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several passenger boarding bridge projects were delayed to late 2012 and 2013 , creating a production gap in a business with generally longer lead times . this delay , along with the expected 2012 completion of a large u.s. navy equipment contract , resulted in $ 40.6 million of lower revenue in 2012 compared to 2011. higher recurring revenue from service contracts and sales of aftermarket products , parts and services offset the decrease in new equipment revenue . jbt aerotech 's operating profit decreased by $ 2.4 million in 2012 compared to 2011. however , operating profit margin increased from 8.6 % to 8.8 % . lower sales volume resulted in a decrease in profit of $ 7.0 million . the decrease in profit was partially offset by gross profit margin improvement resulting in $ 2.6 million in higher profits and a decrease of $ 1.8 million in selling , general and administrative costs . 29 corporate items 2013 compared with 2012 corporate items increased by $ 9.8 million in 2013 compared to 2012. the increase was primarily attributable to $ 3.0 million in lower gains on foreign currency transactions ; $ 2.7 million of costs related to our management succession plan ; $ 1.7 million from higher self-insured healthcare costs ; $ 1.6 million in restructuring expense and $ 1.0 million of higher corporate strategies consulting costs . these increases were partly offset by higher interest income generated by cash held by our foreign subsidiaries of approximately $ 1.7 million . 2012 compared with 2011 corporate items increased by $ 2.0 million in the year ended december 31 , 2012 compared to the same period in 2011. in 2011 , we incurred $ 11.6 million in connection with a cost reduction program in jbt foodtech . these costs did not reoccur in 2012. during 2012 , we incurred higher corporate items including $ 5.2 million in lower gains on foreign currency transactions , and $ 6.1 million in higher compensation and pension-related costs , including the impact of lower discount rates utilized to determine u.s. pension costs . in addition , we incurred $ 1.7 million in higher expenses for corporate development initiatives . inbound orders and order backlog inbound orders represent the estimated sales value of confirmed customer orders received during the years ended december 31 , replace_table_token_7_th order backlog is calculated as the estimated sales value of unfilled , confirmed customer orders as of december 31 , replace_table_token_8_th order backlog in our jbt foodtech segment at december 31 , 2013 increased by $ 44.3 million over the december 31 , 2012 level . the increase was driven mainly by freezing and protein processing orders for the asia and europe markets . fruit and juice processing as well as in-container processing products contributed to the increase . we expect to convert almost all of the jbt foodtech backlog at december 31 , 2013 into revenue during 2014. order backlog in our jbt aerotech segment at december 31 , 2013 increased by $ 49.1 million compared to december 31 , 2012. the increase is primarily attributable to higher orders for gate equipment . we expect to convert approximately 75 % of the jbt aerotech backlog at december 31 , 2013 into revenue during 2014. outlook we started 2014 with substantially higher backlog relative to january 1 , 2013 and anticipate moderate revenue increase compared to 2013. under new leadership , we will be implementing ongoing operational excellence initiatives which will bring long–term benefits . we are also finalizing restructuring actions and anticipate incurring related costs in the range of $ 10 million to $ 14million which will negatively impact 2014 earnings . liquidity and capital resources our primary sources of liquidity are cash provided by operating activities of our u.s. and foreign operations and borrowings from our credit facility . the cash flows generated by our operations and the credit facility have historically been sufficient to satisfy our working capital needs , research and development activities , capital expenditures , pension contributions , authorized share repurchases , acquisitions and other financing requirements . we are not aware of any circumstances that are likely to result in our required liquidity increasing or decreasing materially . 30 as of december 31 , 2013 , we had $ 29.4 million of cash and cash equivalents , $ 27.4 million of which was held by our foreign subsidiaries . although these funds are considered permanently invested in our foreign subsidiaries , we are not presently aware of any restrictions on the repatriation of these funds . we maintain significant operations outside of the u.s. , and many of our uses of cash for working capital , capital expenditures and business acquisition arise in these foreign geographies . if these funds were needed to fund our operations or satisfy obligations in the u.s. , they could be repatriated and their repatriation into the u.s. could cause us to incur additional u.s. income taxes and foreign withholding taxes . any additional taxes could be offset , in part or in whole , by foreign tax credits . the amount of such taxes and application of tax credits would be dependent on the income tax laws and other circumstances at the time any of these amounts were repatriated . as noted above , funds held outside of the u.s. are considered permanently invested in our non-u.s. subsidiaries . at times , these foreign subsidiaries have cash balances that exceed their immediate working capital or other cash needs . in these circumstances , the foreign subsidiaries may loan funds to the u.s. parent company on a temporary basis ; the u.s. parent company has in the past and may in the future use the proceeds of these temporary intercompany loans to reduce outstanding borrowings under our committed credit facilities . by using available non-u.s. cash to repay our debt on a short-term basis , we can optimize our leverage ratio , which has the effect of both lowering the rate we pay on certain of our borrowings and lowering our interest costs . story_separator_special_tag under internal revenue service ( irs ) guidance , no incremental tax liability is incurred on the proceeds of these loans as long as each individual loan has a term of 30 days or less and all such loans from each subsidiary is outstanding for a total of less than 60 days during the year . the amount outstanding subject to this irs guidance at december 31 , 2013 was approximately $ 105 million . during 2013 , each such loan was outstanding for less than 30 days , and all such loans were outstanding for less than 60 days in the aggregate . the u.s. parent used the proceeds of these intercompany loans to reduce outstanding borrowings under our 5-year credit facility . we may choose to access such funds again in the future to the extent they are available and can be transferred without significant cost , and use them on a temporary basis to repay outstanding borrowings or for other corporate purposes , but intend to do so only as allowed under this irs guidance . on october 27 , 2011 , our board of directors authorized a share repurchase program for up to $ 30 million of our common stock through december 31 , 2014. we repurchased $ 0.2 million of common stock in 2013 and have $ 25.9 million in remaining purchases under the authorization . the timing , price and volume of future repurchases will be based on market conditions , relevant securities laws and other factors . defined benefit pension plans we have defined benefit pension plans that cover certain domestic and international employees . our largest single pension plan is the u.s. qualified plan . at december 31 , 2013 , this plan accounted for 84 % of our consolidated defined benefit pension plans ' projected benefit obligation ( “ pbo ” ) and 96 % of the related plans ' assets . due to an increase in the discount rate used to value the pbo at december 31 , 2013 , the obligation decreased by approximately $ 29 million while the assets experienced a gain during 2013 of 10 % . we expect to contribute $ 8 million to our u.s. qualified plan during 2014 and $ 5 million to our other pension and postretirement benefit plans in 2014 . 31 contractual obligations and off-balance sheet arrangements the following is a summary of our contractual obligations at december 31 , 2013 : replace_table_token_9_th ( a ) our available long-term debt is dependent upon our compliance with covenants described under the heading “ financing agreements ” later in item 7. any violations of covenants or other events of default , which are not waived or cured , could have a material impact on our ability to maintain our committed financial arrangements and could accelerate our obligation to repay the amount due . ( b ) interest payments were determined using the weighted average rates for all debt outstanding as of december 31 , 2013 . ( c ) in the normal course of business , we enter into agreements with our suppliers to purchase raw materials or services . these agreements include a requirement that our supplier provide products or services to our specifications and require us to make a firm purchase commitment to our supplier . as substantially all of these commitments are associated with purchases made to fulfill our customers ' orders , the costs associated with these agreements will ultimately be reflected in cost of sales on our consolidated statements of income . ( d ) this amount primarily reflects discretionary contributions to our pension plans . required contributions for future years depend on factors that can not be determined at this time . the following is a summary of other off-balance sheet arrangements at december 31 , 2013 : replace_table_token_10_th to provide required security regarding our performance on certain contracts , we provide letters of credit , surety bonds and bank guarantees , for which we are contingently liable . in order to obtain these financial instruments , we pay fees to various financial institutions in amounts competitively determined in the marketplace . our ability to generate revenue from certain contracts is dependent upon our ability to obtain these off-balance sheet financial instruments . our off-balance sheet financial instruments may be renewed , revised or released based on changes in the underlying commitment . historically , our commercial commitments have not been drawn upon to a material extent ; consequently , management believes it is not likely that there will be claims against these commitments that would result in a negative impact on our key financial ratios or our ability to obtain financing . cash flows cash flows for each of the years in the three-year period ended on december 31 , 2013 were as follows : replace_table_token_11_th cash flows provided by continuing operating activities in 2013 were $ 63.1 million , representing a $ 23.5 million decrease compared to 2012. the change in the cash flows is primarily attributable to the year-end increase in inventories in 2013 as compared to 2012 due to the improved order backlog position . 32 cash required by investing activities during 2013 was $ 28.1 million representing a $ 4.5 million decrease compared to 2012. we invested $ 10 million in acquisitions during 2012 , while no cash was invested in acquisitions in 2013. we spent $ 29.2 million on capital purchases in 2013 , up from $ 24.7 million in 2012. our annual capital spending typically ranges from $ 20 million to $ 25 million to support the maintenance and upgrading of our installed base of leased equipment . we anticipate spending approximately $ 19 million on construction of a new jbt foodtech plant in lakeland , florida to replace an existing plant in the same area . we spent approximately $ 7 million on this project in 2013 and expect to spend approximately $ 10 million and $ 2 million , respectively , in 2014 and 2015. cash flows required by financing activities in 2013 were $ 101.6
| the increase in operating income resulted from the following : ● gross profit declined by $ 3.8 million but increased by $ 2.3 million in constant currency . gross profit margin increased by 60 basis points . gross profit margin improved due to various margin improvement initiatives and cost saving plans executed in 2012 , which resulted in $ 7.3 million of gross profit increase versus 2011. this was offset by $ 5.0 million in lower profit due to lower sales volume in our jbt aerotech segment . ● selling , general and administrative expenses increased by $ 3.7 million , but increased by $ 7.0 million in constant currencies , mainly due to higher compensation and benefit costs , including the impact of lower discount rates utilized to estimate u.s. pension costs . ● research and development expense decreased by $ 4.2 million as we focused engineering labor on improvements for existing products and customer orders . ● restructuring expense was significantly lower as we neared completion of a restructuring program initiated in 2011. income tax expense for 2012 reflects an income tax rate of 31 % compared to 34 % in 2011. we recognized $ 1.3 million in tax benefits in 2012 due to enacted changes in sweden 's corporate income tax rate . operating results of business segments replace_table_token_6_th segment operating profit is defined as total segment revenue less segment operating expenses . the following items have been excluded in computing segment operating profit : corporate staff expense , stock-based compensation , foreign currency related gains and losses , lifo provisions , restructuring costs , certain employee benefit expenses , interest income and expense and income taxes . 28 jbt foodtech 2013 compared with 2012 jbt foodtech 's revenue increased by $ 21.9 million , or $ 24.1 million in constant currency , in 2013 compared to 2012. fruit and juice processing equipment revenue contributed $ 22.6 million to the increase , but was
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the increase in revenue for fiscal 2012 is attributable to ( i ) a 9.6 % increase in retail unit volumes together with a 3.4 % increase in the average unit sales price , ( ii ) a 15.9 % increase in interest and other income and , ( iii ) a $ 2.3 million increase in wholesale sales . cost of sales , as a percentage of sales , increased to 57.7 % in fiscal 2012 from 57.3 % in fiscal 2011. the company 's cost of sales as a percentage of sales was negatively affected by increased average selling price , higher inventory repair costs and a lower margin for the payment protection plan and service contract products . the company 's selling prices are based upon the cost of the vehicle purchased , with lower-priced vehicles typically having higher gross margin percentages . the company continued to focus efforts on minimizing the average retail sales price in order to help keep the contract terms shorter , which helps customers to maintain appropriate equity in their vehicles . the consumer demand for vehicles the company purchases for resale remains high . this high demand has been exacerbated by the decrease in new car sales during the last few years , which results in higher purchase costs for the company . selling , general and administrative expenses , as a percentage of sales , decreased 0.7 % to 17.5 % in fiscal 2012 from 18.2 % in fiscal 2011. the percentage decrease was principally the result of higher sales levels as a large majority of the company 's operating costs are more fixed in nature . in dollar terms , overall selling , general and administrative expenses increased $ 5.5 million from fiscal 2011 , which consisted primarily of increased payroll costs and other incremental costs related to new lot openings . many of the company 's compensation arrangements are tied to financial performance and as such , more payroll costs are incurred during periods of improved financial results . 23 provision for credit losses , as a percentage of sales , increased 0.3 % from 20.8 % in fiscal 2011 to 21.1 % in fiscal 2012 ( 21.5 % excluding the effect of the reduction in the allowance for credit losses ) . the company continues to push for improvements and better execution of its collection practices . however , the extended negative macro-economic issues continued to put pressure on our customers and the resulting collections of our finance receivables . despite the increase in credit losses in fiscal 2012 compared to the prior fiscal year , the credit losses for fiscal 2012 were in line with historical experience and within an acceptable range . the company continues to take steps to improve dealership level execution regarding collections . additionally , the company continues to increase its investment in the corporate infrastructure within the collection area which is expected to continue to have a positive effect on results by providing more oversight and providing more accountability on a consistent basis . the company believes that the proper execution of its business practices is the single most important determinant of credit loss experience . interest expense as a percentage of sales decreased to 0.6 % for fiscal 2012 compared to 0.8 % for fiscal 2011. higher average borrowings during the fiscal year 2012 ( $ 70.2 million compared to $ 48.4 million in the prior year ) were partially offset by lower interest rates on the company 's variable rate debt . financial condition the following table sets forth the major balance sheet accounts of the company at april 30 , 2013 , 2012 and 2011 ( in thousands ) : replace_table_token_7_th historically , finance receivables has tended to grow slightly faster than revenue growth . this has been historically due , to a large extent , to an increasing weighted average term necessitated by increases in the average retail sales price . the following table shows receivables growth compared to revenue growth . the average term for installment sales contracts at april 30 , 2013 was 29.3 months compared to 28.1 months at april 30 , 2012. principal collections as a percent of average finance receivables was 60.6 % for fiscal 2013 compared to 65.6 % for fiscal 2012 contributing to the growth in finance receivables being more than revenue growth . revenue growth results from same store revenue growth and the addition of new dealerships . replace_table_token_8_th in fiscal 2013 , inventory increased 20.5 % ( $ 5.6 million ) as compared to revenue growth of 8.0 % . the increase resulted primarily from ( i ) slightly higher overall price increases for the type of vehicle the company purchases for resale , ( ii ) the company 's desire to offer a broad mixture and increased quantities of vehicles to adequately serve its expanding retail customer base and ( iii ) new dealership openings . the company will continue to manage inventory levels in the future to ensure adequate supply of vehicles , in volume and mix , and to meet sales demand . 24 property and equipment , net increased $ 2.6 million in fiscal 2013 as compared to fiscal 2012 as the company incurred expenditures related to new dealerships as well as to refurbish and expand a number of existing locations . accounts payable and accrued liabilities increased $ 4.3 million at april 30 , 2013 as compared to april 30 , 2012 due primarily to increased payables related to higher inventory levels and other volume related expenditures for cost of goods sold and selling , general and administrative costs as well as the amount and timing of cash overdrafts . the unearned portion of the payment protection plan product increased $ 2.2 million in fiscal 2013 over fiscal 2012 , primarily resulting from the increased sales of the payment protection plan product . story_separator_special_tag deferred tax liabilities , net increased $ 1.4 million at april 30 , 2013 as compared to april 30 , 2012 primarily due to increased finance receivables , partially offset by deferred tax assets related to the increased accrued liabilities , increased share based compensation and increased deferred payment protection plan revenue . borrowings on the company 's revolving credit facilities fluctuate primarily based upon a number of factors including ( i ) net income , ( ii ) finance receivables changes , ( iii ) income taxes , ( iv ) capital expenditures and ( v ) common stock repurchases . historically , income from continuing operations , as well as borrowings on the revolving credit facilities , have funded the company 's finance receivables growth , capital asset purchases and common stock repurchases . in fiscal 2013 the company had a $ 21.7 million net increase in total debt used to contribute to the funding of finance receivables growth of $ 46 million , an increase in inventory to support higher sales levels and new dealerships of $ 5.6 million , net capital expenditures of $ 5.5 million and common stock repurchases of $ 17.3 million . 25 liquidity and capital resources the following table sets forth certain historical information with respect to the company 's statements of cash flows ( in thousands ) : replace_table_token_9_th the primary drivers of operating profits and cash flows include ( i ) top line sales ( ii ) interest rates on finance receivables , ( iii ) gross margin percentages on vehicle sales , and ( iv ) credit losses , a significant portion of which relates to the collection of principal on finance receivables . the company generates cash flow from income from operations . historically , most or all of this cash is used to fund finance receivables growth , capital expenditures and common stock repurchases . to the extent finance receivables growth , capital expenditures and common stock repurchases exceed income from operations ; generally the company increases its borrowings under its revolving credit facilities . the majority of the company 's growth has been self-funded . cash flows from operations in fiscal 2013 compared to fiscal 2012 were negatively impacted by ( i ) lower collections as a percentage of finance receivables , ( ii ) increased inventory levels , and ( iii ) an increase in income taxes payable , net and in deferred income taxes , partially offset by ( iv ) higher non-cash charges including credit losses , depreciation , and losses on claims for payment protection plan and ( v ) higher values for inventory acquired in repossession and payment protection plan claims . finance receivables , net , increased by $ 36.9 million during fiscal 2013 . 26 cash flows from operations in fiscal 2012 compared to fiscal 2011 were positively impacted by ( i ) higher sales volumes and increased interest income , ( ii ) higher values for inventory acquired in both repossessions and payment protections plan claims , ( iii ) an increase in the change of accounts payable and accrued liabilities , offset by the net effect of other components of the change in finance receivables including originations and collections . finance receivables , net , increased by $ 28.9 million during fiscal 2012. the purchase price the company pays for a vehicle has a significant effect on liquidity and capital resources . several external factors can negatively affect the purchase cost of vehicles . decreases in the overall volume of new car sales , particularly domestic brands , leads to decreased supply in the used car market . also , the expansion of the customer base due in part to constrictions in consumer credit , as well as general economic conditions , can have an overall effect on the demand for the type of vehicle the company purchases for resale . because the company bases its selling price on the purchase cost for the vehicle , increases in purchase costs result in increased selling prices . as the selling price increases , it becomes more difficult to keep the gross margin percentage and contract term in line with historical results because the company 's customers have limited incomes and their car payments must remain affordable within their individual budgets . the company has seen increases in the purchase cost of vehicles and resulting increases in selling prices over the last few years . management does expect a continuing tight supply of vehicles and a resulting pressure for increases in vehicle purchase costs . the company has devoted significant efforts to improve its purchasing processes to ensure adequate supply at appropriate prices . this is expected to result in gross margin percentages generally in the 42 % range in the near term with overall contract terms increasing due in part to competitive pressures , somewhat mitigated by software and operational changes which have been made to structure seasonal payments during income tax refund periods . in an effort to ensure an adequate supply of vehicles at appropriate prices , the company has increased the level of accountability for its purchasing agents including the establishment of sourcing and pricing guidelines . additionally , the company is expanding its purchasing territories to larger cities in close proximity to its dealerships and increasing its efforts to purchase vehicles from individuals at the dealership level as well as via the internet . the company believes that the amount of credit available for the sub-prime auto industry has increased recently and management expects the availability of consumer credit within the automotive industry to be higher over the near term when compared to recent history and that this will contribute to overall increases in demand for most , if not all , of the vehicles the company purchases for resale . increased competition resulting from availability of funding to the sub-prime auto industry has contributed to lower down payments and longer terms , which have had a negative effect on collection percentages , liquidity and credit losses when compared to prior periods .
| over the last five fiscal years , the company 's credit losses as a percentage of sales have ranged between approximately 20.2 % in fiscal 2010 and 23.1 % in fiscal 2013 ( average of 21.3 % ) . in fiscal 2009 , the company saw the benefit of operational improvements despite negative macro-economic factors and experienced credit losses of 21.5 % of sales . improvements in credit losses continued into fiscal 2010 as the provision for credit losses was 20.2 % of sales for the year ended april 30 , 2010. the company experienced credit losses of 20.8 % of sales for fiscal 2011 and 21.1 % of sales for fiscal 2012. in fiscal 2011 the higher credit losses primarily related to credit losses during the second fiscal quarter as the company did experience some modest operational difficulties . in fiscal 2012 the company experienced slightly higher credit losses ; however , the losses were within the range of credit losses that the company targets annually . credit results were acceptable and consistent over the past several years , and the overall quality of the portfolio at april 30 , 2012 was good based on performance factors underlying the outstanding contract pools . as a result , management reduced the allowance for credit losses as a percentage of finance receivables at april 30 , 2012 to 21.5 % from 22.0 % . the allowance for credit losses had been 22 % of finance receivables since october 2006. credit losses as a percentage of sales in fiscal 2013 increased to 23.1 % primarily due to increased contract term lengths and lower down payments resulting from increased competitive pressures as well as slightly higher charge-offs which resulted , to an extent , from negative macro-economic factors affecting the company 's customer base . the company continues to make improvements to its business practices , including better underwriting and better collection procedures . negative macro-economic issues sometimes can have , but do not always lead to higher credit loss results for the company because the company provides basic affordable transportation which in many cases is not a discretionary expenditure for customers . the company has installed a proprietary credit scoring system which enables the company to monitor the quality of contracts . corporate office personnel
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critical accounting policies and estimates the discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements included elsewhere in this annual report on form 10-k. the preparation of our consolidated financial statements in accordance with accounting principles generally accepted in the u.s. 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 for the periods presented . some of these judgments can be subjective and complex , and , consequently , actual results may differ from these estimates . we believe that the estimates and judgments upon which we rely are reasonable based upon historical experience and information available to us at the time that we make these estimates and judgments . to the extent there are material differences between these estimates and actual results , our consolidated financial statements will be affected . although we believe that our judgments and -62- estimates are appropriate , actual results may differ from these estimates . we believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our consolidated financial statements : revenue recognition ; i nventory ; stock-based compensation ; and income tax . revenue recognition to determine revenue recognition for arrangements within the scope of asc 606 , we perform the following five steps : ( 1 ) identify the contracts with a customer ; ( 2 ) identify the performance obligations in the contract ; ( 3 ) determine the transaction price ; ( 4 ) allocate the transaction price to the performance obligations in the contract ; and ( 5 ) recognize revenue when or as we satisfy a performance obligation . variable consideration product revenues are recorded at the net sales price ( transaction price ) which includes estimated reserves for variable consideration , such as medicaid rebates , governmental chargebacks , including public health service ( “ phs ” ) chargebacks , prompt payment discounts , co-pay assistance and distribution fees . these reserves are based on the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable ( if no payment is required by us ) or a current liability ( if a payment is required by us ) . these reserves reflect our best estimates of the amount of consideration to which we are entitled based on the terms of the contracts . additional details relating to variable consideration follows : medicaid rebates relate to our estimated obligations to states under established reimbursement arrangements . rebate reserves are recorded in the same period the related revenue is recognized , resulting in a reduction of product revenue and the establishment of a liability which is included in accrued expenses . governmental chargebacks , including phs chargebacks , relate to our estimated obligations resulting from contractual commitments to sell products to qualified healthcare providers at prices lower than the list prices that we charge to wholesalers . the wholesaler charges us for the difference between what the wholesaler pays for the products and the ultimate selling price to the qualified healthcare providers . chargeback reserves are recorded in the same period the related revenue is recognized , resulting in a reduction of product revenue and accounts receivable . chargeback amounts are generally determined at the time of resale to the qualified healthcare provider from the wholesaler , and we generally issue credits for such amounts within a few weeks of receiving notification of resale from the wholesaler . prompt payment discounts relate to our estimated obligations for credits to be granted to a specialty pharmacy for remitting payment on its purchases within established incentive periods . reserves for prompt payment discounts are recorded in the same period the related revenue is recognized , resulting in a reduction of product revenue and accounts receivable . co-pay assistance relates to financial assistance provided to qualified patients , whereby we may assist them with prescription drug co-payments required by the patient 's insurance provider . reserves for co-pay assistance are recorded in the same period the related revenue is recognized , resulting in a reduction of product revenue and the establishment of a liability which is included in accrued expenses . distribution fees relate to fees paid to customers in the distribution channel that provide us with inventory management , data and distribution services and are generally accounted for as a reduction of revenue . to the extent that the services received are distinct from our sale of products to the customer , these payments are accounted for as selling , general and administrative expenses . reserves for distribution fees result in an increase in a liability if payments are required of us or a reduction of accounts receivable if no payments are required of us . please read note 7 , accounts receivable and reserves for product sales to the consolidated financial statements included elsewhere in this annual report on form 10-k for a further discussion of revenue recognition . inventory valuation we periodically analyze our inventory levels , and write down inventory that has become obsolete , inventory that has a cost basis in excess of its estimated net realizable value and inventory in excess of expected sales requirements as cost of sales . the determination of whether inventory costs will be realizable requires estimates by management . if actual market conditions are less favorable than projected by management , additional write-downs of inventory may be required . -63- stock compensation expense for stock awards with performance conditions , determining the appropriate amount to expense based on the anticipated achievement of performance targets requires judgment , including forecasting the achievement of future financial targets . the estimate of expense is revised periodically based on the probability of achieving the required performance targets and adjustments are made throughout the term as appropriate . the cumulative impact of any revision is reflected in the period of change . story_separator_special_tag please read note 16 , stock-based compensation to the consolidated financial statements included elsewhere in this annual report on form 10-k for a further discussion of stock-based compensation . income tax the company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained upon an examination . the calculation of our tax liabilities resulting from uncertain tax positions can involve significant judgment . further , the calculation may involve the application of complex tax regulations in a foreign jurisdiction . although we believe that we have adequately provided for tax liabilities resulting from uncertain tax positions , the actual amounts paid , if any , could have a material impact on our results of operations . interest and penalties associated with uncertain tax positions are classified as a component of income tax expense . please read note 2 , summary of significant accounting policies and recent accounting pronouncements to the consolidated financial statements included elsewhere in this annual report on form 10-k for a further discussion of our critical accounting policies and estimates . -64- the following table sets forth selected consolidated statements of operations data for each of the periods indicated : replace_table_token_3_th * nm : not meaningful -65- revenues revenues from product sales are recorded at the net sales price ( transaction price ) , which includes estimates of variable consideration for which reserves are established and which result from medicaid rebates , governmental chargebacks , including phs chargebacks , prompt pay discounts , co-pay assistance and distribution fees . these reserves are based on the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable ( if no payments are required of us ) or a current liability ( if a payment is required of us ) . these reserves are based on estimates of the amounts earned or to be claimed on the related sales . our estimates take into consideration current contractual and statutory requirements . the amount of variable consideration that is included in the transaction price may be constrained , and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period . actual amounts of consideration ultimately received or paid may differ from our estimates . if actual results in the future vary from our estimates , we will adjust these estimates , which would affect net product revenue and earnings in the period such variances become known . net product revenues for exondys 51 for 2018 increased by $ 146.5 million compared with 2017. net product revenues for exondys 51 for 2017 increased by $ 149.2 million compared with 2016. the increases primarily reflect the continuing increase in demand for exondys 51 in the u.s. cost of sales our cost of sales relates to sales of exondys 51 following its commercial launch in the u.s. prior to receiving regulatory approval for exondys 51 by the fda in september 2016 , we expensed such manufacturing and material costs as research and development expenses . for exondys 51 sold in 2017 and 2016 , the majority of related manufacturing costs incurred had previously been expensed as research and development expenses , as such costs were incurred prior to the fda approval of exondys 51. for exondys 51 sold in 2018 , only part of the related manufacturing costs incurred had previously been expensed as research and development expenses . the following table summarizes the components of our cost of sales for the periods indicated : replace_table_token_4_th * nm : not meaningful the cost of sales for 2018 increased $ 26.8 million compared with 2017. the increase was primarily driven by the following : $ 10.3 million increase in royalty payments to biomarin primarily as a result of the increasing demand for exondys 51 during 2018 ; $ 8.2 million and $ 3.4 million increases in inventory costs related to exondys 51 sold and overhead costs , respectively , reflect increasing demand for exondys 51 ; and $ 4.9 million increase in other inventory costs as a result of the write-off of certain batches of exondys 51 not meeting our quality specifications . -66- the cost of sales for 2017 increased $ 7.3 million compared wi th 2016 . the increase was primarily driven by the following : $ 4.7 million increase in royalty payments to biomarin as a result of the execution of the settlement and license agreements with biomarin in july 2017 as well as increasing demand for exondys 51 during 2017 ; and $ 1.4 million , $ 0.4 million and $ 0.8 million increases in overhead costs , inventory costs related to exondys 51 sold , and other inventory costs , respectively , reflect increasing demand for exondys 51. if product related costs had not previously been expensed as research and development expenses prior to receiving fda approval , the incremental inventory costs related to exondys 51 sold in 2018 , 2017 and 2016 would have been approximately $ 12.6 million , $ 8.6 million and $ 0.5 million , respectively . research and development expenses research and development expenses consist of costs associated with research activities as well as costs associated with our product development efforts , conducting pre-clinical trials , clinical trials and manufacturing activities . direct research and development expenses associated with our programs include clinical trial site costs , clinical manufacturing costs , costs incurred for consultants , up-front fees and milestones paid to third parties in connection with technologies that have not reached technological feasibility and do not have an alternative future use , and other external services , such as data management and statistical analysis support , and materials and supplies used in support of clinical programs . indirect costs of our clinical programs include salaries , stock-based compensation and allocation of our facility costs . research and development expenses represent a substantial percentage of our total operating expenses .
| exondys51 is designed to bind to exon 51 of dystrophin pre- messenger rna ( “ mrna ” ) , resulting in exclusion of this exon during mrna processing in patients with genetic mutations that are amenable to exon 51 skipping . exon skipping is intended to promote the production of an internally truncated but functional dystrophin protein . a summary description of our main product candidates , including those in collaboration with our strategic partners , is as follows : golodirsen ( srp-4053 ) uses our pmo chemistry and exon-skipping technology to skip exon 53 of the dmd gene . golodirsen is designed to bind to exon 53 of dystrophin pre-mrna , resulting in exclusion , or “ skipping ” , of this exon during mrna processing in patients with genetic mutations that are amenable to exon 53 skipping . we are enrolling and dosing patients in essence ( 4045-301 ) , our phase 3 placebo controlled confirmatory trial in patients who have a confirmed mutation of the dmd gene that is amenable to exon 45 or 53 skipping using casimersen and golodirsen , respectively . golodirsen is also being evaluated in a phase 1/2 trial having two parts . part i of the phase 1/2 trial has been completed , and part ii , an open-label portion of the trial , is expected to be completed in 2019 ( study 4053-101 ) . in september 2017 , we announced positive results of an analysis that included biopsies of the bicep muscle at baseline and on-treatment at the part ii , week 48 time point . the 4053-101 interim trial results demonstrated statistical significance on all primary and secondary biological endpoints . in december 2018 , we completed the submission of our rolling nda to the fda seeking accelerated approval for golodirsen . the fda accepted the nda and granted priority review status for golodirsen with a targeted regulatory action date of august 19 , 2019. the fda also indicated that it does not intend to conduct an advisory board for golodirsen . casimersen ( srp-4045 ) uses our pmo chemistry and exon-skipping technology to skip exon 45 of the dmd
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million outstanding under our $ 2.25 billion revolving credit facility and commercial paper program . availability under the revolving credit facility is subject to a covenant not to exceed a net debt to capital ratio of 0.60:1. as of december 31 , 2017 , our net debt to capital ratio was 0.56:1. see item 6 . “ selected financial data ” . the net debt to capital ratio as of december 31 , 2017 does not give effect to the issuance of the senior notes in january 2018 discussed above . financial results comparison of the years ended december 31 , 2017 and 2016 operating revenues in 2017 totaled $ 2.6 billion , representing an increase of $ 336.4 million , or 15 % , from 2016. we have seen a significant increase in the number of rigs working in the u.s. compared to the same period last year , which has led to higher revenues in our u.s. drilling , drilling solutions and rig technologies reportable segments . internationally , we experienced a decline in the number of rigs working of approximately 9 % , which has partially offset the increases realized in the u.s. drilling segment . net loss from continuing operations attributable to nabors totaled $ 503.3 million for 2017 ( $ 1.75 per diluted share ) compared to a net loss from continuing operations attributable to nabors of $ 1.0 billion ( $ 3.58 per diluted share ) in 2016. this equated to a decrease in loss from continuing operations attributable to nabors of $ 508.1 million . in combination with the increase in revenue noted above , our net loss from continuing operations attributable to nabors was positively impacted by the absence of an equity method investment in cjes , which accounted for $ 442.0 million of our net loss for the year ended december 31 , 2016 related to our share of the net loss of cjes as well as impairment charges associated with the investment . our results for 2017 include a benefit for a release of reserves due to favorable tax audit outcomes during the year of $ 167.0 million . this was offset by $ 138.6 million in income tax expense recorded in connection with the tax reform act . general and administrative expenses in 2017 totaled $ 251.2 million , representing an increase of $ 23.5 million , or 10 % from 2016. this is primarily reflective of an increase in headcount and compensation in response to the increase in drilling activity . research and engineering expenses in 2017 totaled $ 51.1 million , representing an increase of $ 17.5 million , or 52 % , from 2016. the increase is a result of increased efforts towards a number of strategic research and engineering projects , including the acquisition of rds during 2017. depreciation and amortization expense in 2017 was $ 842.9 million , representing a decrease of $ 28.7 million , or 3 % , from 2016. the decrease was primarily due to the impact from retirements and impairments of various rigs and rig equipment in late 2016 partially offset by incremental depreciation associated with capital expenditures as we upgrade our existing rig fleet . 27 segment results of operations our business is comprised of our global land-based and offshore drilling rig operations and other rig related services and technologies , consisting of equipment manufacturing , rig instrumentation and optimization software . we also specialize in wellbore placement solutions and are a leading provider of directional drilling and mwd systems and services . during the fourth quarter of 2017 , we effected a change in the reporting of our segments to better reflect our product offerings and growing significance of our nabors drilling solutions business . the expansion of our tubular services offering attributable to the acquisition of tesco during the fourth quarter , along with management 's increasing focus on the strategic aspect of this business and expectation of future growth , culminated in the decision to break this operation out into its own segment called drilling solutions . this operation was historically included within our rig services segment , which we have renamed rig technologies and now primarily reflects the oilfield equipment manufacturing , rental and aftermarket service business of canrig . our segment information has been revised to conform to the new reportable segments . our business now consists of five reportable segments : u.s. , canada , international , drilling solutions and rig technologies . see note 21—segment information for additional information on the change in reporting segments . management evaluates the performance of our reportable segments using adjusted operating income ( loss ) , which is our segment performance measure , because it believes that this financial measure reflects our ongoing profitability and performance . in addition , securities analysts and investors use this measure as one of the metrics on which they analyze our performance . adjusted operating income ( loss ) is computed by subtracting the sum of direct costs , general and administrative expenses , research and engineering expenses and depreciation and amortization from operating revenues . a reconciliation of adjusted operating income to net income ( loss ) from continuing operations before income taxes can be found in note 21—segment information . the following tables set forth certain information with respect to our reportable segments and rig activity : replace_table_token_8_th ( 1 ) represents a measure of the number of equivalent rigs operating during a given period . for example , one rig operating 182.5 days during a 365-day period represents 0.5 average rigs working . international average rigs working includes our equivalent percentage ownership of rigs owned by unconsolidated affiliates . story_separator_special_tag u.s. operating results decreased in 2017 compared to 2016. we experienced a 63 % increase in the average number of rigs working during 2017 compared to 2016 , which was the primary contributor to the $ 251.2 million , or 45 % , 28 increase in operating revenues . however , dayrates were lower on average , mitigating the impact of increased activity on our average daily margins and adjusted operating income . additionally , positive results were partially offset by a decrease in operating revenue and adjusted operating income in our offshore operations . our results for 2016 included a favorable resolution of negotiations for one of our rigs in the gulf of mexico , which resulted in partial recovery of standby revenues for past quarters of approximately $ 20.9 million . the absence of this incremental revenue in combination with a decline in the number of rigs working in the gulf of mexico contributed to the overall decline in operating results . canada operating results increased in 2017 compared to 2016 due to an increase in drilling rig activity , as evidenced by the increase in average number of rigs working during 2017 compared to 2016. international operating results decreased in 2017 compared to 2016 primarily due to the loss of revenue and increased costs related to downtime incurred to perform structural work on many of our rigs in our largest international market during the first half of 2017. additionally , results were negatively impacted by a 9 % reduction in average number of rigs working during 2017 compared to 2016. partially offsetting these declines were increased drilling activity in colombia , kazakhstan and kuwait . drilling solutions operating results increased in 2017 compared to 2016 primarily due to a substantial increase in the performance tools revenue days . although prices on average have been lower in the u.s. , we have experienced increased pricing throughout 2017 , most notably during the fourth quarter as contracts are renegotiated . additionally , we have experienced growth across all product lines as a result of the significant increase in drilling activity in the u.s. during 2017 compared to 2016. rig technologies operating results increased in 2017 compared to 2016 due to the significant increase in drilling activity in the u.s. for the period and in the demand for our products and services . the revenue increase in the segment is driven by an increase in capital equipment deliveries from canrig . other financial information earnings ( losses ) from unconsolidated affiliates earnings ( losses ) from unconsolidated affiliates represents our share of the net income ( loss ) , as adjusted for our basis differences , of our equity method investments . we previously accounted for our investment in cjes under the equity method on a one-quarter lag through june 30 , 2016. on july 20 , 2016 , cjes voluntarily filed for protection under chapter 11 of the bankruptcy code . as a result , beginning with the third quarter of 2016 , we ceased accounting for our investment under the equity method of accounting . earnings ( losses ) from unconsolidated affiliates for the year ended december 31 , 2016 includes our share of the net income ( loss ) of cjes from october 1 , 2015 through march 31 , 2016 , resulting in a loss of $ 221.9 million , inclusive of charges of $ 138.5 million representing our share of cjes 's fixed asset impairment charges for the period . interest expense interest expense for 2017 was $ 222.9 million , representing an increase of $ 37.5 million , or 20 % , compared to 2016. the increase was primarily due to the additional interest expense related to the issuance of $ 600 million in aggregate principal amount of 5.5 % senior notes due 2023 during december 2016 as well as the issuance of $ 575 million in aggregate principal amount of 0.75 % senior exchangeable notes due 2024 during january 2017. this increase was partially offset by a reduction in interest expense due to the repayment of the term loan facility with proceeds of these offerings and with the repurchase or redemption of approximately $ 367.9 million in aggregate principal amount of 6.15 % senior notes due 2018 since december 31 , 2016 . 29 impairments and other charges impairments and other charges for 2017 was $ 44.5 million , which included $ 21.6 million in transaction related costs , $ 16.0 million loss recognized on the early extinguishment of debt resulting from debt repurchases and impairments of long-lived assets of $ 6.9 million comprised of underutilized rigs in our international drilling segment . other , net other , net for 2017 was $ 14.9 million of expense , which included net losses on sales and disposals of assets of approximately $ 19.0 million and foreign currency exchange losses of $ 1.6 million . other , net for 2016 was $ 44.2 million of expense , which was primarily comprised of net losses on sales and disposals of assets of approximately $ 14.8 million , legal and professional fees primarily of $ 12.9 million incurred in connection with preserving our interests in cjes , foreign currency exchange losses of $ 5.7 million and increases to litigation reserves of $ 3.9 million . income tax rate our worldwide effective tax rate during 2017 was 14.3 % compared to 15.6 % during 2016. the effective tax rate for 2017 includes a benefit for the release of reserves due to favorable audit outcomes during the year of $ 167.0 million . this was partially offset by a non-cash write-down of net deferred tax assets of $ 138.6 million attributable to the tax reform act passed during the fourth quarter of 2017. discontinued operations our discontinued operations during 2017 and 2016 consisted of our historical wholly owned oil and gas businesses .
