . offsetting the above increases was a decrease of $ 89.7 million in interest bearing deposits with other financial institutions . the increase of $ 111.8 million in interest income resulted primarily from a $ 64.4 million increase in interest income from the loan volume increase and a $ 594,000 increase
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currently , the company expects to fund its capital expenditures with existing cash , cash generated from operating activities and utilization of the company 's line of credit . the company is also purs u ing $ 3.5 million in permanent financing as a source of funds for the expansion . international activity the company markets its products in numerous countries in various regions of the world , including north america , europe , latin america , and asia . the company 's 201 5 foreign sales of $ 4.9 million were approximately 2 7 . 9 % of total sales , compared to the 201 4 foreign sales of $ 5 . 3 million , which were 28.4 % of total sales . the company experienced a decrease in foreign sales across all geographic regions in 201 5 due to poor general econom ic conditions in europe and a strong u.s. dollar . the company 's foreign transactions are primarily negotiated , invoiced and paid in u.s. dollars , though a portion is transacted in euros . ikonics has not implemented an economic hedging strategy to reduce the risk of foreign currency translation exposures , which management does not believe to be significant based on the scope and geographic diversity of the company 's foreign operations as of december 31 , 201 5 . furthermore , the impact of foreign exchange on the company 's balance sheet and operating results was not material in either 201 5 or 201 4 . future outlook ikonics has spent on average approximately 4 % of annual sales in research and development and has made capital expenditures related to its dtx and ams programs . the company plans to maintain its efforts in this area to expedite internal product development as well as to form technological alliances with outside experts to commercialize new product opportunities . the company continues to make progress on its ams business initiative . the company has entered into agreements with major aerospace companies a long with working on smaller development programs to determine the feasibility of using its unique technologies in the production of military and commercial aircraft . progress is being made on a number of these in-house feasibility projects , and the company believes that several of these could lead to ongoing business . in anticipation of this business , the company is expanding its ams capacity and patent applications . the company is also continuing to pursue dtx related business initiatives . in addition to making efforts towards growing the inkjet technology business , the company offers a range of products for creating texture surfaces and has introduced a fluid for use in prototyping . the company is currently working on production improvements to enhance its customer offerings . the company has been awarded european , japanese and united states patents on its dtx technologies . the company has modified its dtx technology to enter the market for prototyping and 3d printing . domestically , both the domestic and ikonics imaging units remain profitable in mature markets and require aggressive strategies to grow market share . although there will be challenges , the company believes these businesses will continue to grow and prosper . in addition to its traditional emphasis on domestic markets , the company will continue efforts to grow its business internationally by attempting to develop new markets and expanding market share where it has already established a presence . however , the strong u.s. dollar made this challenging during 2015 , and the company anticipates continued strength of the u.s. dollar in the near term . in addition to the $ 3.5 million building expansion to accommodate the ams division and the implementation of a new erp system , other future activities undertaken to expand the company 's business may include acquisitions , building improvements , equipment additions , new product development and marketing opportunities . 16 off-balance sheet arrangements the company has no off-balance sheet arrangements . recent accounting pronouncements in may 2014 , the financial accounting standards board ( “ fasb ” ) issued accounting standards update ( “ asu ” ) no . 2014-09 , revenue from contracts with customers . asu 2014-09 supersedes the revenue recognition requirements in revenue recognition ( topic 605 ) , and requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services . in august 2015 , the fasb issued asu 2015-14 , revenue from contracts with customers : deferral of the effective date , which defers the adoption of asu 2014-09 to annual reporting periods beginning after december 15 , 2017 , including interim reporting periods within that reporting period . earlier application is permitted only as of annual reporting periods beginning after december 15 , 2016 , including interim reporting periods within that reporting period . the company is currently evaluating the effect that adopting this new accounting guidance will have on its condensed statements of operations , cash flows and financial position . in 2014 , the fasb issued asu no . 2014-15 , presentation of financial statements—going concern ( subtopic 205-40 ) : disclosure of uncertainties about an entity 's ability to continue as a going concern , intended to define management 's responsibility to evaluate whether there is substantial doubt about an organization 's ability to continue as a going concern and to provide related footnote disclosures . asu 2014-15 is effective for the company in the year ended december 31 , 2016 , and interim periods beginning march 31 , 2017 , with early application permitted . the company does not anticipate a material impact to the financial statements once implemented . in 2015 , the fasb issued asu no . 2015-11 , inventory ( topic 330 ) related to simplifying the measurement of inventory which story_separator_special_tag currently , the company expects to fund its capital expenditures with existing cash , cash generated from operating activities and utilization of the company 's line of credit . the company is also purs u ing $ 3.5 million in permanent financing as a source of funds for the expansion . international activity the company markets its products in numerous countries in various regions of the world , including north america , europe , latin america , and asia . the company 's 201 5 foreign sales of $ 4.9 million were approximately 2 7 . 9 % of total sales , compared to the 201 4 foreign sales of $ 5 . 3 million , which were 28.4 % of total sales . the company experienced a decrease in foreign sales across all geographic regions in 201 5 due to poor general econom ic conditions in europe and a strong u.s. dollar . the company 's foreign transactions are primarily negotiated , invoiced and paid in u.s. dollars , though a portion is transacted in euros . ikonics has not implemented an economic hedging strategy to reduce the risk of foreign currency translation exposures , which management does not believe to be significant based on the scope and geographic diversity of the company 's foreign operations as of december 31 , 201 5 . furthermore , the impact of foreign exchange on the company 's balance sheet and operating results was not material in either 201 5 or 201 4 . future outlook ikonics has spent on average approximately 4 % of annual sales in research and development and has made capital expenditures related to its dtx and ams programs . the company plans to maintain its efforts in this area to expedite internal product development as well as to form technological alliances with outside experts to commercialize new product opportunities . the company continues to make progress on its ams business initiative . the company has entered into agreements with major aerospace companies a long with working on smaller development programs to determine the feasibility of using its unique technologies in the production of military and commercial aircraft . progress is being made on a number of these in-house feasibility projects , and the company believes that several of these could lead to ongoing business . in anticipation of this business , the company is expanding its ams capacity and patent applications . the company is also continuing to pursue dtx related business initiatives . in addition to making efforts towards growing the inkjet technology business , the company offers a range of products for creating texture surfaces and has introduced a fluid for use in prototyping . the company is currently working on production improvements to enhance its customer offerings . the company has been awarded european , japanese and united states patents on its dtx technologies . the company has modified its dtx technology to enter the market for prototyping and 3d printing . domestically , both the domestic and ikonics imaging units remain profitable in mature markets and require aggressive strategies to grow market share . although there will be challenges , the company believes these businesses will continue to grow and prosper . in addition to its traditional emphasis on domestic markets , the company will continue efforts to grow its business internationally by attempting to develop new markets and expanding market share where it has already established a presence . however , the strong u.s. dollar made this challenging during 2015 , and the company anticipates continued strength of the u.s. dollar in the near term . in addition to the $ 3.5 million building expansion to accommodate the ams division and the implementation of a new erp system , other future activities undertaken to expand the company 's business may include acquisitions , building improvements , equipment additions , new product development and marketing opportunities . 16 off-balance sheet arrangements the company has no off-balance sheet arrangements . recent accounting pronouncements in may 2014 , the financial accounting standards board ( “ fasb ” ) issued accounting standards update ( “ asu ” ) no . 2014-09 , revenue from contracts with customers . asu 2014-09 supersedes the revenue recognition requirements in revenue recognition ( topic 605 ) , and requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services . in august 2015 , the fasb issued asu 2015-14 , revenue from contracts with customers : deferral of the effective date , which defers the adoption of asu 2014-09 to annual reporting periods beginning after december 15 , 2017 , including interim reporting periods within that reporting period . earlier application is permitted only as of annual reporting periods beginning after december 15 , 2016 , including interim reporting periods within that reporting period . the company is currently evaluating the effect that adopting this new accounting guidance will have on its condensed statements of operations , cash flows and financial position . in 2014 , the fasb issued asu no . 2014-15 , presentation of financial statements—going concern ( subtopic 205-40 ) : disclosure of uncertainties about an entity 's ability to continue as a going concern , intended to define management 's responsibility to evaluate whether there is substantial doubt about an organization 's ability to continue as a going concern and to provide related footnote disclosures . asu 2014-15 is effective for the company in the year ended december 31 , 2016 , and interim periods beginning march 31 , 2017 , with early application permitted . the company does not anticipate a material impact to the financial statements once implemented . in 2015 , the fasb issued asu no . 2015-11 , inventory ( topic 330 ) related to simplifying the measurement of inventory which
| export 's 2015 gross margin was down d ue to a decrease in higher margin sales to europe . an improved sales mix offset lower domestic volumes resulting in a higher 2015 gross margin compared to 2014. t he dtx gross margin improved to 46.5 % in 2015 from 13.4 % in 2014. the 2015 dtx gross margin improvement is related to higher volumes and lower person nel and depreciation expenses . the ams 2015 gross margi n percentage improved versus 2014 due to an increase in volume . in 2016 , the company expects ams production costs to increase and gross profit in the aggregate to decrease in the short term due to the completion of the building expansion to improve ams produ ction capacity and capabilities as the company plans for additional repeat production orders . selling , general and administrative expenses . selling , general and administrative expenses were $ 5 . 3 million , or 30 . 0 % of sales , in 201 5 compared to $ 5 . 1 million , or 27 . 7 % of sales , in 201 4 . the increase in selling , general and administrative expenses reflects higher travel and trade show expenses for domestic markets in addition to consulting expenses related the company 's erp system selection process and employee training . selling , general , and administrative expenses in 2014 benefitted from a $ 46,000 net gain on a sale of assets including a $ 49,000 gain recorded on a land sale . research and development expenses . research and development expenses in 201 5 were $ 66 0 ,000 , or 3 . 8 % of sales , versus $ 6 65 ,000 , or 3 . 6 % of sales , in 201 4 . t he 2015 decrease is related to lower production trial and chemical costs partially offset by a $ 46,000 expense from the abandonment of patent applications . the company records
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however , the following policies could be deemed to be critical within the sec definition . revenue and cost recognition revenue on product sales is recognized when persuasive evidence of an arrangement exists , such as when a purchase order or contract is received from the customer , the price is fixed , title and risk of loss to the goods has changed and there is a reasonable assurance of collection of the sales proceeds . we obtain written purchase authorizations from our customers for a specified amount of product at a specified price and consider delivery to have occurred at the time of shipment . products sold directly to consumers have a thirty day right of return . revenue on consumer products is deferred until the right of return has expired . 18 revenues from research and development activities relating to firm fixed-price contracts and cost-type contracts are generally recognized on the percentage-of-completion method of accounting as costs are incurred ( cost-to-cost basis ) . contract costs include all direct material and labor costs and an allocation of allowable indirect costs as defined by each contract , as periodically adjusted to reflect revised agreed upon rates . these rates are subject to audit by the other party . product warranty we offer a one-year product replacement warranty . in general , our standard policy is to repair or replace the defective products . we accrue for estimated returns of defective products at the time revenue is recognized based on historical activity as well as for specific known product issues . the determination of these accruals requires us to make estimates of the frequency and extent of warranty activity and estimate future costs to replace the products under warranty . if the actual warranty activity and or repair and replacement costs differ significantly from these estimates , adjustments to cost of revenue may be required in future periods . use of estimates in accordance with accounting principles generally accepted in the united states of america , management utilizes certain estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . on an on-going basis , management evaluates its estimates and judgments related to , among others , allowance for doubtful accounts , warranty reserves , inventory reserves , stock based compensation expense , deferred tax asset valuation allowances , litigation and other loss contingencies . management bases its estimates and judgments on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results could differ from those estimates . fair value of financial instruments emagin 's cash , cash equivalents , accounts receivable , short-term investments , and accounts payable are stated at cost which approximates fair value due to the short-term nature of these instruments . in addition , the long-term investments are stated at cost which approximates fair value . stock-based compensation emagin maintains several stock equity incentive plans . the 2005 employee stock purchase plan ( the “ espp ” ) provides our employees with the opportunity to purchase common stock through payroll deductions . employees may purchase stock semi-annually at a price that is 85 % of the fair market value at certain plan-defined dates . as of december 31 , 2010 , the number of shares of common stock available for issuance was 300,000. as of december 31 , 2010 , the plan had not been implemented . the 2003 stock option plan ( the ” 2003 plan ” ) provides for grants of shares of common stock and options to purchase shares of common stock to employees , officers , directors and consultants . under the 2003 plan , an iso grant is granted at the market value of our common stock at the date of the grant and a non-iso is granted at a price not to be less than 85 % of the market value of the common stock . these options have a term of up to 10 years and vest over a schedule determined by the board of directors , generally over a five year period . the amended 2003 plan provides for an annual increase in common stock available for issuance by 3 % of the diluted shares outstanding on january 1 of each year for a period of 9 years which commenced january 1 , 2005. in 2010 , there were 939,085 options granted from the 2003 plan . the 2008 incentive stock plan ( “ the 2008 plan ” ) adopted and approved by the board of directors on november 5 , 2008 provides for shares of common stock and options to purchase shares of common stock to employees , officers , directors and consultants . the 2008 plan has an aggregate of 2,000,000 shares . in 2010 , there were no options granted from this plan . we account for the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors by estimating the fair value of stock awards at the date of grant using the black-scholes option valuation model . stock-based compensation expense is reduced for estimated forfeitures and is amortized over the vesting period using the straight-line method . see note 11 of the consolidated financial statements – stock compensation for a further discussion on stock-based compensation . income taxes in preparing our consolidated financial statements , we are required to estimate income taxes in each of the jurisdictions in which we operate . the process involves estimating our current tax expense together with assessing temporary differences resulting from the differing treatment of items for accounting and tax purposes . these differences result in deferred tax assets and liabilities . operating losses and tax credits , to the extent not already utilized to offset taxable income also represent deferred tax assets . story_separator_special_tag we must assess the likelihood that any deferred tax assets will be recovered from future taxable income , and to the extent we believe that recovery is not likely , we must establish a valuation allowance . significant judgment is required in determining our provision for income taxes , deferred tax assets and liabilities and any valuation allowance recorded against our deferred tax assets . from inception through the third quarter of 2010 , we maintained a full valuation allowance against our deferred tax assets as we were unable to determine that it was more likely than not that we would generate sufficient future taxable income to utilize them . during the years ended december 31 , 2010 , 2009 and 2008 , we utilized $ 6.3 million , $ 4.7 million , and $ 0 million , respectively , of historical net operating losses to offset taxable income in each of these periods . at december 31 , 2010 , we had deferred tax assets , including net operating losses and tax credits that would offset $ 111 million of future taxable income . in the fourth quarter of 2010 , we determined that it was more likely than not that we would generate future taxable income and , as a result , recorded a $ 9.1 million reduction of our deferred tax asset valuation allowance and corresponding income tax benefit . in determining future taxable income , assumptions are made to forecast operating income , the reversal of temporary timing differences and the implementation of tax planning strategies . management uses significant judgment in the assumptions it uses to forecast future taxable income which are consistent with the forecasts used to manage the business . realization of the deferred tax asset is dependent upon future earnings which there is uncertainty as to the timing . we will continue to monitor the realizability of the deferred tax asset . 19 as of december 31 , 2010 , the valuation allowance against the net deferred tax assets was $ 32.4 million . the valuation allowance will be maintained until further sufficient positive evidence exists to support an additional reduction in the valuation allowance . story_separator_special_tag accounting fees of $ 0.1 million and recruiting expenses of $ 0.2 million . other ( expense ) income other income ( expense ) , net consists primarily of interest income earned on investments , interest expense and other costs related to the debt and miscellaneous income . for the year ended december 31 , 2010 , interest expense was approximately $ 115 thousand as compared to approximately $ 466 thousand for the year ended december 31 , 2009. for the year ended december 31 , 2010 , the interest expense associated with debt was approximately $ 60 thousand , loan fees associated with the new line of credit was approximately $ 27 thousand , and interest on liquidated damages expense related to registration payment arrangements of approximately $ 28 thousand . for the year ended december 31 , 2009 , the interest expense associated with debt was approximately $ 63 thousand , loan fees associated with the new line of credit were approximately $ 13 thousand , interest on liquidated damages expense related to registration payment arrangements was approximately $ 28 thousand and the amortization of the deferred costs associated with the debt was approximately $ 362 thousand . the decrease in interest expense was primarily a result of fully amortizing the deferred debt issuance costs in 2009. other income for the year ended december 31 , 2010 was approximately $ 16 thousand as compared to approximately $ 67 thousand for the year ended december 31 , 2009. the other income for the year ended december 31 , 2010 was interest income of approximately $ 10 thousand and $ 6 thousand from equipment salvage . the other income for the year ended december 31 , 2009 was interest income of approximately $ 6 thousand ; approximately $ 4 thousand of miscellaneous income ; and approximately $ 57 thousand for a settlement of a liability . income tax ( benefit ) expense for the year ended december 31 , 2010 , income tax benefit was approximately $ 8.9 million and for the year ended december 31 , 2009 , the income tax expense was $ 90 thousand . for 2010 , we incurred $ 0.13 million of income tax expense related to alternative minimum tax , which is not offset by operating loss carryforwards . as a result of profitability over the past two years , we concluded that it was more likely than not that we would generate sufficient taxable income to utilize the benefit from a portion of our net operating loss carryforwards ; therefore , we recorded a $ 9.1 million reduction of our deferred tax asset valuation allowance and corresponding income tax benefit . net income net income totaled $ 14.8 million for the year ended december 31 , 2010 as compared to $ 4.3 million for the year ended december 31 , 2009. net income for the twelve months ended december 31 , 2010 would have been $ 7.5 million excluding the one-time charges of a $ 1.1 million severance charge , $ 0.7 million litigation settlement offer , and the tax benefit of $ 9.1 million related to the reversal of valuation allowance . year ended december 31 , 2009 compared to year ended december 31 , 2008 21 revenues revenues increased by approximately $ 5.1 million to a total of approximately $ 23.8 million for the year ended december 31 , 2009 from approximately $ 18.7 million for the year ended december 31 , 2008 , representing an increase of 27 % . the increase in revenue was due to increased customer demand . for the year ended december 31 , 2009 , product revenue increased approximately $ 4.0 million as compared to the year ended december 31 , 2008. the 26 % increase was due to higher customer demand and product availability for our oled displays and z800s .
| cost of goods sold as a percentage of revenues improved to 39 % for the year ended december 31 , 2010 from 43 % for the year ended december 31 , 2009. the following table outlines product , contract and total gross profit and related gross margins for the years ended december 31 , 2010 and 2009 ( dollars in thousands ) : replace_table_token_4_th the gross profit for the year ended december 31 , 2010 was approximately $ 18.4 million as compared to approximately $ 13.6 million for the year ended december 31 , 2009 , an increase of $ 4.8 million . gross margin was 61 % for the year ended december 31 , 2010 up from 57 % for the year ended december 31 , 2009. the increase was attributable to increases in product gross margin of 5 % and the contract gross margin of 4 % . 20 the product gross profit for the year ended december 31 , 2010 was approximately $ 15.2 million as compared to approximately $ 11.9 million for the year ended december 31 , 2009 , an increase of $ 3.3 million . product gross margin was 65 % for the year ended december 31 , 2010 up from 60 % for the year ended december 31 , 2009. the increase in product gross profit and gross margin was due to higher sales volumes and improved product mix resulting in a higher average selling price in conjunction with a reduction of the warranty accrual . the higher average selling price was a result of the mix of products sold which included custom displays with a higher sales price . the contract gross profit for the year ended december 31 , 2010 was approximately $ 3.2 million as compared to approximately $ 1.7 million for the year ended december 31 , 2009 , an increase of $ 1.5 million . contract gross margin was 47 % for the year ended december 31 , 2010 up from 43 % for the year ended december 31 , 2009. the contract gross margin is dependent upon the mix of internal versus external third
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interest expense for the year ended december 31 , 2014 increased approximately $ 5.0 million , or 52.4 % , to approximately $ 14.6 million compared to approximately $ 9.6 million of interest expense for the year ended december 31 , 2013. increases in interest expense are mainly attributable to the periodic interest , interest on the georgian terrace acquisition mortgage , a full year of interest on the mortgage on the crowne plaza houston downtown and interest on the 7.0 % unsecured notes issued in november 2014. equity income ( loss ) in joint venture . equity in the income of the joint venture decreased approximately $ 0.1 million , or 35.7 % , to approximately $ 0.3 million for the year ended december 31 , 2014 compared to equity in the income of the joint venture of approximately $ 0.4 million for the year ended december 31 , 2013 and represents our 25.0 % share of the net income of the crowne plaza hollywood beach resort . for the year ended december 31 , 2014 , the crowne plaza hollywood beach resort reported occupancy of 83.6 % , adr of $ 162.15 and revpar of $ 135.55. this compares with results reported by the hotel for the year ended december 31 , 2013 of occupancy of 82.2 % , adr of $ 157.87 and revpar of $ 129.79. realized and unrealized loss on warrant derivative . there was no realized or unrealized loss on the warrant derivative for the year ended december 31 , 2014 , an increase of approximately $ 2.2 million , or 100.0 % , to approximately $ 0.0 million compared to the unrealized loss of approximately $ 2.2 million for the year ended december 31 , 2013. with the redemption of the warrants in the fourth quarter 2013 , there were not any further charges . loss on debt extinguishment . the loss on debt extinguishment for the year ended december 31 , 2014 decreased approximately $ 1.2 million , or 59.3 % , to approximately $ 0.8 million compared to a loss on debt extinguishment of approximately $ 2.0 million for the year ended december 31 , 2013. pre-payment of the bridge loan during the year had us realize a pre-payment penalty associated with the bridge loan and the remaining unamortized loan costs associated with the bridge loan in the amount of approximately $ 0.8 million . gain on involuntary conversion of asset . during the year we had a one-time involuntary conversion of equipment at our hilton wilmington riverside property for replacement of a water chiller in the amount of approximately $ 0.2 million . income tax benefit . the income tax benefit for the year ended december 31 , 2014 increased approximately $ 3.2 million , or 215.5 % , to approximately $ 1.7 million compared to an income tax provision of approximately $ 1.5 million for the year ended december 31 , 2013. the income tax benefit was primarily derived from the operations of our trs lessees . our trs lessees realized greater operating loss for the year ended december 31 , 2014 compared to the year ended december 31 , 2013. net loss . net loss for the year ended december 31 , 2014 decreased approximately $ 3.8 million , or 83.5 % , to approximately $ 0.7 million compared to net loss of approximately $ 4.5 million for the year ended december 31 , 2013 as a result of the operating results discussed above . 51 comparison of year ended december 31 , 2013 to year ended december 31 , 2012 the following table illustrates the key operating metrics for the years ended december 31 , 2013 and 2012 for our 10 wholly-owned properties ( actual properties ) as well as the nine wholly-owned properties that were under our control during all of 2013 and 2012 ( same-store properties ) . accordingly , actual data does not include the performance of the georgian terrace , and same-store data does not reflect the performance of the crowne plaza houston downtown or the georgian terrace , which were acquired in november 2013 and march 2014 , respectively . each table excludes performance data for the crowne plaza hollywood beach resort , which was acquired through a joint venture and in which we have a 25.0 % indirect interest . replace_table_token_11_th revenue . total revenue for the year ended december 31 , 2013 was approximately $ 89.4 million , an increase of approximately $ 2.1 million , or 2.3 % , from total revenue for the year ended december 31 , 2012 of approximately $ 87.3 million . approximately $ 1.4 million of the increase is attributable to our acquisition of the crowne plaza houston downtown . within the remainder of the portfolio , revenue increases were strongest at our doubletree by hilton brownstone university and the sheraton louisville riverfront properties . these increases offset revenue decreases at our properties in hampton , virginia ; jacksonville , florida ; laurel , maryland and tampa , florida . room revenues at our properties for the year ended december 31 , 2013 increased approximately $ 2.0 million , or 3.3 % , to approximately $ 62.8 million compared to room revenues for the year ended december 31 , 2012 of approximately $ 60.8 million . approximately $ 0.9 million of the increase is attributable to our acquisition of the crowne plaza houston downtown . within the remainder of the portfolio , room revenue increases were strongest at our doubletree by hilton brownstone university ; hilton wilmington riverside and the sheraton louisville riverfront properties . these increases offset revenue decreases at our properties in hampton , virginia ; jacksonville , florida ; laurel , maryland and tampa , florida . story_separator_special_tag food and beverage revenues at our properties for the year ended december 31 , 2013 increased approximately $ 0.1 million , or 0.4 % , to approximately $ 22.1 million compared to food and beverage revenue of approximately $ 22.0 million for the year ended december 31 , 2012. a significant increase in food and beverage revenue at the doubletree by hilton brownstone university in raleigh , north carolina as well as food and beverage revenue of approximately $ 0.4 million associated with our acquisition of the crowne plaza houston downtown offset decreases at several other properties in our portfolio . other operating revenues for the year ended december 31 , 2013 decreased approximately $ 0.1 million , or 1.6 % , to approximately $ 4.5 million compared to other operating revenues for the year ended december 31 , 2012 of approximately $ 4.6 million . most of the decrease was associated with lower guaranteed no-show fees . hotel operating expenses . hotel operating expenses , which consist of room expenses , food and beverage expenses , other direct expenses , indirect expenses , and management fees , increased approximately $ 1.1 million , or 1.7 % , for the year ended december 31 , 2013 to approximately $ 65.5 million compared to hotel operating expenses for the year ended december 31 , 2012 of approximately $ 64.4 million . the entire increase is attributable to the acquisition of the crowne plaza houston downtown . rooms expense at our properties for the year ended december 31 , 2013 increased approximately $ 0.6 million , or 3.4 % , to approximately $ 17.2 million compared to rooms expense of approximately $ 16.6 million for the year ended december 31 , 2012. the increase in rooms expense was directly related to the 3.3 % increase in room revenue . 52 food and beverage expenses at our properties for the year ended december 31 , 2013 decreased approximately $ 0.3 million , or 1.7 % , to approximately $ 14.0 million compared to food and beverage expense of approximately $ 14.3 million for the year ended december 31 , 2012. the decrease in food and beverage expense was generally attributable to operating efficiencies which produced higher profit margins on very little change in food and beverage revenue . indirect expenses at our properties for the year ended december 31 , 2013 increased approximately $ 0.8 million , or 2.2 % , to approximately $ 33.8 million compared to indirect expenses of approximately $ 33.0 million for the year ended december 31 , 2012. sales and marketing costs , franchise fees , utilities , repairs and maintenance , insurance , management fees , real and personal property taxes as well as general and administrative costs at the property level are included in indirect expenses . most of the increase in indirect expenses related to expenses that increase proportionally with increases in occupancy and or revenue , including management fees and franchise fees . approximately $ 0.6 million of the increase was attributable to the acquisition of the crowne plaza houston downtown . decreases in energy costs , real estate taxes and incentive management fees offset increases in other indirect costs . depreciation and amortization . depreciation and amortization for the year ended december 31 , 2013 decreased approximately $ 0.2 million , or 2.2 % , to approximately $ 8.5 million compared to depreciation and amortization expense of approximately $ 8.7 million for the year ended december 31 , 2012. impairment of investment in hotel properties , net . the impairment of investment in hotel properties , net for the years ended december 31 , 2013 and 2012 was approximately $ 0.6 million and $ 0 , respectively . our review of possible impairment at one of our hotel properties revealed an excess of current carrying cost over the estimated undiscounted future cash flows , which was triggered by a change in re-evaluation of future revenues based on anticipated market conditions , market penetration and costs necessary to achieve such market penetration , resulting in an impairment to fair market value by an amount of approximately $ 0.6 million , as of december 31 , 2013. corporate general and administrative . corporate general and administrative expenses for the year ended december 31 , 2013 increased approximately $ 0.3 million , or 6.9 % , to approximately $ 4.4 million compared to corporate general and administrative expenses of approximately $ 4.1 million for the year ended december 31 , 2012. the increase in corporate and administrative costs is attributable to acquisition charges related to the crowne plaza houston downtown , costs associated with the company 's name change as well as higher staff costs . interest expense . interest expense for the year ended december 31 , 2013 decreased approximately $ 0.8 million , or 0.1 % , to approximately $ 9.6 million compared to approximately $ 10.4 million of interest expense for the year ended december 31 , 2012. if not for the premiums paid to redeem shares of preferred stock in june 2012 , march 2013 , august 2013 and september 2013 , we would have experienced a reduction in interest expense of approximately $ 1.4 million due mostly to a lower effective average interest rate on our debt . equity income ( loss ) in joint venture . equity in the income of the joint venture increased approximately $ 0.3 million , or 163.5 % , to approximately $ 0.5 million for the year ended december 31 , 2013 compared to equity in the income of the joint venture of approximately $ 0.2 million for the year ended december 31 , 2012 and represents our 25.0 % share of the net income of the crowne plaza hollywood beach resort . a 45.1 % increase in net operating income contributed significantly to the increase in net income .
| approximately $ 19.7 million of the increase is attributable to our acquisitions of the crowne plaza houston downtown and the georgian terrace . within the remainder of the portfolio , room revenue increases were strongest at our hilton savannah desoto , the doubletree by hilton brownstone university , the crowne plaza jacksonville riverfront , the crowne plaza tampa westshore and the sheraton louisville riverside properties . these increases offset revenue decreases at our properties in wilmington , north carolina and philadelphia , pennsylvania . we continue to expect occupancy and adr to increase as demand continues to strengthen as the overall economy continues to improve . food and beverage revenues at our properties for the year ended december 31 , 2014 increased approximately $ 9.3 million , or 42.6 % , to approximately $ 31.4 million compared to food and beverage revenue of 49 approximately $ 22.1 million for the year ended december 31 , 2013. a significant increase in food and beverage revenue at the hilton savannah desoto , the crowne plaza jacksonville riverfront , the crowne plaza tampa westshore , the holiday inn laurel west and the crowne plaza hampton marina , as well as food and beverage revenue increase of approximately $ 8.6 million associated with our acquisition of the crowne plaza houston downtown and the georgian terrace , offset decreases at several other properties in our portfolio . other operating revenues for the year ended december 31 , 2014 increased approximately $ 2.4 million , or 53.4 % , to approximately $ 6.9 million compared to other operating revenues for the year ended december 31 , 2013 of approximately $ 4.5 million . most of the revenue increase of approximately $ 2.2 million was associated with our acquisition of the crowne plaza houston downtown and the georgian terrace . hotel operating expenses . hotel operating expenses , which consist of room expenses , food and beverage expenses , other direct expenses , indirect expenses , and management fees , increased approximately $ 24.7 million , or 37.7 % , for the year ended december 31 , 2014 to approximately $ 90.2 million compared
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in general , the most significant activity of the vies is the operation and maintenance of their production or procurement processes related to electricity , recs , aecs or natural gas . comed and peco do not have control over the operation and maintenance of the entities considered vies and they do not bear operational risk related to the associated activities . furthermore , comed and peco have no debt or equity investments in the vies and do not provide any other financial support through liquidity arrangements , guarantees or other commitments other than purchase commitments described in note 18commitments and contingencies . accordingly , neither comed nor peco considers itself to be the primary beneficiary of these vies . as of the balance sheet date , the carrying amounts of assets and liabilities in comed 's and peco 's consolidated balance sheets that relate to their involvement with these vies were predominately related to working capital accounts and generally represented the amounts owed by comed and peco for the purchases associated with the current billing cycles under the contracts . 197 combined notes to consolidated financial statements ( continued ) ( dollars in millions , except per share data unless otherwise noted ) the financing trust of comed , comed financing iii , and the financing trusts of peco , peco trust iii and peco trust iv , are not consolidated in exelon 's , comed 's or peco 's financial statements . these financing trusts were created to issue mandatorily redeemable trust preferred securities . comed and peco have concluded that they do not have a variable interest in comed financing iii , peco trust iii or peco trust iv as each registrant financed its equity interest in the financing trusts through the issuance of subordinated debt and , therefore , has no equity at risk . comed and peco , as the sponsors of the financing trusts , are obligated to pay the operating expenses of the trusts . peco pett , a financing trust , was created in 1998 by peco to purchase and own intangible transition property ( itp ) and to issue transition bonds to securitize $ 5 billion of peco 's stranded cost recovery authorized by the papuc pursuant to the competition act . peco made an initial capital contribution of $ 25 million to pett . itp represented the irrevocable right of peco to collect intangible transition charges ( itc ) . itc consisted of the portion of ctcs that were sold by peco to pett and securitized through the various issuances of pett 's transition bonds from 1999 through 2001 as authorized by the papuc . itc provided pett with an asset sufficient to recover the aggregate principal amount of the transition bonds issued , plus amounts sufficient to provide for the credit enhancement , interest payments , servicing fees and other expenses relating to the transition bonds . pett 's assets were restricted for the sole purpose of satisfying pett 's obligation to its transition bondholders and payment of various administrative fees . peco did not provide ongoing financial support to pett or guarantee pett 's performance , and the transition bondholders did not have recourse to peco . peco had continuing involvement in pett in its role as the servicer of the itc collections , for which peco received a fee . pett was consolidated in exelon 's and peco 's financial statements on january 1 , 2010 pursuant to authoritative guidance relating to the consolidation of vies that became effective on that date . under previously issued authoritative guidance , pett was deconsolidated in accordance with a prescribed quantitative approach , based on expected losses , for determining the primary beneficiary . under the new guidance , peco concluded that it was the primary beneficiary of pett due to peco 's involvement in the design of pett , its role as servicer , and its right to dissolve pett and receive any of its remaining assets following retirement of the transition bonds and payment of pett 's other expenses . the consolidation of pett did not have a significant impact on peco 's results of operations or statement of cash flows . upon retirement of the outstanding transition bonds on september 1 , 2010 , the remaining cash balance was remitted to peco , and pett was dissolved on september 20 , 2010. revenues ( exelon , generation , comed and peco ) operating revenues . operating revenues are recorded as service is rendered or energy is delivered to customers . at the end of each month , the registrants accrue an estimate for the unbilled amount of energy delivered or services provided to customers . comed records its best estimates of the distribution and transmission revenue impacts resulting from changes in rates that comed believes are probable of approval by the icc and ferc in accordance with its formula rate mechanisms . see notes 2regulatory matters and 4accounts receivable for further information . 198 combined notes to consolidated financial statements ( continued ) ( dollars in millions , except per share data unless otherwise noted ) rtos and isos . in rto and iso markets that facilitate the dispatch of energy and energy-related products , the registrants generally report sales and purchases conducted on a net hourly basis in either revenues or purchased power on their consolidated statements of operations , the classification of which depends on the net hourly activity . option contracts , swaps and commodity derivatives . certain option contracts and swap arrangements that meet the definition of derivative instruments are recorded at fair value with subsequent changes in fair value recognized as revenue or expense , unless hedge accounting is applied . premiums received and paid on option contracts are recognized as revenue or expense over the terms of the contracts . if the derivatives meet hedging criteria , changes in fair value are recorded in oci . comed has not elected hedge story_separator_special_tag in general , the most significant activity of the vies is the operation and maintenance of their production or procurement processes related to electricity , recs , aecs or natural gas . comed and peco do not have control over the operation and maintenance of the entities considered vies and they do not bear operational risk related to the associated activities . furthermore , comed and peco have no debt or equity investments in the vies and do not provide any other financial support through liquidity arrangements , guarantees or other commitments other than purchase commitments described in note 18commitments and contingencies . accordingly , neither comed nor peco considers itself to be the primary beneficiary of these vies . as of the balance sheet date , the carrying amounts of assets and liabilities in comed 's and peco 's consolidated balance sheets that relate to their involvement with these vies were predominately related to working capital accounts and generally represented the amounts owed by comed and peco for the purchases associated with the current billing cycles under the contracts . 197 combined notes to consolidated financial statements ( continued ) ( dollars in millions , except per share data unless otherwise noted ) the financing trust of comed , comed financing iii , and the financing trusts of peco , peco trust iii and peco trust iv , are not consolidated in exelon 's , comed 's or peco 's financial statements . these financing trusts were created to issue mandatorily redeemable trust preferred securities . comed and peco have concluded that they do not have a variable interest in comed financing iii , peco trust iii or peco trust iv as each registrant financed its equity interest in the financing trusts through the issuance of subordinated debt and , therefore , has no equity at risk . comed and peco , as the sponsors of the financing trusts , are obligated to pay the operating expenses of the trusts . peco pett , a financing trust , was created in 1998 by peco to purchase and own intangible transition property ( itp ) and to issue transition bonds to securitize $ 5 billion of peco 's stranded cost recovery authorized by the papuc pursuant to the competition act . peco made an initial capital contribution of $ 25 million to pett . itp represented the irrevocable right of peco to collect intangible transition charges ( itc ) . itc consisted of the portion of ctcs that were sold by peco to pett and securitized through the various issuances of pett 's transition bonds from 1999 through 2001 as authorized by the papuc . itc provided pett with an asset sufficient to recover the aggregate principal amount of the transition bonds issued , plus amounts sufficient to provide for the credit enhancement , interest payments , servicing fees and other expenses relating to the transition bonds . pett 's assets were restricted for the sole purpose of satisfying pett 's obligation to its transition bondholders and payment of various administrative fees . peco did not provide ongoing financial support to pett or guarantee pett 's performance , and the transition bondholders did not have recourse to peco . peco had continuing involvement in pett in its role as the servicer of the itc collections , for which peco received a fee . pett was consolidated in exelon 's and peco 's financial statements on january 1 , 2010 pursuant to authoritative guidance relating to the consolidation of vies that became effective on that date . under previously issued authoritative guidance , pett was deconsolidated in accordance with a prescribed quantitative approach , based on expected losses , for determining the primary beneficiary . under the new guidance , peco concluded that it was the primary beneficiary of pett due to peco 's involvement in the design of pett , its role as servicer , and its right to dissolve pett and receive any of its remaining assets following retirement of the transition bonds and payment of pett 's other expenses . the consolidation of pett did not have a significant impact on peco 's results of operations or statement of cash flows . upon retirement of the outstanding transition bonds on september 1 , 2010 , the remaining cash balance was remitted to peco , and pett was dissolved on september 20 , 2010. revenues ( exelon , generation , comed and peco ) operating revenues . operating revenues are recorded as service is rendered or energy is delivered to customers . at the end of each month , the registrants accrue an estimate for the unbilled amount of energy delivered or services provided to customers . comed records its best estimates of the distribution and transmission revenue impacts resulting from changes in rates that comed believes are probable of approval by the icc and ferc in accordance with its formula rate mechanisms . see notes 2regulatory matters and 4accounts receivable for further information . 198 combined notes to consolidated financial statements ( continued ) ( dollars in millions , except per share data unless otherwise noted ) rtos and isos . in rto and iso markets that facilitate the dispatch of energy and energy-related products , the registrants generally report sales and purchases conducted on a net hourly basis in either revenues or purchased power on their consolidated statements of operations , the classification of which depends on the net hourly activity . option contracts , swaps and commodity derivatives . certain option contracts and swap arrangements that meet the definition of derivative instruments are recorded at fair value with subsequent changes in fair value recognized as revenue or expense , unless hedge accounting is applied . premiums received and paid on option contracts are recognized as revenue or expense over the terms of the contracts . if the derivatives meet hedging criteria , changes in fair value are recorded in oci . comed has not elected hedge
| additionally , peco operates in a rate-regulated environment in which the amount of new investment recovery may be limited and where such recovery takes place over an extended period of time . cash flows from operating activities a discussion of items pertinent to peco 's cash flows from operating activities is set forth under cash flows from operating activities in exelon corporationliquidity and capital resources of this form 10-k. cash flows from investing activities a discussion of items pertinent to peco 's cash flows from investing activities is set forth under cash flows from investing activities in exelon corporationliquidity and capital resources of this form 10-k. 164 cash flows from financing activities a discussion of items pertinent to peco 's cash flows from financing activities is set forth under cash flows from financing activities in exelon corporationliquidity and capital resources of this form 10-k. credit matters a discussion of credit matters pertinent to peco is set forth under credit matters in exelon corporationliquidity and capital resources of this form 10-k. contractual obligations and off-balance sheet arrangements a discussion of peco 's contractual obligations , commercial commitments and off-balance sheet arrangements is set forth under contractual obligations and off-balance sheet arrangements in exelon corporationliquidity and capital resources of this form 10-k. critical accounting policies and estimates see exelon , generation , comed and pecocritical accounting policies and estimates above for a discussion of peco 's critical accounting policies and estimates . new accounting pronouncements see note 1 of the combined notes to consolidated financial statements for information regarding new accounting pronouncements . item
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we have a single organization responsible for the delivery of our security solutions , which enables us to respond quickly to our customers ' evolving needs and help them secure themselves against cyber attacks . in december 2019 , a novel strain of the coronavirus , covid-19 , was reported in mainland china . the world health organization declared the outbreak to constitute a `` pandemic ” on march 11 , 2020. this has led to a significant disruption of normal business operations globally , as businesses , including secureworks , have needed to implement modifications to employee travel , employee work locations and employee productivity , in some instances as required by federal , state and local authorities . the extent of the impact of covid-19 on our future operational and financial performance will depend on various future developments , including the duration and spread of the outbreak , impact on our employees , impact on our customers , effect on our sales cycles or costs , and effect on our vendors , all of which are uncertain and can not be predicted , but which could have a material adverse effect on our business , results of operations or financial condition . at this point , the extent to which covid-19 may impact our financial condition or results of operations is uncertain . due to our subscription-based business model , the effect of covid-19 may not be fully reflected in our results of operations until future periods , if at all . from april 2009 to january 31 , 2020 , the number of events processed by our technology platform increased from five billion to as many as 320 billion events per day . this significant growth has required continual investment in our business . we believe these investments are critical to our success , although they may continue to impact our near-term profitability . key factors affecting our performance we believe that our future success will depend on many factors , including the adoption of our solutions by organizations , continued investment in our technology and threat intelligence research , our introduction of new solutions , our ability to increase sales of our solutions to new and existing customers and our ability to attract and retain top talent . although these areas present significant opportunities , they also present risks that we must manage to ensure our future success . for additional information about these risks , refer to “ risk factors ” in this report . we operate in a highly competitive industry and face , among other competitive challenges , pricing pressures within the information security market as a result of action by our larger competitors to reduce the prices of their security monitoring , detection and prevention products , as well as their managed security solutions . we must continue to efficiently manage our investments and effectively execute our strategy to succeed . if we are unable to address these challenges , our business could be adversely affected . adoption of technology-driven solution strategy . the evolving landscape of applications , modes of communication and it architectures makes it increasingly challenging for organizations of all sizes to protect their critical business assets , including proprietary information , from cyber threats . new technologies heighten security risks by increasing the number of ways a threat actor can attack a target , by giving users greater access to important business networks and information and by facilitating the transfer of control of underlying applications and infrastructure to third-party vendors . an effective cyber defense strategy requires the coordinated deployment of multiple products and solutions tailored to an organization 's specific security needs . our integrated suite of solutions is designed to facilitate the successful implementation of such a strategy , but continuous investment in , and adaptation of , our technology will be required as the threat landscape continues to evolve rapidly . the degree to which prospective and current customers recognize the mission-critical nature of our technology-driven information security solutions , and subsequently allocate budget dollars to our solutions , will affect our future financial results . 48 investment in our technology and threat intelligence research . our technology platform constitutes the core of our technology-driven information security solutions . it provides our customers with an integrated perspective and intelligence regarding their network environments and security threats . the platform is augmented by our counter threat unit research team , which conducts exclusive research into threat actors , uncovers new attack techniques , analyzes emerging threats and evaluates the risks posed to our customers . our performance is significantly dependent on the investments we make in our research and development efforts , and on our ability to be at the forefront of threat intelligence research , and to adapt our platform to new technologies as well as to changes in existing technologies . this is an area in which we will continue to invest , while leveraging a flexible staffing model to align with solutions development . we believe that investment in our platform will contribute to long-term revenue growth , but it may continue to adversely affect our near-term profitability . introduction of new information security solutions . our performance is significantly dependent on our ability to continue to innovate and introduce new information security solutions that protect our customers from an expanding array of cybersecurity threats . we continue to invest in solutions innovation and leadership , including hiring top technical talent and focusing on core technology innovation . in addition , we will continue to evaluate and utilize third-party proprietary technologies , where appropriate , for the continuous development of complementary offerings . we can not be certain that we will realize increased revenue from our solutions development initiatives . we believe that our investment in solutions development will contribute to long-term revenue growth , but it may continue to adversely affect our near-term profitability . investments in expanding our customer base and deepening our customer relationships . story_separator_special_tag to support future sales , we will need to continue to devote resources to the development of our global sales force . we have made and plan to continue to make significant investments in expanding our go-to-market efforts with direct sales , channel partners and marketing . any investments we make in our sales and marketing operations will occur before we realize any benefits from such investments . the investments we have made , or intend to make , to strengthen our sales and marketing efforts may not result in an increase in revenue or an improvement in our results of operations . although we believe our investment in sales and marketing will help us improve our results of operations in the long term , the resulting increase in operating expenses attributable to these sales and marketing functions may continue to adversely affect our profitability in the near term . the continued growth of our business also depends in part on our ability to sell additional solutions to our existing customers . as our customers realize the benefits of the solutions they previously purchased , our portfolio of solutions provides us with a significant opportunity to expand these relationships . investment in our people . the difficulty in providing effective information security is exacerbated by the highly competitive environment for identifying , hiring and retaining qualified information security professionals . our technology leadership , brand , exclusive focus on information security , customer-first culture , and robust training and development program have enabled us to attract and retain highly-talented professionals with a passion for building a career in the information security industry . these professionals are led by a highly experienced and tenured management team with extensive it security expertise and a record of developing successful new technologies and solutions to help protect our customers . we will continue to invest in attracting and retaining top talent to support and enhance our information security offerings . 49 key operating metrics in recent years , we have experienced broad growth across our portfolio of technology-driven information security solutions being provided to all sizes of customers . we have achieved much of this growth by providing solutions to large enterprise customers , which generate substantially more average revenue than our small and medium-sized business , or smb , customers , and by continually expanding the volume and breadth of the security solutions that we provide to all customers . execution of this strategy has resulted in steady growth in our average revenue per customer . this growth has required continuous investment in our business , resulting in net losses . we believe these investments are critical to our success , although they may continue to impact our profitability . we believe the operating metrics described below provide further insight into the long-term value of our subscription agreements and our ability to maintain and grow our customer relationships . relevant key operating metrics are presented below as of the dates indicated and for the annual periods then ended : replace_table_token_4_th subscription customer base . we define our subscription customer base as the number of customers who subscribe to our managed security solutions as of a particular date . we believe that growing our existing customer base and our ability to grow our average subscription revenue per customer represent significant future revenue opportunities for us . total customer base . we define our total customer base as the number of customers that subscribe to our managed security solutions as well as customers that buy professional and other services from us , as of a particular date . annual and monthly recurring revenue . we define recurring revenue as the value of our subscription contracts as of a particular date . because we use recurring revenue as a leading indicator of future annual revenue , we include operational backlog . we define operational backlog as the recurring revenue associated with pending contracts , which are contracts that have been sold but for which the service period has not yet commenced . our increase in recurring revenue has been driven primarily by our continuing ability to expand our offerings and sell additional solutions to existing customers , as well as by larger subscription contracts to our enterprise customers . average subscription revenue per customer . our average subscription revenue per customer is primarily related to the persistence of cyber threats and the results of our sales and marketing efforts to increase the awareness of our solutions . additionally , our customer composition of both enterprise and smb companies provides us with an opportunity to expand our professional services revenue . as of january 31 , 2020 , february 1 , 2019 , and february 2 , 2018 , approximately 60 % , 50 % , and 44 % , respectively , of our professional services customers subscribed to our managed security solutions . revenue retention rate . our revenue retention rate is an important measure of our success in retaining and growing revenue from our subscription-based customers . to calculate our revenue retention rate for any period , we compare the monthly recurring revenue excluding operational backlog of our subscription-based customer base at the beginning of the fiscal year , which we call our base recurring revenue , to the monthly recurring revenue excluding operational backlog from that same cohort of customers at the end of the period , which we call our retained recurring revenue . by dividing the retained recurring revenue by the base recurring revenue , we measure our success in retaining and growing installed revenue from the specific cohort of customers we served at the beginning of the period . our calculation includes the positive revenue impacts of selling and installing additional solutions to this cohort of customers and the negative revenue impacts of customer or service attrition during the period . however , the calculation does not include the positive impact on revenue from sales of solutions to any customers acquired during the period .