| these declines were the direct result of lower industry activity and pricing pressure from customers resulting from the decline in oil and gas prices . the lower activity was evidenced by a 42 % reduction in average rigs working during 2016 compared to the prior period . the seasonal decline in the second quarter of 2016 was minimalized by the historically low first quarter rig counts , which averaged 4 rigs . however , we experienced an increase over the course of the second half of 2016. we exited 2016 and entered 2017 with a marked increase in rigs working to 25 rigs at the end of january 2017. international operating results decreased in 2016 compared to 2015 primarily due to a decline in drilling activity , reflected by a 19 % reduction in average rigs working during 2016 compared to the prior period . the decrease in our operating results was also adversely affected by pricing pressure and diminished demand as customers released rigs in response to 32 the significant drop in oil prices . partially offsetting the decrease in activity for the year ended december 31 , 2016 was approximately $ 45.7 million in revenue related to early termination and demobilization payments , recovery of certain contractual disputes and a business interruption insurance claim . drilling solutions operating results decreased in 2016 compared to 2015 primarily due to a broad-based decline in revenue-producing activities as well as the continued decline in our directional drilling businesses due to generally lower drilling activity and intense competition driven by the low prices of oil and gas . rig technologies operating results decreased in 2016 compared to 2015 primarily due to fewer top drive and catwalk unit sales , which is driven by the low prices of oil and gas . other financial information earnings ( losses ) from unconsolidated affiliates earnings ( losses ) from unconsolidated affiliates represents our share of the net income ( loss ) , as adjusted for our basis
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factors and trends contributing to operating performance in 2017 compared to 2016 the most important factors and trends contributing to our operating performance in 2017 as compared to 2016 were : increased occupancy and outside-the-room spending at gaylord national during 2017 , as compared to 2016. the increase in occupancy ( an increase of 4.5 points of occupancy ) is primarily the result of an increase in groups . the increase in outside-the-room spending ( an increase of 5.1 % ) is primarily attributable to an increase in banquets , including inauguration-related banquets in january 2017. increased adr at gaylord opryland during 2017 , as compared to 2016 ( an increase of 3.9 % ) , primarily due to an increase in both group and transient rates . decreased outside-the-room spending at gaylord palms during 2017 , as compared to 2016 ( a decrease of 4.1 % ) , primarily due to the impacts of hurricane irma during september 2017 , partially offset by a 2017 increase in adr ( an increase of 6.4 % ) , due to an increase in both group and transient rates . increased revenue for our entertainment segment during 2017 , as compared to 2016 ( an increase of 14.1 % ) , primarily due to increased shows , attendance and ancillary business , such as tours and retail , at the grand ole opry and ryman auditorium , and increased revenues at the wildhorse saloon , due primarily to increased business attributable to the achieved benefits of a 2016 renovation . decreased net definite group room nights booked during 2017 , as compared to 2016 ( a decrease of 2.3 % ) , due primarily to the current year impact of hurricane irma , as well as the future cancellation of an individual group that had booked 17 different meetings through 2025 . 37 2016 results as compared to 2015 results the increase in our total revenues during 2016 , as compared to 2015 , is attributable to increases in our hospitality segment and entertainment segment revenues of $ 45.0 million and $ 12.0 million , respectively , as discussed more fully below . the increase in total operating expenses during 2016 , as compared to 2015 , is primarily the result of increases in hospitality segment and entertainment segment expenses of $ 16.9 million and $ 8.5 million , respectively , partially offset by $ 19.2 million in impairment and other charges during 2015 that did not recur during 2016 , as discussed more fully below . the above factors resulted in a $ 51.7 million increase in operating income for 2016 , as compared to 2015. the $ 47.9 million increase in our net income in 2016 , as compared to 2015 , was due to the change in our operating income described above , and the following factors , each as described more fully below : a $ 15.1 million difference in other gains and losses , net between 2016 and 2015 , due primarily to 2015 including losses for the change in the fair value of derivative liabilities associated with portions of warrants related to our previous 3.75 % convertible notes . there was no such event in 2016. this change was partially offset by a $ 6.9 million gain in 2015 associated with the reimbursement of costs that were previously incurred related to our proposed development in aurora , colorado . these costs were impaired in 2012 as part of our strategic shift away from long-term development , but were reimbursed in 2015 by the current developer . a provision for income taxes of $ 3.4 million in 2016 , as compared to a $ 11.9 million tax benefit in 2015. a $ 2.8 million loss from joint ventures during 2016 not incurred in 2015. factors and trends contributing to operating performance in 2016 compared to 2015 the most important factors and trends contributing to our operating performance in 2016 as compared to 2015 were : increased occupancy and outside-the-room spending at gaylord palms during 2016 , as compared to 2015. the increase in occupancy ( an increase of 2.9 points of occupancy ) is primarily the result of an increase in both groups and transient . the increase in outside-the-room spending ( an increase of 12.4 % ) is primarily the result of an increase in banquets , as well as an increase attributable to new and refurbished dining outlets and an increase in attrition and cancellation fee collections . increased adr and outside-the-room spending at gaylord opryland during 2016 , as compared to 2015. the increase in adr ( an increase of 3.0 % ) was primarily a result of an increase in both group and transient rate . the increase in outside-the-room spending ( an increase of 2.9 % ) was primarily the result of increased banquet revenues from corporate groups , as well as increased attrition and cancellation fee collections . increased outside-the-room spending at gaylord texan ( an increase of 5.7 % ) during 2016 , as compared to 2015 , primarily as a result of an increase in banquet revenue . increased net definite group room nights booked ( an increase of 8.5 % ) during 2016 , as compared to 2015. increased revenue for our entertainment segment ( an increase of 12.3 % ) for 2016 , as compared to 2015 , primarily due to increased attendance at the grand ole opry , as well as increased ancillary business such as tours and retail at the ryman auditorium . 38 operating results detailed segment financial information hospitality segment total segment results . story_separator_special_tag the following presents the financial results of our hospitality segment for the years ended december 31 , 2017 , 2016 and 2015 ( in thousands , except percentages and performance metrics ) : replace_table_token_7_th ( 1 ) hospitality segment results and performance metrics include the results of our gaylord hotels and the inn at opryland for all periods presented . results of the ac hotel are included as of its opening date in april 2015 . ( 2 ) hospitality segment operating income does not include preopening costs of $ 0.3 million and $ 0.9 million in 2017 and 2015 , respectively . hospitality segment operating income also does not include impairment charges of $ 35.4 million and $ 19.2 million during 2017 and 2015 , respectively . see the discussion of these items set forth below . ( 3 ) we calculate hospitality segment revpar by dividing room revenue by room nights available to guests for the period . hospitality segment revpar is not comparable to similarly titled measures such as revenues . ( 4 ) we calculate hospitality segment total revpar by dividing the sum of room , food and beverage , and other ancillary services revenue ( which equals hospitality segment revenue ) by room nights available to guests for the period . hospitality segment total revpar is not comparable to similarly titled measures such as revenues . ( 5 ) same-store hospitality segment performance metrics do not include the ac hotel , which opened in april 2015. the increase in total hospitality segment revenue in 2017 , as compared to 2016 , is primarily due to increases in revenue of $ 12.5 million and $ 5.9 million at gaylord national and gaylord opryland , respectively , as discussed below . total hospitality revenues in 2017 include $ 10.9 million in attrition and cancellation fee collections , a $ 1.8 million decrease from 2016 . 39 the increase in total hospitality segment revenue in 2016 , as compared to the same period in 2015 , is primarily due to increases in revenue of $ 17.4 million , $ 12.6 million and $ 10.7 million at gaylord palms , gaylord opryland and gaylord texan , respectively , as discussed below . total hospitality revenues in 2016 include $ 12.7 million in attrition and cancellation fee collections , a $ 5.8 million increase from 2015. the percentage of group versus transient business based on rooms sold for our hospitality segment for the years ended december 31 was approximately as follows : replace_table_token_8_th the type of group based on rooms sold for our hospitality segment for the years ended december 31 was approximately as follows : replace_table_token_9_th the increase in rooms operating expenses in 2017 , as compared to 2016 , is primarily attributable to an increase at gaylord national , as described below . the decrease in rooms operating expenses in 2016 , as compared to 2015 , is primarily attributable to a decrease at gaylord national , as described below . the increase in food and beverage operating expenses in 2017 , as compared to 2016 , is primarily attributable to an increase at gaylord national , as described below . the increase in food and beverage operating expenses in 2016 , as compared to 2015 , is attributable to increases at gaylord palms and gaylord texan , as described below . other hotel expenses for the following years ended december 31 included ( in thousands ) : replace_table_token_10_th administrative employment costs include salaries and benefits for hotel administrative functions , including , among others , senior management , accounting , human resources , sales , conference services , engineering and security . administrative employment costs increased during 2017 , as compared to 2016 , primarily due to slight increases at gaylord opryland and gaylord national . utility costs decreased slightly during 2017 , as compared to 2016. property taxes increased during 2017 , as compared to 2016 , primarily due to increases at gaylord national and gaylord texan due to increased property valuations . other expenses , which include supplies , advertising , maintenance costs and consulting costs , increased during 2017 , as compared to 2016 , primarily as a result of various increases at gaylord opryland and gaylord national , partially offset by various decreases at gaylord palms and gaylord texan . administrative employment costs increased slightly during 2016 , as compared to 2015. utility costs decreased slightly during 2016 , as compared to 2015. property taxes increased slightly during 2016 , as compared to 2015. other expenses , increased during 2016 , as compared to 2015 , primarily as a result of various increases at each of our gaylord hotels properties . 40 as discussed above , each of our management agreements with marriott requires us to pay marriott a base management fee of approximately 2 % of gross revenues from the applicable property for each fiscal year or portion thereof . additionally , an incentive fee is based on the profitability of our gaylord hotels properties calculated on a pooled basis . we incurred $ 21.4 million , $ 20.8 million and $ 16.8 million in total base management fees to marriott related to our hospitality segment during 2017 , 2016 and 2015 , respectively . we also incurred $ 5.5 million , $ 4.4 million and $ 0.8 million related to incentive management fees for our hospitality segment during 2017 , 2016 and 2015 , respectively . management fees are presented throughout this annual report on form 10-k net of the amortization of the deferred management rights proceeds discussed in note 6 to the consolidated financial statements included herein . hospitality segment depreciation and amortization expense increased in 2017 , as compared to 2016 , primarily as a result of an increase at gaylord opryland , partially offset by a decrease at gaylord national , as described below . hospitality segment depreciation and amortization expense decreased in 2016 , as compared to
| our weighted average interest rate on our borrowings , excluding the write-off of deferred financing costs during the period , was 4.3 % in 2016 as compared to 4.2 % in 2015. cash interest expense increased $ 4.1 million to $ 60.7 million in 2016 , as compared to 2015 , and noncash interest expense decreased $ 4.1 million to $ 3.2 million in 2016 , as compared to 2015. interest income interest income for 2017 , 2016 and 2015 primarily includes amounts earned on the bonds that we received in april 2008 in connection with the development of gaylord national , which we hold as notes receivable . loss from joint ventures the loss from joint ventures for 2017 and 2016 primarily represents preopening expenses related to joint ventures that we entered into related to opry city stage in times square in new york city and gaylord rockies . opry city stage opened in december 2017 , and gaylord rockies is anticipated to open in late 2018. other gains and ( losses ) other gains and ( losses ) for 2017 , 2016 and 2015 includes gains of $ 2.6 million , $ 2.5 million and $ 2.5 million , respectively , from a fund associated with the gaylord national bonds to reimburse us for certain marketing and maintenance expenses . other gains and ( losses ) for 2017 includes a loss on certain assets that were disposed of in our entertainment and corporate segments . other gains and ( losses ) for 2015 includes $ 20.2 million in losses on the change in the fair value of derivative liabilities associated with portions of the warrants associated with our 3.75 % convertible notes . other gains and ( losses ) for 2015 also includes a $ 6.9 million gain associated with the reimbursement of costs that were previously incurred related to our proposed development in aurora , colorado . these costs were impaired in 2012 as part of our strategic shift away from long-term development , but reimbursed in 2015 by the current developer . ( provision ) benefit for income taxes as a reit , we generally will not be subject to federal corporate income taxes on ordinary taxable income and capital gains income from real estate
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this line of business generally reflects the company 's clinical management of drugs paid under medical and pharmacy benefit programs . the company 's services include the coordination and management of the specialty drug spend for health plans , employers , and governmental agencies , and the management of pharmacy programs for medicaid and other state-sponsored programs . the two segments in this business line are : specialty pharmaceutical management . the specialty pharmaceutical management segment ( `` specialty pharmaceutical management '' ) comprises programs that manage specialty drugs used in the treatment of complex conditions such as , cancer , multiple sclerosis , hemophilia , infertility , rheumatoid arthritis , chronic forms of hepatitis and other diseases . specialty pharmaceutical drugs represent high-cost injectible , infused , or oral drugs with sensitive handling or storage needs , many of which may be physician administered . patients receiving these drugs require greater amounts of clinical support than those taking more traditional agents . payors require clinical , financial and technological support to maximize the value delivered to their members using these expensive agents . the company 's specialty pharmaceutical management services are provided under contracts with health plans , insurance companies , employers , and governmental agencies for some or all of their commercial , medicare and medicaid members . the company 's specialty pharmaceutical services include : ( i ) contracting and formulary optimization programs ; ( ii ) specialty pharmaceutical dispensing operations ; and ( iii ) medical pharmacy management programs . the company 's specialty pharmaceutical management segment had contracts with 41 health plans and several pharmaceutical manufacturers and state medicaid programs as of december 31 , 2011. medicaid administration . the medicaid administration segment ( `` medicaid administration '' ) generally reflects integrated clinical management services provided to the public sector to manage medicaid pharmacy , mental health , and long-term care programs . the primary focus of the company 's 37 medicaid administration unit involves providing pharmacy benefits administration ( `` pba '' ) and pharmacy benefits management ( `` pbm '' ) services under contracts with health plans and public sector healthcare clients for medicaid and other state sponsored program recipients . the company 's services include pharmacy point-of-sale claims processing systems and administration , drug utilization review , clinical prior authorization , utilization and formulary management services , preferred drug list programs , maximum allowable cost programs , and drug rebate program services . medicaid administration 's contracts encompass fee-for-service ( `` ffs '' ) arrangements . in addition to medicaid administration 's ffs contracts , effective september 1 , 2010 , public sector has subcontracted with medicaid administration to provide pharmacy benefits management services on a risk basis for one of public sector 's customers . corporate this segment of the company is comprised primarily of operational support functions such as sales and marketing and information technology , as well as corporate support functions such as executive , finance , human resources and legal . acquisition of first health services pursuant to the june 4 , 2009 purchase agreement ( the `` purchase agreement '' ) with coventry health care ( `` coventry '' ) , on july 31 , 2009 the company acquired ( the `` acquisition '' ) all of the outstanding equity interests of coventry 's direct and indirect subsidiaries first health services corporation ( `` fhs '' ) , fhc , inc. ( `` fhc '' ) and provider synergies , llc ( together with fhs and fhc , `` first health services '' ) and certain assets of coventry which are related to the operation of the business conducted by first health services . as consideration for the acquisition , the company paid $ 114.5 million in cash , excluding cash acquired and including net payments of $ 6.5 million for excess working capital . the company funded the acquisition with cash on hand . effective july 1 , 2010 the company discontinued the use of the name first health services corporation and officially changed such name to `` magellan medicaid administration , inc. '' the company reports the results of operations of magellan medicaid administration , inc. within the medicaid administration segment . managed care revenue managed care revenue , inclusive of revenue from the company 's risk , eap and aso contracts , is recognized over the applicable coverage period on a per member basis for covered members . the company is paid a per member fee for all enrolled members , and this fee is recorded as revenue in the month in which members are entitled to service . the company adjusts its revenue for retroactive membership terminations , additions and other changes , when such adjustments are identified , with the exception of retroactivity that can be reasonably estimated . the impact of retroactive rate amendments is generally recorded in the accounting period that terms to the amendment are finalized , and that the amendment is executed . any fees paid prior to the month of service are recorded as deferred revenue . managed care revenues approximated $ 2.2 billion , $ 2.4 billion and $ 2.2 billion for the years ended december 31 , 2009 , 2010 and 2011 , respectively . fee-for-service and cost-plus contracts the company has certain ffs contracts , including cost-plus contracts , with customers under which the company recognizes revenue as services are performed and as costs are incurred . revenues from these contracts approximated $ 104.4 million , $ 192.9 million and $ 174.5 million for the years ended december 31 , 2009 , 2010 and 2011 , respectively . 38 block grant revenues the maricopa contract is partially funded by federal , state and county block grant money , which represents annual appropriations . the company recognizes revenue from block grant activity ratably over the period to which the block grant funding applies . block grant revenues were approximately $ 106.6 million , $ 109.1 million , and $ 114.4 million for the years ended december 31 , 2009 , 2010 and 2011 , respectively . story_separator_special_tag dispensing revenue the company recognizes dispensing revenue , which includes the co-payments received from members of the health plans the company serves , when the specialty pharmaceutical drugs are shipped . at the time of shipment , the earnings process is complete ; the obligation of the company 's customer to pay for the specialty pharmaceutical drugs is fixed , and , due to the nature of the product , the member may neither return the specialty pharmaceutical drugs nor receive a refund . revenues from the dispensing of specialty pharmaceutical drugs on behalf of health plans were $ 221.6 million , $ 234.8 million and $ 247.4 million for the years ended december 31 , 2009 , 2010 and 2011 , respectively . performance-based revenue the company has the ability to earn performance-based revenue under certain risk and non-risk contracts . performance-based revenue generally is based on either the ability of the company to manage care for its clients below specified targets , or on other operating metrics . for each such contract , the company estimates and records performance-based revenue after considering the relevant contractual terms and the data available for the performance-based revenue calculation . pro-rata performance-based revenue is recognized on an interim basis pursuant to the rights and obligations of each party upon termination of the contracts . performance-based revenues were $ 7.6 million , $ 13.1 million and $ 26.5 million for the years ended december 31 , 2009 , 2010 and 2011 , respectively . rebate revenue the company administers a rebate program for certain clients through which the company coordinates the achievement , calculation and collection of rebates and administrative fees from pharmaceutical manufacturers on behalf of clients . each period , the company estimates the total rebates earned based on actual volumes of pharmaceutical purchases by the company 's clients , as well as historical and or anticipated sharing percentages . the company earns fees based upon the volume of rebates generated for its clients . the company does not record as rebate revenue any rebates that are passed through to its clients . total rebate revenues for the years ended december 31 , 2009 , 2010 and 2011 were $ 29.4 million , $ 25.5 million , and $ 32.8 million , respectively . cost of care , medical claims payable and other medical liabilities cost of care is recognized in the period in which members receive managed healthcare services . in addition to actual benefits paid , cost of care in a period also includes the impact of accruals for estimates of medical claims payable . medical claims payable represents the liability for healthcare claims reported but not yet paid and claims incurred but not yet reported ( `` ibnr '' ) related to the company 's managed healthcare businesses . such liabilities are determined by employing actuarial methods that are commonly used by health insurance actuaries and that meet actuarial standards of practice . the ibnr portion of medical claims payable is estimated based on past claims payment experience for member groups , enrollment data , utilization statistics , authorized healthcare services and other factors . this data is incorporated into contract-specific actuarial reserve models and is further 39 analyzed to create `` completion factors '' that represent the average percentage of total incurred claims that have been paid through a given date after being incurred . factors that affect estimated completion factors include benefit changes , enrollment changes , shifts in product mix , seasonality influences , provider reimbursement changes , changes in claims inventory levels , the speed of claims processing , and changes in paid claim levels . completion factors are applied to claims paid through the financial statement date to estimate the ultimate claim expense incurred for the current period . actuarial estimates of claim liabilities are then determined by subtracting the actual paid claims from the estimate of the ultimate incurred claims . for the most recent incurred months ( generally the most recent two months ) , the percentage of claims paid for claims incurred in those months is generally low . this makes the completion factor methodology less reliable for such months . therefore , incurred claims for any month with a completion factor that is less than 70 percent are generally not projected from historical completion and payment patterns ; rather they are projected by estimating claims expense based on recent monthly estimated cost incurred per member per month times membership , taking into account seasonality influences , benefit changes and healthcare trend levels , collectively considered to be `` trend factors . '' medical claims payable balances are continually monitored and reviewed . if it is determined that the company 's assumptions in estimating such liabilities are significantly different than actual results , the company 's results of operations and financial position could be impacted in future periods . adjustments of prior period estimates may result in additional cost of care or a reduction of cost of care in the period an adjustment is made . further , due to the considerable variability of healthcare costs , adjustments to claim liabilities occur each period and are sometimes significant as compared to the net income recorded in that period . prior period development is recognized immediately upon the actuary 's judgment that a portion of the prior period liability is no longer needed or that additional liability should have been accrued . the following table presents the components of the change in medical claims payable for the years ended december 31 , 2009 , 2010 and 2011 ( in thousands ) : replace_table_token_7_th ( 1 ) for any given period , a portion of unpaid medical claims payable could be covered by reinvestment liability ( discussed below ) and may not impact the company 's results of operations for such periods . ( 2 ) medical claims payable is offset by customer withholds from capitation payments in situations in which the customer has the contractual requirement to pay providers for care incurred .
| the following table reconciles segment profit to consolidated income before income taxes for the years ended december 31 , 2009 , 2010 and 2011 ( in thousands ) : replace_table_token_13_th 46 year ended december 31 , 2011 ( `` 2011 '' ) compared to the year ended december 31 , 2010 ( `` 2010 '' ) commercial net revenue net revenue related to commercial decreased by 13.9 percent or $ 90.4 million from 2010 to 2011. the decrease in revenue is mainly due to program changes of $ 94.6 million , terminated contracts of $ 57.8 million , net decreased membership from existing customers of $ 12.9 million , and other net unfavorable variances of $ 0.4 million , which decreases were partially offset by new contracts implemented after ( or during ) 2010 of $ 42.5 million , favorable rate changes of $ 22.9 million , favorable retroactive membership and rate adjustments recorded in 2011 of $ 8.6 million , and unfavorable retroactive rate adjustments recorded in 2010 of $ 1.3 million . cost of care cost of care decreased by 14.0 percent or $ 50.9 million from 2010 to 2011. the decrease in cost of care is primarily due to program changes of $ 92.8 million , terminated contracts of $ 11.2 million , and decreased membership from existing customers of $ 7.0 million , which decreases were partially offset by new business of $ 36.5 million , favorable prior period medical claims development recorded in 2010 of $ 2.7 million , and care trends and other net variances of $ 20.9 million . cost of care decreased as a percentage of risk revenue ( excluding eap business ) from 77.6 percent in 2010 to 77.0 percent in 2011 , mainly due to changes in business mix . direct service costs direct service costs decreased by 2.3 percent or $ 3.5 million from 2010 to 2011. the decrease in direct service costs is mainly attributable to one-time severance charges in 2010 of $ 2.0 million associated with terminated contracts . direct service costs increased as a percentage of revenue from 24.0 percent in 2010 to 27.2 percent in 2011 , mainly due to changes in business mix . public sector net revenue net revenue related to public sector increased by 1.2 percent or $ 17.6 million from 2010 to 2011. this increase is primarily due to increased membership from existing customers of $ 68.6 million , retroactive incentive revenue recorded in 2011 of $ 6.8 million , timing of incentive revenue for 2011 of $ 5.2 million , and other net increases of $ 2.5 million , which increases were partially offset by unfavorable rate and funding changes of $ 34.1 million , the recognition in 2010 of $ 12.5 million of previously deferred revenue
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revenue recognition we recognize revenue when control of products is transferred to our customers , and when services are completed and accepted by our customers ; the amount of revenue we recognize reflects the consideration we expect to receive for those products or services . our contracts with customers may include combinations of products and services , for example , a contract that includes products and related engineering services . we structure our contracts such that distinct performance obligations , such as product sales or license fees , and related engineering services , are clearly defined in each contract . 16 sales of license fees and airbar and sensor modules are on a per-unit basis ; therefore , we generally satisfy performance obligations as units are shipped to our customers . non-recurring engineering service performance obligations are satisfied as work is performed and accepted by our customers . we recognize revenue net of allowances for returns and any taxes collected from customers , which are subsequently remitted to governmental authorities . we treat all product shipping and handling charges ( regardless of when they occur ) as activities to fulfill the promise to transfer goods , therefore we treat all shipping and handling charges as expenses . licensing revenues : we earn revenue from licensing our internally developed intellectual property ( “ ip ” ) . we enter into ip licensing agreements that generally provide licensees the right to incorporate our ip components in their products , with terms and conditions that vary by licensee . fees under these agreements may include license fees relating to our ip , and royalties payable to us following the distribution by our licensees of products incorporating the licensed technology . the license for our ip has standalone value and can be used by the licensee without maintenance and support . for technology license arrangements that do not require significant modification or customization of the underlying technology , we recognize technology license revenue when the license is made available to the customer and the customer has a right to use that license . at the end of each reporting period , we record unbilled license fees , using prior royalty revenue data by customer to make accurate estimates of those royalties . explicit return rights are not offered to customers . there have been no returns through december 31 , 2019. engineering services : for technology license or sensor module contracts that require modification or customization of the underlying technology to adapt that technology to customer use , we determine whether the technology license or sensor module , and engineering consulting services represent separate performance obligations . we perform our analysis on a contract-by-contract basis . if there are separate performance obligations , we determine the standalone selling price ( “ ssp ” ) of each separate performance obligation to properly recognize revenue as each performance obligation is satisfied . we provide engineering consulting services to our customers under a signed statement of work ( “ sow ” ) . deliverables and payment terms are specified in each sow . we generally charge an hourly rate for engineering services , and we recognize revenue as engineering services specified in contracts are completed and accepted by our customers . any upfront payments we receive for future non-recurring engineering services are recorded as unearned revenue until that revenue is earned . 17 we believe that recognizing non-recurring engineering services revenues as progress towards completion of engineering services and customer acceptance of those services occurs best reflects the economics of those transactions , because engineering services as tracked in our systems correspond directly with the value to our customers of our performance completed to date . hours performed for each engineering project are tracked and reflect progress made on each project and are charged at a consistent hourly rate . revenues from engineering services contracts that are short-term in nature are recorded when those services are complete and accepted by customers . revenues from engineering services contracts with substantive defined deliverables for which payment terms in the sow are commensurate with the efforts required to produce such deliverables are recognized as they are completed and accepted by customers . estimated losses on all sow projects are recognized in full as soon as they become evident . in the years ended december 31 , 2019 and 2018 , no losses related to sow projects were recorded . sensor modules revenues : we earn revenue from sales of sensor modules hardware products to our oem , odm and tier 1 supplier customers , who embed our hardware into their products , and from sales of branded consumer products that incorporate our sensor modules sold through distributors or directly to end users . these distributors are generally given business terms that allow them to return unsold inventory , receive credits for changes in selling prices , and participate in various cooperative marketing programs . our sales agreements generally provide customers with limited rights of return and warranty provisions . the timing of revenue recognition related to airbar modules depends upon how each sale is transacted - either point-of-sale or through distributors . we recognize revenue for airbar modules sold point-of-sale ( online sales and other direct sales to customers ) when we provide the promised product to the customer . because we generally use distributors to provide airbar and sensor modules to our customers , however , we analyze the terms of distributor agreements to determine when control passes from us to our distributors . for sales of airbar and sensor modules sold through distributors , revenues are recognized when our distributors obtain control over our products . control passes to our distributors when we have a present right to payment for products sold to distributors , the distributors have legal title to and physical possession of products purchased from us , and the distributors have significant risks and rewards of ownership of products purchased . distributors participate in various cooperative marketing and other incentive programs , and we maintain estimated accruals and allowances for these programs . story_separator_special_tag if actual credits received by distributors under these programs were to deviate significantly from our estimates , which are based on historical experience , our revenue could be adversely affected . under u.s. gaap , companies may make reasonable aggregations and approximations of returns data to accurately estimate returns . our airbar returns and warranty experience to date has enabled us to make reasonable returns estimates , which are supported by the fact that our product sales involve homogenous transactions . the reserve for future sales returns is recorded as a reduction of our accounts receivable and revenue and was insignificant as of december 31 , 2019 and 2018. if the actual future returns were to deviate from the historical data on which the reserve had been established , our revenue could be adversely affected . accounts receivable and allowance for doubtful accounts our accounts receivable is stated at net realizable value . our policy is to maintain allowances for estimated losses resulting from the inability of our customers to make required payments . 18 inventory inventory is stated at the lower of cost or net realizable value , using the first-in , first-out method ( “ fifo ” ) valuation method . net realizable value is the estimated selling prices in the ordinary course of business , less reasonably predictable costs of completion , disposal , and transportation . any adjustments to reduce the cost of inventories to their net realizable value are recognized in earnings in the current period . in 2018 , after a comprehensive evaluation of our airbar business we recorded a $ 0.4 million write-down for obsolete or slow moving airbar component and finished goods inventory which is included in our cost of goods sold . in 2019 , we wrote down advance payments for a module component and an additional reservation of slow moving airbar components bought from a producing partner which together amounted to $ 0.3 million , which is included in our cost of goods . as of december 31 , 2019 , the company 's inventory consists primarily of components that will be used in the manufacturing of our sensor modules . we segregate inventory for reporting purposes by raw materials , work-in-process , and finished goods . investment in joint venture we invested $ 3,000 , a 50 % interest in neoeye ab . we account for our investment using the equity method of accounting since the investment provides us the ability to exercise significant influence , but not control , over the investee . we are not required to guarantee any obligations of the jv and there have been no operations of neoeye through december 31 , 2019. projects in process projects in process consist of costs incurred toward the completion of various projects for certain customers . these costs are primarily comprised of direct engineering labor costs and project-specific equipment costs . these costs are capitalized on our balance sheet as an asset and deferred until revenue for each project is recognized in accordance with our revenue recognition policy . costs capitalized in projects in process were $ 8,000 and $ 0 as of december 31 , 2019 and 2018 , respectively . 19 property and equipment property and equipment are stated at cost , net of accumulated depreciation and amortization . depreciation and amortization are computed using the straight-line method based upon estimated useful lives of the assets as follows : estimated useful lives computer equipment 3 years furniture and fixtures 5 years equipment 7 years equipment purchased under a finance lease is depreciated over the term of the lease , if that lease term is shorter than the estimated useful life . upon retirement or sale of property and equipment , cost and accumulated depreciation and amortization are removed from the accounts and any gains or losses are reflected in the consolidated statement of operations . maintenance and repairs are charged to expense as incurred . long-lived assets we assess any impairment by estimating the future cash flows from the associated asset in accordance with relevant accounting guidance . if the estimated undiscounted future cash flow related to these assets decreases or the useful life is shorter than originally estimated , we may incur charges for impairment of these assets . as of december 31 , 2019 , we believe there was no impairment of our long-lived assets . there can be no assurance , however , that market conditions will not change or sufficient demand for our products and services will continue , which could result in impairment of long-lived assets in the future . research and development research and development ( “ r & d ” ) costs are expensed as incurred . r & d costs consist mainly of personnel related costs in addition to some external consultancy costs such as testing , certifying and measurements . stock-based compensation expense we measure the cost of employee services received in exchange for an award of equity instruments , including share options , based on the estimated fair value of the award on the grant date , and recognize the value as compensation expense over the period the employee is required to provide services in exchange for the award , usually the vesting period , net of estimated forfeitures . we account for equity instruments issued to non-employees at their estimated fair value . when determining stock-based compensation expense involving options and warrants , we determine the estimated fair value of options and warrants using the black-scholes option pricing model . non-controlling interests we recognize any non-controlling interest , also known as a minority interest , as a separate line item in equity in the consolidated financial statements . a non-controlling interest represents the portion of equity ownership in a less-than-wholly owned subsidiary not attributable to us . generally , any interest that holds less than 50 % of the outstanding voting shares is deemed to be a non-controlling interest ; however , there are other factors , such as decision-making rights , that are considered as well .
| as of december 31 , 2019 , we had entered into forty-two technology license agreements with global oems , odms and tier 1 suppliers and sixteen of our customers are currently shipping products . this compares with forty-one technology license agreements with global oems , odm 's and tier 1 suppliers as of december 31 , 2018. we expect to continue to earn license fees in future years and anticipate our customers will continue to release new products that embed our technology under a license agreement . license fees were the majority of our total revenue in the past three years and decreased by 25 % in 2019 as compared to 2018 , primarily due to a 87 % decrease in license fees earned from our e-reader customers and 27 % decrease in license fees earned from our printer customers partially offset by a 13 % increase in license fees from our automotive customers . in addition to license fees , a portion of our revenues is attributable embedded sensor modules which we began selling in october 2017. we are focusing our efforts on markets such as medical technology , industrial control systems and avionics . during 2017 , we entered into a u.s. distribution agreement with digi-key and they currently have a range of sensor modules and development kits for sale . we currently have supply agreements for sensor modules with three customers . we sold $ 560,000 and $ 227,000 of sensor modules in 2019 and 2018 , respectively . our revenues from license fees and sensor module sales may be negatively impacted in 2020 due to the outbreak of coronavirus ( covid-19 ) . many of our customers source their components from suppliers in china . uncertainty about the availability of these components , or the future demand for products due to a negative economic impact from the global spread of the coronavirus , may cause our customers to alter their purchasing decisions and reduce demand for their products , thereby adversely affecting our future results of operations . 25 non-recurring engineering fees ( “ nre ” ) decreased
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the after-tax earnings from operations for the maryland credit services operation were $ 887,000 , or $ 0.03 per share in fiscal 2010. all revenue , expenses and income reported in these financial statements have been adjusted to reflect reclassification of these discontinued operations . 28 critical accounting policies the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities , related revenue and expenses , and disclosure of gain and loss contingencies at the date of the financial statements . such estimates and assumptions are subject to a number of risks and uncertainties , which may cause actual results to differ materially from the company 's estimates . the significant accounting policies that the company believes are the most critical to aid in fully understanding and evaluating its reported financial results include the following : principles of consolidation - the accompanying consolidated financial statements of the company include the accounts of its wholly-owned subsidiaries . during fiscal 2012 , 75 pawn stores were acquired in eight acquisitions . during fiscal 2011 , eleven pawn stores were acquired in two acquisitions . all significant intercompany accounts and transactions have been eliminated . the results of operations for these acquired stores have been consolidated with the company 's results of operations since the acquisitions . customer loans and revenue recognition - receivables on the balance sheet consist of pawn loans and consumer loans . pawn loans are collateralized by pledge d tangible personal property . the company accrues pawn loan fee revenue on a constant-yield basis over the life of the pawn for all pawns that the company deems collection to be probable based on historical pawn redemption statistics . the typical pawn loan has an initial term of 30 days , which , depending on state law , can generally be extended from 15 to 60 days . if the pawn is not repaid , the principal amount loaned becomes the carrying value of the forfeited collateral , which is recovered through sales to other customers at prices above the carrying value . the company 's pawn merchandise sales are primarily retail sales to the general public in its pawn stores . the company acquires pawn merchandise inventory through forfeited pawns and through purchases of used goods directly from the general public . the company records sales revenue at the time of the sale . the company presents merchandise sales net of any sales or value-added taxes collected . the company does not provide financing to customers for the purchase of its merchandise , but does permit its customers to purchase merchandise on an interest-free layaway plan . should the customer fail to make a required payment , the previous payments are forfeited to the company . interim payments from customers on layaway sales are recorded as deferred revenue and subsequently recorded as income during the period in which final payment is received or when previous payments are forfeited to the company . the company melts some jewelry and sells the precious metal content at either prevailing market commodity prices or a previously agreed upon price with a commodity buyer . the company records revenue from these transactions when a price has been agreed upon and the company ships the jewelry to the buyer . the company recognizes credit services fees ratably over the life of the extension of credit made by the independent lender . the extensions of credit made by the independent lender to credit services customers have terms of 7 to 35 days . the company records a liability for any collected , but unearned , credit services fees received from its customers . the company accrues consumer loan service fees on a constant-yield basis over the term of the consumer loan . consumer loans have terms that range from 7 to 365 days . credit loss provisions - the company has determined no allowance related to credit losses on pawn loans is required , as the fair value of the collateral is significantly in excess of the pawn loan amount . under the cso program , letters of credit issued by the company to the independent lender constitute a guarantee for which the company is required to recognize , at the inception of the guarantee , a liability for the fair value of the obligation undertaken by issuing the letters of credit . the independent lender may present the letter of credit to the company for payment if the customer fails to repay the full amount of the extension of credit and accrued interest after the due date of the extension of credit . each letter of credit expires approximately 30 days after the due date of the extension of credit . the company 's maximum loss exposure under all of the outstanding letters of credit issued on behalf of its customers to the independent lender as of december 31 , 2012 , was $ 17,464,000 . according to the letter of credit , if the borrower defaults on the extension of credit , the company will pay the independent lender the principal , accrued interest , insufficient funds fees , and late fees , all of which the company records in the consumer loan and credit services loss provision . the company is entitled to seek recovery directly from its customers for amounts it pays the independent lender in performing under the letters of credit . the company records the estimated fair value of the liability under the letters of credit in accrued liabilities . an allowance is provided for losses on active consumer loans and service fees receivable based upon expected default rates , net of estimated future recoveries of previously defaulted consumer loans and service fees receivable . story_separator_special_tag the company considers consumer loans to be in default if they are not repaid on the due date and writes off the principal amount and service fees receivable as of the default date , leaving only active advances in the reported balance . net defaults and changes in the consumer loan allowance are charged to the consumer loan loss provision . 29 inventories - inventories represent merchandise acquired from forfeited pawns and merchandise purchased directly from the public . inventories from forfeited pawns are recorded at the amount of the pawn principal on the unredeemed goods , exclusive of accrued interest . inventories purchased directly from customers are recorded at cost . the cost of inventories is determined on the specific identification method . inventories are stated at the lower of cost or market ; accordingly , inventory valuation allowances are established , if necessary , when inventory carrying values are in excess of estimated selling prices , net of direct costs of disposal . management has evaluated inventories and determined that a valuation allowance is not necessary . goodwill - goodwill represents the excess of the purchase price over the fair value of the net assets acquired in each business combination . the company performs its goodwill impairment assessment annually as of december 31 , and between annual assessments if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount . the company 's reporting units , which are tested for impairment , are u.s. pawn operations , u.s. consumer loan operations and mexico operations . the company assesses goodwill for impairment at a reporting unit level by first assessing a range of qualitative factors , including , but not limited to , macroeconomic conditions , industry conditions , the competitive environment , changes in the market for the company 's products and services , regulatory and political developments , entity specific factors such as strategy and changes in key personnel , and overall financial performance . if , after completing this assessment , it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value , the company proceeds to the two-step impairment testing methodology . long-lived assets - property and equipment and non-current assets are reviewed for impairment whenever events or changes in circumstances indicate that the net book value of the asset may not be recoverable . an impairment loss is recognized if the sum of the expected future cash flows ( undiscounted and before interest ) from the use of the asset is less than the net book value of the asset . generally , the amount of the impairment loss is measured as the difference between the net book value of the asset and the estimated fair value of the related asset . the company has not recorded any impairment loss for the fiscal years ended december 31 , 2012 , 2011 and 2010 . stock-based compensation - all share-based payments to employees , including grants of employee stock options , are recognized in the financial statements based on the grant-date fair value . the company recognizes compensation cost net of estimated forfeitures and recognizes the compensation cost for only those awards expected to vest on a straight-line basis over the requisite service period of the award , which is generally the vesting term . guarantees - the company has determined that the letters of credit issued by the company to the independent lender as part of the cso program constitute a guarantee for which the company is required to recognize a liability for the fair value of the obligation undertaken by issuing the letters of credit . each letter of credit is issued at the time that the company 's credit services customer enters into an extension of credit agreement with the independent lender . the independent lender may present the letter of credit to the company for payment if the customer fails to repay the full amount of the loan and accrued interest after the due date of the extension of credit . each letter of credit expires approximately 30 days after the due date of the extension of credit . the company is entitled to seek recovery directly from its customers for amounts it pays the independent lender in performing under the letters of credit . the company records the estimated fair value of the liability under the letters of credit as a component of accrued liabilities . the independent lender is considered a variable interest entity of the company . the net loans outstanding represent less than 50 % of the independent lender 's total assets . in addition , the company does not have any ownership interest in the independent lender , does not exercise control over it and is not the primary beneficiary and , therefore , does not consolidate the independent lender 's results with its results . foreign currency transactions - the company has significant operations in mexico , where the functional currency for the company 's mexican subsidiaries is the mexican peso . the assets and liabilities of these subsidiaries are translated into u.s. dollars at the exchange rate in effect at each balance sheet date , and the resulting adjustments are accumulated in other comprehensive income ( loss ) as a separate component of stockholders ' equity . revenue and expenses are translated at the monthly average exchange rates occurring during each month . prior to translation , any u.s. dollar-denominated transactions of the mexican-based subsidiaries are remeasured into mexican pesos using current rates of exchange for monetary assets and liabilities and historical rates of exchange for non-monetary assets and liabilities . gains and losses from remeasurement of dollar-denominated monetary assets and liabilities in mexico are included in store operating expenses . the company 's management reviews and analyzes certain operating results , in mexico , on a constant currency basis because the company believes this better represents the company 's underlying business trends .
| replace_table_token_9_th ( 1 ) cso amounts outstanding are composed of the principal portion of active cso extensions of credit by an independent third-party lender , which are not included on the company 's balance sheet , net of the company 's estimated fair value of its liability under the letters of credit guaranteeing the extensions of credit . store operations the overall increase in year-over-year revenue of 18 % ( constant currency basis ) was due to a combination of same-store revenue growth and revenue from new and acquired pawn stores . overall , same-store revenue grew ( on a constant currency basis ) by 1 % , including 1 % in the united states and 2 % in mexico . excluding wholesale scrap jewelry sales , same-store revenue increased 7 % in mexico , 5 % in the u.s. and 6 % overall , on a constant currency basis . same-store pawn service fees increased 10 % on a consolidated basis , with 11 % growth in mexico and 7 % growth in the u.s. , on a constant currency basis . same-store retail sales ( on a constant currency basis ) increased 5 % in mexico , increased 4 % in the u.s. and increased 5 % in total . same-store scrap revenue ( on a constant currency basis ) decreased 16 % in total , with an 11 % decrease in the u.s. and a 21 % decrease in mexico . the company believes that it will continue to experience overall growth in pawn revenue in fiscal 2013 from acquisitions , the opening of new stores and maturation of existing stores . revenue generated by the stores opened or acquired since january 1 , 2011 , increased by $ 49,573,000 in mexico and $ 35,675,000 in the united states , compared to the same period last year . revenue from pawn loan fees increased 29 % on a constant currency basis , which was composed of a 22 % increase in the united states and a 34 % increase in mexico . the increase was primarily the result
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our technology & analytics solutions offerings that rely on face-to-face interactions or are dependent on in-person gatherings , events or conferences continue to experience disruption , and where we were unable to execute on our commitments due to covid-19 , we were not able to recognize the associated revenue in the period . activity within the contract sales and medical solutions business continues to be more challenging due to a decline in sales rep visits , and physician attention diverted to the covid-19 crisis . we have accelerated and expanded a variety of cost containment actions to reduce the impact to profitability . we have activated business continuity plans , including remote delivery capabilities in technology and analytics , remote monitoring and virtual trials in research & development solutions and virtual commercial activity with clients wherever possible . we anticipate an acceleration of business momentum when the crisis subsides as delayed trial activities will still need to be performed . the company continues to maintain strong liquidity . as of december 31 , 2020 , cash and cash equivalents were $ 1,814 million and the company had no amounts drawn under its $ 1.5 billion revolving credit facility . at december 31 , 2020 , the company was in compliance with the financial covenants under its debt agreements in all material respects and does not have material uncertainty about ongoing ability to meet the covenants of our credit arrangements . to help ensure the safety and well-being of our employees , customers , partners and the broader community and continuity of our business operations , we continue to monitor health authority guidance on mitigating the spread of covid-19 and managing positive cases . we manage our response to the pandemic through a combination of enterprise-wide and regional governance teams , with particular focus on the medical and scientific , information technology , human capital and financial impacts of the pandemic on our business . these teams met , and continue to meet , regularly as necessary based on the status of the pandemic . we closely monitor the impact of covid-19 on our operations and report to our board regularly on the progress of our response to the covid-19 outbreak . we have established global workplace protocols that govern the return of our employees to our offices . 46 business combinations we have completed and will continue to consider strategic business combinations to enhance our capabilities and offerings in certain areas , including various individually immaterial acquisitions during the years ended december 31 , 2020 and 2019. these transactions were accounted for as business combinations and the acquired results of operations are included in our consolidated financial information since the acquisition date . see note 14 to our audited consolidated financial statements included elsewhere in this annual report on form 10-k for additional information with respect to these business combinations . sources of revenue total revenues are comprised of revenues from the provision of our services . we do not have any material product revenues . costs and expenses our costs and expenses are comprised primarily of our costs of revenue , reimbursed expenses and selling , general and administrative expenses . costs of revenue include compensation and benefits for billable employees and personnel involved in production , trial monitoring , data management and delivery , and the costs of acquiring and processing data for our information offerings ; costs of staff directly involved with delivering technology-related services offerings and engagements , related accommodations and the costs of data purchased specifically for technology services engagements ; and other expenses directly related to service contracts such as courier fees , laboratory supplies , professional services and travel expenses . as noted above , reimbursed expenses are comprised principally of payments to investigators who oversee clinical trials and travel expenses for our clinical monitors and sales representatives . selling , general and administrative expenses include costs related to sales , marketing , and administrative functions ( including human resources , legal , finance , quality assurance , compliance and general management ) for compensation and benefits , travel , professional services , training and expenses for information technology , facilities and depreciation and amortization . foreign currency translation in 2020 , approximately 35 % of our revenues were denominated in currencies other than the united states dollar , which represents approximately 60 currencies . because a large portion of our revenues and expenses are denominated in foreign currencies and our financial statements are reported in united states dollars , changes in foreign currency exchange rates can significantly affect our results of operations . the revenue and expenses of our foreign operations are generally denominated in local currencies and translated into united states dollars for financial reporting purposes . accordingly , exchange rate fluctuations will affect the translation of foreign results into united states dollars for purposes of reporting our condensed consolidated results . as a result , we believe that reporting results of operations that exclude the effects of foreign currency rate fluctuations on certain financial results can facilitate analysis of period to period comparisons . this constant currency information assumes the same foreign currency exchange rates that were in effect for the comparable prior-year period were used in translation of the current period results . story_separator_special_tag audited consolidated financial statements included elsewhere in this annual report on form 10-k. see “ —liquidity and capital resources ” for more information on these transactions . other expense ( income ) , net replace_table_token_13_th other income , net for 2020 primarily consisted of a decrease in fair value of acquisition-related contingent consideration , mark-to-market gains on equity securities , a decrease in foreign currency losses , and a gain on investments in mutual funds . other income , net for 2019 primarily consisted of a gain related to the remeasurement of a previously held equity interest of an equity method investment upon acquiring the remaining interest as a result of a business combination . story_separator_special_tag income tax expense ( benefit ) replace_table_token_14_th in 2020 , the u.s. treasury department issued final regulations regarding foreign derived intangible income ( “ fdii ” ) and global intangible low-taxed income ( “ gilti ” ) . we have determined we will elect the gilti high tax exception as allowed by the final regulations and we will amend our 2018 and 2019 us federal consolidated income tax returns resulting in a favorable impact of $ 26 million , which we recorded in 2020 . 49 in 2019 the u.s. treasury department issued final regulations on the transition tax and proposed regulations on foreign derived intangible income ( “ fdii '' ) which we analyzed . while the final regulations related to the transition tax did not have a material impact on us , the proposed guidance for fdii had an unfavorable impact . although the proposed guidance for fdii is not authoritative and subject to change in the regulatory review process , we reversed the tax benefit recorded in 2018 by recording a tax expense of $ 25 million for this impact . equity in earnings ( losses ) of unconsolidated affiliates replace_table_token_15_th equity in earnings ( losses ) of unconsolidated affiliates increased in 2020 compared to 2019 primarily due to higher earnings from our investment in novaquest pharma opportunities fund iii . net income attributable to non-controlling interests replace_table_token_16_th net income attributable to non-controlling interests primarily consists of quest 's interest in q 2 solutions . segment results of operations revenues and profit by segment are as follows : replace_table_token_17_th certain costs are not allocated to our segments and are reported as general corporate and unallocated expenses . these costs primarily consist of stock-based compensation and expenses to integration activities and acquisitions . we also do not allocate depreciation and amortization or impairment charges to our segments . prior period segment results have been recast to conform to changes to management reporting in 2019. the recast impacts the allocation of selling , general and administrative expenses for 2018 . 50 technology & analytics solutions replace_table_token_18_th revenues 2020 compared to 2019 technology & analytics solutions ' revenues were $ 4,858 million in 2020 , an increase of $ 372 million , or 8.3 % , over 2019. this increase was comprised of constant currency revenue growth of approximately $ 365 million , or 8.1 % , reflecting revenue growth in the europe and africa region as well as the americas region . the revenue growth in these regions was driven by higher real-world and analytical services . see part ii—item 7— “ overview of the impact of covid-19 '' included elsewhere in this annual report on form 10-k for a discussion of the impact from covid-19 on technology & analytics solutions business activity . costs of revenue , exclusive of depreciation and amortization 2020 compared to 2019 technology & analytics solutions ' costs of revenue , exclusive of depreciation and amortization , were $ 2,900 million in 2020 , an increase of $ 237 million over 2019. this increase was comprised of constant currency increase of approximately $ 232 million , or 8.7 % , reflecting an increase in compensation and related expenses to support revenue growth . selling , general and administrative expenses 2 020 compared to 2019 technology & analytics solutions ' selling , general and administrative expenses increased $ 20 million in 2020 as compared to 2019. this increase was comprised of a constant currency increase of approximately $ 23 million , or 3.2 % , reflecting an increase in compensation and related expenses . research & development solutions replace_table_token_19_th backlog research & development solutions contracted backlog increased from $ 19.0 billion at december 31 , 2019 to $ 22.6 billion at december 31 , 2020 and we expect approximately $ 5.9 billion of this backlog to convert to revenue in the next 12 months . contracted backlog was $ 17.1 billion at december 31 , 2018 . 51 backlog represents , at a particular point in time , future revenues from work not yet completed or performed under signed contracts . once work begins on a project , revenues are recognized over the duration of the project . we believe that backlog is an indicator of future revenues but the timing of revenue will be affected by a number of factors , including the variable size and duration of projects , many of which are performed over several years , cancellations , and changes to the scope of work during the course of projects . projects that have been delayed remain in backlog , but the timing of the revenue generated may differ from the timing originally expected . additionally , projects may be terminated or delayed by the customer or delayed by regulatory authorities . in the event that a client cancels a contract , we typically would be entitled to receive payment for all services performed up to the cancellation date and subsequent client-authorized services related to winding down the canceled project . for more details regarding risks related to our backlog , see part i , item ia , “ risk factors—risks related to our business—the relationship of backlog to revenues varies over time. ” revenues 2020 compared to 2019 research & development solutions ' revenues were $ 5,760 million in 2020 , a decrease of $ 28 million , or 0.5 % , over 2019. this decrease was comprised of constant currency revenue decline of approximately $ 38 million , or 0.7 % , reflecting volume-related decreases in clinical services and lab testing impacted by covid-19 , largely offset by the incremental revenue from the clinical trials and studies to support the development of vaccines and therapies for covid-19 . see part ii—item 7— “ overview of the impact of covid-19 '' included elsewhere in this annual report on form 10-k for a discussion of the impact from covid-19 on research & development solutions business activity .
| as a percent of revenues , costs of revenue remained flat compared to 2019. selling , general and administrative expenses replace_table_token_8_th 2020 compared to 2019 the $ 55 million increase in selling , general and administrative expenses in 2020 as compared to 2019 included a constant currency increase of approximately $ 62 million , or 3.6 % , comprised of a $ 23 million increase in technology & analytics solutions , a $ 31 million increase in research & development solutions , and a $ 12 million increase in general corporate and unallocated expenses . these increases were partially offset by a $ 4 million decrease in contract sales & medical solutions . depreciation and amortization replace_table_token_9_th the $ 85 million increase in depreciation and amortization in 2020 as compared to 2019 was primarily due to higher intangible asset balances as a result of acquisitions occurring in 2019 , increased amortization due to higher capitalized software balances , and accelerated depreciation on an internal-use software asset in the first quarter of 2020. restructuring costs replace_table_token_10_th 48 the restructuring costs incurred were due to ongoing efforts to streamline our global operations . the remaining actions under these plans are expected to occur throughout 2021 and are expected to consist of consolidating functional activities , eliminating redundant positions , and aligning resources with customer requirements . interest income and interest expense replace_table_token_11_th interest income included interest received primarily from bank balances and investments . interest expense during 2020 was lower than 2019 due to lower interest rates attributed to lower libor rates and the redemption of the $ 800 million of 4.875 % senior notes due 2023 , partially offset by an increase in the average debt outstanding . loss on extinguishment of debt replace_table_token_12_th during 2020 , we recognized loss on extinguishment of debt of $ 13 million for fees and expenses related to the refinancing of our 3.500 % senior notes due 2024 as discussed further in note 10 to our audited consolidated financial statements included elsewhere in this annual report on form 10-k. during 2019 , we recognized loss on extinguishment of debt of $ 24 million for fees and expenses related to the redemption of
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the subscription agreements contain representations , warranties , and covenants of the purchasers and the company that are customary in private placement transactions . in total , therefore , the company issued 306,977 shares of common stock , 1,155,283 shares of series b preferred stock and the warrant at the conclusion of the private placement . the transaction raised $ 20.8 million in gross proceeds and the final net cash received from the private placement , after all issuance expenses , including placement fees and all other issuance/due diligence costs of - 32 - $ 927,000 and $ 342,000 , respectively , was $ 19.6 million . the fair value of the warrant at the time of issuance was $ 373,000. following the private placement , the company use d the net cash received from the transaction to strengthen the company 's general capital and liquidity positions , fund growth within our marketplace , purchase certain loan assets , and i ncrease the regulatory capital position of the bank . the company will continue to use the additional capital raised through the private placement primarily to support the realization of continued growth opportunities within our marketplace and , to a lesser extent , for general corporate purposes . on may 8 , 2019 , the company filed articles supplementary with the maryland department of assessments and taxation to issue 1,155,283 shares of series b preferred stock to castle creek . each share of the series b preferred stock will be convertible on a one-for-one basis into either ( i ) common stock under certain circumstances or ( ii ) non-voting common stock , par value $ 0.01 per share ( which will also be convertible into common stock ) , subject to approval of the creation of such class of non-voting common stock by the company 's stockholders . pursuant to nasdaq rules , castle creek may not convert the series b preferred stock or , in the future , the non-voting common stock into common stock , or exercise the warrant if doing so would cause castle creek , when combined with the purchases of certain directors and executive officers of the company as well as other accredited investors in the private placement , to own more than 19.99 % of the common stock outstanding immediately prior to the execution of the securities purchase agreement ( the “ exchange cap ” ) . the company must request stockholder approval to eliminate the exchange cap no later than at the 2021 annual meeting of company shareholders . in addition , castle creek will need the approval or non-objection of the board of governors of the federal reserve system and the new york state department of financial services if it seeks to increase its ownership of shares of common stock in excess of 9.9 % of the outstanding shares of common stock . holders of the series b preferred stock will be entitled to receive dividends if declared by the company 's board of directors , in the same per share amount as paid on the common stock . no dividends would be payable on the common stock unless a dividend identical to that paid on the common stock is payable at the same time on the series b preferred stock . the series b preferred stock will rank , as to payments of dividends and distribution of assets upon dissolution , liquidation or winding up of the company , pari passu with the common stock pro rata . holders of series b preferred stock will have no voting rights except as may be required by law . the series b preferred stock will not be redeemable by either the company or by the holder . as discussed above , pursuant to the securities purchase agreement , on may 8 , 2019 , the company issued a warrant to castle creek to purchase 125,000 shares of common stock at an exercise price equal to $ 14.25 per share . at the same time , the company entered into a warrant agreement with castle creek , to , among other things , authorize and establish the terms of the warrant . the warrant is exercisable at any time after may 8 , 2019 , and from time to time , in whole or in part , until may 8 , 2026. however , the exercise of such warrant remains subject to certain contractual provisions , the exchange cap , and regulatory approval if castle creek 's ownership of common stock would exceed 9.9 % . at december 31 , 2019 , castle creek owned approximately 9.9 % of the company 's common stock . the warrant will receive dividends equal to the amount paid on the company 's common stock . the dividend payment shall be calculated on ( 1 ) the unexercised portion of the 125,000 notional shares encompassed within the terms of the warrant , less ( 2 ) any exercised portion of the 125,000 shares , times ( 3 ) the amount of the quarterly dividend paid to common shareholders . dividend payments , if declared on the company 's common stock , will be made on the warrant until its expiration date . pursuant to the terms of the securities purchase agreement , castle creek is entitled to have one representative appointed to the company 's board of directors for so long as castle creek , together with its respective affiliates , owns , in the aggregate , 4.9 % or more of all of the outstanding shares of the company 's common stock . if castle creek , together with its respective affiliates , owns , in the aggregate , 4.9 % or more of all of the outstanding shares of the company 's common stock and does not have a board representative appointed to the company 's board of directors , the company will invite a person designated by castle creek to attend meetings of the company 's board of directors as an observer . story_separator_special_tag at december 31 , 2019 , castle creek elected to have an observer present at substantially all meetings of the company 's board of directors . we have consistently maintained our historically strong presence in consumer deposit gathering and residential mortgage lending activities . notwithstanding the retention of these business lines , we have strategically emphasized developing our business and commercial banking franchise by offering products that are attractive to small-to medium-sized businesses in our market area . we differentiate our commercial loan solutions and related services through the maintenance of high standards of customer service , solution flexibility and convenience . highlights of our business strategy are as follows : continuing our emphasis on commercial business and commercial real estate lending . in recent years , we have successfully increased our commercial business and commercial real estate lending activities and portfolio size , consistent with safe and sound underwriting practices . in this regard , we have added , and will continue to add , personnel who are experienced in originating , underwriting and servicing commercial real estate and commercial business loans . we view the growth of our commercial business and commercial real estate loans as a means of further diversifying and increasing our interest income . in increasing our business banking activities , we are continuously deepening relationships with local businesses , which offer recurring and potentially increasing sources of both fee income and lower-cost transactional - 33 - deposits . in that regard , our emphasis on commercial business and commercial real estate lending has complimented , and will continue to compliment , our traditional one-to-four family residential real estate lending and consumer deposit gathering franchise s . 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 . 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 the bank and the flexibility that such access brings to their businesses . optimizing our deposit mix . we seek to enhance the overall characteristics of our organically-sourced deposit base by emphasizing both consumer and business nonmaturity deposit gathering . we also seek to reduce our overall reliance on borrowed funds and brokered deposits as a source of funding for future asset growth . during the second half of 2019 , we began a significant refocusing of the company 's resources , most notably through personnel training , modifications to incentive programs , and the high prioritization of operationalizing and or enhancing customer-facing technologies that are focused on transactional deposits . the goal of these efforts is to better position the company to compete in our marketplace for these types of deposits in future periods . we expect to make nonmaturity deposit gathering a point of significant organizational focus for the foreseeable future . continuing to grow our customer relationships and deposit base by expanding our branch network . as conditions permit , we will expand our branch network through a combination of de novo branching and , potentially , acquisitions of branches and or other financial services companies . we believe that as we expand our branch network , our customer relationships and deposit base will continue to grow . our branch expansion focus will be primarily within onondaga county , ny , which encompasses the greater syracuse , ny area . we currently have three branches in onondaga county , including the branch in clay , ny that we opened in the fourth quarter of 2018. we continue to actively seek opportunities for an increased presence within that marketplace . this is consistent with our belief that we have already achieved meaningful brand recognition among potential customers there . in addition to the full-service branches located in oswego and onondaga counties , we opened , in 2017 , a loan production office in utica , located in oneida county , ny , to increase our availability to potential commercial and business loan customers within that market area . we will continue to seek similar branch network expansion opportunities in the future . consistent with this strategy , in november 2018 , the bank acquired a property on west onondaga street in syracuse , which will be renovated and converted into another full-service banking location . we consider the syracuse southwest corridor neighborhood , where this property is located , to be an under-banked area within our target marketplace and believe that this branch will qualify for various economic incentives under new york state 's banking development district ( “ bdd ” ) program . the bdd program is designed to encourage the establishment of bank branches in areas where there is a demonstrated need for additional banking services . the program was developed in recognition of the fact that banks play a critically important role in promoting individual wealth , community development , and revitalization . this property investment demonstrates pathfinder bank 's firm commitment to servicing diverse economic areas within its geographic market . we plan to soon begin renovation work on the acquired facility and expect to open our new syracuse southwest branch office by the end of 2020. diversifying our products and services with a goal of increasing non-interest income over time . we have sought to reduce our dependence on net interest income by increasing fee-based income across a broad spectrum of loan and deposit products . it is expected that we will also benefit from increased ancillary income for service activities related to those products . the company completed a comprehensive study in late 2019 to better understand and monitor the competitive environment for these types of noninterest income opportunities and to improve its product design and customer relationship optimization strategies .
| net interest income , before provision for loan losses , increased $ 2.5 million , or 9.6 % , to $ 28.2 million in 2019 on average interest earning assets of $ 948.0 million as compared to net interest income before provision for loan losses of $ 25.8 million in 2018 on average interest earning assets of $ 852.1 million . interest and dividend income increased $ 6.9 million in 2019 to $ 41.8 million , as compared to interest and dividend income of $ 34.8 million in 2018. the aggregate increase in the average balance of interest-earning assets of $ 95.9 million was further enhanced by an increase of 31 basis points in the overall average yield earned on those assets that contributed an increase in interest and dividend income in 2019 , as compared to the previous year . the $ 6.9 million increase in interest income was partially offset by an increase in interest expense of $ 4.5 million due to an increase in average interest-bearing liabilities of $ 80.1 million and an increase in the average rate paid on those liabilities of 43 basis points in 2019 as compared to 2018. the company recorded a provision for loan losses of $ 2.0 million in 2019 as compared to $ 1.5 million in the prior year . the $ 469,000 year-over-year increase in provision for loan losses reflected continued significant growth in the bank 's commercial and consumer lending portfolios , as well as changes to both quantitative and environmental factors deemed appropriate for the bank 's loan portfolio . net loan balances increased 26.0 % from december 31 , 2018 to december 31 , 2019. the company recorded $ 603,000 in net charge-offs in 2019 as compared to $ 1.3 million in net charge-offs in 2018. the ratio of net charge-offs to average loans decreased to 0.09 % in 2019 from 0.22 % in 2018. the decrease in the year-over-year charge-off rate was due primarily to the charge-off in 2018 of a single fully-reserved commercial real estate loan in the amount of $ 596,000 and the charge-off of a
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net income increased 14.4 % in fiscal 2016 as compared to fiscal 2015 , primarily due to a decrease of $ 43.1 million in our provision for income taxes , as well as an increase in operating income of $ 35.5 million , partially offset by the impact of increased interest expense attributable to our debt . net income per diluted share increased 13.6 % , to $ 1.65 , primarily due to higher net income . excluding non-gaap charges , net income and net income per diluted share increased 3.8 % and 3.1 % , respectively . the impact of the 53rd week contributed approximately $ 0.07 to net income per diluted share . currency fluctuation effects the change in net sales in fiscal 2016 has been presented both including and excluding currency fluctuation effects . net sales net sales increased 7.2 % or $ 300.2 million to $ 4.49 billion in fiscal 2016 , inclusive of the favorable impact of the 53rd week in fiscal 2016 , which resulted in incremental net revenues of $ 84.4 million . excluding the effects of foreign currency , net sales increased 9.1 % or $ 382.1 million . this increase was primarily due to the inclusion of a full year impact of the stuart weitzman brand and gains in the international business , partially offset by lower sales in north america . the following table presents net sales by reportable segment for fiscal 2016 compared to fiscal 2015 : replace_table_token_13_th ( 1 ) net sales in the other category , which is not a reportable segment , consists of coach brand sales generated in licensing and disposition channels . nm - not meaningful net sales for the coach brand , which includes the north america and international segments , as well as sales in the other category , remained relatively flat in fiscal 2016 as compared to fiscal 2015 , as described below . excluding the unfavorable impact of foreign currency , net sales increased 1.8 % . north america net sales decreased 2.9 % or $ 70.4 million to $ 2.40 billion in fiscal 2016 . excluding the unfavorable impact of foreign currency due to the canadian dollar , net sales decreased $ 50.7 million or 2.1 % . the following discussion is presented excluding the favorable impact of the 53rd week to net sales of $ 43.7 million and the impact of foreign currency . the decrease in net sales was primarily driven by lower comparable store sales of $ 70.0 million or 3.3 % , primarily due to lower traffic , partially offset by higher transaction size and improved conversion . excluding the negative impact of the internet business on comparable store sales , which was primarily attributable to the impact of reduced outlet internet events , comparable store sales decreased 3.0 % . comparable store sales measure sales performance at stores that have been open for at least 12 months , and includes sales from the internet . coach excludes new locations from the comparable store base for the first twelve months of operation . comparable store sales have not been adjusted for store expansions . additionally , north america net sales declined by approximately $ 14 34 million due to the net impact of store closures and openings . since the end of fiscal 2015 , north america closed a net 30 retail stores . north america sales were also negatively impacted by lower wholesale sales of approximately $ 10.1 million , due to lower volume of shipments . international net sales increased 5.1 % or $ 82.0 million to $ 1.70 billion in fiscal 2016 . excluding the unfavorable impact of foreign currency , primarily within asia , net sales increased $ 139.9 million or 8.6 % . the following discussion is presented excluding the favorable impact of the 53rd week to net sales of $ 32.1 million and the impact of foreign currency . this increase was primarily due to an increase of $ 53.8 million in europe due to an expanded wholesale and store distribution network and higher comparable store sales , an increase in greater china ( which includes hong kong and macau ) of $ 30.7 million due to net new stores and positive comparable store sales in mainland china , partially offset by declines in hong kong and macau due to a continued slowdown in inbound tourist traffic , an increase in asia ( excluding greater china and japan ) of $ 14.7 million due to the impact of net new store openings and an increase in japan of $ 11.9 million due to overall higher transaction size and improved levels of customer conversion ( particularly in retail ) contributing to higher comparable store sales . since the end of fiscal 2015 , we opened 19 net new stores , with 13 net new stores in mainland china , hong kong and macau and japan , and 6 net new stores in the other regions . stuart weitzman net sales increased $ 301.7 million to $ 344.7 million in fiscal 2016 , including the favorable impact of the 53rd week in fiscal 2016 , which resulted in incremental net revenues of $ 7.4 million . this increase was due to the inclusion of a full fiscal year impact of the stuart weitzman brand , compared to approximately two months in the prior fiscal year . gross profit gross profit increased 4.9 % or $ 142.7 million to $ 3.05 billion in fiscal 2016 from $ 2.91 billion in fiscal 2015 . gross margin for fiscal 2016 was 67.9 % as compared to 69.4 % in fiscal 2015 . excluding non-gaap charges of $ 1.1 million in fiscal 2016 and $ 9.7 million in fiscal 2015 , as discussed in the `` gaap to non-gaap reconciliation '' herein , gross profit increased 4.6 % or $ 134.1 million to $ 3.05 billion from $ 2.92 billion in fiscal 2015 , and gross margin was 68.0 % in fiscal 2016 as compared to 69.6 % in fiscal 2015 . story_separator_special_tag the gross margin decline of 150 basis points ( or 160 basis points excluding non-gaap items ) was primarily due to the unfavorable effects of foreign currency on the coach brand , and the inclusion of the stuart weitzman business in our full year fiscal 2016 results ( which contains lower gross margins compared to the coach brand ) . gross profit for the coach brand , which includes the north america and international segments , as well as other and corporate unallocated results , decreased 1.4 % or $ 39.8 million to $ 2.85 billion in fiscal 2016. furthermore , gross margin for the coach brand decreased 90 basis points from 69.6 % in fiscal 2015 to 68.7 % in the fiscal 2016 , inclusive of an unfavorable 100 basis point foreign currency impact , as described below . north america gross profit decreased 6.1 % or $ 96.2 million to $ 1.48 billion in fiscal 2016 . gross margin decreased 210 basis points from 63.8 % in fiscal 2015 to 61.7 % in fiscal 2016 . the decrease in gross margin is primarily attributable to increased promotional activity , primarily in our outlet and wholesale channels , negatively impacting gross margin by 240 basis points , partially offset by the impact of an improved mix of elevated product sales and higher initial mark-ups , primarily in our outlet stores , favorably impacting gross margin by 40 basis points . international gross profit in creased 3.0 % or $ 37.4 million to $ 1.29 billion in fiscal 2016 . gross margin decreased 150 basis points from 77.0 % in fiscal 2015 to 75.5 % in fiscal 2016 . foreign currency negatively impacted gross margin by 210 basis points , primarily due to the japanese yen . excluding the impact of foreign currency , international gross margin increased 60 basis points , primarily due to the favorable effects of decreased duty costs , positively impacting gross margin by 70 basis points . furthermore , an improved mix of elevated product sales , particularly in greater china and japan , positively impacted gross margin by 50 basis points . these increases were partially offset by a less favorable geographic mix of our sales , negatively impacting gross margin by 40 basis points , particularly as a result of the growth of our europe and international wholesale businesses . corporate unallocated gross profit increased $ 24.8 million from $ 27.2 million in fiscal 2015 to $ 52.0 million in fiscal 2016 , primarily due to the impact of favorable inventory production variances , decreased transformation-related charges and decreased inventory reserve charges . stuart weitzman gross profit was $ 202.4 million in fiscal 2016 , and $ 19.9 in fiscal 2015 , due to the inclusion of a full fiscal year impact of the stuart weitzman brand , compared to approximately two months in the prior fiscal year . furthermore , gross margin was 58.7 % in fiscal 2016 , compared to 46.4 % in the short acquisition year of fiscal 2015 ( which included the short-term impact of the amortization of the fair value of the inventory step-up ) . selling , general and administrative expenses sg & a expenses are comprised of four categories : ( i ) selling ; ( ii ) advertising , marketing and design ; ( iii ) distribution and customer service ; and ( iv ) administrative . selling expenses include store employee compensation , occupancy costs , supply costs , wholesale and retail account administration compensation globally and coach international operating expenses . these expenses are affected by the number of stores open during any fiscal period and store performance , as compensation and rent expenses vary 35 with sales . advertising , marketing and design expenses include employee compensation , media space and production , advertising agency fees , new product design costs , public relations and market research expenses . distribution and customer service expenses include warehousing , order fulfillment , shipping and handling , customer service , employee compensation and bag repair costs . administrative expenses include compensation costs for “ corporate ” functions including : executive , finance , human resources , legal and information systems departments , as well as corporate headquarters occupancy costs , consulting fees and software expenses . administrative expenses also include global equity compensation expense . the company includes inbound product-related transportation costs from our service providers within cost of sales . the company , similar to some companies , includes certain transportation-related costs related to our distribution network in sg & a expenses rather than in cost of sales ; for this reason , our gross margins may not be comparable to that of entities that include all costs related to their distribution network in cost of sales . sg & a expenses increased 4.7 % or $ 107.2 million to $ 2.40 billion in fiscal 2016 as compared to $ 2.29 billion in fiscal 2015 . as a percentage of net sales , sg & a expenses decreased to 53.4 % during fiscal 2016 as compared to 54.6 % during fiscal 2015 . excluding non-gaap adjustments of $ 122.0 million in fiscal 2016 and $ 160.8 million in fiscal 2015 , as discussed in the `` gaap to non-gaap reconciliation '' herein , sg & a expenses increased 6.9 % or $ 146.0 million from fiscal 2015 ; and sg & a expenses as a percentage of net sales remained relatively flat at 50.7 % in fiscal 2016 compared to 50.8 % in fiscal 2015 . selling expenses were $ 1.57 billion , or 35.1 % of net sales , in fiscal 2016 compared to $ 1.53 billion , or 36.6 % of net sales , in fiscal 2015 .
| as the company 's business model is based on multi-channel and brand global distribution , our success does not depend solely on the performance of a single channel or geographic area . we are focused on driving long-term growth and best in class profitability through the following key initiatives : drive brand relevance transform the coach brand into a modern luxury brand by continuing to evolve across the key consumer touchpoints of product , stores and marketing . reinvigorate growth and brand relevance through our differentiated positioning , which combines our history of heritage and craftsmanship with stuart vevers 's modern creative vision . raise brand awareness and increase market share for the stuart weitzman brand globally , building upon the company 's strong momentum and core brand equities of fusing fashion with fit . grow our business internationally continue to increase the coach brand 's penetration internationally , most notably in mainland china and europe . support the development of the stuart weitzman brand , particularly in asia . harness the power of the digital world continue to accelerate the development of our digital programs and capabilities world-wide , reflecting the change in consumer shopping behavior globally . build an infrastructure to support future growth initiatives create an agile and scalable business model to support sustainable/future growth for coach , inc. 29 transformation plan during the fourth quarter of fiscal 2014 , coach , inc. announced a multi-year strategic plan with the objective of transforming the coach brand and reinvigorating growth , which we believe will enable the company to return to ‘ best-in-class ' profitability . this transformation plan was built on the core brand equities of quality and craftsmanship with the aim of evolving our competitive value proposition . we believe our strategy offers significant growth opportunities in handbags and accessories , as well as in the broader set of lifestyle categories that we have operated in for some time but have historically been less developed , including footwear and ready-to-wear . this strategy required an integrated holistic approach , across product , stores and marketing and promotional activities , and entails the roll-out of carefully crafted aspirational marketing campaigns to define
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compared to fiscal 2016 , the u.s. dollar strengthened against various currencies during fiscal 2017 , resulting in unfavorable currency translation and u.s. dollar revenue 28 growth that was approximately 1 % lower than our revenue growth in local currency for the year . however , when compared to the three months ended august 31 , 2016 , the u.s. dollar weakened against various currencies resulting in minimal currency translation impact during the fourth quarter of fiscal 2017. assuming that exchange rates stay within recent ranges , we estimate that our full fiscal 2018 revenue growth in u.s. dollars will be approximately 3 % higher than our revenue growth in local currency . the primary categories of operating expenses include cost of services , sales and marketing and general and administrative costs . cost of services is primarily driven by the cost of client-service personnel , which consists mainly of compensation , subcontractor and other personnel costs , and non-payroll costs on outsourcing contracts . cost of services includes a variety of activities such as : contract delivery ; recruiting and training ; software development ; and integration of acquisitions . sales and marketing costs are driven primarily by : compensation costs for business development activities ; marketing- and advertising-related activities ; and certain acquisition-related costs . general and administrative costs primarily include costs for non-client-facing personnel , information systems , office space and certain acquisition-related costs . utilization for fiscal 2017 was 91 % , flat with fiscal 2016 . we continue to hire to meet current and projected future demand . we proactively plan and manage the size and composition of our workforce and take actions as needed to address changes in the anticipated demand for our services and solutions , given that compensation costs are the most significant portion of our operating expenses . based on current and projected future demand , we have increased our headcount , the majority of which serve our clients , to approximately 425,000 as of august 31 , 2017 , compared to approximately 384,000 as of august 31 , 2016 . the year-over-year increase in our headcount reflects an overall increase in demand for our services and solutions , as well as headcount added in connection with acquisitions . attrition , excluding involuntary terminations , for fiscal 2017 was 14 % , flat with fiscal 2016 . we evaluate voluntary attrition , adjust levels of new hiring and use involuntary terminations as means to keep our supply of skills and resources in balance with changes in client demand . in addition , we adjust compensation in certain skill sets and geographies in order to attract and retain appropriate numbers of qualified employees . for the majority of our personnel , compensation increases become effective december 1st of each fiscal year . we strive to adjust pricing and or the mix of resources to reduce the impact of compensation increases on our gross margin . our ability to grow our revenues and maintain or increase our margin could be adversely affected if we are unable to : keep our supply of skills and resources in balance with changes in the types or amounts of services and solutions clients are demanding ; recover increases in compensation ; deploy our employees globally on a timely basis ; manage attrition ; and or effectively assimilate and utilize new employees . gross margin ( net revenues less cost of services before reimbursable expenses as a percentage of net revenues ) for fiscal 2017 was 31.7 % , compared with 31.3 % for fiscal 2016 . the increase in gross margin for fiscal 2017 was principally due to lower labor costs as a percentage of net revenues compared to the same period in fiscal 2016 . sales and marketing and general and administrative costs as a percentage of net revenues were 16.9 % for fiscal 2017 , compared with 16.6 % for fiscal 2016 . we continuously monitor these costs and implement cost-management actions , as appropriate . for fiscal 2017 compared to fiscal 2016 , sales and marketing costs as a percentage of net revenues decreased 10 basis points , and general and administrative costs as a percentage of net revenues increased 40 basis points , principally due to higher technology and facilities costs , as well as higher acquisition-related costs . during fiscal 2017 , we recorded a $ 510 million pension settlement charge and related $ 198 million reduction in taxes for the u.s. pension plan termination . for additional information , see note 10 ( retirement and profit sharing plans ) to our consolidated financial statements under item 8 , “ financial statements and supplementary data. ” operating margin ( operating income as a percentage of net revenues ) for fiscal 2017 was 13.3 % , compared with 14.6 % for fiscal 2016 . the pension settlement charge decreased operating margin by 150 basis points for fiscal 2017 . excluding the effect of the pension settlement charge , operating margin for fiscal 2017 would have been 14.8 % . during fiscal 2016 , we recorded a $ 548 million gain on sale of business and $ 56 million in taxes related to the divestiture of our navitaire business , as well as a $ 301 million gain on sale of business and $ 48 million in taxes related to the partial divestiture of our duck creek business . for additional information , see note 5 ( business combinations and divestitures ) to our consolidated financial statements under item 8 , “ financial statements and supplementary data. ” the effective tax rate for fiscal 2017 was 21.3 % , compared with 22.4 % for fiscal 2016 . absent the pension settlement charge and related taxes described above , our effective tax rate for fiscal 2017 would have been 23.0 % . absent the gain on sale of our navitaire and duck creek businesses and related taxes described above , our effective tax rate for fiscal 2016 would have been 24.2 % . story_separator_special_tag for additional information , see note 9 ( income taxes ) to our consolidated financial statements under item 8 , “ financial statements and supplementary data. ” 29 diluted earnings per share were $ 5.44 for fiscal 2017 , compared with $ 6.45 for fiscal 2016 . the pension settlement charge , net of taxes , decreased diluted earnings per share by $ 0.47 in fiscal 2017 . the gain on sale of businesses , net of taxes , increased diluted earnings per share by $ 1.11 in fiscal 2016 . excluding these impacts , diluted earnings per share would have been $ 5.91 and $ 5.34 for fiscal 2017 and 2016 , respectively . we have presented operating income , operating margin , effective tax rate and diluted earnings per share excluding the impacts of the fiscal 2017 pension settlement charge and the fiscal 2016 gain on sale of businesses , as we believe doing so facilitates understanding as to both the impacts of these items and our operating performance in comparison to the prior period . our operating income and diluted earnings per share are affected by currency exchange rate fluctuations on revenues and costs . most of our costs are incurred in the same currency as the related net revenues . where practical , we seek to manage foreign currency exposure for costs not incurred in the same currency as the related net revenues , such as the costs associated with our global delivery model , by using currency protection provisions in our customer contracts and through our hedging programs . we seek to manage our costs , taking into consideration the residual positive and negative effects of changes in foreign exchange rates on those costs . for more information on our hedging programs , see note 7 ( derivative financial instruments ) to our consolidated financial statements under item 8 , “ financial statements and supplementary data. ” bookings and backlog new bookings for fiscal 2017 were $ 37.4 billion , with consulting bookings of $ 19.8 billion and outsourcing bookings of $ 17.6 billion . we provide information regarding our new bookings , which include new contracts , including those acquired through acquisitions , as well as renewals , extensions and changes to existing contracts , because we believe doing so provides useful trend information regarding changes in the volume of our new business over time . new bookings can vary significantly quarter to quarter depending in part on the timing of the signing of a small number of large outsourcing contracts . the types of services and solutions clients are demanding and the pace and level of their spending may impact the conversion of new bookings to revenues . for example , outsourcing bookings , which are typically for multi-year contracts , generally convert to revenue over a longer period of time compared to consulting bookings . information regarding our new bookings is not comparable to , nor should it be substituted for , an analysis of our revenues over time . new bookings involve estimates and judgments . there are no third-party standards or requirements governing the calculation of bookings . we do not update our new bookings for material subsequent terminations or reductions related to bookings originally recorded in prior fiscal years . new bookings are recorded using then-existing foreign currency exchange rates and are not subsequently adjusted for foreign currency exchange rate fluctuations . the majority of our contracts are terminable by the client on short notice , and some without notice . accordingly , we do not believe it is appropriate to characterize bookings attributable to these contracts as backlog . normally , if a client terminates a project , the client remains obligated to pay for commitments we have made to third parties in connection with the project , services performed and reimbursable expenses incurred by us through the date of termination . 30 critical accounting policies and estimates the preparation of our consolidated financial statements in conformity with u.s. generally accepted accounting principles requires 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 consolidated financial statements and the reported amounts of revenues and expenses . we continually evaluate our estimates , judgments and assumptions based on available information and experience . because the use of estimates is inherent in the financial reporting process , actual results could differ from those estimates . certain of our accounting policies require higher degrees of judgment than others in their application . these include certain aspects of accounting for revenue recognition and income taxes . revenue recognition our contracts have different terms based on the scope , deliverables and complexity of the engagement , the terms of which frequently require us to make judgments and estimates in recognizing revenues . we have many types of contracts , including time-and-materials contracts , fixed-price contracts and contracts with features of both of these contract types . in addition , some contracts include incentives related to costs incurred , benefits produced or adherence to schedules that may increase the variability in revenues and margins earned on such contracts . we conduct rigorous reviews prior to signing such contracts to evaluate whether these incentives are reasonably achievable . we recognize revenues from technology integration consulting contracts using the percentage-of-completion method of accounting , which involves calculating the percentage of services provided during the reporting period compared with the total estimated services to be provided over the duration of the contract . our contracts for technology integration consulting services generally span six months to two years . estimated revenues used in applying the percentage-of-completion method include estimated incentives for which achievement of defined goals is deemed probable . this method is followed where reasonably dependable estimates of revenues and costs can be made . estimates of total contract revenues and costs are continuously monitored during the term of the contract , and recorded revenues and estimated costs are subject to revision as the contract progresses .
| 34 products net revenues increased 14 % in local currency , driven by very strong growth across all industry groups and geographic regions , led by consumer goods , retail & travel services , as well as life sciences in north america and industrial in europe . resources net revenues increased 1 % in local currency , led by utilities in europe , partially offset by declines in energy across all geographic regions . geographic regions north america net revenues increased 4 % in local currency , driven by the united states . europe net revenues increased 8 % in local currency , led by the united kingdom and germany , as well as france , spain and switzerland . growth markets net revenues increased 12 % in local currency , led by japan , as well as australia , singapore and china . operating expenses operating expenses for fiscal 2017 increased $ 2,146 million , or 7 % , over fiscal 2016 , and increased as a percentage of revenues to 87.4 % from 86.2 % during this period . operating expenses before reimbursable expenses for fiscal 2017 increased $ 2,145 million , or 8 % , over fiscal 2016 , and increased as a percentage of net revenues to 86.7 % from 85.4 % during this period . cost of services cost of services for fiscal 2017 increased $ 1,215 million , or 5 % , over fiscal 2016 , and decreased as a percentage of revenues to 70.0 % from 70.5 % during this period . cost of services before reimbursable expenses for fiscal 2017 increased $ 1,214 million , or 5 % , over fiscal 2016 , and decreased as a percentage of net revenues to 68.3 % from 68.7 % during this period . gross margin for fiscal 2017 increased to 31.7 % from 31.3 % in fiscal 2016. the increase in gross margin for fiscal 2017 was principally due to lower labor costs as a percentage of net revenues , compared to fiscal 2016 . sales and marketing sales and marketing expense for fiscal 2017 increased $ 174 million , or 5 % , over
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among the more significant risks managed by the company are losses arising from loans not being repaid , commonly referred to as credit risk , and losses of income arising from movements in interest rates , commonly referred to as interest rate and market risk. the company is also exposed to national and local economic conditions , downturns in the economy , or adverse changes in real estate markets , which could negatively impact its business , financial condition , results of operations or liquidity . 40 management has numerous policies and control processes in place that provide for the monitoring and mitigation of risks based upon and driven by a variety of assumptions and actions which , if changed or altered , could impact the company 's business , financial condition , results of operations or liquidity . the foregoing matters are more fully discussed in part i , item 1a , risk factors , and throughout this annual report on form 10-k. summary financial results for the year ended december 31 , 2011 , the company reported net income available to common shareholders of $ 11,043 compared with $ 10,009 for the year ended december 31 , 2010 , representing an increase of $ 1,034 , or 10.3 % . the company 's 2011 diluted earnings per share amounted to $ 2.85 compared with $ 2.61 in 2010 , representing an increase of $ 0.24 , or 9.2 % . the company 's 2011 return on average shareholders ' equity amounted to 9.94 % compared with 10.07 % in 2010. the company 's 2011 return on average assets amounted to 0.96 % , compared with 0.98 % in 2010. the increase in 2011 earnings compared with 2010 was principally attributed to a $ 2,680 or 8.5 % increase in net interest income , reflecting average earning asset growth of $ 61,894 or 5.9 % and a five basis point improvement in the net interest margin . the provision for loan losses was up $ 68 in 2011 , or 2.9 % . the company 's non-interest income declined $ 666 in 2011 or 8.9 % , which was principally attributed to a $ 759 decline in securities gains net of other than temporary impairment ( otti ) losses . the company 's non-interest expenses increased $ 1,235 or 5.6 % in 2011 , of which $ 621 was attributed to higher levels of salaries and employee benefits . the company 's 2011 efficiency ratio was 55.0 % , improved from 55.5 % in 2010. the company 's total assets ended the year at $ 1,167,466 representing an increase of $ 49,533 , or 4.4 % , compared with december 31 , 2010. asset growth was largely attributed to increases in the bank 's consumer , residential real estate and commercial loan portfolios , which were up $ 18,489 , $ 8,365 and $ 6,979 , respectively . the bank 's securities portfolio increased $ 23,998 in 2011 , or 6.7 % . the bank 's total non-performing loans ended the year at $ 12,907 , down from $ 13,677 at december 31 , 2010. the bank 's 2011and 2010 loan loss experience exceeded its historical norms with net loan charge-offs amounting to $ 2,674 , or 0.37 % of total average loans , compared with $ 1,641 and 0.24 % in 2010 , respectively . one commercial real estate loan to a local , non-profit housing authority in support of an affordable housing project accounted for $ 1,822 or 68.1 % of the bank 's 2011 charge-offs . at december 31 , 2011 , the allowance for loan losses stood at $ 8,221 , compared with $ 8,500 at december 31 , 2010. at december 31 , 2011 , the allowance expressed as a percentage of total loans stood at 1.13 % , compared with 1.21 % at december 31 , 2010. the bank 's total deposits ended the year at $ 722,890 , up $ 14,562 , or 2.1 % , compared with december 31 , 2010. the bank 's low cost now accounts and demand deposits posted meaningful increases in 2011 , up $ 16,464 and $ 2,298 , or 19.9 % and 3.8 % , respectively . time certificates of deposit were up only $ 844 or 0.2 % in 2011 as the bank lowered its level of time deposits obtained from the national markets . savings and money market accounts declined $ 5,044 or 2.4 % in 2011 , which management believes was largely attributed to historically low interest rates and competitive pricing considerations . 41 at december 31 , 2011 , the company and the bank continued to exceed regulatory requirements for well-capitalized financial institutions . under the capital adequacy guidelines administered by the bank 's principal regulators , well-capitalized institutions are those with tier i leverage , tier i risk-based , and total risk-based ratios of at least 5 % , 6 % and 10 % , respectively . at december 31 , 2011 , the company 's tier i leverage , tier i risk-based , and total risk-based capital ratios were 9.32 % , 14.29 % and 16.06 % , respectively . at december 31 , 2011 , the company 's tangible common equity ratio stood at 9.89 % , up from 9.01 % at december 31 , 2010. application of critical accounting policies management 's discussion and analysis of the company 's financial condition and results of operations are based on the consolidated financial statements , which are prepared in accordance with u.s. generally accepted accounting principles . the preparation of such financial statements requires management to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues and expenses and related disclosure of contingent assets and liabilities . management evaluates its estimates , including those related to the allowance for loan losses , on an ongoing basis . story_separator_special_tag management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis in making judgments about the carrying values of assets that are not readily apparent from other sources . actual results could differ from the amount derived from management 's estimates and assumptions under different assumptions or conditions . the company 's significant accounting policies are more fully enumerated in note 1 to the consolidated financial statements included in item 8 of this annual report on form 10-k. the reader of the financial statements should review these policies to gain a greater understanding of how the company 's financial performance is reported . management believes the following critical accounting policies represent the more significant estimates and assumptions used in the preparation of the consolidated financial statements : allowance for loan losses : the allowance for loan losses ( allowance ) is a significant accounting estimate used in the preparation of the company 's consolidated financial statements . the allowance , which is established through a provision for loan loss expense , is based on management 's evaluation of the level of allowance required in relation to the estimated inherent risk of probable loss in the loan portfolio . management regularly evaluates the allowance for adequacy by taking into consideration factors such as previous loss experience , the size and composition of the portfolio , current economic and real estate market conditions and the performance of individual loans in relation to contract terms and estimated fair values of collateral . the use of different estimates or assumptions could produce different provisions for loan losses . a smaller provision for loan losses results in higher net income , and when a greater amount of provision for loan losses is necessary , the result is lower net income . refer to part ii , item 7 , allowance for loan losses and provision , and part ii , item 8 , note 3 , loans and allowance for loan losses , of the consolidated financial statements , in this annual report on form 10-k , for further discussion and analysis concerning the allowance . other-than-temporary impairments on securities : one of the significant estimates related to investment securities is the evaluation of other-than-temporary impairments . the evaluation of securities for other-than-temporary impairments is a quantitative and qualitative process , which is subject to risks and uncertainties and is intended to determine whether declines in the fair value of investments should be recognized in current period earnings . the risks and uncertainties include changes in general economic conditions , the issuer 's financial condition and or future prospects , the effects of changes in interest rates or credit spreads and the expected recovery period of unrealized losses . 42 securities that are in an unrealized loss position , are reviewed at least quarterly to determine if an other-than-temporary impairment is present based on certain quantitative and qualitative factors and measures . the primary factors considered in evaluating whether a decline in value of securities is other-than-temporary include : ( a ) the cause of the impairment ; ( b ) the financial condition , credit rating and future prospects of the issuer ; ( c ) whether the debtor is current on contractually obligated interest and principal payments ; ( d ) the volatility of the securities fair value ; ( e ) performance indicators of the underlying assets in the security including default rates , delinquency rates , percentage of non-performing assets , loan to collateral value ratios , third party guarantees , current levels of subordination , vintage , and geographic concentration and ; ( f ) any other information and observable data considered relevant in determining whether other-than-temporary impairment has occurred , including the expectation of the receipt of all principal and interest due . for securitized financial assets with contractual cash flows , such as private-label mortgage-backed securities , the company periodically updates its best estimate of cash flows over the life of the security . the company 's best estimate of cash flows is based upon assumptions consistent with an economic recession , similar to those the company believes market participants would use . if the fair value of a securitized financial asset is less than its cost or amortized cost and there has been an adverse change in timing or amount of anticipated future cash flows since the last revised estimate to the extent that the company does not expect to receive the entire amount of future contractual principal and interest , an other-than-temporary impairment charge is recognized in earnings representing the estimated credit loss if management does not intend to sell the security and believes it is more-likely-than-not the company will not be required to sell the security prior to recovery of cost or amortized cost . estimating future cash flows is a quantitative and qualitative process that incorporates information received from third party sources along with certain assumptions and judgments regarding the future performance of the underlying collateral . in addition , projections of expected future cash flows may change based upon new information regarding the performance of the underlying collateral . refer to part ii , item 7 , impaired securities , and part ii , item 8 , note 1 of the consolidated financial statements in this annual report on form 10-k , for further discussion and analysis concerning other-than-temporary impairments . income taxes : the company estimates its income taxes for each period for which a statement of income is presented . this involves estimating the company 's actual current tax liability , as well as assessing temporary differences resulting from differing timing of recognition of expenses , income and tax credits , for tax and accounting purposes . these differences result in deferred tax assets and liabilities , which are included in the company 's consolidated balance sheets .