| 56 gross margin our total gross margin increase d $ 27.4 million , or 10.0 % , in fiscal 2020 , compared with fiscal 2019. as a percentage of revenue , our gross margin percentage increase d 170 basis points to 54.3 % in fiscal 2020 . gross margin on a gaap basis includes amortization of intangible assets , purchase accounting adjustments and stock-based compensation expense . on a non-gaap basis , excluding these adjustments , gross margin increase d $ 28.3 million , or 9.8 % , in fiscal 2020 . as a percentage of revenue , our non-gaap gross margin increased 170 basis points to 57.0 % in fiscal 2020 . the increase in gross margin as a percentage of revenue on a gaap and non-gaap basis during the fiscal year was mainly attributable to improvement in our subscription-based solutions margins as we continue to focus on delivering comprehensive higher-value security solutions and driving scale and operational efficiencies . growth in revenue from safeguard and response solutions sold through dell , which have higher margins , also contributed to the increase in gross margin . operating expenses the following table presents information regarding our operating expenses during the fiscal year s ended january 31 , 2020 and february 1 , 2019 . replace_table_token_8_th ( 1 ) see “ non-gaap financial measures ” and “ reconciliation of non-gaap financial measures ” for a reconciliation of each non-gaap financial measure to the most directly comparable gaap financial measure . research and development expenses . r & d expenses increase d $ 7.4 million , or 8.4 % , in fiscal 2020 . as a percentage of revenue , on a gaap basis , r & d expenses increased 30 basis points to 17.2 % in fiscal 2020 . as a percentage of revenue , on a non-gaap basis , r & d expenses increased 30 basis points to 16.4 % in fiscal 2020 . the increases were primarily attributable to increased compensation and benefits associated with additional development resources , and other technology
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net revenues in other oil and gas businesses declined ( -5 % ) , offset by the acquisition of cfs ( +5 % ) . energy segment orders decreased $ 68.9 million , or 20 % , to $ 270.5 million for 2016 compared to $ 339.4 million in 2015 , primarily due to lower bookings in the large international projects business ( -15 % ) and in our north american short-cycle business ( -5 % ) . lower orders in our long-cycle , large international projects business was impacted by reduced capital expenditures for exploration and production of oil and gas as well as project deferrals . lower orders in our north american short-cycle business were impacted by the destocking of our distributors as well as lower production activity overall . segment operating income decreased $ 15.8 million , or 31 % , to $ 34.6 million for 2016 compared to $ 50.4 million in 2015. the decrease in segment operating income was primarily due to lower shipment volumes from our north american short-cycle business ( -37 % ) . in addition , we recorded $ 3.2 million ( -6 % ) of bad debt and inventory write-down charges during the fourth quarter related to past-due amounts and inventories associated with petróleos de venezuela ( `` pdvsa '' ) . these declines were partially offset by segment operating income from cfs ( +8 % ) and savings from our sourcing , restructuring and productivity initiatives ( +4 % ) . 20 replace_table_token_5_th advanced flow solutions segment replace_table_token_6_th advanced flow solutions segment net revenues decreased by $ 4.4 million , or 2 % , in 2016 compared to 2015 . the decrease was primarily driven by declines in our aerospace business ( -2 % ) and our industrial solutions business ( -1 % ) . these declines were offset by the april 2015 acquisition of schroedahl ( +2 % ) . advanced flow solutions segment orders increased $ 4.2 million , or 2 % , to $ 255.2 million for 2016 compared to $ 251.0 million in 2015 , primarily due to our aerospace business ( +2 % ) . segment operating income decreased $ 0.3 million , or 1 % , to $ 33.5 million for 2016 compared to $ 33.8 million for 2015. the decrease in operating income was primarily as a result of the revenue declines ( -2 % ) described above . these declines were offset by the schroedahl acquisition ( +7 % ) and restructuring savings and operational efficiencies in our california ( +18 % ) and french ( +5 % ) businesses . replace_table_token_7_th corporate expenses corporate expenses increased $ 4.0 million to $ 25.7 million for 2016. this increase was primarily driven by compensation costs ( $ 1.5 million ) associated with filling open positions and higher performance on incentive plans , corporate development expenses ( relating to potential mergers and acquisitions due diligence ) of $ 1.2 million , and professional fees ( $ 1.1 million ) . 21 special and restructuring charges , net and other charges during 2016 , the company recorded a total of $ 20.0 million of special and restructuring charges . in our statement of operations , these charges are recorded in costs of revenue ( $ 2.8 million ) and special and restructuring charges , net ( $ 17.2 million ) . these costs are primarily related to our simplification and restructuring efforts and also include a $ 4.5 million non-cash charge related to a pension settlement . the amount recorded in costs of revenues relates to inventory charges associated with the exit of non-strategic product lines . these restructuring charges and other special charges are described in further detail in note 4 , special and restructuring charges , net in relation to our 2016 and 2015 acquisitions of cfs and schroedahl , we incurred $ 9.9 million of intangible asset amortization related to these acquisitions . this amortization is recorded within selling , general , and administrative expenses ( $ 9.3 million ) or cost of revenues ( $ 0.6 million ) depending upon the nature of the underlying intangible asset . in addition , we recorded $ 1.4 million of amortization expense related to the step-up in fair value of the inventory acquired as part of our cfs acquisition . this expense is included in cost of revenues . also during 2016 , we also recorded a $ 0.2 million impairment charge for a china patent deemed to no longer have economic value . the impairment charge is included in the impairment charge line on our consolidated statement of income ( loss ) . in 2015 , the company recorded $ 23.7 million of special and restructuring charges , net . in our statement of operations , these charges are recorded in costs of revenue ( $ 9.4 million ) and special and restructuring charges , net ( $ 14.4 million ) . these costs are primarily related to our simplification and restructuring efforts . the amount recorded in costs of revenues relates to inventory charges associated with the exit of non-strategic product lines . in addition , we incurred $ 3.2 million of brazil restatement charges . these restructuring charges and other special charges are described in further detail in note 4 , special and restructuring charges , net . in relation to our schroedahl acquisition we recorded $ 6.8 million of intangible asset amortization during 2015. this amortization is recorded within selling , general , and administrative expenses . also during 2015 , we recorded $ 2.5 million of plant , property , and equipment and intangible impairments related to our brazil business . these impairment charges are included in the impairment charge line on our consolidated statement of operations . interest expense , net interest expense increased $ 0.5 million to $ 3.3 million for 2016 . this change in interest expense was primarily due to higher outstanding debt balances during the period as a result of the cfs acquisition . story_separator_special_tag other ( income ) expense , net other income , net , was $ 2.1 million for 2016 compared to other expense , net of ( $ 0.9 million ) in 2015 . the difference of $ 3.0 million was primarily due to the impact of foreign currency fluctuations . comprehensive ( loss ) income comprehensive loss was reduced from a comprehensive loss of $ 22.2 million as of december 31 , 2015 to a comprehensive loss of $ 0.2 million as of december 31 , 2016 , primarily driven by an increase of $ 16.9 million in favorable foreign currency balance sheet remeasurements . these favorable foreign currency balance sheet remeasurements were driven by the brazilian real ( $ 9.9 million ) and euro ( $ 6.3 million ) . as of december 31 , 2016 , we have a cumulative currency translation adjustment of $ 17.3 million regarding our brazil entity . if we were to cease to have a controlling financial interest in the brazil entity , we would incur a non-cash charge of $ 17.3 million , which would be included as a special charge within the results of operations . ( benefit from ) provision for income taxes the effective tax rate was ( - 4 % ) for 2016 compared to 56 % for 2015 . the primary drivers for the lower tax rate in 2016 include the tax benefit associated with the repatriation of foreign earnings which we completed in 2016 ( -27 % ) , reduced foreign losses in 2016 with no tax benefit ( -27 % ) , mix of lower taxed foreign earnings to us earnings ( -18 % ) , and other items in 2016 including the prior year impact of a foreign audit settlement ( -14 % ) . this was partially offset by the establishment of a valuation allowance for certain state net operating loss carryforwards ( +26 % ) . 22 restructuring actions our announced restructuring actions which result in savings are summarized as follows : during 2016 , we initiated certain restructuring activities , under which we continue to simplify our business ( `` 2016 actions '' ) . under these restructurings , we reduced expenses , primarily through reductions in force and closing a number of smaller facilities . in july 2015 , we announced the closure of one of the two corona , california manufacturing facilities ( `` california restructuring '' ) . under this restructuring , we are reducing certain general , manufacturing and facility related expenses . on february 18 , 2015 , we announced a restructuring action ( `` 2015 announced restructuring '' ) , under which we continued to simplify our businesses . under this action , we reduced certain general , administrative and manufacturing related expenses , primarily personnel related . the table below ( in millions ) outlines the cumulative effects on past and future earnings resulting from our announced restructuring plans . replace_table_token_8_th as shown in the table above our projected cumulative restructuring savings have exceeded our original planned savings amounts . this is primarily attributed to reducing additional general , administrative and manufacturing related expenses . the expected periods of realization of the restructuring savings are consistent with our original plans . our restructuring actions are funded by cash generated by operations . we expect to incur restructuring related special charges between $ 0.7 million and $ 0.9 million to complete our 2016 announced restructuring . these restructuring actions are expected to be funded with cash generated from operations . our 2015 announced restructuring and california restructuring have been completed and , as such , no additional restructuring charges are expected to be incurred in connection with these actions . 23 2015 compared with 2014 consolidated operations replace_table_token_9_th net revenues in 2015 were $ 656.3 million , a decrease of $ 185.2 million from 2014. the business divestitures resulted in a decrease in revenues of $ 51.2 million and unfavorable effects of currency translation resulted in a decrease in revenues of $ 46.3 million in 2015. sales increased $ 21.0 million due to our april 2015 acquisition of schroedahl . aside from the effects of currency translation , divestitures and acquisitions , revenues decreased $ 108.6 million ( -13 % ) primarily due to decreased demand in our north american short-cycle energy business . segment results ( in thousands ) 2015 2014 change net revenues energy $ 383,655 $ 552,973 $ ( 169,318 ) advanced flow solutions 272,612 288,473 ( 15,861 ) consolidated net revenues $ 656,267 $ 841,446 $ ( 185,179 ) operating income energy - segment operating income $ 50,386 $ 79,742 $ ( 29,356 ) afs - segment operating income 33,811 29,883 3,928 corporate expenses ( 21,710 ) ( 23,415 ) 1,705 subtotal 62,487 86,210 ( 23,723 ) special restructuring charges , net 4,634 5,246 ( 612 ) special other charges , net 9,720 7,491 2,229 special and restructuring charges , net ( 1 ) 14,354 12,737 1,617 restructuring related inventory charges 9,391 7,989 1,402 impairment charges 2,502 726 1,776 acquisition amortization 6,838 — 6,838 brazil restatement impact 3,228 — 3,228 restructuring and other cost , net 21,959 8,715 13,244 consolidated operating income $ 26,174 $ 64,757 $ ( 38,583 ) consolidated operating margin 4.0 % 7.7 % ( 1 ) see special and restructuring charges , net in note 4 to the consolidated financial statements , for additional details . 24 energy segment replace_table_token_10_th energy segment net revenues decreased $ 169.3 million , or 31 % , in 2015 compared to 2014 . the decrease was primarily driven by lower shipment volumes in our north american short-cycle business ( -15 % ) , a business divestiture ( -7 % ) , the downstream instrumentation business ( -4 % ) and unfavorable foreign currency ( -6 % ) . the unfavorable foreign currency is primarily due to the weakening of the euro against the u.s. dollar .
| results of operations 2016 compared with 2015 consolidated operations replace_table_token_3_th net revenues in 2016 were $ 590.3 million , a decrease of $ 66.0 million from 2015. the unfavorable effects of currency translation resulted in a decrease in revenues of $ 3.6 million in 2016. sales increased $ 25.1 million due to 2015 acquisition of schroedahl and 2016 acquisition of cfs . aside from the effects of currency translation and acquisitions , revenues decreased $ 87.5 million ( - 13 % ) primarily due to decreased demand in our north american short-cycle energy business . segment results the company 's management evaluates segment operating performance using `` segment operating income '' which we define as operating income before restructuring charges ( including inventory-related restructuring ) , special charges , impairment charges , amortization from acquisitions subsequent to 2011 , amortization expense related to the step-up in fair value of the inventory acquired through business acquisitions , and 2015 brazil restatement impact . the company uses this measure because it helps management understand and evaluate the segments ' operating results and facilitate a comparison of performance for determining compensation . accordingly , the following segment data is reported on this basis . 19 ( in thousands ) 2016 2015 change net revenues energy $ 322,046 $ 383,655 $ ( 61,609 ) advanced flow solutions 268,213 272,612 ( 4,399 ) consolidated net revenues $ 590,259 $ 656,267 $ ( 66,008 ) operating income energy - segment operating income $ 34,619 $ 50,386 $ ( 15,767 ) afs - segment operating income 33,463 33,811 ( 348 ) corporate expenses ( 25,672 ) ( 21,710 ) ( 3,962 ) subtotal 42,410 62,487 ( 20,077 ) restructuring charges , net 8,975 4,634 4,341 special charges , net 8,196 9,720 < td
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further , recent improvements in u.s. export activity have been driven in large part by increased sales of natural resources , such as oil and gas , and by other products that typically are not transported by trucks ; and , accordingly , such increased export activity has not resulted in proportional increases in trucking activity within the u.s. we believe that during 2013 , demand for fuel by trucking 50 companies was negatively affected as compared to the prior year by the new regulatory hours of service rules for truck drivers , which went into effect in july 2013 , and the driver shortage plaguing the trucking industry as these factors increase trucking company costs and lead trucking companies to focus on fuel efficiency and shippers to divert some business away from trucking . technological innovations and other regulatory changes permitting and requiring improved fuel efficiency of motor vehicle engines and other fuel conservation practices employed by trucking companies have accelerated and continue to reduce demand for diesel fuel , including by reducing the amount of diesel fuel required to drive a given amount of trucking miles . in part as a result of the aforesaid factors , our nonfuel revenues in 2013 increased on a same site basis over the prior year , but fuel sales volumes on a same site basis for 2013 declined compared to the prior year . also , during the second and third quarters of 2013 , ta 's primary competitors engaged in aggressive sales efforts presumably to maintain and grow market share , which negatively impacted our fuel sales volume and fuel gross margin per gallon during this time period . these aggressive sales efforts by our competitors abated somewhat in the third and fourth quarters as compared to the second quarter . despite the year over year declines in fuel sales volumes , our fuel gross margins per gallon for 2013 increased slightly on a same site basis over the prior year . we believe this trend primarily is attributable to our continued focus on managing our fuel pricing to balance sales volume and profitability considerations . our net income for the year ended december 31 , 2013 , was favorably impacted by a $ 26,618 benefit for income taxes that primarily resulted from the reversal during the 2013 fourth quarter of the valuation allowance we historically had maintained with respect to certain deferred tax assets ; increased site level profitability from the travel centers we have had in our business since before 2011 ; and increased profitability earned at the properties we have acquired since the beginning of 2011. these favorable factors were partially offset by the $ 10,000 charge to expense in december 2013 in connection with a litigation settlement ; the increases in depreciation and amortization expense attributable to the property acquisitions and other capital investments we made during 2012 and 2013 ; and the acquisition and financing costs related to our property acquisitions . since the beginning of 2011 , we have invested or expect to invest $ 325,647 to acquire and improve 30 travel centers and 31 gasoline/convenience stores . while the costs of ownership are reflected in our results for the periods since each acquisition , we believe the returns from these acquired properties are not yet fully reflected in our results of operations . we believe that the improvements we have made and plan to make at the travel centers may continue to improve the financial results at these locations . typical improvements we make at acquired travel centers include adding truck repair facilities and qsrs , paving parking lots , replacing outdated fuel dispensers , installing diesel exhaust fluid dispensing systems , changing signage , installing point of sale and other it systems and general building upgrades . the improvements to travel center properties we acquire are often substantial and require a long period of time to plan , design , permit and complete , and after completed then require a period of time to produce stabilized financial results and become part of our customers ' networks . we estimate that the travel centers we acquire generally will reach financial stabilization in approximately the third year after acquisition , but the actual result can vary widely from this estimate due to many factors . we acquired 31 gasoline/convenience store properties for $ 67,922 on december 16 , 2013. these convenience stores are high volume fuel locations with larger interior space for merchandise and food offerings than typical convenience stores and appear to have limited need for near term capital investment . in addition , we do not expect these convenience stores to require a lengthy period to achieve stabilized financial results . nearly all of our existing travel centers currently offer gasoline for motorists , and most of these convenience stores ' customer offerings are similar to certain of the products and food services available at our travel centers . accordingly , we currently expect we may be able to realize synergies in purchasing and merchandising customer offerings at these convenience 51 stores which may make the financial results , relative to the acquisition cost , similar to that expected for travel center acquisitions . the table below shows the number of properties we acquired by year , the amounts we have invested or currently expect to invest through and as of december 31 , 2013 , in these properties . replace_table_token_7_th ( 1 ) includes only cash amounts paid that were recorded as property and equipment or intangible assets . excludes working capital assets and asset retirement obligation assets . ( 2 ) includes 31 convenience stores acquired in december 2013. the operations at many of the 61 properties acquired during the three years ended december 31 , 2013 , have not yet reached the stabilized levels we currently expect . story_separator_special_tag as of december 31 , 2013 , the travel centers we have acquired since the beginning of 2011 have been owned by us for an average of 17 months , with the planned renovations completed at only 23 of these properties for an average of 14 months . the 31 convenience stores we acquired on december 16 , 2013 , do not require significant renovations . the table below shows the gross revenues in excess of cost of goods sold and site level operating expenses for the properties we began to operate for our own account since the beginning of 2011 , whether by way of acquisition from franchisees or others or takeover of operations upon termination of a franchisee sublease , from the beginning of the period shown ( or the date we began to operate such property for our own account , if later ) . because sites were acquired at various dates during the periods presented , these amounts are intended to indicate directional trends only . replace_table_token_8_th ( 1 ) includes 31 convenience stores acquired in december 2013. the amounts presented in the above table are the gross amounts recognized during the periods presented . certain of the travel centers we have acquired were franchises of ours from whom we generated revenues and incurred costs prior to our acquiring the site . the rent , royalties and fuel revenues in excess of the related cost of goods sold and site level operating expenses we recognized during the twelve month period prior to each of our acquisitions of travel centers previously operated by our franchisees for the properties acquired in 2011 , 2012 and 2013 , were $ 194 , $ 3,705 and $ 1,417 , respectively . on january 2 , 2013 , the american taxpayer relief act of 2012 became law . the law included the reinstatement , retroactive to january 1 , 2012 , of the `` blender 's credit for biodiesel and renewable 52 diesel '' . this tax credit had previously expired on december 31 , 2011 , and , accordingly , we did not recognize any benefit directly related to these tax credits in our 2012 operating results , although , in the absence of the tax credits , market dynamics tend to adjust prices to compensate somewhat for the value of the lost tax credits . the reinstatement of this credit entitled us to receive in 2013 approximately $ 3,887 of refunds related to certain fuel purchases made during 2012. we recognized this amount , net of our estimate of uncollectible amounts , in our operating results for 2013. under the new law , the credit expired on december 31 , 2013 , and we reflected any benefit from it in our operating results as we purchased qualifying fuel during 2013. congress did not extend this tax credit before the end of 2013 or since ; consequently , to date during 2014 we have not received rebates as a result of this tax credit for any fuel purchases we have made during 2014. we do not expect that this situation will have a significant effect on our 2014 fuel gross margin because of the expected market pricing dynamics that take the lack of the tax credit into account , but our fuel gross margin may be negatively affected to some extent . there can be no assurance that industry conditions will not deteriorate or that any one or more of the risks identified under the sections `` risk factors , '' `` warning concerning forward looking statements '' or elsewhere in our annual report ; or some other unidentified risk will not manifest itself in a manner which is material and adverse to our results of operations , cash flow or financial position . summary of site counts the changes in the number of our sites and in their method of operation ( company operated , franchisee leased and operated or franchisee owned and operated ) can be significant factors influencing the changes in our results of operations . the following table summarizes the changes in the composition of our business during the past three years : replace_table_token_9_th ( 1 ) includes at each period presented two travel centers we operate that are owned by a joint venture in which we own a minority interest . ( 2 ) includes at each period presented two convenience stores we operate that are owned by a joint venture in which we own a minority interest . 53 ( 3 ) the number of sites presented as of december 31 , 2010 , 2011 and 2012 , was revised in order to reflect as separate locations two convenience stores we operated as of each of these dates ; we previously considered these convenience stores to be ancillary operations to our nearby travel centers and did not count separately . in january 2014 , we acquired an additional travel center that we now operate . we currently intend to continue to selectively acquire additional travel centers and convenience stores and to otherwise expand our business . relevance of fuel revenues and fuel volumes due to the price volatility of fuel products and our pricing to fuel customers , we believe that fuel revenue is not a reliable metric for analyzing our results of operations from period to period . as a result solely of changes in fuel prices , our fuel revenue may materially increase or decrease , in both absolute amounts and on a percentage basis , without a comparable change in fuel sales volumes or in fuel gross margin per gallon . we consider fuel volumes and fuel gross margin to be better measures of comparative performance than fuel revenues . however , fuel pricing and revenues can impact our working capital requirements ; see `` liquidity and capital resources '' below . story_separator_special_tag 2011 ; we may be able to recover all or a portion of this amount from our suppliers , but we have not recognized a benefit for such recovery in our 2013 results .
| 55 fuel revenues for 2013 , were $ 6,481,252 , a decrease of $ 155,045 , or 2.3 % , compared to 2012. the table below shows the changes in fuel revenues between periods that resulted from price and volume changes : replace_table_token_12_th the decrease in fuel revenue resulted largely from declines in same site sales volume and fuel volume sold on a wholesale basis to franchisees and from lower market prices for fuel , partially offset by sales volume growth at sites we acquired during 2012 and 2013. on a same site basis , fuel sales volume for our company operated locations decreased by 59,628 gallons , or 3.1 % , during 2013 , compared to 2012. we believe that the effect of the new regulatory truck driver hours of services rules on miles driven and truck utilization , the trend of improved fuel efficiency of heavy truck engines and other fuel conservation efforts by trucking customers and our decision to avoid certain lower margin fuel sales contributed to decreased same site fuel sales volume despite the slight and slow improvement in the u.s. economy . in addition , as noted above under `` overview , '' competitive pressures from other industry participants also negatively affected our fuel sales volume during 2013. the decreased level of sales volume to franchisees resulted from the sublease renewals we entered into with our franchisees in the second half of 2012 that eliminated the requirement that these subtenants purchase their diesel fuel from us and our acquisitions during 2012 and 2013 of the operations of five of the 10 such subtenants we had at the start of 2012. nonfuel revenues for 2013 , were $ 1,450,792 , an increase of $ 106,037 , or 7.9 % , compared to 2012. the majority of the change between periods resulted from an increase in revenues at those sites we acquired during 2012 and 2013 , but also reflected a same site nonfuel revenue increase . on a same site basis for our company operated sites , nonfuel revenues increased by $ 34,953 , or 2.7 % , during 2013 , compared to 2012. we believe the same site nonfuel revenue increase reflects increased
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if the closing is extended , the closing will occur on the first two consecutive business days commencing on the fifth business day after the expiration of the final extension period on which the conditions are satisfied or 52 waived ( other than the conditions ( i ) with respect to no “ material adverse effect ” ( as defined in the transaction agreement ) having occurred , ( ii ) that by their terms are to be satisfied at the closing , but subject to the satisfaction or waiver of such conditions at the closing and ( iii ) if psp extends the closing , with respect to a civil or criminal legal proceeding alleging that loral or any of its subsidiaries ( excluding xtar and gdm and their subsidiaries ) , has criminally violated a law ) . subject to the satisfaction of the conditions to closing and any extensions described above , we expect to complete the transaction in the third quarter of 2021 . upon satisfaction of the terms and subject to the conditions set forth in the transaction agreement , the transaction will result in the current stockholders of loral , psp and the other shareholders in telesat ( principally current or former management of telesat ) owning approximately the same percentage of equity in telesat indirectly through telesat corporation and or telesat partnership as they currently hold ( indirectly in the case of loral stockholders and psp ) in telesat , telesat corporation becoming the publicly traded general partner of telesat partnership and telesat partnership indirectly owning all of the economic interests in telesat , except to the extent that the other shareholders in telesat elect to retain their direct interest in telesat . the transaction agreement provides certain termination rights for both loral and psp and further provides that , in certain circumstances , loral may be required to pay to red isle a termination fee of $ 6,550,000 or $ 22,910,000 , or to pay to psp a “ breach ” fee of $ 40,000,000 , in each case as provided in the transaction agreement . description of business loral has one operating segment consisting of satellite-based communications services . loral participates in satellite services operations primarily through its ownership interest in telesat , a leading global satellite operator . telesat provides its satellite and communication services from a fleet of geo satellites that occupy canadian and other orbital locations . telesat is also developing a planned global constellation of leo satellites known as “ telesat lightspeed. ” loral holds a 62.6 % economic interest and a 32.6 % voting interest in telesat as of december 31 , 2020 . telesat 's geo satellite business the satellite services business is capital intensive and the build-out of a satellite fleet requires substantial time and investment . once the investment in a satellite is made , the incremental costs to maintain and operate the satellite are relatively low over the life of the satellite , with the exception of in-orbit insurance . telesat has been able to generate a large contractual revenue backlog by entering into long-term contracts with some of its customers , in some cases for all or substantially all of a satellite 's orbital maneuver life . historically , this has resulted in revenue from the satellite services business being fairly predictable . as of december 31 , 2020 , telesat provided satellite services to customers from its fleet of 15 geo satellites , as well as the canadian payload on the viasat-1 satellite . telesat also manages the operations of additional satellites for third parties . as of december 31 , 2020 , telesat 's contracted backlog from its geo satellite business was approximately $ 2.1 billion . telesat lightspeed telesat has commenced the development of what it believes will be the world 's most advanced constellation of leo satellites and integrated terrestrial infrastructure , called “ telesat lightspeed ” – a platform designed to revolutionize the provision of global broadband connectivity . in january 2018 , telesat 's first leo satellite was successfully launched into orbit . this phase 1 leo satellite has demonstrated certain key features of the telesat lightspeed system design , specifically the capability of the satellite and customer terminals to deliver a low latency broadband experience . telesat also installed ground infrastructure at its teleport in allan park in canada to support testing with a variety of existing and prospective customers and potential suppliers of the telesat lightspeed system hardware who have been participating in trials since the second half of 2018 . 53 to advance its plans for telesat lightspeed , telesat has recently undertaken , among other things , the following : in february 2021 , telesat announced that it had entered into an agreement with tas to be the prime manufacturer of the telesat lightspeed constellation and that tas and its affiliate telespazio have made a lightspeed capacity commitment in connection with the agreement . under the terms of the agreement , the parties have provided for continued progress of the program while the financing for the project is being finalized . the execution of the definitive manufacturing agreement , the commencement of full construction activities and the final constellation deployment schedule are subject to , and conditional upon , the progress of the financing of the program . in february 2021 , telesat announced that it had selected mda to manufacture the phased array antennas to be incorporated into the telesat lightspeed satellites . under the terms of the agreement telesat has entered into with mda , the parties have provided for continued progress of the program while the financing for the project is being finalized . in february 2021 , telesat announced that it had entered into an mou with the government of québec for an investment of cad 400 million into telesat lightspeed . story_separator_special_tag under the terms of the mou , the investment by the government of québec will consist of cad 200 million in preferred equity as well as a cad 200 million loan . telesat expects that a final agreement will be completed in the coming months . while telesat has entered into agreements with tas and mda , the execution of the definitive manufacturing agreements with them , the commencement of full construction activities and the final constellation deployment schedule are subject to , and conditional upon , the progress of the financing for the program . similarly , the government of quebec 's cad 400 million investment is subject to a number of conditions , including financing and the entering into of a further definitive agreement . telesat continues to take a number of steps to advance telesat lightspeed 's business plan , including putting in place arrangements with launch providers , ground systems operators , and antenna manufacturers ( to advance the development of economical and high efficiency antenna systems ) . telesat currently estimates that telesat lightspeed will require a capital investment of approximately $ 5 billion . telesat anticipates diverse sources of financing , including ( subject to compliance with telesat 's borrowing covenants ) telesat 's current cash-on-hand , expected cash flows of telesat 's geo business , proceeds telesat expects to receive from the repurposing of c-band spectrum , potential future equity issuance , and future borrowings , including from export credit agencies . in july 2019 , telesat announced that it had entered into a memorandum of understanding with the government of canada regarding a partnership intended to ensure access to affordable high-speed internet connectivity across rural and remote areas of canada through the development of the telesat lightspeed constellation . the partnership is expected to generate cad 1.2 billion in revenue for telesat over 10 years , which includes up to cad 600 million from the government of canada . in may 2019 , telesat entered into an agreement with the government of canada pursuant to which the government of canada will contribute up to cad 85 million through july 31 , 2023 to support the development of the telesat lightspeed constellation . as of december 31 , 2020 and 2019 , telesat recorded cad 12 million and cad 5.0 million , respectively , relating to the agreement . repurposing of c-band spectrum in a number of countries , regulators plan to adopt new spectrum allocations for terrestrial mobile broadband and 5g , including certain c-band spectrum currently allocated to satellite services . telesat currently use c-band spectrum in a number of countries , including the u.s. and canada . to the extent that telesat is able to assist in making the c-band spectrum it uses available for use for terrestrial mobile broadband and 5g , telesat may be entitled to certain compensation . in february 2020 , the fcc issued a final report and order on expanding flexible use of the 3.7 to 4.2 ghz band . the report and order provided that telesat would receive as much as $ 344.4 million from the repurposing of c-band spectrum in the u.s. provided that telesat takes the necessary actions to move its services in the continental u.s. out of the 3700 — 4000 mhz spectrum band and into the 4000 — 4200 mhz band and takes the necessary steps to ensure that its end user antennas will not be subject to terrestrial interference . telesat believes that it can meet all the requirements to receive the $ 344.4 million . 54 a similar repurposing of c-band spectrum is currently underway in canada as well , with the government of canada launching a public consultation on repurposing c-band spectrum in august 2020. in the consultation document , in addition to its own proposal , the government of canada included a proposal put forward by telesat whereby telesat — the sole satellite operator licensed to use c-band in canada — would accelerate , and be fully responsible for , the clearing of a portion of the c-band spectrum for 5g . in return , telesat would be compensated for clearing and repurposing the spectrum . comments were submitted to the government on october 26 , 2020 , and reply comments were submitted on november 30 , 2020. telesat anticipates a decision in 2021. telesat lightspeed asset transfers in december 2020 , in connection with telesat 's ongoing financing activities related to its planned telesat lightspeed constellation , telesat designated certain of its subsidiaries as unrestricted subsidiaries under its amended senior secured credit facilities and the indentures governing its senior secured notes and senior notes . on december 31 , 2020 , telesat and telesat spectrum general partnership ( “ tsgp ” ) , a wholly owned restricted subsidiary of telesat , entered into a series of transactions in which telesat and tsgp transferred to certain unrestricted subsidiaries ( i ) assets relating to the telesat lightspeed network , including ngso spectrum authorizations , u.s. market access rights , certain ip , certain fixed assets and certain contracts , and ( ii ) c-band assets , including canadian c-band licenses and u.s. c-band market access rights , together with the right to receive proceeds from the repurposing thereof . in connection with such asset transfers , the applicable unrestricted subsidiaries entered into certain market access and control agreements permitting telesat and tsgp to retain access and or control over the transferred assets . concurrently with these transactions , telesat contributed $ 193 million in cash to telesat leo holdings inc. , an unrestricted subsidiary of telesat . these transactions are collectively referred to as the “ leo transactions. ” immediately prior to the leo transactions , telesat prepaid outstanding term loans under its amended senior secured credit facilities in an aggregate principal amount of $ 341.4 million .
| 57 income tax provision year ended december 31 , 2020 2019 ( in thousands ) income tax provision $ ( 12,886 ) $ ( 6,153 ) for 2020 , we recorded a current and deferred tax provision of $ 1.5 million and $ 11.4 million , respectively , resulting in a total tax provision of $ 12.9 million . for 2019 , we recorded a current and deferred tax provision of $ 3.2 million and $ 3.0 million , respectively , resulting in a total tax provision of $ 6.2 million . our income tax provision for 2020 includes a current and deferred tax benefit of $ 1.6 million and $ 1.0 million , respectively , from the covid-19 acts . the deferred tax provision for each period included the impact of equity in net income of affiliates in our consolidated statement of operations . after utilization of our nol carryforwards and allowable tax credits , federal income tax on global intangible low-taxed income ( “ gilti ” ) from telesat was zero . furthermore , since our deferred tax assets related to the investment in telesat will be realized from the future recognition of gilti , the federal portion of these deferred tax assets are valued at zero . during 2021 , the statute of limitations for assessment of additional tax will expire with regard to certain uncertain tax positions ( “ utps ” ) , potentially resulting in a $ 19.1 million reduction to our income tax provision . to the extent that profitability from operations is not sufficient to realize the benefit from our remaining net deferred tax assets , we would generate sufficient taxable income from the appreciated value of our telesat investment , subject to the provisions of the transaction agreement , in order to prevent federal net operating losses from expiring and realize the benefit of all remaining deferred tax assets . see critical accounting matters — taxation below for discussion of our accounting method for income taxes . equity in net income of affiliates < div
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due to more favorable pricing , we presently prefer private placement debt over a public offering of bond debt . as interest rates rise , our share price may decline as investors adjust prices to reflect a dividend yield that is sufficiently in excess of a risk free rate . for the year ended december 31 , 2016 , approximately 27 % of our revenue was derived from operators of our skilled nursing facilities that receive a significant portion of their revenue from governmental payors , primarily medicare and medicaid . such revenues are subject annually to statutory and regulatory changes and in recent years have been reduced due to federal and state budgetary pressures . over the past five years , we have selectively diversified our portfolio by directing a significant portion of our investments into properties which do not rely primarily on medicare and medicaid reimbursement , but rather on private pay sources ( assisted living and memory care facilities , senior living campuses , independent living facilities and entrance-fee communities ) . we will occasionally acquire skilled nursing facilities in good physical condition with a proven operator and strong local market fundamentals , because diversification implies a periodic rebalancing , but our recent investment focus has been on acquiring need-driven and discretionary senior housing assets . considering individual tenant lease revenue as a percentage of total revenue , bickford senior living is our largest assisted living tenant , an affiliate of holiday retirement is our largest independent living tenant , national healthcare corporation is our largest skilled nursing tenant and senior living communities is our largest entrance-fee community tenant . our shift toward private payor facilities , as well as our expansion into the discretionary senior housing market , has further resulted in a portfolio whose current composition is relatively balanced between medical facilities , need-driven and discretionary senior housing . 26 we manage our business with a goal of increasing the regular annual dividends paid to shareholders . our board of directors approves a regular quarterly dividend which is reflective of expected taxable income on a recurring basis . our transactions that are infrequent and non-recurring that generate additional taxable income have been distributed to shareholders in the form of special dividends . taxable income is determined in accordance with the internal revenue code and differs from net income for financial statements purposes determined in accordance with u.s. generally accepted accounting principles . our goal of increasing annual dividends requires a careful balance between identification of high-quality lease and mortgage assets in which to invest and the cost of our capital with which to fund such investments . we consider the competing interests of short and long-term debt ( interest rates , maturities and other terms ) versus the higher cost of new equity . we accept some level of risk associated with leveraging our investments . we intend to continue to make new investments that meet our underwriting criteria and where the spreads over our cost of capital will generate sufficient returns to our shareholders . our dividends for the current year and the last two years are as follows : replace_table_token_11_th our investments in healthcare real estate have been partially accomplished by our ability to effectively leverage our balance sheet . however , we continue to maintain a relatively low-leverage balance sheet compared with many in our peer group . we believe that our fixed charge coverage ratio , which is the ratio of adjusted ebitda ( earnings before interest , taxes , depreciation and amortization , including amounts in discontinued operations , excluding real estate asset impairments and gains on dispositions ) to fixed charges ( interest expense at contractual rates net of capitalized interest and principal payments on debt ) , and the ratio of consolidated net debt to adjusted ebitda are meaningful measures of our ability to service our debt . we use these two measures as a useful basis to compare the strength of our balance sheet with those in our peer group . we also believe this gives us a competitive advantage when accessing debt markets . we calculate our fixed charge coverage ratio as approximately 5.8x for the year ended december 31 , 2016 ( see our discussion of adjusted ebitda and a reconciliation to our net income on page 47 ) . giving effect to our acquisitions and financings on an annualized basis , our consolidated net debt-to adjusted ebitda ratio is approximately 4.4x for the year ended december 31 , 2016 ( in thousands ) : consolidated total debt $ 1,115,981 less : cash and cash equivalents ( 4,832 ) consolidated net debt $ 1,111,149 adjusted ebitda $ 237,049 annualized impact of recent investments 17,057 $ 254,106 consolidated net debt to adjusted ebitda 4.4 x according to current projections by the u.s. department of health and human services , the number of americans 65 and older is expected to grow 36 % between 2010 and 2020 , compared to a 9 % growth rate for the general population . as transgenerationalaging.org notes : “ the fastest growing segment of the total population is the oldest old - those 80 and over . their growth rate is twice that of those 65 and over and almost 4 times that for the total population . in the united states , this group now represents 10 % of the older population and will more than triple from 5.7 million in 2010 to over 19 million by 2050. ” while affordability issues will play a limiting role in the movement of this oldest age demographic into active participation in the senior care market , the swelling in the ranks of the very old is expected to increase demand for senior housing properties of all types in the coming decades . there is increasing demand for private-pay senior housing properties in countries outside the u.s. as well . we therefore consider real estate and note investments with u.s. entities who seek to expand their senior housing operations into countries where local-market demand is sufficiently demonstrated . story_separator_special_tag strong demographic trends provide the context for continued growth in 2017 and the years ahead . we plan to fund any new real estate and mortgage investments during 2017 using our liquid assets and debt financing . should the weight of additional debt as a result of new acquisitions suggest the need to rebalance our capital structure , we would then expect to access the capital 27 markets through an atm or other equity offerings . our disciplined investment strategy implemented through measured increments of debt and equity sets the stage for annual dividend growth , continued low leverage , a portfolio of diversified , high-quality assets , and business relationships with experienced operators who we make our priority , continue to be the key drivers of our business plan . critical accounting policies we prepare our consolidated financial statements in conformity with accounting principles generally accepted in the united states of america . these accounting principles require us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . actual results could differ from those estimates and cause our reported net income to vary significantly from period to period . if actual experience differs from the assumptions and other considerations used in estimating amounts reflected in our consolidated financial statements , the resulting changes could have a material adverse effect on our consolidated results of operations , liquidity and or financial condition . we consider an accounting estimate or assumption critical if : 1. the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change ; and 2. the impact of the estimates and assumptions on financial condition or operating performance is material . our significant accounting policies and the associated estimates , judgments and the issues which impact these estimates are as follows : valuations and impairments our tenants and borrowers who operate snfs derive their revenues primarily from medicare , medicaid and other government programs . amounts paid under these government programs are subject to legislative and government budget constraints . from time to time , there may be material changes in government reimbursement . in the past , snfs have experienced material reductions in government reimbursement . the long-term health care industry has experienced significant professional liability claims which has resulted in an increase in the cost of insurance to cover potential claims . in previous years , these factors have combined to cause a number of bankruptcy filings , bankruptcy court rulings and court judgments affecting our lessees and borrowers . in prior years , we have determined that impairment of certain of our investments had occurred as a result of these events . we evaluate the recoverability of the carrying values of our properties on a property-by-property basis . on a quarterly basis , we review our properties for recoverability when events or circumstances , including significant physical changes in the property , significant adverse changes in general economic conditions and significant deteriorations of the underlying cash flows of the property , indicate that the carrying amount of the property may not be recoverable . the need to recognize an impairment charge is based on estimated undiscounted future cash flows from a property compared to the carrying value of that property . if recognition of an impairment charge is necessary , it is measured as the amount by which the carrying amount of the property exceeds the fair value of the property . for our mortgage and other notes receivable , we evaluate the estimated collectibility of contractual loan payments and general economic conditions on an instrument-by-instrument basis . on a quarterly basis , we review our notes receivable for ability to realize on such notes when events or circumstances , including the non-receipt of contractual principal and interest payments , significant deteriorations of the financial condition of the borrower and significant adverse changes in general economic conditions , indicate that the carrying amount of the note receivable may not be recoverable . if necessary , impairment is measured as the amount by which the carrying amount exceeds the fair value as measured by the discounted cash flows expected to be received under the note receivable or , if foreclosure is probable , the fair value of the collateral securing the note receivable . we evaluate our marketable securities for other-than-temporary impairments . an impairment of a marketable security would be considered “ other-than-temporary ” unless we have the ability and intent to hold the investment for a period of time sufficient for a forecasted market price recovery up to ( or beyond ) the cost of the investment and evidence indicates the cost of the investment is recoverable within a reasonable period of time . the initial carrying value of investments in unconsolidated entities is based on the amount paid to purchase the interest or the estimated fair value of the assets prior to our acquisition of interests in the entity . an aggregate basis difference between the cost 28 of our equity method investee and the amount of underlying equity in its net assets is primarily attributable to goodwill , which is not amortized . we evaluate for impairment our equity method investments and related goodwill based upon a comparison of the estimated fair value of the investments to their carrying value . when we determine a decline in the estimated fair value of such an investment below its carrying value is other than temporary , an impairment is recorded . no impairments to the carrying value of our equity method investee have been recorded for any period presented . the determination of the fair value and whether a shortfall in operating revenues or the existence of operating losses is indicative of a loss in value that is other than temporary involves significant judgment .
| because the facilities were owner-occupied , the acquisition was accounted for as an asset purchase . senior living management on august 3 , 2016 , we entered into an agreement to furnish through its corporate entity and affiliates our current tenant , senior living management ( “ slm ” ) , inc. , with loans of up to $ 24,500,000 to facilitate slm 's acquisition of five senior housing facilities that it currently operates . the loans consist of two notes under a master credit agreement , include both a mortgage and a corporate loan , and bear interest at 8.25 % with terms of five years , plus optional one and two-year extensions . nhi has a right of first refusal if slm elects to sell one or more of the facilities . a total of $ 12,556,000 had been drawn on the two loans as of december 31 , 2016. on january 17 , 2017 , the remaining amount under the loans was drawn . bickford on july 15 , 2016 , nhi extended a $ 14,000,000 construction loan facility to bickford for the purpose of developing and operating an assisted living/memory care community in illinois . the total amount funded as of december 31 , 2016 was $ 2,413,000 , interest is to accrue at 9 % , and the loan is to mature on july 15 , 2021. the promissory note is secured by a first mortgage lien on substantially all real and personal property as well as a pledge of any and all leases or agreements which may grant a right of use to the subject property . usual and customary covenants extend to the agreement , including the borrower 's obligation for payment of insurance and taxes . the loan and subject property were not included in the joint venture between the parties . 32 on june 1 , 2016 , in an asset acquisition , we acquired five assisted living and memory care facilities owned and operated by bickford for $
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thus , we have determined that it is not necessary to proceed with the two-step goodwill impairment test . there was no goodwill impairment for each of three fiscal years ended june 30 , 2013. we evaluate long-lived assets with finite lives for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable . impairment is considered to exist if the total estimated future cash flows on an undiscounted basis are less than the carrying amount of the assets . if impairment does exist , we measure the impairment loss and record it based on the discounted estimate of future cash flows . in estimating future cash flows , we group assets at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows from other asset groups . our estimate of future cash flows is based upon , among other things , certain assumptions about expected future operating performance , growth rates and other factors . although we believe the assumptions and estimates we have made in the past have been reasonable and appropriate , different assumptions and estimates could materially impact our reported financial results . more conservative estimates of the anticipated future benefits from these businesses could result in impairment charges , which would decrease net income and result in lower asset values on our balance sheet . stock-based compensation expense . we account for stock-based compensation using fair value recognition provisions . thus , we record stock-based compensation as a charge to earnings net of the estimated impact of forfeited awards . as such , we recognize stock-based compensation cost only for those stock-based awards that are estimated to ultimately vest over their requisite vesting period , based on the vesting provisions of the individual grants . the process of estimating the fair value of stock-based compensation awards and recognizing stock-based compensation cost over their requisite vesting period involves significant assumptions and judgments . we estimate the fair value of stock option awards on the date of grant using the black-scholes option-valuation model which requires that we make certain assumptions regarding : ( i ) the expected volatility in the market price of our common stock ; ( ii ) dividend yield ; ( iii ) risk-free interest rates ; and ( iv ) the period of time employees are expected to hold the award prior to exercise . we estimate the fair value of restricted stock and restricted stock unit awards on the date of the grant using the market price of our common stock on that date . in addition , we are required to estimate the expected impact of forfeited awards and recognize stock-based compensation cost only for those awards expected to vest . if actual forfeiture rates differ materially from our estimates , stock-based compensation expense could differ significantly from the amounts we have recorded in the current period . we periodically review actual forfeiture experience and revise our estimates , as necessary . we recognize the cumulative effect on current and prior periods change in the estimated forfeiture rate as compensation cost in earnings in the period of the revision . as a result , if we revise our assumptions and estimates , our stock-based compensation expense could change materially in the future . certain shares of restricted stock granted to senior management vest based upon the achievement of pre-established performance goals . see note 7 to the consolidated financial statements for a further discussion of stock-based compensation . legal and other contingencies . we are subject to various claims and legal proceedings . we review the status of each significant legal dispute to which we are a party and assess our potential financial exposure , if any . if the potential financial exposure from any claim or legal proceeding is considered probable and the amount can be reasonably estimated , we record a liability and an expense for the estimated loss . significant judgment is required in both the determination of probability and the determination as to whether an exposure is reasonably estimable . 46 because of uncertainties related to these matters , accruals are based only on the best information available at the time . as additional information becomes available , we reassess the potential liability related to our pending claims and litigation and revise our estimates accordingly . such revisions in the estimates of the potential liabilities could have a material impact on our results of operations and financial position . net revenues the table below and the discussion that follows are based upon the way we analyze our business . see note 13 to the consolidated financial statements for additional information about business segments . replace_table_token_8_th fiscal 2013 compared with fiscal 2012. net revenues for fiscal 2013 increased $ 9.0 million , or 1 % , to $ 802.0 million from $ 793.0 million for fiscal 2012. revenues for the security division for fiscal 2013 decreased $ 19.6 million , or 5 % , to $ 372.2 million , from $ 391.8 million for fiscal 2012. in fiscal 2012 , we recognized $ 94.7 million in revenues related to a single large contract where we served as a prime contractor and hardware systems integrator that was substantially completed in the fourth quarter of the prior year . excluding the impact of this program , the security division 's sales increased by $ 69.2 million or 23 % , primarily attributable to the growth of our turnkey screening services business . revenues for the healthcare division for fiscal 2013 decreased $ 4.3 million , or 2 % , to $ 231.3 million , from $ 235.6 million for fiscal 2012. the decrease was primarily attributable to a $ 3.8 million , or 16 % , decrease in our anesthesia product line revenues and a $ 1.4 million or 5 % decrease in our cardiology product line revenues partially offset by a $ 1.2 million or 1 % increase in our patient monitoring product line sales with increases in our north american and asian regions . story_separator_special_tag overall , increases attributable to new product offerings within our patient monitoring product line were offset by soft markets . revenues for the optoelectronics and manufacturing division for fiscal 2013 increased $ 32.9 million , or 20 % , to $ 198.5 million from $ 165.6 million for fiscal 2012. this increase was primarily attributable to a $ 43.5 million or 50 % increase in our contract manufacturing sales , as a result of an expanded customer base partially offset by a decrease in commercial optoelectronics sales of $ 10.6 million , or 14 % , primarily as a result of reduced sales volumes to customers in the solar energy and healthcare industries , as well as a soft european market . fiscal 2012 compared with fiscal 2011. net revenues for fiscal 2012 increased $ 136.9 million , or 21 % , to $ 793.0 million from $ 656.1 million for fiscal 2011. revenues for the security division for fiscal 2012 increased $ 97.1 million , or 33 % , to $ 391.8 million , from $ 294.7 million for fiscal 2011. the increase was primarily attributable to : ( i ) an $ 80.6 million , or 35 % , increase in equipment sales , primarily attributable to our performance as a prime contractor and hardware systems integrator on a large contract ; and ( ii ) an $ 11.8 million , or 19 % , increase in service revenue due to the growing installed base of products from which we derive service revenue as warranty periods expire . 47 revenues for the healthcare division for fiscal 2012 increased $ 20.6 million , or 10 % , to $ 235.6 million , from $ 215.0 million for fiscal 2011. the increase was primarily attributable to new product introductions primarily in our patient monitoring business with increases primarily in north america . revenues for the optoelectronics and manufacturing division for fiscal 2012 increased $ 19.2 million , or 13 % , to $ 165.6 million from $ 146.4 million for fiscal 2011. this increase was driven by an increase in commercial optoelectronic sales of $ 7.4 million or 10 % and by an increase in contract manufacturing sales of $ 11.9 million , 16 % , as a result of an expanded customer base . gross profit replace_table_token_9_th fiscal 2013 compared with fiscal 2012. gross profit increased $ 21.8 million , or 8 % , to $ 290.4 million for fiscal 2013 , from $ 268.6 million for fiscal 2012. our gross margin during the period increased to 36.2 % from 33.9 % for the prior-year period . the increase was attributable to : i ) increased revenue from our turnkey screening services in our security division , which provided higher margins than product sales and ii ) the impact of lower than average margin related to the single large contract in our security division where we served as a prime contractor and hardware systems integrator in the prior-year period . these improvements were partially offset by : i ) the impact of the reduced revenue in our healthcare division , which has historically generated the highest gross margin across the three divisions and ii ) the impact of the increased revenue from our optoelectronic and manufacturing division , which has historically generated the lowest gross margin across all three divisions . fiscal 2012 compared with fiscal 2011. gross profit increased $ 29.3 million , or 12 % , to $ 268.6 million for fiscal 2012 , from $ 239.3 million for fiscal 2011 , primarily as a result of a 21 % increase in sales . our gross margin during the period declined to 33.9 % from 36.5 % for the prior-year period . the decrease was mainly due to a less favorable mix of the products we sold , as sales by our healthcare division , which generates the highest gross margin of our three divisions , increased at a lesser rate rather than that of our security division . in addition , the product mix within our security division negatively impacted gross margin as a significant portion of growth in our security division was attributable to large hardware systems integration contract . operating expenses replace_table_token_10_th selling , general and administrative sg & a expenses consisted primarily of compensation paid to sales , marketing and administrative personnel , professional service fees and marketing expenses . 48 fiscal 2013 compared with fiscal 2012. for fiscal 2013 , sg & a expenses increased by $ 8.1 million , or 5 % , to $ 159.8 million , from $ 151.7 million for fiscal 2012. this $ 8.1 million increase was primarily attributable to : i ) an increase of $ 6.6 million of sg & a expenses related to our turnkey screening solutions business ; and ii ) an increase of $ 2.1 million in our optoelectronics and manufacturing division in support of our 20 % external revenue growth . as a percentage of revenue , sg & a expenses were 19.9 % for fiscal 2013 , compared to 19.1 % for the comparable prior year period . fiscal 2012 compared with fiscal 2011. for fiscal 2012 , sg & a expenses increased by $ 9.1 million , or 6 % , to $ 151.7 million , from $ 142.6 million for fiscal 2011. this $ 9.1 million increase was primarily attributable to : i ) an increase of $ 4.3 million of sg & a expenses related our turnkey screening solutions business and ii ) an increase in overall sg & a spending of $ 4.8 million , or 3 % to support our 21 % revenue growth . as a percentage of revenue , sg & a expenses were 19.1 % for fiscal 2012 , compared to 21.7 % for the comparable prior year period as we further leveraged our infrastructure . research and development our security and healthcare divisions have historically invested substantial amounts in r & d .