| increases in the cash value of the policies , as well as insurance proceeds received in excess of the cash value , are recorded in other non-interest income , and are not subject to income taxes . the cash surrender value of the boli is included on the company 's consolidated balance sheet . at december 31 , 2011 , the cash surrender value of boli amounted to $ 7,377 , compared with $ 7,112 at december 31 , 2010 , representing an increase of $ 265 , or 3.7 % , compared with december 31 , 2010. other assets the company 's other assets are principally comprised of accrued interest receivable , prepaid fdic insurance assessments , deferred income taxes and other real estate owned . at december 31 , 2011 total other assets amounted to $ 13,391 , compared with $ 15,223 at december 31 , 2010 , representing a decline of $ 1,832 , or 12.0 % . the decline in other assets principally attributed to declines in deferred income taxes and prepaid fdic insurance assessments amounting to $ 2,622 and $ 1,027 compared with december 31 , 2010 , respectively . these declines were offset in part by a $ 2,043 increase in other real estate owned compared with december 31 , 2010. funding sources the bank utilizes various traditional sources of funding to support its earning asset portfolios . funding sources principally consist of retail deposits and , to a lesser extent , borrowings from the federal home loan bank of boston ( fhlb ) of which it is a member , the federal reserve bank of boston ( federal reserve ) , and certificates of deposit obtained from the national market . according to a january 2012 report prepared by the maine bureau of financial institutions , maine banks rely on borrowings and other types of non-core funding to a much greater degree than the national average , as maine banks ' historical core deposit growth has not kept pace with earning asset growth . 62 while the bank has had a long and successful track record in managing its liquidity and funding its earning asset portfolios , management believes
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the preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities , contingent assets and liabilities , and revenue and expenses during the reporting periods . the policies discussed below are considered by management to be critical because they are not only important to the portrayal of our financial condition and results of operations , but also because application and interpretation of these policies requires both management judgment and estimates of matters that are inherently uncertain and unknown . as a result , actual results may differ materially from our estimates . revenue recognition , sales returns and allowances , and bad debt reserves we derive revenue principally from sales of interactive software games , and related content and services on ( 1 ) video game consoles ( such as playstation 3 and 4 from sony and xbox 360 and xbox one from microsoft ) and pcs , and ( 2 ) mobile phones and tablets . we evaluate revenue recognition based on the criteria set forth in fasb accounting standards codification ( “ asc ” ) 605 , revenue recognition and asc 985-605 , software : revenue recognition . we classify our revenue as either product revenue or service and other revenue . 26 product revenue . our product revenue includes revenue associated with the sale of software games or related content , whether delivered via a physical disc ( e . g . , packaged goods ) or delivered digitally via the internet ( e.g. , full-game downloads , micro-transactions ) , and licensing of game software to third-parties . product revenue also includes revenue from mobile full game downloads that do not require our hosting support , and sales of tangible products such as hardware , peripherals , or collectors ' items . service and other revenue . our service revenue includes revenue recognized from time-based subscriptions and games or related content that requires our hosting support in order to utilize the game or related content ( i.e . , can only be played with an internet connection ) . this includes ( 1 ) entitlements to content that are accessed through hosting services ( e.g. , micro-transactions for internet-based , social network and mobile games ) , ( 2 ) massively multi-player online ( “ mmo ” ) games ( both software game and subscription sales ) , ( 3 ) subscriptions for our battlefield premium and pogo-branded online game services , and ( 4 ) allocated service revenue from sales of software games with an online service element ( i.e. , “ matchmaking ” service ) . our other revenue includes advertising and non-software licensing revenue . with respect to the allocated service revenue from sales of software games with a matchmaking service mentioned above , our allocation of proceeds between product and service revenue for presentation purposes is based on management 's best estimate of the selling price of the matchmaking service with the residual value allocated to product revenue . our estimate of the selling price of the matchmaking service is comprised of several factors including , but not limited to , prior selling prices for the matchmaking service , prices charged separately by other third-party vendors for similar service offerings , and a cost-plus-margin approach . we review the estimated selling price of the online matchmaking service on a regular basis and use this methodology consistently to allocate revenue between product and service for software game sales with a matchmaking service . we evaluate and recognize revenue when all four of the following criteria are met : evidence of an arrangement . evidence of an agreement with the customer that reflects the terms and conditions to deliver the related products or services must be present . fixed or determinable fee . if a portion of the arrangement fee is not fixed or determinable , we recognize revenue as the amount becomes fixed or determinable . collection is deemed probable . collection is deemed probable if we expect the customer to be able to pay amounts under the arrangement as those amounts become due . if we determine that collection is not probable as the amounts become due , we generally conclude that collection becomes probable upon cash collection . delivery . delivery is considered to occur when a product is shipped and the risk of loss and rewards of ownership have transferred to the customer . for digital downloads , delivery is considered to occur when the software is made available to the customer for download . for services and other , delivery is generally considered to occur as the service is delivered , which is determined based on the underlying service obligation . online-enabled games the majority of our software games can be connected to the internet whereby a consumer may be able to download unspecified content or updates on a when-and-if-available basis ( “ unspecified updates ” ) for use with the original game software . in addition , we may also offer an online matchmaking service that permits consumers to play against each other via the internet without a separate fee . u.s. gaap requires us to account for the consumer 's right to receive unspecified updates or the matchmaking service for no additional fee as a “ bundled ” sale , or multiple-element arrangement . we have an established historical pattern of providing unspecified updates to online-enabled games ( e.g. , player roster updates to madden nfl 25 ) at no additional charge to the consumer . we do not have vendor-specific objective evidence of fair value ( “ vsoe ” ) for these unspecified updates , and thus , as required by u.s. gaap , we recognize revenue from the sale of these online-enabled games over the period we expect to offer the unspecified updates to the consumer ( “ estimated offering period ” ) . estimated offering period because the offering period is not an explicitly defined period , we must make an estimate of the offering period . story_separator_special_tag determining the estimated offering period is inherently subjective and is subject to regular revision based on historical online usage . for example , in determining the estimated offering period for unspecified updates associated with our online-enabled games , we 27 consider the period of time consumers are online as online connectivity is required . on an annual basis , we review consumers ' online gameplay of all online-enabled games that have been released 12 to 24 months prior to the evaluation date . for example , if our evaluation date is april 1 , 2013 , we evaluate all online-enabled games released between april 1 , 2011 and march 31 , 2012. based on this population of games , for all players that register the game online within the first six months of release of the game to the general public , we compute the weighted-average number of days for each online-enabled game , based on when a player initially registers the game online to when that player last plays the game online . we then compute the weighted-average number of days for all online-enabled games by multiplying the weighted-average number of days for each online-enabled game by its relative percentage of total units sold from these online-enabled games ( i.e. , a game with more units sold will have a higher weighting to the overall computation than a game with fewer units sold ) . under a similar computation , we also consider the estimated period of time between the date a game unit is sold to a reseller and the date the reseller sells the game unit to an end consumer ( i.e. , time in channel ) . based on these two calculations we then consider the method of distribution . for example , physical software games sold at retail would have a composite offering period equal to the online gameplay plus time in channel as opposed to digitally distributed software games which are delivered immediately via digital download and thus have no concept of channel . additionally , we consider results from prior years , known online gameplay trends , as well as disclosed service periods for competitors ' games in determining the estimated offering period for future sales . while we consistently apply this methodology , inherent assumptions used in this methodology include which online-enabled games to sample , whether to use only units that have registered online , whether to weight the number of days for each game , whether to weight the days based on the units sold of each game , determining the period of time between the date of sale to reseller and the date of sale to the consumer and assessing online gameplay trends . prior to july 1 , 2013 , for most sales , we estimated the offering period to be six months and recognized revenue over this period in the month after delivery . during the three months ended june 30 , 2013 , we completed our annual evaluation of the estimated offering period and noted that generally , consumers are playing our games online over a longer period of time . based on this , we concluded that for physical software sales made after june 30 , 2013 , the estimated offering period should be increased to nine months , resulting in revenue being recognized over a longer period of time . the estimated offering period for digitally distributed software games is six months . other multiple-element arrangements in some of our multiple-element arrangements , we sell tangible products with software and or software-related offerings . these tangible products are generally either peripherals or ancillary collectors ' items , such as figurines and comic books . revenue for these arrangements is allocated to each separate unit of accounting for each deliverable using the relative selling prices of each deliverable in the arrangement based on the selling price hierarchy described below . if the arrangement contains more than one software deliverable , the arrangement consideration is allocated to the software deliverables as a group and then allocated to each software deliverable in accordance with asc 985-605. we determine the selling price for a tangible product deliverable based on the following selling price hierarchy : vsoe ( i.e . , the price we charge when the tangible product is sold separately ) if available , third-party evidence ( “ tpe ” ) of fair value ( i.e . , the price charged by others for similar tangible products ) if vsoe is not available , or our best estimate of selling price ( “ besp ” ) if neither vsoe nor tpe is available . determining the besp is a subjective process that is based on multiple factors including , but not limited to , recent selling prices and related discounts , market conditions , customer classes , sales channels and other factors . in accordance with asc 605 , provided the other three revenue recognition criteria other than delivery have been met , we recognize revenue upon delivery to the customer as we have no further obligations . we must make assumptions and judgments in order to ( 1 ) determine whether and when each element is delivered , ( 2 ) determine whether vsoe exists for each undelivered element , and ( 3 ) allocate the total price among the various elements , as applicable . changes to any of these assumptions and judgments , or changes to the elements in the arrangement , could cause a material increase or decrease in the amount of revenue that we report in a particular period .
| diluted earnings per share for the fiscal year ended march 31 , 2014 was $ 0.03 as compared to a diluted earnings per share of $ 0.31 for the fiscal year ended march 31 , 2013 . net income decreased for fiscal year 2014 as compared to the fiscal year 2013 primarily as a result of ( 1 ) a $ 181 million decrease in gross profit due to an increase in our estimated offering period for physical games sold through retail after july 1 , 2013 and a higher percentage of our sales being subject to deferral , which further delayed the recognition of revenue , ( 2 ) a $ 56 million increase in general and administrative costs , and ( 3 ) a $ 39 million decrease in our gains on strategic investments due to the sale of our investment in neowiz during fiscal year 2013 . these increases in costs were partially offset by ( 1 ) a $ 108 million decrease in marketing and sales expenses primarily due to a decrease in headcount and reduced advertising and promotional spending on our franchises , ( 2 ) a $ 28 million decrease in research and development costs , and ( 3 ) a $ 28 million decrease in restructuring and other charges as a result of the fiscal 2013 restructuring plan in fiscal year 2013 as compared to none in fiscal year 2014 . trends in our business console system transition . in november 2013 , the playstation 4 from sony and xbox one from microsoft were released . ea delivered five major products for each of these new-generation console systems around the time of their launch , and we are continuing to make significant investments in products and services for these new consoles . we also expect to continue to develop and market products and services for the microsoft xbox 360 and the sony playstation 3. industry sales of major 25 games for these legacy consoles declined significantly during our 2014 fiscal year . this sales decline trend is likely
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interest income earned for the year ended october 31 , 2014 reflected interest income earned on the company 's savings account balance . changes in fair values for the year ended october 31 , 2015 , the company recorded non-cash expense from changes in the fair value of the warrant liability of $ 48,950 due to an increase in the fair value of liability warrants primarily resulting from a larger range of share prices used in the calculation of the black-scholes model ( “ bsm ” ) volatility input , as well as a significant increase in our share price from $ 3.18 at october 31 , 2014 to $ 11.09 at october 31 , 2015. this was partially offset by the expiration of some warrants . for the year ended october 31 , 2014 , the company recorded non-cash income from changes in the fair value of the warrant liability of $ 619,089 due to a decrease value of liability warrants due to a decrease in our share price from $ 3.74 at october 31 , 2013 to $ 3.18 at october 31 , 2014 , a smaller range of share prices used in the calculation of the bsm volatility input and the expiration of some warrants . income tax benefit we may be eligible , from time to time , to receive cash from the sale of our net operating losses ( “ nols ” ) under the state of new jersey nol transfer program . in december 2015 , the company received a net cash amount of $ 1,609,349 from the sale of its state nols and research and development tax credits for the period ended october 31 , 2014. in the year ended october 31 , 2014 , we received a net cash amount of $ 625,563 from the sale of its state nols and research and development tax credits for the periods ended october 31 , 2010 and 2011. in december 2014 , we received a net cash amount of $ 1,731,317 from the sale of our state nols and research and development tax credits for the years ended october 31 , 2012 and 2013. net loss we reported a net loss of $ 47.0 million , or $ 1.68 per share basic and diluted for the year ended october 31 , 2015 as compared to a net loss of $ 16.5 million , or $ 0.97 per share basic and diluted , for the year ended october 31 , 2014 . 35 liquidity and capital resources our major sources of cash have been proceeds from various public and private offerings of our common stock , option and warrant exercises , and interest income . from october 2013 through december 2016 , we raised approximately $ 221.8 million in gross proceeds from various public and private offerings of our common stock . we have not yet commercialized any drug , and we may not become profitable . our ability to achieve profitability depends on a number of factors , including our ability to complete our development efforts , obtain regulatory approvals for our drug , successfully complete any post-approval regulatory obligations , successfully compete with other available treatment options in the marketplace , overcome any clinical holds that the fda may impose and successfully manufacture and commercialize our drug alone or in partnership . we may continue to incur substantial operating losses even after we begin to generate revenues from our drug candidates . as of october 31 , 2016 , the company had approximately $ 152.1 million in cash , cash equivalents and investments on its balance sheet . we believe our current cash position is sufficient to fund our business plan approximately through the second quarter of fiscal 2019. the actual amount of cash that we will need to operate is subject to many factors . since our inception through october 31 , 2016 , we reported accumulated net losses of approximately $ 207.7 million and recurring negative cash flows from operations . we anticipate that we will continue to generate significant losses from operations for the foreseeable future . cash flows operating activities cash used in operating activities for the year ended october 31 , 2016 was approximately $ 9.1 million . spending associated with our clinical trial programs and general and administrative spending was partially offset by a $ 40 million upfront payment received from amgen in connection with the collaboration agreement as well as proceeds from the sale of our state nols and research and development ( r & d ) tax credits of approximately $ 1.6 million . cash used in operating activities for the year ended october 31 , 2015 was approximately $ 24.1 million ( including proceeds from the sale of our state nols and r & d tax credits of approximately $ 1.7 million ) primarily from spending associated with our clinical trial programs and general and administrative spending . cash used in operating activities for the year ended october 31 , 2014 was approximately $ 16.1 million ( including proceeds from the sale of our state nols and r & d tax credits of approximately $ 0.6 million ) primarily from spending associated with our clinical trial programs and general and administrative spending . total spending approximated $ 13.9 million , including one-time non-recurring costs associated with our october 2013 financing , march 2014 financing , certain compensation costs and the settlement of legal claims . investing activities cash provided by investing activities for the year ended october 31 , 2016 was approximately $ 1.6 million resulting from net proceeds from investments in held-to-maturity investments , purchases of property and equipment , construction of cleanroom and laboratory facilities , legal cost spending in support of our intangible assets ( patents ) and costs paid to penn for patents . story_separator_special_tag cash used in investing activities for the year ended october 31 , 2015 was approximately $ 47.4 million resulting from investments in held-to-maturity investments , purchases of property and equipment to support expansion , legal cost spending in support of our intangible assets ( patents ) and costs paid to penn for patents . cash used in investing activities , for the year ended october 31 , 2014 , was approximately $ 440,000 resulting from legal cost spending in support of our intangible assets ( patents ) and costs paid to penn for patents . financing activities cash provided by financing activities for the year ended october 31 , 2016 was approximately $ 53.7 million , resulting from the sale of 3,047,446 shares of our common stock to amgen resulting in net proceeds of approximately $ 25 million and a registered direct offering of 2,244,443 shares of our common stock resulting in net proceeds of approximately $ 28.2 million . in addition , approximately $ 614,000 in proceeds was received on option and warrant exercises . this was partially offset by approximately $ 36,000 of taxes paid related to the net share settlement of equity awards . cash provided by financing activities for the year ended october 31 , 2015 was approximately $ 120.5 million , resulting primarily from registered direct offerings of 8,806,165 shares of our common stock resulting in net proceeds of approximately $ 63.1 million and a public offering of 2,800,000 shares of common stock resulting in net proceeds of approximately $ 56.7 million . in addition , the company received approximately $ 2.4 million from the proceeds received on option and warrant exercises . this was partially offset by approximately $ 1.6 million of taxes paid related to the net share settlement of equity awards . cash provided by financing activities , for the year ended october 31 , 2014 , was approximately $ 13.6 million , primarily resulting from the public offering of 4,692,000 shares of common stock at $ 3.00 per share , resulting in net proceeds of $ 12.6 million . in addition , we sold 306,122 shares of common stock to aratana at a price of $ 4.90 per share , resulting in net proceeds of approximately $ 1.5 million . we also issued gbp 108,724 shares of common stock pursuant to a stock purchase agreement with gbp , resulting in net proceeds of approximately $ 0.4 million . this was partially offset by approximately $ 0.9 million of taxes paid related to the net share settlement of equity awards . 36 our capital resources and operations to date have been funded primarily with the proceeds from public , private equity and debt financings , nol tax sales and income earned on investments and grants . we have sustained losses from operations in each fiscal year since our inception , and we expect losses to continue for the indefinite future , due to the substantial investment in research and development . as of october 31 , 2016 and october 31 , 2015 , we had an accumulated deficit of $ 207,706,825 and $ 134,054,259 , respectively and shareholders ' equity of $ 119,302,194 and $ 115,598,875 , respectively . the company believes its current cash position is sufficient to fund its business plan approximately through the second quarter of fiscal 2019. we have based this estimate on assumptions that may prove to be wrong , and we could use available capital resources sooner than currently expected . because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates , we are unable to estimate the amount of increased capital outlays and operating expenses associated with completing the development of our current product candidates . the company recognizes it may need to raise additional capital in order to continue to execute its business plan . there is no assurance that additional financing will be available when needed or that management will be able to obtain financing on terms acceptable to the company or whether the company will become profitable and generate positive operating cash flow . if the company is unable to raise sufficient additional funds , it will have to scale back its business plan , extend payables and reduce overhead until sufficient additional capital is raised to support further operations . there can be no assurance that such a plan will be successful . tabular disclosure of contractual obligations replace_table_token_6_th we enter into agreements in the normal course of business with contract research organizations for clinical trials and with vendors for preclinical studies and other services and products for operating purposes which are cancelable at any time by us , generally upon 30 days prior written notice . these payments are not included in this table of contractual obligations . we are obligated to make future payments to third parties under in-license agreements , including sublicense fees , royalties and payments that become due and payable on the achievement of certain development and commercialization milestones . as the amount and timing of sublicense fees and the achievement and timing of these milestones are not probable and estimable , such commitments have not been included on our consolidated balance sheets or in the contractual obligations table above . off-balance sheet arrangements as of october 31 , 2016 , we had no off-balance sheet arrangements . critical accounting estimates the preparation of financial statements in accordance with gaap accepted in the u.s. requires management to make estimates and assumptions that affect the reported amounts and related disclosures in the financial statements . management considers an accounting estimate to be critical if : ● it requires assumptions to be made that were uncertain at the time the estimate was made , and ● changes in the estimate of difference estimates that could have been selected could have material impact in our results of operations or financial condition .
| in addition , we expect to incur expenses in the development of strategic and other relationships required to license , manufacture and distribute our product candidates when they are approved . 33 general and administrative expenses general and administrative expenses primarily include salary and benefit costs for employees included in our finance , legal and administrative organizations , outside legal and professional services , and facilities costs . general and administrative expense was $ 31.7 million for the year ended october 31 , 2016 , compared with $ 24.2 million for the year ended october 31 , 2015 , an increase of $ 7.5 million . there was an increase of approximately $ 6.9 million in compensation related expense , including a non-cash increase in stock based compensation costs of approximately $ 2.6 million , attributable to increases in our employees , the grant date fair value of stock awards and the number of awards . costs pertaining to the company 's infrastructure expansion , including leased space and information technology related costs , increased by approximately $ 1.6 million . business development costs increased by approximately $ 1.5 million . this was partially offset by a decrease in non-cash investor relations costs of approximately $ 2.2 million . we anticipate general and administrative expenses in the near term to remain comparable to current levels , exclusive of the impact of future stock awards and one-time expenses . interest income interest income was $ 331,529 for the year ended october 31 , 2016 , compared with $ 114,219 for the year ended october 31 , 2015. the increase in interest income earned was attributable to an increase in cash resulting from sales of the company 's common shares . the cash was invested in held-to-maturity investments and a savings account . changes in fair values for the year ended october 31 , 2016 , the company recorded non-cash income from changes in the fair value of the warrant liability of $ 69,055 due to a decrease in the
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dollar-denominated emerging markets debt declined amid poor performance stemming from rising long-term interest rates in some countries and currency weakness in most developing markets . in an attempt to defend their currencies , some emerging markets central banks were forced to raise short-term interest rates . bonds denominated in local currencies performed worse than dollar-denominated debt . results of several major bond market indexes for 2018 are as follows : bloomberg barclays u.s. aggregate bond index — % jpmorgan global high yield index ( 2.4 ) % bloomberg barclays municipal bond index 1.3 % bloomberg barclays global aggregate ex-u.s. dollar bond index ( 2.2 ) % jpmorgan emerging markets bond index plus ( 5.3 ) % page 25 assets under management . assets under management ended 2018 at $ 962.3 billion , a decrease of $ 28.8 billion from the end of 2017 . we had net cash inflows of $ 13.2 billion for 2018 , but market depreciation and losses , including distributions not reinvested , lowered our assets under management by $ 42.0 billion . the following table details changes in our assets under management by vehicle during the last three years : replace_table_token_5_th ( 1 ) in all three years , the majority of the client transfers were from the t. rowe price u.s. mutual funds to the t. rowe price collective investment trusts , which are included in other investment products . page 26 the following table details changes in our assets under management by asset class during the last three years : replace_table_token_6_th ( 1 ) the underlying assets under management of the multi-asset portfolios have been aggregated and presented in this category and not reported in the equity and fixed income columns . ( 2 ) reported net of distributions not reinvested . investment advisory clients outside the u.s. account for about 6 % of our assets under management at 2018 and 2017 and about 5 % at december 31 , 2016. our net cash flows in 2018 and 2017 were driven by diversified inflows across distribution channels and geographies , the strength of our multi-asset franchise , and positive flows into international equity and fixed income . in 2016 , subadvised and separate accounts and other investment products ' net cash outflows prior to client transfers were largely attributable to institutional and intermediary clients reallocating to passive investments and the impact of our closed investment strategies . our target date retirement products , which are included in the multi-asset totals shown above , continue to be a significant part of our assets under management . net cash flows after client transfers shown above include $ 12.0 billion in 2018 , $ 7.1 billion in 2017 , and $ 8.1 billion in 2016 from target date products . assets under management in these products are as follows : replace_table_token_7_th page 27 investment performance . strong investment performance and brand awareness is a key driver to attracting and retaining assets—and to our long-term success . the percentage of our u.s. mutual funds ( across primary share classes ) that outperformed their comparable morningstar median on a total return basis and that are in the top morningstar quartile for the one- , three- , five- , and 10- years ended december 31 , 2018 , were : replace_table_token_8_th ( 1 ) source : © 2018 morningstar , inc. all rights reserved . the information contained herein : ( 1 ) is proprietary to morningstar and or its content providers ; ( 2 ) may not be copied or distributed ; and ( 3 ) is not warranted to be accurate , complete , or timely . neither morningstar nor its content providers are responsible for any damages or losses arising from any use of this information . past performance is no guarantee of future results . historically , the firm has disclosed the percentage of u.s. mutual funds ( across all share classes ) that outperformed their comparable lipper averages on a total return basis and that are in the top lipper quartile for the same periods . investment performance results using the new measures are similar to the lipper results . in addition , 86 % of our rated u.s. mutual funds ' assets under management ended the quarter with an overall rating of four or five stars from morningstar . the performance of our institutional strategies against their benchmarks remains competitive , especially over longer time periods . story_separator_special_tag style= '' line-height:120 % ; text-align : left ; text-indent:384px ; font-size:10pt ; '' > percentage growth in net revenue attributable primarily to increases in our average assets under management each year compared with the percentage growth in operating expenses . diluted earnings per share for 2018 was $ 7.27 compared with $ 5.97 in 2017. the 21.8 % increase in diluted earnings per share in 2018 was driven by higher operating income and the benefit realized from a lower corporate tax rate under u.s. tax reform . the 25.7 % increase in diluted earnings per share in 2017 compared with 2016 was driven primarily from our results of operations in 2017 and fewer weighted average outstanding shares assuming dilution . net revenues replace_table_token_11_th investment advisory fees . investment advisory fees are earned based on the value and composition of our assets under management , which change based on fluctuations in financial markets and net cash flows . as our average assets under management increase or decrease in a given period , the level of our investment advisory fee revenue for that same period generally fluctuates in a similar manner . the relationship between the change in our average assets under management for 2018 , 2017 and 2016 and the change in our investment advisory fee revenue recognized during each of the same annual periods is presented below . replace_table_token_12_th over the last three years , we have reduced the management fees of certain mutual funds and other investment products . story_separator_special_tag this is a contributing factor in why investment advisory revenue has generally grown slower than average assets under management in each of these vehicles over the same period . additionally , significant client transfers from mutual funds to lower fee vehicles or among product share classes in 2017 and 2018 have contributed to the investment advisory fees associated with subadvised and separate accounts and other investment products to grow slower than the related average assets under management . market fluctuations and net cash flows over the annual time periods have also shifted the asset and share class mix among different fee rates and products with tiered-fee structures . administrative , distribution , and servicing fees . administrative , distribution , and servicing fees represent fees earned from providing administrative and distribution services to our investment advisory clients , primarily u.s. mutual funds and their investors . for 2018 , these fees were $ 522.0 million , a decrease of $ 37.1 million from the comparable 2017 period . the decrease was primarily attributable to lower assets under management in the u.s. page 31 mutual funds resulting from client transfers among vehicles and share classes and the sharp market decline at the end of 2018. for 2017 , administrative , distribution , and servicing fees were $ 559.1 million , an increase of $ 9.3 million from the comparable 2016 period . the increase was primarily attributable to higher transfer agent and distribution servicing revenue due to client transfers among vehicles and share classes . the distribution and servicing fees we earn are related to 12b-1 plans of certain classes , including the advisor and r classes , of our u.s. mutual funds and are entirely offset by the costs paid to third-party intermediaries who source these assets . these costs are reported in the distribution and servicing cost line in the consolidated income statements . net revenues include the elimination of $ 6.2 million for 2018 , $ 5.6 million for 2017 , and $ 6.5 million for 2016 , earned from our consolidated t. rowe price investment products . the corresponding expenses recognized by these consolidated products were also eliminated from operating expenses . operating expenses replace_table_token_13_th ( 1 ) the percentage change in nonrecurring net charges ( recoveries ) related to dell appraisal rights matter is not meaningful ( n/m ) . compensation and related costs . compensation and related costs increased $ 143.7 million , or 8.6 % , for 2018 as compared with 2017 . the largest part of the increase was an increase in base salaries , benefits and related employee costs of $ 77.1 million , resulting from an increase of 6.2 % in average headcount , combined with a modest increase in salaries at the beginning of 2018. our operating results led to a $ 68.0 million increase in annual variable compensation and contributed to the $ 45.0 million increase in non-cash stock based compensation expense as the annual grant value was higher in 2018. additionally , our 2018 equity grant reflected the adoption of more favorable post-retirement vesting provisions , which shifted a greater percentage of the expense related to the annual grant to be recognized for 2018. the 2018 period also includes $ 9.0 million in one-time bonuses paid to certain associates from u.s. tax reform benefits . these increases were partially offset by lower market-related expense of $ 30.3 million from our supplemental savings plan and higher labor capitalization related to internally developed software . for 2017 , compensation and related costs increased $ 170.9 million , or 11.4 % , as compared with 2016 . the largest part of the change is attributable to a $ 116.9 million increase in salaries and related benefit expenses , which resulted primarily from a modest increase in salaries at the beginning of 2017 , combined with a 6.4 % increase in average headcount from 2016. the higher employee benefit expenses also includes increased health care costs as well as greater equity award-related payroll taxes due to the significant rise in our stock price during 2017. higher average headcount also drove up recruiting costs for 2017 compared with the 2016 period . our annual variable compensation for the 2017 period rose $ 59.8 million over the 2016 period . stronger markets during 2017 increased the supplemental savings plan liability resulting in additional compensation expense of $ 21.1 million for 2017 compared with the 2016 period . the increases in these compensation and related costs were offset in part by higher labor capitalization related to internally developed software for 2017 compared with the 2016 period , as we continue to invest in our technology capabilities . we had a reduction in our non-cash stock based compensation expense for 2017 , as we shifted our annual grant from twice a year to a single grant in december . page 32 distribution and servicing costs . distribution and servicing costs includes those costs incurred to distribute the t. rowe price products as well as client and shareholder servicing , recordkeeping , and administrative services . these costs were $ 281.2 million for 2018 , $ 262.6 million for 2017 , and $ 233.4 million for 2016 . the increases for 2018 from 2017 and for 2017 from 2016 are primarily driven by strong markets and net cash flows from the end of 2016 through the third quarter of 2018 , which grew the assets in those share classes and products for which we pay a related distribution and servicing fee . these costs include those distribution and servicing costs paid to third-party intermediaries that source the assets of certain share classes of our u.s. mutual funds and is offset entirely by the 12b-1 revenue we earn and report in administrative , distribution , and servicing fees . advertising and promotion . advertising and promotion costs were $ 99.6 million for 2018 , $ 92.4 million for 2017 , and $ 80.2 million for 2016 .
| for more information , see note 1 - basis of preparation and summary of significant accounting policies in our consolidated financial statements included later in this annual report on form 10-k. page 29 results overview investment advisory revenues . investment advisory revenues earned in 2018 increased 12.9 % over the comparable 2017 period as average assets under our management increase d $ 127.5 billion , or 14.0 % , to $ 1,036.5 billion . the average annualized fee rate earned on our assets under management was 46.8 basis points in 2018 , compared with 47.3 basis points earned in 2017 . our effective fee rate has declined in part due to client transfers to lower fee products or share classes and , to a lesser extent , fee reductions we made to certain mutual funds and other products during 2018. further contributing to our lower effective fee rate in 2018 was a greater percentage of our assets under management in lower fee products due to lower equity valuations in the fourth quarter . we regularly assess the competitiveness of our investment advisory fees and will continue to make adjustments as deemed appropriate . in 2017 , investment advisory revenues increased 15.0 % over the comparable 2016 period as average assets under our management increased $ 130.8 billion , or 16.8 % , to $ 909.0 billion . the average annualized fee rate earned on our assets under management was 47.3 basis points in 2017 , compared with 48.0 basis points earned in 2016 . our effective fee rate declined primarily due to fee rate reductions we made to certain t. rowe price investment products since the end of 2015 , and higher equity valuations in funds with tiered individual rates which decrease as assets under management grow . this decline in effective fee rate was partially offset by higher equity valuations , which resulted in a greater percentage of our assets under management attributable to higher fee equity products . while we voluntarily waived $
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the company believes franchised restaurant average unit volumes is useful information for the same reasons described above for “ systemwide sales. ” we calculate franchised restaurant average unit volumes by summing the average weekly sales of all franchised restaurants which reported sales during the week . the non-gaap financial measures discussed above do not replace the presentation of the company 's financial results in accordance with gaap . because all companies do not calculate non-gaap financial measures in the same way , these measures as used by other companies may not be consistent with the way the company calculates such measures . system optimization initiative in july 2013 , the company announced a system optimization initiative , as part of its brand transformation , which includes a shift from company-operated restaurants to franchised restaurants over time , through acquisitions and dispositions , as well as helping to facilitate franchisee-to-franchisee restaurant transfers . in february 2015 , the company announced plans to sell approximately 540 additional restaurants to franchisees and reduce its ongoing company-operated restaurant ownership to approximately 5 % of the total system by the end of 2016. during 2016 , 2015 and 2014 , the company completed the sale of 310 , 34 327 and 255 company-operated restaurants to franchisees , respectively , which included the sale of all of its company-operated restaurants in canada . the company recognized net gains totaling $ 71.9 million , $ 74.0 million and $ 91.5 million on the sale of company-operated restaurants and other assets during 2016 , 2015 and 2014 , respectively , which were recorded to “ system optimization gains , net ” in our consolidated statements of operations . in addition , the company facilitated the transfer of 144 and 71 restaurants between franchisees during 2016 and 2015 , respectively . with the sale of 310 restaurants during 2016 , the company completed its plan to reduce its company-operated restaurant ownership to approximately 5 % as of january 1 , 2017. wendy 's will continue to optimize its system by facilitating franchisee-to-franchisee transfers of restaurants , as well as evaluating strategic acquisitions of franchised restaurants and strategic dispositions of company-operated restaurants to existing and new franchisees , to further strengthen the franchisee base , drive new restaurant development and accelerate image activation adoption . costs related to our system optimization initiative are recorded to “ reorganization and realignment costs. ” during 2016 , 2015 and 2014 , the company recognized costs totaling $ 9.4 million , $ 11.6 million and $ 19.0 million , respectively , which primarily included severance and related employee costs , accelerated depreciation and amortization , share-based compensation expense and professional fees . the company expects to incur additional costs , primarily comprised of professional fees , of approximately $ 1.3 million during 2017 in connection with an in-process transaction as of january 1 , 2017. costs incurred during 2017 related to facilitating franchisee-to-franchisee transfers of restaurants will be recorded to “ other operating income , net. ” general and administrative ( “ g & a ” ) realignment in november 2014 , the company initiated a plan to reduce its general and administrative expenses . the plan included a realignment and reinvestment of resources to focus primarily on accelerated restaurant development and consumer-facing restaurant technology to drive long-term growth . the company achieved the majority of the expense reductions through the realignment of its u.s. field operations and savings at its restaurant support center in dublin , ohio , which was substantially completed by the end of the second quarter of 2015. costs related to g & a realignment are recorded to “ reorganization and realignment costs. ” the company recognized costs totaling $ 0.7 million , $ 10.3 million and $ 12.9 million during 2016 , 2015 and 2014 , respectively , which primarily included severance and related employee costs , share-based compensation and recruitment and relocation costs . no additional costs are expected to be incurred under the g & a realignment plan . securitized financing facility on june 1 , 2015 , the company completed a $ 2,275.0 million securitized financing facility , which consists of the following : $ 875.0 million of 3.371 % , $ 900.0 million of 4.080 % and $ 500.0 million of 4.497 % series 2015-1 fixed rate senior secured notes ( collectively , the “ series 2015-1 class a-2 notes ” ) . in addition , the company entered into a purchase agreement for the issuance of series 2015-1 variable funding senior secured notes , class a-1 ( the “ series 2015-1 class a-1 notes ” and , together with the series 2015-1 class a-2 notes , the “ series 2015-1 senior notes ” ) , which allows for the issuance of up to $ 150.0 million of variable funding notes and certain other credit instruments , including letters of credit . the proceeds from the issuance of the series 2015-1 class a-2 notes , were used to repay all amounts outstanding on the term a loans and term b loans under the company 's may 16 , 2013 restated credit agreement amended on september 24 , 2013 ( the “ 2013 restated credit agreement ” ) . in connection with the repayment of the term a loans and term b loans , the company terminated the related interest rate swaps with notional amounts totaling $ 350.0 million and $ 100.0 million , respectively , which had been designated as cash flow hedges . as a result , the company recorded a loss on early extinguishment of debt of $ 7.3 million during the second quarter of 2015 , primarily consisting of the write-off of deferred costs related to the 2013 restated credit agreement of $ 7.2 million and fees paid to terminate the related interest rate swaps of $ 0.1 million . story_separator_special_tag sale of the bakery on may 31 , 2015 , wendy 's completed the sale of 100 % of its membership interest in the new bakery company , llc and its subsidiaries ( collectively , the “ bakery ” ) to east balt us , llc ( the “ buyer ” ) for $ 78.5 million in cash ( subject to customary purchase price adjustments ) . the company recorded a pre-tax gain on the disposal of the bakery of $ 25.5 million during 2015 , which included transaction closing costs and a reduction of goodwill . the company recognized income tax expense associated with the gain on disposal of $ 14.9 million during 2015 , which included the impact of the disposal of non-deductible goodwill . in conjunction with the bakery sale , wendy 's entered into a transition services agreement with the buyer , pursuant to which wendy 's provided certain continuing corporate and shared services to the buyer through march 31 , 2016 for no additional consideration . the bakery 's results of operations and the gain on disposal have been included in discontinued operations . 35 sale of arby 's on july 4 , 2011 , wendy 's restaurants completed the sale of 100 % of the common stock of its then wholly-owned subsidiary , arby 's restaurant group , inc. ( “ arby 's ” ) to arg ih corporation ( “ arg ” ) , a wholly-owned subsidiary of arg holding corporation ( “ arg parent ” ) , for $ 130.0 million in cash ( subject to customary purchase price adjustments ) and 18.5 % of the common stock of arg parent ( through which wendy 's restaurants indirectly retained an 18.5 % interest in arby 's ) . the company received a $ 54.9 million dividend from our investment in arby 's in 2015 , which was recognized in “ investment income , net. ” related party transactions stock purchase agreement on june 2 , 2015 , the company entered into a stock purchase agreement to repurchase our common stock from nelson peltz , peter w. may ( messrs. peltz and may are members of the company 's board of directors ) and edward p. garden ( who served on the company 's board of directors until december 14 , 2015 ) and certain of their family members and affiliates , investment funds managed by trian fund management , l.p. ( an investment management firm controlled by messrs. peltz , may and garden , “ tfm ” ) and the general partner of certain of those funds ( together with messrs. peltz , may and garden , certain of their family members and affiliates and tfm , the “ trian group ” ) , who in the aggregate owned approximately 24.8 % of the company 's outstanding shares as of may 29 , 2015. pursuant to the agreement , the trian group agreed not to tender or sell any of its shares in the modified dutch auction tender offer the company commenced on june 3 , 2015. also pursuant to the agreement , the company agreed , following completion of the tender offer , to purchase from the trian group a pro rata amount of its shares based on the number of shares the company purchased in the tender offer , at the same price received by shareholders who participated in the tender offer . on july 17 , 2015 , after completion of the modified dutch auction tender offer , the company repurchased 18.4 million shares of its common stock from the trian group at the price paid in the tender offer of $ 11.45 per share , for an aggregate purchase price of $ 210.9 million . supply chain relationship agreement wendy 's has a purchasing co-op relationship agreement ( the “ wendy 's co-op ” ) with its franchisees which establishes quality supply chain co-op , inc. ( “ qscc ” ) . qscc manages , for the wendy 's system in the u.s. and canada , contracts for the purchase and distribution of food , proprietary paper , operating supplies and equipment under national agreements with pricing based upon total system volume . qscc 's supply chain management facilitates continuity of supply and provides consolidated purchasing efficiencies while monitoring and seeking to minimize possible obsolete inventory throughout the wendy 's supply chain in the u.s. and canada . wendy 's and its franchisees pay sourcing fees to third-party vendors on certain products sourced by qscc . such sourcing fees are remitted by these vendors to qscc and are the primary means of funding qscc 's operations . should qscc 's sourcing fees exceed its expected needs , qscc 's board of directors may return some or all of the excess to its members in the form of a patronage dividend . wendy 's recorded its share of patronage dividends of $ 0.9 million , $ 1.3 million and $ 1.5 million in 2016 , 2015 and 2014 , respectively , which are included as a reduction of “ cost of sales. ” effective january 1 , 2011 , wendy 's leased 14,333 square feet of office space to qscc for an annual base rental of $ 0.2 million . the lease expired on december 31 , 2016. a new lease agreement was signed effective january 1 , 2017 , expiring on december 31 , 2020 for an annual base rental of $ 0.2 million . the wendy 's company received $ 0.2 million of lease income from qscc each year during 2016 , 2015 and 2014 , which has been recorded as a reduction of “ general and administrative. ” citationair aircraft lease agreement the wendy 's company , through a wholly-owned subsidiary , was party to a three-year aircraft management and lease agreement , which expired in march 2014 , with citationair , a subsidiary of cessna aircraft company , pursuant to which the company leased a corporate aircraft to citationair to use as part of its jet card program fleet .