| through such efforts we aim to accelerate innovation , improve earnings and increase overall stockholder value . critical accounting policies 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 conformity with accounting principles generally accepted in the united states . our preparation of these consolidated financial statements requires us to make judgments and estimates that affect the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances . as a result , actual results may differ from such estimates . our senior management has reviewed these critical accounting policies and related disclosures with the audit committee of our board of directors . the following summarizes our critical accounting policies and significant estimates used in preparing our consolidated financial statements : revenue recognition . we recognize revenue upon shipment of products when title and risk of loss passes , and when terms are fixed and collection is probable . revenue from services includes after-market services , installation and implementation of products , and turnkey security screening services . the portion of revenue for the sale attributable to installation is deferred and recognized when the installation service is provided . in an instance where terms of sale include subjective customer acceptance criteria , revenue is deferred until we have achieved the acceptance criteria . concurrent with the shipment of the product , we accrue estimated product return reserves and warranty expenses . critical judgments made by management related to revenue recognition include the determination of whether or not customer acceptance criteria are perfunctory or inconsequential . the determination of whether or not customer acceptance terms are perfunctory or inconsequential impacts the amount and timing of revenue recognized . critical judgments also include
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in addition to the temporary closures and reopenings of our stores and other facilities , the ongoing covid-19 pandemic has led to modifications to our operations , including the implementation of health and safety protocols , and has impacted consumer behavior . the continued scope and impact of the pandemic is unpredictable and has in the past caused , currently causes , and may continue to cause additional intermittent or prolonged periods of temporary store closures , and may result in additional changes in consumer demand and behavior or require further modifications to our operations . these potential impacts may lead to increased asset recovery and valuation risks , such as impairment of our stores and other assets and an inability to realize deferred tax assets due to sustaining losses in certain jurisdictions . the uncertainties in the global economy may also impact the financial viability or business operations of some of our suppliers and service providers ( including transportation and logistics providers ) , which may interrupt our supply chain , and require other changes to our operations . these and other factors have had and may continue to have a material impact on our business , results of operations , financial position and cash flows . store and associate actions we have taken numerous steps designed to protect the health and well-being of our associates and customers to operate more safely in light of the covid-19 pandemic . we established several global task force teams focused on a broad range of strategies to navigate the company through this global health crisis . globally , we have put in place practices including social distancing protocols ( which include occupancy limits and reducing in-store inventory levels ) , access to personal protective equipment and enhanced cleaning efforts . for example , upon reopening our stores , we installed protective shields at registers , encouraged social distancing through regular in-store announcements , signage , and markers in our queue lines , implemented new processes for handling merchandise returns , and instituted new cleaning regimens , including enhanced cleaning of high-touch surfaces , such as shopping carts , throughout the day . further , in many locations , including where mandated , we have required that shoppers wear a face covering in stores . financial actions balance sheet , cash flow and liquidity the temporary closure of our stores had a material impact on our results of operations , financial position and liquidity . as further detailed below in results of operations , this impact included a 23 % decrease in net sales for fiscal 2021 compared to the same period last year , resulting in a significant decline in net profit for the full fiscal year . during fiscal 2021 , we generated $ 4.6 billion of operating cash flows and ended the year with $ 10.5 billion of cash . in addition , we increased our borrowing capacity by entering into a $ 500 million 364 day revolving credit facility , making a total of $ 1.5 billion available to us under revolving credit facilities . in the first quarter of fiscal 2021 , tjx issued $ 4 billion aggregate principal amount of notes . during the fourth quarter of fiscal 2021 , we issued $ 1 billion in aggregate principal amount of notes and accepted $ 1.1 billion in combined aggregate principal amount of certain of its notes issued in the first quarter of fiscal 2021 pursuant to cash tender offers . we paid $ 1.4 billion aggregate consideration ( including transaction costs ) and recorded a $ 0.3 billion pre-tax loss on the early extinguishment for the accepted notes . for additional information on the new credit facility and debt transactions , see note k—long-term debt and credit lines of notes to consolidated financial statements . we intend to continue to be prudent with our expenses for fiscal 2022. capital spending for fiscal 2022 is expected to be back in line with normal spending , and is expected to be in the range of $ 1.2 billion to $ 1.4 billion with incremental investments in our infrastructure and our distribution centers , both existing and new facilities . we are planning approximately 120 net store openings for fiscal 2022. we have currently suspended our share repurchase program . while our board of directors did not declare a dividend in the first nine months of fiscal 2021 , we declared a dividend of $ 0.26 per share in the fourth quarter of fiscal 2021 , paid in march 2021. we also declared a similar dividend of $ 0.26 per share in the first quarter of fiscal 2022. during fiscal 2021 , we negotiated rent deferrals ( primarily for second quarter lease payments ) for a significant number of our stores , with repayment at later dates , primarily in fiscal 2022. we elected to treat the covid-19 pandemic-related rent deferrals as a resolution of a contingency by remeasuring the lease liability , with a corresponding offset to the right-of-use asset , using the remeasured consideration . in addition to negotiating deferral of lease payments , we had temporarily extended payment terms on merchandise orders , which increased our accounts payable as of the end of the fiscal year , benefiting our operating cash flows . as payment terms are reduced and we make deferred payments , we expect our operating cash flows to be negatively impacted . 26 we evaluated the value of our inventory in light of the temporary store closures in the first and fourth quarters of fiscal 2021 due to the covid-19 pandemic . permanent markdowns , which had been or will be taken upon reopening of the stores , on transitional or out of season merchandise and merchandise that was already in markdown status , combined with the write-off of perishable goods , resulted in a reduction of approximately $ 0.4 billion in inventory for fiscal 2021. additional markdowns recorded throughout the year were taken in the ordinary course of business operations . story_separator_special_tag given the substantial reduction in our sales and the reduced cash flow projections as a result of the temporary store closures during fiscal 2021 due to the covid-19 pandemic , we determined that triggering events had occurred and that impairment assessments were warranted for certain stores . this resulted in impairment charges of $ 72 million for fiscal 2021 , related to operating lease right of use assets and store fixed assets . operating expenses we incurred additional payroll costs associated with monitoring occupancy limits to comply with social distancing protocols and implementing enhanced cleaning regimens in our stores , distribution centers , and offices . in addition , we provided discretionary appreciation bonuses during fiscal 2021 to store and distribution center associates and incurred incremental costs for personal protective equipment and additional cleaning supplies . we expect that many of these costs will continue in fiscal 2022. we have implemented , and plan to continue to implement , cost saving initiatives to reduce some ongoing variable and discretionary spending . in response to the covid-19 pandemic , governments in the u.s. , u.k. , canada and various other jurisdictions have implemented programs to encourage companies to retain and pay employees who are unable to work or are limited in the work that they can perform in light of closures or a significant decline in sales . throughout fiscal 2021 we continued to qualify for certain of these provisions , which partially offset related expenses . during fiscal 2021 , these programs reduced our expenses by approximate ly $ 0.5 billion on our consolidated statements of income . story_separator_special_tag roman ' , sans-serif ; font-size:11pt ; font-style : italic ; font-weight:700 ; line-height:120 % '' > net sales net sales for fiscal 2021 totaled $ 32.1 billion , a 23 % decrease over fiscal 2020. the decrease in net sales was driven by temporary store closures as a result of the covid-19 pandemic and lower customer traffic , with stores closed in the aggregate for approximately 24 % of fiscal 2021. net sales from our e-commerce businesses combined amounted to approximately 3 % of total sales . as a result of the extended store closures due to the covid-19 pandemic and our policy relating to the treatment of extended store closures when calculating comp store sales under our historical definition , we had no stores classified as comp stores at the end of fiscal 2021. in order to provide a performance indicator for our stores as they reopened , since the second quarter of fiscal 2021 , we have been temporarily reporting a new sales measure , open-only comp store sales . open-only comp store sales includes stores initially classified as comp stores at the beginning of fiscal 2021 that have had to temporarily close due to the covid-19 pandemic . this measure reports the sales increase or decrease of these stores for the days the stores were open in the current period against sales for the same days in the prior year . open-only comp sales of our foreign segments are calculated by translating the current year using the prior year 's exchange rates . our historical definition of comp store sales is presented below for reference . open-only comp store sales were down 4 % for fiscal 2021 as compared to last year . these results reflect a decrease in customer traffic , partially offset by an increased average basket across all divisions . our stores were closed in the aggregate for approximately 24 % of fiscal 2021. home fashion across all major segments outperformed apparel for fiscal 2021. we define customer traffic to be the number of transactions in stores and average ticket to be the average retail price of the units sold . we define average transaction or average basket to be the average dollar value of transactions . historical definition of comp store sales we are temporarily reporting a new sales measure , open-only comp store sales , as described above . the following reflects the way that we have historically classified and reported comp sales results . historically , we defined comparable store sales , or comp sales , to be sales of stores that have been in operation for all or a portion of two consecutive fiscal years , or in other words , stores that are starting their third fiscal year of operation . we calculated comp sales on a 52-week basis by comparing the current and prior year weekly periods that are most closely aligned . relocated stores and stores that have changed in size are generally classified in the same way as the original store , and we believe that the impact of these stores on the consolidated comp percentage is immaterial . 28 sales excluded from comp sales ( “ non-comp sales ” ) consist of sales from : – new stores - stores that have not yet met the comp sales criteria , which represents a substantial majority of non-comp sales – stores that are closed permanently or for an extended period of time – sales from our e-commerce sites , meaning sierra.com , tjmaxx.com , marshalls.com and tkmaxx.com we determine which stores are included in the comp sales calculation at the beginning of a fiscal year and the classification remains constant throughout that year unless a store is closed permanently or for an extended period during that fiscal year . beginning in fiscal 2020 , sierra stores that otherwise fit the comp store definition are included in comp stores in our marmaxx segment . comp sales of our foreign segments are calculated by translating the current year 's comp sales using the prior year 's exchange rates . this removes the effect of changes in currency exchange rates , which we believe is a more accurate measure of segment operating performance . comp sales may be referred to as “ same store ” sales by other retail companies . the method for calculating comp sales varies across the retail industry , therefore our measure of comp sales may not be comparable to that of other retail companies .
| – our consolidated average per store inventories , including inventory on hand at our distribution centers ( which excludes inventory in transit ) and excluding our e-commerce sites and sierra stores , were down 21 % on a reported basis and down 22 % on a constant currency basis at the end of fiscal 2021 as compared to a 4 % increase in average per store inventories on both a reported and constant currency basis at the end of fiscal 2020 . – there were no dividends declared during the first nine months of fiscal 2021 and share repurchases were suspended in the first quarter of fiscal 2021. a dividend of $ 0.26 per share was declared in the fourth quarter of fiscal 2021 and paid in march of 2021. see the impact of the covid-19 pandemic section above for the actions taken regarding our share repurchase programs . 27 recent events and trends covid-19 see discussion above in the impact of the covid-19 pandemic section . impact of brexit on december 24 , 2020 the u.k. and eu agreed upon the terms of their future trading relationship . as expected the movement of goods between the u.k. and eu is subject to additional regulatory and compliance requirements , which is expected to have a negative impact on our ability to efficiently move merchandise in the region . we have realigned our european division 's supply chain to reduce the volume of merchandise flowing between the u.k. and the eu and have established resources and systems to support this plan . the new trade deal provides for zero customs duties and zero quotas on trade between the u.k. and the eu in goods that are produced in each of the u.k. and the eu . however , a proportion of the merchandise we source in the u.k. and the eu is produced somewhere else in the world , and therefore will be subject to additional customs duty costs under the new trade deal . these additional customs duties and the related operational costs are likely to
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control typically transfers when goods are delivered to the carrier for shipment , which is the point at which the customer has the ability to direct the use of and obtain substantially all remaining benefits from the asset . the time at which delivery and transfer of title occurs , for the majority of our contracts with customers , is the point when the product leaves our facility , thereby rendering our performance obligation fulfilled . substantially all of our sales are derived from sales of soda ash , which we sell through our exclusive sales agent , ciner corp. a small amount of our sales is derived from sales of production purge , which is a by-product liquor solution containing soda ash that is produced during the processing of trona ore. for the purposes of our discussion below , we include these transactions in domestic sales of soda ash and in the volume of domestic soda ash sold . sales prices for sales through ansac include the cost of freight to the ports of embarkation for overseas export or to laredo , texas for sales to mexico . sales prices for other international sales may include the cost of rail freight to the port of embarkation , the cost of ocean freight to the port of disembarkation for import by the customer and the cost of inland freight required for delivery to the customer . in november 2016 , ciner corp , on behalf of ciner wyoming , entered into a soda ash sales agreement with cidt to sell soda ash to markets not served by ansac . in 2017 , sales to cidt include the cost of rail freight to the port of embarkation and the additional ocean freight to the port of disembarkation . there were no sales to cidt during the year ended december 31 , 2018 , as the contract terminated in 2017 . 50 cost of products sold expenses relating to employee compensation , energy , including natural gas and electricity , royalties and maintenance materials constitute the greatest components of cost of products sold . these costs generally increase in line with increases in sales volume . energy . a major item in our cost of products sold is energy , comprised primarily of natural gas and electricity . we primarily use natural gas to fuel our above-ground processing operations , including the heating of calciners , and we use electricity to power our underground mining operations , including our continuous mining machines , or continuous miners , and shuttle cars . the monthly henry hub natural gas settlement prices , over the past five years , have ranged between $ 1.73 and $ 6.00 . the average monthly henry hub natural gas settlement prices for the years ended december 31 , 2018 and 2017 , were $ 3.17 and $ 2.99 per mmbtu , respectively . in order to mitigate the risk of gas price fluctuations , we hedge a portion of our forecasted natural gas purchases by entering into physical or financial gas hedges generally ranging between 20 % and 80 % of our expected monthly gas requirements , on a sliding scale , for approximately the next five years . see item 7a , “ quantitative and qualitative disclosures about market risk - commodity price risks , ” for additional information . employee compensation . see item 8 , financial statements and supplementary data—note 11 , “ employee compensation , ” for information on the various plans . royalties . we pay royalties to the state of wyoming , the u.s. bureau of land management and rock springs royalty company , llc ( “ rsrc ” ) , an affiliate of anadarko petroleum , which are calculated based upon a percentage of the value of soda ash and related products sold at a certain stage in the mining process . these royalty payments may be subject to a minimum domestic production volume from our green river basin facility . we are also obligated to pay annual rentals to our lessors and licensor regardless of actual sales . in addition , we pay a production tax to sweetwater county , and trona severance tax to the state of wyoming that is calculated based on a formula that utilizes the volume of trona ore mined and the value of the soda ash produced . the royalty rates we pay to our lessors and licensor may change upon our renewal or renegotiation of such leases and license . on june 28 , 2018 , ciner wyoming amended its license agreement , dated july 18 , 1961 ( the “ license agreement ” ) , with rsrc , llc , to , among other things , ( i ) extend the term of the license agreement to july 18 , 2061 and for so long thereafter as ciner wyoming continuously conducts operations to mine and remove sodium minerals from the licensed premises in commercial quantities ; and ( ii ) revise the production royalty rate for each sale of sodium mineral products produced from ore extracted from the licensed premises at the royalty rate of eight percent ( 8 % ) of the net sales of such sodium mineral products . any increase in the royalty rates we are required to pay to our lessors and licensor through renewal or renegotiation of leases or license , or any failure by us to renew any of our leases and license , could have a material adverse impact on our results of operations , financial condition or liquidity , and , therefore , may affect our ability to distribute cash to unitholders . story_separator_special_tag selling , general and administrative expenses selling , general and administrative expenses incurred by our affiliates on our behalf are allocated to us based on the time the employees of those companies spend on our business and the actual direct costs they incur on our behalf . selling , general and administrative expenses incurred by ansac on our behalf are allocated to us based on the proportion of ansac 's total volumes sold for a given period attributable to the soda ash sold by us to ansac . on october 23 , 2015 , the partnership entered into a services agreement ( the “ services agreement ” ) , among the partnership , our general partner and ciner corp. pursuant to the services agreement , ciner corp has agreed to provide the partnership with certain corporate , selling , marketing , and general and administrative services , in return for which the partnership has agreed to pay ciner corp an annual management fee , subject to quarterly adjustments , and reimburse ciner corp for certain third-party costs incurred in connection with providing such services . in addition , under the joint venture agreement governing ciner wyoming , ciner wyoming reimburses us for employees who operate our assets and for support provided to ciner wyoming . results of operations a discussion and analysis of the factors contributing to our results of operations is presented below for the periods and as of the dates indicated . the financial statements , together with the following information , are intended to provide investors with a reasonable basis for assessing our historical operations , but should not serve as the only criteria for predicting our future performance . 51 the following tables set forth our results of operations for the years ended december 31 , 2018 , 2017 and 2016 . replace_table_token_8_th ( 1 ) ore to ash ratio expresses the number of short tons of trona ore needed to produce one short ton of soda ash and liquor and includes our deca rehydration recovery process . in general , a lower ore to ash ratio results in lower costs and improved efficiency . ( 2 ) ore grade is the percentage of raw trona ore that is recoverable as soda ash free of impurities . a higher ore grade will produce more soda ash than a lower ore grade . ( 3 ) for a discussion of the non-gaap financial measure adjusted ebitda , please read “ non-gaap financial measures ” of this management 's discussion and analysis . 52 analysis of results of operations the following table sets forth a summary of net sales , sales volumes and average sales price , and the percentage change between the periods : replace_table_token_9_th 2018 compared to 2017 story_separator_special_tag million under the ciner wyoming credit facility , offset by repayments of $ 143.0 million as well as $ 11.4 million of repayments on other long-term debt ; and 54 $ 10.0 million available for borrowing under the ciner resources credit facility as of december 31 , 2018 , subject to availability . we expect our ongoing working capital and capital expenditures to be funded by cash generated from operations and borrowings under the ciner wyoming credit facility . we are currently considering plans to increase maintenance and expansion capital expenditures at our wyoming facility to both adequately maintain the physical assets and to increase our operating income and operational capacity needs at the wyoming facility . the amount , timing and classification of any such capital expenditures could affect the amount of cash that is available to be distributed to our unitholders . in addition , we are subject to business and operational risks that could adversely affect our cash flow and access to borrowings under the ciner resources credit facility and the ciner wyoming credit facility . our ability to satisfy debt service obligations , to fund planned capital expenditures and to make acquisitions will depend upon our future operating performance , which , in turn , will be affected by prevailing economic conditions , our business and other factors , some of which are beyond our control . in addition , we are subject to business and operational risks that could adversely affect our cash flow and access to borrowings under the ciner resources credit facility and the ciner wyoming credit facility . our ability to satisfy debt service obligations , to fund planned capital expenditures and to make acquisitions will depend upon our future operating performance , which , in turn , will be affected by prevailing economic conditions , our business and other factors , some of which are beyond our control . on january 31 , 2019 , the partnership declared a cash distribution approved by the board of directors of our general partner . the cash distribution for the fourth quarter of 2018 of $ 0.567 per unit was paid on february 28 , 2019 to unitholders of record on february 11 , 2019 . see part ii , item 8 , financial statements and supplementary data - note 3 , “ net income per unit and cash distribution ” , for more information . we intend to pay a quarterly distribution to unitholders of record , to the extent we have sufficient cash from our operations after establishment of cash reserves , funding of any acquisitions and expansion capital expenditures and payment of fees and expenses , including payments to our general partner and its affiliates . capital requirements working capital is the amount by which current assets exceed current liabilities . our working capital requirements have been , and will continue to be , primarily driven by changes in accounts receivable and accounts payable , which generally fluctuate with changes in volumes , contract terms and market prices of soda ash in the normal course of our business . other factors impacting changes in accounts receivable and accounts payable could include the timing of collections from customers and
| our selling , general and administrative expenses increased 9.4 % to $ 24.5 million for the twelve months ended december 31 , 2018 , compared to $ 22.4 million for the twelve months ended december 31 , 2017 . the primary drivers for the increase were higher annual selling and administrative fees relating to our affiliate , ansac , which directly correlates with the volume we sell to ansac , higher employee compensation expenses and higher expenses from our enterprise resource planning ( “ erp ” ) implementation project . litigation settlement gain . during the twelve months ended december 31 , 2018 we recognized $ 27.5 million gain related to the settlement of an action initially filed against rsrc in 2016 , related to royalty overpayment under ciner wyoming 's mineral exploration license with rsrc . the case was settled on june 28 , 2018 . 53 operating income . as a result of the foregoing and primarily due to the litigation settlement , operating income increased by 18.8 % to $ 106.3 million for the twelve months ended december 31 , 2018 , compared to $ 89.5 million for the twelve months ended december 31 , 2017 . net income . as a result of the foregoing , net income increased by 19.2 % to $ 103.0 million for the twelve months ended december 31 , 2018 , compared to $ 86.4 million for the twelve months ended december 31 , 2017 . 2017 compared to 2016 consolidated results net sales . net sales increased by 4.7 % to $ 497.3 million for the twelve months ended december 31 , 2017 from $ 475.2 million for the twelve months ended december 31 , 2016 , driven by an increase in total average sales price of 5.8 % , partially offset by a decrease in soda ash volumes sold of 1.1 % . the increased international average sales price reflects the increase in freight costs driven by higher non-ansac export sales volume , primarily to cidt . the decrease in sales volumes are primarily due to lower production output compared to the prior period . cost of products sold . cost of products sold , including
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our research and development expenses consist of : · expenses related to research and development personnel , including salaries and benefits , travel and stock-based compensation ; · external research and development expenses incurred under arrangements with third parties , such as contract research organizations , clinical investigative sites , laboratories , manufacturing organizations and consultants ; · license fees , including maintenance fees and patent expense paid to md anderson in connection with the license agreement ; and · costs of materials used during research and development activities . costs and expenses that can be clearly identified as research and development are charged to expense as incurred in accordance with generally accepted accounting policies ( “ gaap ” ) . advance payments , including nonrefundable amounts , for goods or services that will be used or rendered for future research and development activities are deferred and capitalized . such amounts will be recognized as an expense as the related goods are delivered or the related services are performed . if the goods will not be delivered , or services will not be rendered , then the capitalized advance payment is charged to expense . we expect research and development expenses associated with the completion of the associated clinical trials to be substantial and to increase over time . the successful development of our drug candidates is highly uncertain . at this time , we can not reasonably estimate or know the nature , timing and estimated costs of the efforts that will be necessary to complete development of our drug candidates or the period , if any , in which material net cash inflows from our drug candidates may commence . this is due to the numerous risks and uncertainties associated with developing drugs , including the uncertainty of : · the rate of progress , results and costs of completion of ongoing clinical trials of our drug candidates ; · the size , scope , rate of progress , results and costs of completion of any potential future clinical trials and preclinical trials of our drug candidates that we may initiate ; · competing technological and market developments ; · the performance of third-party manufacturers and suppliers ; · the ability of our drug candidates , if they receive regulatory approval , to achieve market success ; and · disputes or other developments relating to proprietary rights , including patents , litigation matters and our ability to obtain patent protection for our drug candidates . a change in the outcome of any of these variables with respect to the development of a drug candidate could mean a significant change in the costs and timing associated with the development of that drug candidate . for example , if the fda or other regulatory authority were to require us to conduct clinical trials beyond those which we currently anticipate will be required for the completion of clinical development of a drug candidate or if we experience significant delays in enrollment in any clinical trials , we could be required to expend significant additional financial resources and time on the completion of clinical development . general and administrative expenses our general and administrative expenses consist primarily of salaries and benefits for management and administrative personnel , professional fees for legal , accounting and other services , travel costs and facility-related costs such as rent , utilities and other general office expenses . 44 story_separator_special_tag italic 10pt times new roman , times , serif ; margin : 0 ; text-indent : 0.5in '' > for the year ended december 31 , 2016 operating activities . net cash used in operating activities for the year ended december 31 , 2016 was $ 8.1 million . net cash used in operating activities consisted primarily of the net loss for the period of $ 6.8 million , a non-cash decrease in fair value of the warrant liability of $ 1.7 million , an increase in other current assets of $ 0.7 million and a decrease in current liabilities of $ 0.1 million . these were partially offset by non-cash stock-based compensation expense of $ 0.8 million , a decrease in prepaid drug product for testing of $ 0.2 million and technology license amortization expense of $ 0.2 million . investing activities . net cash used in investing activities for the year ended december 31 , 2016 consisted of capital expenditures totaling $ 0.3 million which were primarily related to equipment purchases for our new research and development laboratory . financing activities . net cash provided by financing activities for the year ended december 31 , 2016 was $ 9.0 million . net cash provided by financing activities consisted of net proceeds of $ 9.3 million from the registered direct offering described below , which closed on july 5 , 2016. these proceeds were partially offset by additional financing costs incurred during the period of $ 0.3 million . for the year ended december 31 , 2015 operating activities . net cash used in operating activities for the year ended december 31 , 2015 was $ 5.0 million . net cash used in operating activities for the year ended december 31 , 2015 consisted primarily of the net loss for the period of $ 5.5 million , an increase in prepaid drug product for testing of $ 0.4 million and an increase in other current assets of $ 0.1 million . these are partially offset by a net increase in current liabilities of $ 0.4 million , non-cash stock-based compensation expense of $ 0.4 million and technology license amortization expense of $ 0.2 million . 46 2014 and 2017 shelf registration statements on november 5 , 2013 , we filed a shelf registration statement on form s-3 with the sec , which was declared effective by the sec on january 13 , 2014 ( the “ 2014 shelf registration statement ” ) . story_separator_special_tag the 2014 shelf registration statement was filed to register the offering and sale of up to $ 100.0 million of our common stock , preferred stock , warrants to purchase common stock or preferred stock or any combination thereof , either individually or in units . on december 20 , 2016 , we filed a shelf registration on form s-3 with the sec , which was declared effective by the sec on january 9 , 2017 ( the “ 2017 shelf registration statement ” ) , at which time the offering of unsold securities under 2014 shelf registration statement was deemed terminated pursuant to rule 415 ( a ) ( 6 ) under the securities act . the 2017 registration statement was filed to register the offering , issuance and sale of ( i ) up to $ 125.0 million of our common stock , preferred stock , warrants to purchase common stock or preferred stock or any combination thereof , either individually or in units , including offers and sales of our common stock under the controlled equity offering sm sales agreement ( the “ sales agreement ” ) with cantor fitzgerald & co. ( “ cantor fitzgerald ” ) described below and ( ii ) up to 5,441,176 shares of our common stock pursuant to the exercise of warrants that were issued in the 2014 registered direct offering and the 2016 registered direct offering , each as described below . the foregoing does not constitute an offer to sell or the solicitation of an offer to buy securities , and shall not constitute an offer , solicitation or sale in any jurisdiction in which such offer , solicitation or sale would be unlawful prior to registration or qualification under the securities laws of that jurisdiction . 2014 registered direct offering on january 15 , 2014 , we entered into a securities purchase agreement , as amended , with certain investors , pursuant to which we agreed to sell an aggregate of 5.0 million shares of our common stock and warrants to purchase a total of 2.5 million shares of our common stock to such certain investors for gross proceeds of approximately $ 15.0 million under the 2014 shelf registration statement ( the “ 2014 registered direct offering ” ) . the 2014 registered direct offering closed on january 21 , 2014. the net proceeds to the company from the 2014 registered direct offering , after deducting the placement agent 's fees and expenses , our estimated offering expenses , and excluding any potential future proceeds from the exercise of the warrants issued in the offering , were approximately $ 13.8 million . “ at the market ” offering on june 24 , 2015 , we entered into the sales agreement with cantor fitzgerald , as sales agent , pursuant to which we may offer and sell , from time to time , through cantor fitzgerald shares of our common stock . sales of shares of common stock under the sales agreement will be made pursuant to the 2017 shelf registration statement and a related prospectus filed with the sec on january 10 , 2017 , for an aggregate offering price of up to $ 25.0 million . under the sales agreement , cantor fitzgerald may sell shares by any method deemed to be an “ at the market ” offering as defined in rule 415 under the securities act . we will pay cantor fitzgerald a commission of 3.4 % of the aggregate gross proceeds from each sale of shares under the sales agreement and have agreed to provide cantor fitzgerald with customary indemnification and contribution rights . we have also agreed to reimburse cantor fitzgerald for certain specified expenses . pursuant to the securities purchase agreement described below , we are subject to certain restrictions on our ability to offer and sell shares of our common stock under the sales agreement . as of december 31 , 2016 , we have not offered or sold any shares of common stock under the sales agreement . 2016 registered direct offering on june 29 , 2016 , we entered into a securities purchase agreement ( the “ securities purchase agreement ” ) with certain healthcare focused institutional investors pursuant to which we agreed to sell an aggregate of 5,882,352 shares of our common stock and warrants to purchase up to 2,941,176 shares of our common stock for gross proceeds of approximately $ 10.0 million under the 2014 registration statement ( the “ 2016 registered direct offering ” ) . the 2016 registered direct offering closed on july 5 , 2016. the net proceeds to the company from the 2016 registered direct offering , after deducting the placement agent 's fees and expenses and our offering expenses , and excluding the proceeds , if any , from the exercise of the warrants issued in the offering , were approximately $ 9.3 million . for more information , see note 1 to the consolidated financial statements included herein . future capital requirements we expect to continue to incur significant operating expenses in connection with our ongoing activities , including conducting clinical trials , manufacturing and seeking regulatory approval of our drug candidates , prexigebersen and bp1002 . accordingly , we will continue to require substantial additional capital to fund our projected operating requirements . such additional capital may not be available when needed or on terms favorable to us . in addition , we may seek additional capital due to favorable market conditions or strategic considerations , even if we believe we have sufficient funds for our current and future operating plan . there can be no assurance that we will be able to continue to raise additional capital through the sale of our securities in the future . our future capital requirements may change and will depend on numerous factors , which are discussed in detail in “ item 1a . risk factors ” of this annual report on form 10-k. off-balance sheet arrangements as of december 31 , 2016 , we did not have any material off-balance sheet arrangements .
| million compared to the year ended december 31 , 2015. change in fair value of warrant liability . the change in fair value of the warrant liability for the year ended december 31 , 2016 resulted in non-cash income of $ 1.7 million . net loss . our net loss was $ 6.8 million for the year ended december 31 , 2016 , an increase of $ 1.3 million compared the year ended december 31 , 2015. net loss per share , both basic and diluted , was $ 0.07 per share for the year ended december 31 , 2016 compared to $ 0.06 per share for the year ended december 31 , 2015. comparisons of the year ended december 31 , 2015 to the year ended december 31 , 2014 research and development expenses . our research and development expense was $ 3.0 million for the year ended december 31 , 2015 , an increase of $ 1.2 million compared to the year ended december 31 , 2014. the increase in research and development expense was primarily due to increased clinical trial expenses , manufacturing development , preclinical studies and personnel costs associated with the addition of our support staff hired in the second half of 2014. these were partially offset by a decrease in drug material used in 2015. research and development – related party expense has been consolidated with research and development expense on our financial statements in 2015 as md anderson is no longer a greater than 5 % stockholder in the company . the following table sets forth our research and development expenses ( in thousands ) : replace_table_token_4_th 45 general and administrative expenses . our general and administrative expense was $ 2.5 million for the year ended december 31 , 2015 , a decrease of $ 0.3 million compared to the year ended december 31 , 2014. the decrease in general and administrative expense was primarily due to decreased management
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later stage clinical programs r & d expenses incurred in or related to phase 2 and phase 3 clinical programs intended to result in registration of a new product or a new indication for an existing product in the united states or the eu . marketed products r & d expenses incurred in support of the company 's marketed products that are authorized to be sold in the united states or the eu . includes clinical trials designed to gather information on product safety ( certain of which may be required by regulatory authorities ) and their product characteristics after regulatory approval has been obtained , as well as the costs of obtaining regulatory approval of a product in a new market after approval in either the united states or the eu has been obtained . r & d expense by category was as follows ( in millions ) : replace_table_token_16_th 49 the increase in r & d expense for 2014 was driven primarily by increased costs of $ 326 million associated with onyx across all categories of r & d spend , as well as increased costs associated with other later stage clinical program support . overall , costs associated with later stage clinical programs support increased $ 337 million , offset partially by reduced expenses associated with marketed products support of $ 102 million and drts activities of $ 21 million . drts expenses included a $ 60 million upfront payment related to our cancer immunotherapy collaboration with kite pharma , inc. the increase in r & d expense for 2013 was driven primarily by an increase of $ 665 million in our later stage clinical programs , including evolocumab and kyprolis ® ; and an increase of $ 96 million in drts activities , offset partially by reduced expenses associated with marketed products support of $ 58 million . selling , general and administrative sg & a expenses are comprised primarily of salaries , benefits and other staff-related costs associated with sales and marketing , finance , legal and other administrative personnel ; facilities and overhead costs ; outside marketing , advertising and legal expenses ; the bpd fee ; and other general and administrative costs . advertising costs are expensed as incurred . sg & a expenses also include costs and cost recoveries associated with marketing and promotion efforts under certain collaboration arrangements . net payment or reimbursement of sg & a costs is recognized when the obligations are incurred or we become entitled to the cost recovery . the decrease in sg & a expense for 2014 was driven primarily by the expiration of the enbrel profit share in october 2013 , which reduced expenses by $ 818 million . that decline was offset partially by the addition of $ 183 million as a result of the onyx acquisition , an additional $ 129 million accrual for the bpd fee as the final regulations accelerated the expense recognition criteria for the fee obligation by one year and increased commercial expenses of $ 109 million in preparation for new product launches . historically , under our enbrel collaboration agreement , we paid pfizer a percentage of annual gross profits on our enbrel sales in the united states and canada on a scale that increased with gross profits . the enbrel co-promotion term expired on october 31 , 2013 , and we are required to pay pfizer residual royalties on a declining percentage of net enbrel sales in the united states and canada . the royalty percentage was 12 % through october 31 , 2014 , declining to 11 % through october 31 , 2015 and 10 % through october 31 , 2016. the increase in sg & a expense for 2013 was driven primarily by the addition of onyx of $ 276 million , of which $ 215 million was acquisition-related . included in these costs are advisory , legal and regulatory costs , and compensation-related payments . the compensation payments include cash payments for accelerated vesting of equity awards as part of the acquisition that were previously granted under the onyx equity award programs which would not have otherwise vested . sg & a also increased by $ 98 million related primarily to favorable changes in 2012 to the estimated bpd fee . other other operating expenses for 2014 included certain charges related to our restructuring plan , primarily separation costs of $ 377 million . it also included a $ 46 million write-off of a non-key ipr & d program acquired in a prior year business combination . other operating expenses for 2013 included $ 113 million of adjustments to our estimated contingent consideration liability related to the biovex group , inc. ( biovex ) business combination , certain charges related to our other cost savings initiatives of $ 71 million , which included severance expenses , and $ 12 million of other charges related primarily to legal proceedings . other operating expenses for 2012 included charges of $ 175 million related to our other cost savings initiatives , which included severance and expenses associated with abandoning leased facilities , legal charges of $ 64 million and other operating expenses of $ 56 million , comprised primarily of adjustments to our estimated contingent consideration liability related to the biovex business combination . non-operating expenses/income and provision for income taxes non-operating expenses/income and provision for income taxes were as follows ( dollar amounts in millions ) : replace_table_token_17_th 50 interest expense , net the increase in interest expense , net in 2014 was due primarily to a higher average balance of debt outstanding offset partially by lower average borrowing rates compared with 2013. the decrease in interest expense , net in 2013 compared with 2012 was due primarily to the decrease in non-cash interest resulting from the settlement of our 0.375 % 2013 convertible notes in february 2013 offset partially by increases resulting from the higher average balance of other outstanding debt and financing fees story_separator_special_tag later stage clinical programs r & d expenses incurred in or related to phase 2 and phase 3 clinical programs intended to result in registration of a new product or a new indication for an existing product in the united states or the eu . marketed products r & d expenses incurred in support of the company 's marketed products that are authorized to be sold in the united states or the eu . includes clinical trials designed to gather information on product safety ( certain of which may be required by regulatory authorities ) and their product characteristics after regulatory approval has been obtained , as well as the costs of obtaining regulatory approval of a product in a new market after approval in either the united states or the eu has been obtained . r & d expense by category was as follows ( in millions ) : replace_table_token_16_th 49 the increase in r & d expense for 2014 was driven primarily by increased costs of $ 326 million associated with onyx across all categories of r & d spend , as well as increased costs associated with other later stage clinical program support . overall , costs associated with later stage clinical programs support increased $ 337 million , offset partially by reduced expenses associated with marketed products support of $ 102 million and drts activities of $ 21 million . drts expenses included a $ 60 million upfront payment related to our cancer immunotherapy collaboration with kite pharma , inc. the increase in r & d expense for 2013 was driven primarily by an increase of $ 665 million in our later stage clinical programs , including evolocumab and kyprolis ® ; and an increase of $ 96 million in drts activities , offset partially by reduced expenses associated with marketed products support of $ 58 million . selling , general and administrative sg & a expenses are comprised primarily of salaries , benefits and other staff-related costs associated with sales and marketing , finance , legal and other administrative personnel ; facilities and overhead costs ; outside marketing , advertising and legal expenses ; the bpd fee ; and other general and administrative costs . advertising costs are expensed as incurred . sg & a expenses also include costs and cost recoveries associated with marketing and promotion efforts under certain collaboration arrangements . net payment or reimbursement of sg & a costs is recognized when the obligations are incurred or we become entitled to the cost recovery . the decrease in sg & a expense for 2014 was driven primarily by the expiration of the enbrel profit share in october 2013 , which reduced expenses by $ 818 million . that decline was offset partially by the addition of $ 183 million as a result of the onyx acquisition , an additional $ 129 million accrual for the bpd fee as the final regulations accelerated the expense recognition criteria for the fee obligation by one year and increased commercial expenses of $ 109 million in preparation for new product launches . historically , under our enbrel collaboration agreement , we paid pfizer a percentage of annual gross profits on our enbrel sales in the united states and canada on a scale that increased with gross profits . the enbrel co-promotion term expired on october 31 , 2013 , and we are required to pay pfizer residual royalties on a declining percentage of net enbrel sales in the united states and canada . the royalty percentage was 12 % through october 31 , 2014 , declining to 11 % through october 31 , 2015 and 10 % through october 31 , 2016. the increase in sg & a expense for 2013 was driven primarily by the addition of onyx of $ 276 million , of which $ 215 million was acquisition-related . included in these costs are advisory , legal and regulatory costs , and compensation-related payments . the compensation payments include cash payments for accelerated vesting of equity awards as part of the acquisition that were previously granted under the onyx equity award programs which would not have otherwise vested . sg & a also increased by $ 98 million related primarily to favorable changes in 2012 to the estimated bpd fee . other other operating expenses for 2014 included certain charges related to our restructuring plan , primarily separation costs of $ 377 million . it also included a $ 46 million write-off of a non-key ipr & d program acquired in a prior year business combination . other operating expenses for 2013 included $ 113 million of adjustments to our estimated contingent consideration liability related to the biovex group , inc. ( biovex ) business combination , certain charges related to our other cost savings initiatives of $ 71 million , which included severance expenses , and $ 12 million of other charges related primarily to legal proceedings . other operating expenses for 2012 included charges of $ 175 million related to our other cost savings initiatives , which included severance and expenses associated with abandoning leased facilities , legal charges of $ 64 million and other operating expenses of $ 56 million , comprised primarily of adjustments to our estimated contingent consideration liability related to the biovex business combination . non-operating expenses/income and provision for income taxes non-operating expenses/income and provision for income taxes were as follows ( dollar amounts in millions ) : replace_table_token_17_th 50 interest expense , net the increase in interest expense , net in 2014 was due primarily to a higher average balance of debt outstanding offset partially by lower average borrowing rates compared with 2013. the decrease in interest expense , net in 2013 compared with 2012 was due primarily to the decrease in non-cash interest resulting from the settlement of our 0.375 % 2013 convertible notes in february 2013 offset partially by increases resulting from the higher average balance of other outstanding debt and financing fees
| government . excluding the special order , u.s. sales grew only 1 % and global sales declined 1 % . units declined in 2013 in both the united states and row . our material u.s. patents for filgrastim ( neupogen ® ) expired in december 2013. we face competition in the united states , which could have an impact over time on future sales of neupogen ® and , to a lesser extent , neulasta ® . our outstanding material u.s. patent for pegfilgrastim ( neulasta ® ) expires in 2015. apotex , inc. announced that the fda accepted for filing their applications , under the abbreviated pathway , for pegfilgrastim , a biosimilar version of neulasta ® , on december 17 , 2014 , and for filgrastim , a biosimilar version of neupogen ® , on february 17 , 2015. on january 7 , 2015 , sandoz , a novartis company , announced that the fda odac recommended approval of its investigational biosimilar filgrastim . the sandoz biosimilar filgrastim is the subject of ongoing litigation between us and sandoz . see part 1 , item 1. business—marketing , distribution and selected marketed products—competition and part iv—note 18 , contingencies and commitments , to the consolidated financial statements . future neulasta ® /neupogen ® sales will also depend , in part , on the development of new protocols , tests and or treatments for cancer and or new chemotherapy treatments or alternatives to chemotherapy that may have reduced and may continue to reduce the use of chemotherapy in some patients . enbrel total enbrel sales by geographic region were as follows ( dollar amounts in millions ) : replace_table_token_9_th the increase in enbrel sales for 2014 was driven primarily by an increase in the average net sales price offset partially by unfavorable changes in wholesaler and , based on prescription data , end-user inventories . the increase in enbrel sales for 2013 was driven primarily by an increase in the average net sales price offset partially by
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in addition to our ongoing development of taurolidine-incorporated hydrogels to reduce infections in common burns , this funding will finance the development of an advanced hydrogel formulation that is designed to reduce the risk of potentially life-threatening infection and promote healing of more severe burn injuries , for which there is significant need . the fda recently informed us that it regards taurolidine as a new chemical entity and therefore an unapproved drug . consequently , there is no appropriate predicate device currently marketed in the u.s. on which a 510k approval process could be based . as a result , we will be required to submit a premarket approval application for marketing authorization for these indications . in the event that the new drug application for neutrolin is approved by the fda , the regulatory pathway can be revisited with the fda . although there will presumably still be no appropriate predicate , de novo class ii designation can be proposed , based on a risk assessment and a reasonable assurance of safety and effectiveness . since our inception , we have not generated sufficient revenue from product sales to be profitable . our operations to date have been primarily limited to conducting clinical trials and establishing manufacturing for our product candidates , licensing product candidates , business and financial planning , research and development , seeking regulatory approval for our products , initial commercialization activities for neutrolin in the european union and other foreign markets , and maintaining and improving our patent portfolio . we have funded our operations primarily through debt and equity financings . we have generated significant losses to date , and we expect to use substantial amounts of cash for our operations as we continue to conduct our ongoing phase 3 clinical trial in hemodialysis patients with catheters , plan a second phase 3 clinical trial for neutrolin , commercialize neutrolin in the european union and other foreign markets , pursue business development activities , incur additional legal costs to defend our intellectual property , and seek fda approval of neutrolin in the u.s. as of december 31 , 2017 , we had an accumulated deficit of approximately $ 152.2 million . we are unable to predict the extent of any future losses or when we will become profitable , if ever . financial operations overview revenue we have not generated substantial revenue since our inception . through december 31 , 2017 , we have funded our operations primarily through debt and equity financings . research and development expense research and development , or r & d , expense consists of : ( i ) internal costs associated with our development activities ; ( ii ) payments we make to third party contract research organizations , contract manufacturers , investigative sites , and consultants ; ( iii ) technology and intellectual property license costs ; ( iv ) manufacturing development costs ; ( v ) personnel related expenses , including salaries , stock–based compensation expense , benefits , travel and related costs for the personnel involved in drug development ; ( vi ) activities relating to regulatory filings and the advancement of our product candidates through pre-clinical studies and clinical trials ; and ( vii ) facilities and other allocated expenses , which include direct and allocated expenses for rent , facility maintenance , as well as laboratory and other supplies . all r & d is expensed as incurred . conducting a significant amount of development is central to our business model . product candidates in later-stage clinical development generally have higher development costs than those in earlier stages of development , primarily due to the significantly increased size and duration of the clinical trials . we expect to incur higher r & d expenses for the foreseeable future in order to complete development of neutrolin in the u.s. , especially the ongoing lock-it-100 clinical trial and an anticipated second phase 3 trial . the process of conducting pre-clinical studies and clinical trials necessary to obtain regulatory approval is costly and time consuming . the probability of success for each product candidate and clinical trial may be affected by a variety of factors , including , among others , the quality of the product candidate 's early clinical data , investment in the program , competition , manufacturing capabilities and commercial viability . as a result of the uncertainties associated with clinical trial enrollments and the risks inherent in the development process , we are unable to determine the duration and completion costs of current or future clinical stages of our product candidates or when , or to what extent , we will generate revenues from the commercialization and sale of any of our product candidates . 38 development timelines , probability of success and development costs vary widely . we are currently focused on clinical development in the u.s. and optimization of sales in foreign markets where neutrolin is approved . in december 2015 , we contracted with ppd development , l.p. to help us conduct our multicenter , double-blind , randomized , active control phase 3 clinical trial in hemodialysis patients with central venous catheters to demonstrate the efficacy and safety of neutrolin in preventing catheter-related bloodstream infections and blood clotting in subjects receiving hemodialysis therapy as treatment for end stage renal disease . in may 2017 , we modified the contract to cover the costs associated with an extension of the estimated study timeline , incorporate several protocol amendments and take on several new tasks related to the enrollment sites . given several recent changes to the study agreed with the fda , we signed a second contract modification with ppd for another $ 6.3 million , to cover the continuation of trial enrollment which is anticipated to continue into the second quarter of 2018 , increased length of time in which patients are enrolled and additional activities related to the collection of retrospective data outside the treatment centers . story_separator_special_tag at december 31 , 2017 , the total cost of the contract had increased to $ 32.7 million from its original amount of $ 19.2 million , of which approximately $ 14.4 million has been expended through december 31 , 2017. we are pursuing additional opportunities to generate value based on taurolidine , an active component of neutrolin . based on initial feasibility work , we are advancing pre-clinical studies for taurolidine-infused surgical meshes , suture materials , and hydrogels , which will require a pma regulatory pathway for approval . we are also involved in a pre-clinical research collaboration for the use of taurolidine as a possible treatment for rare orphan pediatric tumors . in february 2018 , the fda granted orphan drug designation to taurolidine for the treatment of neuroblastoma . selling , general and administrative expense selling , general and administrative , or sg & a , expense includes costs related to commercial personnel , medical education professionals , marketing and advertising , salaries and other related costs , including stock-based compensation expense , for persons serving in our executive , sales , finance and accounting functions . other sg & a expense includes facility-related costs not included in r & d expense , promotional expenses , costs associated with industry and trade shows , and professional fees for legal services and accounting services . change in fair value of derivative liabilities in november 2017 , we entered into a backstop agreement with an existing long-term institutional investor to purchase additional series f convertible preferred stock at $ 1,000 per share , at our sole discretion , beginning january 15 , 2018 through march 31 , 2018. as consideration for the backstop agreement , we issued 564,858 warrants , exercisable for three years , to purchase shares of our common stock at a per share exercise price of $ 0.001. these warrants were initially classified as derivative liability as we had a conditional obligation to settle these warrants by issuing a variable number of shares with variations of the obligation based on inputs other than the fair value of our shares ( i.e . the amount subject to the backstop agreement ) . in november 2017 , we initially recorded a derivative liability of $ 270,592 and a corresponding reduction to additional paid in capital based on the initial black scholes valuation . in december 2017 , the number of warrants issued was determined and , as a result , the derivative liability was reclassified to equity . prior to the reclassification to equity , an expense of $ 56,487 for the change in fair value of derivative liability was recorded on our consolidated statement of operations and comprehensive income ( loss ) during the fourth quarter of 2018. as previously disclosed , at the time we issued the warrants in our may 2017 public offering , we did not have a sufficient number of authorized shares of common stock to cover the shares issuable upon exercise of the warrants and therefore recorded and classified the fair value of the warrants as a derivative liability at the issuance date and marked-to-market at each balance sheet date . the change in the fair value of derivative liability is the difference between the fair value of the warrants recorded on issuance date and the fair value of warrants at the balance sheet date , with any decrease or increase in the estimated fair value being recorded in other income ( expense ) . on august 9 , 2017 , we amended our certificate of incorporation to increase our authorized shares and we , as of that date , have sufficient authorized shares to cover shares issuable upon the conversion of the warrants . the fair value of these warrants was re-measured on august 10 , 2017 , the date the warrants became exercisable , with any increase or decrease in value recorded as a loss or gain in the income statement and the fair value of the warrants at august 10 , 2017 was reclassified from liability to equity . 39 foreign currency exchange transaction gain ( loss ) foreign currency exchange transaction gain ( loss ) is the result of re-measuring transactions denominated in a currency other than our functional currency and is reported in the consolidated statement of operations as a separate line item within other income ( expense ) . the intercompany loans outstanding are not expected to be repaid in the foreseeable future and the nature of the funding advanced is of a long-term investment nature . as such , unrealized foreign exchange movements related to long-term intercompany loans are recorded in other comprehensive income ( loss ) . interest income interest income consists of interest earned on our cash and cash equivalents and short-term investments . interest expense interest expense consists of interest incurred on financing of expenditures . story_separator_special_tag $ 17,000 and $ 19,000 gains in 2017 and 2016 , respectively . liquidity and capital resources sources of liquidity as a result of our cost of sales , r & d and sg & a expenditures and the lack of substantial product sales revenue , we have not been profitable and have generated operating losses since we began operations . during the year ended december 31 , 2017 , we received net proceeds of $ 12,798,000 from the may 2017 public offering resulting from the issuance of an aggregate of 18,619,301 and 29,046,110 shares of common stock and warrants , respectively ; $ 5,543,000 from the issuance of 8,925,504 shares of common stock under our at-the-market-issuance sales agreement ; $ 1,877,000 from the issuance of 2,000 shares of our series f convertible preferred stock ; $ 300,000 from the sale of 624,246 shares of common stock to our directors and executive officers and to certain of our employees ; and $ 6,800 from the exercise of 10,000 stock options .