| in addition , 2016 included one less week of sales when compared to 2015 , which resulted in a reduction in sales of $ 19.2 million . company-operated same-restaurant sales during 2016 increased 2.7 % primarily due to an increase in customer count . sales also benefited from higher sales growth at our new and remodeled image activation restaurants . the decrease in sales during 2015 was primarily due to the impact of wendy 's company-operated restaurants sold under our system optimization initiative , which resulted in a reduction in sales of $ 271.0 million . this decrease in sales was partially offset by sales during the 53 rd week of 2015 of $ 19.2 million , which were excluded from same-restaurant sales , and sales from restaurants acquired of $ 36.9 million . company-operated same-restaurant sales during 2015 increased due to an increase in our average per customer check amount , which reflects benefits from strategic price increases on our menu items and changes in product mix . same-restaurant sales also benefited from higher sales growth at our new and remodeled image activation restaurants and a slight 40 increase in customer count . the customer count increase for the year was driven by significantly higher customer transactions during the fourth quarter of 2015 , which resulted in a company-operated same-restaurant sales increase of 3.7 % during the fourth quarter of 2015 compared to the fourth quarter of 2014. sales during 2015 were negatively impacted by $ 7.4 million due to changes in canadian foreign currency rates relative to the u.s. dollar . replace_table_token_13_th the increase in franchise royalty revenue and fees during 2016 was primarily due to sales of company-operated restaurants to franchisees and facilitating franchisee-to-franchisee restaurant transfers under our system optimization initiative . royalty revenue also benefited from a 1.4 % increase in franchise same-restaurant sales . these increases were partially offset by royalty revenue of approximately $ 6.0 million for the 53 rd week of 2015. the increase in franchise royalty revenue and fees during 2015 was primarily due to sales of company-operated restaurants to franchisees and
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these items are collected from customers at the time they purchase their tickets , but are not included in our revenues . we record a liability upon collection from the customer and relieve the liability when payments are remitted to the applicable governmental agency or airport . operating expenses our operating expenses consist of the following line items . aircraft fuel . aircraft fuel expense includes the cost of jet fuel , related federal taxes , fueling into-plane fees and transportation fees . it also includes realized and unrealized gains and losses arising from activity on our fuel derivatives , if any . our fuel derivatives , if any , generally consist of united states gulf coast jet fuel swaps ( jet fuel swaps ) and united states gulf coast jet fuel options ( jet fuel options ) . salaries , wages and benefits . salaries , wages and benefits expense includes the salaries , hourly wages , bonuses and equity compensation paid to employees for their services , as well as the related expenses associated with employee benefit plans and employer payroll taxes . aircraft rent . aircraft rent expense consists of all minimum lease payments under the terms of the company 's aircraft and spare engine lease agreements recognized on a straight-line basis . aircraft rent expense also includes supplemental rent . supplemental rent is made up of maintenance reserves paid to aircraft lessors in advance of the performance of major maintenance activities that are not probable of being reimbursed and probable and estimable return condition obligations . aircraft rent expense is net of the amortization of gains and losses on sale leaseback transactions on our flight equipment . as of december 31 , 2017 , 58 of our 112 aircraft and 11 of our 15 spare engines are financed under operating leases . landing fees and other rents . landing fees and other rents include both fixed and variable facilities expenses , such as the fees charged by airports for the use or lease of airport facilities , overfly fees paid to other countries and the monthly rent paid for our headquarters facility . depreciation and amortization . depreciation and amortization expense includes the depreciation of fixed assets we own and leasehold improvements . it also includes the amortization of heavy maintenance expenses we defer under the deferral method of accounting for heavy maintenance events and recognize into expense on a straight-line or usage basis until the earlier of the next estimated heavy maintenance event or the remaining lease term . maintenance , materials and repairs . maintenance , materials and repairs expense includes parts , materials , repairs and fees for repairs performed by third-party vendors directly required to maintain our fleet . it excludes direct labor cost related to our own mechanics , which is included under salaries , wages and benefits . it also excludes the amortization of heavy maintenance expenses , which we defer under the deferral method of accounting and amortize as a component of depreciation and amortization expense . distribution . distribution expense includes all of our direct costs , including the cost of web support , our third-party call center , travel agent commissions and related gds fees and credit card transaction fees , associated with the sale of our tickets and other products and services . special charges . special charges include lease termination charges and restructuring charges . loss on disposal of assets . loss on disposal of assets includes the net losses on the disposal of our fixed assets . other operating expenses . other operating expenses include airport operations expense and fees charged by third-party vendors for ground handling services and food and liquor supply service expenses , passenger re-accommodation expense , the cost of passenger liability and aircraft hull insurance , all other insurance policies except for employee related insurance , travel and training expenses for crews and ground personnel , professional fees , personal property taxes and all other administrative and operational overhead expenses . no individual item included in this category represented more than 5 % of our total operating expenses . other expense ( income ) 40 interest expense . interest expense in 2017 , 2016 and 2015 was primarily related to the financing of purchased aircraft . capitalized interest . capitalized interest represents interest cost incurred during the acquisition period of an aircraft or the construction period of a long-term asset which theoretically could have been avoided had we not made pdps for that aircraft or funded the construction of a long-term asset . the percent of interest expense capitalized is equal to the amount of interest which could have been avoided . as such , if the amount of pdps on deposit and funds used in the construction of a long-term asset is less than the amount of related debt on which interest is incurred , then only a percent of total incurred interest expense qualifies for capitalization . these amounts are capitalized as part of the cost of the aircraft upon delivery or the long-term asset upon placement in service . capitalization of interest ceases when the asset is ready for service . capitalized interest for 2017 , 2016 and 2015 primarily related to the interest incurred on long-term debt . interest income . for 2017 , interest income primarily represents interest income earned on cash , cash equivalents and short-term investments . for 2016 and 2015 , interest income was primarily related to interest earned on cash , cash equivalents and on funds required to be held in escrow in accordance with the terms of our series 2015-1 eetc . for a detailed discussion of the series 2015-1 eetc , refer to “ notes to the financial statements—11 . debt and other obligations. ” other expense . other expense includes realized gains and losses related to foreign currency transactions . income taxes we account for income taxes using the liability method . story_separator_special_tag we record a valuation allowance to reduce the deferred tax assets reported if , based on the weight of the evidence , it is more likely than not that some portion or all of the deferred tax assets will not be realized . deferred taxes are recorded based on differences between the financial statement basis and tax basis of assets and liabilities and available tax loss and credit carryforwards . in assessing the realizability of the deferred tax assets , we consider whether it is more likely than not that some or all of the deferred tax assets will be realized . in evaluating the ability to utilize our deferred tax assets , we consider all available evidence , both positive and negative , in determining future taxable income on a jurisdiction by jurisdiction basis . trends and uncertainties affecting our business we believe our operating and business performance is driven by various factors affecting airlines and their markets , trends affecting the broader travel industry and trends affecting the specific markets and customer base that we target . the following key factors may affect our future performance . competition . the airline industry is highly competitive . the principal competitive factors in the airline industry are fare pricing , total price , flight schedules , aircraft type , passenger amenities , number of routes served from a city , customer service , safety record , reputation , code-sharing relationships , frequent flier programs and redemption opportunities . price competition occurs on a market-by-market basis through price discounts , changes in pricing structures , fare matching , target promotions and frequent flier initiatives . airlines typically use discount fares and other promotions to stimulate traffic during normally slower travel periods to generate cash flow and to maximize unit revenue . the prevalence of discount fares can be particularly acute when a competitor has excess capacity that it is under financial pressure to sell . beginning in 2015 , and continuing into 2017 , the airline industry saw greater and more persistent price discounting than in the preceding several years . in addition , significant airline capacity increases in certain major cities exerted strong downward price pressure in those markets . finally , beginning in mid-2015 network carriers began matching low-cost carrier and ulcc pricing on portions of their marginal unsold capacity , particularly in their key hub markets . we expect the discounting trend to continue for the foreseeable future . moreover , the network carriers have developed a fare-class pricing approach , in which a portion of available seats may be sold at or near ulcc prices , but without most product features available to their passengers paying at higher fare levels on the same flight . broad fare discounting may have the effect of diluting the profitability of revenues of high-cost carriers but the fare-class approach may allow network carriers to continue offering a competitive price to ulccs on some flights or routes , while maintaining higher pricing to their traditional constituencies of business and more affluent travelers . refer to “ risk factors—risks related to our industry—we operate in an extremely competitive industry . '' 41 seasonality and volatility . our results of operations for any interim period are not necessarily indicative of those for the entire year because the air transportation business is subject to significant seasonal fluctuations . we generally expect demand to be greater in the second and third quarters compared to the rest of the year . the air transportation business is also volatile and highly affected by economic cycles and trends . consumer confidence and discretionary spending , fear of terrorism or war , weakening economic conditions , fare initiatives , fluctuations in fuel prices , labor actions , changes in governmental regulations on taxes and fees , weather and other factors have resulted in significant fluctuations in revenues and results of operations in the past . we believe demand for business travel historically has been more sensitive to economic pressures than demand for low-price travel . finally , a significant portion of our operations are concentrated in markets such as south florida , the caribbean , latin america and the northeast and northern midwest regions of the united states , which are particularly vulnerable to weather , airport traffic constraints and other delays . aircraft fuel . fuel costs represents one of our largest operating expenses , as it does for most airlines . fuel costs have been subject to wide price fluctuations in recent years . fuel availability and pricing are also subject to refining capacity , periods of market surplus and shortage and demand for heating oil , gasoline and other petroleum products , as well as meteorological , economic and political factors and events occurring throughout the world , which we can neither control nor accurately predict . we source a significant portion of our fuel from refining resources located in the southeast united states , particularly facilities adjacent to the gulf of mexico . gulf coast fuel is subject to volatility and supply disruptions , particularly in hurricane season when refinery shutdowns have occurred , or when the threat of weather-related disruptions has caused gulf coast fuel prices to spike above other regional sources . our fuel derivatives , if any , generally consist of united states gulf coast jet fuel swaps ( jet fuel swaps ) and united states gulf coast jet fuel options ( jet fuel options ) . both jet fuel swaps and jet fuel options can be used at times to protect the refining price risk between the price of crude oil and the price of refined jet fuel , and to manage the risk of increasing fuel prices . our fuel hedging practices are dependent upon many factors , including our assessment of market conditions for fuel , our access to the capital necessary to support margin requirements , the pricing of hedges and other derivative products in the market , our overall appetite for risk and applicable regulatory policies .
| the year-over-year increase in total revenue per passenger flight segment was driven by a 2.2 % increase in average non-ticket revenue per passenger flight segment and a 1.7 % increase in average ticket revenue per passenger flight segment , as compared to the prior year . the increase in non-ticket revenue per passenger flight segment was primarily attributable to higher bag , passenger usage fee and seat revenue per passenger flight segment , as compared to the prior year . 2016 compared to 2015 operating revenues increased by $ 180.5 million , or 8.4 % , to $ 2,322.0 million in 2016 compared to 2015 , primarily due to an increase in traffic of 19.9 % , partially offset by a decrease in average yield of 9.6 % to 10.76 cents . the decrease in average yield resulted from competitive pressures from major u.s. carriers aggressively discounting fare prices . trasm for 2016 was 9.11 cents , a decrease of 9.6 % compared to 2015 , as a result of lower operating yields on stable load factors . total revenue per passenger flight segment decreased 10.1 % from $ 119.49 in 2015 to $ 107.41 in 2016. the year-over-year decrease in total revenue per passenger flight segment was driven by a decrease of 14.9 % in ticket revenue per passenger flight segment , resulting from competitive pressures noted during the period . during 2016 , our average non-ticket revenue per passenger flight segment declined to a lesser extent , by 4.4 % , or $ 2.37 , to $ 51.87 , mostly resulting from the competitive pressures noted above . our unbundled model provides a more stable revenue stream as demonstrated during periods of lower passenger ticket yields . the decrease in non-ticket revenue per passenger flight segment was primarily attributable to lower bag and change fee revenue per flight segment . operating expenses since adopting our ulcc model , we have continuously sought to reduce our unit operating costs and have created one of the industry 's lowest cost structures in the united states . the table below presents our unit operating costs ( casm ) and
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we will have responsibility for all operating control of the new business , including capital expenditures and production and operating costs . we are projecting capital expenditures to start the business to be approximately $ 500,000 for fiscal 2013 , as sewn products are a different business than our current normal operations and do not require large investments in plant and equipment . lava is not required to invest capital into the company . we are expecting production to start in the second quarter of fiscal 2013 with approximately 35 employees . our plan is to let the market dictate our growth strategy and we feel it is important to enter this business gradually to protect our investment as we learn what types of products and volume meet demand trends . 30 gross profit and operating income gross profit was $ 24.8 million in fiscal 2012 , or 17 % of net sales , compared with $ 23.2 million , or 19 % of net sales , in fiscal 2011. sg & a expenses for fiscal 2012 were $ 9.1 million compared with $ 7.9 million for fiscal 2011. operating income was $ 15.8 million in fiscal 2012 , an increase of 2.5 % compared with $ 15.4 million in fiscal 2011. operating margins were 10.8 % and 12.6 % of net sales for fiscal 2012 and 2011 , respectively . our gross profit and operating margins for fiscal 2012 were affected by higher raw material costs and customer pricing pressure that started in fiscal 2011 and continued through most of fiscal 2012. as a result , we implemented customer price increases starting in the fourth quarter of fiscal 2011. in addition , operating margins were affected by increased sg & a expenses due to increased incentive compensation expense , which reflects stronger financial results in relation to pre-established performance targets . while the increased raw material costs affected our gross profit and operating margins for the full fiscal year for 2012 , raw material prices stabilized in the fourth quarter of fiscal 2012. segment assets segment assets consist of accounts receivable , inventory , assets held for sale , non-compete agreements associated with certain acquisitions , goodwill , and property , plant and equipment . as of april 29 , 2012 , accounts receivable and inventory totaled $ 29.9 million , compared to $ 25.5 million at may 1 , 2011. this change reflects the net sales increase in the fourth quarter of fiscal 2012 noted above . at april 29 , 2012 , and may 1 , 2011 , property , plant and equipment totaled $ 29.2 million and $ 28.6 million , respectively . the $ 29.2 million represents property , plant , and equipment located in the u.s. of $ 21.2 million and located in canada of $ 8.0 million . the $ 28.6 million represents property , plant , and equipment located in the u.s. of $ 20.0 million and located in canada of $ 8.6 million . the increase in this segment 's property , plant , and equipment balance at april 29 , 2012 compared with may 1 , 2011 , is primarily due to fiscal 2012 capital spending of $ 4.9 million offset by depreciation expense of $ 4.3 million . at april 29 , 2012 , and may 1 , 2011 , the carrying value of the segment 's goodwill was $ 11.5 million . at april 29 , 2012 , and may 1 , 2011 , the carrying values of our non-compete agreements were $ 333,000 and $ 480,000 , respectively . the decrease in the carrying values of the non-compete agreements during fiscal 2012 primarily represents amortization expense . at april 29 , 2012 and may 1 , 2011 , assets held for sale totaled $ 15,000. upholstery fabrics segment net sales upholstery fabric net sales ( which include both fabric and cut and sewn kits ) were $ 108.9 million in fiscal 2012 , compared with $ 94.4 million in fiscal 2011 , an increase of 15 % . also , upholstery fabric net sales were $ 32.3 million in the fourth quarter of fiscal 2012 , an increase of 28 % compared with $ 25.2 million in the fourth quarter of fiscal 2011. the $ 32.3 million reported in the fourth quarter of fiscal 2012 was the highest quarterly net sales total in five fiscal years . this increase in net sales reflects improved industry demand and customer response to our designs and new product introductions . in addition , this increase in net sales is also reflects price increases we implemented starting in the fourth quarter of fiscal 2011 which continued in fiscal 2012 to partially offset increased raw material costs . 31 net sales of upholstery fabric produced outside our u.s. manufacturing operations were 88 % of total upholstery fabric net sales in fiscal 2012 , of which 85 % and 3 % were generated from our operations located in china and poland , respectively . net sales of upholstery fabric produced outside our u.s. manufacturing operations were 86 % of total upholstery fabric net sales in fiscal 2011 , of which primarily all of these net sales were generated from our operations located in china . net sales of upholstery fabrics produced outside our u.s. manufacturing operations were $ 95.5 million in fiscal 2012 , of which $ 92.5 million and $ 3.0 million were generated from our operations located in china and poland , respectively . net sales of upholstery fabrics produced outside our u.s. manufacturing operations were $ 81.2 million in fiscal 2011 , of which primarily all of these net sales were generated from our operations located in china . story_separator_special_tag net sales of u.s.-produced upholstery fabrics were $ 13.4 million or 12 % of total upholstery fabric net sales in fiscal 2012 compared with $ 13.2 million or 14 % of total upholstery fabric net sales in fiscal 2011. our increase in net sales was primarily driven by growth of our china produced fabrics , as this platform has played a significant role in our global development in fiscal 2012 , with increased net sales to key customers located in the u.s. , the local china market , and other international customers . in the third quarter of fiscal 2011 , we established a wholly-owned subsidiary called culp europe in poland , and we continued to make progress in the development of this operation in fiscal 2012. we have been encouraged by the initial response from several of the largest furniture manufacturers and retailers in europe . during fiscal 2012 , culp europe accounted for 3 % of our total upholstery fabric net sales , and we expect this percentage to increase further over the next fiscal year . while we experienced a small operating loss for this operation during fiscal 2012 due to start-up costs , we expect this subsidiary to be more profitable in fiscal 2013. also , we are pleased with the sales and profit improvement during the fourth quarter of fiscal 2012 from our u.s. operation , with increased demand for both velvet and woven texture fabrics . we have struggled for several years with declining sales and low profitability with this operation . however , we felt it was strategically important to keep one u.s. upholstery fabric operation . our actions in the second quarter of fiscal 2012 to align our u.s. capacity with expected demand and increase prices had a favorable impact on profitability . we reported net sales of $ 4.1 million in the fourth quarter of fiscal 2012 from our u.s. operation , an increase of 44 % from $ 2.9 million in the second quarter of fiscal 2012. we are also encouraged by new placements with our u.s. produced fabrics and are expecting future sales growth and profitability in the first quarter of fiscal 2013. we are cautiously optimistic about our long-term prospects with this operation . gross profit and operating income gross profit was $ 15.0 million in fiscal 2012 , or 13.8 % of net sales , compared with $ 13.6 million , or 14.4 % of net sales , in fiscal 2011. sg & a expenses were $ 11.5 million , or 10.5 % of net sales in fiscal 2012 compared with $ 9.2 million , or 9.8 % in fiscal 2011. operating income was $ 3.5 million in fiscal 2012 , a decrease of 19 % compared with $ 4.4 million in fiscal 2011. operating margins were 3.2 % and 4.6 % of net sales for fiscal 2012 and 2011 , respectively . our gross profit and operating margins were affected by higher raw material costs . as a result , we implemented customer price increases starting in the fourth quarter of fiscal 2011 which continued in fiscal 2012. in addition , our gross profit and operating margins were affected by lower profitability in our u.s. velvet product line in the first half of fiscal 2012. in response , we aligned our u.s. capacity with expected demand and increased prices . as a result of these actions , our u.s. upholstery operation returned to profitability during the third quarter and continued to be profitable through the fourth quarter of fiscal 2012. in addition , operating margins were affected by increased sg & a expenses due to start-up expenses associated with our culp europe operation and an increase in incentive compensation accruals reflecting stronger financial results in relation to pre-established performance targets . 32 while our gross profit and operating margins for the full fiscal year for fiscal 2012 declined , our gross profit margins increased to 16 % in the fourth quarter of fiscal 2012 from 13 % for the third quarter of fiscal 2012. in addition , operating margins increased to 5.5 % in the fourth quarter of fiscal 2012 from 2.9 % in the third quarter of fiscal 2012. these increases in gross profit and operating margins in the fourth quarter of fiscal 2012 are primarily due to the increase in net sales and actions taken with our u.s. upholstery fabric operation noted above , as well as the stabilization of raw material price increases in the fourth quarter of fiscal 2012. segment assets segment assets consist of accounts receivable , inventory , property , plant and equipment , and assets held for sale . as of april 29 , 2012 , and may 1 , 2011 , accounts receivable and inventory totaled $ 31.5 million and $ 23.5 million , respectively . there were no assets classified as held for sale at april 29 , 2012. at may 1 , 2011 , assets held for sale totaled $ 60,000. at april 29 , 2012 , property , plant , and equipment totaled $ 1.1 million compared with $ 967,000 at may 1 , 2011. the $ 1.1 million at april 29 , 2012 , represents property , plant , and equipment located in the u.s. of $ 837,000 , located in china of $ 183,000 , and located in poland of $ 104,000. the $ 967,000 at may 1 , 2011 , represents property , plant , and equipment located in the u.s. of $ 727,000 , located in china of $ 184,000 , and located in poland of $ 56,000. other income statement categories selling , general and administrative expenses – sg & a expenses for the company as a whole were $ 25.0 million for fiscal 2012 compared with $ 21.1 million for fiscal 2011 , an increase of 19 % . this increase primarily pertains to start-up expenses associated with our culp europe operations that did not significantly occur until fiscal 2012 and increased incentive compensation expense , which reflects stronger financial results in relation to pre-established performance targets .
| 25 we reported net income of $ 13.3 million , or $ 1.03 per diluted share , in fiscal 2012 compared with net income of $ 16.2 million , or $ 1.22 per diluted share , in fiscal 2011. net income for fiscal 2012 included income tax expense of $ 902,000 and net income for fiscal 2011 included an income tax benefit of $ 1.1 million . the income tax expense of $ 902,000 in fiscal 2012 includes an income tax benefit of $ 4.8 million for the reduction of our valuation allowance against our u.s. net deferred tax assets . the income tax benefit of $ 1.1 million in fiscal 2011 includes an income tax benefit of $ 6.4 million for the reduction of our valuations allowances against our u.s. and china net deferred tax assets . at april 29 , 2012 , our cash and cash equivalents and short-term investments totaled $ 31.0 million compared with $ 30.9 million at may 1 , 2011. our cash and cash equivalents and short-term investments remained unchanged despite common stock repurchases of $ 5.4 million , capital expenditures of $ 5.9 million , long-term debt payments of $ 2.4 million , and working capital spending of $ 6.9 million to meet increasing business needs . our cash and cash equivalents and short-term investments of $ 31.0 million exceeded our total debt ( current maturities of long-term debt , long-term debt , and line of credit ) of $ 10.0 million . our next scheduled significant principal payment of $ 2.2 million is due august 2012. during fiscal 2012 , our board of directors authorized the expenditure of up to $ 7.0 million for the repurchase of shares of our common stock . under the common stock repurchase program , shares may be purchased from time to time in open market transactions , block trades , and through plans established under the securities exchange act rule 10b5-1 . the amount of shares purchased and the timing of such purchases is based on working capital requirements , market and general business conditions and other factors including alternative investment opportunities . since the initial authorization of this program on june 16 , 2011 , we repurchased approximately 624,000 shares of our common stock at a
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on march 24 , 2014 , we entered into another commercial lease agreement with are llc ( alexandria ) which extends the term of the existing lab lease with fred hutchison research center which expires in november 2014 through november 30 , 2016. the lease provided for monthly rent payments of $ 22,736 from december 2014 through november 2015 and $ 23,258 from december 2015 through november 2016. the nrlbh vacated this space in february 2016 and we are actively looking for tenants to sublease this space . in july 2013 , we entered into an agreement with are llc ( alexandria ) to lease additional office spaces under a separate lease agreement . the lease was from august 2013 through november 2014 , and the gross rent was $ 4,800 per month . as of december 31 , 2014 we incurred and recorded a security deposit of $ 25,000. for the year ended december 31 , 2014 , we incurred $ 340,938 of rent expenses for the lease , which included leasing office management expenses and the new agreement with are llc . on august 8 , 2014 , we entered into a new commercial lease agreement with the legacy group inc. , to lease office space in seattle , wa in conjunction with expiration of the current office space lease with fred hutchinson research center on november 29 , 2014. the lease provides for monthly rent payments of $ 16,695 from december 1 , 2014 through june 30 , 2015 , $ 17,172 from july 1 , 2015 through june 30 , 2016 and $ 17,649 from july 1 , 2016 through june 30 , 2017. on october 2015 , we terminated the lease with the legacy group and entered into another commercial lease with the same landlord for similar office space which terminates in november 2016. for the year ended december 31 , 2015 , we incurred $ 227,238 of rent expense for the lease . 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 . 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 . revenue recognition the company is not currently recognizing any revenue and all the revenue earned from testing services were generated by nrlbh . as a result of our sale of 81 % of the outstanding stock in the nrlbh on december 16 , 2015 all of the revenue generated by the nrlbh is disclosed as discontinued operations for both years ended 2014 and 2015 . 50 the company 's revenue recognition policy is in accordance with gaap when the following overall fundamental criteria are met : ( i ) persuasive evidence of an arrangement exists , ( ii ) delivery has occurred or the service has been performed , ( iii ) the company 's price to the customer is fixed or determinable and ( iv ) collection of the resulting accounts receivable is reasonably assured . intangible assets intangible assets consist of intellectual property and software acquired . intangibles are reviewed at least annually for impairment or whenever events or changes in circumstances indicate that the carrying value of the assets might not be recoverable . an impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount . estimating future cash flows related to an intangible asset involves significant estimates and assumptions . if our assumptions are not correct , there could be an impairment loss or , in the case of a change in the estimated useful life of the asset , a change in amortization expense . we continuously evaluate and reprioritize our research and development pipeline based on the most recent business strategies , and as a result have indefinitely delayed plans to develop and invest further in acueity patents and technologies for at least the next several years . because of these changed business plans related to the acueity assets , we concluded that these assets were partially impaired in 2014 and recorded impairment of $ 2,352,626. in 2015 , we conducted our annual evaluation of the acueity assets and determined that the assets were not impaired for the year ended december 31 , 2015. we determined the fair values of the acueity intangibles using an income approach . when available and appropriate , we use comparative market multiples to corroborate discounted cash flow results . for purposes of the income approach , fair value is determined based on the present value of estimated future cash flows to be generated from development of products using the patented technology acquired in the acueity transaction based on our current plans , discounted at an appropriate risk-adjusted rate . we use our internal forecasts to estimate future cash flows and include an estimate of long-term future growth rates based on our most recent views of the outlook of the business . story_separator_special_tag we use discount rates that are commensurate with the risk and uncertainty inherent in the business and in our internally developed forecasts . discount rates used in valuations for these intangible assets ranged from 18 % to 21 % . share-based payments we follow the provisions of the financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) topic 718 , compensation – stock compensation ( “ asc 718 ” ) , 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 . 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 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 . 51 we have estimated an annualized forfeiture rate of 10.0 % for options granted . we will record additional expense if the actual forfeitures are lower than estimated and will record a recovery of prior expense if the actual forfeiture rates are higher than estimated . story_separator_special_tag uncertainty regarding utilization of our net operating carryforwards and due to our history of losses . liquidity and capital resources we have a history of operating losses as we have focused our efforts on raising capital and building our products and services in our pipeline . the company 's consolidated financial statements are prepared using generally accepted accounting principles in the united states of america applicable to a going concern , which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business . the company has incurred net losses and negative operating cash flows since inception . for the year ended december 31 , 2015 , the company recorded a net loss of approximately $ 15.8 million and used approximately $ 14.0 million of cash in operating activities . as of december 31 , 2015 , the company had approximately $ 3.7 million in cash and cash equivalents and working capital of approximately $ 1.9 million . the company has not yet established an ongoing source of revenue sufficient to cover its operating costs and allow it to continue as a going concern . the ability of the company to continue as a going concern is dependent on the company obtaining adequate capital to fund operating losses until it becomes profitable . the company can give no assurances that any additional capital that it is able to obtain , if any , will be sufficient to meet its needs , or that any such financing will be obtainable on acceptable terms . if the company is unable to obtain adequate capital , it could be forced to cease operations or substantially curtail is commercial activities . these conditions raise substantial doubt as to the company 's ability to continue as a going concern . the accompanying financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities should the company be unable to continue as a going concern . during the first quarter of 2015 , we sold a total of 2,653,199 shares of common stock to aspire capital under the stock purchase agreement dated november 8 , 2013 with aggregate gross proceeds to us of $ 4,292,349. no shares remain available for sale to aspire under the terms of the november 8 , 2013 agreement with them and the agreement was subsequently terminated . on may 26 , 2015 , we entered into a new common stock purchase agreement with aspire capital fund , llc , which provides that , upon the terms and subject to the conditions and limitations set forth therein , aspire capital is committed to purchase up to an aggregate of $ 25.0 million of shares of our common stock over the 30-month term of the purchase agreement . concurrently with entering into the purchase agreement , we also entered into a registration rights agreement with aspire capital , in which we agreed to file one or more registration statements , as permissible and necessary to register under the securities act of 1933 , registering the sale of the shares of our common stock that have been and may be issued to aspire capital under the purchase agreement . on november 11 , 2015 , we terminated the may 26 , 2015 agreement with aspire and entered into a new common stock purchase agreement which provides that , upon the terms and subject to the conditions and limitations set forth therein , aspire capital is committed to purchase up to an aggregate of $ 25.0 million of our shares of common stock over the approximately 30-month term of the purchase agreement . concurrently with entering into the purchase agreement , we also entered into a registration rights agreement with aspire capital in which we agreed to register 6,086,207 shares of our common stock .
| total cost of revenue for the year ended december 31 , 2015 was $ 3,671,545 which consisted of costs relating primarily to pharmacogenomics testing services ; compared to $ 340,658 for the year ended december 31 , 2014. gross profit for the year ended december 31 , 2015 was $ 1,853,329 which was entirely attributable to pharmacogenomics testing , as compared to a gross profit of $ 185,296 for the year ended december 31 , 2014. operating expenses : as a result of the sale of nrlbh , operating expenses related to the nrlbh are presented separately as discontinued operations for both years ended 2015 and 2014. total operating expenses from continuing operations were $ 12,627,965 for the year ended december 31 , 2015 , consisting of general and administrative ( g & a ) expenses of $ 8,842,938 , r & d expenses of $ 2,359,593 , and selling expenses of $ 1,421,409. operating expenses from discontinued operations were $ 2,331,192 , including $ 399,394 in exit costs . operating expenses from continuing operations increased $ 416,799 , or 3 % , from $ 12,211,166 for the year ended december 31 , 2014 , which consisted of g & a expenses of $ 8,052,281 , r & d expenses of $ 1,110,329 , selling expenses of $ 695,930 , and impairment expenses of $ 2,352,626. operating expenses from discontinued operations totaled $ 3,002,136 for the year ended december 31 , 2015 , compared to $ 2,487,158 for the same period in 2014. the increase in both continuing and discontinuing operating expenses year over year is mainly attributed to the 2015 launch of new devices and services and investing more in new r & d programs . selling expenses : selling expenses from continuing operations of $ 1,421,409 and discontinued operations of $ 1,303,425 totaled $ 2,724,834 for the year ended december 31 , 2015 , an increase of $ 1,453,129 , or 114 % , from total selling expenses from continuing operations of $ 695,930 and discontinued operations of $ 575,775 that totaled $ 1,271,705 for the year ended december 31 , 2014. the total increase in selling expenses from continuing and discontinued operations was attributed to increases in salaries , professional fees , and marketing expenses as we built a sales force in the united states and outside the united states to support the launch and commercialization of the forecyte and fullcyte breast aspirators and our laboratory service offerings . we anticipate selling expenses will significantly decrease in 2016 as we completed the transition of our discontinued operations in both the u.s. and outside the u.s. in the first quarter of 2016. general and administrative expenses : g & a
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while the regulatory relief act maintains most of the regulatory structure established by the dodd-frank act , it amends certain aspects of the regulatory framework for small depository institutions with assets of less than $ 10 billion , like us , and for large banks with assets of more than $ 50 billion . many of these changes are intended to result in meaningful regulatory relief for community banks and their holding companies , including new rules that may make the capital requirements less complex . for a discussion of capital requirements , see “ -the role of capital. ” it also eliminated questions about the applicability of certain dodd-frank act reforms to community bank systems , including relieving us of any requirement to engage in mandatory stress tests or comply with the volcker rule 's complicated prohibitions on proprietary trading and ownership of private funds . we believe these reforms are favorable to our operations , but the true impact remains difficult to predict until rulemaking is complete and the reforms are fully implemented . the supervisory framework for u.s. banking organizations subjects banks and bank holding companies to regular examination by their respective regulatory agencies , which results in examination reports and ratings that are not publicly available and that can impact the conduct and growth of their business . these examinations consider not only compliance with applicable laws and regulations , but also capital levels , asset quality and risk , management ability and performance , earnings , liquidity , and various other factors . the regulatory agencies generally have broad discretion to impose restrictions and limitations on the operations of a regulated entity where the agencies determine , among other things , that such operations are unsafe or unsound , fail to comply with applicable law or are otherwise inconsistent with laws and regulations . the following is a summary of the material elements of the supervisory and regulatory framework applicable to the company and the bank , beginning with a discussion of the continuing regulatory emphasis on our capital levels . it does not 5 describe all of the statutes , regulations and regulatory policies that apply , nor does it restate all of the requirements of those that are described . the descriptions are qualified in their entirety by reference to the particular statutory and regulatory provision . the role of capital regulatory capital represents the net assets of a banking organization available to absorb losses . because of the risks attendant to their business , fdic-insured institutions are generally required to hold more capital than other businesses , which directly affects their earnings capabilities . while capital has historically been one of the key measures of the financial health of both bank holding companies and banks , its role became fundamentally more important in the wake of the global financial crisis , as the banking regulators recognized that the amount and quality of capital held by banks prior to the crisis was insufficient to absorb losses during periods of severe stress . certain provisions of the dodd-frank act and basel iii , discussed below , establish capital standards for banks and bank holding companies that are meaningfully more stringent than those in place previously . minimum required capital levels . banks have been required to hold minimum levels of capital based on guidelines established by the bank regulatory agencies since 1983. the minimums have been expressed in terms of ratios of “ capital ” divided by “ total assets ” . as discussed below , bank capital measures have become more sophisticated over the years and have focused more on the quality of capital and the risk of assets . bank holding companies have historically had to comply with less stringent capital standards than their bank subsidiaries and have been able to raise capital with hybrid instruments such as trust preferred securities . the dodd-frank act mandated the federal reserve to establish minimum capital levels for holding companies on a consolidated basis as stringent as those required for fdic-insured institutions . a result of this change is that the proceeds of hybrid instruments , such as trust preferred securities , were excluded from capital over a phase-out period . however , if such securities were issued prior to may 19 , 2010 by bank holding companies with less than $ 15 billion of assets , they may be retained , subject to certain restrictions . because we have assets of less than $ 15 billion , we are able to maintain our trust preferred proceeds as capital but we have to comply with new capital mandates in other respects and will not be able to raise capital in the future through the issuance of trust preferred securities . the basel international capital accords . the risk-based capital guidelines for u.s. banks since 1989 were based upon the 1988 capital accord known as “ basel i ” adopted by the international basel committee on banking supervision , a committee of central banks and bank supervisors that acts as the primary global standard-setter for prudential regulation , as implemented by the u.s. bank regulatory agencies on an interagency basis . the accord recognized that bank assets for the purpose of the capital ratio calculations needed to be assigned risk weights ( the theory being that riskier assets should require more capital ) and that off-balance sheet exposures needed to be factored in the calculations . basel i had a very simple formula for assigning risk weights to bank assets from 0 % to 100 % based on four categories . in 2008 , the banking agencies collaboratively began to phase-in capital standards based on a second capital accord , referred to as “ basel ii , ” for large or “ core ” international banks ( generally defined for u.s. purposes as having total assets of $ 250 billion or more , or consolidated foreign exposures of $ 10 billion or more ) known as “ advanced approaches ” banks . story_separator_special_tag the primary focus of basel ii was on the calculation of risk weights based on complex models developed by each advanced approaches bank . because most banks were not subject to basel ii , the u.s. bank regulators worked to improve the risk sensitivity of basel i standards without imposing the complexities of basel ii . this “ standardized approach ” increased the number of risk-weight categories and recognized risks well above the original 100 % risk weight . it is institutionalized by the dodd-frank act for all banking organizations , even for the advanced approaches banks , as a floor . on september 12 , 2010 , the group of governors and heads of supervision , the oversight body of the basel committee on banking supervision , announced agreement on a strengthened set of capital requirements for banking organizations around the world , known as basel iii , to address deficiencies recognized in connection with the global financial crisis . the basel iii rule . in july 2013 , the u.s. federal banking agencies approved the implementation of the basel iii regulatory capital reforms in pertinent part , and , at the same time , promulgated rules effecting certain changes required by the dodd-frank act ( the “ basel iii rule ” ) . in contrast to capital requirements historically , which were in the form of guidelines , basel iii was released in the form of enforceable regulations by each of the regulatory agencies . the basel iii rule is applicable to all banking organizations that are subject to minimum capital requirements , including federal and state banks and savings and loan associations , as well as to bank and savings and loan holding companies , other than “ small bank holding companies ” ( generally holding companies with consolidated assets of less than $ 3 billion that do not have securities registered with the sec ) . banking organizations became subject to the basel iii rule on january 1 , 2015 and all parts of it were fully phased-in as of january 1 , 2019. the basel iii rule increased the required quantity and quality of capital and , for nearly every class of assets , it requires a more complex , detailed and calibrated assessment of risk and calculation of risk-weight amounts . 6 not only did the basel iii rule increase most of the required minimum capital ratios in effect prior to january 1 , 2015 , but it introduced the concept of common equity tier 1 capital , which consists primarily of common stock , related surplus ( net of treasury stock ) , retained earnings , and common equity tier 1 minority interests subject to certain regulatory adjustments . the basel iii rule also changed the definition of capital by establishing more stringent criteria that instruments must meet to be considered additional tier 1 capital ( primarily non-cumulative perpetual preferred stock that meets certain requirements ) and tier 2 capital ( primarily other types of preferred stock and subordinated debt , subject to limitations ) . a number of instruments that qualified as tier 1 capital under basel i do not qualify , or their qualifications changed . for example , noncumulative perpetual preferred stock , which qualified as simple tier 1 capital under basel i , does not qualify as common equity tier 1 capital , but qualifies as additional tier 1 capital . the basel iii rule also constrained the inclusion of minority interests , mortgage-servicing assets , and deferred tax assets in capital and requires deductions from common equity tier 1 capital in the event that such assets exceed a certain percentage of a banking institution 's common equity tier 1 capital . the basel iii rule required minimum capital ratios as of january 1 , 2015 , as follows : a ratio of minimum common equity tier 1 capital equal to 4.5 % of risk-weighted assets ; an increase in the minimum required amount of tier 1 capital from 4 % to 6 % of risk-weighted assets ; a continuation of the minimum required amount of total capital ( tier 1 plus tier 2 ) at 8 % of risk-weighted assets ; and a minimum leverage ratio of tier 1 capital to total quarterly average assets equal to 4 % in all circumstances . in addition , institutions that seek the freedom to make capital distributions ( including for dividends and repurchases of stock ) and pay discretionary bonuses to executive officers without restriction must also maintain 2.5 % in common equity tier 1 capital attributable to a capital conservation buffer ( fully phased-in as of january 1 , 2019 ) . the purpose of the conservation buffer is to ensure that banking institutions maintain a buffer of capital that can be used to absorb losses during periods of financial and economic stress . factoring in the conservation buffer increases the minimum ratios depicted above to 7 % for common equity tier 1 capital , 8.5 % for tier 1 capital and 10.5 % for total capital . well-capitalized requirements . the ratios described above are minimum standards in order for banking organizations to be considered “ adequately capitalized. ” bank regulatory agencies uniformly encourage banks to hold more capital and be “ well-capitalized ” and , to that end , federal law and regulations provide various incentives for banking organizations to maintain regulatory capital at levels in excess of minimum regulatory requirements . for example , a banking organization that is well-capitalized may : ( i ) qualify for exemptions from prior notice or application requirements otherwise applicable to certain types of activities ; ( ii ) qualify for expedited processing of other required notices or applications ; and ( iii ) accept , roll-over or renew brokered deposits . higher capital levels could also be required if warranted by the particular circumstances or risk profiles of individual banking organizations .