| r & d expense for the year ended december 31 , 2017 was $ 24,486,000 , an increase of $ 8,751,000 from $ 15,735,000 for the same period in 2016. the increase was primarily attributable to a $ 10,255,000 increase in expenses related to the ongoing lock-it-100 clinical trial in the u.s. and increase in personnel expenses of $ 1,572,000 , mainly due to the hiring of our chief medical officer and new staff supporting the lock-it-100 trial , including several consultants who were converted to employee status ; partially offset by reduced cost of new studies in 2016 related to wound closure , surgical meshes , wound management , and osteoarthritis , including visco-supplementation of $ 1,985,000 ; a decrease in costs related to manufacturing process development activities of $ 908,000 ; a decrease in non-cash stock-based compensation of $ 97,000 ; and a decrease in consulting fees of $ 95,000. selling , general and administrative expense . sg & a expense for the year ended december 31 , 2017 was $ 8,652,000 , a decrease of $ 231,000 from $ 8,883,000 for the same period in 2016. the decrease was primarily attributable to reductions in consulting fees of $ 701,000 , mainly due to the termination of our interim chief financial officer 's consulting contract in 2017 and a reduction in legal fees of $ 520,000 attributable to the ongoing intellectual property litigation and the dismissed securities litigation . these decreases , among others of lesser significance , were partially offset by an increase in higher personnel expenses of $ 571,000 , due to the hiring of new employees , including our chief financial officer ; and an increase in non-cash charge for stock-based compensation expense of $ 421,000. interest income . interest income for the year ended december 31 , 2017 was $ 111,000 , a decrease of $ 16,000 from $ 127,000 for the same period in 2016. the decrease was attributable to lower average interest-bearing cash balances and short-term investments during 2017 as compared to the same period in 2016. foreign exchange transaction gain ( loss ) . foreign exchange transaction losses for the years ended december 31 , 2017 and 2016 of $ 14,000 and $ 8,000 , respectively , were due to the foreign exchange rate fluctuations for the payment of invoices paid in foreign currency . change in fair value of derivative liabilities . the change in the value of derivative liabilities for the year ended
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the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosures of contingent assets and liabilities . on an on-going basis , we evaluate our estimates , including those related to our valuation of inventory , allowance for uncollectible accounts receivable , allowance for sales returns , long-lived assets and deferred income taxes . we base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . 14 actual results may materially differ from these estimates under different assumptions or conditions . historically , however , actual results have not differed materially from those determined using required estimates . our significant accounting policies are described in the notes accompanying the financial statements included elsewhere in this report . however , we consider the following accounting policies to be more significantly dependent on the use of estimates and assumptions . stock-based compensation we account for stock-based compensation whereby share-based payment transactions with employees , such as stock options and restricted stock , are measured at estimated fair value at the date of grant . for awards subject to service conditions , compensation expense is recognized over the vesting period on a straight-line basis . awards subject to performance conditions are attributed separately for each vesting tranche of the award and are recognized ratably from the service inception date to the vesting date for each tranche . forfeitures are recognized when they occur . the restricted share awards granted under the 2019 long-term incentive plan ( “ 2019 lti plan ” ) contain both service and performance conditions . the company recognizes share compensation expense only for the portion of the restricted share awards that are considered probable of vesting . shares are considered granted , and the service inception date begins , when a mutual understanding of the key terms and conditions between the company and the employees have been established . the fair value of these awards are determined based on the closing price of the shares on the grant date . the probability of restricted share awards granted with future performance conditions is evaluated at each reporting period and compensation expense is adjusted based on the probability assessment . for certain awards that provide discretion to adjust the allocation of the restricted shares , the service-inception date for such awards could precede the grant date as a mutual understanding of the key terms and conditions between the company and the employees has not yet been established . for awards in which the service-inception date precedes the grant date , compensation cost is accrued beginning on the service-inception date . the company estimates the award 's fair value on each subsequent reporting date , until the grant date , based on the closing market price of the company 's common stock . on the grant date , the award 's fair value is fixed , subject to the remaining performance conditions , and the cumulative amount of previously recognized compensation expense is adjusted to the fair value at the grant date . during fiscal years 2020 and 2019 , the company recognized $ 0.7 million and $ 0.4 million , respectively , of compensation expense associated with the shares granted . revenue recognition sales associated with product orders are recognized and recorded when products are shipped . products are shipped fob shipping point . ubam 's sales are generally paid at the time the product is ordered . sales which have been paid for but not shipped are classified as deferred revenue on the balance sheet . sales associated with consignment inventory are recognized when reported and payment associated with the sale has been remitted . transportation revenue represents the amount billed to the customer for shipping the product and is recorded when the product is shipped . estimated allowances for sales returns are recorded as sales are recognized . management uses a moving average calculation to estimate the allowance for sales returns . we are not responsible for product damaged in transit . damaged returns are primarily received from the retail stores of our publishing division . those damages occur in the stores , not in shipping to the stores , and we typically do not offer credit for damaged returns . it is industry practice to accept non-damaged returns from retail customers . management has estimated and included a reserve for sales returns of $ 0.2 million for the fiscal years ended february 29 , 2020 and february 28 , 2019. allowance for doubtful accounts we maintain an allowance for estimated losses resulting from the inability of our customers to make required payments and a reserve for vendor share markdowns ( collectively “ allowance for doubtful accounts ” ) . an estimate of uncollectible amounts is made by management based upon historical bad debts , current customer receivable balances , age of customer receivable balances , customers ' financial conditions and current economic trends . management has estimated an allowance for doubtful accounts of $ 0.2 million and $ 0.3 million as of february 29 , 2020 and february 28 , 2019 , respectively . included within this allowance is $ 0.1 million of reserve for vendor discounts to sell remaining inventory as of february 29 , 2020 and february 28 , 2019. inventory our inventory contains over 2,000 titles , each with different rates of sale depending upon the nature and popularity of the title . almost all of our product line is saleable as the books are not topical in nature and remain current in content today as well as in the future . most of our products are printed in china , europe , singapore , india , malaysia and story_separator_special_tag the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosures of contingent assets and liabilities . on an on-going basis , we evaluate our estimates , including those related to our valuation of inventory , allowance for uncollectible accounts receivable , allowance for sales returns , long-lived assets and deferred income taxes . we base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . 14 actual results may materially differ from these estimates under different assumptions or conditions . historically , however , actual results have not differed materially from those determined using required estimates . our significant accounting policies are described in the notes accompanying the financial statements included elsewhere in this report . however , we consider the following accounting policies to be more significantly dependent on the use of estimates and assumptions . stock-based compensation we account for stock-based compensation whereby share-based payment transactions with employees , such as stock options and restricted stock , are measured at estimated fair value at the date of grant . for awards subject to service conditions , compensation expense is recognized over the vesting period on a straight-line basis . awards subject to performance conditions are attributed separately for each vesting tranche of the award and are recognized ratably from the service inception date to the vesting date for each tranche . forfeitures are recognized when they occur . the restricted share awards granted under the 2019 long-term incentive plan ( “ 2019 lti plan ” ) contain both service and performance conditions . the company recognizes share compensation expense only for the portion of the restricted share awards that are considered probable of vesting . shares are considered granted , and the service inception date begins , when a mutual understanding of the key terms and conditions between the company and the employees have been established . the fair value of these awards are determined based on the closing price of the shares on the grant date . the probability of restricted share awards granted with future performance conditions is evaluated at each reporting period and compensation expense is adjusted based on the probability assessment . for certain awards that provide discretion to adjust the allocation of the restricted shares , the service-inception date for such awards could precede the grant date as a mutual understanding of the key terms and conditions between the company and the employees has not yet been established . for awards in which the service-inception date precedes the grant date , compensation cost is accrued beginning on the service-inception date . the company estimates the award 's fair value on each subsequent reporting date , until the grant date , based on the closing market price of the company 's common stock . on the grant date , the award 's fair value is fixed , subject to the remaining performance conditions , and the cumulative amount of previously recognized compensation expense is adjusted to the fair value at the grant date . during fiscal years 2020 and 2019 , the company recognized $ 0.7 million and $ 0.4 million , respectively , of compensation expense associated with the shares granted . revenue recognition sales associated with product orders are recognized and recorded when products are shipped . products are shipped fob shipping point . ubam 's sales are generally paid at the time the product is ordered . sales which have been paid for but not shipped are classified as deferred revenue on the balance sheet . sales associated with consignment inventory are recognized when reported and payment associated with the sale has been remitted . transportation revenue represents the amount billed to the customer for shipping the product and is recorded when the product is shipped . estimated allowances for sales returns are recorded as sales are recognized . management uses a moving average calculation to estimate the allowance for sales returns . we are not responsible for product damaged in transit . damaged returns are primarily received from the retail stores of our publishing division . those damages occur in the stores , not in shipping to the stores , and we typically do not offer credit for damaged returns . it is industry practice to accept non-damaged returns from retail customers . management has estimated and included a reserve for sales returns of $ 0.2 million for the fiscal years ended february 29 , 2020 and february 28 , 2019. allowance for doubtful accounts we maintain an allowance for estimated losses resulting from the inability of our customers to make required payments and a reserve for vendor share markdowns ( collectively “ allowance for doubtful accounts ” ) . an estimate of uncollectible amounts is made by management based upon historical bad debts , current customer receivable balances , age of customer receivable balances , customers ' financial conditions and current economic trends . management has estimated an allowance for doubtful accounts of $ 0.2 million and $ 0.3 million as of february 29 , 2020 and february 28 , 2019 , respectively . included within this allowance is $ 0.1 million of reserve for vendor discounts to sell remaining inventory as of february 29 , 2020 and february 28 , 2019. inventory our inventory contains over 2,000 titles , each with different rates of sale depending upon the nature and popularity of the title . almost all of our product line is saleable as the books are not topical in nature and remain current in content today as well as in the future . most of our products are printed in china , europe , singapore , india , malaysia and
| 10 ubam operating results the following table summarizes the operating results of the ubam segment for the twelve months ended february 29 ( 28 ) : replace_table_token_5_th net revenues decreased $ 5.1 million , or 4.7 % , to $ 103.3 million for the fiscal year ended february 29 , 2020 , when compared with net revenues of $ 108.4 million reported for fiscal year ended february 28 , 2019. the decrease in ubam net revenues is primarily attributed to $ 3.0 million in reduced sales activities from active consultants during the fourth quarter compared to the same period a year ago . gross margin decreased $ 3.2 million to $ 71.6 million for the fiscal year ended february 29 , 2020 , from $ 74.8 million reported for fiscal year ended february 28 , 2019. the decrease in gross margin primarily resulted from the decrease in net revenues . gross margin as a percentage of net revenues remained consistent , slightly increasing to 69.3 % for the fiscal year 2020 , compared to 69.0 % reported the same period a year ago . total ubam operating expenses decreased $ 1.4 million , or 2.5 % , to $ 54.1 million during the fiscal year ended february 29 , 2020 , when compared with $ 55.5 million reported for fiscal year ended february 28 , 2019. operating expenses decreased primarily as a result of $ 1.5 million decrease in sales commissions and $ 0.1 million of reduced bank fees due to less revenues and $ 0.1 million in reduced meeting costs associated with our annual convention , offset by $ 0.3 million of increased freight costs over prior year . operating income of our ubam division decreased $ 1.9 million , or 9.8 % , to $ 17.4 million for fiscal year ended february 29 , 2020 , as compared to $ 19.3 million reported for fiscal year ended february 28 , 2019. operating income decreased primarily due to the decrease in net revenues compared to the same period
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birth rates in the united states continue to stabilize and demand for greater access to newborn screening in rural areas outside the united states is also increasing , as evidenced by prenatal trends we saw during fiscal year 2016 . the growth in our diagnostics segment was partially offset by unfavorable impacts from foreign currency as the u.s. dollar strengthened . as the rising cost of healthcare continues to be one of the critical issues facing our customers , we anticipate that the benefits of providing earlier detection of disease , which can result in a reduction of long-term health care costs as well as create better outcomes for patients , are increasingly valued and we expect to see continued growth in these markets . 28 our consolidated gross margins increase d 209 basis points in fiscal year 2016 , as compared to fiscal year 2015 , primarily due to favorable changes in product mix , with an increase in sales of higher gross margin product offerings , and benefits from our initiatives to improve our supply chain . our consolidated operating margin increase d 146 basis points in fiscal year 2016 , as compared to fiscal year 2015 primarily due to higher gross margins and lower costs as a result of cost containment and productivity initiatives , which were partially offset by increased costs related to investments in new product development . we continue to believe that we are well positioned to take advantage of the spending trends in our end markets and to promote efficiencies in markets where current conditions may increase demand for certain services . overall , we believe that our strategic focus on diagnostics and discovery and analytical solutions markets , coupled with our deep portfolio of technologies and applications , leading market positions , global scale and financial strength will provide us with a foundation for growth . consolidated results of continuing operations revenue 2016 compared to 2015 . revenue for fiscal year 2016 was $ 2,115.5 million , as compared to $ 2,104.8 million for fiscal year 2015 , an increase of $ 10.7 million , or 1 % , which includes an approximate 1 % decrease in revenue attributable to changes in foreign exchange rates with minimal impact from acquisitions and divestitures . in addition , our fiscal year 2015 had an additional week , which consisted of 53 weeks , as compared to fiscal year 2016 , which consisted of 52 weeks . the analysis in the remainder of this paragraph compares segment revenue for fiscal year 2016 as compared to fiscal year 2015 and includes the effect of foreign exchange rate fluctuations and acquisitions and divestitures . the total increase in revenue reflects an increase in our diagnostics segment revenue of $ 26.1 million , or 5 % , due to continued expansion in our newborn screening , blood banking and screening businesses . our discovery & analytical solutions segment revenue decrease d by $ 15.4 million , or 1 % , due to a decrease in environmental , food and industrial markets revenue of $ 20.8 million and life sciences research market revenue of $ 0.6 million , which was partially offset by an increase in laboratory services market revenue of $ 6.0 million . as a result of adjustments to deferred revenue related to certain acquisitions required by business combination rules , we did not recognize $ 0.7 million of revenue primarily related to our diagnostics segment for fiscal year 2016 and $ 0.8 million for fiscal year 2015 that otherwise would have been recorded by the acquired businesses during each of the respective periods . 2015 compared to 2014 . revenue for fiscal year 2015 was $ 2,104.8 million , as compared to $ 2,069.9 million for fiscal year 2014 , an increase of $ 34.9 million , or 2 % , which includes an approximate 3 % increase in revenue attributable to acquisitions and divestitures and an approximate 6 % decrease in revenue attributable to changes in foreign exchange rates . the analysis in the remainder of this paragraph compares segment revenue for fiscal year 2015 as compared to fiscal year 2014 and includes the effect of foreign exchange rate fluctuations and acquisitions and divestitures . the total increase in revenue reflects a $ 44.3 million , or 3 % , increase in our discovery & analytical solutions segment revenue , due to an increase in environmental , food and industrial markets revenue of $ 44.9 million and life sciences research market revenue of $ 11.6 million partially offset by a decrease in laboratory services market revenue of $ 12.2 million . our diagnostics segment revenue decrease d by $ 9.3 million , or 2 % . as a result of adjustments to deferred revenue related to certain acquisitions required by business combination rules , we did not recognize $ 0.8 million of revenue primarily related to our informatics business in our diagnostics segment for fiscal year 2015 and $ 2.9 million for fiscal year 2014 that otherwise would have been recorded by the acquired businesses during each of the respective periods . cost of revenue 2016 compared to 2015 . cost of revenue for fiscal year 2016 was $ 1,102.2 million , as compared to $ 1,140.6 million for fiscal year 2015 , a decrease of approximately $ 38.4 million , or 3 % . as a percentage of revenue , cost of revenue decrease d to 52.1 % in fiscal year 2016 from 54.2 % in fiscal year 2015 , resulting in an increase in gross margin of approximately 209 basis points to 47.9 % in fiscal year 2016 from 45.8 % in fiscal year 2015 . amortization of intangible assets decrease d and was $ 30.3 million for fiscal year 2016 , as compared to $ 42.4 million for fiscal year 2015 . the mark-to-market adjustment for postretirement benefit plans was a loss of $ 0.4 million for fiscal year 2016 , as compared to a loss of $ 1.2 million for fiscal year 2015 . story_separator_special_tag stock-based compensation expense was $ 1.0 million for fiscal year 2016 , as compared to $ 1.3 million for fiscal year 2015 . the amortization of purchase accounting adjustments to record the inventory from certain acquisitions added an incremental expense of $ 0.4 million for fiscal year 2016 , as compared to $ 7.3 million for fiscal year 2015 . acquisition and divestiture-related expenses , contingent consideration and other costs added an incremental expense of $ 0.1 million for each of fiscal years 2016 and 2015 . in addition to the factors noted above , the increase in gross margin was primarily the result of favorable changes in product mix , with an increase in sales of higher gross margin product offerings and benefits from our initiatives to improve our supply chain . 2015 compared to 2014 . cost of revenue for fiscal year 2015 was $ 1,140.6 million , as compared to $ 1,135.3 million for fiscal year 2014 , an increase of approximately $ 5.3 million , or 0.5 % . as a percentage of revenue , cost of revenue decrease d to 29 54.2 % in fiscal year 2015 from 54.8 % in fiscal year 2014 , resulting in an increase in gross margin of approximately 66 basis points to 45.8 % in fiscal year 2015 from 45.2 % in fiscal year 2014 . amortization of intangible assets decrease d and was $ 42.4 million for fiscal year 2015 , as compared to $ 48.7 million for fiscal year 2014 . the mark-to-market adjustment for postretirement benefit plans was a loss of $ 1.2 million for fiscal year 2015 , as compared to a loss of $ 8.2 million for fiscal year 2014 . stock-based compensation expense was $ 1.3 million for fiscal year 2015 , as compared to $ 1.4 million for fiscal year 2014 . the amortization of purchase accounting adjustments to record the inventory from certain acquisitions was $ 7.3 million for fiscal year 2015 , as compared to $ 2.4 million for fiscal year 2014 . acquisition and divestiture-related expenses , contingent consideration and other costs added an incremental expense of $ 0.1 million for each of fiscal years 2015 and 2014 . in addition to the factors noted above , the increase in gross margin was primarily the result of benefits from our initiatives to improve our supply chain , which was partially offset by unfavorable changes in product mix , with an increase in sales of lower gross margin product offerings and negative impacts from foreign exchange rates . selling , general and administrative expenses 2016 compared to 2015 . selling , general and administrative expenses for fiscal year 2016 were $ 600.9 million , as compared to $ 587.2 million for fiscal year 2015 , an increase of approximately $ 13.7 million , or 2 % . as a percentage of revenue , selling , general and administrative expenses increase d to 28.4 % in fiscal year 2016 from 27.9 % in fiscal year 2015 . amortization of intangible assets increase d and was $ 40.7 million for fiscal year 2016 , as compared to $ 33.8 million for fiscal year 2015 . the mark-to-market adjustment for postretirement benefit plans was a loss of $ 14.9 million for fiscal year 2016 , as compared to a loss of $ 11.1 million for fiscal year 2015 . stock-based compensation expense decrease d and was $ 15.2 million for fiscal year 2016 , as compared to $ 15.5 million for fiscal year 2015 . during fiscal year 2015 , we recorded $ 0.8 million in legal costs for a particular case . acquisition and divestiture-related expenses , contingent consideration and other costs added an incremental expense of $ 17.5 million for fiscal year 2016 as compared to $ 0.7 million for fiscal year 2015 . in addition to the above items , the increase in selling , general and administrative expenses was primarily the result of costs related to growth investments , which was partially offset by the result of lower costs as a result of cost containment and productivity initiatives . 2015 compared to 2014 . selling , general and administrative expenses for fiscal year 2015 were $ 587.2 million , as compared to $ 648.2 million for fiscal year 2014 , a decrease of approximately $ 61.0 million , or 9 % . as a percentage of revenue , selling , general and administrative expenses decrease d to 27.9 % in fiscal year 2015 , compared to 31.3 % in fiscal year 2014 . amortization of intangible assets increase d and was $ 33.8 million for fiscal year 2015 , as compared to $ 32.2 million for fiscal year 2014 . the mark-to-market adjustment for postretirement benefit plans was a loss of $ 11.1 million for fiscal year 2015 , as compared to loss of $ 67.0 million for fiscal year 2014 . stock-based compensation expense increase d and was $ 15.5 million for fiscal year 2015 , as compared to $ 12.2 million for fiscal year 2014 . during fiscal year 2015 , we recorded $ 0.8 million in legal costs for a particular case compared to $ 6.6 million for fiscal year 2014 . during fiscal year 2014 , we recorded a benefit of $ 2.3 million for cost reimbursements related to a particular site , of which $ 1.2 million was for future monitoring and mitigation activities . acquisition and divestiture-related expenses , contingent consideration and other costs added an incremental expense of $ 0.7 million for fiscal year 2015 and $ 3.1 million for fiscal year 2014 . in addition to the above items , the decrease in selling , general and administrative expenses was primarily the result of lower costs as a result of cost containment and productivity initiatives , which was partially offset by the impact from foreign currency exchange rates , and the impact of an additional week during fiscal year 2015. research and development expenses 2016 compared to 2015 .
| during fiscal year 2015 , borrowings from our senior unsecured revolving credit facility totaled $ 451.0 million , which was more than offset by debt payments of $ 485.0 million . this compares to borrowings from our senior unsecured revolving credit facility of $ 475.0 million , which was partially offset by debt payments of $ 356.0 million in fiscal year 2014 . we paid $ 31.6 million in dividends during both fiscal years 2015 and 2014 . during fiscal year 2015 , we made net payments of $ 1.1 million on other credit facilities primarily for lease payments for our financing lease obligations , as described below under financing lease obligations , as compared to $ 12.7 million during fiscal year 2014 . during fiscal year 2015 , we also received $ 18.7 million for the settlement of forward foreign exchange contracts related to intercompany loans utilized to finance our acquisitions . we also made $ 0.1 million in payments for acquisition-related contingent consideration during fiscal year 2015 , as compared to $ 0.9 million during fiscal year 2014 . borrowing arrangements senior unsecured revolving credit facility . on august 11 , 2016 , we terminated our previous senior unsecured revolving credit facility and entered into a new senior unsecured revolving credit facility with a five year term and an expansion of borrowing capacity from $ 700.0 million to $ 1.0 billion . the new senior unsecured revolving credit facility provides for $ 1.0 billion of revolving loans and has an initial maturity of august 11 , 2021 . as of january 1 , 2017 , undrawn letters of credit in the aggregate amount of $ 11.4 million were treated as issued and outstanding when calculating the borrowing availability under the new senior unsecured revolving credit facility . as of january 1 , 2017 , we had $ 988.6 million available for additional borrowing under the facility . we use the new senior unsecured revolving credit
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non-gaap net income includes the foregoing adjustments and also removes expenses related to share-based compensation and certain expenses relating to acquisitions including : compensation for post-combination services , business development charges , and depreciation expenses , net of related income tax effects . non-gaap diluted net income per share also excludes these expenses as well as the related impact of all these adjustments on the provision for income taxes . these non-gaap measures are not in accordance with gaap , should not be considered an alternative for measures prepared in accordance with gaap ( revenue , net income ( loss ) and diluted net income ( loss ) per share ) , and may have limitations in that they do not reflect all our results of operations as determined in accordance with gaap . these non-gaap measures should only be used to evaluate our results of operations in conjunction with the corresponding gaap measures . the presentation of non-gaap information is not meant to be considered superior to , in isolation from , or as a substitute for results prepared in accordance with gaap . management believes these non-gaap financial measures enhance the reader 's overall understanding of our current financial performance and its prospects for the future by providing a higher degree of transparency for certain financial measures and providing a level of disclosure that helps investors understand how we plan and measure our business . we believe that providing these non-gaap measures affords investors a view of our operating results that may be more easily compared to our peer companies and also enables investors to consider our operating results on both a gaap and non-gaap basis during and following the integration period of our acquisitions . presenting the gaap measures on their own may not be indicative of our core operating results . furthermore , management believes that the presentation of non-gaap measures when shown in conjunction with the corresponding gaap measures provide useful information to management and investors regarding present and future business trends relating to our financial condition and results of operations . 33 the following table reconciles revenue , net income ( loss ) and diluted net income ( loss ) per share on a gaap and non-gaap basis for the years ended march 31 , 2016 , 2015 and 2014 : replace_table_token_6_th critical accounting policies we consider accounting policies related to marketable securities , revenue recognition , valuation of goodwill , intangible assets and other acquisition accounting items , and share based compensation to be critical in fully understanding and evaluating our financial results . we apply significant judgment and create estimates when applying these policies . revenue recognition we exercise judgment and use estimates in connection with determining the amounts of product and services revenues to be recognized in each accounting period . we derive revenues primarily from the sale of network management tools and security solutions for service provider and enterprise customers , which include hardware , software and service offerings . the majority of our product sales consist of hardware products with embedded software that are essential to providing customers the intended functionality of the solutions . we also sell stand-alone software solutions to provide customers with enhanced functionality . in addition , we sell hardware bundled with a software license . product revenue is recognized upon shipment , provided that evidence of an arrangement exists , title and risk of loss have passed to the customer , and in the case of software products , when the customer has the rights and ability to access the software , fees are fixed or determinable and collection of the related receivable is reasonably assured . if any significant obligations to the customer remain post-delivery , typically involving obligations relating to installation and acceptance by the customer , revenue recognition is deferred until such obligations have been fulfilled . because many of our solutions are comprised of both hardware and more than incidental software components , we recognize revenue in accordance with authoritative guidance on both hardware and software revenue recognition . 34 our service offerings include installation , integration , extended warranty and maintenance services , post-contract customer support ( pcs ) , and other professional services including consulting and training . we generally provide software and or hardware support as part of product sales . revenue related to the initial bundled software and hardware support is recognized ratably over the support period . in addition , customers can elect to purchase extended support agreements for periods after the initial software/hardware warranty expiration . support services generally include rights to unspecified upgrades ( when and if available ) , telephone and internet-based support , updates and bug fixes . consulting services are recognized upon delivery or completion of performance . reimbursements of out-of-pocket expenditures incurred in connection with providing consulting services are included in services revenue , with the offsetting expense recorded in cost of service revenue . training services include on-site and classroom training . training revenues are recognized upon delivery of the training . generally , our contracts are accounted for individually . however , when contracts are closely interrelated and dependent on each other , it may be necessary to account for two or more contracts as one to reflect the substance of the group of contracts . multi-element arrangements are concurrent customer purchases of a combination of our product and service offerings that may be delivered at various points in time . for multi-element arrangements comprised only of hardware products and related services , we allocate the total arrangement consideration to the multiple elements based on each element 's fair value compared to the total relative selling price of all the elements . each element 's selling price is based on management 's best estimate of selling price ( besp ) paid by customers based on the element 's historical pricing when vendor-specific objective evidence ( vsoe ) or third-party evidence ( tpe ) does not exist . story_separator_special_tag we have established besp for product elements as the average or median selling price the element was recently sold for , whether sold alone or sold as part of a multiple element transaction . we also consider our overall pricing objectives and practices across different sales channels and geographies , and market conditions . we review sales of the product elements on a quarterly basis and update , when appropriate , our besp for such elements to ensure that it reflects recent pricing experience . we have established vsoe for a majority of our service elements based on historical stand-alone sales or by the renewal rate offered to the customer . however certain business units we acquired as part of the transaction are unable to establish vsoe for undelivered elements . this occurs because the pricing for standalone sales does not occur in tight bands around a midpoint , and they are not contractually fixed . in these scenarios we have typically established besp by creating wider bands around a midpoint for stand alone transactions or in some cases using cost plus a margin for the underlying services and products . if vsoe of fair value does not exist for a deliverable , we use our besp for that deliverable . for multi-element arrangements comprised only of software products and related services , we allocate a portion of the total arrangement consideration to the undelivered elements , primarily support agreements and professional services , using vsoe of fair value for the undelivered elements . the remaining portion of the total arrangement consideration is allocated to the delivered software , referred to as the residual method . vsoe of fair value of the undelivered elements is based on the price customers pay when the element is sold separately . we review the separate sales of the undelivered elements on a regular basis and update when appropriate , our vsoe of fair value for such elements to ensure that it reflects recent pricing experience . if we can not objectively determine the vsoe of the fair value of any undelivered software element , revenue is deferred until all elements are delivered and services have been performed , or until fair value can objectively be determined for any remaining undelivered elements . however , if the only undelivered element is maintenance and support , the entire arrangement fee is recognized over the service period . for multi-element arrangements comprised of a combination of hardware and software elements , the total arrangement consideration is bifurcated between the hardware and hardware related deliverables and the software and software related deliverables based on the relative selling prices of all deliverables as a group . then , arrangement consideration for the hardware and hardware-related services is recognized upon delivery or as the related services are provided outlined above and revenue for the software and software-related services is allocated following the residual method and recognized based upon delivery or as the related services are provided . our products are distributed through our direct sales force and indirect distribution channels through alliances with resellers . revenue arrangements with resellers are recognized on a sell-in basis ; that is , when we deliver the product to the reseller . we record consideration given to a reseller as a reduction of revenue to the extent we have recorded revenue from the reseller . with limited exceptions , our return policy does not allow product returns for a refund . returns have been insignificant to date . in addition , we have a history of successfully collecting receivables from the resellers . 35 marketable securities we measure the fair value of our marketable securities at the end of each reporting period . fair value is defined as the exchange price that would be received for an asset in the principal or most advantageous market for the asset in an orderly transaction between market participants on the measurement date . marketable securities are recorded at fair value and have been classified as level 1 or 2 within the fair value hierarchy . fair values determined by level 1 inputs utilize quoted prices ( unadjusted ) in accessible active markets for identical assets or liabilities . fair values determined by level 2 inputs utilize data points that are observable such as quoted prices , interest rates and yield curves . valuation of goodwill , intangible assets and other acquisition accounting items we amortize acquired definite-lived intangible assets over their estimated useful lives . goodwill and other indefinite-lived intangible assets are not amortized but subject to annual impairment tests ; more frequently if events or circumstances occur that would indicate a potential decline in their fair value . we perform the assessment annually during the fourth quarter and on an interim basis if potential impairment indicators arise . we have identified five reporting units : ( 1 ) netscout , ( 2 ) arbor networks , ( 3 ) tektronix communications , ( 4 ) vss and ( 5 ) fnet and an indefinite-lived trade name . to test impairment , we first assess qualitative factors to determine whether the existence of events and circumstances indicate that it is more likely than not that the intangible asset is impaired . if based on our qualitative assessment , it is more likely than not that the fair value of the intangible asset is less than its carrying amount , quantitative impairment testing is required . however , if we conclude otherwise , quantitative impairment testing is not required . during fiscal year 2016 , we performed a quantitative analysis for goodwill and our non-amortizing intangible asset . we determined the fair value of the reporting unit 's goodwill using established income and market valuation approaches and the fair value of its trade names using a forward-looking relief from royalty model .
| total revenue by geography is as follows : replace_table_token_8_th united states revenues increase d 96 % , or $ 333.2 million , primarily due to a $ 334.1 million increase from entities acquired as part of the transaction . the 160 % , or $ 168.5 million , increase in international revenue was primarily due to a $ 173.4 million increase from entities acquired as part of the transaction , partially offset by a decrease across the legacy general enterprise sector . 37 cost of revenue and gross profit cost of product revenue consists primarily of material components , manufacturing personnel expenses , packaging materials , overhead and amortization of capitalized software , acquired software and core technology . cost of service revenue consists primarily of personnel , material , overhead and support costs . replace_table_token_9_th product . the 303 % , or $ 179.0 million , increase in cost of product revenue was primarily due to the 132 % , or $ 360.5 million increase in product revenue for the fiscal year ended march 31 , 2016 when compared to the fiscal year ended march 31 , 2015 . a majority of the increase in cost of product revenue was primarily due to a $ 181.7 million increase as a result of the incremental costs from the operations related to the transaction , as well as an $ 886 thousand increase in amortization of intangibles primarily due to the acceleration of intangibles in the legacy netscout business . these increases were offset by a $ 3.3 million decrease in cost of goods sold for the legacy netscout business as well as a $ 1.2 million decrease in obsolescence charges . the product gross profit percentage decreased by sixteen percentage points to 62 % during the fiscal year ended march 31 , 2016 as compared to the same period in the prior year . average headcount in cost of product revenue was 100 and 32 for the fiscal years ended march 31 , 2016 and 2015 , respectively . service . the 155 % , or
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for further information on our bankruptcy and emergence from bankruptcy , see part i , item 1 , “ business—bankruptcy ” and note 2 to the consolidated financial statements included in part ii , item 8 , “ financial statements and supplementary data ” of this annual report on form 10-k. we have incurred significant losses and had an accumulated deficit of $ 240.6 million as of december 31 , 2016. we expect to continue to incur net losses as we develop our drug candidates , expand clinical trials for our drug candidates currently in clinical development , expand our development activities and seek regulatory approvals . significant capital is required to continue to develop and to launch a product and many expenses are incurred before revenue is received , if any . we are unable to predict the extent of any future losses or when we will receive revenue or become profitable , if at all . we will require substantial additional capital to continue as a going concern and to support our business efforts , including obtaining regulatory approvals for benznidazole or other product candidates , clinical trials and other studies , and , if approved , the commercialization of our product candidates . we anticipate that we will seek additional financing from a number of sources , including , but not limited to , the sale of equity or debt securities , strategic collaborations , and licensing of our product candidates . additional funding may not be available to us on a timely basis or at acceptable terms , if at all . our ability to access capital when needed is not assured and , if not achieved on a timely basis , would materially harm our business , financial condition and results of operations . if adequate funds are not available , we may be required to delay , reduce the scope of , or eliminate one or more of our development programs . we may also be required to sell or license to others our technologies , product candidates , or development programs that we would have preferred to develop and commercialize ourselves and on less than favorable terms , if at all . if in the best interests of our stockholders , we may also find it appropriate to enter into a strategic transaction that could result in , among other things , a sale , merger , consolidation or business combination . if management is unsuccessful in efforts to raise additional capital , based on our current levels of operating expenses , our current capital is not expected to be sufficient to fund our operations for the next twelve months . these conditions raise substantial doubt about our ability to continue as a going concern . the report of independent registered public accounting firm at the beginning of the consolidated financial statements included in part ii , item 8 , “ financial statements and supplementary data ” of this annual report on form 10-k includes an explanatory paragraph about our ability to continue as a going concern . 61 t he consolidated financial statements for the year ended december 31 , 2016 were prepared on the basis of a going concern , which contemplates that we will be able to realize our assets and discharge liabilities in the normal course of business . our ability to meet our liabilities and to continue as a going concern is dependent upon the availability of future funding . the financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern . on january 13 , 2016 , our common stock was suspended from the nasdaq global market and began trading on the over-the-counter market under the kbioq symbol . on january 26 , 2016 , nasdaq filed a form 25 with the securities and exchange commission to complete the delisting of our common stock , and the delisting was effective on february 5 , 2016. on june 30 , 2016 , upon emergence from bankruptcy , the ticker symbol for the trading of the company 's common stock on the over-the-counter market reverted back to kbio . critical accounting policies and use of estimates our management 's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states , or gaap . the preparation of our financial statements in conformity with gaap requires our management to make estimates and assumptions that affect the amounts and disclosures reported in the consolidated financial statements and accompanying notes . actual results could differ materially from those estimates . our management believes judgment is involved in determining revenue recognition , valuation of financing derivative , the fair value‑based measurement of stock‑based compensation , accruals and warrant valuations . our management evaluates estimates and assumptions as facts and circumstances dictate . as future events and their effects can not be determined with precision , actual results could differ from these estimates and assumptions , and those differences could be material to the consolidated financial statements . if our assumptions change , we may need to revise our estimates , or take other corrective actions , either of which may also have a material adverse effect on our statements of operations , liquidity and financial condition . we are an emerging growth company under the jobs act . emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies . we have elected to avail ourselves of this exemption from new or revised accounting standards and , therefore , we may not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies . story_separator_special_tag while our significant accounting policies are described in more detail in note 3 to our consolidated financial statements included in part ii , item 8 , “ financial statements and supplementary data ” of this annual report on form 10-k , we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our financial statements . accrued research and development expenses as part of the process of preparing our consolidated financial statements , we are required to estimate our accrued research and development expenses . this process involves reviewing contracts and purchase orders , reviewing the terms of our license agreements , communicating with our applicable personnel to identify services that have been performed on our behalf , and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost . some of our service providers invoice us monthly in arrears for services performed . we make estimates of our accrued expenses as of each balance sheet date based on facts and circumstances known to us at that time . examples of estimated accrued research and development expenses include fees to : · contract research organizations and other service providers in connection with clinical studies ; · contract manufacturers in connection with the production of clinical trial materials ; and · vendors in connection with preclinical development activities . 62 we base our expenses related to clinical studies on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and contract research organizations that conduct and manage clinical studies on our behalf . the financial terms of these agreements are subject to negotiation , vary from contract to contract , and may result in uneven payment flows and expense recognition . payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones . in accruing these costs , we estimate the time period over which services will be performed for which we have not been invoiced and the level of effort to be expended in each period . if the actual timing of the performance of services or the level of effort varies from our estimate , we adjust the accrual accordingly . our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in our reporting changes in estimates in any particular period . stock‑based compensation our stock‑based compensation expense for stock options is estimated at the grant date based on the award 's fair value as calculated by the black‑scholes option pricing model and is recognized as expense over the requisite service period . the black‑scholes option pricing model requires various highly judgmental assumptions including expected volatility and expected term . the expected volatility is based on the historical stock volatilities of several of our publicly listed peers over a period equal to the expected terms of the options as we do not have a sufficient trading history to use the volatility of our own common stock . to estimate the expected term , we have opted to use the simplified method , which is the use of the midpoint of the vesting term and the contractual term . if any of the assumptions used in the black‑scholes option pricing model changes significantly , stock‑based compensation expense may differ materially in the future from that recorded in the current period . in addition , we are required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest . we estimate the forfeiture rate based on historical experience and our expectations regarding future pre‑vesting termination behavior of employees . to the extent our actual forfeiture rate is different from our estimate , stock‑based compensation expense is adjusted accordingly . revenue recognition our contract revenue to date has been generated primarily through license agreements and research and development collaboration agreements . contract revenue may include nonrefundable , non‑creditable upfront fees , funding for research and development efforts , and milestone or other contingent payments for achievements with regards to our licensed products . we did not materially modify any previous material collaboration agreements or enter into any new such agreements from 2011 through the end of 2016. all collaboration agreements have been accounted for in accordance with the accounting guidance applicable to such arrangements prior to our adoption of accounting standards update , or asu , 2009‑13 , multiple‑deliverable revenue arrangements , and asu 2010‑17 , revenue recognition—milestone method , each of which we adopted on a prospective basis on january 1 , 2011. we recognize revenue when persuasive evidence of an arrangement exists , transfer of technology has been completed , services have been performed or products have been delivered , the fee is fixed and determinable , and collection is reasonably assured . for multiple element arrangements , we evaluate whether the components of each arrangement are to be accounted for as separate units of accounting based on certain criteria . upfront payments for licensing our intellectual property to date have not been separable from the activity of providing research and development services because the license has not been assessed to have stand‑alone value separate from the research and development services provided . such upfront payments are recorded as deferred revenue in the balance sheet and are recognized as contract revenue over the contractual or estimated substantive performance period , which is consistent with the term of the research and development obligations contained in the research and development collaboration agreement . payments resulting from our research and development efforts under license agreements are recognized as the activities are performed and are presented on a gross basis . revenue is recorded gross because we act as a principal , with discretion to choose suppliers , bear credit risk , and perform part of the services .
| other research and development costs consist primarily of internal research and development costs such as salaries and related fringe benefit costs for our employees ( such as workers compensation and health insurance premiums ) , stock‑based compensation charges , travel costs , lab supplies , overhead expenses such as rent and utilities , and external costs not allocated to one of our clinical programs . internal research and development costs generally benefit multiple projects and are not separately tracked per project . the following table shows our total research and development expenses for the years ended december 31 , 2016 and 2015 : replace_table_token_4_th we expect to continue to incur substantial expenses related to our research and development activities for the foreseeable future as we continue product development including working to obtain fda approval for benznidazole for the treatment of chagas disease and in continuing the phase 1clinical trial of lenzilumab in patients with cmml . historically , we have also incurred significant costs related to kb001-a , our former respiratory program for lenzilumab and the development of ifabotuzumab . depending on the results of our development efforts for lenzilumab in cmml we expect to incur substantial costs to prepare for potential clinical trials and activities for lenzilumab in jmml . 65 general and administrative expenses general and administrative expenses consist principally of personnel‑related costs , professional fees for legal , consulting , audit and tax services , rent and other general operating expenses not otherwise included in research and development . for the years ended december 31 , 2016 and 2015 , general and administrative expenses were $ 8.4 million and $ 14.3 million , respectively . comparison of years ended december 31 , 2016 and 2015 replace_table_token_5_th research and development expenses decreased $ 6.3 million in 2016 from $ 16.7 million for the year ended december 31 , 2015 to $ 10.4 million for the year ended december 31 , 2016. the decrease is primarily attributable to the termination of our respiratory development program for kb001-a , the reduction in our development work with ifabotuzumab and reductions in our research and development personnel in 2015 , partially offset by
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the fire & safety/diversified products segment produces firefighting pumps and controls , rescue tools , lifting bags and other components and systems for the 13 fire and rescue industry , and engineered stainless steel banding and clamping devices used in a variety of industrial and commercial applications , precision equipment for dispensing , metering and mixing colorants and paints used in a variety of retail and commercial businesses around the world . our 2014 financial results are as follows : sales of $ 2.1 billion increased 6 % ; organic sales — excluding acquisitions and foreign currency translation — were up 5 % . operating income of $ 431.2 million increased 9 % and operating margin of 20.1 % was up 60 basis points from the prior year . net income increased 9 % to $ 279.4 million . diluted eps of $ 3.45 increased $ 0.36 or 12 % compared to 2013 . our 2014 financial results , adjusted for $ 13.7 million of restructuring costs , are as follows ( these non-gaap measures have been reconciled to u.s. gaap measures in item 6 , `` selected financial data '' ) : adjusted operating income of $ 444.9 million increased 12 % and adjusted operating margin of 20.7 % was up 120 basis points from the prior year . adjusted net income of $ 288.8 million is 13 % higher than the prior year of $ 255.2 million . adjusted eps of $ 3.57 was 16 % higher than the prior year eps of $ 3.09 . overall , we believe we are operating in a challenging market environment , which will continue throughout 2015. on a regional basis , we anticipate north american demand will be solid , the european market will remain soft throughout 2015 , and asia will be volatile . for 2015 , based on the company 's current outlook , we anticipate 1 to 2 percent organic revenue growth and eps of $ 3.65 to $ 3.75. story_separator_special_tag 2013 . sales within our energy platform increased modestly compared to 2013 , due to the strength of the lpg and refined fuel markets . sales have grown in the north american and asian markets , while europe and the middle east sales have declined , due to the fall in oil prices and large project delays . sales within our cfp platform increased compared to 2013 on continued strength of the north american industrial distribution and chemical markets . this increase was partially offset by a decline in cfp chemical sales in europe due to a lack of project activity . sales within our agriculture group increased slightly driven by strong aftermarket demand in north america , which was offset by weak oem demand due to falling farm income . the sales increase in wst was driven by share gains from new products and increased global project activity . ddpt saw modest sales growth due to softness in the asian and european markets , offset by a pickup in the middle east and the semiconductor markets . 15 operating income of $ 216.9 million was higher than the $ 211.3 million recorded in 2013 , while operating margin of 24.1 % was lower than the 24.2 % recorded in 2013 , primarily due to $ 6.4 million of restructuring charges recorded in 2014 , partially offset by volume leverage and productivity initiatives . health & science technologies segment replace_table_token_12_th sales of $ 752.0 million increased $ 37.4 million , or 5 % , in 2014 compared with 2013 . this increase reflected 4 % growth in organic sales and 1 % favorable foreign currency translation . in 2014 , organic sales increased 7 % domestically and 1 % internationally . organic sales to customers outside the u.s. were approximately 54 % of total segment sales in 2014 compared with 53 % in 2013 . sales within our mpt platform increased compared to 2013 due to large projects in the asian food and pharmaceutical markets . sales within our scientific fluidics platform increased after pausing in the middle part of 2014 as customers right-sized their inventory . in the latter part of 2014 we saw increased demand from the core biotech , in-vitro diagnostic and analytical instrumentation markets . sales within our sealing solutions group increased compared to 2013 due to strong growth in the semiconductor and marine diesel markets , partially offset by softness in oil & gas towards year end due to declining oil prices . sales within our iop platform were flat when compared to 2013 , primarily from continued slow demand in the industrial and life sciences markets . sales in our industrial group increased compared to 2013 due strong growth in the north american distribution markets , and the success of new product introductions . operating income and operating margin of $ 153.0 million and 20.3 % , respectively , in 2014 were up from $ 136.7 million and 19.1 % , respectively , recorded in 2013 , primarily due to volume leverage and productivity initiatives , partially offset by $ 4.9 million of restructuring charges recorded in 2014. fire & safety/diversified products segment replace_table_token_13_th sales of $ 502.7 million increased $ 57.7 million , or 13 % , in 2014 compared with 2013 . this increase was driven entirely by organic growth . in 2014 , organic sales increased 17 % domestically and 9 % internationally . organic sales to customers outside the u.s. were approximately 54 % of total segment sales in 2014 , compared with 56 % in 2013 . sales within our dispensing group increased due to the fulfillment of a large order in the first quarter of 2014 and the strength of asian and western european markets . the sales increase within our band-it group was driven by continued strength in the transportation , cable management and industrial industries , offset by declines in oil and gas application markets to close out the year . story_separator_special_tag sales within our fire suppression group increased as a result of orders for fire suppression trailers at power production facilities and stable project orders in china and north america . sales within our rescue group decreased slightly , due to delayed decision making for municipal projects in europe and asia . operating income and operating margin of $ 130.5 million and 26.0 % , respectively , were higher than the $ 102.7 million and 23.1 % recorded in 2013 , primarily due to volume leverage , partially offset by $ 1.0 million of restructuring charges recorded in 2014 . 16 performance in 2013 compared with 2012 replace_table_token_14_th sales in 2013 were $ 2.0 billion , a 4 % increase from 2012. this increase reflects a 2 % increase in organic sales and 2 % from acquisitions ( erc — april 2012 , matcon — july 2012 and ftl —march 2013 ) . organic sales to customers outside the u.s. represented approximately 51 % of total sales in the period compared with 50 % in 2012. in 2013 , fluid & metering technologies contributed 43 % of sales and 47 % of operating income ; health & science technologies contributed 35 % of sales and 30 % of operating income ; and fire & safety/diversified products contributed 22 % of sales and 23 % of operating income . gross profit of $ 873.4 million in 2013 increased $ 69.7 million , or 8.7 % , from 2012. gross margins were 43.1 % in 2013 and 41.1 % in 2012. sg & a expenses increased to $ 477.9 million in 2013 from $ 444.5 million in 2012. the $ 33.4 million increase reflects approximately $ 10.4 million of incremental costs from new acquisitions , $ 5.6 million of cost-out actions , a $ 1.7 million pension settlement , $ 1.2 million related to environmental reserve costs , and $ 18.6 million of volume-related expenses , partially offset by a $ 4.0 million gain on the settlement of the contingent consideration related to the matcon business acquired in july 2012. as a percentage of sales , sg & a expenses were 23.6 % for 2013 and 22.7 % for 2012. during 2012 , the company recorded pre-tax restructuring expenses totaling $ 32.5 million . these restructuring expenses were mainly attributable to employee severance related to employee reductions across various functional areas , the termination of a defined benefit pension plan and facility rationalization resulting from the company 's cost savings initiatives . these initiatives included exit costs related to five facility closures and severance benefits for 491 employees in 2012. operating income of $ 395.5 million in 2013 increased from the $ 128.2 million recorded in 2012 , primarily reflecting an increase in volume , improved productivity and the impact of the $ 198.5 million asset impairment charges and the $ 32.5 million of restructuring-related charges recorded in 2012. operating margin of 19.5 % in 2013 was up from 6.6 % in 2012 primarily due to volume leverage , productivity and the impact of asset impairment charges and restructuring-related charges in 2012. interest expense decreased slightly to $ 42.2 million in 2013 from $ 42.3 million in 2012. the decrease was principally due to lower debt levels . the provision for income taxes is based upon estimated annual tax rates for the year applied to federal , state and foreign income . the provision for income taxes increased to $ 97.9 million in 2013 compared to $ 48.6 million in 2012. the effective tax rate decreased to 27.7 % in 2013 compared to 56.3 % in 2012 , mainly due to the 2012 asset impairment charge recorded in the fourth quarter of 2012. the impairment charge increased our 2012 effective tax rate by 26.9 % . our effective tax rate was also impacted by recognition of the 2012 u.s. r & d credit in 2013 due to the enactment of the american taxpayer relief act of 2012 on january 2 , 2013 which reinstated the u.s. r & d credit retroactively to january 1 , 2012 , recognition of additional uk r & d tax benefits , revaluation of the uk deferred tax liability due to the reduction in the uk statutory tax rate , the settlement of the contingent consideration agreement related to the matcon business acquired in july 2012 , and the mix of global pre-tax income among jurisdictions . net income for the year of $ 255.2 million increased from the $ 37.6 million earned in 2012. diluted earnings per share in 2013 of $ 3.09 increased $ 2.64 from $ 0.45 in 2012. fluid & metering technologies segment replace_table_token_15_th 17 sales of $ 871.8 million increased $ 38.5 million , or 5 % , in 2013 compared with 2012. this increase reflected 4 % organic growth and 1 % favorable foreign currency translation . the increase in organic sales was attributable to growth across all our platforms and groups within the segment . in 2013 , organic sales increased approximately 3 % domestically and 6 % internationally . organic sales to customers outside the u.s. were approximately 46 % of total segment sales in 2013 , compared with 47 % in 2012. sales within our energy platform increased compared to 2012 , due to the strength of oem truck builds and electronic retrofits in north america . additional growth has been driven by growth across the lpg market , including north america , china , india and russia . sales within our cfp platform increased compared to 2012 on continued strength in the chemical markets , particularly with project opportunities in the middle east and asia , coupled with solid aftermarket performance . the cfp north american industrial distribution market started the year soft , but gradually recovered in the second half of 2013. sales increases within our agriculture group were driven by strong oem demand in north america , new product introductions and an increase in market share . the sales increase in wst was driven by share gains and strong global project activity , specifically for projects in the us and japan .