| % of the estimated amount of total insured deposits , and eliminating the requirement that the fdic pay dividends to fdic-insured institutions when the reserve ratio exceeds certain thresholds . the reserve ratio reached 1.36 % as of september 30 , 2018 ( most recent available ) , exceeding the statutory required minimum reserve ratio of 1.35 % . the fdic will provide assessment credits to insured depository institutions , like the bank , with total consolidated assets of less than $ 10 billion for the portion of their regular assessments that contribute to growth in the reserve ratio between 1.15 % and 1.35 % . the fdic will apply the credits each quarter that the reserve ratio is at least 1.38 % to offset the regular deposit insurance assessments of institutions with credits . fico assessments . in addition to paying basic deposit insurance assessments , fdic-insured institutions must pay federal corporation ( “ fico ” ) assessments . fico is a mixed-ownership governmental corporation chartered by the former federal home loan bank board pursuant to the competitive equality banking act of 1987 to function as a financing vehicle for the recapitalization of the former federal savings and loan insurance corporation . fico issued 30-year noncallable bonds of approximately $ 8.1 billion that mature in 2018 through 2019. fico 's authority to issue bonds ended on december 12 , 1991. since 1996 , federal legislation has required that all fdic-insured institutions pay assessments to cover interest payments on fico 's outstanding obligations . the fico assessment rate is adjusted quarterly and for the fourth quarter of 2018 was 32 cents per $ 100 dollars of assessable deposits . supervisory assessments . all iowa banks are required to pay supervisory assessments to the iowa division to fund the operations of that agency . the amount of the assessment is calculated on the basis of the bank 's total assets . during the year ended december 31 , 2018 , the bank paid supervisory assessments to the iowa
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the average yield on investment securities decreased 62 basis points to 2.00 % for the year ended december 31 , 2019 from 2.62 % for the year ended december 31 , 2018 , attributable to the addition of lower yielding adjustable and floating rate mortgage-backed securities . dividends on federal home loan bank stock and other investments increased $ 93,000 primarily due to increases in interest-bearing demand deposits in banks and federal funds sold . the average balance of other interest-bearing deposits , including certificates of deposit in other financial institutions , and federal funds sold increased $ 3.3 million to $ 13.7 million at december 31 , 2019 from $ 10.4 million at december 31 , 2018. the average yield for other interest-earning assets increased 11 basis points to 2.45 % at december 31 , 2019 from 2.34 % at december 31 , 2018 . 43 interest expense . total interest expense increased $ 820,000 , or 39.4 % , to $ 2.9 million for the year ended december 31 , 2019. interest expense on deposit accounts increased $ 519,000 , or 36.3 % , to $ 1.9 million for the year ended december 31 , 2019 from $ 1.4 million for the year ended december 31 , 2018. the increase was primarily due to an increase of $ 8.7 million , or 32.8 % , in the average balance of savings accounts to $ 35.0 million for the year ended december 31 , 2019 from $ 26.4 million for the year ended december 31 , 2018. the increase in the average cost of savings accounts was 28 basis points . the average balance of interest-bearing demand accounts increased $ 10.5 million and the average cost of interest-bearing demand accounts decreased 71 basis points to 0.76 % at december 31 , 2019. the decrease in the average cost of interest-bearing demand deposits was due to the addition of lower cost kentucky federal interest-bearing accounts and the low cost of the stock subscription funds . the average balance of certificates of deposits increased $ 5.0 million while the average cost of certificates of deposits increased 39 basis points to 2.12 % at december 31 , 2019. interest expense on fhlb advances increased $ 301,000 to $ 955,000 for the year ended december 31 , 2019 from $ 654,000 for the year ended december 31 , 2018. the average balance of advances increased $ 7.7 million to $ 42.9 million for the year ended december 31 , 2019 compared to $ 35.2 million for the year ended december 31 , 2018 , while the average cost of these advances increased 37 basis points to 2.23 % from 1.86 % . the increase in the average balance of advances was due to management utilizing advances as a funding source for loan originations and to reduce national cd rateline certificates of deposit and replace these cd 's with longer term and lower rate fhlb advances . net interest income . net interest income increased $ 720,000 , or 14.7 % , to $ 5.6 million for the year ended december 31 , 2019 from $ 4.9 million for the year ended december 31 , 2018. average net interest-earning assets decreased $ 4.6 million compared to year end december 31 , 2018 . the interest rate spread increased to 2.69 % for the year ended december 31 , 2019 from 2.67 % for the year ended december 31 , 2018. the net interest margin decreased to 2.87 % for the year ended december 31 , 2019 from 2.91 % for the year ended december 31 , 2018. provision for loan losses . based on management 's analysis of the allowance for loan losses described in note 1 of our financial statements “ nature of operations and summary of significant accounting policies , ” we recorded a provision for loan losses of $ 25,000 for the year ended december 31 , 2019 and a provision for loan losses of $ 45,000 for the year ended december 31 , 2018. the allowance for loan losses was $ 1.4 million , or 0.78 % of total loans , at december 31 , 2019 , compared to $ 1.4 million or 0.81 % of total loans , at december 31 , 2018. the decrease in the provision for loan losses in 2019 compared to 2018 was due primarily to the continued low balances of nonperforming loans and delinquent loans during 2019 and decrease in historical charge-offs for the six year look back period . total nonperforming loans were $ 111,000 and $ 744,000 at december 31 , 2019 and 2018 , respectively . classified loans declined to $ 1.4 million at december 31 , 2019 , from $ 1.7 million at december 31 , 2018 , and loans past due greater than 30 days totaled $ 209,000 and $ 1.0 million at december 31 , 2019 and 2018 , respectively . loan charge-offs totaled $ 23,000 for the year ended december 31 , 2019 , and there were no loans charged-off during the year ended december 31 , 2018. as a percentage of nonperforming loans , the allowance for loan losses was 1,268 % and 189 % at december 31 , 2019 and 2018 , respectively . the allowance for loan losses reflects the estimate we believe to be adequate to cover incurred probable losses which were inherent in the loan portfolio at december 31 , 2019 and 2018. while we believe the estimates and assumptions used in our determination of the adequacy of the allowance are reasonable , such estimates and assumptions could be proven incorrect in the future , and the actual amount of future provisions may exceed the amount of past provisions , and the increase in future provisions that may be required may adversely impact our financial condition and results of operations . in addition , bank regulatory agencies periodically review our allowance for loan losses and may require an increase in the provision story_separator_special_tag the average yield on investment securities decreased 62 basis points to 2.00 % for the year ended december 31 , 2019 from 2.62 % for the year ended december 31 , 2018 , attributable to the addition of lower yielding adjustable and floating rate mortgage-backed securities . dividends on federal home loan bank stock and other investments increased $ 93,000 primarily due to increases in interest-bearing demand deposits in banks and federal funds sold . the average balance of other interest-bearing deposits , including certificates of deposit in other financial institutions , and federal funds sold increased $ 3.3 million to $ 13.7 million at december 31 , 2019 from $ 10.4 million at december 31 , 2018. the average yield for other interest-earning assets increased 11 basis points to 2.45 % at december 31 , 2019 from 2.34 % at december 31 , 2018 . 43 interest expense . total interest expense increased $ 820,000 , or 39.4 % , to $ 2.9 million for the year ended december 31 , 2019. interest expense on deposit accounts increased $ 519,000 , or 36.3 % , to $ 1.9 million for the year ended december 31 , 2019 from $ 1.4 million for the year ended december 31 , 2018. the increase was primarily due to an increase of $ 8.7 million , or 32.8 % , in the average balance of savings accounts to $ 35.0 million for the year ended december 31 , 2019 from $ 26.4 million for the year ended december 31 , 2018. the increase in the average cost of savings accounts was 28 basis points . the average balance of interest-bearing demand accounts increased $ 10.5 million and the average cost of interest-bearing demand accounts decreased 71 basis points to 0.76 % at december 31 , 2019. the decrease in the average cost of interest-bearing demand deposits was due to the addition of lower cost kentucky federal interest-bearing accounts and the low cost of the stock subscription funds . the average balance of certificates of deposits increased $ 5.0 million while the average cost of certificates of deposits increased 39 basis points to 2.12 % at december 31 , 2019. interest expense on fhlb advances increased $ 301,000 to $ 955,000 for the year ended december 31 , 2019 from $ 654,000 for the year ended december 31 , 2018. the average balance of advances increased $ 7.7 million to $ 42.9 million for the year ended december 31 , 2019 compared to $ 35.2 million for the year ended december 31 , 2018 , while the average cost of these advances increased 37 basis points to 2.23 % from 1.86 % . the increase in the average balance of advances was due to management utilizing advances as a funding source for loan originations and to reduce national cd rateline certificates of deposit and replace these cd 's with longer term and lower rate fhlb advances . net interest income . net interest income increased $ 720,000 , or 14.7 % , to $ 5.6 million for the year ended december 31 , 2019 from $ 4.9 million for the year ended december 31 , 2018. average net interest-earning assets decreased $ 4.6 million compared to year end december 31 , 2018 . the interest rate spread increased to 2.69 % for the year ended december 31 , 2019 from 2.67 % for the year ended december 31 , 2018. the net interest margin decreased to 2.87 % for the year ended december 31 , 2019 from 2.91 % for the year ended december 31 , 2018. provision for loan losses . based on management 's analysis of the allowance for loan losses described in note 1 of our financial statements “ nature of operations and summary of significant accounting policies , ” we recorded a provision for loan losses of $ 25,000 for the year ended december 31 , 2019 and a provision for loan losses of $ 45,000 for the year ended december 31 , 2018. the allowance for loan losses was $ 1.4 million , or 0.78 % of total loans , at december 31 , 2019 , compared to $ 1.4 million or 0.81 % of total loans , at december 31 , 2018. the decrease in the provision for loan losses in 2019 compared to 2018 was due primarily to the continued low balances of nonperforming loans and delinquent loans during 2019 and decrease in historical charge-offs for the six year look back period . total nonperforming loans were $ 111,000 and $ 744,000 at december 31 , 2019 and 2018 , respectively . classified loans declined to $ 1.4 million at december 31 , 2019 , from $ 1.7 million at december 31 , 2018 , and loans past due greater than 30 days totaled $ 209,000 and $ 1.0 million at december 31 , 2019 and 2018 , respectively . loan charge-offs totaled $ 23,000 for the year ended december 31 , 2019 , and there were no loans charged-off during the year ended december 31 , 2018. as a percentage of nonperforming loans , the allowance for loan losses was 1,268 % and 189 % at december 31 , 2019 and 2018 , respectively . the allowance for loan losses reflects the estimate we believe to be adequate to cover incurred probable losses which were inherent in the loan portfolio at december 31 , 2019 and 2018. while we believe the estimates and assumptions used in our determination of the adequacy of the allowance are reasonable , such estimates and assumptions could be proven incorrect in the future , and the actual amount of future provisions may exceed the amount of past provisions , and the increase in future provisions that may be required may adversely impact our financial condition and results of operations . in addition , bank regulatory agencies periodically review our allowance for loan losses and may require an increase in the provision
| the allowance for loan losses is evaluated on a regular basis by management and is based upon management 's periodic review of the collectability of the loans in light of historical experience , the nature and volume of the loan portfolio , adverse situations that may affect the borrower 's ability to repay , estimated value of any underlying collateral and prevailing economic conditions . this evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available . 40 the allowance consists of allocated and general components . the allocated component relates to loans that are classified as impaired . for those loans that are classified as impaired , an allowance is established when the discounted cash flows ( or collateral value or observable market price ) of the impaired loan is lower than the carrying value of that loan . the general component covers nonclassified loans and is based on historical charge-off experience and expected loss given default derived from our internal risk rating process . other adjustments may be made to the allowance for pools of loans after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss or risk rating data . a loan is considered impaired when , based on current information and events , it is probable that we may not be able to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement . factors considered by management in determining impairment include payment status , collateral value and the probability of collecting scheduled principal and interest payments when due . loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired . management determines the significance of payment delays and payment shortfalls on a case-by-case basis , taking into consideration all of the circumstances surrounding the loan and the borrower , including the length of the delay , the reasons for the delay , the borrower 's prior payment record and the amount of the shortfall in relation to the principal and interest owed . impairment is
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non u.s.-gaap financial measure throughout this 2019 annual report , we present our operations in the way we believe will be most meaningful , useful and transparent to anyone using this financial information to evaluate our performance . in addition to the u.s. gaap presentation of net loss , we present segment operating income as a non-u.s. gaap financial measure , which we believe is valuable in managing our business and drawing comparisons to our peers . below is a definition of our non-u.s. gaap measure and its relationship to u.s. gaap . segment operating income segment operating income represents one measure of the pretax profitability of our segments and is derived by subtracting direct segment expenses from direct segment revenues . revenues and expenses presented in the consolidated statements of operations are not subtotaled by segment ; however , this information is available in total and by segment in note 26 , `` segmented information , '' to the consolidated financial statements , regarding reportable segment information . the nearest comparable u.s. gaap measure to segment operating income is loss from continuing operations before income tax ( benefit ) expense that , in addition to segment operating income , includes net investment income , net realized gains ( losses ) , gain on change in fair value of equity investments , gain ( loss ) on change in fair value of limited liability investments , at fair value , net change in unrealized loss on private company investments , other-than-temporary impairment loss , interest expense not allocated to segments , other income and expenses not allocated to segments , net , amortization of intangible assets , gain ( loss ) on change in fair value of debt , gain on disposal of subsidiary and equity in net income ( loss ) of investee . a reconciliation of segment operating income to loss from continuing operations before income tax ( benefit ) expense for the years ended december 31 , 2019 and december 31 , 2018 is presented in table 1 of the `` results of continuing operations '' section of md & a . critical accounting estimates and assumptions the preparation of consolidated financial statements in conformity with u.s. gaap requires management to make estimates and assumptions that affect the reported amounts and classification of assets and liabilities , revenues and expenses , and the related disclosures of contingent assets and liabilities in the consolidated financial statements and accompanying notes . actual results could differ from these estimates . estimates and their underlying assumptions are reviewed on an ongoing basis . changes in estimates are recorded in the accounting period in which they are determined . the critical accounting estimates and assumptions in the accompanying consolidated financial statements include the provision for unpaid loss and loss adjustment expenses ; valuation of fixed maturities and equity investments ; impairment assessment of investments ; valuation of limited liability investments , at fair value ; valuation of real estate investments ; valuation of deferred income taxes ; valuation of mandatorily redeemable preferred stock ; valuation and impairment assessment of intangible assets ; goodwill recoverability ; deferred acquisition costs ; fair value assumptions for subordinated debt obligations ; fair value assumptions for warrant liability ; and revenue recognition . provision for unpaid loss and loss adjustment expenses overview the company records a provision for unpaid losses that have occurred as of a given evaluation date as well as for its estimated liability for loss adjustment expenses . the provision for unpaid losses includes a provision , commonly referred to as case reserves , replace_table_token_24_th kingsway financial services inc. management 's discussion and analysis for losses related to reported claims as well as a provision for losses related to claims incurred but not reported ( “ ibnr ” ) . the provision for loss adjustment expenses represents the cost to investigate and settle claims . the provision for unpaid loss and loss adjustment expenses does not represent an exact calculation of the liability but instead represents management 's best estimate at a given accounting date , utilizing actuarial and statistical procedures , of the undiscounted estimates of the ultimate net cost of all unpaid loss and loss adjustment expenses . management continually reviews its estimates and adjusts its provision as new information becomes available . in establishing the provision for unpaid loss and loss adjustment expenses , the company also takes into account estimated recoveries , reinsurance , salvage and subrogation . any adjustments to the provision for unpaid loss and loss adjustment expenses are reflected in the consolidated statements of operations in the periods in which they become known , and the adjustments are accounted for as changes in estimates . even after such adjustments , ultimate liability or recovery may exceed or be less than the revised provisions . an adjustment that increases the provision for unpaid loss and loss adjustment expenses is known as unfavorable development or a deficiency and will reduce net income while an adjustment that decreases the provision is known as favorable development or a redundancy and will increase net income . process for establishing the provision for unpaid loss and loss adjustment expenses the process for establishing the provision for unpaid loss and loss adjustment expenses reflects the uncertainties and significant judgmental factors inherent in predicting future results of both reported and ibnr claims . as such , the process is inherently complex and imprecise and estimates are constantly refined . the process of establishing the provision for unpaid loss and loss adjustment expenses relies on the judgment and opinions of a large number of individuals , including the opinions of the company 's external reserving actuaries . story_separator_special_tag factors affecting the provision for unpaid loss and loss adjustment expenses include the continually evolving and changing regulatory and legal environment ; actuarial studies ; professional experience and expertise of the company 's claims department personnel and independent adjusters retained to handle individual claims ; the quality of the data used for projection purposes ; existing claims management practices , including claim-handling and settlement practices ; the effect of inflationary trends on future loss settlement costs ; court decisions ; economic conditions ; and public attitudes . the process for establishing the provision for loss and loss adjustment expenses begins with the collection and analysis of claim data . data on individual reported claims , both current and historical , including paid amounts and individual claim adjuster estimates , are grouped by common characteristics and evaluated by the company 's external reserving actuaries in their analyses to estimate ultimate claim liabilities . such data is occasionally supplemented with external data as available and when appropriate . our company 's external reserving actuaries use the following generally accepted actuarial loss and loss adjustment expenses reserving methods in our analysis , for each coverage or segment that we analyze : paid loss development - we use historical loss and loss adjustment expense payments over discrete periods of time to estimate future loss and loss adjustment expense payments . paid development methods assume that the patterns of paid loss and loss adjustment expenses that occurred in past periods will be similar to loss and loss adjustment expense payment patterns that will occur in future periods . incurred loss development - we use historical case incurred loss and loss adjustment expenses ( the sum of cumulative loss and loss adjustment expense payments plus outstanding unpaid case losses ) over discrete periods of time to estimate future loss and loss adjustment expenses . incurred development methods assume that the case loss and loss adjustment expenses reserving practices are consistently applied over time . frequency and severity - we use historical claim count development over discrete periods of time to estimate future claim counts . we divide projected ultimate claim counts by an exposure base ( earned premiums or exposures ) , select expected claim frequencies from the results , and adjust them for trends based on internal and external information . concurrently , we divide projected ultimate losses by the projected ultimate claim counts to select expected loss severities . we use internal and external information to trend the severities and combine them with the trended , projected frequencies to develop ultimate loss projections . replace_table_token_25_th kingsway financial services inc. management 's discussion and analysis the methods above all calculate an estimate of total ultimate losses . our provision for loss and loss adjustment expenses is calculated by subtracting total paid losses from our estimate of total ultimate losses . our estimate for ibnr is calculated by subtracting case reserves from our provision for loss and loss adjustment expenses . each estimation method has its own set of assumption variables and its own advantages and disadvantages , with no single estimation method being better than the others in all situations and no one set of assumptions being meaningful for all coverages or segments . for example , paid loss development does not make use of case reserves , and can be more stable when there are changes to the case reserving process . frequency and severity , by estimating the frequency separately from severity , can assist in understanding the underlying dynamics when either frequency or severity is changing substantially . the relative strengths and weaknesses of the particular estimation methods when applied to a particular group of claims can also change over time ; therefore , the actual choice of estimation method can change with each evaluation . the estimation methods chosen are those that are believed to produce the most reliable indication at a particular evaluation date . we monitor the actual emergence of loss and loss adjustment expenses data and compare it to the expected emergence implied by our booked estimates . differences in these are part of our considerations for whether it is appropriate to modify our assumptions for developing the estimated provision for unpaid loss and loss adjustment expenses . we review the adequacy of the provision for unpaid loss and loss adjustment expenses quarterly . for our year-end analysis , we re-estimate the ultimate losses for each coverage , by accident year . this involves performing a complete update of the historical development factors used in our analysis , incorporating the experience of the most recent calendar year . on a quarterly basis , we perform a more limited review , which can entail , for example , a comparison of the expected losses to be paid during the quarter versus actual payments , or other similar comparisons to determine the extent to which a given segment is performing as expected . in some cases , a re-estimation ( similar to the year-end analysis ) may be determined to be useful as part of a quarterly analysis , and we may make adjustments to ultimate losses in response to the results of this analysis . we adjust carried unpaid loss and loss adjustment expenses as we learn additional information , and reflect these adjustments in the accounting periods in which they are determined . a basic premise in most actuarial analyses is that past patterns demonstrated in the data will repeat themselves in the future , absent a material change in the associated risk factors . significant structural changes to the available data , product mix or organization can materially affect the provision for loss and loss adjustment expenses . informed judgment is applied throughout the process . this includes the application of various individual experiences and expertise to multiple sets of data and analyses . in addition to actuaries , experts involved with the reserving process also include underwriting and claims personnel and lawyers , as well as other company management .
| million for the year ended december 31 , 2019 compared with $ 38.3 million for the year ended december 31 , 2018 . service fee and commission income was impacted by the following in 2019 : the inclusion of geminus in 2019 following its acquisition effective march 1 , 2019. geminus service fee and commission income was $ 9.9 million for the year ended december 31 , 2019 . an increase at iws , primarily driven by an increase in policies-in-force ; and a decrease at trinity due to net customer turnover and focusing on building the higher-margin warranty products , as well a decrease at pwsc due to net customer turnover and slower than anticipated introduction of new product offerings . the extended warranty operating income was $ 4.6 million for the year ended december 31 , 2019 compared with $ 4.2 million for the year ended december 31 , 2018 . the increase in operating income is primarily due to the inclusion of geminus in 2019 following its acquisition effective march 1 , 2019. geminus operating income was $ 0.5 million for the year ended december 31 , 2019 . leased real estate leased real estate rental income was $ 13.4 million for the year ended december 31 , 2019 compared to $ 13.4 million for the year ended december 31 , 2018 . the rental income is derived from cmc 's long-term triple net lease . leased real estate operating income was $ 2.8 million for the year ended december 31 , 2019 compared to $ 2.5 million for the year ended december 31 , 2018 . the increase in operating income for the year ended december 31 , 2019 is primarily due to decreased legal and interest expenses compared to the same period in 2018 . leased real estate recorded legal expense of $ 0.6 million and interest expense of $ 6.1 million for the year ended december 31 , 2019 compared with
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the decrease in revenue in the americas and asia pacific regions are primarily due to a shift in product mix and average selling price , partially offset by an increase in sales volume in the asia pacific region . for the years ended december 31 , 2017 and 2016 , revenue from operations outside the u.s. , including latin america , emea and apac , was 50.1 % and 47.9 % of total revenue , respectively . 28 comparison of revenue by class we earn revenue from the sale of products , materials and services . the products category includes 3d printers , healthcare simulators and digitizers , as well as software , 3d scanners and haptic devices . the materials category includes a wide range of materials to be used with our 3d printers , the majority of which are proprietary , as well as acquired conventional dental materials . the services category includes warranty and maintenance on 3d printers and simulators , software maintenance , on demand manufacturing solutions and healthcare services . due to the relatively high price of certain 3d printers and a corresponding lengthy selling cycle and relatively low unit volume of the higher priced printers in any particular period , a shift in the timing and concentration of orders and shipments from one period to another can affect reported revenue in any given period . revenue reported in any particular period is also affected by timing of revenue recognition under rules prescribed by u.s. generally accepted accounting principles ( “ gaap ” ) . in addition to changes in sales volumes and the impact of revenue from acquisitions , there are two other primary drivers of changes in revenue from one period to another : ( 1 ) the combined effect of changes in product mix and average selling prices , sometimes referred to as price and mix effects , and ( 2 ) the impact of fluctuations in foreign currencies . as used in this management 's discussion and analysis , the price and mix effects relate to changes in revenue that are not able to be specifically related to changes in unit volume . 2018 compared to 2017 the following table sets forth the change in revenue by class for the years ended december 31 , 2018 and 2017 . table 3 replace_table_token_5_th consolidated revenue increased 6.4 % , predominantly driven by higher sales volume across all revenue categories , including the impact of new printers launched in 2018 , and the favorable impact of foreign currency , partially offset by a shift in sales mix which impacted average selling price for both products and materials . products revenue increased due to higher demand from healthcare and a wide range of other key verticals and for products across our portfolio , including the recently commercialized new products ; partially offset by changes in sales mix which impacted average selling prices , including the impact of higher sales of lower priced printers . revenue from printers increased 24.5 % to $ 153.7 million for the year ended december 31 , 2018 compared to $ 123.4 million in the prior year . for the year ended december 31 , 2018 , software revenue included in the products category , including scanners and haptic devices , contributed $ 51.7 million , an increase of 8.2 % , compared to $ 47.8 million for the year ended december 31 , 2017. the increase in materials revenue for the year ended december 31 , 2018 primarily reflects demand for materials driven by healthcare and industrial customers for our core and new materials , coupled with a favorable impact from foreign currency . the unfavorable price/mix impact is primarily driven by mix of sales during the year , including the impacts of product mix , geographic sales mix and volume purchase pricing . the increase in services revenue for the year ended december 31 , 2018 was primarily driven by growth in healthcare , on demand manufacturing and software services revenue . despite headwinds related to export compliance and changes in on demand outsourcing procedures and strategy in the second half of 2018 , on demand manufacturing services revenue increased 2.2 % to $ 107.1 million for the year ended december 31 , 2018 , compared to $ 104.7 million for the year ended december 31 , 2017. for the years ended december 31 , 2018 and 2017 , software revenue included in the services category contributed $ 44.6 million and $ 43.9 million , respectively . 29 2017 compared to 2016 the following table sets forth the change in revenue by class for the years ended december 31 , 2017 and 2016 . table 4 replace_table_token_6_th consolidated revenue increased 2.1 % , driven by increased sales volume in both materials and services as well as the favorable impact of foreign currency , offset by a shift in product mix and average selling prices . products revenue decreased due to changes in product mix and average selling prices , including a shift in demand for lower priced printers and a moderate decrease in sales volume . for the years ended december 31 , 2017 and 2016 , revenue from printers contributed $ 123.4 million and $ 133.3 million , respectively . software revenue included in the products category , including scanners and haptic devices , contributed $ 47.8 million and $ 44.5 million for the years ended december 31 , 2017 and 2016 , respectively . the increase in materials revenue reflects continued utilization by the installed base and demand from healthcare customers , including acquired vertex and nextdent dental materials . this increased demand was partially offset by a decrease related to a shift in product mix and average selling prices . services revenue increased primarily due to higher demand for healthcare services . for the years ended december 31 , 2017 and 2016 , revenue from on demand manufacturing services contributed $ 104.6 million and $ 104.4 million , respectively . story_separator_special_tag for the years ended december 31 , 2017 and 2016 , software services revenue contributed $ 43.9 million and $ 43.2 million , respectively . gross profit and gross profit margins 2018 compared to 2017 the following table sets forth gross profit and gross profit margins for the years ended december 31 , 2018 and 2017 . table 5 replace_table_token_7_th the increase in total consolidated gross profit is due to the increase in product sales , primarily higher sales of printers . in addition , the inventory adjustment discussed below had a negative impact on margins in the comparable period for the prior year . products gross profit margin increased , primarily due to inventory adjustments totaling $ 12.9 million in 2017 that were a result of a comprehensive review of our portfolio and inventory and related primarily to legacy plastics printers , refurbished and used metals printers and parts having minimal or no use over extended periods , and a small increase in gross profit margin as a result of ongoing supply chain cost reduction efforts . gross profit margin for materials decreased , reflecting the unfavorable impact of 30 mix driven by geographic sales mix and product mix . gross profit margin for services decreased , driven by lower on demand manufacturing margin which was partially offset by improved margins for software and maintenance services . on demand manufacturing services gross profit margin decreased to 35.9 % for the year ended december 31 , 2018 , compared to 43.1 % for the year ended december 31 , 2017 due to mix of sales and lower utilization as we invested in several facilities globally to upgrade and expand capacity while at the same time exiting certain other facilities . 2017 compared to 2016 the following table sets forth gross profit and gross profit margins for the years ended december 31 , 2017 and 2016 . table 6 replace_table_token_8_th the decrease in total consolidated gross profit is predominantly driven by changes in product mix . also contributing to the decrease were the inventory adjustments totaling $ 12.9 million in 2017 versus adjustments of $ 10.7 million in the same period of 2016. the 2017 inventory adjustment resulted from a comprehensive review of our portfolio and inventory during the year ended december 31 , 2017. the 2017 inventory adjustment primarily related to legacy plastics printers , refurbished and used metals printers and parts that have shown little to no use over extended periods . the majority of this adjustment relates to the products category . gross profit for materials decreased primarily due to the addition of vertex 's conventional dental materials , which are lower gross profit margin than 3d printing materials . gross profit margin for services decreased due to lower gross profit margins in printer services as we invested in addressing legacy issues and building out our service model , which offset the benefit of higher demand for healthcare services . on demand manufacturing services gross profit margin remained flat at 43.1 % for the year ended december 31 , 2017 , compared to 43.0 % for the year ended december 31 , 2016. operating expenses 2018 compared to 2017 the following table sets forth the components of operating expenses for the years ended december 31 , 2018 and 2017 . table 7 replace_table_token_9_th selling , general and administrative expenses increased due to additional employee related costs , in particular to support selling & marketing activities incurred in connection with the launch of new products during 2018 , continued investment in it infrastructure , and higher legal expenses ; partially offset by a reduction in outside services costs . research and development expenses remained relatively flat as our increased investment in our workforce was offset by a reduction in outside services costs and a reduced materials spend related to products which have been brought to market during 2018 . 31 2017 compared to 2016 the following table sets forth the components of operating expenses for the years ended december 31 , 2017 and 2016 . table 8 replace_table_token_10_th selling , general and administrative expenses increased primarily due to our investments in go-to-market and it infrastructure and additional talent and resources , as well as repairs and maintenance costs , offset by lower stock compensation expense due to the impact of adopting a new accounting standard which resulted in a change in our policy for accounting for award forfeitures . research and development expenses increased due to focused innovation to drive customers ' shift to 3d production , including investment in plastics , in particular our figure 4 platform , metals , materials and software as well as the addition of talent and resources . research and development for 2016 included $ 4.6 million of expense related to charges and write-offs in connection with our updated strategy and project reprioritization . income ( loss ) from operations the following table sets forth income ( loss ) from operations by geographic region for the years ended december 31 , 2018 , 2017 and 2016 . table 9 replace_table_token_11_th see “ gross profit and gross profit margins ” and “ operating expenses ” above . 32 interest and other expenses , net the following table sets forth the components of interest and other expenses , net , for the years ended december 31 , 2018 , 2017 and 2016 . table 10 replace_table_token_12_th the decrease for the year ended december 31 , 2018 , as compared to the year ended december 31 , 2017 , is primarily due to the favorable impact of foreign currency . the increase for the year ended december 31 , 2017 , as compared to the year ended december 31 , 2016 , is attributable to impairment charges related to certain cost method investments and an unfavorable impact of foreign currency . see note 2 to the consolidated financial statements . benefit and provision for income taxes we recorded a $ 2.0 million and $ 7.8 million provision for income taxes for the years ended december 31 , 2018 and 2017 , respectively .
| operating expenses for the year ended december 31 , 2018 increased by 2.4 % , or $ 8.8 million , to $ 367.6 million , compared to $ 358.8 million for the year ended december 31 , 2017 . selling , general and administrative expenses for the year ended december 31 , 2018 increased by 3.1 % , or $ 8.1 million , to $ 272.3 million , compared to $ 264.2 million for the year ended december 31 , 2017 , predominantly due to our investments in new product launches , go-to-market and it infrastructure . research and development expenses for the year ended december 31 , 2018 increased by 0.7 % , or $ 0.7 million , to $ 95.3 million , compared to $ 94.6 million for the year ended december 31 , 2017 , predominantly due to investments related to the launch of several new products throughout 2018. our operating loss for the year ended december 31 , 2018 was $ 43.2 million , compared to an operating loss of $ 54.0 million for the year ended december 31 , 2017 . for the years ended december 31 , 2018 and 2017 , we generated $ 4.8 million and $ 26.1 million of cash from operations , respectively , as further discussed below . in total , our unrestricted cash balance at december 31 , 2018 and 2017 was $ 110.0 million and $ 136.3 million , respectively . the lower cash balance was the result of our investments in go-to-market , it infrastructure , new product launches , and higher legal expenses related to compliance and regulatory matters and payments related to previous litigation settlements . 27 results of operations for 2018 , 2017 and 2016 comparison of revenue by geographic region 2018 compared to 2017 the following table sets forth the change in revenue by geographic region for the years ended december 31 , 2018 and 2017 : table 1 replace_table_token_3_th consolidated revenue increased 6.4 % , predominantly driven by higher sales volume across all geographic regions , including recently commercialized new
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costs are incremental and would not be incurred absent the integration . other operating expenses associated with the transactions represent merger and restructuring costs and include advisory , legal and accounting fees , employee retention costs , employee termination costs and other exit costs . critical accounting policies and estimates certain of our accounting policies require our management to make difficult , subjective and or complex judgments . management has discussed these policies with the audit committee of charter 's board of directors , and the audit committee has reviewed the following disclosure . we consider the following policies to be the most critical in understanding the estimates , assumptions and judgments that are involved in preparing our financial statements , and the uncertainties that could affect our results of operations , financial condition and cash flows : property , plant and equipment capitalization of labor and overhead costs valuation and impairment of property , plant and equipment useful lives of property , plant and equipment intangible assets valuation and impairment of franchises valuation and impairment of goodwill valuation and impairment and amortization of customer relationships income taxes litigation programming agreements pension plans in addition , there are other items within our financial statements that require estimates or judgment that are not deemed critical , such as the allowance for doubtful accounts and valuations of our financial instruments , but changes in estimates or judgment in these other items could also have a material impact on our financial statements . property , plant and equipment the cable industry is capital intensive , and a large portion of our resources are spent on capital activities associated with extending , rebuilding , and upgrading our cable network . as of december 31 , 2016 and 2015 , the net carrying amount of our property , plant and equipment ( consisting primarily of cable distribution systems ) was approximately $ 32.7 billion ( representing 22 % of total assets ) and $ 8.3 billion ( representing 48 % of total assets ) , respectively . total capital expenditures for the years ended december 31 , 2016 , 2015 and 2014 were approximately $ 5.3 billion , $ 1.8 billion and $ 2.2 billion , respectively . capitalization of labor and overhead costs . costs associated with network construction , initial placement of the customer drop to the dwelling and the initial placement of outlets within a dwelling along with the costs associated with the initial deployment of customer premise equipment necessary to provide video , internet or voices services , are capitalized . costs capitalized include materials , direct labor , and certain indirect costs . these indirect costs are associated with the activities of personnel who assist in installation activities , and consist of compensation and overhead costs associated with these support functions . while our capitalization is based on specific activities , once capitalized , we track these costs on a composite basis by fixed asset category at the cable system level , and not on a specific asset basis . for assets that are sold or retired , we remove the estimated applicable 35 cost and accumulated depreciation . the costs of disconnecting service and removing customer premise equipment from a dwelling and the costs to reconnect a customer drop or to redeploy previously installed customer premise equipment are charged to operating expensed as incurred . costs for repairs and maintenance are charged to operating expense as incurred , while plant and equipment replacement , including replacement of certain components , betterments , and replacement of cable drops and outlets , are capitalized . we make judgments regarding the installation and construction activities to be capitalized . we capitalize direct labor and overhead using standards developed from actual costs and applicable operational data . we calculate standards annually ( or more frequently if circumstances dictate ) for items such as the labor rates , overhead rates , and the actual amount of time required to perform a capitalizable activity . for example , the standard amounts of time required to perform capitalizable activities are based on studies of the time required to perform such activities . overhead rates are established based on an analysis of the nature of costs incurred in support of capitalizable activities , and a determination of the portion of costs that is directly attributable to capitalizable activities . the impact of changes that resulted from these studies were not material in the periods presented . labor costs directly associated with capital projects are capitalized . capitalizable activities performed in connection with installations include such activities as : dispatching a “ truck roll ” to the customer 's dwelling or business for service connection or placement of new equipment ; verification of serviceability to the customer 's dwelling or business ( i.e. , determining whether the customer 's dwelling is capable of receiving service by our cable network and or receiving advanced or internet services ) ; customer premise activities performed by in-house field technicians and third-party contractors in connection with customer installations , installation of equipment in connection with the installation of video , internet or voice services , and equipment replacement and betterment ; and verifying the integrity of the customer 's network connection by initiating test signals downstream from the headend to the customer 's digital set-top box , as well as testing signal levels at the pole or pedestal . judgment is required to determine the extent to which overhead costs incurred result from specific capital activities , and therefore should be capitalized . the primary costs that are included in the determination of the overhead rate are ( i ) employee benefits and payroll taxes associated with capitalized direct labor , ( ii ) direct variable costs associated with capitalizable activities , ( iii ) the cost of support personnel , such as care personnel and dispatchers , who assist with capitalizable installation activities , and ( iv ) indirect costs directly attributable to capitalizable activities . story_separator_special_tag while we believe our existing capitalization policies are appropriate , a significant change in the nature or extent of our system activities could affect management 's judgment about the extent to which we should capitalize direct labor or overhead in the future . we monitor the appropriateness of our capitalization policies , and perform updates to our internal studies on an ongoing basis to determine whether facts or circumstances warrant a change to our capitalization policies . we capitalized direct labor and overhead of $ 991 million , $ 420 million and $ 427 million , respectively , for the years ended december 31 , 2016 , 2015 and 2014 . valuation and impairment of property , plant and equipment . we evaluate the recoverability of our property , plant and equipment upon the occurrence of events or changes in circumstances indicating that the carrying amount of an asset may not be recoverable . such events or changes in circumstances could include such factors as the impairment of our indefinite life franchises , changes in technological advances , fluctuations in the fair value of such assets , adverse changes in relationships with local franchise authorities , adverse changes in market conditions , or a deterioration of current or expected future operating results . a long-lived asset is deemed impaired when the carrying amount of the asset exceeds the projected undiscounted future cash flows associated with the asset . no impairments of long-lived assets to be held and used were recorded in the years ended december 31 , 2016 , 2015 and 2014 . we utilize the cost approach as the primary method used to establish fair value for our property , plant and equipment in connection with business combinations . the cost approach considers the amount required to replace an asset by constructing or purchasing a new asset with similar utility , then adjusts the value in consideration of physical depreciation and functional and economic obsolescence as of the appraisal date . the cost approach relies on management 's assumptions regarding current material and labor costs required to rebuild and repurchase significant components of our property , plant and equipment along with assumptions regarding the age and estimated useful lives of our property , plant and equipment . useful lives of property , plant and equipment . we evaluate the appropriateness of estimated useful lives assigned to our property , plant and equipment , based on annual analysis of such useful lives , and revise such lives to the extent warranted by changing facts and circumstances . any changes in estimated useful lives as a result of this analysis are reflected prospectively beginning in the period in which the study is completed . our analysis of useful lives in 2016 did not indicate a change in useful lives . the effect of a one-year decrease in the weighted average remaining useful life of our property , plant and equipment as of december 31 , 36 2016 would be an increase in annual depreciation expense of approximately $ 1.7 billion . the effect of a one-year increase in the weighted average remaining useful life of our property , plant and equipment as of december 31 , 2016 would be a decrease in annual depreciation expense of approximately $ 863 million . depreciation expense related to property , plant and equipment totaled $ 5.0 billion , $ 1.9 billion and $ 1.8 billion for the years ended december 31 , 2016 , 2015 and 2014 , respectively , representing approximately 20 % , 21 % and 22 % of costs and expenses , respectively . depreciation is recorded using the straight-line composite method over management 's estimate of the useful lives of the related assets as listed below : cable distribution systems 7-20 years customer premise equipment and installations 3-8 years vehicles and equipment 3-6 years buildings and improvements 15-40 years furniture , fixtures and equipment 6-10 years intangible assets valuation and impairment of franchises . the net carrying value of franchises as of december 31 , 2016 and 2015 was approximately $ 67.3 billion ( representing 45 % of total assets ) and $ 6.0 billion ( representing 34 % of total assets excluding restricted cash and cash equivalents ) , respectively . for more information and a complete discussion of how we value and test franchise assets for impairment , see note 6 to the accompanying consolidated financial statements contained in “ part ii . item 8. financial statements and supplementary data. ” we perform an impairment assessment of franchise assets annually or more frequently as warranted by events or changes in circumstances . we performed a qualitative assessment in 2016 . our assessment included consideration of the fair value appraisals of legacy charter and the newly-acquired operations performed as of the date of acquisition for tax and acquisition accounting purposes , respectively , along with a multitude of factors that affect the fair value of our franchise assets . examples of such factors include environmental and competitive changes within our operating footprint , actual and projected operating performance , the consistency of our operating margins , equity and debt market trends , including changes in our market capitalization , and changes in our regulatory and political landscape , among other factors . based on our assessment , we concluded that it was more likely than not that the estimated fair values of our franchise assets equals or exceeds their carrying values and that a quantitative impairment test is not required . the appraisals indicated that the fair value of our franchise assets exceeded carrying value by approximately 25 % in the aggregate , with the excess entirely attributable to the franchise assets of legacy charter to which acquisition accounting was not applied . at our unit of accounting level for franchise asset impairment testing , the amount by which fair value exceeds carrying value varies based on the extent to which the unit of accounting was comprised of newly-acquired operations .