| performance in 2014 compared with 2013 replace_table_token_10_th sales in 2014 were $ 2.1 billion , a 6 % increase from the comparable period last year . this increase reflects a 5 % increase in organic sales and 1 % from acquisitions ( aegis — april 2014 and ftl — march 2013 ) . organic sales to customers outside the u.s. represented approximately 50 % of total sales in 2014 compared with 51 % in 2013 . 14 in 2014 , fluid & metering technologies contributed 42 % of sales and 43 % of operating income ; health & science technologies contributed 35 % of sales and 31 % of operating income ; and fire & safety/diversified products contributed 23 % of sales and 26 % of operating income . gross profit of $ 949.3 million in 2014 increased $ 76.0 million , or 9 % , from 2013 , while gross margins were 44.2 % in 2014 and 43.1 % in 2013 . the increases are mainly attributable to increased sales volume , favorable net material costs as well as benefits from productivity initiatives . sg & a expenses increased to $ 504.4 million in 2014 from $ 477.9 million in 2013 . the $ 26.6 million increase reflects approximately $ 4.0 million of incremental costs from new acquisitions and $ 22.6 million of volume-related expenses . as a percentage of sales , sg & a expenses were 23.5 % for 2014 and 23.6 % for 2013 . during 2014 , the company recorded pre-tax restructuring expenses totaling $ 13.7 million . no restructuring expenses were recorded in 2013. the 2014 restructuring expenses were mainly attributable to employee severance related to head count reductions across all three segments and corporate . operating income of $ 431.2 million in 2014 increased from the $ 395.5 million recorded in 2013 , primarily reflecting an increase in volume , improved productivity partially offset by the $ 13.7 million of restructuring-related charges recorded in 2014. operating margin of 20.1 % in 2014 was up from 19.5 % in 2013 primarily due to volume leverage and productivity partially offset by
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growth in both the level of interest-earning assets and the rates earned on those assets contributed to the increase in the net interest margin for the year ended december 31 , 2019 . average earning assets for the year ended december 31 , 2019 increased $ 399.1 million , or 6 % , compared to the year ended december 31 , 2018 . interest-sensitive assets totaling $ 4.0 billion will either reprice or mature over the next twelve months . the taxable equivalent yield on interest-earning assets was 4.51 % for the year ended december 31 , 2019 , an increase of 21 basis points from the 4.30 % yield for the same period in 2018 . this increase is largely due to the loan portfolio yield , which improved by 26 basis points when compared to the prior year . contributing to this increase was the yield on our adjustable and variable rate commercial loan portfolios , which increased 21 basis points largely due to the federal reserve increasing short-term interest rates . the federal reserve increased the federal funds target rate by 100 basis points in 2018 and then decreased it by 75 basis points during 2019. while not reflected in the comparison of the periods presented , such decreases in rates have the effect of lowering yields on variable and adjustable rate loans , as well as , to a lesser extent , the cost of interest-bearing liabilities , and any additional rate decreases would be expected to have a similar effect . the investment portfolio yield decreased 11 basis points in comparison to the prior year . this decrease can be attributed to the runoff of higher yielding securities being replaced with lower yielding investment securities . additionally , three basis points of the decrease in the investment portfolio yield can be attributed to the recognition in 2018 of $ 0.4 million in previously unrecognized interest due to the sale of the pooled trust preferred security portfolio . investment portfolio purchases during the year ended december 31 , 2019 have been primarily in corporate securities , obligations of us government agencies and obligations of other government-sponsored enterprises with durations of approximate five years and municipal securities with a duration of approximately ten years . increases in the cost of interest-bearing liabilities partially offset the positive impact of higher yields on interest-earning assets . the cost of interest-bearing liabilities was 1.03 % for the year-ended december 31 , 2019 , compared to 0.78 % for the same period in 2018 . higher market interest rates resulted in the cost of interest-bearing deposits increasing 28 basis points and short-term borrowings increasing 38 basis points in comparison to the same period in the prior year . deposits acquired in our recent acquisitions , along with organic growth in consumer checking and savings deposits , contributed to a decline in average short-term borrowings of $ 227.4 million for the year-ended december 31 , 2019 compared to the same period in 2018 . comparing the year ended december 31 , 2019 with the same period in 2018 , changes in rates positively impacted net interest income by $ 0.6 million . the higher yield on interest-earning assets favorably impacted net interest income by $ 14.1 million , while the increase in the cost of interest-bearing liabilities negatively impacted net interest income by $ 13.5 million . changes in the volume of interest-earning assets and interest-bearing liabilities positively increased net interest income by $ 16.8 million in the year ended december 31 , 2019 compared to the same period in 2018 . higher levels of interest-earning assets resulted in an increase of $ 18.6 million in interest income , and changes in the volume of interest-bearing liabilities increased interest expense by $ 1.8 million , primarily due to an increase in long-term borrowings and time deposits . positively affecting net interest income was a $ 172.9 million increase in average net free funds at december 31 , 2019 as compared to december 31 , 2018 . average net free funds are the excess of noninterest-bearing demand deposits , other noninterest-bearing liabilities and shareholders ' equity over noninterest-earning assets . the largest component of the increase in net free funds was a $ 115.3 million increase in average noninterest-bearing demand deposits , of which $ 16.6 million of the increase can be attributed to the santander branch acquisition . average time deposits for the year ended december 31 , 2019 increased $ 114.6 million , or 15 % , compared to the comparable period in 2018 , while the average rate paid on time deposits increased 55 basis points . over the next twelve months $ 586.0 million in certificates of deposits either mature or reprice . 27 the following table reconciles interest income in the consolidated statements of income to net interest income adjusted to a fully taxable equivalent basis for the periods presented : replace_table_token_5_th 28 the following table provides information regarding the average balances and yields or rates on interest-earning assets and interest-bearing liabilities for the periods ended december 31 : replace_table_token_6_th ( a ) income on interest-earning assets has been computed on a fully taxable equivalent basis using the federal income tax statutory rate of 21 % for 2019 and 2018 and 35 % for 2017 . ( b ) income on nonaccrual loans is accounted for on the cash basis , and the loan balances are included in interest-earning assets . ( c ) loan income includes loan fees . ( d ) average balances do not include reallocations from noninterest-bearing demand deposits and interest-bearing demand deposits into savings deposits which were made for regulatory purposes . ( e ) includes held for sale loans . story_separator_special_tag 29 the following table sets forth certain information regarding changes in net interest income attributable to changes in the volume of interest-earning assets and interest-bearing liabilities and changes in the rates for the periods indicated : replace_table_token_7_th ( a ) changes in interest income or expense not arising solely as a result of volume or rate variances are allocated to rate variances . ( b ) changes in interest income have been computed on a fully taxable equivalent basis using the 21 % federal income tax statutory rate for 2019 and 2018 , and 35 % federal income tax statutory rate for 2017. provision for credit losses the provision for credit losses is determined based on management 's estimates of the appropriate level of the allowance for credit losses needed to absorb probable losses incurred in the loan portfolio , after giving consideration to charge-offs and recoveries for the period . the provision for credit losses is an amount added to the allowance against which credit losses are charged . the table below provides a breakout of the provision for credit losses by loan category for the years ended december 31 : replace_table_token_8_th the provision for credit losses for the year 2019 totaled $ 14.5 million , an increase of $ 2.0 million , or 16.0 % , compared to the year 2018 . the level of provision expense for the year-ended december 31 , 2019 is primarily a result of $ 10.7 million in net charge-offs , growth in the loan portfolio and an increase in the qualitative reserves as a result of a higher probability of slightly less favorable economic conditions . provision expense for the commercial , financial , agricultural and other category was impacted by net charge-offs of $ 3.1 million and $ 103.4 million growth in the portfolio . the provision expense for the commercial real estate category is primarily due to $ 1.8 million in net charge-offs and a $ 0.8 million increase in qualitative reserves . net charge-offs related to loans to individuals were $ 5.2 million for the year ended december 31 , 2019 , including $ 2.6 million related to indirect auto loans and $ 1.9 million related to personal lines of credit . the provision expense for loans to individuals was also impacted by growth in the portfolio of $ 108.6 million . 30 the level of provision expense for the year-ended december 31 , 2018 is primarily a result of net charge-offs taken to resolve certain nonperforming loans . the level of provision expense in the commercial , financial , agricultural and other category was impacted by net charge-offs of $ 4.5 million , of which $ 3.3 million related to two commercial borrowers whose loans were sold or paid off during 2018. also impacting the level of provision expense for the commercial , financial , agricultural and other category is the company 's periodic assessment of the allowance for loan loss methodology , including portfolio migration analysis and loss emergence periods . the provision expense for the residential real estate category can be attributed to $ 107.5 million growth in the portfolio compared to december 31 , 2018 and $ 1.0 million in net charge-offs . the provision expense for the commercial real estate category is primarily due to $ 3.4 million in chargeoffs recorded on three commercial loans which were part of the same relationship and were sold or paid off during 2018. net charge-offs related to loans to individuals were $ 4.0 million for the year ended december 31 , 2018 , including $ 2.2 million related to indirect auto loans and $ 1.1 million related to personal lines of credit . the allowance for credit losses was $ 51.6 million , or 0.83 % , of total loans outstanding and 0.90 % of total originated loans at december 31 , 2019 , compared to $ 47.8 million , or 0.83 % , and 0.91 % , respectively , at december 31 , 2018 . nonperforming loans as a percentage of total loans decreased to 0.52 % at december 31 , 2019 from 0.55 % at december 31 , 2018 . the allowance to nonperforming loan ratio was 160.3 % as of december 31 , 2019 and 149.1 % at december 31 , 2018 . net charge-offs were $ 10.7 million for the year-ended december 31 , 2019 compared to $ 13.1 million for the same period in 2018 . the provision is a result of management 's assessment of credit quality statistics and other factors that would have an impact on probable losses in the loan portfolio and the methodology used for determining the appropriateness of the allowance for credit losses . the change in the allowance for credit losses is impacted by the estimated losses within the loan portfolio determined by factors including certain loss events , portfolio migration analysis , loss emergence periods , historical loss experience , delinquency trends , deterioration in collateral values and volatility in economic indicators such as growth in gdp , consumer price index , vacancy rates and unemployment levels . additionally , with the adoption of asu no 2016-13 , `` financial instruments - credit losses ( topic 326 ) , measurement of credit losses on financial instruments '' ( `` cecl '' ) , beginning on january 1 , 2020 , provision expense may become more volatile due to changes in cecl model assumptions of credit quality , macroeconomic factors and conditions , and loan composition , which drive the allowance for credit losses balance . management believes that the allowance for credit losses is at a level deemed sufficient to absorb losses inherent in the loan portfolio at december 31 , 2019 .
| growth in net interest income is dependent upon balance sheet growth and maintaining or increasing our net interest margin , which is net interest income ( on a fully taxable-equivalent basis ) as a percentage of our average interest-earning assets . we also generate revenue through fees earned on various services and products that we offer to our customers and , less frequently , through sales of assets , such as loans , investments or properties . these revenue sources are offset by provisions for credit losses on loans , operating expenses , income taxes and , less frequently , loss on sale or other-than-temporary impairments on investment securities . general economic conditions also affect our business by impacting our customers ' need for financing , thus affecting loan growth , as well as impacting the credit strength of existing and potential borrowers . critical accounting policies and significant accounting estimates first commonwealth 's accounting and reporting policies conform to accounting principles generally accepted in the united states of america ( “ gaap ” ) and predominant practice in the banking industry . the preparation of financial statements in accordance with gaap requires management to make estimates , assumptions and judgments that affect the amounts reported in the financial statements and accompanying notes . over time , these estimates , assumptions and judgments may prove to be inaccurate or vary from actual results and may significantly affect our reported results and financial position for the period presented or in future periods . we currently view the determination of the allowance for credit losses to be critical because it is highly dependent on subjective or complex judgments , assumptions and estimates made by management . allowance for credit losses we account for the credit risk associated with our lending activities through the allowance and provision for credit losses . the allowance represents management 's best estimate of probable losses that have been incurred in our existing loan portfolio as of the balance sheet date . the provision is a periodic charge to earnings in an amount necessary to maintain the allowance at a level that is appropriate based on management 's assessment of probable estimated losses .
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all-in sustaining cost of production is a non-gaap financial measure and substantially conforms to the world gold council guidance on production cost reporting issued in june 2013. non-gaap financial measures are not defined under gaap and are provided as additional information and should not be considered in isolation or as a substitute for other financial measures prepared in accordance with gaap . see further discussion of non-gaap measures below . replace_table_token_9_th rounding of some figures in the table above may lead to minor discrepancies in totals . ( 1 ) excludes $ 32 million upfront funding included in reclamation and remediation above and $ 57 million for recoverable initial stores inventory . annual production the table below highlights the production schedule contemplated in the feasibility study . total life-of-mine production is projected to be approximately 8,086,000 ounces . for the first five years , it is anticipated that average annual production would be 698,500 ounces . replace_table_token_10_th 42 project mineral resources and reserves the global mineral resource estimate has been updated from that published in august 2011 to include drilling in the deposit since that time . the resource model was constructed using gemcom gems® and the stanford gslib ( geostatistical software library ) mik post processing routine . the resource was estimated using multiple indicator kriging techniques . a three-dimensionally defined stratigraphic model , based on interpretations by ith geologists , was used to code the rock type block model . a three-dimensionally defined probability grade shell ( 0.1 g/t ) was used to constrain the gold estimation . gold contained within each block was estimated using nine indicator thresholds . the block model was tagged with the geologic model using a block majority coding method . because there are significant grade discontinuities at stratigraphic contacts , hard boundaries were used between each of the stratigraphic units so that data for each stratigraphic unit was used only for that unit . a summary of the estimated global ( in-situ ) mineral resource is presented in the table below for cutoff grades of 0.2 , 0.3 , 0.5 , and 0.7 g/t gold . replace_table_token_11_th mineral resources that are not mineral reserves do not have demonstrated economic viability . mineral resource estimates do not account for mineability , selectivity , mining loss and dilution . these mineral resource estimates include inferred mineral resources that are normally considered too speculative geologically to have economic considerations applied to them that would enable them to be categorized as mineral reserves . there is also no certainty that these inferred mineral resources will be converted to measured and indicated categories through further drilling , or into mineral reserves , once economic considerations are applied . the feasibility study has converted a portion of these mineral resources into proven reserves of 434 million tonnes at an average grade of 0.69 g/tonne ( 9.6 million ounces ) and probable reserves of 20 million tonnes at an average grade of 0.70 g/tonne ( 454,000 ounces ) at the gold price of $ 1,500 per ounce ( the trailing three year average ) . 43 the table below illustrates the updated reserve estimate for the project , calculated at a gold price of $ 1,500 per ounce . replace_table_token_12_th rounding of some figures may lead to minor discrepancies in totals . metallurgy , processing and infrastructure ith has completed extensive metallurgic test work on the five rock types that comprise 98 % of the reserve . ith 's metallurgic test work programs evaluated : ( 1 ) ore hardness with depth and rock type ; ( 2 ) the use of a sag mill and two ball mills versus high pressure grinding roll technology ; ( 3 ) the use of a grind , gravity , flotation , concentrate leach circuit versus grind , gravity , whole ore cil ; ( 4 ) gold recovery rates compared to grind size and leach conditions for the various rock types ; and ( 5 ) the use of heap leaching of livengood ores . the comminution circuit is designed to process material with an average bond-work index 5 % in excess of actual rock hardness based on the test work completed . gold will be recovered through a traditional crusher , grinding , gravity and cil circuit . testwork included 99 variability tests . replace_table_token_13_th 44 project execution risks successful commercial production , if any , is subject to a number of risks , including successful construction of the designed facilities in the feasibility study . for other risks related to the project , please see item 1a , risk factors . project risks include , but are not limited to , the following , which may have negative implications to both the execution schedule and project cost : · the project design requires excavation , processing , movement , placement , and preparation of a large quantity of soil , colluvium , alluvial material , and rock . there is a risk that the contractors and owner 's crews and equipment may not be able to move this material as efficiently as estimated . · the project has a large surface footprint . while subsurface ground conditions have been investigated by drilling in support of this feasibility study , not all areas have been completely investigated . the actual subsurface ground conditions encountered during construction may be different than currently understood . · the project will require the surface preparation and placement of approximately 38 million square feet of lldpe liner and other appurtenances at the tailings management facility during the two planned summer construction seasons available after construction start and prior to production . there is risk that the contractor may not be able to place the quantity of liner required in the time available . story_separator_special_tag · the feasibility study execution plan assumes an august 1 project release date , with mobilization to the site and construction to begin on october 1. this date was selected to conform to the optimum period for mobilization to the site and establishment of temporary support facilities prior to the onset of winter . this date also is optimum to allow full utilization of the entire winter season to pioneer construction activities at the various project facilities , all of which are located in permafrost terrain . the actual project release date is uncertain , given the combination of market variables and the multi-year permitting process that must be completed prior to a construction decision . there is a risk that a project release-date could be substantially different than august 1. next steps and opportunities the company believes that mill throughput and production schedule optimization studies may provide opportunities to reduce project capital costs . a lower mill throughput may offer an opportunity to enhance mill head grades in early years by a more aggressive stockpile management strategy than is assumed in the feasibility study . the company will also continue to advance environmental baseline work in support of future permitting in order to better position the livengood gold project for a construction decision when warranted by market conditions . there is also opportunity to expand the mineable resource by increasing the in-pit resource , as additional drilling may improve the classification of the material contained within the pit . additional drilling may expand the resource at depth and to the southwest , incorporating mineralized material below the current grade model . multiple exploration targets have been identified and may increase the resource with additional exploration . the company has also identified several opportunities with the potential to improve the performance of the project that warrant further study , including verification of preliminary indications of a higher head grade , verify modeling to improve recovery through intensive cyanide leach reactors , and reducing reagent consumption and energy costs . 45 results of operations summary of quarterly results replace_table_token_14_th replace_table_token_15_th story_separator_special_tag following discussion highlights certain selected financial information and changes in operations between the year ended december 31 , 2012 and the seven-month period ended december 31 , 2011. the company had cash and cash equivalents of $ 30,170,905 at december 31 , 2012 compared to $ 54,712,073 at december 31 , 2011. the company incurred a net loss of $ 56,643,462 for the year ended december 31 , 2012 , compared to a net loss of $ 43,309,957 for the seven-month period ended december 31 , 2011. share-based payment charges were $ 9,206,975 during the year ended december 31 , 2012 compared to $ 7,645,269 for the seven-month period ended december 31 , 2011. the increase in share-based payment charges during the period was mainly the result of stock option grants to new employees and vesting of prior stock option grants . the company granted 6,380,000 options during the year ended december 31 , 2012 compared to 2,700,000 options during the seven months ended december 31 , 2011 . 47 share based payment charges were allocated as follows : replace_table_token_17_th mineral property exploration expenses for the year ended december 31 , 2012 totaled $ 36,253,519 while the company acquired $ 2,127,693 in mineral property assets . during the seven-month period ended december 31 , 2011 total mineral property exploration expenses were $ 32,550,518 and the company acquired mineral property assets of $ 47,708,647. mineral property expenses during 2012 were comprised of costs related to drilling for geotechnical investigations , environmental baseline data gathering , field costs and engineering . similar exploration activities took place in 2011. in december 2011 , the company completed a transaction to acquire certain mining claims and related rights in the vicinity of the livengood gold project . this acquisition included both mining claims and all of the shares of livengood placers , inc. ( a nevada corporation ) . these assets were purchased for aggregate consideration of $ 36,600,000 allocated between cash consideration of $ 13,500,000 and a derivative liability with an estimated fair value of $ 23,100,000. the derivative liability is a contingent payment based on the average gold price from the date of the acquisition . the derivative liability ( payable in december 2016 ) will equal $ 23,148 for every dollar that the average gold price exceeds $ 720 per troy ounce . if the average gold price is less than $ 720 , there will be no additional contingent payment . the subject ground was previously vacant or was used for placer gold mining . also in december 2011 , the company exercised its option to acquire all the interests in the 169 state of alaska claims previously held under a separate lease . the company paid total cash consideration of $ 11,044,000 for the acquisition of these state of alaska mining claims that had an original term of ten years , commencing on september 11 , 2006. excluding share-based payment charges of $ 6,751,423 and $ 6,051,362 , respectively , wages and benefits for the year ended december 31 , 2012 increased to $ 6,891,635 from $ 3,948,874 for the seven-month period ended december 31 , 2011 as a result of certain severance payments along with increased personnel and hiring of new officers . excluding share-based payment charges of $ 2,288,148 and $ 1,503,919 , respectively , consulting fees for the year ended december 31 , 2012 increased to $ 1,022,277 from $ 307,085 for the seven-month period ended december 31 , 2011 as a result of a consulting agreement with the former interim chief executive officer and increased directors fees . insurance expense increased during the year ended december 31 , 2012 as a result of additional directors and officers insurance with the hiring of new executives and appointment of new directors during 2011 and 2012. aside from the impact of share-based payment charges , most other expense categories reflected only moderate change period over period .
| share-based payment charges were $ 3,564,273 during the year ended december 31 , 2013 compared to $ 9,206,975 during the year ended december 31 , 2012. the decrease in share-based payment charges during the period was mainly the result of stock option grants to new employees and vesting of prior stock option grants during 2012. the company granted 613,000 options during the year ended december 31 , 2013 compared to 6,380,000 options during the year ended december 31 , 2012. at december 31 , 2013 there was unrecognized compensation expense of c $ 822,458 related to non-vested options outstanding . the cost is expected to be recognized over a weighted-average remaining period of approximately 0.68 years . share based payment charges were allocated as follows : replace_table_token_16_th excluding share-based payment charges of $ 2,492,899 and $ 6,751,423 , respectively , wages and benefits decreased to $ 4,370,814 for the year ended december 31 , 2013 from $ 6,891,635 for the year ended december 31 , 2012. no 46 management bonuses were paid during the year ended december 2013 compared to bonuses of approximately $ 830,000 paid in 2012. also , a decrease in severance payments of approximately $ 400,000 from 2012 to 2013 along with decreased personnel during the year ended december 31 , 2013 contributed to lower wages and benefits expenses . excluding share-based payment charges of $ 1,030,439 and $ 2,288,148 , respectively , consulting fees decreased to $ 314,139 for the year ended december 31 , 2013 from $ 1,022,277 for the year ended december 31 , 2012. consulting fees to the former interim chief executive officer were approximately $ 40,000 during the year ended december 31 , 2013 compared to approximately $ 390,000 during the year ended december 31 , 2012. additionally , combined decreases in directors fees , recruiting fees and compensation consulting fees amounted to approximately $ 200,000 during the year ended 2013. professional fees decreased by $ 145,546 during the year ended december 31 , 2013 due to additional legal fees incurred during the year ended december 31 , 2012 related to the review and development of compensation plans . all other operating expense categories reflected only moderate change period over period . other items amounted to income of $ 8,322,291 during the year ended december 31 , 2013 compared to a loss of $ 1,058,082 in the year ended december 31 , 2012. the
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to date , we have not generated any significant revenues and have primarily financed our operations with net proceeds from the private placement of our preferred stock , our july 2013 initial public offering in which we received net proceeds of $ 24.3 million , our march 2015 public offering in which we received net proceeds of $ 11.1 million , our march 2016 public offering of 9,100,000 shares of our common stock and warrants to purchase up to an aggregate of 6,825,000 shares of our common stock at a combined price of $ 0.75 per share for net proceeds of $ 6.1 million and , as of december 31,2016 , an additional $ 3.9 million from the exercise of 3,863,429 warrants . in addition , we have received $ 6.8 million of net proceeds from sales through the at market issuance sales agreement ( the fbr sales agreement ) with fbr capital markets & co. through december 31 , 2016 , $ 7.5 million received from our debt facility which has been paid back in full , and our recent public offering that was completed on march 28 , 2017 of 5,000,000 shares of our common stock and an additional issuance of 750,000 shares of our common stock on march 30 , 2017 in connection with the underwriter 's exercise of their over-allotment option ( the offering ) at a price to the public of $ 0.80 per share for gross proceeds of $ 4.6 million and estimated net proceeds of approximately $ 4.1 million after deducting underwriting discounts and commissions and other estimated offering expenses . our consolidated financial statements for the years ended december 31 , 2016 and 2015 have been prepared on a going concern basis . as of december 31 , 2016 , we had an accumulated deficit of $ 57.0 million . we had net losses of $ 12.6 million and $ 21.1 million for the years ended december 31 , 2016 and 2015 , respectively . 62 we expect to incur significant expenses and continued losses from operations for the foreseeable future . we expect our expenses to increase in connection with our ongoing activities , particularly as we continue the research and development and advance our clinical trials of , and seek marketing approval for , our product candidates . in addition , if we obtain marketing approval for any of our product candidates , we expect to incur significant commercialization expenses related to product sales , marketing , manufacturing and distribution . accordingly , we will need to obtain substantial additional funding in connection with our continuing operations . adequate additional financing may not be available to us on acceptable terms , or at all . if we are unable to raise capital when needed or on attractive terms , we would be forced to delay , reduce or eliminate our research and development programs or any future commercialization efforts . accordingly , there is substantial doubt that we can continue as an on-going business for the next twelve months unless we obtain additional capital . to meet our capital needs , we are considering multiple alternatives , including , but not limited to , additional equity financings , debt financings , partnerships , collaborations and other funding transactions . this is based on our current estimates , and we could use our available capital resources sooner than we currently expect . we are continually evaluating various cost-saving measures in light of our cash requirements in order to focus our resources on our product candidates . we may take additional action to reduce our immediate cash expenditures , including re-visiting our headcount , offering vendors equity in lieu of the cash due to them and otherwise limiting our other research expenses , in order to focus our resources on our product candidates . we will need to generate significant revenues to achieve profitability , and we may never do so . hs-110 ( viagenpumatucel-l ) non-small cell lung cancer hs-110 ( viagenpumatucel-l ) is a biologic product candidate comprising a cancer cell line that has been genetically modified using our impact ® technology platform to secrete a wide range of cancer-associated antigens related to lung cancer bound to gp96 proteins . we believe that hs-110 has the potential to activate a t cell-mediated pan-antigen immune response that could be an effective treatment for patients with nsclc . we are conducting a phase 2 clinical trial evaluating hs-110 in combination with nivolumab ( opdivo® ) , a bristol-myers squibb anti-pd-1 checkpoint inhibitor , to treat patients with nsclc . the trial is structured as a phase 1b/phase 2 with pre-specified thresholds in place to expand the trial to a full phase 2. the multicenter , open-label trial is expected to initially enroll 18 patients evaluable for baseline biopsy and is designed to accommodate cohort expansion in phase 2 up to 30 patients per arm ( approximately 60 patients ) . the purpose of the trial is to evaluate the safety and efficacy of hs-110 in combination with nivolumab , an fda approved anti-pd-1 checkpoint inhibitor , in patients with nsclc whose cancers have progressed after first-line therapy . primary and secondary trial endpoints include safety and tolerability , immune response , overall response rate and progression-free survival . trial enrollment is currently ongoing . on march 21 , 2017 , we reported positive interim results for the phase 2 trial evaluating hs-110 in combination with bristol-myers squibb 's anti-pd-1 checkpoint inhibitor , nivolumab ( opdivo ® ) , for the treatment of non-small cell lung cancer ( nsclc ) . fifteen patients have completed the hs-110/nivolumab combination to-date and 12 of these 15 patients were evaluable for elispot analysis . elispot results suggest that hs-110 plays an integral role in tumor reduction and may enhance efficacy of checkpoint inhibitors in lung cancer patients . immune responses to hs-110 were observed in all 5 patients that exhibited tumor reductions . no tumor reductions were observed in patients that did not mount an immune response to hs-110 . story_separator_special_tag the timing of immune response to hs-110 corresponded to the timing of observed clinical responses , and those responses appear to be sustained . furthermore , to-date 5 patients have been enrolled in the low tumor infiltrating lymphocytes ( til ) cohort . three of these 5 patients ( 60 % ) have experienced significant tumor reduction , which is higher than the 10 % response rate of low til patients reported by teng et al , cancer research 75 ( 11 ) june 1 , 2015 for existing data on nivolumab alone . on march 13 , 2017 , we issued a press release announcing that we achieved the safety and efficacy endpoints for the phase 1b trial evaluating hs-110 in combination with nivolumab ( opdivo ® ) , for the treatment of nsclc and that the trial met the expansion criteria to advance into a phase 2. five out of 15 patients treated with the hs-110/nivolumab combination had 20 % or greater tumor reduction . patients with increased levels of til at 10 weeks appeared to have a durable benefit , with six out of eight of these patients ( 75 % ) alive at the one-year follow-up point . the data monitoring committee concluded that the positive safety profile , mechanistic evidence and encouraging signs of synergistic efficacy warranted expansion to a phase 2 trial . 63 on december 6 , 2016 , we reported that 1-year results from the first eight trial patients showed that the hs-110/nivolumab combination was well tolerated with a safety profile consistent with single agent nivolumab . there were no additional toxicities seen in the hs-110/nivolumab combination compared to existing data on single agent nivolumab alone . hs-110 generated a robust antigen-specific immune response in several patients consistent with the mechanism of action seen in other hs-110 trials . additionally , the patients who responded best to the combination therapy ( immune responders ) had longer overall survival and better objective response rate than the non-immune responders , even though they had the same baseline immune function . immune responders in the study saw a 50 % objective response rate while non-immune responders saw a 0 % objective response rate . moreover , the immune responders had a better median overall survival than non-immune responders . the 1-year overall survival was 50 % for the responders and 25 % for the non-responders . finally , immune responders also saw a better median overall survival at 12.7 months , than non-immune responders , who saw a median overall survival of 7.1 months . researchers concluded that immune response may correlate with clinical efficacy and that hs-110 may have synergistic activity with immune checkpoint inhibitors . heat also conducted a phase 2 randomized , controlled trial using hs-110 in combination with cyclophosphamide versus chemotherapy alone in third-line and fourth-line nsclc patients . this trial , which enrolled 66 of 123 patients , was discontinued in 2015 to allow heat to instead focus on combinations with checkpoint inhibitors . data from the phase 2trial continues to accrue and will be reported in 2017. the trial was structured as a multicenter randomized study to evaluate the immune response , safety and efficacy endpoints of hs-110 when administered weekly for 12 weeks in combination with low-dose cyclophosphamide in an induction period followed by monotherapy hs-110 every nine weeks during maintenance for up to one year or until discontinuation from study treatment , whichever occurred first . patients randomized to the comparator arm were treated with one chemotherapy regimen until progression . blood samples were taken to evaluate the immune response and their correlation to overall survival , and where considered appropriate by the investigator , patients are invited to consent for pre- and post-treatment biopsies for exploratory biomarker analysis . the primary endpoint was overall survival ; secondary endpoints follow objective responses and immune response . hs-410 ( vesigenurtacel-l ) bladder cancer hs-410 ( vesigenurtacel-l ) is a biologic product candidate comprising a cancer cell line genetically modified using our impact ® technology platform to secrete a wide range of cancer antigens related to bladder cancer bound to gp96 molecules . we believe that hs-410 has the potential to activate a t cell mediated pan-antigen immune response that could be an effective treatment for patients with nmibc . we are currently conducting a phase 2 trial evaluating hs-410 either alone or in combination with intravesical standard of care , bacillus calmette-guérin ( bcg ) , for the treatment of high-risk nmibc . our phase 2 trial will examine safety , tolerability , immune response and preliminary clinical activity of hs-410 . the primary endpoint is one-year disease free survival . on november 30 , 2016 , we announced that we presented topline data from the 94-patient phase 2 trial at the society of urology annual meeting in san antonio , texas . researchers reported that there were encouraging signs of anti-tumor activity as hs-410 generated a robust antigen-specific immune response to multiple tumor-associated peptides in treated patients , while there were no immune responses of this type in the placebo . however , these responses did not translate into clinical outcomes , and there was no statistically significant difference in the primary endpoint between the vaccine and placebo arms of the trial . to better assess the durability of the positive immunological responses , and in keeping with clinical trial guidance recently issued by international bladder cancer group recommending a 2-year study duration for nmibc trials , we will continue to monitor all patients enrolled in the study for an additional 12 months . at that time , we will make a final determination on whether to progress our bladder program into a phase 3 trial . additional indications we continue to evaluate other potential indications for our impact ® and compact platform technologies . specifically , using compact , we have developed cell lines for several other cancers with the first product candidate being a second-generation therapy for non-small cell lung cancer ( hs-120 ) .
| 67 research and development expense research and development expenses decreased by 44 % to $ 9.3 million for the year ended december 31 , 2016 compared to $ 16.7 million for the year ended december 31 , 2015 as we have focused our resources primarily on our two nmibc and nsclc trials . the $ 7.4 million decrease consists of the following : · $ 6.4 million decrease in clinical program expenses of which approximately $ 5.1 million of the decrease is related to hs-110 and approximately $ 1.8 million of the decrease is related to hs-410 due to reductions in chemistry manufacturing and control ( cmc ) activities and trial enrollment costs , offset by a $ 0.3 million increase in cmc expenses for compact and $ 0.2 million increase for lab supplies and other costs ; · $ 1.0 million decrease in unallocated expenses such as professional and consulting fees , personnel-related expenses , and travel and other costs due to our cost saving program implemented during the year . the following table sets forth our research and development expenses related to our programs for the years ended december 31 , 2016 and 2015. replace_table_token_4_th these decreases were offset by increased lab supplies and other costs of approximately $ 0.3 million associated with the shattuck agreement . general and administrative expense general and administrative expense decreased approximately 5 % to $ 4.1 million for the year ended december 31 , 2016 compared to $ 4.3 million for the year ended december 31 , 2015. the $ 0.2 million decrease was a result of a $ 0.2 million savings in personnel-related costs from the separation of two of our former executive officers and a reduction of approximately $ 0.2 million in professional fees offset by a $ 0.2 million increase in public company expenses including board related fees and public relations expense . interest income interest income decreased for the year ended december 31 , 2016 as compared to the year ended december 31 , 2015. the decrease is due to the company 's decreased investment balance during the year ended december 31 , 2016. other income other income was
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this increased revenue was partially offset by slightly lower sales of telecom and it equipment that is largely attributable to the cyclical nature of capital spending by enterprise customers . operating income of $ 10.3 million in 2012 increased by $ 0.5 million over 2011 primarily due to lower restructuring charges . data center colocation data center colocation revenue was $ 221.3 million in 2012 , up 20 % compared to 2011 , on sales of incremental space and power to both new and existing customers . total data center capacity increased by 22 % from the prior year to 932,000 square feet as of december 31 , 2012 , compared to a total of 763,000 square feet of capacity at december 31 , 2011. cyrusone 's utilization at the end of 2012 was 78 % compared to 88 % at the end of 2011. this decrease in utilization resulted from the significant construction of new space in 2012 that is now available for sale . operating income for the year totaled $ 30.4 million , a decrease of $ 16.0 million over 2011 , due largely to a $ 13.3 million impairment loss associated with the segment 's 2007 gramtel acquisition . story_separator_special_tag securities that the company has subsequently issued to refinance the broadband securities . in periods without tax law changes , the company expects its effective tax rate to exceed statutory rates primarily due to the non-deductible expenses associated with the broadband securities . the company used federal and state net operating losses to defray payment of federal and state tax liabilities . as a result , the company had cash income tax payments , net of refunds , of $ 0.1 million in 2012 . 2011 compared to 2010 service revenue was $ 1,250.8 million in 2011 , an increase of $ 51.5 million compared to 2010 . data center revenues increased by $ 59.4 million primarily due to expansion of data center facilities and the acquisition of cyrus networks in june 2010. managed and professional services revenue increased by $ 14.7 million compared to 2010 . these increases were partially offset by declines in local voice revenues from access line losses and wireless service revenues from lower postpaid subscribers . product revenue was $ 211.6 million in 2011 , up $ 33.9 million compared to 2010 . the increase was primarily related to increased sales of telecommunications and it hardware of $ 31.1 million , driven by higher spending by customers . 30 form 10-k part ii cincinnati bell inc. cost of services was $ 464.3 million in 2011 , up $ 50.4 million , or 12 % , compared to 2010 . payroll and payroll related costs increased by $ 20.1 million compared to 2010 due to overtime as well as personnel added to support growth in it services and data center operations . other data center costs increased by $ 18.7 million primarily due to expansion of data center facilities and the acquisition of cyrus networks in 2010. network costs increased by $ 7.2 million in 2011 due to growth in fioptics , audio conferencing and voip services , and increased data usage . contract services increased by $ 2.3 million in 2011 primarily due to a large number of telephony installations and out-of-territory support performed by outside contractors . cost of products sold was $ 213.0 million in 2011 , an increase of $ 22.4 million from the prior year . this increase resulted from higher sales of telecommunications and it hardware in 2011. sg & a expenses were $ 263.1 million in 2011 compared to $ 270.9 million in the prior year , a decrease of $ 7.8 million . lower payroll expense , contract services , advertising and bad debt expense were incurred in 2011 compared to the prior year . partially offsetting these savings were higher legal and consulting costs and non-employee commissions . also , the release of a previously established indemnification liability lowered 2011 sg & a costs by $ 1.2 million . depreciation and amortization was $ 199.5 million in 2011 , up $ 20.0 million compared to 2010 . higher depreciation and amortization was incurred in 2011 due to tangible and intangible assets acquired with cyrus networks in june 2010 , as well as the expansion of several data center facilities . restructuring charges were $ 12.2 million in 2011 and $ 13.7 million in 2010 . in both periods , restructuring charges included costs associated with employee separations , lease abandonments and contract terminations . in 2011 , pension curtailment losses of $ 4.2 million resulted from reductions in future pension service credits which arose from a new contract with bargained employees . in 2011 , the sale of assets associated with our home security monitoring business resulted in a gain of $ 8.4 million . in 2011 , goodwill impairment losses of $ 50.3 million were recorded related to the wireless segment . asset impairment losses , excluding goodwill , were $ 2.1 million in 2011 , resulting from abandonment of certain facilities , equipment , and capital projects . acquisition costs of $ 2.6 million were incurred in 2011 , as acquisition opportunities were investigated in 2011 but none were completed . in 2010 , acquisition costs of $ 9.1 million were incurred due to the completion of the cyrus networks acquisition . interest expense increased to $ 215.0 million in 2011 compared to $ 185.2 million in 2010 . average debt outstanding was higher in 2011 compared to the prior year primarily due to the acquisition of cyrus networks . in addition , the average interest rate on outstanding debt was also higher in 2011 . in 2010 , a loss on debt extinguishment of $ 46.5 million was recognized upon the refinancing of the company 's 8 3 / 8 % senior notes due 2014 and repayment of the tranche b term loan . income tax expense was $ 25.0 million in 2011 compared to $ 38.9 million in the prior year . story_separator_special_tag the lower tax provision reflects a decrease in pre-tax income in 2011 and the effects of one-time discrete adjustments related to 2010. the company has certain non-deductible expenses , including interest on securities originally issued to acquire its broadband business ( the `` broadband securities '' ) or securities that the company has subsequently issued to refinance the broadband securities . in periods without tax law changes , the company expects its effective tax rate to exceed statutory rates primarily due to the non-deductible expenses associated with the broadband securities . the company used federal and state net operating losses to defray payment of federal and state tax liabilities . as a result , the company had cash income tax refunds of $ 1.2 million in 2011 . discussion of operating segment results the company manages its business based upon products and service offerings . at december 31 , 2012 , we operated four business segments : wireline , wireless , it services and hardware and data center colocation . certain corporate administrative expenses have been allocated to our business segments based upon the nature of the expense and the relative size of the segment . intercompany transactions between segments have been eliminated . wireline the wireline segment provides local voice , data , long distance , entertainment , voip , and other services over its owned and other wireline networks . local voice services include local telephone service , switched access , and value-added services such as caller identification , voicemail , call waiting , and call return . data services include high-speed internet using dsl technology and over fiber using its gpon . data services also provide data transport for businesses , including lan services , dedicated network access , and metro ethernet and dwdm/optical wave data transport , which principally are used to transport large amounts of data over private networks . these services are provided to customers in southwestern ohio , northern kentucky , and southeastern indiana through the operations of cbt , an ilec in its operating territory of an approximate 25-mile radius of cincinnati , ohio . 31 form 10-k part ii cincinnati bell inc. cbt 's network has full digital switching capability and can provide data transmission services to approximately 96 % of its in-territory access lines via dsl . outside of the ilec territory , the wireline segment provides these services through cbet , which operates as a clec in the communities north of cbt 's operating territory including the dayton , ohio market . cbet provides voice and data services for residential and business customers on its own network and by purchasing unbundled network elements from the ilec . the wireline segment links the cincinnati and dayton , ohio geographies through its sonet , which provides route diversity via two separate paths . in 2012 , the company continued to expand its fioptics product suite of services , which are fiber-based entertainment , high-speed internet and voice services . at year end 2012 , the company passed and can provide fioptics service to 205,000 homes and businesses , or approximately 26 % of greater cincinnati . the penetration rate of this product is approximately 28 % of the total units that have been passed with the fioptics network . the wireline segment also includes long distance , audio conferencing , other broadband services including private line and mpls . replace_table_token_5_th 32 form 10-k part ii cincinnati bell inc. 2012 compared to 2011 revenues voice local service revenue includes local service , value added services , digital trunking , switched access , and information services . voice local service revenue was $ 255.4 million in 2012 , down $ 24.9 million , or 9 % , compared to 2011 . the decrease in revenue is primarily due to fewer local access lines compared to a year ago . access lines within the segment 's ilec territory decreased by 41,400 , or 7 % , to 511,000 at december 31 , 2012 from 552,400 at december 31 , 2011. the company had 62,900 clec access lines at december 31 , 2012 compared to 68,900 access lines at december 31 , 2011. the segment continues to lose access lines as a result of , among other factors , customers electing to solely use wireless service in lieu of traditional local wireline service , company-initiated disconnections of customers with credit problems , and customers electing to use service from other providers . data revenue consists of fioptics and dsl high-speed internet access , data transport , and lan interconnection services . data revenue was $ 306.9 million in 2012 , up $ 15.4 million , or 5 % , compared to 2011 . data transport and lan services increased by $ 13.0 million , or 7 % , year-over-year primarily as a result of increased demand by business customers for higher speed connections . revenue from fioptics high-speed internet service increased to $ 18.1 million in 2012 , up from $ 12.5 million in the prior year due to increased subscribers . as of december 31 , 2012 , the company had 56,800 high-speed internet fioptics customers , which is an increase of 17,500 subscribers , or 45 % , compared to december 31 , 2011. these revenue increases were partially offset by lower dsl revenue as dsl subscribers decreased by 7 % to 202,600 subscribers at the end of 2012 . long distance and voip revenue was $ 113.9 million in 2012 , an increase of $ 2.6 million , or 2 % , compared to 2011 . this increase was primarily due to an increase in voip and audio conferencing services , driven by a larger number of subscribers and higher usage . partially offsetting this favorable trend was a decrease in long distance residential revenue which declined by $ 3.6 million in 2012 . as of december 31 , 2012 , long distance subscriber lines totaled 417,900 , a 7 % decrease compared to the prior year .
| payroll and employee-related costs also increased by $ 4.0 million compared to 2011 , due primarily to the addition of new personnel to support growth in data center operations and the higher demand for professional and managed it services . cost of products sold was $ 204.7 million in 2012 compared to $ 213.0 million in the prior year , a decrease of $ 8.3 million , or 4 % , that was mainly driven by lower sales of wireless handsets and it equipment , as discussed above . selling , general and administrative ( `` sg & a '' ) expenses were $ 269.5 million in 2012 , an increase of $ 6.4 million , or 2 % , compared to 2011 . the increase was largely due to stock compensation mark-to-market expense of $ 7.9 million , up from $ 0.6 million in 2011 , primarily associated with an 81 % increase in the company 's stock price during 2012. the company grants stock-based compensation , some of which are cash-payment awards indexed to the company 's stock price . 29 form 10-k part ii cincinnati bell inc. depreciation and amortization was $ 217.4 million in 2012 , an increase of $ 17.9 million compared to the prior year . the higher depreciation and amortization was primarily the result of new assets placed in service for our data center facilities . restructuring charges were $ 3.4 million in 2012 compared to $ 12.2 million in the prior year . in 2012 , restructuring charges represented severance associated with employee separations and lease abandonments . in 2011 , restructuring costs were incurred for employee separations , lease abandonments and contract terminations . such costs were lower in 2012 as we completed certain restructuring activities begun in the prior year . in 2011 , the company ratified a new labor agreement which curtails future pension service credits for certain employees . as a result of this event , the bargained employees ' pension plan was remeasured and a curtailment loss of
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table 2 provides average balances of earning assets and interest-bearing liabilities , the associated interest income and expense , and the corresponding interest rates earned and paid , as well as net interest income , interest rate spread , and net interest margin on a fully tax-equivalent basis for the years ended december 31 , 2020 , 2019 , and 2018. table 3 presents additional information to facilitate the review and discussion of fully tax-equivalent net interest income , interest rate spread , and net interest margin . notable contributions to the change in 2020 net interest income net interest income on the consolidated statements of income ( which excludes the fully tax-equivalent adjustment ) was $ 763 million in 2020 compared to $ 836 million in 2019. fully tax-equivalent net interest income of $ 779 million for 2020 was $ 73 million , or 9 % , lower than 2019. the decrease was attributable to a lower interest rate environment . to lessen the impact of the lower rate environment , during the third quarter of 2020 , the corporation began requiring libor floors on all applicable loan renewals of existing loan transactions and new loan transactions . see sections interest rate risk and quantitative and qualitative disclosures about market risk for a discussion of interest rate risk and market risk . average earning assets of $ 30.8 billion in 2020 were $ 1.0 billion , or 3 % , higher than 2019. the increase in average earning assets over 2019 was driven by a $ 1.4 billion , or 6 % , increase in average loans , primarily driven by $ 701 million of ppp loan originations beginning in april and cre loans increasing $ 661 million , or 13 % . average investments and other short-term investments decreased $ 404 million , or 6 % , due to the lower interest rate environment , which reduced the attractiveness of reinvestment opportunities . average interest-bearing liabilities of $ 23.0 billion in 2020 were down $ 543 million , or 2 % , versus 2019. on average , interest-bearing deposits decreased $ 393 million , or 2 % , primarily driven by decreases in higher cost deposits such as network , time , and money market accounts . average noninterest-bearing demand deposits of $ 6.9 billion were up $ 1.7 billion , or 32 % , over 2019. this increase is primarily attributed to customers holding proceeds from government stimulus programs in their deposit accounts . the average cost of interest-bearing liabilities was 0.65 % in 2020 , 78 bp lower than 2019. the decrease was due to an 87 bp decrease in the average cost of interest-bearing deposits to 0.35 % and a 35 bp decrease in the cost of short and long-term funding to 2.13 % , primarily attributed to the federal funds rate decreases over the last year . the federal reserve decreased the target federal funds rate on march 15 , 2020 to a range of 0.00 % to 0.25 % compared to a range of 1.50 % to 1.75 % at the end of 2019 . 46 table 3 rate/volume analysis ( a ) replace_table_token_5_th ( a ) the change in interest due to both rate and volume has been allocated in proportion to the relationship to the dollar amounts of the change in each . ( b ) the yield on tax-exemp t loans and securities is computed on a fully tax-equivalent basis using a tax rate of 21 % and is net of the effects of certain disallowed interest deductions . provision for credit losses the provision for credit losses is predominantly a function of the corporation 's reserving methodology and judgments as to other qualitative and quantitative factors used to determine the appropriate level of the acll , which focuses on changes in the size and character of the loan portfolio , changes in levels of individually evaluated and other nonaccrual loans , historical losses and delinquencies in each portfolio category , the risk inherent in specific loans , concentrations of loans to specific borrowers or industries , existing economic conditions and economic forecasts , the fair value of underlying collateral , and other factors which could affect potential credit losses . the forecast the corporation used for december 31 , 2020 was the moody 's baseline scenario from december 2020 over a 2 year reasonable and supportable period with straight-line reversion to historical losses over the second year of the period . see additional discussion under the sections titled loans , credit risk , nonperforming assets , and allowance for credit losses on loans . 47 noninterest income table 4 noninterest income replace_table_token_6_th n/m = not meaningful ( a ) includes trust , asset management , brokerage , and annuity fees . ( b ) includes mortgage origination and servicing fees , net of mortgage servicing rights amortization . ( c ) 2020 includes a gain of $ 163 million from the sale of abrc , 2019 includes less than $ 1 million of huntington related asset losses , 2018 includes approximately $ 2 million of bank mutual acquisition related asset losses net of asset gains . ( d ) $ in millions . excludes assets held in brokerage accounts . notable contributions to the change in 2020 noninterest income asset gains ( losses ) , net was up $ 153 million from 2019 , primarily driven by a gain of $ 163 million from the sale of abrc in june 2020. as a result of the sale , insurance commissions and fees decreased $ 44 million , or 49 % , from 2019. see note 2 acquisitions and dispositions of the notes to the consolidated financial statements for more details on the sale of abrc . story_separator_special_tag mortgage banking , net was $ 46 million in 2020 , an increase of $ 14 million , or 43 % , compared to 2019. there was a $ 43 million increase in gains and fair value adjustments on loans held for sale driven by higher refinance activity due to the lower rate environment , partially offset by an increase of $ 18 million in msrs impairment driven by lower rates . gains on the sale of branches was $ 7 million in 2020 , driven by the deposit premium on sold deposits , offset by costs to sell . see note 2 acquisitions and dispositions of the notes to the consolidated financial statements for more details on the branch sales that occurred during the fourth quarter of 2020. service charges and deposit account fees were down $ 7 million , or 11 % , from 2019 primarily driven by higher deposit account balances and reduced customer activity . 48 noninterest expense table 5 noninterest expense replace_table_token_7_th n/m = not meaningful ( a ) includes first staunton , huntington branch , and bank mutual acquisition related costs only ( b ) average full-time equivalent employees without overtime notable contributions to the change in 2020 noninterest expense personnel costs decreased $ 55 million , or 11 % from 2019 , primarily driven by a decrease in funding for the management incentive plan and lower staffing as a result of the sale of abrc . during the third quarter of 2020 , the corporation prepaid $ 950 million of long-term fhlb advances and incurred a loss of $ 45 million on the prepayment . business development and advertising decreased $ 11 million , or 38 % from 2019 , primarily driven by reductions in travel and entertainment costs and special event sponsorships , largely due to the covid-19 pandemic . income taxes the corporation recognized income tax expense of $ 20 million for 2020 , compared to income tax expense of $ 80 million for 2019. the decrease in income tax expense was primarily driven by corporate restructuring which allowed for the recognition of built in capital losses and tax basis step-up yielding a tax benefit of $ 63 million , partially offset by the gain on sale of abrc . tax expense was further decreased due to the decrease in income before tax in 2020 compared to 2019. the effective tax rate was 6.18 % for 2020 , compared to an effective tax rate of 19.61 % for 2019. see note 1 summary of significant accounting policies of the notes to consolidated financial statements for the corporation 's income tax accounting policy and section critical accounting policies . income tax expense recorded on the consolidated statements of income involves the interpretation and application of certain accounting pronouncements and federal and state tax laws and regulations , and is therefore considered a critical accounting policy . the corporation is subject to examination by various taxing authorities . examination by taxing authorities may impact the amount of tax expense and or the reserve for uncertainty in income taxes if their interpretations differ from those of management , based on their judgments about information available to them at the time of their examinations . see note 13 income taxes of the notes to consolidated financial statements for more information . 49 balance sheet analysis at december 31 , 2020 , total assets were $ 33.4 billion , up $ 1.0 billion , or 3 % , from december 31 , 2019. loans of $ 24.5 billion at december 31 , 2020 were up $ 1.6 billion , or 7 % , from december 31 , 2019 , driven by a $ 968 million , or 19 % , increase in cre lending and $ 768 million in ppp loans , which originated largely during the second quarter of 2020. the corporation a dded $ 370 million i n loans from the first staunton acquisition in the first quarter of 2020. see section loans and note 4 loans of the notes to consolidated financial statements for additional information on loans and see note 2 acquisitions and dispositions for additional information on the acquisition of first staunton . at december 31 , 2020 , total deposits of $ 26.5 billion were up $ 2.7 billion , or 11 % , from december 31 , 2019. during the first quarter of 2020 , the corporation assumed $ 439 million of deposits from the first staunton acquisition . in addition , the balance increases were primarily due to customers holding proceeds from government stimulus programs in their deposit accounts . see section deposits and customer funding and note 8 deposits of the notes to consolidated financial statements for additional information on deposits and see note 2 acquisitions and dispositions for additional information on the acquisition of first staunton . at december 31 , 2020 , fhlb advances of $ 1.6 billion decreased $ 1.5 billion , or 49 % from december 31 , 2019 , primarily driven by the corporation 's prepayment of $ 950 million in long-term fhlb advances during the third quarter of 2020. in addition , the corporation saw a decrease of $ 520 million in short-term fhlb advances from december 31 , 2019. see section other funding sources and note 9 short and long-term funding of the notes to consolidated financial statements for additional information on fhlb advances . on january 1 , 2020 , the corporation adopted asu 2016-13 using the modified retrospective approach which resulted in an increase to the allowance for loan losses of $ 112 million and an increase to the allowance for unfunded commitments of $ 19 million for a total increase to the acll of $ 131 million . a corresponding after tax decrease to common equity of $ 98 million was recorded along with a dta of $ 33 million .
| 75 table 32 selected segment financial data replace_table_token_35_th n/m = not meaningful ( a ) the federal reserve establishes capital adequacy requirements for the corporation , including cet1 . for segment reporting purposes , the return on cet 1 ( `` rocet1 '' ) reflects return on average allocated cet1 . the rocet1 for the risk management and shared services segment and the consolidated total is inclusive of the annualized effect of the preferred stock dividends . please refer to table 31 for a reconciliation of non-gaap financial measures to gaap financial measures . ( b ) for the year ended december 31 , 2020 , the corporation recognized a $ 163 million asset gain related to the sale of abrc , 2019 includes less than $ 1 million of huntington related asset losses , 2018 includes approximately $ 2 million of bank mutual acquisition related asset losses net of asset gains . ( c ) for the years ended december 31 , 2020 , 2019 and 2018 , the risk management and shared services segment included approximately $ 2 million , $ 7 million , and $ 29 million respectively , of acquisition related noninterest expense . the risk management and shared services segment also incurred a loss of $ 45 million on the prepayment of fhlb advances during the third quarter of 2020 . ( d ) the corporation has recognized $ 63 million in tax benefits in 2020 , primarily driven by corporate restructuring which allowed for the recognition of built in capital losses and tax basis step-up yielding this tax benefit . 76 segment review 2020 compared to 2019 the corporate and commercial specialty segment consists of lending and deposit solutions to larger businesses , developers , not-for-profits , municipalities , and financial institutions , and the support to deliver , fund , and manage such banking solutions . in addition , this segment provides a variety of investment , fiduciary , and retirement planning products and services to individuals and small to mid-sized businesses . segment revenue increased $ 23 million to $ 555 million in 2020 , compared to $ 532 million in 2019 , driven by an
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to fund our current and future operating plans , we will need additional capital , which we may obtain through one or more equity offerings , debt financings , or other third‑party funding , including potential strategic alliances and licensing or collaboration arrangements . we may , however , be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all , including as a result of covid-19 . our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to develop our current product candidates , or any additional product candidates , if developed . the amount and timing of our future funding requirements will depend on many factors , including the impacts of covid-19 , our ability to successfully enroll subjects in a timely way for the clinical studies , and the pace and results of our preclinical and clinical development efforts . we can not assure you that we will ever be profitable or generate positive cash flow from operating activities . financial operations overview revenues we have not generated any revenue from product sales . we are unable to predict when , if ever , material revenues or net cash inflows will commence from sales of our products , if approved . our revenue to date has been primarily derived from a research collaboration agreement with allergan ; a development services agreement with allergan , which was put in place to continue certain development activities for a pre-determined period of time following allergan 's acquisition of naurex inc. and research and development grants from the u.s. government which have no repayment or royalty obligations . 93 operating expenses research and development expenses research and development activities account for a significant portion of our operating expenses . we expense research and development costs as incurred . research and development expense consists of costs incurred in connection with the development of our product candidates , including : · fees paid to consultants , sponsored researchers , contract manufacturing organizations , or cmos , and contract research organizations , or cros , including in connection with our preclinical and clinical studies , and other related clinical study fees , such as for investigator grants , patient screening , laboratory work , clinical study database management , and statistical compilation and analysis ; · costs related to acquiring and maintaining preclinical and clinical study materials and facilities ; · costs related to compliance with regulatory requirements ; and · costs related to salaries , bonuses , and other compensation for employees in research and development functions . at this time , we can not reasonably estimate or know the nature , timing , and costs of the efforts that will be necessary to complete the development of our product candidates . this is due to the numerous risks and uncertainties associated with developing such product candidates , including the uncertainty related to : · the impacts of covid-19 ; · future clinical study results ; the scope , rate of progress , and expense of our ongoing as well as any additional preclinical studies , clinical studies and other research and development activities ; · clinical study enrollment rate or design ; · the manufacturing of our product candidates ; · our ability to obtain and maintain intellectual property protection for our product candidates ; · significant and changing government regulation ; · establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers , developing and timely delivery of commercial-grade drug formulations that can be used in our clinical trials and for commercial launch ; · the timing and receipt of regulatory approvals , if any ; and · the risks disclosed in the section entitled “ risk factors ” of this annual report on form 10-k. a change in the outcome of any of these variables with respect to the development of any of our product candidates would significantly change the costs , timing , and viability associated with the development of that product candidate . we expect our research and development expenses to increase over the next several years as we continue to implement our business strategy , which includes advancing our product candidates into and through clinical development , expanding our research and development efforts , seeking regulatory approvals for any product candidates for which we 94 successfully complete clinical studies , accessing and developing additional product candidates , and hiring additional personnel to support our research and development efforts . in addition , product candidates in later stages of clinical development generally incur higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later‑stage clinical studies . as such , we expect our research and development expenses to increase as our product candidates advance into later stages of clinical development . general and administrative expenses general and administrative expenses consist primarily of salaries and related costs , including stock-based compensation . general and administrative expenses also include rent as well as professional fees for legal , consulting , accounting , and audit services . in the future , we expect that our general and administrative expenses will increase as we continue to support our research and development and the potential commercialization of our product candidates , if approved . we also anticipate that we will incur increased accounting , audit , legal , tax , regulatory , compliance , and director and officer insurance costs , as well as investor and public relations expenses associated with maintaining compliance with exchange listing and sec requirements . other income other income consists of interest income earned on our cash and cash equivalents . story_separator_special_tag story_separator_special_tag our expenses will increase significantly in connection with our ongoing activities , as we : · seek to address and recover from impacts of covid-19 ; 97 · advance the clinical development of our lead product candidates ; · continue to improve the manufacturing process for our product candidates ; and manufacture clinical supplies as our development progresses ; · continue the research and development of our preclinical product candidates ; · seek to identify and develop additional product candidates ; · maintain , expand , and protect our intellectual property portfolio ; · improve our operational , financial , and management systems to support our clinical development and other operations . outlook based on our research and development plans and our timing expectations related to the progress of our programs , we expect that our cash and cash equivalents as of december 31 , 2019 , when combined with the proceeds received from our follow-on offering discussed above , will be sufficient to fund our operations for at least the next 12 months . we have based this estimate on assumptions that may prove to be wrong , and we could utilize our available capital resources sooner than we currently expect . we do not expect to generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for a product candidate , which we expect will take a number of years and the outcome of which is uncertain , or enter into collaborative agreements with third parties , the timing of which is largely beyond our control and may never occur . we will continue to require additional capital to develop our product candidates and fund operations for the foreseeable future , which we may obtain through one or more equity offerings , debt financings , or other third-party funding , including potential strategic alliances and licensing or collaboration arrangements . we may , however , be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all , including as a result of covid-19 . our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to develop our current product candidates , or any additional product candidates , if developed . the amount and timing of our future funding requirements will depend on many factors , including the effects of covid-19 , our ability to successfully enroll subjects in a timely way for the clinical studies and the pace and results of our preclinical and clinical development efforts . we can not assure you that we will ever be profitable or generate positive cash flow from operating activities . cash flows the following table summarizes our sources and uses of cash for each of the periods presented ( in thousands ) : replace_table_token_3_th operating activities during the year ended december 31 , 2019 , our cash used in operating activities was primarily due to our net loss of $ 57.4 million , partially offset by non‑cash charges of $ 9.5 million , consisting primarily of $ 9.0 million in stock‑based 98 compensation and $ 0.5 million in depreciation and amortization . net cash used in changes in our operating assets and liabilities of $ 4.2 million consisted primarily of a use of cash driven by changes in prepaid expenses and other assets , accounts payable and accrued expenses and other liabilities . during the year ended december 31 , 2018 , our cash used in operating activities was primarily due to our net loss of $ 53.3 million , partially offset by non‑cash charges of $ 3.8 million , consisting primarily of $ 3.3 million in stock‑based compensation and $ 0.5 million in depreciation and amortization . net cash provided by changes in our operating assets and liabilities consisted of a $ 2.0 million use of cash driven by changes in prepaid expenses and other assets , accounts receivable , accounts payable and accrued expenses and other liabilities . investing activities net cash used in investing activities was less than $ 0.1 million during the year ended december 31 , 2019 , consisting of purchases of laboratory equipment . net cash used in investing activities was $ 0.4 million during the year ended december 31 , 2018 , consisting of purchases of property and equipment , primarily laboratory equipment and leasehold improvements . financing activities net cash provided by financing activities was $ 0.2 million during the year ended december 31 , 2019 , consisting of proceeds received from the exercise of stock options offset by payment of deferred offering costs . net cash provided by financing activities was $ 106.4 million during the year ended december 31 , 2018 , consisting primarily of $ 109.5 million of ipo proceeds , net of underwriting discounts and commissions offset by $ 3.0 million of offering costs related to our ipo , and additional financing costs of $ 0.2 million related to our series b convertible preferred stock financing that closed in december 2017. contractual obligations and other commitments we enter into contracts in the normal course of business with contract research organizations for clinical studies , preclinical research studies and testing , manufacturing , and other services and products for operating purposes . these contracts generally are cancelable at any time by us , generally upon 30 days prior written notice , and therefore these payments are not included in our table of contractual obligations . the following table summarizes our contractual obligations as of december 31 , 2019 ( in thousands ) : replace_table_token_4_th off‑balance sheet arrangements we did not have during the periods presented , and we do not currently have , any off‑balance sheet arrangements , as defined in the rules and regulations of the sec . critical accounting policies and significant judgments and estimates we prepare our financial statements in accordance with generally accepted accounting principles in the united states , or u.s. gaap .
| clinical study in patients with fibromyalgia that completed in the first half of 2019 , partially offset by activities relating in the initiation of two phase 2b chronic pain studies in the second half of 2019 ; · approximately $ 4.2 million increase for clinical , regulatory , and drug product costs related to the ongoing development of nyx-783 for the treatment of ptsd ; · approximately $ 2.8 million increase for clinical , regulatory and drug product costs related to the development of nyx-458 for the treatment of parkinson 's disease cognitive impairment ; · approximately $ 1.6 million decrease for costs associated with our preclinical research efforts with external research organizations ; and · approximately $ 0.1 million increase for costs related to employee compensation and related support . 96 general and administrative expenses general and administrative expenses were $ 19.0 million for the year ended december 31 , 2019 , compared to $ 12.7 million for the year ended december 31 , 2018. the increase of $ 6.3 million was primarily driven by increased personnel related costs , including an increase of $ 4.1 million of non-cash share-based compensation expenses , as well as increased professional fees and insurance costs to support ongoing business operations , patent-related matters , and to comply with obligations associated with being a publicly traded company . other income we recorded $ 2.2 million of other income for the year ended december 31 , 2019 , compared to $ 1.6 million for the year ended december 31 , 2018. this was due to increased interest income earned on our cash and cash equivalents . liquidity and capital resources from our inception through december 31 , 2019 , we have incurred significant operating losses and have funded our operations to date through proceeds from collaborations , grants , sales of convertible preferred stock , and our ipo . we have generated limited revenue to date from a research collaboration agreement with
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as previously stated , the pb3 has achieved commercial status through a series of design iterations which focused on improving its reliability and survivability in the ocean environment . though the pb3 will continue to undergo further enhancements through customary product life cycle management , we believe the pb3 has achieved a maturity level for immediate commercial use . we believe that the pb3 will generate and store sufficient power to address various application requirements in our target markets . our product development and engineering efforts are focused , in part , on increasing the energy output and efficiency of our powerbuoys® and , if we are able to do so , we believe the powerbuoy® would be useful for additional applications where cost savings and additional power are required by our potential customers . we continue to explore opportunities in these target markets . we believe that by demonstrating the capability of our powerbuoy® in oil & gas and telecommunications applications , we can advance our technology and gain further adoption from our target markets . we continue to improve design and manufacturing of the pb3 to enhance our ability to improve customer value , displace incumbent solutions , and become the preferred power source for new and existing applications in our target markets . we are utilizing our experience with multiple commercial pb3 deployments globally to continually improve our product so that we have higher energy efficiency , additional mooring capability , platform flexibility and higher reliability . for example , the redesigned pb3 leverages our knowledge base from past designs to incorporate new design features which we believe will improve its reliability and efficiency . in november 2018 , the company announced several new product offerings including the hybrid powerbuoy® , subsea battery solutions and support services . ● hybrid powerbuoy® - the company is in the process of creating a hybrid powerbuoy® that will be a smaller liquid-fueled surface buoy , compared to the wave power based pb3 powerbuoy® , capable of providing reliable power in remote offshore locations . this product is to be highly complementary to the pb3 powerbuoy® by providing the company the opportunity to address a broader spectrum of customer deployment needs , with the potential for greater company integration within each customer project . it is primarily intended for shorter term deployment applications such as erov and auv inspections and short-term maintenance , topside surveillance and communications , and subsea equipment and controls . the hybrid powerbuoy® is anticipated to be a lightweight , quickly deployable and cost-effective solution . the design is also anticipated to have a high payload capacity for communications and surveillance , with the capability of being tethered to subsea payloads and battery packs , or with a conventional anchor mooring system . the company intends to design the hybrid powerbuoy® , with a stirling engine , to outperform traditional diesel buoys , which we believe to have more frequent service and refueling intervals . we believe the hybrid powerbuoy® will be able to operate in an environmentally safer manner using more robust fuels , while operating over a wider temperature range than diesel buoys . ● subsea battery solutions - the company is in the process of creating a sea floor energy storage solution for remote offshore operations . these subsea battery systems will contain lithium ion batteries , which provide high power density , to supply power that can enable subsea equipment , sensors , communications and auvs and electric remotely operated vehicles ( erov ) recharge . the company 's pb3 powerbuoy® is complimentary to subsea battery systems by providing a means for recharging during longer term deployments , or the subsea battery systems can be used independently for shorter term deployments . ideal for many remote offshore customer applications , these subsea battery systems are anticipated to be high performance , cost-efficient , and quickly deployable . given the company 's expertise in offshore energy storage systems from existing pb3 powerbuoy® technology , the subsea battery solutions will provide an opportunity for the company to differentiate through technical , cost and delivery leadership . ● support services – the company offers customers a comprehensive range of support services that meet their specific needs . these support services include innovation services , remote monitoring , extended service agreements , customization and pre-packaged payload options , engineering-design-testing services , mooring design , and marine services . these same support services will be extended to the new subsea battery solution and hybrid powerbuoy® products . 39 capital raises on june 2 , 2016 , we entered into a securities purchase agreement , which was amended on june 7 , 2016 ( as amended , the “ purchase agreement ” ) with certain institutional purchasers ( the “ purchasers ” ) . pursuant to the terms of the purchase agreement , we sold an aggregate of 20,850 shares of common stock together with warrants to purchase up to an aggregate of 7,298 shares of common stock . each share of common stock was sold together with a warrant to purchase 0.35 of a share of common stock at a combined purchase price of $ 92.00. the net proceeds from the offering to us were approximately $ 1.7 million , after deducting placement agent fees and estimated offering expenses payable by us , but excluding the proceeds , if any , from the exercise of the warrants issued in the offering . the warrants have an exercise price of $ 121.60 per share , will be exercisable on december 8 , 2016 , and will expire five years following the date of issuance . the company paid the placement agents approximately $ 100,000 as placement agent fees in connection with the sale of securities in the offering . the company also reimbursed the placement agents $ 35,000 for their out of pocket and legal expenses in connection with the offering . story_separator_special_tag on july 22 , 2016 , the company entered into the second amendment to the purchase agreement ( the “ second amended purchase agreement ” ) with certain purchasers ( the “ july purchasers ” ) . pursuant to the terms of the second amended purchase agreement , the company sold an aggregate of 29,750 shares of common stock together with warrants to purchase up to an aggregate of 8,925 shares of common stock . each share of common stock was sold together with a warrant to purchase 0.30 of a share of common stock at a combined purchase price of $ 135.00. the net proceeds to the company from the offering were approximately $ 3.6 million , after deducting placement agent fees and estimated offering expenses payable by the company , but excluding the proceeds , if any , from the exercise of the warrants issued in the offering . the warrants were exercisable immediately at an exercise price of $ 187.20 per share . the warrants will expire on the fifth ( 5th ) anniversary of the initial date of issuance . on october 19 , 2016 , the company sold 138,000 shares of common stock at a price of $ 55.00 per share , which includes the sale of 18,000 shares of the company 's common stock sold by the company pursuant to the exercise , in full , of the over-allotment option by the underwriters in a public offering . the net proceeds to the company from the offering were approximately $ 6.9 million , after deducting placement agent fees and offering expenses payable by the company . on may 2 , 2017 , the company sold 309,638 shares of common stock at a price of $ 26.00 per share , which includes the sale of 40,388 shares of the company 's common stock sold by the company pursuant to the exercise , in full , of the over-allotment option by the underwriters in a public offering . the net proceeds to the company from the offering were approximately $ 7.2 million , after deducting placement agent fees and offering expenses payable by the company . on october 23 , 2017 , the company sold 286,972 shares of common stock at a price of $ 28.40 per share in a best efforts public offering . the net proceeds to the company from the offering were approximately $ 7.4 million , after deducting placement fees and offering expenses payable by the company . on august 13 , 2018 , the company entered into a common stock purchase agreement with aspire capital fund , llc ( “ aspire capital ” ) which provides that , subject to certain terms , conditions and limitations , aspire capital is committed to purchase up to an aggregate of $ 10.0 million of shares of the company 's common stock over a 30-month period that does not exceed 19.99 % of the outstanding common stock on the date of the agreement . shareholder approval was not needed since the number of common stock offered for sale in the common stock purchase agreement did not exceed 19.99 % of the outstanding common stock on the date of the agreement . in consideration for entering into the agreement , the company issued to aspire capital 21,429 shares of our common stock as a commitment fee . as of april 30 , 2019 , the company has sold 162,162 shares of common stock with an aggregate market value of $ 949,259 at an average price of $ 5.85 per share pursuant to this common stock purchase agreement . on january 7 , 2019 , the company entered into an at the market offering agreement ( “ 2019 atm facility ” ) with a.g.p./alliance global partners ( “ agp ” ) , under which the company may issue and sell to or through a.g.p./alliance global partners , acting as agent and or principal , shares of the company 's common stock having an aggregate offering price of up to $ 25 million . as of april 30 , 2019 , under the 2019 atm facility the company had issued and sold 151,561 shares of its common stock with an aggregate market value of $ 958,229 at an average price of $ 6.32 per share and paid agp a sales commission of approximately $ 33,469 related to those shares . on april 8 , 2019 , the company sold 1,542,000 shares of common stock , which includes the sale of 642,000 shares of the company 's common stock sold by the company pursuant to the exercise , in full , of the over-allotment option by the underwriters in a public offering , prefunded warrants to purchase up to 3,385,680 shares of common stock and common warrants to purchase up to 4,927,680 shares of our common stock in an underwritten public offering . the net proceeds to the company from the offering were approximately $ 15.7 million , after deducting underwriter fees and offering expenses payable by the company . the sale of additional equity or convertible securities could result in dilution to our stockholders . if additional funds are raised through the issuance of debt securities or preferred stock , these securities could have rights senior to those associated with our common stock and could contain covenants that would restrict our operations . we do not have any committed sources of debt or equity financing and we can not assure you that financing will be available in amounts or on terms acceptable to us when needed , or at all . if we are unable to obtain required financing when needed , we may be required to reduce the scope of our operations , including our planned product development and marketing efforts , which could materially and adversely affect our financial condition and operating results . if we are unable to secure additional financing , we may be forced to cease our operations . backlog as of april 30 , 2019 , our negotiated backlog was $ 0.9 million .
| the increase of approximately $ 0.5 million , or 71 % , over 2018 mostly due to higher upfront spending and material costs on the new customer contracts in fiscal 2019 as compared to the same period in the fiscal 2018. during fiscal 2018 , all of projects were completed in the first half of the year and spending on the new customer contracts commenced in the fourth quarter , 2018. engineering and product development costs our engineering and product development costs consist of salaries and other personnel-related costs and the costs of products , materials and outside services used in our product development and unfunded research activities . our engineering and product development costs relate primarily to our efforts to increase the power output and reliability of our powerbuoy® system , and the development of new products , product applications and complementary technologies . we expense all our engineering and product development costs as incurred . engineering and product development costs during the fiscal year ended april 30 , 2019 were $ 5.0 million as compared to $ 4.3 million for fiscal year 2018. the increase of $ 0.7 million , or 15 % , is due to higher spending on new products being developed , pb3 powerbuoy® builds for future customer contracts , and higher personnel costs as compared to the same period in fiscal 2018. selling , general and administrative costs our selling , general and administrative costs consist primarily of professional fees , salaries and other personnel-related costs for employees and consultants engaged in sales and marketing and support of our powerbuoy® systems and costs for executive , accounting and administrative personnel , professional fees and other general corporate expenses . selling , general and administrative costs during the fiscal year months ended april 30 , 2019 were $ 7.6 million as compared to $ 7.0 for fiscal year 2018. the increase of $ 0.6 million , or 9 % , is primarily attributable to higher investor relations costs of $ 0.4 million , higher professional fees of $ 0.2 million and higher sales and marketing of $ 0.1 million partly offset by lower spending of $ 0.1 million in employee related costs . gain due to the change in fair value of warrant liabilities the change in fair value of warrant liabilities during the fiscal year ended april 30 , 2019 was an unrealized gain of $ 195,000 versus an
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a loss is charged against the allowance for indemnifications when a purchaser of a loan ( investor ) sold by c & f mortgage incurs a validated indemnified loss due to borrower misrepresentation , fraud , early default , or underwriting error . the allowance represents an amount that , in management 's judgment , will be adequate to absorb any losses arising from valid indemnification requests . management 's judgment in determining the level of the allowance is based on the volume of loans sold , historical experience , current economic conditions and information provided by investors . this evaluation is inherently subjective , as it requires estimates that are susceptible to significant revision as more information becomes available . 29 impairment of loans : we consider a loan impaired when it is probable that the corporation will be unable to collect all interest and principal payments as scheduled in the loan agreement . we do not consider a loan impaired during a period of delay in payment if we expect the ultimate collection of all amounts due . we measure impairment on a loan-by-loan basis for commercial , construction and residential loans in excess of $ 500,000 by either the present value of expected future cash flows discounted at the loan 's effective interest rate , the loan 's obtainable market price , or the fair value of the collateral if the loan is collateral dependent . large groups of smaller balance homogeneous loans are collectively evaluated for impairment . we maintain a valuation allowance to the extent that the measure of the impaired loan is less than the recorded investment . troubled debt restructurings ( tdrs ) are also considered impaired loans , even when the loan balance is less than $ 500,000. a tdr occurs when we agree to significantly modify the original terms of a loan by granting a concession due to the deterioration in the financial condition of the borrower . for more information see the section titled “ asset quality ” within item 7. loans acquired in a business combination : loans acquired in the acquisition of cvbk and its subsidiary cvb were segregated between ( i ) purchased credit-impaired ( pci ) loans and ( ii ) purchased performing loans and were recorded at estimated fair value on the date of acquisition without the carryover of the related allowance for loan losses . pci loans are those for which there is evidence of credit deterioration since origination and for which it is probable at the date of acquisition that the corporation will not collect all contractually required principal and interest payments . when determining fair value , pci loans were aggregated into pools of loans based on common risk characteristics as of the date of acquisition such as loan type , date of origination , and evidence of credit quality deterioration such as internal risk grades and past due and nonaccrual status . the difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the “ nonaccretable difference , ” is not recorded and is available to absorb future credit losses on those loans . any excess of cash flows expected at acquisition over the estimated fair value is referred to as the “ accretable ” yield and is recognized as interest income over the remaining life of the loan when there is a reasonable expectation about the amount and timing of such cash flows . subsequent to acquisition , we evaluate on a quarterly basis our estimate of cash flows expected to be collected . estimates of cash flows for pci loans require significant judgment . subsequent decreases to the expected cash flows will generally result in a provision for loan losses resulting in an increase to the allowance for loan losses . subsequent significant increases in cash flows may result in a reversal of post-acquisition provision for loan losses or a transfer from nonaccretable difference to accretable yield that increases interest income over the remaining life of the loan , or pool ( s ) of loans . disposals of loans , which may include sale of loans to third parties , receipt of payments in full or part from the borrower or foreclosure of the collateral , result in removal of the loan from the pci loan portfolio at its carrying amount . the corporation 's pci loans currently consist of loans acquired in connection with the acquisition of cvb . pci loans that were classified as nonperforming by cvb are no longer classified as nonperforming so long as , at quarterly re-estimation periods , we believe we will fully collect the new carrying value of the pools of loans . the corporation accounts for purchased performing loans using the contractual cash flows method of recognizing discount accretion based on the acquired loans ' contractual cash flows . purchased performing loans are recorded at fair value , including a credit discount . the fair value discount is accreted as an adjustment to yield over the estimated lives of the loans . because there is no allowance for loan losses established at the acquisition date , a provision for loan losses may be required in future periods for any deterioration in these loans subsequent to the acquisition . impairment of securities : impairment of securities occurs when the fair value of a security is less than its amortized cost . for debt securities , impairment is considered other-than-temporary and recognized in its entirety in net income if either ( i ) we intend to sell the security or ( ii ) it is more-likely-than-not that we will be required to sell the security before recovery of its amortized cost basis . story_separator_special_tag if , however , we do not intend to sell the security and it is not more-likely-than-not that we will be required to sell the security before recovery , we must determine what portion of the impairment is attributable to a credit loss , which occurs when the amortized cost basis of the security exceeds the present value of the cash flows expected to be collected from the security . if there is no credit loss , there is no other-than-temporary impairment . if there is a credit loss , other-than-temporary impairment exists , and the credit loss must be recognized in net income and the remaining portion of impairment must be recognized in other comprehensive income . for equity securities , impairment is considered to be other-than-temporary based on our ability and intent to hold the investment until a recovery of fair 30 value . other-than-temporary impairment of an equity security results in a write-down that must be included in net income . we regularly review each investment security for other-than-temporary impairment based on criteria that includes the extent to which cost exceeds market price , the duration of that market decline , the financial health of and specific prospects for the issuer , our best estimate of the present value of cash flows expected to be collected from debt securities , our intention with regard to holding the security to maturity and the likelihood that we would be required to sell the security before recovery . other real estate owned ( oreo ) : assets acquired through , or in lieu of , loan foreclosure are held for sale and are initially recorded at fair value less costs to sell at the date of foreclosure . subsequent to foreclosure , management periodically performs valuations of the foreclosed assets based on updated appraisals , general market conditions , recent sales of similar properties , length of time the properties have been held , and our ability and intention with regard to continued ownership of the properties . the corporation may incur additional write-downs of foreclosed assets to fair value less costs to sell if valuations indicate a further deterioration in market conditions . goodwill : the corporation 's goodwill was recognized in connection with the corporation 's acquisition of cvbk in october 2013 and c & f bank 's acquisition of c & f finance company in september 2002. the corporation reviews the carrying value of goodwill at least annually or more frequently if certain impairment indicators exist . in assessing the recoverability of the corporation 's goodwill , major assumptions used in determining impairment are increases in future income , sales multiples in determining terminal value and the discount rate applied to future cash flows . if an impairment test is performed , we will prepare a sensitivity analysis by increasing the discount rate , lowering sales multiples and reducing increases in future income . retirement plan : c & f bank maintains a non-contributory , defined benefit pension plan for eligible full-time employees as specified by the plan . plan assets , which consist primarily of mutual funds invested in marketable equity securities and corporate and government fixed income securities , are valued using market quotations . c & f bank 's actuary determines plan obligations and annual pension expense using a number of key assumptions . key assumptions may include the discount rate , the interest crediting rate , the estimated future return on plan assets and the anticipated rate of future salary increases . changes in these assumptions in the future , if any , or in the method under which benefits are calculated may affect pension assets , liabilities or expense . derivative financial instruments : the corporation uses derivatives primarily to manage risk associated with changing interest rates and to assist customers with their risk management objectives . the corporation 's derivative financial instruments may include ( 1 ) interest rate lock commitments ( irlcs ) on mortgage loans that will be held for sale and related forward sales commitments , ( 2 ) interest rate swaps with certain qualifying commercial loan customers and dealer counterparties and ( 3 ) interest rate swaps that qualify as cash flow hedges of the corporation 's trust preferred capital notes . the corporation recognizes derivative financial instruments at fair value as either an other asset or other liability in the consolidated balance sheet . because the irlcs , forward sales commitments and interest rate swaps with loan customers and dealer counterparties are classified as free standing derivatives , adjustments to reflect unrealized gains and losses resulting from changes in fair value of these instruments are reported in the income statement . the effective portion of the gain or loss on the corporation 's cash flow hedges is reported as a component of other comprehensive income , net of deferred income taxes , and reclassified into earnings in the same period or periods during which the hedged transactions affect earnings . income taxes : determining the corporation 's effective tax rate requires judgment . the corporation 's net deferred tax asset is determined annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income . in addition , there may be transactions and calculations for which the ultimate tax outcomes are uncertain and the corporation 's tax returns are subject to audit by various tax authorities . although we believe that the estimates are reasonable , no assurance can be given that the final tax outcome will not be materially different than that which is reflected in the income tax provision and accrual . for further information concerning accounting policies , refer to item 8 , “ financial statements and supplementary data , ” under the heading “ note 1 : summary of significant accounting policies.
| 35 table 1 : average balances , income and expense , yields and rates replace_table_token_3_th interest income and expense are affected by fluctuations in interest rates , by changes in the volume of earning assets and interest-bearing liabilities , and by the interaction of rate and volume factors . the following table shows the direct causes of the year-to-year changes in the components of net interest income on a taxable-equivalent basis . the corporation calculates the rate and volume variances using a formula prescribed by the sec . rate/volume variances , the third element in the calculation , are not shown separately in the table , but are allocated to the rate and volume variances in proportion to the relationship of the absolute dollar amounts of the change in each . loans include both nonaccrual loans and loans held for sale . 36 table 2 : rate-volume recap replace_table_token_4_th 2016 compared to 2015 net interest income , on a taxable-equivalent basis , for 2016 increased to $ 82.5 million , compared to $ 80.6 million for 2015. the increase in net interest income for 2016 , compared to 2015 , was a result of an increase in average earning assets , offset in part by a decrease in net interest margin . the net interest margin for 2016 decreased five basis points to 6.30 percent , compared to 6.35 percent for 2015. the decrease resulted from a decline in the yield on interest-earning assets of six basis points , which was primarily attributable to decreases in the yields on the loan and investment securities portfolios , which was somewhat offset by a shift in the composition of earning assets as growth in the higher-yielding loan portfolio was funded in part by a decline in lower-yielding deposits in other banks . while the cost of interest-bearing liabilities in 2016 increased two basis points , deposits continued to shift from higher-cost term deposits to lower-cost non-term deposits , as described below . average loans , which includes both loans held for investment and loans held for sale , increased $ 89.2 million to $ 994.8 million for the year ended december 31 , 2016 ,
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on october 16 , 2017 , mitek holding b.v. , a company incorporated under the laws of the netherlands and our wholly owned subsidiary ( “ mitek holding b.v. ” ) , acquired all of the issued and outstanding shares of icar vision systems , s.l . ( `` icar '' ) and each of its subsidiaries ( the “ icar acquisition ” ) , pursuant to a share purchase agreement ( the “ icar purchase agreement ” ) , by and among , mitek , mitek holding b.v. , and each of the shareholders of icar ( the “ icar sellers ” ) . icar is a technology provider of identity fraud proofing and document management solutions for web , desktop , and mobile platforms . upon completion of the icar acquisition , icar became a direct wholly owned subsidiary of mitek holding b.v. and our indirect wholly owned subsidiary . under the terms of the icar purchase agreement , mitek holding b.v. agreed to purchase all of the outstanding shares of icar for an aggregate purchase price of up to $ 13.9 million , net of cash acquired . on closing , $ 3.0 million was paid in cash , net of cash acquired and $ 5.6 million in shares of common stock , or 584,291 shares , were issued to the icar sellers . the icar purchase agreement also provides for additional payments of up to approximately $ 5.3 million upon the achievement of certain financial milestones during fiscal 2018 and fiscal 2019. as of september 30 , 2020 , $ 4.6 million of the earnout consideration has been paid . the remaining portion of the earnout consideration of $ 0.8 million will be paid out during the second quarter of fiscal 2021. icar is a leading provider of consumer identity verification solutions in spain and latin america . the icar acquisition strengthens our position as a global digital identity verification powerhouse in the consumer identity and access management solutions market . restructuring subsequent to the acquisition of a2ia group ii , s.a.s . ( “ a2ia ” ) , we evaluated a2ia 's operations and determined that the market for certain products was small and lacking growth opportunity , were not core to our strategy , and were not profitable for the company . in order to streamline the organization and focus resources going forward , we undertook a strategic restructuring of a2ia 's paris operations in june 2019 , which included , among other things , ceasing the sale of certain a2ia products and offerings and a reduction in workforce . the restructuring was completed during the fourth quarter of fiscal 2020. market opportunities , challenges , & risks we believe that financial institutions , fintechs , and other companies see our patented solutions as a way to provide a superior digital customer experience to meet growing consumer demand for trust and convenience online and , at the same time , assist them in meeting regulatory requirements . the value of digital transformation to our customers is a possible increase in top line revenue and a reduction in the cost of sales and services . as the use of new technology increases , so does associated fraud and cyber-attacks . the negative outcomes of fraud encompass financial losses , brand damage , and loss of loyal customers . we predict growth in both our deposits and identity verification products based on current trends in payments , online lending , more stringent regulations , growing usage of sharing apps and online marketplaces , and the ever-increasing demand for digital services . factors adversely affecting the pricing of , or demand for , our digital solutions , such as competition from other products or technologies , any decline in the demand for digital transactions , or negative publicity or obsolescence of the software environments in which our products operate , could result in lower revenues or gross margins . further , because substantially all of our revenues are from a few types of technology , our product concentration may make us especially vulnerable to market demand and competition from other technologies , which could reduce our revenues . the sales cycle for our software and services can be lengthy and the implementation cycles for our software and services by our channel partners and customers can also be lengthy , often as long as six months and sometimes longer for larger customers . if implementation of our products by our channel partners and customers is delayed or otherwise not completed , our business , financial condition , and results of operations may be adversely affected . 25 revenues related to most of our on-premise licenses for mobile products are required to be recognized up front upon satisfaction of all applicable revenue recognition criteria . revenue related to our software as a service ( “ saas ” ) products is recognized ratably over the life of the contract or as transactions are used depending on the contract criteria . the recognition of future revenues from these licenses is dependent upon a number of factors , including , but not limited to , the term of our license agreements , the timing of implementation of our products by our channel partners and customers , and the timing of any re-orders of additional licenses and or license renewals by our channel partners and customers . during each of the last few years , sales of licenses to one or more channel partners have comprised a significant part of our revenue each year . this is attributable to the timing of renewals or purchases of licenses and does not represent a dependence on any single channel partner . if we were to lose a channel partner relationship , we do not believe such a loss would adversely affect our operations because either we or another channel partner could sell our products to the end-users that had purchased products from the channel partner we lost . story_separator_special_tag however , in that case , we or another channel partner must establish a relationship with the end-users , which could take time to develop , if it develops at all . we have a growing number of competitors in the mobile image capture and identity verification industry , many of which have greater financial , technical , marketing , and other resources . however , we believe our patented mobile image capture and identity verification technology , our growing portfolio of products and geographic coverage for the financial services industry , and our market expertise gives us a distinct competitive advantage . to remain competitive , we must continue to offer products that are attractive to the consumer as well as being secure , accurate , and convenient . to help us remain competitive , we intend to further strengthen performance of our portfolio of products through research and development as well as partnering with other technology providers . in the second quarter of fiscal 2020 , concerns related to the spread of covid-19 began to create global business disruptions as well as disruptions in our operations and to create potential negative impacts on our revenues and other financial results . covid-19 was declared a pandemic by the world health organization on march 11 , 2020. in an effort to contain covid-19 or slow its spread , governments around the world have enacted various measures , including orders to close all businesses not deemed “ essential , ” isolate residents to their homes or places of residence , and practice social distancing when engaging in essential activities . we anticipate that these actions and the global health crisis caused by covid-19 will negatively impact business activity across the globe . the extent to which covid-19 will impact our business , operations , and financial results is uncertain and difficult to predict and depends on numerous evolving factors including the duration and severity of the outbreak . see item 1a : “ risk factors ” for additional details . in an effort to protect the health and safety of our employees , our workforce has transitioned to working remotely and employee travel , including to our international subsidiaries , has been severely curtailed . it is not clear what the potential effects of any such alterations or modifications may have on our business , including the effects on our customers or vendors , or on our financial results . we will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal , state , local , or foreign authorities , or that we determine are in the best interests of our employees , customers , partners , and stockholders . we anticipate in certain circumstances that the current stay-at-home orders and impact of the covid-19 pandemic may accelerate the adoption of digital technologies and create future opportunities and uses for our products . however , we can not predict what the overall impact of the covid-19 pandemic will be on our business or financial condition as business and consumer activity decelerates across the globe . we continue to seek new and innovative opportunities to serve our customers ' needs . 26 results of operations comparison of the years ended september 30 , 2020 and 2019 the following table summarizes certain aspects of our results of operations for the fiscal year ended september 30 , 2020 compared to the fiscal year ended september 30 , 2019 ( in thousands , except percentages ) : replace_table_token_2_th ( 1 ) 2019 amount reflects reclassification to conform to the current year presentation . revenue total revenue increased $ 16.7 million , or 20 % , to $ 101.3 million in 2020 compared to $ 84.6 million in 2019. software and hardware revenue increased $ 7.3 million , or 16 % , to $ 54.2 million in 2020 compared to $ 46.8 million in 2019. this increase is primarily due to an increase in sales of our mobile deposit® , id_cloud , and checkreader software products . the increase was partially offset by declining software revenue from our legacy on-premise identity products which are being phased out . services and other revenue increased $ 9.4 million , or 25 % , to $ 47.2 million in 2020 compared to $ 37.7 million in 2019. this increase is primarily due to strong growth in mobile verify® transactional saas revenue of $ 7.7 million , or 36 % , in 2020 compared to 2019 , as well as an increase in maintenance revenue associated with checkreader and mobile deposit® software sales . cost of revenue cost of revenue includes personnel costs related to billable services and software support , direct costs associated with our hardware products , hosting costs , and the costs of royalties for third-party products embedded in our products . cost of revenue increased $ 0.9 million , or 8 % , to $ 13.2 million in 2020 compared to $ 12.3 million in 2019. as a percentage of revenue , cost of revenue decreased to 13 % in 2020 from 15 % in 2019. the increase in cost of revenue is primarily due to an increase in variable personnel , royalty , and hosting costs associated with a higher volume of mobile verify® transactions processed during 2020 compared to 2019. selling and marketing expenses selling and marketing expenses include payroll , employee benefits , stock-based compensation , and other headcount-related costs associated with sales and marketing personnel . selling and marketing expenses also include non-billable costs of professional services personnel , advertising expenses , product promotion costs , trade shows , and other brand awareness programs .