| the increases in video revenues are attributable to the following ( dollars in millions ) : replace_table_token_7_th on a pro forma basis , assuming the transactions occurred as of january 1 , 2015 , residential video customers decreased by 226,000 in 2016 and the increase in video revenues is attributable to the following ( dollars in millions ) : replace_table_token_8_th 40 excluding the impacts of the transactions , residential internet customers grew by 461,000 and 442,000 customers in 2016 and 2015 , respectively . the increases in internet revenues from our residential customers are attributable to the following ( dollars in millions ) : replace_table_token_9_th on a pro forma basis , assuming the transactions occurred as of january 1 , 2015 , residential internet customers increased by 1,463,000 in 2016 and the increase in internet revenues is attributable to the following ( dollars in millions ) : 2016 compared to 2015 increase in average residential internet customers $ 957 service level changes , price adjustments and bundle revenue allocation 436 $ 1,393 excluding the impacts of the transactions , residential voice customers grew by 95,000 and 159,000 customers in 2016 and 2015 , respectively . the change in voice revenues from our residential customers is attributable to the following ( dollars in millions ) : replace_table_token_10_th on a pro forma basis , assuming the transactions occurred as of january 1 , 2015 , residential voice customers increased by 368,000 in 2016 and the increase in voice revenues is attributable to the following ( dollars in millions ) : replace_table_token_11_th 41 excluding the impacts of the transactions , small and medium business psus increased 128,000 and 109,000 in 2016 and 2015 , respectively . the increases in small and medium business commercial revenues are attributable to the following ( dollars in millions ) : replace_table_token_12_th on a pro forma basis , assuming the transactions occurred as of january 1 , 2015 , small and medium business psus increased by 291,000 in 2016 and the increase in small and medium business commercial revenues is attributable to the following ( dollars in millions ) : replace_table_token_13_th excluding the impacts of the transactions , enterprise psus increased 6,000 and 5,000 in 2016 and 2015 , respectively . on a pro forma basis , assuming the transactions occurred as of january 1 , 2015 , enterprise psus increased by 16,000 in 2016 . the transactions increased enterprise commercial revenues for year ended december 31 , 2016 as compared to 2015 by approximately $ 1.0
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the proceeds from the 4.00 % notes and draws on the revolver were used to repay our outstanding 6.375 % unsecured notes due 2020 ( the “ 6.375 % notes ” ) and pay fees and expenses in connection with the refinancing . the company repurchased $ 390.3 million aggregate principal amount of the 6.375 % notes through a cash tender offer on september 20 , 2016 , with the remaining outstanding aggregate principal amount of $ 129.7 million subsequently redeemed by the company on october 20 , 2016 . during the year ended september 30 , 2015 , we refinanced a portion of our debt to improve liquidity , extend maturities and reduce borrowing costs . on may 20 , 2015 , in connection with the acquisition of aag , we issued $ 1,000 million aggregate principal amount of 5.75 % unsecured notes due 2025 ( the “ 5.75 % notes ” ) . on june 23 , 2015 , we entered into term loan facilities pursuant to a senior credit agreement consisting of ( i ) a $ 1,450 million usd term loan due june 23 , 2022 , ( ii ) a $ 75 million cad term loan due june 23 , 2022 and ( iii ) a 300 million euro term loan due june 23 , 2022 , ( collectively , “ term loans ” ) and ( iv ) entered into a $ 500 million revolver facility due june 23 , 2020 ( the “ revolver ” ) . the proceeds from the term loans and draws on the revolver were used to repay our then-existing senior term credit facility , repay our outstanding 6.75 % senior unsecured notes due 2020 , repay and replace our then-existing asse t based revolving loan ( “ abl ” ) facility and to pay fees and expenses in connection with the refinancing and for gener al corporate purposes . additionally , on december 3 , 2014 , we issued $ 250 million aggregate principal amount of 6.12 % unsecured notes due 2024 ( the “ 6.125 % notes ” ) . the proceeds from the 6.125 % notes were used to fund acquisition activity , pay fees and expenses in connection with the financing and general corporate purposes . during the year ended september 30 , 2014 , the company amended its then-existing senior term credit facility , issuing two tranches maturing september 4 , 2019 which provide for borrowings in the principal amounts of $ 215.0 million and 225.0 million . the proceeds from the amendment were used to refinance a portion of the then-existing senior term credit facility which was scheduled to mature december 17 , 2019 , in an amount outstanding of $ 513.3 million prior to refinancing . the $ 215.0 million u.s. dollar denominated portion was combined with the then-existing tranche c maturing september 4 , 2019. these loans were refinanced during the year ended september 30 , 2015 as described above . 42 story_separator_special_tag roman ; font-size : 10pt '' > segment financial data global batteries & appliances ( gba ) replace_table_token_9_th net sales de creased $ 81.9 million , or 3.9 % , during the year ended september 30 , 2016 compared to the year ended september 30 , 2015. o rganic net sales increased $ 20.6 million , or 1.0 % . net sales decreased $ 138.5 million , or 6.2 % , during the year ended september 30 , 2015 compared to the year ended september 30 , 2014. organic net sales increased $ 44.0 million , or 2.0 % . consumer battery o rganic net sales increased $ 51.2 million , or 6.2 % , for the year ended september 30 , 2016 compared to the year ended september 30 , 2015 ; primarily attributable to inc reases in north america of $ 6.9 million due to an increase in alkaline battery volumes from branded and private label produ ct , increases in europe of $ 33.8 million primarily from an increase in alkaline battery sales of $ 17.5 million driven by promotional sales volumes , increased e-commerce and new private label customers ; an increase in hearing aid and specialty batteries of $ 14.9 million from increased hearing aid battery volumes with new and existing customers coupled with increases in portable power sales ; and inc reases in latin america of $ 9.7 million primarily from hearing aid and specialty batteries . consumer battery organic net sales decreased $ 42.8 million , or 4.5 % , for the year ended september 30 , 2015 compared to the year ended september 30 , 2014 ; primarily attributable to decreases in north america sales of $ 75.8 million due to lower alkaline batteries sales of $ 54.6 million from continued competitor discounting coupled with a retail customer bankruptcy , and a decrease in specialty batteries and lights from distribution loss to a competitor at a major retailer and timing of holiday sales ; partially offset by an increase in europe sales of $ 29.4 million from increased alkaline batteries sales of $ 24.4 million from increased volumes with new and existing retailers and private label customers , increased volumes in specialty and hearing aid batteries , plus increased lights from new products and promotional activity . small appliances o rganic net sales decreased $ 43.5 million , or 5.9 % , for the year ended september 30 , 2016 compared to the year ended september 30 , 2015 ; primarily attributable to decreases of organic net sales in north america of $ 43.8 million due to softer point of sale within the category , reduction in retail inventory , shifting of holiday sales , and competitive pricing . story_separator_special_tag small appliances organic net sales increased $ 51.3 million , or 7.0 % for the year ended september 30 , 2015 compared to the year ended september 30 , 2014 ; driven by increased sales in north america of $ 25.1 million attributable to the success of new product launches ; increase in europe sales of $ 24.9 million from promotional activity ; and latin america sales of $ 2.0 million from new product introductions and volume increases in certain product lines . personal care o rganic net sales increased $ 12.9 million , or 2.4 % , for the year ended september 30 , 2016 compared to the year ended september 30 , 2015 ; primarily attributable to an increase in europe of $ 13.0 million and latin america of $ 9.5 million from higher volume due to promotional sales and market expansion ; offset by decrease in north america of $ 13.9 million for so fter point of sales in the category , reduction in retail inventory , shifting of holiday sales and competitive pricing . personal care organic net sales increased $ 35.5 million , or 6.5 % , for the year ended september 30 , 2015 compared to the year ended september 30 , 2014 ; driven by increased sales in north america of $ 11.6 million as a result of display location changes at a major customer , promotional activity and continued growth in e-commerce ; increased europe sales of $ 16.6 million due to new product sales and expansion in eastern european markets ; and increased latin america sales of $ 5.3 million from growth in mexico , new customers and effective promotional sales within the region . adjusted ebitda in the year en ded september 30 , 2016 increased $ 4.5 million and the adjusted ebitda margin improved 80 bps compared to the year ended september 30 , 2015. adjusted ebitda increased primarily due to the increase in net sales di scussed above , cost improvement and better product mix , offset by negative foreign currency impact of $ 76.5 million . the increase in adjusted ebitda margin is due to improved product mix and cost improvements . adjusted ebitda in the year ended september 30 , 2015 decreased $ 19.7 million and the adjusted ebitda margin improved by 10 bps compared to the year ended september 30 , 2014. adjusted ebitda decreased primarily due to decreased sales discussed above , which was partially offset by cost improvements and favorable product mix . adjusted ebitda margin increased due to cost improvements and product mix . see non-gaap measurements for reconciliation of net income to adjusted ebitda by segment . 45 hardware & home improvement ( hhi ) replace_table_token_10_th net sales increased $ 35.5 million , or 2.9 % , for the year ended september 30 , 2016 compared to the year ended september 30 , 2015 . organic net sales increased $ 50.2 million , or 4.2 % , attributable to increas es in the security product category of $ 40.0 million from an increase in point of sale , new product listings with key retail customers , increases in e-commerce volumes , and market growth with non-retail customers , partially offset by a $ 5.5 million decrease in sales with private label customers due to the transition in production of higher-margin branded product ; an increase in plumbing products of $ 14.7 million from the introduction of new products and promotional volumes with key retail customers ; partially offset by a $ 3.7 million decrease in hardware p roducts driven by a $ 22.8 million decrease for the expiration of a customer tolling agreement and planned exit of unprofitable businesses , mitigated by volume growth at existing retail and market expansion with non-retail customers in north america . net sales for the year ended september 30 , 2015 increased $ 39.5 million , or 3.4 % , compared to the year ended september 30 , 2014. organic net sales increased $ 20.7 million , or 1.8 % , due to an increase in north america sales as a result of higher domestic security and plumbing sales from retailers due to customer gains and from non-retailers through pricing and market growth , offset by a decrease in sales in apac of $ 14.2 million driven by the exit of low margin products and the expiration of a customer tolling agreement . adjusted ebitda in the year ended september 30 , 2016 increased $ 16 .1 million while adjusted ebitda margin increased by 80 bps from the year ended september , 2015. adjusted ebitda increased primarily due to the increase in net sales discussed above and cost improvements . adjusted ebitda margin increased due to cost improvements , partially offset by increased investment towards growth in emerging markets for electronics and e-commerce . adjusted ebitda in the year ended september 30 , 2015 increased $ 15.2 million while the adjusted ebitda margin improved by 70 bps compared to the year ended september 30 , 2014. adjusted ebitda increased due to the increase in net sales discussed above . adjusted ebitda margin increased due to cost improvements . global pet supplies ( pet ) replace_table_token_11_th net sales increased $ 67.5 million , or 8.9 % , for the year ended september 30 , 2016 compared to the year ended september 30 , 2015. organic net sales increased $ 1.2 million , 0.2 % , primarily due to inc reases in aquatic sales of $ 1 .1 million from timing of prior year holiday shipments , partially offset with the exit of lower margin business ; while compani on animal and pet food sales were consistent to prior year due to increased competition at key retailers , offset by growth with independent pet retailers , timing of promotional activity , and exiting of certain private label business .
| gross profit margin increased from 35.6 % to 38.1 % contributed to by the aag acquisition , and a shift towards higher margin product sales and continuing cost improvements across segments . gross profit for the year ended september 30 , 2015 increased $ 101.4 million compared to the year ended september 30 , 2014 attributable to our increase in net sales . gross profit margin increased from 35.4 % to 35.6 % primarily attributable to a shift towards higher margin product sales and cost improvement initiatives . 43 operating expenses . operating expenses for the year ended se ptember 30 , 2016 increased $ 67.5 million or 5.6 % compared to the year ended september 30 , 2015 primarily attributable to an increase in selling and general and administrative expenses of $ 89.4 million due to increased ne t sales , prior year acquisitions and increased share based compensation of $ 16.8 million ; offset by decreased acquisition & i ntegration related charges of $ 22.1 million and decreased restructur ing and related charges of $ 11.9 million . operating expenses for the year ended september 30 , 2015 increased $ 109.2 million or 10.0 % primarily attributable to an increase of $ 59.7 million in selling and general and administrative expenses as a result of acquisition activity and increased net sales , increased acquisition and integration costs of $ 38.7 million and increased restructuring and related charges of $ 7.4 million for new and continuing restructuring initiatives . see note 3 to the consolidated financial statements , “ acquisitions ” , included elsewhere within this annual report , for additional detail on acquisition and integration costs . see note 4 to the consolidated financial statements , “ restructuring and related charges ” , included elsewhere within this annual report , for additional detail on restructuring activity and related costs . interest expense . interest expense for the year ended se ptember 30 , 2016 decreased $ 21.9 million or 8.1 % from the year ended september 30 , 2015 , attributable to the refinancing activity during the year ended september 30 , 2015 previously discussed , coupled with payments on term loans ;
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cash used in operating activities in the year ended december 31 , 2013 was $ 7,791 , which consisted of a net loss of $ 9,148 and cash provided by working capital of $ 1,358. the cash provided by working capital was due to an increase in accrued liabilities of $ 1,358. cash used in operating activities in the year ended december 31 , 2012 consisted of net income as well as the effect of changes in working capital . cash used in operating activities in the year ended december 31 , 2012 was $ 386 , which consisted of a net income of $ 1,845 , and cash used for working capital of $ 2,231. the cash used for working capital was due to a decrease in accrued liabilities . cash used in operating activities from august 12 , 2005 ( inception ) to december 31 , 2013 consisted of net income as well as the effect of changes in working capital . cumulative cash provided by operating activities was $ 64,926 , which consisted of a net income of $ 64,524 and cash provided by working capital of $ 403. the cash provided by working capital consisted of an increase in accrued liabilities . investing activities during the years ended december 31 , 2013 and 2012 we had no investing activities . we had no investing activities from august 12 , 2005 ( inception ) to december 31 , 2013. financing activities during the year ended december 31 , 2013 , we had net cash provided by financing activities of $ 9,262 as compared to net cash flows used in financing activities of $ 3,849 for the year ended december 31 , 2012 an increase of $ 13,111. this increase in cash provided by financing activities is due to proceeds from the sale of common stock of $ 5,000 , proceeds from shareholder advances of $ 5,000 and a decrease in distributions to shareholder of $ 3,111. we have net cash used in financing activities of $ 60,442 for the period august 12 , 2005 ( inception date ) to december 31 , 2013. during the year ended december 31 , 2013 , our total cash requirements may exceed our cash balances . currently , we do not have sufficient cash in our bank accounts to cover our estimated expenses for the next 12 months . our current average monthly negative cash flow is approximately $ 2,000 per month . based on our current cash position at december 31 , 2013 we have approximately 2 months of cash on hand to fund our current operations . we anticipate meeting our future cash requirements through a combination of equity financing from the proceeds of this offering and debt financing from our principal shareholder to fund the costs of this offering and the costs of being a public reporting company . although we anticipate meeting our future cash requirements though , among other things , debt financing from our principal shareholder , we do not currently have any agreements with our principal shareholder to provide such financing , written or unwritten . we estimate that our operating expenses , based on us being able to raise the necessary equity capital , will be approximately $ 100,000 as described in the table below . these estimates may change significantly depending on the nature of our future business activities and our ability to raise capital from shareholders or other sources . replace_table_token_2_th 20 we intend to meet our cash requirements for the next 12 months through a combination of debt financing and equity financing . we have an effective registration statement on file with the securities and exchange commission but currently do not have any arrangements in place for the completion of any financings and there is no assurance that we will be successful in completing any further financings or raising any capital . there is no assurance that any financing will be available or if available , on terms that will be acceptable to us . we may not raise sufficient funds to fully carry out any business plan . off-balance sheet arrangements as of the date of this report , 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 our financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that are material to our stockholders . inflation the effect of inflation on our revenues and operating results has not been significant . critical accounting policies our financial statements are impacted by the accounting policies used and the estimates and assumptions made by management during their preparation . a complete listing of these policies is included in note 2 of the notes to our financial statements for the year ended december 31 , 2013 and 2012 and for the period august 12 , 2005 ( date of inception ) to december 31 , 2013. we have identified below the accounting policies that are of particular importance in the presentation of our financial position , results of operations and cash flows , and which require the application of significant judgment by management . revenue recognition sales to consumers are recorded when goods are shipped and are reported net of allowances for estimated returns and allowances in the accompanying statements of operations . the customer authorizes us to charge their credit card at the time of purchase with the understanding their credit card will be charged upon shipment . we recognize revenue based on the below three criteria . our policy is to allow the return of any unused merchandise purchased from us for any reason for a 15-day period after the date of sale . delivery has occurred . we have our vendors drop ship inventory to our customers and we recognize revenue when we are notified that shipment has occurred . fee is fixed or story_separator_special_tag cash used in operating activities in the year ended december 31 , 2013 was $ 7,791 , which consisted of a net loss of $ 9,148 and cash provided by working capital of $ 1,358. the cash provided by working capital was due to an increase in accrued liabilities of $ 1,358. cash used in operating activities in the year ended december 31 , 2012 consisted of net income as well as the effect of changes in working capital . cash used in operating activities in the year ended december 31 , 2012 was $ 386 , which consisted of a net income of $ 1,845 , and cash used for working capital of $ 2,231. the cash used for working capital was due to a decrease in accrued liabilities . cash used in operating activities from august 12 , 2005 ( inception ) to december 31 , 2013 consisted of net income as well as the effect of changes in working capital . cumulative cash provided by operating activities was $ 64,926 , which consisted of a net income of $ 64,524 and cash provided by working capital of $ 403. the cash provided by working capital consisted of an increase in accrued liabilities . investing activities during the years ended december 31 , 2013 and 2012 we had no investing activities . we had no investing activities from august 12 , 2005 ( inception ) to december 31 , 2013. financing activities during the year ended december 31 , 2013 , we had net cash provided by financing activities of $ 9,262 as compared to net cash flows used in financing activities of $ 3,849 for the year ended december 31 , 2012 an increase of $ 13,111. this increase in cash provided by financing activities is due to proceeds from the sale of common stock of $ 5,000 , proceeds from shareholder advances of $ 5,000 and a decrease in distributions to shareholder of $ 3,111. we have net cash used in financing activities of $ 60,442 for the period august 12 , 2005 ( inception date ) to december 31 , 2013. during the year ended december 31 , 2013 , our total cash requirements may exceed our cash balances . currently , we do not have sufficient cash in our bank accounts to cover our estimated expenses for the next 12 months . our current average monthly negative cash flow is approximately $ 2,000 per month . based on our current cash position at december 31 , 2013 we have approximately 2 months of cash on hand to fund our current operations . we anticipate meeting our future cash requirements through a combination of equity financing from the proceeds of this offering and debt financing from our principal shareholder to fund the costs of this offering and the costs of being a public reporting company . although we anticipate meeting our future cash requirements though , among other things , debt financing from our principal shareholder , we do not currently have any agreements with our principal shareholder to provide such financing , written or unwritten . we estimate that our operating expenses , based on us being able to raise the necessary equity capital , will be approximately $ 100,000 as described in the table below . these estimates may change significantly depending on the nature of our future business activities and our ability to raise capital from shareholders or other sources . replace_table_token_2_th 20 we intend to meet our cash requirements for the next 12 months through a combination of debt financing and equity financing . we have an effective registration statement on file with the securities and exchange commission but currently do not have any arrangements in place for the completion of any financings and there is no assurance that we will be successful in completing any further financings or raising any capital . there is no assurance that any financing will be available or if available , on terms that will be acceptable to us . we may not raise sufficient funds to fully carry out any business plan . off-balance sheet arrangements as of the date of this report , 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 our financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that are material to our stockholders . inflation the effect of inflation on our revenues and operating results has not been significant . critical accounting policies our financial statements are impacted by the accounting policies used and the estimates and assumptions made by management during their preparation . a complete listing of these policies is included in note 2 of the notes to our financial statements for the year ended december 31 , 2013 and 2012 and for the period august 12 , 2005 ( date of inception ) to december 31 , 2013. we have identified below the accounting policies that are of particular importance in the presentation of our financial position , results of operations and cash flows , and which require the application of significant judgment by management . revenue recognition sales to consumers are recorded when goods are shipped and are reported net of allowances for estimated returns and allowances in the accompanying statements of operations . the customer authorizes us to charge their credit card at the time of purchase with the understanding their credit card will be charged upon shipment . we recognize revenue based on the below three criteria . our policy is to allow the return of any unused merchandise purchased from us for any reason for a 15-day period after the date of sale . delivery has occurred . we have our vendors drop ship inventory to our customers and we recognize revenue when we are notified that shipment has occurred . fee is fixed or
| · our ability to achieve and maintain profitability and positive cash flow is dependent upon : · our ability to develop and continually update our websites ; · our ability to procure and maintain on commercially reasonable terms relationships with third parties from whom we acquire inventory ; · our ability to identify and pursue mediums through which we will be able to market our products ; · our ability to attract new customers to our websites who are interested in purchasing our products ; and · our ability to manage our costs and maintain low overhead . · based upon current plans , we expect to incur operating losses in future periods because we will continue to be in the development stage developing our maple tree kids website to sell personalized children products that will be located at www.mapletreekids.com and will be incurring expenses and not generating significant revenues . 17 · we are dependent upon our relationship with our major customer . this customer accounted for approximately 80 % , 21 % and 9 % of our total revenues for the year ended december 31 , 2013 and the years ended december 31 , 2012 and december 31 , 2011 , respectively . this major customer is not contractually obligated to purchase any minimum amount of products from us and can discontinue buying products from us at any time . if we fail to maintain this relationship , our sales will be significantly diminished . any change in the terms of our sales to our major customer could have a material impact on our financial position and results of operations . · our sales are dependent on our ability to attract retail customers to our website on cost-effective terms . our strategy to attract customers to our website includes viral marketing , the practice of placing advertisements and offering giveaways on various highly rated baby weblogs or `` blogs '' , online journals that are updated frequently and available to the public , postings on online communities such as facebook , myspace , yahoo ! ( r ) groups and amateur websites such as youtube.com , and other methods of getting internet users to refer others to our website by e-mail or word of mouth ; search engine optimization , marketing our website via search engines by purchasing sponsored placement in search results ; and entering into affiliate marketing relationships
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the second amendment converted $ 35.0 million of the outstanding principal amount under our term loan to outstanding borrowings under the revolving credit facility , increased the borrowing capacity of the revolving credit facility by $ 35.0 million and extended the maturity date of the revolving credit facility by two years to july 1 , 2024. immediately after effectiveness of the second amendment , we had $ 75.0 million aggregate principal amount outstanding under the term loan and a $ 120.0 million revolving credit facility with $ 55.0 million outstanding and $ 0.7 million in outstanding letters of credit and $ 64.3 million available for borrowing . the second amendment also , among other things , ( i ) improved the applicable margin by 50 basis points to a range of 1.25 % to 2.25 % for libor borrowings and a range of 0.25 % to 1.25 % for base rate borrowings , ( ii ) improved the commitment fee we are required to pay for the unused portion of the revolving credit facility to a range of 0.20 % to 0.40 % , ( iii ) increased the basket of permitted share repurchases from $ 20.0 million to $ 35.0 million in any fiscal year subject to one-year carry forward and compliance with other financial covenants , and ( iv ) increased the basket of permitted dividends and distributions from up to $ 6.0 million to up to $ 10.0 million in any fiscal year , subject to compliance with other financial covenants . the second amendment also revised some of the other restrictive covenants , events of defaults and related definitions by increasing applicable basket amounts and thresholds under the credit agreement . acquisitions of pursuit and cobalt on october 15 , 2018 , we completed our acquisition of assets of the pursuit boats division of s2 yachts , inc. , pursuant to an asset purchase agreement dated as of august 21 , 2018. we paid an aggregate purchase price of $ 100.1 million . a portion of the purchase price was deposited into an escrow account to secure certain post-closing obligations of the sellers . we paid the purchase price for the acquisition with $ 50.1 million of cash on hand and $ 50.0 million of borrowings under our revolving credit facility . on july 6 , 2017 , malibu boats , llc , our wholly owned indirect subsidiary , completed the purchase of all of the outstanding equity interests of cobalt for a purchase price of $ 130.0 million , subject to customary post-closing adjustments . we paid $ 1.0 million of the purchase price in 39,262 newly issued shares of our class a common stock and the remainder of the purchase price was paid using cash and borrowings under our amended and restated credit agreement that we entered into in connection with the acquisition of cobalt . components of results of operations net sales we generate revenue from the sale of boats to our dealers . the substantial majority of our net sales are derived from the sale of boats , including optional features included at the time of the initial wholesale purchase of the boat . net sales consists of the following : gross sales from : 41 boat and trailer sales —consists of sales of boats and trailers to our dealer network . nearly all of our boat sales include optional feature upgrades purchased by the consumer , which increase the average selling price of our boats ; and parts and other sales —consists of sales of replacement and aftermarket boat parts and accessories to our dealer network ; and consists of royalty income earned from license agreements with various boat manufacturers , including nautique , chaparral , mastercraft , and tige related to the use of our intellectual property . net sales are net of : sales returns —consists primarily of contractual repurchases of boats either repossessed by the floor plan financing provider from the dealer or returned by the dealer under our warranty program ; and rebates , free flooring and discounts —consists of incentives , rebates and free flooring , we provide to our dealers based on sales of eligible products . for our malibu and axis models , if a domestic dealer meets its monthly or quarterly commitment volume , as well as other terms of the dealer performance program , the dealer is entitled to a specified rebate . cobalt dealers are entitled to volume-based discounts taken at the time of invoice . for our pursuit models , if a dealer meets its quarterly or annual retail volume goals , the dealer is entitled to a specific rebate applied to their wholesale volume purchased from pursuit . for malibu and cobalt models and select pursuit models , our dealers that take delivery of current model year boats in the offseason , typically july through april in the u.s. , are also entitled to have us pay the interest to floor the boat until the earlier of ( 1 ) the sale of the unit or ( 2 ) a date near the end of the current model year , which incentive we refer to as “ free flooring. ” from time to time , we may extend the flooring program to eligible models beyond the offseason period . for more information , see `` item 1. business - dealer management . '' cost of sales our cost of sales includes all of the costs to manufacture our products , including raw materials , components , supplies , direct labor and factory overhead . for components and accessories manufactured by third-party vendors , such costs represent the amounts invoiced by the vendors . shipping costs and depreciation expense related to manufacturing equipment and facilities are also included in cost of sales . warranty costs associated with the repair or replacement of our boats under warranty are also included in cost of sales . operating expenses our operating expenses include selling and marketing , and general and administrative costs . story_separator_special_tag each of these items includes personnel and related expenses , supplies , non-manufacturing overhead , third-party professional fees and various other operating expenses . further , selling and marketing expenditures include the cost of advertising and various promotional sales incentive programs . general and administrative expenses include , among other things , salaries , benefits and other personnel related expenses for employees engaged in product development , engineering , finance , information technology , human resources and executive management . other costs include outside legal and accounting fees , investor relations , risk management ( insurance ) and other administrative costs . general and administrative expenses also include product development expenses associated with our engines vertical integration initiative and acquisition or integration related expenses . other ( income ) expense , net other ( income ) expense , net consists of interest expense and other income or expense , net . interest expense consists of interest charged under our outstanding debt , interest on our interest rate swap arrangement , changes in the fair value of our interest rate swap we entered into on july 1 , 2015 , and amortization of deferred financing costs on our credit facilities . other income includes a portion of the amounts received from the settlement of our litigation with mastercraft boat company , llc ( `` mastercraft '' ) entered into on may 2 , 2017 and adjustments to our tax receivable agreement liability in the fourth quarter of fiscal year 2017 and first and second quarter of fiscal year 2018. income taxes malibu boats , inc. is subject to u.s. federal and state income tax in multiple jurisdictions with respect to our allocable share of any net taxable income of the llc . the llc is a pass-through entity for federal purposes but incurs income tax in certain state jurisdictions . the income tax provision reflects a reported effective income tax rate of 24.1 % , 65.4 % , and 36.2 % attributable to malibu boats , inc. 's share of income for fiscal years 2019 , 2018 and 2017 , respectively . our statutory tax rate for fiscal year 2019 is 21 % . the reported effective tax rate for fiscal year 2019 differs from the statutory federal income tax rate of 21 % primarily due to the impact of u.s. state taxes . 42 our effective tax rate is also impacted by the addition of new tax jurisdictions as a result of the pursuit acquisition , the impact of the non-controlling interests in the llc , the benefits of the foreign derived intangible income deduction , and the research and development tax credit . net income attributable to non-controlling interest as of june 30 , 2019 and 2018 , we had a 96.2 % and 95.2 % controlling economic interest and 100 % voting interest in the llc . we consolidate the llc 's operating results for financial statement purposes . net income attributable to non-controlling interest represents the portion of net income attributable to the llc members . outlook industry-wide marine retail registrations continue to recover from the years following the global financial crisis . according to statistical surveys , inc. , domestic retail registration volumes of performance sport boats , fiberglass sterndrive and fiberglass outboards increased at a compound annual growth rate of approximately 6.0 % between 2011 and 2018 , for the 50 reporting states . this has been led by growth in our core market , performance sport boats , having produced a double-digit compound annual growth rate over that period . domestic retail demand growth has continued in performance sport boats for calendar year 2019 , however the growth rate has decelerated compared to prior years . fiberglass sterndrive and outboard boats , the target markets for our cobalt and pursuit branded products , have seen their combined market grow at a 5.4 % compound annual growth rate between 2011 and 2018. that growth has been driven by the outboard market where pursuit is focused and cobalt is a new entrant and where we plan to meaningfully expand our market share in the future . while cobalt 's primary market for sterndrive propulsion has been challenged , their performance continues to be helped by market share gains and they continue to see registration growth . during 2019 the fiberglass outboard market has actually begun a modest contraction , however , in foot lengths 23 feet and greater , where pursuit competes , the market continues to grow , and pursuit is gaining share . we expect the growing demand for our products to continue , albeit at a lower pace than the past eight years , and there are numerous variables that have the potential to impact our volumes , both positively and negatively . for example , we believe the substantial decrease in the price of oil , broad strength of the u.s. dollar and recently implemented tariffs has resulted in reduced demand for our boats in certain markets . to date , growth in our domestic market has offset significantly diminished demand from economies that are driven by the oil industry and international markets . consumer confidence , expanded or eroded , is a variable that could also impact demand in both directions . other challenges that could impact demand for recreational powerboats include higher interest rates reducing retail consumer appetite for our product , the availability of credit to our dealers and retail consumers , fuel costs , a meaningful reduction in the value of global or domestic equity markets , the continued acceptance of our new products in the recreational boating market , our ability to compete in the competitive power boating industry , and the costs of labor and certain of our raw materials and key components . since 2008 , we have increased our market share among manufacturers of performance sport boats due to new product development , improved distribution , new models , and innovative features .
| million for fiscal year 2019 compared to fiscal year 2018. unit volumes attributable to cobalt increased 177 units for fiscal year 2019 compared to fiscal year 2018. the increase in cobalt net sales and unit volume was driven primarily by strong demand for our r series models . net sales was also impacted by year-over-year price increases on all of our cobalt models . net sales and unit volume contributed by pursuit since its acquisition on october 15 , 2018 were $ 102.8 million and 406 units , respectively , for fiscal year 2019. net sales from our malibu australia segment increased $ 2.2 million , or 9.3 % , to $ 25.6 million for fiscal year 2019 compared to fiscal year 2018. our overall net sales per unit increased 17.6 % to $ 92,912 per unit for fiscal year 2019 compared to fiscal year 2018. net sales per unit for our malibu u.s. segment increased 6.1 % to $ 82,837 per unit for fiscal year 2019 compared to fiscal year 2018 , driven by strong demand for new models and optional features and year-over-year price increases . net sales per unit for our cobalt segment increased 6.2 % to $ 85,761 per unit for fiscal year 2019 compared to fiscal year 2018 , driven by a favorable mix of r series models which have a higher average selling price as well as year-over-year price increases . net sales per unit for pursuit for fiscal year 2019 was $ 253,219 . cost of sales cost of sales for fiscal year 2019 increased $ 141.1 million , or 37.5 % , to $ 517.7 million compared to fiscal year 2018 . the increase in cost of sales was driven primarily by incremental costs contributed by pursuit since its acquisition in october 2018 and an increase in unit volumes at our malibu u.s. and cobalt businesses . gross profit gross
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61 recent developments acquisitions fugro on november 30 , 2017 gmsl acquired 5 assets and 19 employees and contractors based in aberdeen , scotland from fugro n.v. the fair value of the purchase consideration was $ 87.2 million and comprised of 23.6 % share in gmh llc and a short-term loan of $ 7.5 million from fugro n.v. the decision to acquire the business was made to support the overall group strategy of growing the offshore power and oil & gas businesses . the transaction was accounted for as a business acquisition . kanawha insurance company in november 2017 , the insurance company entered into a stock purchase agreement ( the `` spa '' ) with humana , inc. , a publicly traded company incorporated in delaware ( `` humana '' ) . pursuant to the spa , the insurance company agreed to acquire kanawha insurance company ( `` kic '' ) , humana 's long-term care insurance subsidiary ( the `` transaction '' ) . the obligation of each party to consummate the transaction is subject to customary closing conditions , including , among others , humana furnishing certain audited financial statements of the business to be acquired , receipt of regulatory approvals by the south carolina and texas insurance departments , customary conditions relating to the accuracy of the other party 's representations and warranties ( subject to certain materiality exceptions ) and the other party having performed in all material respects its obligations under the spa . dtv america corporation in november 2017 , we closed a series of transactions that resulted in hc2 and its subsidiaries owning over 50 % of the shares of common stock of dtv for a total consideration of $ 17.7 million . dtv is an aggregator and operator of low power television ( `` lptv '' ) licenses and stations across the united states . dtv currently owns and operates 52 lptv stations in more than 40 cities . dtv 's distribution platform currently provides carriage for more than 30 television broadcast networks . the company 's mission is to aggregate heavily discounted broadcast spectrum and build out profitable broadcast tv operations on its scalable , all-ip platform . mako communications , llc in november 2017 , a wholly-owned subsidiary of broadcasting , closed on a transaction with mako communications , llc and certain of its affiliates ( `` mako '' ) to purchase all the assets in connection with mako 's ownership and operation of lptv stations that resulted in hc2 acquiring 38 operating stations in 28 cities , for a total consideration of $ 28.4 million . mako is a family owned and operated business headquartered in corpus christi , texas , that has been acquiring , building , and maintaining class a and lptv stations all across the united states since 2000. the transaction was accounted for as business acquisition . three angels broadcasting network , inc. in december 2017 , a wholly-owned subsidiary of broadcasting closed on a transaction with with three angels broadcasting network , inc. to purchase all of its assets in connection with its ownership and operation of class a stations that resulted in hc2 acquiring 14 operating stations for a total consideration of $ 9.6 million . azteca america in november 2017 , a wholly-owned subsidiary of broadcasting , acquired azteca america , a spanish-language broadcast network , from affiliates of tv azteca , s.a.b . de c.v. ( `` azteca '' ) ( aztecacpo.mx ) ( latibex : xtza ) . in addition , a wholly-owned subsidiary of broadcasting signed a definitive acquisition agreement with northstar media , llc ( `` northstar '' ) , a licensee of numerous broadcast television licenses in the united states . under the agreement with northstar , a wholly-owned subsidiary of broadcasting was to acquire northstar 's broadcast television stations , which carry azteca america programming . the total consideration accrued by the company as of december 31 , 2017 , and to be paid pending the close of the northstar acquisition , was $ 33.0 million . in february 2018 , a wholly-owned subsidiary of broadcasting closed on the acquisition of northstar 's broadcast television stations . the total consideration paid in february 2018 was $ 33.0 million . signed purchase agreements prior to december 31 , 2017 , wholly-owned subsidiaries of broadcasting had signed purchase agreements to acquire additional stations , subject to fcc approval and closing conditions , for a total consideration of $ 8.3 million . as of march 14 , 2018 , a portion of the transactions received fcc approval and closed for a total consideration of $ 4.6 million . subsequent to december 31 , 2017 , wholly-owned subsidiaries of broadcasting had signed purchase agreements to acquire additional broadcasting assets , subject to fcc approval and closing conditions , for a total consideration of $ 8.7 million . 62 candraft in november 2017 , dbmg acquired candraft , one of the premier bridge infrastructure detailing and modeling companies in north america . candraft has an extensive track record of successful projects across the united states and canada which will provide dbmg with greater depth and expertise in bridge detailing and broader exposure to the infrastructure sector . the total consideration paid was $ 3.3 million . mountain states steel in december 2017 , dbmg acquired mountain states steel , a structural steel fabricator founded in 1949 , that has a modern fabrication facility located on approximately 32 acres in lindon , utah . the total consideration paid was $ 14.5 million . story_separator_special_tag debt issuance in january 2017 , the company issued an additional $ 55.0 million in aggregate principal amount of its 11.0 % notes due 2019. hc2 used a portion of the proceeds from the issuance to repay all $ 35.0 million in outstanding aggregate principal amount of hc22 's 11.0 % bridge note due 2019. in june 2017 , the company issued an additional $ 38.0 million of aggregate principal amount of the 11.0 % notes to investment funds affiliated with three institutional investors in a private placement offering ( the `` june 2017 notes '' ) , in order to begin funding acquisitions and general working capital needs . the company has issued an aggregate of $ 400.0 million of its 11.0 % notes pursuant to the indenture dated november 20 , 2014 , by and among hc2 , the guarantors party thereto and u.s. bank national association , a national banking association , as trustee ( the `` 11.0 % notes indenture '' ) . on november 9 , 2017 , broadcasting entered into a $ 75.0 million bridge loan ( the `` bridge loan '' ) to finance acquisitions in the broadcast television distribution market . broadcasting borrowed $ 45.0 million of principal amount of the bridge loan on the same day . on december 15 , 2017 , broadcasting borrowed an additional $ 15.0 million of principal amount of the bridge loan . on february 4 , 2018 , broadcasting entered into a first amendment to the bridge loan to add an additional $ 27.0 million in principal borrowing capacity to the bridge loan . on february 6 , 2018 , broadcasting borrowed $ 42.0 million in principal amount of bridge loans , the net proceeds of which will be used to finance certain acquisitions , to pay fees , costs and expenses relating to the bridge loans , and for general corporate purposes . the total aggregate principal amount of the bridge loans outstanding after the february 6 , 2018 the total borrowing under the bridge loan was $ 102.0 million . dividends during the three months ended december 31 , 2017 , hc2 received $ 4.5 million and $ 2.0 million in dividends from our construction and telecommunications segments , respectively . during the year ended december 31 , 2017 , hc2 received $ 18.4 million and $ 8.0 million in dividends from our construction and telecommunications segments , respectively . tax sharing agreement under a tax sharing agreement , dbmg reimburses hc2 for use of its net operating losses . during the three months ended december 31 , 2017 , hc2 received $ 5.0 million from dbmg under this tax sharing agreement . during the year ended december 31 , 2017 , hc2 received $ 10.0 million from dbmg under this tax sharing agreement . preferred share conversion in may 2017 , the company entered into an agreement with dg value partners , lp and dg value partners ii master funds lp , holders ( collectively , `` dg value '' ) to convert and exchange all of dg value 's 2,308 shares of series a and 1,000 shares of series a-1 convertible participating preferred stock into a total of 803,469 shares of the company 's common stock . financial presentation background in the below section within this management 's discussion and analysis of financial condition and results of operations , we compare , pursuant to u.s. gaap and sec disclosure rules , the company 's results of operations for the year ended december 31 , 2017 as compared to the year ended december 31 , 2016 , and for the year ended december 31 , 2016 as compared to the year ended december 31 , 2015 . 63 results of operations year ended december 31 , 2017 compared to the year ended december 31 , 2016 , and the year ended december 31 , 2016 compared to the year ended december 31 , 2015 presented below is a disaggregated table that summarizes our results of operations and a comparison of the change between the periods presented ( in thousands ) : replace_table_token_8_th net revenue : net revenue for the year ended december 31 , 2017 increased $ 76.0 million to $ 1,634.1 million from $ 1,558.1 million for the year ended december 31 , 2016 . all segments except for our telecommunication segment recognized increased revenues during the year ended december 31 , 2017 . the construction segment was a major driver of the increase , largely due to contribution from large complex projects which have brought in greater revenue when compared to the previous period and additional revenues from bds and pdc , both of which were acquired in the fourth quarter of 2016. also contributing to the increase in revenues was our energy segment , which experienced increased compressed natural gas ( `` cng '' ) sales from new fueling stations acquired or developed during 2016 which have incurred a full year of operations in 2017. further , growth in the insurance segment was primarily driven by an increase in the asset base for both fixed maturity securities and mortgage loans and yield improvements for fixed maturity securities when compared to the previous period . finally , increased revenues from our marine services segment were driven by higher offshore power installation revenues . these increases were offset by decreases in revenues from our telecommunications segment as a result of a decrease in wholesale traffic volumes as the segment has been focused on a wholesale traffic termination mix that maximizes margin contribution . 64 net revenue for the year ended december 31 , 2016 increased $ 437.3 million to $ 1,558.1 million from $ 1,120.8 million for the year ended december 31 , 2015 . this increase was due primarily to our telecommunications segment , as a result of growth in wholesale traffic volumes , the addition of revenues associated with our insurance company which was acquired in december 2015 , and an increase in revenue in our marine services segment driven by increased maintenance revenues as a result of the cwind acquisition .
| the decrease was primarily due to decrease in revenues and better than bid performance on large commercial projects completed in 2016 . 66 selling , general and administrative expenses : selling , general and administrative expenses from our construction segment for the year ended december 31 , 2017 increased $ 8.4 million to $ 57.9 million from $ 49.5 million for the year ended december 31 , 2016 . the increase was due primarily to the additional operating costs associated with the acquisitions of bds and pdc . selling , general and administrative expenses from our construction segment for the year ended december 31 , 2016 increased $ 10.2 million to $ 49.5 million from $ 39.2 million for the year ended december 31 , 2015 . the increase was due primarily to acquisition expenses , higher compensation expense and professional fees . depreciation and amortization : depreciation and amortization from our construction segment for the year ended december 31 , 2017 increased $ 3.7 million to $ 5.6 million from $ 1.9 million for the year ended december 31 , 2016 . this increase was due primarily to the expense associated with the assets acquired through the acquisitions of bds and pdc . depreciation and amortization from our construction segment for the year ended december 31 , 2016 decreased $ 0.1 million to $ 1.9 million from $ 2.0 million for the year ended december 31 , 2015 . other operating income : for the year ended december 31 , 2017 , we recorded an expense of $ 0.3 million compared with expense of $ 1.7 million for the year ended december 31 , 2016 . the decreases in expenses were primarily driven by a reduction in gains recognized on the sale of assets sold when compared to the prior periods . other operating income from our construction segment for the year ended december 31 , 2016 increased by $ 1.4 million to an expense of $ 1.7 million from an
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our inability to raise additional capital , or to do so on terms reasonably acceptable to us , would jeopardize the future success of our business . 48 during the past five years through december 31 , 2014 , we incurred an aggregate of $ 279.3 million in research and development expenses . the following table indicates the amount incurred for each of our significant research programs and for other identified research and development activities during the years ended december 31 , 2014 , 2013 and 2012. the amounts disclosed in the following table reflect direct research and development costs , license fees associated with the underlying technology and an allocation of indirect research and development costs to each program . replace_table_token_12_th clinical development programs rindopepimut rindopepimut is an immunotherapeutic that targets the tumor-specific molecule epidermal growth factor receptor variant iii , or egfrviii . egfrviii is a mutated form of the epidermal growth factor receptor , or egfr , that is only expressed in cancer cells and not in normal tissue and can directly contribute to cancer cell growth . egfrviii is expressed in approximately 30 % of glioblastoma multiforme , or gbm , tumors , the most common and aggressive form of brain cancer . rindopepimut is composed of the egfrviii peptide linked to a carrier protein called keyhole limpet hemocyanin , or klh , and administered together with the adjuvant gm-csf . the food and drug administration , or fda , and the european medicines agency , or ema , have both granted orphan drug designation for rindopepimut for the treatment of egfrviii expressing gbm . the fda has also granted fast track designation . in february 2015 , the fda granted rindopepimut breakthrough therapy designation for the treatment of adult patients with egfrviii-positive glioblastoma . the phase 2a study of rindopepimut referred to as activate was led by collaborating investigators at the brain center at duke comprehensive cancer center in durham , north carolina and at m.d . anderson cancer center in houston , texas and enrolled 18 evaluable gbm patients . an extension of the phase 2a study referred to as act ii evaluated 22 additional gbm patients treated in combination with the current standard of care , maintenance temozolomide , or tmz , at the same two institutions . the phase 2b study of rindopepimut referred to as act iii combined rindopepimut with standard of care , tmz , in patients with newly diagnosed gbm . the act iii study provided for a multi-center , non-randomized dataset for rindopepimut in 65 patients at over 30 sites throughout the united states . in november 2013 , we announced the four- and five-year survival data from the 105 patients enrolled in the three phase 2 rindopepimut clinical studies ( activate , act ii and act iii ) in egfrviii-positive gbm . across these three phase 2 studies of rindopepimut , survival data remains consistent and suggests a continuing survival benefit in comparison to independent control datasets ( see chart below ) at the median and at all other time points evaluated . 49 phase 2 frontline long-term overall survival assessments replace_table_token_13_th ( 1 ) patients treated at m.d . anderson contemporaneously to activate , matched for major eligibility requirements , including egfrviii-positive gbm , gross total resection and no disease progression through chemoradiation treatment . the pooled overall long-term survival results continue to be consistent with the act iii phase 2 study ( 18 % for 4-years and 14 % for 5-years ) . in december 2011 , we initiated act iv , a pivotal , randomized , double-blind , controlled phase 3 study of rindopepimut in patients with surgically resected , egfrviii-positive gbm . patients were randomized after the completion of surgery and standard chemoradiation treatment . the treatment regimen included a rindopepimut priming phase post-radiation followed by an adjuvant tmz phase and a rindopepimut maintenance therapy phase . patients are treated until disease progression or intolerance to therapy . the primary objective of the study is to determine whether rindopepimut plus adjuvant gm-csf improves the overall survival of patients with newly diagnosed egfrviii-positive gbm with minimal residual disease post resection and traditional chemo-radiation when compared to treatment with tmz and a control injection of klh . klh is a component of rindopepimut and was selected due to its ability to generate a similar injection site reaction to that observed with rindopepimut . in december 2014 , act iv completed enrollment . in total , over 4,800 gbm patients were screened for egfrviii status from more than 200 clinical trial sites across 22 countries and , consistent with prior studies , 30 % were positive for the egfrviii mutation . the study enrolled 745 patients to reach the required 374 patients with minimal residual disease ( assessed by central review ) needed for analysis of the primary overall survival endpoint . all patients , including patients with disease that exceed this threshold , will be included in a secondary analysis of overall survival as well as analyses of progression-free survival , safety and tolerability , and quality of life . the timing of the overall survival primary endpoint data is event-driven . interim analyses will be conducted by an independent data safety and monitoring board at 50 % and 75 % of events ( deaths ) . the first interim analysis is expected in mid-2015 . the second interim analysis is currently expected in late 2015 or early 2016 and the final data is currently expected by the end of 2016 , although our expectations regarding the timing for the second interim analysis and final data read out may change based on event rates . in december 2011 , we also initiated react , a phase 2 study of rindopepimut in combination with avastin® in patients with recurrent egfrviii-positive gbm . this study completed enrollment in 2014 and includes 3 groups . group 1 consists of 72 patients who had not previously received avastin and were randomized to receive either rindopepimut and avastin or a control injection of klh and avastin in a blinded fashion . story_separator_special_tag group 2 includes 25 patients who are refractory to avastin having received avastin in either the frontline or recurrent setting with subsequent progression and who received rindopepimut plus avastin in a single treatment arm . in august 2013 , we announced the addition of an expansion cohort of up to 75 patients , called group 2c , to better characterize the potential activity of rindopepimut in this refractory patient population . this decision was based on early evidence of anti-tumor activity , including stable disease , tumor shrinkage and investigator-reported response . in total , group 2c enrolled 28 patients . the primary endpoint is six month progression-free survival rate ( pfs-6 ) for groups 1 and 2 and objective response rate ( orr ) for group 2c . other study endpoints include pfs-6 , orr , pfs , overall survival , or os and safety and tolerability . in november 2014 , we reported the following interim data from the react study . rindopepimut plus avastin was very well tolerated ( dosing up to 26+ months ) and the results demonstrated clear 50 signs of clinical activity in advanced patient populations , including evidence of anti-tumor activity ( tumor shrinkage , objective response and stable disease ) . strong immune response correlated with improved outcome . in avastin-naïve patients treated with both rindopepimut and avastin , a statistically significant survival benefit was seen compared to the control patients . group 1 interim data pfs-6 : pfs-6 by investigator read was 27 % for patients treated with rindopepimut compared to 11 % for control patients ( p=0.048 ) survival : the os demonstrated a statistically significant benefit ( p=0.0208 ) with a hazard ratio of 0.47 ( 0.25 , 0.91 ) in favor of the rindopepimut treated patients . median os was 12.0 months for patients treated with rindopepimut compared to 8.8 months for control patients . response rate : 7 out of 29 patients ( 24 % ) evaluable for response on the rindopepimut arm experienced a confirmed objective response versus 5 out of 30 patients ( 17 % ) evaluable for response on the control arm . assessments of response were conducted by study investigators according to rano criteria . other : all subgroup analyses , including performance status , steroid use and recent resection , show a hazard ratio in favor of rindopepimut treatment . group 2/2c interim data survival : median os was 5.1 months ( 95 % ci 3.2 , 6.5 ) for these heavily pretreated , refractory egfrviii-positive patients . 46 % of patients in group 2/2c were alive at 6 months . response rate : based on investigator assessment , two patients experienced complete response , of which one was unconfirmed , and two patients experienced partial response , of which one was unconfirmed , in group 2. two of these four patients did not meet the protocol defined definition of refractory in group 2 , the only two such patients enrolled . no additional objective responses were observed in group 2c and the study did not meet the criteria ( defined as two responses in the first 23 patients enrolled in group 2c ) for continued enrollment . ten patients with measurable disease experienced objective tumor shrinkage across group 2/2c . final data is anticipated by mid-year 2015 and we intend to present this data at a peer-reviewed medical meeting in this same time frame . glembatumumab vedotin glembatumumab vedotin is an antibody-drug conjugate , or adc , that consists of a fully-human monoclonal antibody , cr011 , linked to a potent cell-killing drug , monomethyl-auristatin e , or mmae . the cr011 antibody specifically targets glycoprotein nmb , referred to as gpnmb , that is over-expressed in a variety of cancers including breast cancer and melanoma . the adc technology , comprised of mmae and a stable linker system for attaching it to cr011 , was licensed from seattle genetics , inc. and is the same as that used in the marketed product adcetris® . the adc is designed to be stable in the bloodstream . following intravenous administration , glembatumumab vedotin targets and binds to gpnmb and upon internalization into the targeted cell , glembatumumab vedotin is designed to release mmae from cr011 to produce a cell-killing effect . the fda has granted fast track designation to glembatumumab vedotin for the treatment of advanced , refractory/resistant gpnmb-expressing breast cancer . treatment of breast cancer : the phase 1/2 study of glembatumumab vedotin administered intravenously once every three weeks evaluated patients with locally advanced or metastatic breast cancer who had received prior therapy ( median of seven prior regimens ) . the study began with a bridging phase to confirm the maximum tolerated dose , or mtd , and then expanded into a phase 2 open-label , multi-center study . the study confirmed the safety of glembatumumab vedotin at the 51 pre-defined maximum dose level ( 1.88 mg/kg ) in 6 patients . an additional 28 patients were enrolled in an expanded phase 2 cohort ( for a total of 34 treated patients at 1.88 mg/kg , the phase 2 dose ) to evaluate the pfs rate at 12 weeks . the 1.88 mg/kg dose was well tolerated in this patient population with the most common adverse events of rash , alopecia , and fatigue . the primary activity endpoint , which called for at least 5 of 25 ( 20 % ) patients in the phase 2 study portion to be progression-free at 12 weeks , was met as 9 of 26 ( 35 % ) evaluable patients were progression-free at 12 weeks . for all patients treated at the maximum dose level , tumor shrinkage was seen in 62 % ( 16/26 ) and median pfs was 9.1 weeks . a subset of 10 patients had `` triple negative disease , '' a more aggressive breast cancer subtype that carries a high risk of relapse and reduced survival as well as limited therapeutic options due to lack of over-expression of her2/neu , estrogen and progesterone receptors .