| cost of revenue increased $ 3.6 million , or 41 % , to $ 12.3 million in 2019 compared to $ 8.7 million in 2018. as a percentage of revenue , cost of revenue increased to 15 % in 2019 from 14 % in 2018. the increase in cost of revenue is primarily due to an increase in variable personnel , hosting , and royalty costs associated with a higher volume of mobile verify transactions processed during 2019 compared to 2018 , additional costs associated with the sale of icar hardware products , and additional labor costs associated with the delivery of a2ia maintenance . selling and marketing expenses selling and marketing expenses include payroll , employee benefits , stock-based compensation , and other headcount-related costs associated with sales , marketing , and product management personnel . selling and marketing expenses also include non-billable costs of professional services personnel , advertising expenses , product promotion costs , trade shows , and other brand awareness programs . selling and marketing expenses increased $ 5.3 million , or 28 % , to $ 24.6 million in 2019 compared to $ 19.3 million in 2018. as a percentage of revenue , selling and marketing expenses decreased to 29 % in 2019 from 30 % in 2018. the increase in sales and marketing expense is primarily due to higher personnel-related costs of $ 2.4 million resulting from our increased headcount in 2019 compared to 2018 , additional sales and marketing expenses associated with the a2ia acquisition of $ 2.3 million , and higher product promotion costs of $ 0.7 million in 2019 . 29 research and development expenses research and development expenses include payroll , employee benefits , stock-based compensation , third-party contractor expenses , and other headcount-related costs associated with software engineering and mobile image capture science . research and development expenses increased $ 3.8 million , or 21 % , to $ 21.9 million in 2019 compared to $ 18.1 million in 2018. as a percentage of revenue , research and development expenses decreased to 26 % in 2019 from 29 % in 2018. the increase in research and development expenses is primarily due to additional research and development costs associated with the a2ia acquisition of $ 2.5 million and higher personnel-related costs of $ 0.7 million resulting from our increased
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the operating profit comparison of 2010 to 2009 also reflects higher vendor rebates in 2009 and higher product costs in 2010 that were not passed on to customers , partially offset by lower variable based pay . for 2009 , the negative flow through impact was partially offset by lower operating expenses , including a decrease in distribution costs as well as lower payroll and advertising expenses . for u.s. reporting , the international division 's sales are translated into u.s. dollars at average exchange rates experienced during the year . the division 's reported sales were positively impacted by approximately $ 147 million in 2011 , negatively impacted by $ 80 million in 2010 and positively impacted by $ 305 million in 2009 from changes in foreign currency exchange rates . division operating profit was positively impacted by $ 4 million in 2011 , negatively impacted by $ 3 million in 2010 and negatively impacted by $ 6 million in 2009 from changes in foreign exchange rates . internally , we analyze our international operations in terms of local currency performance to allow focus on operating trends and results . corporate and other asset impairments , exit costs and other charges in recent years , the company has taken actions to adapt to changing and increasingly competitive conditions experienced in the markets in which we serve . these actions include closing stores and distribution centers ( dcs ) , consolidating functional activities , disposing of businesses and assets , and taking actions to improve process efficiencies . significant charges and impairments have been recognized associated with these activities . the charges and impairments recognized in 2009 related to a strategic review and were managed at the corporate level ( charges ) and not considered in determining division operating profit . the charges and impairments recognized in 2011 and 2010 associated with facility closures , consolidating functions and process improvements were either included in the determination of division operating profit or as corporate costs , depending on the underlying activity . store-level impairments and store closure costs , unrelated to the actions discussed above , are included in determination of division operating profit and are not included in the tables below . the amount of charges and impairments discussed above recognized throughout the company by year and the line item presentation in our accompanying consolidated statements of operations is as follows . replace_table_token_14_th the 2011 charges and impairments relate to the consolidation and elimination of functions in europe , the closure of stores in canada and company-wide process improvement initiatives . the charges and impairments recognized in 2010 include $ 51 million for the abandonment of a software application , $ 23 million for losses on the disposal of operating entities in israel and japan and other costs , as well as $ 13 million of compensation-related costs following the departure of our former ceo . the $ 253 million of charges recognized in 2009 24 followed a strategic review that led to closures of dcs in north america and europe , closures of stores in north america and japan , losses on sale-leaseback transactions that were initiated to enhance our liquidity position , as well as headcount reductions and other restructuring activities . as noted above , costs associated with that strategic review were captured and reviewed at the corporate level and were not included in division results , consistent with the internal reporting used to manage the business and allocate resources . in addition to severance costs which usually require cash payment within 60 days of the initial accounting expense recognition , a significant amount of the charges in 2009 related to closed store accruals , and to a lesser extent the 2011 store closures , which will continue to require cash payments over the related lease contract period or until the lease is terminated . charges and credits associated with adjusting these accrued lease liabilities can impact future period results . also , the ongoing accretion of the discounted accrued liability is reflected in operating expenses at the corporate level , but is not included in the charges and impairments discussed above . the accretion charge for 2011 and 2010 totaled approximately $ 12 million and $ 14 million , respectively . the following table indicates the amount of charges and impairments included in the determination of division operating profit and at the corporate level : replace_table_token_15_th additional charges are anticipated in the international division during 2012 as activities are implemented and the accounting recognition criteria are met . general and administrative expenses total general and administrative expenses ( g & a ) increased to $ 689 million in 2011 from $ 659 million in 2010. the portion of g & a expenses considered directly or closely related to division activity is included in the measurement of division operating profit . other companies may charge more or less g & a expenses and other costs to their segments , and our results therefore may not be comparable to similarly titled measures used by other companies . the remainder of the total g & a expenses are considered corporate expenses . a breakdown of g & a is provided in the following table : replace_table_token_16_th as noted above , total g & a expenses include charges of $ 31 million , $ 22 million , and $ 26 million in 2011 , 2010 , and 2009 , respectively . of these amounts , approximately $ 17 million was included in division g & a for 2011 , $ 9 million in 2010 , and none in 2009. the remaining amounts in each year were included in corporate g & a . after considering these charges , corporate g & a expenses increased in 2011 from higher variable based pay and the comparison to a favorable litigation settlement in 2010. the decrease in 2010 compared to 2009 was from lower variable based pay , lower legal fees and a favorable litigation settlement . story_separator_special_tag the company is in the process of further assessing the g & a expenses charged to the divisions in determining their operating profit . we currently can not estimate when this analysis will be completed or the potential impacts 25 on the divisions , but the portion of g & a expenses allocated to the divisions in future years likely will be substantially increased . other income and expense replace_table_token_17_th interest expense was impacted by the reversal of accrued interest of $ 32 million in 2011 and $ 11 million in 2010 following settlements of uncertain tax positions . our accounting policy is to present interest accruals and reversals on uncertain tax positions as a component of interest expense . additionally , approximately $ 2 million of interest income was recognized in 2010 from one of the tax settlements . our net miscellaneous income consists of our earnings of joint venture investments , gains and losses related to foreign exchange transactions , investment results from our deferred compensation plan and realized gains and impairments of other investments . we recognized earnings from our joint venture in mexico , office depot de mexico , of approximately $ 34 million , $ 31 million and $ 31 million in 2011 , 2010 , and 2009 , respectively . these results also were impacted by foreign currency and other gains and losses in all periods . income taxes replace_table_token_18_th * income taxes as a percentage of earnings ( loss ) before income taxes . the effective tax rates for 2011 and 2010 reflect benefits from settlements of uncertain tax positions ( utps ) and from reversal of valuation allowances on deferred tax assets . the 2011 rate includes the reversal of $ 81 million of utp accruals relating to u.s. and foreign jurisdictions following closure of tax audits and the expiration of the statute of limitations on previously open tax years . the 2010 effective rate includes the reversal of approximately $ 30 million of utp accruals . in addition , 2011 and 2010 include approximately $ 9 million and $ 10 million , respectively , of discrete benefits from the release of valuation allowances in certain european countries because of improved performance in those jurisdictions . partially offsetting these tax benefits is income tax expense recognized for tax paying entities . because of significant valuation allowances that remain in other jurisdictions , deferred tax benefits are not recognized on certain loss generating entities . within our international operations , statutory tax expense is generally lower compared to the aggregate u.s. federal and state income tax rates . this is further impacted by favorable tax ruling within our international operations . the aggregate reversal of utps in 2010 was reduced by approximately $ 7 million which was offset against other tax-related accounts and had no impact on earnings . the utp reversals also resulted in a reversal of previously accrued interest expense of $ 32 million in 2011 and $ 11 million in 2010 , as well as recognition of $ 2 million of interest income in 2010. our accounting policy is to include accrued interest on utps , and any related reversals , as a component of interest expense in the condensed consolidated statement of operations . following the recognition of $ 322 million of valuation allowances in 2009 , we have regularly experienced substantial volatility in our effective tax rate for interim periods . because deferred income tax benefits can not be recognized in several jurisdictions , changes in the amount , mix and timing of projected pre-tax earnings in tax paying jurisdictions can have a significant impact on the annual expected tax rate which , applied against year-to-date results , can result in significant volatility in the overall effective tax rate . this interim volatility is likely to continue in future periods until the valuation allowances can be released . 26 we file a u.s. federal income tax return and other income tax returns in various states and foreign jurisdictions . with few exceptions , we are no longer subject to active u.s. federal , state or local income tax examinations for years before 2009. the u.s. federal tax returns for 2009 , 2010 and 2011 are under review . significant international tax jurisdictions include the u.k. , the netherlands , france and germany . generally , we are subject to routine examination for years 2006 and forward in these foreign jurisdictions . it is reasonably possible that some audits will close within the next twelve months which could result in a decrease of as much as $ 2.6 million or an increase of as much as $ 1.0 million to our accrued uncertain tax positions . as part of the ongoing 2009 and 2010 audits , the u.s. internal revenue service ( irs ) has proposed a deemed royalty assessment from our foreign operations with a tax and penalty amount of approximately $ 126 million . the company disagrees with this assessment and , based on the technical merits of this issue , believes that no accrual is required at this time . the company is working with its outside tax advisors and the irs to resolve this dispute in a timely manner . to the extent the irs were to prevail on this issue , the income statement and cash flow impact may be lowered because of available net operating losses and other deferred tax assets . 27 liquidity and capital resources liquidity during the second quarter of 2011 , the company entered into a $ 1.0 billion amended and restated credit agreement ( the amended credit agreement ) with a group of lenders , most of whom participated in the company 's previously existing $ 1.25 billion credit agreement . the amended credit agreement expires may 25 , 2016. the amended credit agreement reduces the applicable borrowing spread , permits the company to redeem , tender or otherwise repurchase its existing 6.25 % senior notes , subject to a $ 600 million minimum liquidity requirement , and modifies certain covenants .
| charges for store closures in 2009 were managed at the corporate level and not reflected in the determination of division operating profit . gross margins increased in 2011 from a change in the mix of sales away from technology products and lower promotional activity , as well as continuing benefits from lower occupancy costs . gross margins in 2010 also benefited from lower promotional activity and lower product cost driven by line reviews and increased sales of direct import products . operating profit in 2011 included severance and other costs associated with the store closures in canada , higher variable based pay and incremental costs incurred to drive increased customer focused selling activities . these factors were offset by a positive contribution from the 53 rd week in 2011 , decreased advertising expenses and other favorable items including benefits recognized from changes to our private label credit card program . advertising expense increased in 2010 compared to 2009 and was partially offset by lower variable based pay . division operating profit in all periods was negatively affected by the unfavorable impact our sales volume decline had on gross margin and operating expenses ( the flow through impact ) . at the end of 2011 , we operated 1,131 retail stores in the u.s. we opened 9 new stores during 2011 and 17 stores during 2010. we closed 25 stores in north america during 2011 , including the 12 stores in canada , and 22 during 2010. we will continue to evaluate locations as leases become due and will close or relocate stores when appropriate . north american business solutions division replace_table_token_12_th sales in our north american business solutions division decreased 1 % in 2011 , 6 % in 2010 and 16 % in 2009. the 53 rd week added approximately $ 34 million of sales to the division in 2011. sales in the direct channel increased in 2011 and decreased in 2010. sales in the contract channel were lower in both years . for the division 22 in total , both the number of customer transactions
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due to the nature of this process , it is difficult to predict the probability and timing of obtaining awards in these markets . our products in these segments are provided primarily through three types of contracts : fixed-price , time-and-materials and cost-reimbursement contracts . fixed-price contracts , which require us to provide products and services under a contract at a specified price , comprised approximately 95 % of our total revenues for fiscal year 2011 , 91 % of our total revenues for fiscal year 2010 and 86 % of our total revenues for fiscal year 2009. the remainder of our revenue in these segments for such periods was derived from cost-reimbursement contracts ( under 37 which we are reimbursed for all actual costs incurred in performing the contract to the extent such costs are within the contract ceiling and allowable under the terms of the contract , plus a fee or profit ) and from time-and-materials contracts ( which reimburse us for the number of labor hours expended at an established hourly rate negotiated in the contract , plus the cost of materials utilized in providing such products or services ) . historically , a significant portion of our revenues has been derived from customer contracts that include the research and development of products . the research and development efforts are conducted in direct response to the customer 's specific requirements and , accordingly , expenditures related to such efforts are included in cost of sales when incurred and the related funding ( which includes a profit component ) is included in revenues . revenues for our funded research and development from our customer contracts were approximately $ 210.6 million or 26 % of our total revenues during fiscal year 2011 , $ 92.9 million or 14 % of our total revenues during fiscal year 2010 , and $ 126.7 million or 20 % of our total revenues during fiscal year 2009. we also incur ir & d expenses , which are not directly funded by a third party . ir & d expenses consist primarily of salaries and other personnel-related expenses , supplies , prototype materials , testing and certification related to research and development programs . ir & d expenses were approximately 4 % of total revenues during fiscal years 2011 and 2010 and 5 % of total revenues during fiscal year 2009. as a government contractor , we are able to recover a portion of our ir & d expenses pursuant to our government contracts . our satellite services segment revenues are primarily derived from our wildblue business ( which provides wholesale and retail satellite-based broadband internet services in the united states ) and our managed network services which complement both our government systems and commercial networks segments by supporting the satellite communication systems of our consumer enterprise and mobile broadband customers . our wildblue retail satellite-based broadband internet services ( which have been included in our results of operations since our acquisition of wildblue in december 2009 ) were approximately 16 % of total revenues during fiscal year 2011 and immaterial for fiscal year 2010. critical accounting policies and estimates management 's discussion and analysis of financial condition and results of operations discusses our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states ( gaap ) . the preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . we consider the policies discussed below to be critical to an understanding of our financial statements because their application places the most significant demands on management 's judgment , with financial reporting results relying on estimation about the effect of matters that are inherently uncertain . we describe the specific risks for these critical accounting policies in the following paragraphs . for all of these policies , we caution that future events rarely develop exactly as forecast , and even the best estimates routinely require adjustment . revenue recognition a substantial portion of our revenues is derived from long-term contracts requiring development and delivery of complex equipment built to customer specifications . sales related to these contracts are accounted for under the authoritative guidance for the percentage-of-completion method of accounting ( asc 605-35 ) . sales and earnings under these contracts are recorded either based on the ratio of actual costs incurred to date to total estimated costs expected to be incurred related to the contract or as products are shipped under the units-of-delivery method . the percentage-of-completion method of accounting requires management to estimate the profit margin for each individual contract and to apply that profit margin on a uniform basis as sales are recorded under the contract . the estimation of profit margins requires management to make projections of the total sales to be generated and the total costs that will be incurred under a contract . these projections require management to make numerous assumptions and estimates relating to items such as the complexity of design and related development costs , performance of subcontractors , availability and cost of materials , labor productivity and cost , overhead and capital costs , and manufacturing efficiency . these contracts often include purchase options for additional quantities and customer change orders for additional or revised product functionality . purchase options and change orders are 38 accounted for either as an integral part of the original contract or separately depending upon the nature and value of the item . for contract claims or similar items , we apply judgment in estimating the amounts and assessing the potential for realization . these amounts are only included in contract value when they can be reliably estimated and realization is considered probable . anticipated losses on contracts are recognized in full in the period in which losses become probable and estimable . story_separator_special_tag during fiscal years 2011 , 2010 and 2009 , we recorded losses of approximately $ 12.1 million , $ 9.3 million and $ 5.4 million , respectively , related to loss contracts . assuming the initial estimates of sales and costs under a contract are accurate , the percentage-of-completion method results in the profit margin being recorded evenly as revenue is recognized under the contract . changes in these underlying estimates due to revisions in sales and future cost estimates or the exercise of contract options may result in profit margins being recognized unevenly over a contract as such changes are accounted for on a cumulative basis in the period estimates are revised . we believe we have established appropriate systems and processes to enable us to reasonably estimate future cost on our programs through regular quarterly evaluations of contract costs , scheduling and technical matters by business unit personnel and management . historically , in the aggregate , we have not experienced significant deviations in actual costs from estimated program costs , and when deviations that result in significant adjustments arise , we disclose the related impact in management 's discussion and analysis of financial condition and results of operations . however , these estimates require significant management judgment and a significant change in future cost estimates on one or more programs could have a material effect on our results of operations . a one percent variance in our future cost estimates on open fixed-price contracts as of april 1 , 2011 would change our income before income taxes by approximately $ 0.5 million . we also derive a substantial portion of our revenues from contracts and purchase orders where revenue is recorded on delivery of products or performance of services in accordance with the authoritative guidance for revenue recognition ( asc 605 ) . under this standard , we recognize revenue when an arrangement exists , prices are fixed and determinable , collectability is reasonably assured and the goods or services have been delivered . we also enter into certain leasing arrangements with customers and evaluate the contracts in accordance with the authoritative guidance for leases ( asc 840 ) . our accounting for equipment leases involves specific determinations under the authoritative guidance , which often involve complex provisions and significant judgments . in accordance with the authoritative guidance for leases , we classify the transactions as sales type or operating leases based on ( 1 ) review for transfers of ownership of the property to the lessee by the end of the lease term , ( 2 ) review of the lease terms to determine if it contains an option to purchase the leased property for a price which is sufficiently lower than the expected fair value of the property at the date of the option , ( 3 ) review of the lease term to determine if it is equal to or greater than 75 % of the economic life of the equipment and ( 4 ) review of the present value of the minimum lease payments to determine if they are equal to or greater than 90 % of the fair market value of the equipment at the inception of the lease . additionally , we consider the cancelability of the contract and any related uncertainty of collections or risk in recoverability of the lease investment at lease inception . revenue from sales type leases is recognized at the inception of the lease or when the equipment has been delivered and installed at the customer site , if installation is required . revenues from equipment rentals under operating leases are recognized as earned over the lease term , which is generally on a straight-line basis . when a sale involves multiple elements , such as sales of products that include services , the entire fee from the arrangement is allocated to each respective element based on its relative fair value in accordance with the authoritative guidance for accounting for multiple element revenue arrangements ( asc 605-25 ) , and recognized when the applicable revenue recognition criteria for each element have been met . the amount of product and service revenue recognized is impacted by our judgments as to whether an arrangement includes multiple elements and , if so , whether sufficient objective and reliable evidence of fair value exists for those elements . changes to the elements in an arrangement and our ability to establish evidence for those elements could affect the timing of revenue recognition . collections in excess of revenues and deferred revenues represent cash collected from customers in advance of revenue recognition and are recorded in accrued liabilities for obligations within the next twelve months . deferred revenues extending beyond the twelve months are recorded within other liabilities in the consolidated financial statements . 39 allowance for doubtful accounts we make estimates of the collectability of our accounts receivable based on historical bad debts , customer creditworthiness and current economic trends when evaluating the adequacy of the allowance for doubtful accounts . historically , our bad debt allowances have been minimal primarily because a significant portion of our sales has been to the u.s. government or is related to our satellite service commercial business , which we bill and collect in advance . our accounts receivable balance was $ 191.9 million , net of allowance for doubtful accounts of $ 0.5 million , as of april 1 , 2011 , and our accounts receivable balance was $ 176.4 million , net of allowance for doubtful accounts of $ 0.5 million , as of april 2 , 2010. warranty reserves we provide limited warranties on our products for periods of up to five years . we record a liability for our warranty obligations when we ship the products or they are included in long-term construction contracts based upon an estimate of expected warranty costs . amounts expected to be incurred within twelve months are classified as a current liability . for mature products , we estimate the warranty costs based on historical experience with the particular product .
| 42 service revenues replace_table_token_4_th service revenues increased from $ 104.0 million to $ 278.3 million during fiscal year 2011 when compared to fiscal year 2010 primarily due to our acquisition of wildblue in december 2009 , which contributed an increase in service revenues of $ 152.8 million in fiscal year 2011 when compared to fiscal year 2010. the remaining service revenue increases were primarily driven by growth in government satellite communication systems and mobile broadband services of $ 16.0 million . cost of product revenues replace_table_token_5_th cost of product revenues decreased from $ 408.5 million to $ 389.9 million during fiscal year 2011 when compared to fiscal year 2010. on a constant margin basis the decreased revenues caused a $ 38.6 million reduction in cost of product revenues . this decrease was offset by an increase in cost of product revenues of $ 8.5 million due to an additional program forward loss in our government systems segment for a government satellite communication program recorded in the first quarter of fiscal year 2011 , as discussed below , and an additional increase in cost of product revenues of $ 11.5 million mainly as a result of product cost increases from lower margin development programs in our consumer broadband , information assurance and next-generation tactical datalink product areas . cost of product revenues may fluctuate in future periods depending on the mix of products sold , competition , new product introduction costs and other factors . in june 2010 , we performed extensive integration testing of numerous system components that had been separately developed as part of a government satellite communication program . as a result of this testing and subsequent internal reviews and analyses , we determined that significant additional rework was required in order to complete the program requirements and specifications and to prepare for a scheduled customer test in our fiscal second quarter . this additional rework and engineering effort resulted in a substantial increase in estimated labor and material costs to complete the program . accordingly , during the first quarter of fiscal year 2011 , we recorded an additional forward loss of $ 8.5 million related to this estimate of program
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we aim to gain market share by implementing sophisticated sales and marketing programs , leveraging our extensive customer databases , and leveraging our product offering to larger customers through key account management . while this initiative is broad-based , efforts to improve these processes include utilizing advanced data analytics to identify , prioritize , and pursue growth opportunities , the implementation of more effective pricing and value-based selling strategies and processes , improved sales force guidance , training and effectiveness , cross-selling , increased segment marketing , and leads generation and nurturing activities . over the past few years , we have also added field sales and service resources to pursue under-penetrated market opportunities and will consider additional investments to front-end resources as market conditions improve . we also continue to adapt our go-to-market approaches with additional inside and telesales resources , while also increasing digital customer interaction . in 2020 , we also benefited from digitalization tools to gain efficiencies and increase the effectiveness of our field sales force . in addition , our comprehensive service offerings , and our initiatives to globalize and harmonize these offerings , help us further penetrate developed markets . we estimate that we have the largest installed base of weighing instruments in the world , and we continue to leverage advanced data analytics and invest in sales and marketing activities to increase the proportion of our installed base that is under service contract , or sell new products that replace old products in our installed base . in addition to traditional repair and maintenance , our service offerings continue to expand into value-added services for a range of market needs , including regulatory compliance . in 2020 , we also made 32 adjustments to our service model to incorporate remote service , depot drop-off/pickup , and other approaches to ensure the safety of our technicians and customers . expanding emerging markets . emerging markets , comprising asia ( excluding japan ) , eastern europe , latin america , the middle east , and africa , account for approximately 35 % of our total net sales . we have a two-pronged strategy in emerging markets : first , to capitalize on long-term growth opportunities in these markets , and second , to leverage our low-cost manufacturing operations in china . we have more than a 30-year track record in china , and our sales in asia have grown more than 12 % on a compound annual growth basis in local currencies since 1999. over the years , we have also broadened our product offering to the asian markets . india has also been a source of emerging market sales growth in past years due to increased life science research activities . overall , we experienced a 3 % increase in emerging market local currency sales by destination during 2020 versus the prior year , which included 7 % local currency sales growth in china . within china , we continue to redeploy resources and sales and marketing efforts to the faster-growing segments of pharma , food manufacturing , chemical , and environment . we believe the long-term growth of these segments will be favorably impacted by the chinese government 's emphasis on science , high-value industries , product quality , and food safety . we expect our laboratory and product inspection businesses will particularly benefit from our focus on these segments . we also continue to invest and add sales and marketing resources to pursue growth in under-penetrated emerging markets . however , emerging market sales can be volatile . in particular , china has historically been volatile and market conditions may change unfavorably due to various factors . extending our technology lead . we continue to focus on product innovation . in the last three years , we spent approximately 5 % of net sales on research and development . we seek to accelerate product replacement cycles , as well as improve our product offerings and their capabilities with additional integrated technologies and software which also support our pricing differentiation . in addition , we aim to create value for our customers by having an intimate knowledge of their processes via our significant installed product base . expanding our margins . we continue to strive to improve our margins by more effectively pricing our products and services and optimizing our cost structure . for example , sophisticated data analytic tools provide us new insights to further refine our price strategies and processes . we also focus on reallocating resources and better aligning our cost structure to support our investments in market penetration initiatives , higher-growth areas , and opportunities for margin improvement . we have also initiated various cost reduction programs over the past few years , including temporary cost containment measures during 2020 in response to covid-19 . we have also implemented global procurement and supply chain management programs over the last several years aimed at lowering supply costs , and have increased our focus on these programs with our sterndrive initiative . sterndrive is our global operational excellence program for continuous improvement efforts within our supply chain , manufacturing , and back-office operations . blue ocean is also an important enabler of our various margin expansion initiatives . our move to standardized business processes , systems , and data structures throughout our global organization provides greater data transparency and faster access to real-time data . our cost leadership and productivity initiatives are also focused on continuously improving our invested capital efficiency , such as reducing our working capital levels , increasing our order to cash cycle , and ensuring appropriate returns on our expenditures . pursuing strategic acquisitions . we seek to pursue `` bolt-on '' acquisitions that may leverage our global sales and service network , respected brand , extensive distribution channels , and technological leadership . we have identified life sciences , process analytics , and product inspection as three key areas for acquisitions . story_separator_special_tag for example , during 2017 , we acquired biotix , inc. , a u.s.-based manufacturer and distributor of plastic consumables associated with pipettes , including tips , tubes , and reagent reservoirs 33 used in the life sciences market , for an initial cash payment of $ 105 million plus additional cash consideration of $ 10 million that was paid in the first quarter of 2019. covid-19 the covid-19 pandemic has resulted in millions of confirmed cases throughout the world and in all countries where we conduct business . the outbreak has caused many governments to implement stay-at-home orders , quarantines , and significant restrictions on travel . several governments have also implemented work restrictions that prohibit many employees from going to their customary work locations and that require these employees to work remotely if possible . quarantines , travel bans , work and other restrictions were initially put in place on a national level in china in january 2020 , and with the global spread of the virus , subsequently adopted in other countries and regions with many restrictions in asia pacific , europe , north america , and south america . these restrictions continue to change as covid-19 evolves in each country and region . the health and safety of our employees and business partners have been our highest priority throughout the covid-19 pandemic , and we have implemented several preventative and protective measures relating to social distancing , hygiene , health monitoring , personal protective equipment , split shifts , and remote work . we have also implemented business continuity plans and have been able to continue to support our customers with their essential businesses such as life sciences , food manufacturing , chemicals ( e.g. , sanitizers , disinfectants , soaps , etc . ) , food retail , and transportation and logistics . our production and logistics facilities are currently operational , and our office-based employees have been able to work remotely in adherence to applicable jurisdictional stay-at-home orders . our supply chain is currently continuing with minimal interruption , and we generally maintain adequate product inventory levels and safety stock for certain components . we quickly adapted to leverage our digital and remote sales and service capabilities , while also meeting delivery requirements with our global supply chain . our service organization also continues to provide on-site and remote customer support to facilitate uptime , productivity , and regulatory compliance . we have also implemented various temporary cost containment measures related to workforce management and discretionary spending . our workforce management measures primarily included reduced work hours , salary freezes , and voluntary senior leadership salary reductions . we maintain adequate liquidity consisting of approximately $ 602.5 million of additional borrowings available under our credit agreement and $ 94.3 million of cash and cash equivalents as of december 31 , 2020. covid-19 presents several risks to our business as further described on page 14 in the risk factors section of this form 10-k. during the year ended december 31 , 2020 , covid-19 had a negative impact on our business , primarily related to reduced customer demand . we remain cautious as uncertainties related to covid-19 and the resulting impact to the global economy continue in most regions of the world and market conditions can change quickly . with the global spread of the virus and related negative impact to the global economy , we may experience reduced global sales volume due to lower customer demand . the longer-term effects on our business will be impacted by the global economy and any recession implications in different regions of the world . while it is extremely difficult to estimate the extent and duration of any covid-19 implications , the effects on our business , results of operations , and financial condition could be material . 34 results of operations — consolidated net sales net sales were $ 3.1 billion for the year ended december 31 , 2020 , compared to $ 3.0 billion in 2019 and $ 2.9 billion in 2018. this represents an increase of 3 % in 2020 and 2 % in 2019 in u.s. dollars and an increase of 2 % in 2020 and 5 % in 2019 in local currencies . net sales were negatively impacted by the covid-19 pandemic and related reduction in global customer demand on our operations . however , our competitive position increased due to our sophisticated sales and marketing program that was highly effective in the enhanced digital environment , and we strengthened our brand with our ability to serve customers throughout the crisis . our heightened focus on the most attractive market segments and differentiated resource allocation helped capture growth by pinpointing which customers would be most covid-19 resilient and which would recover faster . net sales during the second half of 2020 reflected improved customer demand in most businesses and regions with particularly strong growth in china and our laboratory-related products . we continue to benefit from the execution of our global sales and marketing programs , our innovative product portfolio , and investments in our field organization , particularly surrounding digital tools and techniques . however , we remain cautious as uncertainties relating to covid-19 and the global economy continue and market conditions may change quickly . net sales in local currencies may be adversely affected in future quarters by the covid-19 pandemic related to unfavorable economic conditions and reduced customer demand . in 2020 , our net sales by geographic destination increased in u.s. dollars compared to 2019 by 1 % in the americas and 3 % both in europe and in asia/rest of world . in local currencies , our net sales by geographic destination increased in 2020 by 2 % in the americas , 1 % in europe , and 3 % in asia/rest of world , with 7 % growth in china . a discussion of sales by operating segment is included below . as described in note 3 to our consolidated financial statements , our net sales comprise product sales of precision instruments and related services .
| based on our outstanding debt at december 31 , 2020 , we estimate that a 5 % weakening of the u.s. dollar against the currencies in which our debt is denominated would result in an increase of $ 25.2 million in the reported u.s. dollar value of our debt . taxes we are subject to taxation in many jurisdictions throughout the world . our effective tax rate and tax liability will be affected by a number of factors , such as changes in law , the amount of taxable income in particular jurisdictions , the tax rates in such jurisdictions , tax treaties between jurisdictions , the extent to which we transfer funds between jurisdictions , and earnings repatriations between jurisdictions . generally , the tax liability for each taxpayer within the group is determined either ( i ) on a non-consolidated/non- 42 combined basis or ( ii ) on a consolidated/combined basis only with other eligible entities subject to tax in the same jurisdiction , in either case without regard to the taxable losses of non-consolidated/non-combined affiliated legal entities . environmental matters we are subject to environmental laws and regulations in the jurisdictions in which we operate . we own or lease a number of properties and manufacturing facilities around the world . like many of our competitors , we have incurred , and will continue to incur , capital and operating expenditures and other costs in complying with such laws and regulations . we are currently involved in , or have potential liability with respect to , the remediation of past contamination in certain of our facilities . a former subsidiary of mettler-toledo , llc known as hi-speed checkweigher co. , inc. was one of two private parties ordered by the new jersey department of environmental protection , in an administrative consent order signed on june 13 , 1988 , to investigate and remediate certain ground water contamination at a property in landing , new jersey . after the other party under this order failed to fulfill its obligations , hi-speed became solely responsible for compliance with the order . residual ground water contamination at this site is now within a classification exception area which the department of environmental protection has approved and within which the company oversees monitoring of
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the residual values of our solar systems are determined at the inception of the lease by applying an estimated system fair value at the end of the lease term . for those systems classified as operating leases , rental revenue is recognized , net of executory costs , on a straight-line basis over the term of the lease . allowance for doubtful accounts and sales returns we maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments . a considerable amount of judgment is required to assess the likelihood of the ultimate realization of accounts receivable . we make our estimates of the collectability of our accounts receivable by analyzing historical bad debts , specific customer creditworthiness and current economic trends . in addition , at the time revenue is recognized from the sale of solar panels and balance of system components , we record estimates for sales returns which reduce revenue . these estimates are based on historical sales returns , analysis of credit memo data , among other known factors . warranty reserves we generally warrant or guarantee the performance of our solar panels that we manufacture at certain levels of power output for 25 years . in addition , we pass through to customers long-term warranties from the original equipment manufacturers of certain system components , such as inverters . warranties of 25 years from solar panel suppliers are standard in the solar industry , while inverters typically carry warranty periods ranging from 5 to 10 years . in addition , we generally warrant our workmanship on installed systems for periods ranging up to 10 years . we maintain reserves to cover the expected costs that could result from these warranties . our expected costs are generally in the form of product replacement or repair . warranty reserves are based on our best estimate of such costs and are recognized as a cost of revenue . we continuously monitor product returns for warranty failures and maintain a reserve for the related warranty expenses based on various factors including historical warranty claims , results of accelerated lab testing , field monitoring , vendor reliability estimates , and data on industry averages for similar products . historically , warranty costs have been within management 's expectations . valuation of inventories inventories are valued at the lower of cost or market value . we evaluate the recoverability of our inventories based on assumptions about expected demand and market conditions . our assumption of expected demand is developed based on our analysis of bookings , sales backlog , sales pipeline , market forecast and competitive intelligence . our assumption of expected demand is compared to available inventory , production capacity , available third-party inventory and growth plans . our factory production plans , which drive materials requirement planning , are established based on our assumptions of expected demand . we respond to reductions in expected demand by temporarily reducing manufacturing output and adjusting expected valuation assumptions as necessary . in addition , expected demand by geography has changed historically due to changes in the availability and size of government mandates and economic incentives . we evaluate the terms of our long-term agreements with suppliers , including joint ventures , for the procurement of polysilicon , ingots , wafers , and solar cells and establish accruals for estimated losses on adverse purchase commitments as necessary , such as lower of cost of market value adjustments , forfeiture of advanced deposits and liquidated damages . 51 obligations related to non-cancellable purchase orders for inventories match current and forecasted sales orders that will consume these ordered materials and actual consumption of these ordered materials are compared to expected demand regularly . we anticipate total obligations related to long-term supply agreements for inventories will be recovered because quantities are less than management 's expected demand for its solar power products . other market conditions that could affect the realizable value of our inventories and are periodically evaluated by management include the aging of inventories on hand , historical inventory turnover ratio , anticipated sales price , new product development schedules , the effect new products might have on the sale of existing products , product obsolescence , customer concentrations , and product merchantability , among other factors . if , based on assumptions about expected demand and market conditions , we determine that the cost of inventories exceeds its estimated market value or inventory is excess or obsolete , we record a write-down or accrual , which may be material , equal to the difference between the cost of inventories and the estimated market value . if actual market conditions are less favorable than those projected by management , additional inventory write-downs may be required that could negatively affect our gross margin and operating results . if actual market conditions are more favorable , we may have higher gross margin when products that have been previously written down are sold in the normal course of business . stock-based compensation we provide share-based awards to our employees , executive officers and directors through various equity compensation plans including our employee stock option and restricted stock plans . we measure and record compensation expense for all share-based payment awards based on estimated fair values . the fair value of restricted stock awards and units is based on the market price of our common stock on the date of grant . we have not granted stock options subsequent to fiscal 2008. we are required under current accounting guidance to estimate forfeitures at the date of grant . our estimate of forfeitures is based on our historical activity , which we believe is indicative of expected forfeitures . in subsequent periods if the actual rate of forfeitures differs from our estimate , the forfeiture rates may be revised , as necessary . changes in the estimated forfeiture rates can have a significant effect on share-based compensation expense since the effect story_separator_special_tag the residual values of our solar systems are determined at the inception of the lease by applying an estimated system fair value at the end of the lease term . for those systems classified as operating leases , rental revenue is recognized , net of executory costs , on a straight-line basis over the term of the lease . allowance for doubtful accounts and sales returns we maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments . a considerable amount of judgment is required to assess the likelihood of the ultimate realization of accounts receivable . we make our estimates of the collectability of our accounts receivable by analyzing historical bad debts , specific customer creditworthiness and current economic trends . in addition , at the time revenue is recognized from the sale of solar panels and balance of system components , we record estimates for sales returns which reduce revenue . these estimates are based on historical sales returns , analysis of credit memo data , among other known factors . warranty reserves we generally warrant or guarantee the performance of our solar panels that we manufacture at certain levels of power output for 25 years . in addition , we pass through to customers long-term warranties from the original equipment manufacturers of certain system components , such as inverters . warranties of 25 years from solar panel suppliers are standard in the solar industry , while inverters typically carry warranty periods ranging from 5 to 10 years . in addition , we generally warrant our workmanship on installed systems for periods ranging up to 10 years . we maintain reserves to cover the expected costs that could result from these warranties . our expected costs are generally in the form of product replacement or repair . warranty reserves are based on our best estimate of such costs and are recognized as a cost of revenue . we continuously monitor product returns for warranty failures and maintain a reserve for the related warranty expenses based on various factors including historical warranty claims , results of accelerated lab testing , field monitoring , vendor reliability estimates , and data on industry averages for similar products . historically , warranty costs have been within management 's expectations . valuation of inventories inventories are valued at the lower of cost or market value . we evaluate the recoverability of our inventories based on assumptions about expected demand and market conditions . our assumption of expected demand is developed based on our analysis of bookings , sales backlog , sales pipeline , market forecast and competitive intelligence . our assumption of expected demand is compared to available inventory , production capacity , available third-party inventory and growth plans . our factory production plans , which drive materials requirement planning , are established based on our assumptions of expected demand . we respond to reductions in expected demand by temporarily reducing manufacturing output and adjusting expected valuation assumptions as necessary . in addition , expected demand by geography has changed historically due to changes in the availability and size of government mandates and economic incentives . we evaluate the terms of our long-term agreements with suppliers , including joint ventures , for the procurement of polysilicon , ingots , wafers , and solar cells and establish accruals for estimated losses on adverse purchase commitments as necessary , such as lower of cost of market value adjustments , forfeiture of advanced deposits and liquidated damages . 51 obligations related to non-cancellable purchase orders for inventories match current and forecasted sales orders that will consume these ordered materials and actual consumption of these ordered materials are compared to expected demand regularly . we anticipate total obligations related to long-term supply agreements for inventories will be recovered because quantities are less than management 's expected demand for its solar power products . other market conditions that could affect the realizable value of our inventories and are periodically evaluated by management include the aging of inventories on hand , historical inventory turnover ratio , anticipated sales price , new product development schedules , the effect new products might have on the sale of existing products , product obsolescence , customer concentrations , and product merchantability , among other factors . if , based on assumptions about expected demand and market conditions , we determine that the cost of inventories exceeds its estimated market value or inventory is excess or obsolete , we record a write-down or accrual , which may be material , equal to the difference between the cost of inventories and the estimated market value . if actual market conditions are less favorable than those projected by management , additional inventory write-downs may be required that could negatively affect our gross margin and operating results . if actual market conditions are more favorable , we may have higher gross margin when products that have been previously written down are sold in the normal course of business . stock-based compensation we provide share-based awards to our employees , executive officers and directors through various equity compensation plans including our employee stock option and restricted stock plans . we measure and record compensation expense for all share-based payment awards based on estimated fair values . the fair value of restricted stock awards and units is based on the market price of our common stock on the date of grant . we have not granted stock options subsequent to fiscal 2008. we are required under current accounting guidance to estimate forfeitures at the date of grant . our estimate of forfeitures is based on our historical activity , which we believe is indicative of expected forfeitures . in subsequent periods if the actual rate of forfeitures differs from our estimate , the forfeiture rates may be revised , as necessary . changes in the estimated forfeiture rates can have a significant effect on share-based compensation expense since the effect
| year ended revenue 2013 2012 2011 significant customers : business segment midamerican energy holdings company americas 25 % * * nrg solar , inc. americas 17 % 35 % * * denotes less than 10 % during the period americas revenue : americas revenue decreased 1 % during fiscal 2013 as compared to fiscal 2012 primarily as a result of lower volumes of component sales within the region and projects which were substantially completed during the period . the decrease was partially offset by an increase in revenue recognized on large-scale solar power systems involving real estate . americas revenue increased 34 % during fiscal 2012 as compared to fiscal 2011 primarily as a result of an increase in the number and size of various utility-scale solar power systems , which includes revenue recognition on the 748 mw solar star projects , formerly known as antelope valley solar projects , in california and the 315 mw california valley solar ranch ( `` cvsr '' ) project in san luis obispo county , california . the increase was partially offset by projects which were substantially completed during the period and lower component sales within the region . emea revenue : emea revenue decreased 8 % during fiscal 2013 as compared to fiscal 2012 due to lower component sales made through the global dealer network , partially offset by an increase in utility-scale solar projects and related revenue , including the sale of a 10 mw solar power system in israel and revenue recognized on two solar power systems totaling 33 mw under construction in south africa . emea revenue decreased 47 % during fiscal 2012 as compared to fiscal 2011 primarily due to lower project construction and development activities and related revenue in europe due to changes in market demand resulting from reductions in european government incentives . apac revenue : apac revenue increased 64 % in fiscal 2013 as compared to fiscal 2012 and increased 26 % in fiscal 2012 as compared to fiscal 2011. the increase over both periods was primarily a result of additional component sales in japan made under long-term supply agreements , partially offset by declines in average selling prices . revenue recognized during fiscal
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during the year ended december 31 , 2015 , changes in effective rental rates per square foot achieved for new leases and lease renewals that commenced during the year ended december 31 , 2015 , when compared to prior effective rental rates per square foot in effect for the same space ( and excluding space acquired vacant ) were as follows : 49 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 , 2015 , commitments made for expenditures , such as tenant improvements and leasing costs , in connection with leasing space at our properties were as follows : 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 , 2015 and 2014 , amounts capitalized at our properties , excluding properties classified as discontinued operations , for tenant improvements , leasing costs , building improvements and development and redevelopment activities were as follows ( dollars in thousands ) : 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 ( i ) major capital expenditures that are identified at the time of a property acquisition and incurred within a short time period after acquiring the property , and ( ii ) major capital expenditure projects that reposition a property or result in new sources of revenue . we believe that current government budgetary pressures may cause an increased demand for leased space by government tenants , as opposed to governments acquiring buildings or constructing new buildings . however , these same budgetary pressures have story_separator_special_tag disposition activities , please see “ business — acquisition policies ” and “ business — disposition policies ” in part 1 , item 1 of this annual report on form 10-k and note 5 to our consolidated financial statements included in part iv , item 15 of this annual report on form 10-k. on march 4 , 2015 , we acquired 3,418,421 sir common shares for a cash purchase price equal to $ 95,203 , excluding acquisition related costs . on june 5 , 2015 , we acquired 1,541,201 shares of class a com mon stock of rmr i nc . for $ 17,462 , excluding transaction costs . as payment for the rmr inc. shares , we issued 700,000 of our common shares valued at $ 13,545 and paid the remainder of the purchase price in cash . on december 1 4 , 2015 , w e distribute d 768,032 of the rmr inc. shares we acquired to our sharehol ders as a special non-cash distribution . on that date , we also received a special non-cash distribution of 441,056 shares of rmr inc. class a common s tock from sir . for more information about these transaction s with respect to sir common shares and rmr inc. common stock , see notes 6 , 10 and 1 1 to our consolidated financial statements included in part i v , item 1 5 of this annual report on form 10- k . segment information we operate in two business segments : ownership of properties that are primarily leased to government tenants and our equity method investment in sir . 52 results of operations ( amounts in thousands , except per share amounts ) year ended december 31 , 201 5 , compared to year ended december 31 , 201 4 replace_table_token_12_th ( 1 ) comparable properties consist of 67 properties ( 86 buildings ) we owned on december 31 , 2015 and which we owned continuously since january 1 , 2014 , and excludes one property ( one building ) classified as discontinued operations . ( 2 ) acquired properties consist of four properties ( five buildings ) we owned on december 31 , 2015 , which we acquired during the period from january 1 , 2014 to december 31 , 2015 . ( 3 ) disposed property consists of one property ( one building ) we sold during the year ended december 31 , 2015 . ( 4 ) we calculate noi , as shown above . the calculation of net operating income , or noi , excludes certain components of net income ( loss ) in order to provide results that are more closely related to our property level results of operations . we define noi as income from our rental of real estate less our property operating expenses . noi excludes amortization of capitalized tenant improvement costs and leasing commissions . we consider 53 noi to be an appropriate supplemental measure to net income ( loss ) because it may help both investors and management to understand the operations of our properties . we use noi to evaluate individual and company wide property level performance , and we believe that noi provides useful information to investors regarding our results of operations because it reflects only those income and expense items that are generated and incurred at the property level and may facilitate comparisons of our operating performance between periods and with other reits . story_separator_special_tag noi does not represent cash generated by operating activities in accordance with gaap and should not be considered as an alternative to net income ( loss ) , operating income or cash flow from operating activities determined in accordance with gaap , or as an indicator of our financial performance or liquidity , nor is this measure necessarily indicative of sufficient cash flow to fund all of our needs . this measure should be considered in conjunction with net income ( loss ) , operating income and cash flow from operating activities as presented in our consolidated statements of comprehensive income ( loss ) and consolidated statements of cash flows . other real estate companies and reits may calculate noi differently than we do . ( 5 ) we calculate ffo and normalized ffo as shown above . ffo is calculated on the basis defined by the national association of real estate investment trusts , or nareit , which is net income ( loss ) , calculated in accordance with gaap , plus real estate depreciation and amortization and the difference between ffo attributable to an equity investment and equity in earnings of an equity investee but excluding impairment charges on real estate assets , carrying value adjustments of real estate assets held for sale , any gain or loss on sale of properties , as well as certain other adjustments currently not applicable to us . our calculation of normalized ffo differs from nareit 's definition of ffo because we include the difference between ffo and normalized ffo attributable to our equity investment in sir , we include estimated business management incentive fees , if any , only in the fourth quarter versus the quarter when they are recognized as expense in accordance with gaap and we exclude acquisition related costs , gains or losses on early extinguishment of debt , loss on impairment of sir investment , losses on issuance of shares by sir and loss on distribution to common shareholders of shares of class a common stock of rmr inc. we consider ffo and normalized ffo to be appropriate measures of operating performance for a reit , along with net income ( loss ) , operating income and cash flow from operating activities . we believe that ffo and normalized ffo provide useful information to investors because by excluding the effects of certain historical amounts , such as depreciation expense , ffo and normalized ffo may facilitate a comparison of our operating performance between periods and with other reits . ffo and normalized ffo are among the factors considered by our board of trustees when determining the amount of distributions to our shareholders . other factors include , but are not limited to , requirements to maintain our qualification for taxation as a reit , limitations in our credit agreement and public debt covenants , the availability to us of debt and equity capital , our expectation of our future capital requirements and operating performance , our receipt of distributions from sir and our expected needs and availability of cash to pay our obligations . ffo and normalized ffo do not represent cash generated by operating activities in accordance with gaap and should not be considered as alternatives to net income ( loss ) , operating income or cash flow from operating activities , determined in accordance with gaap , or as indicators of our financial performance or liquidity , nor are these measures necessarily indicative of sufficient cash flow to fund all of our needs . these measures should be considered in conjunction with net income ( loss ) , operating income and cash flow from operating activities as presented in our consolidated statements of comprehensive income ( loss ) and consolidated statements of cash flows . other real estate companies and reits may calculate ffo and normalized ffo differently than we do . we refer to the 6 7 properties ( 86 buildings ) we owned on december 31 , 201 5 and which we have owned continuously since january 1 , 2014 , excluding one property ( one building ) classified as discontinued operations , as comparable properties . we refer to the four properties ( five buildings ) that we owned as of december 31 , 2015 , which we acquired during the period from january 1 , 2014 to december 31 , 2015 , as acquired properties . we refer to the one property ( one building ) that we sold during the period from january 1 , 2014 to december 31 , 2015 as the disposed property . our consolidated statements of comprehensive income ( loss ) for the year ended december 31 , 2015 include the operating results of the acquired properties for the entire year , as we acquired those properties prior to january 1 , 2015 , and the disposed property for less than the entire year , as that property was sold during 2015 . our consolidated statements of comprehensive income ( loss ) for the year ended december 31 , 2014 include the operating results of the acquired properties for less than the entire year , as we acquired those properties during the year , and the disposed property for the entire period , as we sold that property in 2015 . references to changes in the income and expense categories below relate to the comparison of consolidated results for the year ended december 31 , 201 5 , compared to the year ended december 31 , 201 4 . rental income . the decrease in rental income reflects the net effect of acquired and disposed properties and a decrease in rental income for comparable properties . rental income from the acquired properties increased $ 8 , 077 . rental income from the disposed property decl ined $ 8 , 262 .
| however , we can provide no assurance that the rental rates we expect will occur or that we will not experience material declines in our rental income due to vacancies upon lease expirations . prevailing market conditions and government tenants ' needs at the time we negotiate and conclude leases will generally determine rental rates and demand for leased space in our properties , and market conditions and government tenants ' needs are beyond our control . as of december 31 , 2015 , lease expirations at our properties , excluding one property ( one building ) classified as discontinued operations , by year are as follows ( dollars in thousands ) : replace_table_token_11_th ( 1 ) the year of lease expiration is pursuant to current contract terms . some government tenants have the right to vacate their space before the stated expirations of their leases . as of december 31 , 2015 , government t enants occupying approximately 9 . 2 % of our rentable square feet and responsible for approximately 7 . 2 % of our annualized rental income as of december 31 , 2015 have currently exercisable rights to terminate their leases before the stated terms of their leases expire . also in 2016 , 2017 , 2018 , 2019 , 2020 , 202 2 and 2023 early termination rights become exercisable by other tenants who currently occu py an additional approximately 6 . 0 % , 3 . 1 % , 1 . 3 % , 4 . 7 % , 2.9 % , 2 . 1 % and 1.4 % of our rentable square feet , respectively , and contribu te an additional approximately 5.5 % , 2 . 6 % , 1.4 % , 5.2 % , 2.9 % , 1.5 % and 1.2 % of our annualized rental income , respectively , as of december 31 , 2015. in addition , as of december 31 , 2015 , 1 5 of our government tenants have currently exercisable rights to terminate their leases if their respective legislature or other funding authority does not appropriate rent amounts in
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25 index management of credit risk management considers credit risk to be an important risk factor affecting the financial condition and operating results of greene county bancorp , inc. the potential for loss associated with this risk factor is managed through a combination of policies approved by greene county bancorp , inc. 's board of directors , the monitoring of compliance with these policies , and the periodic reporting and evaluation of loans with problem characteristics . policies relate to the maximum amount that can be granted to a single borrower and such borrower 's related interests , the aggregate amount of loans outstanding by type in relation to total assets and capital , loan concentrations , loan-to-collateral value ratios , approval limits and other underwriting criteria . policies also exist with respect to the rating of loans , determination of when loans should be placed on a nonperforming status and the factors to be considered in establishing greene county bancorp , inc. 's allowance for loan losses . management also considers credit risk when evaluating potential and current holdings of securities . credit risk is a critical component in evaluating corporate debt securities . greene county bancorp , inc. has purchased municipal securities as part of its strategy based on the fact that such securities can offer a higher tax-equivalent yield than other similar investments . financial overview net income for the year ended june 30 , 2018 amounted to $ 14.4 million , or $ 1.69 per basic and diluted share , as compared to $ 11.2 million , or $ 1.32 per basic and $ 1.31 per diluted share , for the year ended june 30 , 2017 , an increase of $ 3.2 million , or 28.8 % . the increase in net income was primarily the result of increases of $ 4.5 million in net interest income and $ 1.1 million in noninterest income , which were partially offset by increases of $ 2.7 million in provision for income taxes and noninterest expense . the change in net interest income resulted from growth in interest-earning assets when comparing the years ended june 30 , 2018 and 2017. growth in interest-earning assets was within both investment securities and loans . growth in loans was primarily in commercial real estate mortgages and commercial loans which are generally higher yielding assets . net interest spread and margin decreased nine and eight basis points respectively , when comparing the years ended june 30 , 2018 and 2017. net interest spread decreased to 3.23 % for the year ended june 30 , 2018 compared to 3.32 % for the year ended june 30 , 2017. net interest margin decreased to 3.31 % for the year ended june 30 , 2018 compared to 3.39 % for the year ended june 30 , 2017 changes in noninterest income and noninterest expense are more fully explained within the comparison of operating results for the years ended june 30 , 2018 and 2017 contained herein . total assets grew $ 169.2 million , or 17.2 % , to $ 1.2 billion at june 30 , 2018 as compared to $ 982.3 million at june 30 , 2017. net loans increased $ 80.2 million , or 12.9 % , to $ 704.4 million at june 30 , 2018 as compared to $ 624.2 million at june 30 , 2017. securities classified as available-for-sale and held-to-maturity increased $ 80.3 million , or 25.5 % , to $ 395.6 million at june 30 , 2018 as compared to $ 315.3 million at june 30 , 2017. deposits grew $ 165.7 million , or 19.3 % , to $ 1.0 billion at june 30 , 2018 as compared to $ 859.5 million at june 30 , 2017. total shareholders ' equity amounted to $ 96.2 million and $ 83.5 million at june 30 , 2018 and 2017 , respectively , or 8.4 % and 8.5 % of total assets , respectively . comparison of financial condition as of june 30 , 2018 and 2017 securities securities available-for-sale and held-to-maturity increased $ 80.3 million , or 25.5 % , to $ 395.6 million at june 30 , 2018 as compared to $ 315.3 million at june 30 , 2017. securities purchased totaled $ 183.3 million during the year ended june 30 , 2018 and consisted of $ 134.3 million of state and political subdivision securities , $ 41.9 million of mortgage backed securities , $ 4.2 million of u.s. government sponsored enterprises securities , $ 2.0 million of corporate debt securities , and $ 890,000 of other securities . principal pay-downs and maturities during fiscal 2018 amounted to $ 101.5 million , of which $ 19.5 million were mortgage-backed securities , $ 79.5 million were state and political subdivision securities , and $ 2.5 million were corporate debt securities . greene county bancorp , inc. holds 57.8 % of its securities portfolio at june 30 , 2018 in state and political subdivision securities to take advantage of tax savings and to promote greene county bancorp , inc. 's participation in the communities in which it operates . mortgage-backed securities and asset-backed securities held within the portfolio do not contain sub-prime loans and are not exposed to the credit risk associated with such lending . 26 index replace_table_token_4_th investment maturity schedule the estimated fair value of debt securities at june 30 , 2018 by contractual maturity are shown below . mortgage-backed securities balances are presented based on final maturity date and do not reflect the expected cash flows from monthly principal repayments . expected maturities may differ from contractual maturities , because issuers may have the right to call or prepay obligations with or without call or prepayment penalties . no tax-equivalent adjustments were made in calculating the weighted average yield . story_separator_special_tag replace_table_token_5_th 27 index loans net loans receivable increased $ 80.2 million , or 12.9 % , to $ 704.4 million at june 30 , 2018 from $ 624.2 million at june 30 , 2017. the loan growth experienced during fiscal 2018 consisted primarily of $ 26.0 million in commercial real estate loans , $ 24.3 million in commercial loans , $ 5.8 million in multi-family real estate loans , $ 10.5 million in residential real estate loans , and $ 13.7 million in construction loans . the continued low interest rate environment and , we believe , strong customer satisfaction from personal service , continued to enhance loan growth . if long term rates begin to rise , the company anticipates some reduced new loan demand as well as refinancing activities . the bank of greene county continues to use a conservative underwriting policy in regard to all loan originations , and does not engage in sub-prime lending or other exotic loan products . a significant decline in home values in the company 's market areas , however , could have a negative effect on the consolidated results of operations , as any such decline in home values would likely lead to a decrease in residential real estate loans and new home equity loan originations and increased delinquencies and defaults in both the consumer home equity loan and the residential real estate loan portfolios and result in increased losses in these portfolios . updated appraisals are obtained on loans when there is a reason to believe that there has been a change in the borrower 's ability to repay the loan principal and interest , generally , when a loan is in a delinquent status . additionally , if an existing loan is to be modified or refinanced , generally , an appraisal is ordered to ensure continued collateral adequacy . loan portfolio composition set forth below is selected information concerning the composition of the bank of greene county 's loan portfolio in dollar amounts and in percentages ( before deductions for deferred fees and costs , unearned discounts and allowances for losses ) as of the dates indicated . replace_table_token_6_th ( 1 ) includes direct automobile loans ( on both new and used automobiles ) and personal loans . 28 index loan maturity schedule the following table sets forth certain information as of june 30 , 2018 regarding the amount of loans maturing or re-pricing in the bank of greene county 's portfolio . adjustable-rate loans are included in the period in which interest rates are next scheduled to adjust rather than the period in which they contractually mature , and fixed-rate loans are included in the period in which the final contractual repayment is due . lines of credit with no specified maturity date are included in the category “ within one year. ” replace_table_token_7_th the total amount of the above loans that mature or are due after june 30 , 2019 that have fixed interest rates is $ 353.0 million while the total amount of loans that mature or are due after such date that have adjustable interest rates is $ 197.0 million . the interest rate risk implications of the bank of greene county 's substantial preponderance of fixed-rate loans is discussed in detail above within the section management of interest rate risk . potential problem loans management closely monitors the quality of the loan portfolio and has established a loan review process designed to help grade the quality and profitability of the company 's loan portfolio . the credit quality grade helps management make a consistent assessment of each loan relationship 's credit risk . consistent with regulatory guidelines , the bank of greene county provides for the classification of loans and other assets considered being of lesser quality . such ratings coincide with the `` substandard '' , `` doubtful '' and `` loss '' classifications used by federal regulators in their examination of financial institutions . assets that do not currently expose the insured financial institutions to sufficient risk to warrant classification in one of the aforementioned categories but otherwise possess weaknesses are designated `` special mention . '' for further discussion regarding how management determines when a loan should be classified see part ii , item 8 financial statements and supplemental data , note 4 , loans of this report . at june 30 , 2018 , the bank of greene county had $ 5.7 million of loans classified as substandard , and $ 11.7 million of loans designated as special mention . no loans were classified as either doubtful or loss at june 30 , 2018. nonaccrual loans and nonperforming assets loans are reviewed on a regular basis to assess collectability of all principal and interest payments due . management determines that a loan is impaired or nonperforming when it is probable at least a portion of the principal or interest will not be collected in accordance with contractual terms of the note . when a loan is determined to be impaired , the measurement of the loan is based on present value of estimated future cash flows , except that all collateral-dependent loans are measured for impairment based on the fair value of the collateral . generally , management places loans on nonaccrual status once the loans have become 90 days or more delinquent or sooner if there is a significant reason for management to believe the collectability is questionable and , therefore , interest on the loan will no longer be recognized on an accrual basis . the company identifies impaired loans and measures the impairment in accordance with fasb asc subtopic “ receivables – loan impairment. ” management may consider a loan impaired once it is classified as nonaccrual and when it is probable that the borrower will be unable to repay the loan according to the original contractual terms of the loan agreement or the loan is restructured in a troubled debt restructuring . it should be noted that management does not evaluate all loans individually for impairment .
| summary of significant accounting policies of this report . 40 index unaudited quarterly financial data the following table sets forth a summary of selected financial data at and for the years ended june 30 , 2018 and 2017 and quarter ends within those years . replace_table_token_22_th item
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quarantines , shelter-in-place , executive and similar government orders and the recent surge in infections domestically have negatively impact our sales and marketing activities , particularly as our sales representatives are unable to interact with current and potential customers to the same extent as before onset of the covid-19 pandemic . our international business development activities have also be negatively impacted by covid-19 , especially with the recent surge in infections and resulting quarantines or shelter-in-place orders . depending on the severity of the impact on our sales and marketing efforts , the success of our commercial launch of triferic avnu could be delayed . the covid-19 pandemic , the recent domestic and international surge in infections and resulting global disruptions have caused significant volatility in financial and credit markets . we have utilized a range of financing methods to fund our operations in the past ; however , current conditions in the financial and credit markets may limit the availability of funding , refinancing or increase the cost of funding . due to the rapidly evolving nature of the global situation , it is not possible to predict the extent to which these conditions could adversely affect our liquidity and capital resources in the future . general the actual amount of cash that we will need to execute our business strategy is subject to many factors , including , but not limited to , the expenses and revenue associated with the commercial operations in the united states and internationally ( with partners ) ; the timing and magnitude of cash received from drug product sales ; the timing and expenditures associated with the development programs including our fpc technology for home infusion and potentially acute heart failure ; and the costs associated with our manufacturing and transportation operations related to our concentrate business . we may elect to raise capital in the future through one or more of the following : ( i ) equity and debt raises through the equity and capital markets , though there can be no assurance that we will be able to secure additional capital or funding on acceptable terms , or if at all ; and ( ii ) strategic transactions , including potential alliances and collaborations focused on markets outside the united states , as well as potential combinations ( including by merger or acquisition ) or other corporate transactions . in particular , our baxter agreement prohibits us from entering into a contract that would encumber the assets used in our concentrate business without the prior written consent of baxter . due to the fact that the assets used in our concentrate business currently constitute a substantial portion of the tangible assets we own other than our drug inventory , we may not be able to , or we may find it difficult , to obtain secured debt financing without the consent of baxter . we believe that our ability to fund our activities in the long term will be highly dependent upon 1 ) our ability to execute on the development of the fpc platform for new therapies , and 2 ) our ability to commercialize and increase adaptation of triferic ( dialysate ) and triferic avnu . both of these strategies is subject to significant risks and uncertainties such that there can be no assurance that we will be successful is achieving approval of fpc in a new therapeutic area or that we will be able to have sustained commercial success with triferic ( dialysate ) and triferic avnu . if our planned clinical program is delayed or fails or if our commercialization of triferic ( dialysate ) and or triferic avnu should fail to increase sales , we may be forced to implement cost-saving measures that may potentially have a negative impact on our activities and potentially the results of our research and development programs . even though we began commercialization of triferic ( dialysate ) and triferic avnu as planned , if the results are unsuccessful , we may be unable to secure the additional capital that we will require to continue our research and development activities and operations , which could have a material adverse effect on our business . if we are unable to raise the required capital , we may be forced to curtail all of our activities and , ultimately , cease operations . even if we are able to raise sufficient capital , such financings may only be available on unattractive terms , or result in significant dilution of stockholders ' interests and , in such event , the market price of our common stock may decline . cash used in operating activities net cash used in operating activities was $ 29.6 million for the year ended december 31 , 2020. the net loss for this period was higher than net cash used in operating activities by $ 1.3 million , which was primarily attributable to non-cash expenses of $ 4.2 million , consisting primarily of $ 1.5 million of amortization of the right to use assets , $ 0.8 million of depreciation and amortization , $ 0.8 million of warrant modification expense , $ 0.5 million of stock-based compensation , $ 0.3 million of inventory reserves , $ 0.3 million of debt financing cost amortization and accretion of discount , and a $ 3.0 million net change in assets and liabilities . net cash used in operating activities was $ 27.3 million for the year ended december 31 , 2019. the net loss for this period was higher than net cash used in operating activities by $ 6.8 million , which was primarily attributable to non-cash 55 expenses of $ 8.8 million , consisting primarily of $ 5.0 million of stock-based compensation , $ 1.9 million of amortization of the right to use assets , $ 1.3 million of inventory reserves , $ 0.8 million of depreciation and amortization , and a $ 2.0 million net change in assets and liabilities . story_separator_special_tag cash provided by ( used in ) investing activities net cash provided by investing activities was $ 3.2 million during the year ended december 31 , 2020. the net cash provided was primarily due to the purchase of investments available-for-sale of $ 29.3 million , offset by $ 33.6 million sale of our available-for-sale investments and $ 1.0 million for the purchase of equipment . net cash used in investing activities was $ 4.7 million during the year ended december 31 , 2019. the net cash used was primarily due to the purchase of investments available-for-sale of $ 41.7 million , offset by $ 38.3 million sale of our available-for-sale investments , $ 0.6 million for the purchase of equipment and $ 0.8 million for the purchase of research and development licenses acquired from a related party . cash provided by financing activities net cash provided by financing activities was $ 63.3 million during the year ended december 31 , 2020. the net cash provided was primarily due to net proceeds of $ 40.7 million and $ 2.3 million from the sale of our common stock , related to our public offerings and our at-the market offerings , respectively , net proceeds of $ 21.2 million from the term loan , partially offset by payment of $ 0.8 million related to a short term note payable . net cash provided by financing activities was $ 21.1 million during the year ended december 31 , 2019. the net cash provided was primarily due to net proceeds of $ 17.3 million and $ 5.1 million from the sale of our common stock , related to our public offering and our at-the market offerings , respectively , partially offset by payment of $ 1.1 million related to a short term note payable . off‑balance sheet arrangements we do not have any off‑balance sheet arrangements that have or are reasonably likely to have a material effect on our financial condition . critical accounting estimates and judgments our consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the united states of america ( “ u.s . gaap ” ) . these accounting principles require us to make estimates , judgments and assumptions that affect the reported amounts of revenues , expenses , assets , liabilities , and contingencies . all significant estimates , judgments and assumptions are developed based on the best information available to us at the time made and are regularly reviewed and updated when necessary . actual results could differ from these estimates . changes in estimates are reflected in our financial statements in the period of change based upon on‑going actual experience , trends , or subsequent realization depending on the nature and predictability of the estimates and contingencies . interim changes in estimates are generally applied prospectively within annual periods . certain accounting estimates , including those concerning revenue recognition , allowance for doubtful accounts , inventory reserves , share based compensation , impairments of long‑lived assets , and accounting for income taxes , are considered to be critical in evaluating and understanding our financial results because they involve inherently uncertain matters and their application requires the most difficult and complex judgments and estimates . these are described below . for further information on our accounting policies , see note 3 to our consolidated financial statements . revenue recognition the company recognizes revenue under accounting standards codification ( “ asc ” ) 606 , revenue from contracts with customers . the core principle of the new revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services . the following five steps are applied to achieve that core principle : step 1 : identify the contract with the customer step 2 : identify the performance obligations in the contract step 3 : determine the transaction price 56 step 4 : allocate the transaction price to the performance obligations in the contract step 5 : recognize revenue when the company satisfies a performance obligation taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction , that are collected by us from a customer , are excluded from revenue . shipping and handling costs associated with outbound freight related to contracts with customers are accounted for as a fulfillment cost and are included in cost of sales when control of the goods transfers to the customer . accounts receivable accounts receivable are stated at invoice amounts . the carrying amount of trade accounts receivable is reduced by an allowance for doubtful accounts that reflects our best estimate of accounts that may not be collected . we review outstanding trade accounts receivable balances and based on our assessment of expected collections , we estimate the portion , if any , of the balance that may not be collected as well as a general valuation allowance for other accounts receivable based primarily on historical experience . all accounts or portions thereof deemed to be uncollectible are written off to the allowance for doubtful accounts . inventory inventory is stated at the lower of cost or net realizable value . cost is determined on the first‑in first‑out ( fifo ) method . inventory that is not expected to be converted to cash over the next year is classified as non-current . our policy is to reserve for our drug product inventory that we determine is unlikely to be sold to , or if sold , unlikely to be utilized by our customers on or before its expiration date . property and equipment property and equipment are recorded at cost and are depreciated using the straight‑line method over the useful lives of the assets , which range from three to ten years . expenditures for routine maintenance and repairs are expensed as incurred .
| the company anticipates that potential future sales of triferic will positively impact future gross profits . research and product development expense research and product development expenses were $ 7.1 million for the year ended december 31 , 2020 compared with $ 6.9 million during the year ended december 31 , 2019. the increase of $ 0.2 million is related to clinical trials and other product development expenses for triferic . the company is continuing to invest in its medical and scientific programs to support the continued data and phase 4 clinical programs for triferic in dialysis and the advancement of our fpc technology platform . selling and marketing expense selling and marketing expenses were $ 7.9 million during the year ended december 31 , 2020 compared with $ 9.1 million during the year ended december 31 , 2019. the decrease of $ 1.2 million is due primarily to the decrease in marketing costs of $ 2.3 million , partially offset by an increase in costs associated with hiring , training and educating new employees of 53 $ 1.1 million . the fluctuation in these costs are mainly due to the timing of the triferic ( dialysate ) launch in the third quarter of 2019. we expect lower quarter-to-quarter fluctuations in sales and marketing costs going forward . general and administrative expense general and administrative expenses were $ 16.2 million during the year ended december 31 , 2020 compared with $ 21.0 million during the year ended december 31 , 2019. the $ 4.8 million decrease was driven primarily by decreases to stock compensation , legal , recruiting and consulting fees , partially offset by an increase in labor costs . the decrease in stock compensation primarily relate to the resignation of our former president and chief executive officer , stuart paul , in april 2020 and former chief financial officer effective july 2020. settlement expense settlement expense was $ 0 for the year ended december 31 , 2020 , compared
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tax expense for fiscal 2014 increased by 23 % to $ 144.1 million , from $ 117.6 million in fiscal 2013 . fiscal 2014 includes a tax expense of $ 33.7 million related to the repatriation of foreign earnings that will be used to fund the share buyback program . the tax rate excluding the $ 33.7 million tax expense on the repatriation of foreign earnings would have been 28.8 % , compared to 29.6 % in fiscal 2013. the tax rate for fiscal 2014 , including the tax expense on the repatriation of foreign earnings , was 37.6 % . diluted earnings per share for fiscal 2014 were $ 1.66 . compared to $ 1.91 in fiscal 2013 . excluding the tax expense of $ 33.7 million on the repatriated foreign earnings , diluted earnings per share were $ 1.89 for fiscal 2014. refer to the non-gaap reconciliation tables contained in the `` results of operations '' section of this `` item 7. management 's discussion and analysis of financial condition and results of operations '' for reconciliations of constant dollar total comparable sales , constant dollar comparable store sales , constant dollar changes in direct to consumer net revenue , the fiscal 2014 tax rate excluding the tax expense on the repatriation of foreign earnings , and diluted earnings per share excluding the tax expense on the repatriation of foreign earnings to measures calculated in accordance with united states generally accepted accounting principles ( `` gaap '' ) . general net revenue is comprised of corporate-owned store net revenue , direct to consumer sales through www.lululemon.com , www.ivivva.com and other country and region specific websites , and other net revenue , which includes outlet sales , showroom sales , sales to wholesale accounts , warehouse sales , and sales from temporary locations . cost of goods sold includes the cost of purchased merchandise , including in-bound freight , duty and nonrefundable taxes incurred in delivering the goods to our distribution centers . it also includes occupancy costs and depreciation expense for our corporate-owned store locations , all costs incurred in operating our distribution centers and production , design and merchandise departments , hemming , and shrink and valuation reserves . the primary drivers of the costs of individual goods are the costs of raw materials and labor in the countries where we source our merchandise . selling , general and administrative expenses consist of all operating costs not otherwise included in cost of goods sold . we anticipate that our selling , general and administrative expenses will increase in absolute dollars due to anticipated continued growth of our corporate support staff and store-level employees . provision for income taxes depends on the statutory tax rates in the countries where we sell our products . we anticipate that in the future we may start to sell our products directly to some customers located in countries that we have not yet operated in , in which case we would become subject to taxation based on the foreign statutory rates in the countries where these sales take place and our effective tax rate could fluctuate accordingly . 20 results of operations the following tables summarize key components of our results of operations for the periods indicated , both in dollars and as a percentage of net revenue : replace_table_token_9_th replace_table_token_10_th comparison of fiscal 2014 to fiscal 2013 net revenue net revenue increased $ 206.0 million , or 13 % , to $ 1.797 billion in fiscal 2014 from $ 1.591 billion in fiscal 2013 . assuming the average exchange rates in fiscal 2014 remained constant with the average exchange rates in fiscal 2013 , our net revenue would have increase d $ 241.7 million , or 15 % . the net revenue increase was driven by sales from new stores and the growth of our direct to consumer segment . total comparable sales , which includes comparable store sales and direct to consumer , increased 1 % in fiscal 2014 compared to fiscal 2013 . excluding the effect of foreign currency fluctuations , total comparable sales would have increased by 3 % . 21 our net revenue on a segment basis for fiscal 2014 and fiscal 2013 is summarized below . net revenue is expressed in dollar amounts . the percentages are presented as a percentage of total net revenue . replace_table_token_11_th corporate-owned stores . net revenue from our corporate-owned stores segment increased $ 119.2 million , or 10 % , to $ 1.348 billion in fiscal 2014 from $ 1.229 billion in fiscal 2013 . net revenue from corporate-owned stores we opened during fiscal 2014 , and during fiscal 2013 prior to sales from such stores becoming part of our comparable stores base , contributed $ 162.0 million of the increase . net new store openings in fiscal 2014 included 40 stores in the united states , including eight ivivva branded stores , three stores in canada , including two ivivva branded stores , one store in australia , one store in new zealand , two stores in the united kingdom and one store in singapore . the increase in net revenue from our corporate-owned stores segment was partially offset by a comparable store sales decrease of 3 % in fiscal 2014 compared to fiscal 2013 which resulted in a $ 42.8 million decrease to net revenue , including the effect of foreign currency fluctuations . excluding the effect of foreign currency fluctuations , comparable store sales would have decreased 1 % , or $ 19.1 million , in fiscal 2014 . comparable store sales have decreased , primarily as the result of lower conversion rates and lower units purchased per transaction . direct to consumer . net revenue from our direct to consumer segment increased $ 58.1 million , or 22 % , to $ 321.2 million in fiscal 2014 from $ 263.1 million in fiscal 2013 . excluding the effect of foreign exchange fluctuations , direct to consumer net revenue would have increased 24 % . story_separator_special_tag the increase in net revenue from our direct to consumer segment was a result of increasing traffic on our e-commerce websites . other . net revenue from our other segment increased $ 28.7 million , or 29 % , to $ 127.8 million in fiscal 2014 from $ 99.1 million in fiscal 2013 . the increase in net revenue from our other segment was primarily due to increased sales from our outlets , showrooms , and temporary locations . we continue to employ our other segment strategy to increase interest in our product in markets where we may not have corporate-owned stores . gross profit gross profit increased $ 74.1 million , or 9 % , to $ 914.2 million in fiscal 2014 from $ 840.1 million in fiscal 2013 . increased net revenue resulted in an increased gross profit . a $ 17.5 million inventory provision related to the pull-back of black luon pants was recorded in cost of sales during fiscal 2013. the increase in gross profit was partially offset by increased costs related to our production , design , distribution and merchandising departments , as well as increases in fixed costs , such as occupancy costs and depreciation . gross profit , as a percentage of net revenue , or gross margin , decreased 190 basis points , to 50.9 % in fiscal 2014 from 52.8 % in fiscal 2013 . the decrease in gross margin resulted primarily from : a decrease of 210 basis points due to product mix , increased product costs , and increased air freight costs ; an increase in expenses related to our product and supply chain departments , relative to the increase in net revenue , of 70 basis points ; an increase in fixed costs , such as occupancy costs and depreciation , relative to the increase in net revenue , of 40 basis points ; and an unfavorable impact of foreign exchange rates on product costs which contributed to a decrease in gross margin of 40 basis points . the decrease in gross margin was partially offset by a decrease in provision for inventories , charged to cost of sales , of 110 basis points related to the pull-back of black luon pants which was recorded in the first quarter of fiscal 2013. a decrease in markdowns of 60 basis points driven by high sell-through of seasonal items also partially offset the decrease in gross margin . 22 selling , general and administrative expenses selling , general and administrative expenses increased $ 89.4 million , or 20 % , to $ 538.1 million in fiscal 2014 from $ 448.7 million in fiscal 2013 . the increase in selling , general and administrative expenses was principally comprised of : an increase in employee costs of $ 40.2 million as there were increases in hourly wages and a growth in labor hours associated with new corporate-owned stores , outlets , showrooms and other ; an increase in variable store costs of $ 5.7 million from new corporate-owned stores , outlets , showrooms and other ; an increase in variable costs such as distribution costs , credit card fees and packaging related to our direct to consumer segment of $ 6.0 million as a result of increased sales volume ; an increase in administrative costs related to our direct to consumer segment of $ 4.4 million associated with the growth in this channel and increased head count to support it ; an increase in head office employee costs of $ 5.7 million from increased head count in order to position us for long-term growth , partially offset by decreased stock-based compensation ; an increase in other head office costs of $ 5.2 million as a result of the overall growth of our business and investment in strategic initiatives and projects ; an increase in other costs , including occupancy costs not included in cost of goods sold , of $ 11.4 million ; and a decrease in net foreign exchange gains of $ 10.8 million . as a percentage of net revenue , selling , general and administrative expenses increased 180 basis points , to 30.0 % in fiscal 2014 from 28.2 % in fiscal 2013 . we expect selling , general and administrative expenses to increase throughout fiscal 2015 as we add administrative and sales personnel and increase our infrastructure to support the growth in our store base . income from operations income from operations decreased $ 15.3 million , or 4 % , to $ 376.0 million in fiscal 2014 from $ 391.4 million in fiscal 2013 . the decrease was a result of increased selling , general and administrative costs of $ 89.4 million , partially offset by increased gross profit of $ 74.1 million . the increase in selling , general and administrative costs was primarily driven by the increase in our business . on a segment basis , we determine income from operations without taking into account our general corporate expenses . we have reviewed our general corporate expenses and determined some costs previously classified as general corporate are direct segment expenses . accordingly , all prior year comparable information has been reclassified to conform to the current year classification . income from operations before general corporate expenses for fiscal 2014 and fiscal 2013 is summarized below and is expressed in dollar amounts . the percentages are presented as a percentage of net revenue of the respective operating segments . replace_table_token_12_th corporate-owned stores . income from operations from our corporate-owned stores segment decreased $ 15.7 million , or 4 % , to $ 356.6 million for fiscal 2014 from $ 372.3 million for fiscal 2013 primarily due to an increase in selling , general and administrative expenses related to employee costs as well as operating expenses associated with new stores , partially offset by an increase of $ 31.2 million in gross profit from increased sales .
| increased net revenue in all of our operating segments resulted in an increased gross profit . a $ 17.5 million charge related to the pull-back of black luon pants was recorded in cost of sales during fiscal 2013. the increase in gross profit was partially offset by increases in fixed costs , such as occupancy costs and depreciation , as well as increased costs related to our design , merchandising , and production departments . gross profit , as a percentage of net revenue , or gross margin , decreased 290 basis points , to 52.8 % in fiscal 2013 from 55.7 % in fiscal 2012 . the decrease in gross margin resulted primarily from : a decrease in product margin of 200 basis points due to a lower sales mix of higher margin core items related to the pull-back of black luon pants , along with higher markdowns and an increase in provision for inventories charged to cost of sales ; and a non-recurring charge of 110 basis points related to the pull-back of black luon pants in the first quarter of fiscal 2013 . the decrease in gross margin was partially offset by a decrease in expenses related to our product and supply chain departments , relative to the increase in net revenue , and by leverage on fixed costs , such as depreciation and occupancy costs , which together contributed to an increase in gross margin of 20 basis points . 25 selling , general and administrative expenses selling , general and administrative expenses increased $ 62.3 million , or 16 % , to $ 448.7 million in fiscal 2013 from $ 386.4 million in fiscal 2012 . the increase in selling , general and administrative expenses was principally comprised of : an increase in employee costs of $ 25.3 million as we experience growth in labor hours associated with new and existing corporate-owned stores , outlets , showrooms and other , as well as an increase in wages
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once our platform has been adopted , we focus on increasing the migration of additional customer workloads to our platform to drive increased consumption , as evidenced by our net revenue retention rate , which exceeded 165 % as of january 31 , 2021 and 2020. our platform is used globally by organizations of all sizes across a broad range of industries . as of january 31 , 2021 , we had 4,139 total customers , increasing from 2,392 customers as of january 31 , 2020. our platform has been adopted by many of the world 's largest organizations that view snowflake as a key strategic partner in their cloud and data transformation initiatives . as of january 31 , 2021 , our customers included 186 of the fortune 500 , based on the 2020 fortune 500 list , and those customers contributed approximately 27 % of our revenue for the fiscal year ended january 31 , 2021. our fortune 500 customer count is subject to adjustments for annual updates to the fortune 500 list by fortune , as well as acquisitions , consolidations , spin-offs , and other market activity with respect to such customers . initial public offering and private placements in september 2020 , we completed our initial public offering ( ipo ) in which we issued and sold 32,200,000 shares of our class a common stock at $ 120.00 per share , including 4,200,000 shares issued upon the exercise of the underwriters ' option to purchase additional shares . we received net proceeds of $ 3.7 billion after deducting underwriting discounts . in connection with the ipo : all 182,271,099 shares of our outstanding redeemable convertible preferred stock automatically converted into an equivalent number of shares of class b common stock on a one-to-one basis ; and salesforce ventures llc and berkshire hathaway inc. each purchased 2,083,333 shares of our class a common stock at $ 120.00 per share in concurrent private placements that closed immediately subsequent to the closing of the ipo . we received aggregate proceeds of $ 500.0 million in these concurrent private placements and did not pay underwriting discounts with respect to the shares of class a common stock that were sold in these private placements . on march 1 , 2021 , all shares of our then-outstanding class b common stock were automatically converted into the same number of shares of class a common stock pursuant to the terms of our amended and restated certificate of incorporation . see note 16 , subsequent events , in the notes to our consolidated financial statements included elsewhere in this annual form on form 10-k for further details . 45 tabl e of contents key factors affecting our performance adoption of our platform and expansion of the data cloud our future success depends in large part on the market adoption of our platform . while we see growing demand for our platform , particularly from large enterprises , many of these organizations have invested substantial technical , financial , and personnel resources in their legacy database products or big data offerings , despite their inherent limitations . while this makes it difficult to predict customer adoption rates and future demand , we believe that the benefits of our platform put us in a strong position to capture the significant market opportunity ahead . our platform powers the data cloud , an ecosystem of data providers , data consumers , and data application developers that enables our customers to securely share , connect , collaborate , monetize , and acquire live data sets . our future growth will be increasingly dependent on our ability to increase consumption of our platform by building and expanding this ecosystem and the types and quality of data available on the data cloud . expanding within our existing customer base our large base of customers represents a significant opportunity for further consumption of our platform . while we have seen a rapid increase in the number of customers that have contributed more than $ 1 million in product revenue in the trailing 12 months , we believe that there is a substantial opportunity to continue growing these customers further , as well as continuing to expand the usage of our platform within our other existing customers . we plan to continue investing in our direct sales force to encourage increased consumption and adoption of new use cases among our existing customers . once deployed , our customers often expand their use of our platform more broadly within the enterprise and across their ecosystem of customers and partners as they migrate more data to the public cloud , identify new use cases , and realize the benefits of our platform and the data cloud . however , because we generally recognize product revenue on consumption and not ratably over the term of the contract , we do not have visibility into the timing of revenue recognition from any particular customer . in any given period , there is a risk that customer consumption of our platform will be slower than we expect , which may cause fluctuations in our revenue and results of operations . new software releases or hardware improvements may make our platform more efficient , enabling customers to consume fewer compute , storage , and data transfer resources to accomplish the same workloads . our ability to increase usage of our platform by , and sell additional contracted capacity to , existing customers , and , in particular , large enterprise customers , will depend on a number of factors , including our customers ' satisfaction with our platform , competition , pricing , overall changes in our customers ' spending levels , the effectiveness of our efforts to help our customers realize the benefits of our platform , and the extent to which customers migrate new workloads to our platform over time . acquiring new customers we believe there is a substantial opportunity to further grow our customer base by continuing to make significant investments in sales and marketing and brand awareness . story_separator_special_tag our ability to attract new customers will depend on a number of factors , including our success in recruiting and scaling our sales and marketing organization , competitive dynamics in our target markets , and our ability to build and maintain partner relationships , including with global system integrators , resellers , and technology partners . we intend to expand our direct sales force , with a focus on increasing sales to large organizations . while our platform is built for organizations of all sizes and industries , we have only recently focused our selling efforts on large enterprise customers . we may not achieve anticipated revenue growth from expanding our sales force to focus on large enterprises if we are unable to hire , develop , integrate , and retain talented and effective sales personnel ; if our new and existing sales personnel are unable to achieve desired productivity levels in a reasonable period of time ; or if our sales and marketing programs are not effective . investing in growth and scaling our business we are focused on our long-term revenue potential . we believe that our market opportunity is large , and we will continue to invest significantly in scaling across all organizational functions in order to grow our operations both domestically and internationally . we have a history of introducing successful new features and capabilities on our platform , and we intend to continue to invest heavily to grow our business to take advantage of our expansive market opportunity rather than optimize for profitability or cash flow in the near future . 46 tabl e of contents key business metrics we monitor the key business metrics set forth below to help us evaluate our business and growth trends , establish budgets , measure the effectiveness of our sales and marketing efforts , and assess operational efficiencies . the calculation of the key business metrics discussed below may differ from other similarly titled metrics used by other companies , securities analysts , or investors . product revenue product revenue is a key metric for us because we recognize revenue based on platform consumption , which is inherently variable at our customers ' discretion , and not based on the amount and duration of contract terms . product revenue includes compute , storage , and data transfer resources , which are consumed by customers on our platform as a single , integrated offering . customers have the flexibility to consume more than their contracted capacity during the contract term and may have the ability to roll over unused capacity to future periods , generally on the purchase of additional capacity at renewal . our consumption-based business model distinguishes us from subscription-based software companies that generally recognize revenue ratably over the contract term and may not permit rollover . because customers have flexibility in the timing of their consumption , which can exceed their contracted capacity or extend beyond the original contract term in many cases , the amount of product revenue recognized in a given period is an important indicator of customer satisfaction and the value derived from our platform . while customer use of our platform in any period is not necessarily indicative of future use , we estimate future revenue using predictive models based on customers ' historical usage to plan and determine financial forecasts . product revenue excludes our professional services and other revenue , which has been less than 10 % of revenue for each of the periods presented . remaining performance obligations remaining performance obligations ( rpo ) represent the amount of contracted future revenue that has not yet been recognized , including both deferred revenue and non-cancelable contracted amounts that will be invoiced and recognized as revenue in future periods . rpo excludes performance obligations from on-demand arrangements and certain time and materials contracts that are billed in arrears . rpo is not necessarily indicative of future product revenue growth because it does not account for the timing of customers ' consumption or their consumption of more than their contracted capacity . moreover , rpo is influenced by a number of factors , including the timing of renewals , the timing of purchases of additional capacity , average contract terms , seasonality , and the extent to which customers are permitted to roll over unused capacity to future periods , generally upon the purchase of additional capacity at renewal . due to these factors , it is important to review rpo in conjunction with product revenue and other financial metrics disclosed elsewhere herein . total customers we count the total number of customers at the end of each period . for purposes of determining our customer count , we treat each customer account , including accounts for end-customers under a reseller arrangement , that has at least one corresponding capacity contract as a unique customer , and a single organization with multiple divisions , segments , or subsidiaries may be counted as multiple customers . for purposes of determining our customer count , we do not include customers that consume our platform only under on-demand arrangements . our customer count is subject to adjustments for acquisitions , consolidations , spin-offs , and other market activity . we believe that the number of customers is an important indicator of the growth of our business and future revenue trends . 47 tabl e of contents net revenue retention rate we believe the growth in use of our platform by our existing customers is an important measure of the health of our business and our future growth prospects . we monitor our dollar-based net revenue retention rate to measure this growth . to calculate this metric , we first specify a measurement period consisting of the trailing two years from our current period end . next , we define as our measurement cohort the population of customers under capacity contracts that used our platform at any point in the first month of the first year of the measurement period .
| we had 77 customers with product revenue of greater than $ 1 million for the trailing 12 months ended january 31 , 2021 , an increase from 41 customers as of january 31 , 2020. such customers represented approximately 47 % of our product revenue for each of the trailing 12 months ended january 31 , 2021 and january 31 , 2020. approximately 89 % of our revenue for the fiscal year ended january 31 , 2021 was derived from existing customers under capacity arrangements , and approximately 7 % of our revenue for the fiscal year ended january 31 , 2021 was derived from new customers under capacity arrangements . the remainder was driven by on-demand arrangements . as described in the section titled “ impact of covid-19 , ” we have experienced impacts from the covid-19 pandemic , including the elongation of sales cycles , that may impact new customer acquisition , the timing of future revenue recognition , and our future growth rates . we continue to carefully monitor the impact of covid-19 on product revenue , customer acquisitions , and net revenue retention rates . 54 tabl e of contents professional services and other revenue increased $ 25.7 million for the fiscal year ended january 31 , 2021 compared to the prior fiscal year as we expanded our professional services organization to help our customers further realize the benefits of our platform . cost of revenue , gross profit ( loss ) , and gross margin replace_table_token_9_th cost of product revenue increased $ 97.2 million for the fiscal year ended january 31 , 2021 compared to the fiscal year ended january 31 , 2020. the increase was primarily due to an increase of $ 63.0 million in third-party cloud infrastructure expenses and , to a lesser extent , increased headcount , which resulted in an increase of $ 28.6 million in personnel-related costs and allocated overhead costs for the fiscal year ended january 31 , 2021 compared to the prior fiscal year . the increase in personnel-related costs
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in addition , these policies , along with lower electric sales as a result of the overall reduction in demand discussed above , could also lead to the additional repayment of portions of the evergy companies ' borrowings under receivable sale facilities . finally , the evergy companies have incurred , and will continue to incur , expenses related to monitoring the covid-19 pandemic and modifying operations in response to the pandemic that are recorded in operating and maintenance expense . in may 2020 , evergy kansas central , evergy metro and evergy missouri west filed joint requests for aaos with the kcc and mpsc , as applicable , that would allow for the extraordinary costs and lost revenues incurred by the 35 companies , net of any covid-19-related savings , as a result of the covid-19 pandemic to be considered for future recovery from customers as part of their next rate cases . the kcc approved the aao request in july 2020. in october 2020 , evergy metro and evergy missouri west entered into a non-unanimous stipulation and agreement with the mpsc staff and other intervenors that would allow evergy metro and evergy missouri west to defer to a regulatory asset certain net incremental costs incurred associated with the covid-19 pandemic for consideration in their next rate cases . the mpsc approved the aao request in january 2021. evergy 's management is actively monitoring the evolving impact of covid-19 on its results of operations and developments affecting its workforce and suppliers and will take additional actions as it believes are warranted . the situation is continuously evolving and future impacts may materialize that are not yet known . accordingly , the extent to which covid-19 and the factors noted above may impact the results of operations , financial position , cash flows and liquidity of the evergy companies will depend on future developments that are highly uncertain and can not be predicted , including new information concerning the severity and ongoing duration of the covid-19 outbreak and the actions taken to contain it or to seek recovery of its impact , among others . see `` cautionary statements regarding certain forward-looking information '' and part i , item 1a , risk factors , for additional information . february 2021 winter weather event in february 2021 , much of the central and southern united states , including the service territories of the evergy companies , experienced a significant winter weather event that resulted in extremely cold temperatures over a multi-day period . this winter weather event resulted in an increase in the demand for natural gas used by the evergy companies for generating electricity and also contributed to the limited availability of other generation resources , including coal and renewables , within the spp integrated marketplace . the evergy companies are members of the spp and , as a result , principally sell and purchase power through the spp 's integrated marketplace for the evergy companies ' retail electric customers . these circumstances resulted in higher than normal market prices for both natural gas and power for the duration of the winter weather event . evergy estimates that as part of the winter weather event , it experienced an increase in natural gas and purchased power costs , net of wholesale revenues , of approximately $ 300 million . this $ 300 million increase in net fuel and purchased power costs was primarily driven by a $ 260 million increase in costs at evergy missouri west and a $ 100 million increase at evergy kansas central , partially offset by a $ 60 million net increase in wholesale revenues at evergy metro . these amounts represent preliminary estimates and are still under development . further , the final amount of purchased power costs incurred by the evergy companies is subject to final settlement pricing by the spp integrated marketplace , which is currently expected to take an additional 30 to 45 days , though the ultimate timing is uncertain . the evergy companies have fuel recovery mechanisms in their kansas and missouri jurisdictions , as applicable , that allow them to defer substantially all of any increased fuel and purchased power costs , net of wholesale revenues , to a regulatory asset for future recovery from customers . further , in february 2021 , the kcc issued an emergency order that would allow the evergy companies , as applicable , to defer to a regulatory asset any extraordinary costs incurred to continue providing electric service during the winter weather event for consideration in future rate proceedings . while the evergy companies expect to recover substantially all of any increased fuel and purchased power costs related to the winter weather event from customers , it is possible that the timing of the cost recovery could be delayed or spread over a longer than typical recovery timeframe by the kcc or the mpsc given the extraordinary nature of the winter weather event . the evergy companies also engage in limited non-regulated energy marketing activities in various regional power markets that have historically not had a significant impact on the evergy companies ' results of operations . as a result of the elevated market prices experienced in regional power markets in february 2021 across the central and southern united states driven by the winter weather event discussed above , the evergy companies currently expect that their energy marketing margins will be higher in 2021 compared with historical results . 36 the full financial statement impact of the winter weather event is unknown and can not be estimated at this time due in part to the timing of market settlement data . the evergy companies believe they have sufficient liquidity to pay any outstanding balances or fulfill collateral posting requirements related to purchases made during the winter storm event and to operate their retail electric businesses through their cash on hand and master credit facility with available borrowing capacity as of february 25 , 2021 of approximately $ 2 billion . story_separator_special_tag regulatory proceedings see note 5 to the consolidated financial statements for information regarding regulatory proceedings . earnings overview the following table summarizes evergy 's net income and diluted earnings per share ( eps ) . replace_table_token_11_th net income attributable to evergy , inc. decreased in 2020 , compared to 2019 , primarily due to lower retail sales driven by unfavorable weather and a decrease in weather-normalized commercial and industrial demand primarily due to temporary business closures and hours of operation and capacity limitations as a result of covid-19 that were partially offset by an increase in weather-normalized residential demand and higher depreciation expense and higher interest expense ; partially offset by lower operating and maintenance expenses in 2020. diluted eps decreased in 2020 compared to 2019 , primarily due to the decrease in net income attributable to evergy discussed above , partially offset by a lower number of diluted weighted average common shares outstanding in 2020 , which increased eps by $ 0.14 for 2020. for additional information regarding the change in net income , refer to the evergy results of operations section within this md & a . adjusted earnings ( non-gaap ) and adjusted eps ( non-gaap ) evergy 's adjusted earnings ( non-gaap ) and adjusted eps ( non-gaap ) for 2020 were $ 705.5 million or $ 3.10 per share , respectively . for 2019 , evergy 's adjusted earnings ( non-gaap ) and adjusted eps ( non-gaap ) were $ 694.0 million or $ 2.89 per share , respectively . in addition to net income attributable to evergy , inc. and diluted eps , evergy 's management uses adjusted earnings ( non-gaap ) and adjusted eps ( non-gaap ) to evaluate earnings and eps without the costs resulting from rebranding , voluntary severance , advisor expenses and the revaluation of deferred tax assets and liabilities from a change in the kansas corporate income tax rate . non-gaap measures adjusted earnings and adjusted eps adjusted earnings ( non-gaap ) and adjusted eps ( non-gaap ) are intended to enhance an investor 's overall understanding of results . adjusted earnings ( non-gaap ) and adjusted eps ( non-gaap ) are used internally to measure performance against budget and in reports for management and the evergy board . adjusted earnings ( non-gaap ) and adjusted eps ( non-gaap ) are financial measures that are not calculated in accordance with gaap and may not be comparable to other companies ' presentations or more useful than the gaap information provided elsewhere in this report . 37 the following table provides a reconciliation between net income attributable to evergy , inc. and diluted eps as determined in accordance with gaap and adjusted earnings ( non-gaap ) and adjusted eps ( non-gaap ) . replace_table_token_12_th ( a ) reflects external costs incurred to rebrand the legacy westar energy and kcp & l utility brands to evergy and are included in operating and maintenance expense on the consolidated statements of comprehensive income . ( b ) reflects severance costs incurred associated with certain voluntary severance programs at the evergy companies and are included in operating and maintenance expense on the consolidated statements of comprehensive income . ( c ) reflects advisor expenses incurred associated with strategic planning and are included in operating and maintenance expense on the consolidated statements of comprehensive income . ( d ) reflects an income tax effect calculated at a statutory rate of approximately 26 % , with the exception of certain non-deductible items . ( e ) reflects the revaluation of evergy kansas central 's , evergy metro 's and evergy missouri west 's deferred income tax assets and liabilities from the kansas corporate income tax rate change and are included in income tax expense on the consolidated statements of comprehensive income . 38 2018 adjusted operating and maintenance expense the following table provides a reconciliation between 2018 operating and maintenance expense and 2018 pro forma operating and maintenance expense as determined in accordance with gaap and 2018 adjusted operating and maintenance expense ( non-gaap ) . evergy 's 2018 adjusted operating and maintenance expense ( non-gaap ) is used as the base for targeted operating and maintenance expense reductions by 2024 as part of evergy 's stp . replace_table_token_13_th ( a ) reflects pro forma adjustments made in accordance with article 11 of regulation s-x and asc 805 - business combinations . see note 2 to the consolidated financial statements in the evergy companies ' combined 2018 annual report on form 10-k for further information regarding these adjustments . ( b ) reflects severance costs incurred associated with certain voluntary severance programs at the evergy companies and are included in operating and maintenance expense on the 2018 consolidated statements of comprehensive income in the evergy companies ' combined 2018 annual report on form 10-k. ( c ) reflects the portion of the $ 47.8 million deferral of merger transition costs to a regulatory asset in june 2018 that related to costs incurred prior to 2018. the remaining merger transition costs included within the $ 47.8 million deferral were both incurred and deferred in 2018 and did not impact earnings . this item is included in operating and maintenance expense on the 2018 consolidated statements of comprehensive income in the evergy companies ' combined 2018 annual report on form 10-k. ( d ) reflects obsolete inventory write-offs for evergy kansas central 's unit 7 at tecumseh energy center , units 3 and 4 at murray gill energy center , units 1 and 2 at gordon evans energy center , evergy metro 's montrose station and evergy missouri west 's sibley station and are included in operating and maintenance expense on the 2018 consolidated statements of comprehensive income in the evergy companies ' combined 2018 annual report on form 10-k. environmental matters see note 15 to the consolidated financial statements for information regarding environmental matters . related party transactions see note 17 to the consolidated financial statements for information regarding related party transactions .
| strategy evergy expects to continue operating its integrated utilities within the currently existing regulatory frameworks . in august 2020 , evergy announced a five-year sustainability transformation plan , or stp , to optimize and enhance value creation for shareholders , customers , communities and employees . significant elements of the plan include : targeting a reduction of approximately $ 330 million of operating and maintenance expense by 2024 from 2018 adjusted operating and maintenance expense ( non-gaap ) ( see `` non-gaap measures '' within this executive summary for a reconciliation of this non-gaap measure to the most directly comparable gaap measure ) ; targeting a reduction of approximately $ 145 million of fuel and purchased power expense between 2019 and 2024 ; and targeting approximately $ 8.9 billion of expected base capital investments through 2024. of this amount , evergy estimates approximately $ 2.9 billion to qualify for pisa in missouri , and approximately $ 1.9 billion to be focused on ferc-jurisdictional improvements . see `` liquidity and capital resources ; capital expenditures '' , for further information regarding evergy 's projected capital expenditures through 2024. the stp also enhances evergy 's efforts to mitigate future strategic risk through the responsible and accelerated reduction of co 2 emissions . in 2020 , evergy achieved a reduction of co 2 emissions of approximately 50 % from 2005 levels and announced a goal to achieve an 80 % reduction from 2005 levels by 2050. the stp has the potential to reduce co 2 emissions by as much as 85 % by 2030 compared to 2005 levels . the stp includes steps that would expedite co 2 emission reductions by pursuing constructive legislative and regulatory recovery mechanisms to facilitate the retirement of coal-fired generation and expansion of evergy 's wind and solar footprint , while maintaining reliability . the pace of co 2 emission reductions will ultimately be defined by continued collaboration with stakeholders as part of evergy 's triennial integrated resource plan . furthermore , the trajectory and timing for reaching this goal could be impacted by political , legal
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