| research and development expense research and development expenses consist primarily of ( i ) personnel expenses , ( ii ) laboratory supply expenses relating to the development of our technology , ( iii ) facility expenses , ( iv ) license fees and ( v ) product development expenses associated with our drug candidates as follows : replace_table_token_17_th personnel expenses primarily include salary , benefits , stock-based compensation and payroll taxes . the $ 3.6 million increase in personnel expenses for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 was primarily due to increased headcount and higher stock-based compensation of $ 0.8 million . we expect personnel expenses to increase over the next twelve months as we plan to continue to increase our headcount , primarily to support our rindopepimut , glembatumumab vedotin and varlilumab programs . laboratory supply expenses include laboratory materials and supplies , services , and other related expenses incurred in the development of our technology . the $ 0.4 million increase in laboratory supply expenses for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 was primarily due to higher manufacturing supply purchases . we expect supply expenses to remain relatively consistent over the next twelve months , although there may be fluctuations on a quarterly basis . facility expenses include depreciation , amortization , utilities , rent , maintenance , and other related expenses incurred at our facilities . the $ 0.5 million increase in facility expenses for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 was primarily due to an increase in amortization expense related to the leasehold improvements made at our headquarters facility in hampton , new jersey . we expect facility expenses to remain relatively consistent over the next twelve months , although there may be fluctuations on a quarterly basis . license fee expenses include annual license maintenance fees and milestone payments due upon the achievement of certain development , regulatory and or commercial milestones . the $ 2.5
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we define these components as follows : organic – we define organic revenue growth as total revenue growth from continuing operations for all factors other than acquisitions and foreign currency movements . we drive this type of revenue growth through value realization ( pricing ) , expanding wallet share of existing customers through up-selling and cross-selling efforts , securing new customer business , and through the sale of new or enhanced product offerings . acquisitive – we define acquisitive revenue as the revenue generated from acquired products and services from the date of acquisition to the first anniversary date of that acquisition . this type of growth comes as a result of our strategy to purchase , integrate , and leverage the value of assets we acquire . we also include the impact of divestitures in this growth metric . due to the size of the merger , we have not included markit 's 2017 reported results versus 2016 results in the acquisitive category , but have broken out those results in the organic , acquisitive ( for acquisitions completed by legacy markit prior to the merger ) , and foreign currency growth metrics . foreign currency – we define the foreign currency impact on revenue as the difference between current revenue at current exchange rates and current revenue at the corresponding prior period exchange rates . due to the significance of revenue transacted in foreign currencies , we believe it is important to measure the impact of foreign currency movements on revenue . in addition to measuring and reporting revenue by segment , we also measure and report revenue by transaction type . understanding revenue by transaction type helps us identify and address broad changes in product mix . we summarize our transaction type revenue into the following three categories : recurring fixed revenue represents revenue generated from contracts specifying a relatively fixed fee for services delivered over the life of the contract . the fixed fee is typically paid annually or more periodically in advance . these contracts typically consist of subscriptions to our various information offerings and software maintenance , and the revenue is usually recognized over the life of the contract . the initial term of these contracts is typically 35 annual and non-cancellable for the term of the subscription and may contain provisions for minimum monthly payments . recurring variable revenue represents revenue from contracts that specify a fee for services which is typically not fixed . the variable fee is usually paid monthly in arrears . recurring variable revenue is based on , among other factors , the number of trades processed , assets under management , or the number of positions we value . many of these contracts do not have a maturity date , while the remainder have an initial term ranging from one to five years . recurring variable revenue was derived entirely from the financial services segment for all periods presented . non-recurring revenue represents consulting ( e.g. , research and analysis , modeling , and forecasting ) , services , single-document product sales , software license sales and associated services , conferences and events , and advertising . our non-recurring products and services are an important part of our business because they complement our recurring business in creating strong and comprehensive customer relationships . non-gaap measures . we use non-gaap financial measures such as ebitda , adjusted ebitda , and free cash flow in our operational and financial decision-making . we believe that such measures allow us to focus on what we deem to be more reliable indicators of ongoing operating performance ( adjusted ebitda ) and our ability to generate cash flow from operations ( free cash flow ) . we also believe that investors may find these non-gaap financial measures useful for the same reasons , although we caution readers that non-gaap financial measures are not a substitute for u.s. gaap financial measures or disclosures . none of these non-gaap financial measures are recognized terms under u.s. gaap and do not purport to be an alternative to net income or operating cash flow as an indicator of operating performance or any other u.s. gaap measure . throughout this md & a , we provide reconciliations of these non-gaap financial measures to the most directly comparable u.s. gaap measures . ebitda and adjusted ebitda . ebitda and adjusted ebitda are used by many of our investors , research analysts , investment bankers , and lenders to assess our operating performance . for example , a measure similar to adjusted ebitda is required by the lenders under our term loan and revolving credit agreements . we define ebitda as net income plus or minus net interest , plus provision for income taxes , depreciation , and amortization . our definition of adjusted ebitda further excludes primarily non-cash items and other items that we do not consider to be useful in assessing our operating performance ( e.g. , stock-based compensation expense , restructuring charges , acquisition-related costs and performance compensation , exceptional litigation , net other gains and losses , pension mark-to-market and other adjustments , the impact of joint ventures and noncontrolling interests , and discontinued operations ) . free cash flow . we define free cash flow as net cash provided by operating activities less capital expenditures . non-gaap measures are frequently used by securities analysts , investors , and other interested parties in their evaluation of companies comparable to us , many of which present non-gaap measures when reporting their results . these measures can be useful in evaluating our performance against our peer companies because we believe the measures provide users with valuable insight into key components of u.s. gaap financial disclosures . for example , a company with higher u.s. gaap net income may not be as appealing to investors if its net income is more heavily comprised of gains on asset sales . likewise , excluding the effects of interest income and expense moderates the impact of a company 's capital structure on its performance . however , non-gaap measures have limitations as an analytical tool . story_separator_special_tag because not all companies use identical calculations , our presentation of non-gaap financial measures may not be comparable to other similarly titled measures of other companies . they are not presentations made in accordance with u.s. gaap , are not measures of financial condition or liquidity , and should not be considered as an alternative to profit or loss for the period determined in accordance with u.s. gaap or operating cash flows determined in accordance with u.s. gaap . as a result , these performance measures should not be considered in isolation from , or as a substitute analysis for , results of operations as determined in accordance with u.s. gaap . strategic acquisitions acquisitions have historically been an important part of our growth strategy . we completed three acquisitions during the year ended november 30 , 2018 for a total purchase price of approximately $ 1.9 billion . in 2017 , we completed two acquisitions for a total purchase price of approximately $ 0.4 billion . we paid a total purchase price of approximately $ 1.1 billion for two acquisitions we completed during the year ended november 30 , 2016 , in addition to the merger . our consolidated financial statements include the results of operations and cash flows for these business combinations beginning on their respective dates of acquisition . for a more detailed description of our recent acquisition activity , see “ item 8 - financial statements and supplementary data - notes to consolidated financial statements - note 3 ” in part ii of this form 10-k. 36 global operations approximately 40 percent of our revenue is transacted outside of the united states ; however , only about 20 percent of our revenue is transacted in currencies other than the u.s. dollar . as a result , a strengthening u.s. dollar relative to certain currencies has historically resulted in a negative impact on our revenue ; conversely , a weakening u.s. dollar has historically resulted in a positive impact on our revenue . however , the impact on operating income is diminished due to certain operating expenses denominated in currencies other than the u.s. dollar . our largest foreign currency exposures are the british pound , euro , canadian dollar , singapore dollar , and indian rupee . see “ quantitative and qualitative disclosures about market risk – foreign currency exchange rate risk ” for additional discussion of the impacts of foreign currencies on our operations . pricing information we customize many of our sales offerings to meet individual customer needs and base our pricing on a number of factors , including various price segmentation models which utilize customer attributes , value attributes , and other data sources . attributes can include a proxy for customer size ( e.g. , barrels of oil equivalent and annual revenue ) , industry , users , usage , breadth of the content to be included in the offering , and multiple other factors . because of the level of offering customization we employ , it is difficult for us to evaluate pricing impacts on a period-to-period basis with absolute certainty . this analysis is further complicated by the fact that the offering sets purchased by customers are often not constant between periods . as a result , we are not able to precisely differentiate between pricing and volume impacts on changes in revenue comprehensively across the business . other items cost of operating our business . we incur our cost of revenue primarily through acquiring , managing , and delivering our offerings . these costs include personnel , information technology , data acquisition , and occupancy costs , as well as royalty payments to third-party information providers . our sales , general , and administrative expenses include wages and other personnel costs , commissions , corporate occupancy costs , and marketing costs . a large portion of our operating expenses are not directly commensurate with volume sold , particularly in our recurring revenue business model . stock-based compensation expense . we issue equity awards to our employees primarily in the form of restricted stock units , performance stock units , and stock options , for which we record cost over the respective vesting periods . the typical vesting period is three years . as of november 30 , 2018 , we had approximately 8.8 million unvested rsus/rsas and 6.2 million unvested stock options outstanding . critical accounting policies and estimates our consolidated financial statements are prepared in accordance with u.s. gaap . in applying u.s. gaap , we make significant estimates and judgments that affect our reported amounts of assets , liabilities , revenues , and expenses , as well as disclosure of contingent assets and liabilities . we believe that our accounting estimates and judgments are reasonable when made , but in many instances , alternative estimates and judgments would also be acceptable . in addition , changes in the accounting estimates are reasonably likely to occur from period to period . accordingly , actual results could differ significantly from our estimates . to the extent that there are material differences between these estimates and actual results , our financial condition or results of operations will be affected . we base our estimates on historical experience and other assumptions that we believe are reasonable , and we evaluate these estimates on an ongoing basis . we refer to accounting estimates of this type as critical accounting policies and estimates , which are discussed further below . revenue recognition . the majority of our offerings are provided under agreements containing standard terms and conditions . approximately 84 percent of our 2018 revenue was derived from recurring revenue arrangements , which are initially deferred and then recognized ratably as delivered over the term of the agreement for annual contractual periods billed up front , or is billed and recognized on a periodic basis . these standard agreements typically do not require any significant judgments about when revenue should be recognized .
| 40 acquisition-related revenue growth for 2018 was primarily due to the ipreo acquisition in the third quarter of 2018 and the am acquisition in the fourth quarter of 2017. acquisition-related revenue growth for 2017 was primarily due to the merger , as well as the run-out of the carproof and opis acquisitions from the first quarter of 2016. foreign currency movements had a slightly positive effect on our 2018 revenue growth and a slightly negative impact on our 2017 revenue growth . due to the extent of our global operations , foreign currency movements could continue to positively or negatively affect our results in the future . revenue by segment replace_table_token_3_th the percentage change in revenue for each segment is due to the factors described in the following table . replace_table_token_4_th resources revenue had encountered significant energy industry headwinds in 2016 and into early 2017 due to lower energy prices and reduced industry spending . however , we saw a more stable price environment and more favorable capital spending budgets as 2017 progressed , and those trends have continued through 2018. during 2016 , on a constant currency basis , our resources annual contract value ( “ acv ” ) , which represents the annualized value of recurring revenue contracts , declined approximately 10 percent ; in 2017 , acv was relatively flat , and in 2018 , acv increased 3 percent . as a result , resources recurring revenue improved from a 9 percent organic decline in 2016 to a 5 percent organic decline in 2017 to 4 percent organic growth in 2018. the energy industry improvements have also led to an improvement in our resources non-recurring revenue results , going from a 12 percent organic decline in 2016 to 3 percent organic growth in 2017 and 8 percent organic growth in 2018. transportation revenue increases for 2017 and 2018 were driven by continued solid organic recurring and non-recurring growth , primarily in our
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we allocate personnel expenses between two categories , cost of revenues and selling , general and administrative costs , based on the actual costs associated with each employee . we categorize employees who maintain our solutions as cost of revenues , and all other personnel , including executive managers , sales people , marketing , business development , finance , legal , human resources , and administrative services , as selling , general and administrative expenses . a significant portion of our other operating costs , such as facilities and communications , are either captured within cost of revenues or selling , general and administrative expense based on the nature of the work being performed . while we expect to grow our headcount over time to take advantage of our market opportunities , we believe that the economies of scale in our operating model will allow us to grow our personnel expenses at a lower rate than revenues . 31 historically , our ebitda margin has improved because we have been able to increase revenues without a proportionate corresponding increase in expenses . however , part of our corporate strategy is to invest in new solutions , which may offset margin expansion . cost of revenues . our cost of revenues consists primarily of personnel expenses . cost of revenues also includes the expenses associated with the acquisition and verification of data , the maintenance of our existing solutions and the development and enhancement of our next-generation solutions . our cost of revenues excludes depreciation and amortization . selling , general and administrative expense . our selling , general and administrative expense also consists primarily of personnel costs . a portion of the other operating costs such as facilities , insurance and communications are allocated to selling , general and administrative costs based on the nature of the work being performed by the employee . our selling , general and administrative expenses excludes depreciation and amortization . trends affecting our business we serve customers in three primary vertical markets : p & c insurance , energy , and financial services . the industry trends in each of those markets can affect our business . a significant change in p & c insurers ' profitability could affect the demand for our solutions . for insurers , the keys to profitability include increasing investment income , premium growth and disciplined underwriting of risks . investment income remains under pressure as a result of low interest rates . growth in p & c insurers ' direct written premiums is cyclical , with total industry premium growth receding from a peak of 14.8 % in 2002 to a trough of negative 3.1 % in 2009 and subsequently recovering to 4.4 % in 2012 , 4.3 % in 2013 , 4.4 % in 2014 , 3.7 % in 2015 and 3.7 % in 2016. in recent years , we have signed multi-year contracts with certain customers , and pricing is fixed at the beginning of each multi-year period ; pricing for other customers is still linked to prior years ' premiums . based on our experience , insurers more closely scrutinize their spending in periods of more challenging growth and tend to focus on making an underwriting profit . in addition , 2017 has been a challenging year for insurers with the catastrophe losses related to the three major hurricanes - harvey , irma , and maria - making landfall in the u.s. in the third quarter 2017 causing insurance industry 's net income to decline . these events also illustrate the need for broader coverages , such as flood to meet the changing needs of communities . we continue to provide the necessary resources to meet insurer needs . trends in catastrophe and non-catastrophe weather losses can have an effect on our customers ' profitability , and therefore on their appetite for buying analytics to help them manage their risks . any increase or decrease in frequency or severity of weather events over time could lead to an increased or decreased demand for our catastrophe modeling , catastrophe loss information , and repair cost solutions . likewise , any structural changes in the reinsurance and related brokerage industry from the recent influx of alternative capital or newer technologies could affect demand for our products . we also have a portion of our revenue related to the number of claims processed due to losses , which can be impacted by seasonal storm activity . the need by our customers to fight insurance fraud - both in claims and at policy inception - could lead to increased demand for our underwriting and claims solutions . trends in the energy , chemicals , and metals and mining sectors and activity in financial markets can influence our revenues . during 2017 , oil prices showed a modest improvement and we expect a continued sense of optimism in the energy markets in 2018. in the upstream sector there are five global trends . first , capital investments are anticipated to grow moderately in 2018 , signaling an end to the period of reductions since 2014. second , there is a surge in tight oil production in 2018 driven by a considerable increase from the permian basin in the u.s. ( a region benefiting from new fracking production technology ) . third , over-supplies in the service sector provide an opportunity for operators to lock in prices below historical market rates . fourth , opportunities from discovered resources and exploration have been increasingly undertaken . several middle eastern countries expect to award significant contracts to further develop discovered resources . in addition , there will likely be growing interest in latin american opportunities . fifth , many countries are reviewing their existing fiscal policies to ensure that they are competitive , as well as developing new terms to attract investment in new opportunities . in terms of the wider energy sector , we foresee the continued growth of the electric vehicle market , albeit from a low base , which is anticipated to develop into one of the most disruptive forces in the sector . story_separator_special_tag falling renewable energy costs around the world will also underpin the ongoing shift towards a low carbon economy . we will continue to evolve our offerings to meet the needs of our customers in a dynamic market and remain increasingly well positioned to serve our customers ' information and analytical needs . market trends continue to influence our financial services vertical in important ways . as we look forward towards 2018 , increasing trends in delinquency and fraud rates have resulted in an increased demand for robust risk solutions . in order to better serve our customers , add to our data asset , and expand our expertise , we made a number of strategic acquisitions in the 32 past year , most importantly ( 1 ) g2 , which provides merchant risk intelligence solutions for acquirers , commercial banks and their value chain partners . g2 provides solutions to manage and monitor merchant and business risk within an increasingly complex payments ecosystem using advanced artificial intelligence technologies combined with expert analysts . ( 2 ) lci , a company that provides bankruptcy management solutions to improve customer 's profitability through recovery of bankrupt accounts while protecting the customer 's brand by conforming to industry compliance . lci maintains bankruptcy data ( servicing more than 1.3 billion accounts ) , bankruptcy process automation software , expert services , and research to automate expensive processes in the bankruptcy lifecycle . ( 3 ) fintellix , a company that provides risk and regulatory reporting solutions to enterprise banks at a significantly lower cost of compliance , as well as jumpstarting analytics capabilities in smaller and regional banks . we stand confident of our position with these acquisitions , with the proprietary data and solutions we offer , to help our customers achieve their business and regulatory objectives . description of acquisitions we acquired twenty-one businesses since january 1 , 2015. these acquisitions affect the comparability of our consolidated results of operations between periods . see note 8 to our consolidated financial statements included in this annual report on form 10-k for further discussions on the below acquisitions . 2017 acquisitions on december 29 , 2017 , we acquired 100 percent of the stock of poweradvocate , inc. , or poweradvocate , a provider of market , cost intelligence , and supply chain solutions serving the energy sector . within our decision analytics segment , poweradvocate expands our offerings to the energy sector by adding proprietary spend data and cost models and providing insight into customers ' cost savings opportunities . on december 22 , 2017 , we acquired the net assets of service software , llc. , or service software , a provider of business management software for the construction industry . within our decision analytics segment , service software expands our offerings to the insurance sector by integrating with the existing loss quantification solutions , which makes it possible for restoration professionals to save time by sharing job information , reducing duplicate data entry , and increasing productivity . on november 9 , 2017 , we acquired 100 percent of the stock of rebmark legal solutions ltd. , or rebmark , a provider of injury claims solutions , within the decision analytics segment . rebmark 's solutions aid claimant and defendant lawyers , barristers , and claims handlers with the preparation of schedules of loss , which is useful in complex , high-value injury claims where calculations can be time-consuming and there is greater potential for error . on august 31 , 2017 , we acquired 100 percent of the stock of lundquist consulting , inc. , or lci , a provider of risk insight , prediction , and management solutions for banks and creditors . lci has become part of the financial services vertical within the decision analytics segment . this acquisition brings together our proprietary data assets and lci 's proprietary time-series data , including consumer and commercial bankruptcies , consumer behavior , and legal and technical terms associated with debtor settlements . on august 23 , 2017 , we acquired 100 percent of the stock of sequel business solutions ltd. , or sequel , a provider of commercial and specialty insurance and reinsurance software based in the u.k. sequel has become part of the insurance vertical within the decision analytics segment . the acquisition of sequel further enhances our comprehensive offerings to the global complex commercial and specialty insurance industry , enabling integrated global data analytics through a specialized end-to-end workflow solution . on august 3 , 2017 , we acquired 100 percent of the stock of g2 web services llc , or g2 , a provider of merchant risk intelligence solutions for acquirers , commercial banks , and other payment system providers . g2 has become part of the financial services vertical within the decision analytics segment . the acquisition of g2 positions us to further enhance our offerings to clients and partners , by providing solutions that help fight fraud , transaction laundering , and reputational risk within the global payments and e-commerce ecosystem . during the three months ended june 30 , 2017 , we acquired the net assets of blue skies consulting , llc , controlcam , llc , krawietz aerial photography , llc , richard crouse & associates , inc. , rocky mountain aerial surveys , inc. , skyview aerial photo , inc. , and valley air photos , llc , altogether the aerial imagery acquisitions , a group of similar but unrelated companies , which give us broad geographic coverage of the u.s. for aerial image capture purposes . the aerial imagery acquisitions provide multi-spectral aerial photographic services with expertise in offering digital photogrammetric and remote sensing data for mapping and surveying applications .
| this current liability is deferred revenue that does not require a direct cash outflow since our customers have prepaid and are obligated to purchase the services . in most businesses , growth in revenue typically leads to an increase in the accounts receivable balance causing a use of cash as a company grows . unlike these businesses , our cash position is favorably affected by revenue growth , which results in a source of cash due to our customers prepaying for most of our services . our consolidated capital expenditures as a percentage of consolidated revenues for the years ended december 31 , 2017 and 2016 , were 8.6 % and 7.4 % , respectively . we estimate our capital expenditures for 2018 will be approximately $ 230.0 million , which primarily consists of expenditures on our technology infrastructure and our continuing investments in developing and enhancing our solutions . expenditures related to developing and enhancing our solutions are predominately related to internal-use software and are capitalized in accordance with asc 350-40 , “ accounting for costs of computer 43 software developed or obtained for internal use . ” we also capitalize amounts in accordance with asc 985-20 , “ software to be sold , leased or otherwise marketed . ” we have also historically used a portion of our cash for repurchases of our common stock from our stockholders . for the years ended december 31 , 2017 , 2016 and 2015 , we repurchased $ 276.3 million , $ 326.8 million and $ 20.4 million , respectively , of our common stock . financing and financing capacity we had total debt , excluding capital lease obligations , the discounts and debt issuance costs on our senior notes and our committed senior unsecured syndicated revolving credit facility , or the credit facility , of $ 3,015.0 million and $ 2,400.0 million at december 31 , 2017 and 2016 , respectively . the debt at december 31 , 2017 primarily consists of senior notes issued in 2015 ,
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adequate additional financing may not be available to us on acceptable terms , or at all . our failure to raise capital as and when needed would have a negative effect on our financial condition and our ability to pursue our business strategy . in addition , attempting to secure additional financing may divert the time and attention of our management from day-to-day activities and harm our product candidate development efforts . if we are unable to raise capital when needed or on acceptable terms , we would be forced to delay , reduce or eliminate certain of our research and development programs . based on our cash and cash equivalents at december 31 , 2018 and after receiving an additional $ 77.4 million from a private placement of ordinary shares during the first quarter of 2019 and our receipt of the $ 100 million payment under the terms of the collaboration agreement , we estimate that such funds will be sufficient to enable us to fund our operating expenses and capital expenditure requirements into 2022. we have based these estimates on assumptions that may prove to be wrong , and we may use our available capital resources sooner than we currently expect . see liquidity and capital resources. because of the numerous risks and uncertainties associated with the development of our product candidates , any future product candidates , our platform and technology and because the extent to which we may enter into collaborations with third parties for development of any of our product candidates is unknown , we are unable to estimate the amounts of increased capital outlays and operating expenses associated with completing the research and development of our product candidates . our future capital requirements will depend on many factors , including : the initiation , progress , timing , costs and results of our planned clinical trials for our product candidates ; the outcome , timing and cost of meeting regulatory requirements established by the fda , ema and other regulatory authorities ; the cost of filing , prosecuting , defending and enforcing our patent claims and other intellectual property rights ; the cost of defending potential intellectual property disputes , including patent infringement actions brought by third parties against us or any of our product candidates ; the effect of competing technological and market developments ; the costs and timing of further developing our manufacturing facilities in the united kingdom ; the costs of operating as a public company . the extent to which we in-license or acquire other products and technologies ; 123 the cost of establishing sales , marketing and distribution capabilities for our product candidates in regions where we choose to commercialize our products ; and the initiation , progress , timing and results of our commercialization of our product candidates , if approved for commercial sale . adequate additional funds may not be available to us on acceptable terms , or at all . to the extent that we raise additional capital through the sale of equity or convertible securities , your ownership interest will be diluted , and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a shareholder . any future debt financing or preferred equity or other financing , if available , may involve agreements that include covenants limiting or restricting our ability to take specific actions , such as incurring additional debt , making capital expenditures or declaring dividends and may require the issuance of warrants , which could potentially dilute your ownership interests . if we raise additional funds through collaborations , strategic alliances , or licensing arrangements with third parties , we may have to relinquish valuable rights to our technologies , future revenue streams , research programs or product candidates or grant licenses on terms that may not be favorable to us . if we are unable to raise additional funds through equity or debt financings when needed , we may be required to delay , limit , reduce , or terminate our product development programs or any future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves . because of the numerous risks and uncertainties associated with drug development , we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability . even if we are able to generate revenue from product sales , we may not become profitable . if we fail to become profitable or are unable to sustain profitability on a continuing basis , then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations . highlights and recent development on october 5 , 2018 , we acquired vector neurosciences inc. ( vector ) and acquired vector 's rights to the clinical stage gene therapy product candidate adeno-associated virus encoding glutamic acid decarboxylase ( aav-gad ) , an investigational gene therapy medicine ready for continued phase 2 clinical development for parkinson 's disease . we issued an aggregate of 225,000 of our ordinary shares as initial merger consideration , consisting of 202,500 shares which were issued at the closing of the merger and an additional 22,500 shares to be issued 18 months following the closing . on december 14 , 2018 , we acquired from moorfields eye hospital nhs foundation trust of moorfields eye hospital a long leasehold interest ( the head lease ) in the site of our manufacturing facility , 92 britannia walk , london n1 7lu , for a purchase price of approximately $ 6,615,000. as a result of this transaction , we are now the tenant under the head lease , which has a remaining term of 108 years , with no facility rent due . story_separator_special_tag in january and february , 2019 , we amended and restated the following agreements : ( i ) the license agreement , dated february 4 , 2015 , as amended , between athena vision ltd. and uclb ; ( ii ) the license agreement , dated july 28 , 2017 , as amended , between meiragtx uk ii limited and uclb ; and ( iii ) the license agreement , dated march 15 , 2018 , among meiragtx limited , meiragtx uk ii limited and uclb to establish new stand-alone license agreements for our inherited retinal disease ( ird ) programs . in connection with the stand-alone agreement related to cngb3 , we agreed to make an upfront payment to uclb of £1,500,000 and issue £1,500,000 of our ordinary shares . on january 30 , 2019 , we entered into a strategic collaboration with janssen to develop and commercialize gene therapies for the treatment of inherited retinal diseases ( irds ) . this collaboration 124 agreement provides for janssen to pay us an $ 100 million upfront payment and provide us with research funding , and we are eligible to receive potential milestone payments and royalties . we will collaborate with janssen to develop our current clinical programs in retinitis pigmentosa and two genetic forms of achromatopsia and janssen has the exclusive right to commercialize these products globally . we will manufacture these products for commercial supply . janssen will pay 100 % of the clinical and commercialization costs of the products and we are eligible to receive untiered 20 percent royalties on net sales of products and additional development and commercialization milestones of up to $ 340 million . in addition , we will enter a research collaboration with janssen in the area of irds , with janssen paying for the majority of the research costs . janssen has the right to exclusively license any product coming out of the collaboration at the time of an ind . janssen will then pay 100 % of the clinical and commercialization costs for these products and we will receive an untiered royalty in the high teens on net sales as well as development milestones . in addition , we have entered into a manufacturing research collaboration with janssen to further develop processes for manufacturing aav viral vectors in which the costs of the research will be shared . on march 1 , 2019 , we consummated a private placement with various investors , including one of our existing shareholders perceptive life sciences master fund ltd. , pursuant to which we issued and sold an aggregate of 5,797,102 ordinary shares for gross proceeds of approximately $ 80.0 million . the financing was led by jjdc , the investment arm of johnson & johnson , which made a $ 40.0 million equity investment in the company and received 2,898,550 ordinary shares . components of our results of operations operating expenses our operating expenses since inception have consisted primarily of general and administrative costs and research and development costs . general and administrative expenses general and administrative expenses consist primarily of salaries and other related costs , including share-based compensation , for personnel in our executive , finance , business development and administrative functions . general and administrative expenses also include legal fees relating to intellectual property and corporate matters ; professional fees for accounting , auditing , tax and consulting services ; insurance costs ; travel expenses ; and office facility-related expenses , which include direct depreciation costs . we expect that our general and administrative expenses will increase in the future as we increase our personnel headcount to support increased research and development activities . we have also incurred and expect to continue to incur increased expenses associated with being a public company , including costs of accounting , audit , legal , regulatory and tax-related services associated with maintaining compliance with nasdaq and sec requirements ; director and officer insurance costs ; and investor and public relations costs . research and development expenses research and development expenses consist primarily of costs incurred for our research activities , including our discovery efforts , and the development of our product candidates , and include : employee-related expenses , including salaries , benefits and travel of our research and development personnel ; expenses incurred in connection with third-party vendors that conduct clinical and preclinical studies and manufacture the drug product for the clinical trials and preclinical activities ; acquisition of in-process research and development ; 125 costs associated with clinical and preclinical activities including costs related to facilities , supplies , rent , insurance , certain legal fees , share-based compensation , and depreciation ; and expenses incurred with the development and operation of our manufacturing facility . we expense research and development costs as incurred . we typically use our employee and infrastructure resources across our development programs . we track outsourced development costs by product candidate or development program , but we do not allocate personnel costs , license payments made under our licensing arrangements or other internal costs to specific development programs or product candidates . these costs are included in other research and development expenses in the table below . the following table summarizes our research and development expenses : replace_table_token_1_th research and development activities are central to our business model . we expect that our research and development expenses will continue to increase substantially for the foreseeable future as we initiate additional preclinical and clinical trials of our existing product candidates and continue to discover and develop additional product candidates . this increase in research and development costs may be partially offset by the research funding provided in connection with the collaboration agreement we entered into in january 2019 we can not determine with certainty the duration and costs of future clinical trials of our product candidates or any other product candidate we may develop or if , when , or to what extent we will generate revenue from the commercialization and sale of any product candidate for which we obtain marketing approval .
| 130 foreign currency ( loss ) gain foreign currency loss was $ 3.8 million for the year ended december 31 , 2018 compared to a gain of $ 1.7 million for the year ended december 31 , 2017. the change of $ 5.5 million was primarily due to a strengthening of the u.s. dollar against the pound sterling in 2018. convertible note inducement expense we recorded a $ 0.5 million convertible note inducement expense for the year ended december 31 , 2017 primarily due to the issuance of a warrant to purchase 231,898 convertible preferred c shares in 2017 to a convertible noteholder as an inducement to convert the note into convertible preferred c shares . change in fair market value of warrant liability we recorded $ 1.5 million change in fair value of a warrant liability for the year ended december 31 , 2018 , compared to $ 0.5 million for the year ended december 31 , 2017. the increase of $ 1.0 million was primarily due to the revaluation of certain warrants , which were issued to certain investors in september and november 2017 , using the black-scholes valuation model at june 7 , 2018 , when the warrants were exercised and december 31 , 2017. income taxes the 2018 income tax provision consisted of current tax expense of $ 0 and a deferred tax benefit of $ 474,391. the 2018 deferred tax benefit includes a $ 474,391 benefit recorded due to the required intraperiod tax allocation resulting from the loss from continuing operations and other comprehensive income . liquidity and capital resources since our inception , we have incurred significant operating losses . we have not generated positive cash flows from operations , and there are no assurances that we will be successful in obtaining an adequate level of financing for the development and commercialization of our product candidates . we expect to incur significant expenses and operating losses for the foreseeable future as we advance the preclinical and clinical development of our product candidates . we expect that our research and development and general and administrative costs will increase in connection with conducting preclinical studies and clinical trials for our product candidates , building out internal capacity to have product manufactured to support
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the credit quality of the bank 's loan portfolio remains excellent , with nonaccrual loans amounting to $ 4.1 million , or .36 % of total loans , at december 31 , 2012. additionally , loans past due 30 to 89 days amounted to only $ 884,000 , or .08 % of total loans . troubled debt restructurings declined from $ 5.4 million at the beginning of the year to $ 4.4 million at the end of the year primarily due to the sale of one such loan . of the $ 4.4 million in troubled debt restructurings outstanding at december 31 , 2012 , $ 1.8 million are performing in accordance with their modified terms and $ 2.6 million are delinquent and included in the aforementioned amounts for delinquent and nonaccrual loans . the credit quality of the bank 's securities portfolio also remains excellent . the bank 's mortgage securities are backed by mortgages underwritten on conventional terms , and almost all of these securities are full faith and credit obligations of the u.s. government . the remainder of the bank 's securities portfolio consists principally of high quality , general obligation municipal securities rated aa or better by major rating agencies . in selecting municipal securities for purchase , the bank uses credit agency ratings for screening purposes only and then performs its own credit analysis . capital . the corporation 's tier 1 leverage capital , tier 1 risk-based capital and total risk-based capital ratios were 9.29 % , 19.01 % and 20.26 % , respectively , at december 31 , 2012. the strength of the corporation 's balance sheet from both a capital and asset quality perspective positions the corporation for continued growth in a measured and disciplined fashion . balance sheet . in the second quarter of this year , the bank executed a deleveraging transaction and also refinanced a portion of its overnight borrowings with long-term debt . these transactions were undertaken to bolster the bank 's tier 1 leverage capital ratio and potentially reduce the negative impact that an eventual increase in interest rates could have on the bank 's earnings . absent the deleveraging transaction , total asset growth from year-end 2011 to year-end 2012 would have been slightly more than double the reported growth of 4.2 % . the deleveraging transaction involved using the proceeds from the sale of investment securities with a market value of $ 97.1 million to extinguish long-term debt with a redemption value of $ 68.8 million . the excess proceeds on this transaction were initially used to repay short-term borrowings and eventually used to fund a combination of loan originations and securities purchases . the net loss of $ 338,000 on the deleveraging transaction resulted from the combination of $ 3.8 million in debt extinguishment costs and $ 3.5 million in securities gains . the refinancing strategy involved the repayment of $ 50 million of overnight borrowings with approximately equal amounts of six and seven year term borrowings . 14 on an ongoing basis , the deleveraging transaction should positively impact net interest income in that the yield on the securities sold was 2.80 % , the interest cost on the extinguished debt was 3.24 % , and the yield earned on the reinvestment of the excess proceeds is not significantly different than that of the securities sold . the refinancing transaction negatively impacts net interest income in that the cost of the overnight borrowings was approximately 35 basis points and the cost of the long-term debt is approximately 170 basis points . when taken together , the deleveraging and refinancing transactions should not significantly impact the bank 's future earnings . the deleveraging transaction contributed to an increase in the corporation 's tier 1 leverage capital ratio from 8.85 % at the end of the second quarter to 9.29 % at year end . key strategic initiatives . key strategic initiatives will continue to include loan and deposit growth through effective relationship management , targeted solicitation efforts , new product offerings and continued expansion of the bank 's branch distribution system . in 2011 , the bank opened two full service branches on long island , one in point lookout and one in massapequa . in late 2012 , the bank opened a full service branch in lindenhurst , long island and in 2013 is planning to open two full service branches , one in massapequa park , long island and another in sayville , long island . challenges we face . interest rates are currently very low and are expected to remain low for an extended period of time . in addition , there is significant price competition for loans in the bank 's marketplace . the persistence of these factors could result in a decline in net interest margin from its current level . if that were to occur , and management is unable to offset the impact by increasing the volume of interest-earning assets , expense savings or other measures , the bank 's profitability could decline . commercial and residential real estate values have been negatively impacted by persistently high levels of unemployment and underemployment , a decline in household disposable income , foreclosures and commercial vacancies . although real estate values in certain geographies have rebounded somewhat in recent months , these factors still present threats to the maintenance of loan quality . the banking industry is currently faced with an ever-increasing number of new and complex regulatory requirements which are putting downward pressure on revenues and upward pressure on required capital levels and the cost of doing business . overview – 2011 versus 2010 analysis of 2011 earnings . story_separator_special_tag the corporation earned $ 19.5 million , or $ 2.20 per share , for 2011 versus $ 18.4 million , or $ 2.30 per share , for 2010. returns on average assets and average equity were 1.05 % and 11.15 % , respectively , for 2011 versus 1.11 % and 12.94 % , respectively , for 2010. gains on sales of securities were $ 138,000 in 2011 versus $ 1.7 million in 2010. excluding the gains from each year , net income was up $ 2.0 million , or 11.6 % , versus the reported increase of $ 1.1 million , or 5.8 % . earnings per share for 2011 includes the dilutive effect of 1.4 million shares of common stock sold in july 2010 , while 2010 earnings per share only include the dilutive effect of this sale from the date of sale through the close of the year . the increase in net income for 2011 was primarily attributable to an increase in net interest income of $ 3.1 million and a reduction in income tax expense of $ 427,000. income tax expense declined primarily because of an increase of $ 2.0 million , or 20.4 % , in tax-exempt income on municipal securities . partially offsetting the positive impact of the aforementioned items was the $ 1.6 million decrease in gains on sales of securities and an increase in occupancy and equipment expense of $ 662,000 , or 10.2 % . the increase in net interest income for 2011 was primarily attributable to growth in the average balances of all categories of interest-earning assets as partially offset by an eighteen basis point decline in net interest margin . on an overall basis , total average interest-earning assets grew by $ 195.6 million , or 12.3 % . loans and municipal securities , the bank 's two highest yielding asset categories , grew by $ 83.1 million or 9.6 % , and $ 61.8 million , or 25.5 % , respectively , while taxable securities and interest-bearing bank balances , the bank 's two lowest yielding asset categories , grew by $ 45.8 million , or 9.7 % , and $ 4.9 million , or 33.4 % , respectively . funding this growth were increases in noninterest-bearing checking deposits of $ 47.5 million , or 12.7 % , capital of $ 32.3 million , or 22.7 % , savings , now and money market deposits of $ 94.4 million , or 14.5 % , and long-term debt of $ 34.6 million , or 21.0 % . the 2011 decrease in net interest margin occurred primarily because the negative impact of market driven declines in yield on the bank 's securities and loan portfolios far outweighed the positive impact of management 's successful efforts to lower the bank 's overall funding cost . the funding cost reduction would have been greater had management not engaged in a liability extension strategy involving additional long-term borrowings and extending the duration of the bank 's time deposits . this strategy resulted in paying more for funding in the near term in exchange for possibly reducing the negative impact that future increases in interest rates could have on the corporation 's earnings . occupancy and equipment expense increased when comparing 2011 to 2010 largely because of the cost of opening six new branches since the beginning of 2010. despite the cost of personnel needed to staff the new branches and the impact of normal annual salary increases , salaries expense for 2011 was only 2.1 % higher than 2010 and employee benefits expense declined by $ 237,000 , or 4.5 % . salaries expense was contained by partially staffing the new branches with experienced personnel from existing branches and staff reductions through attrition . as a result of these efficiency measures , which management believes were executed without compromising internal controls or service quality , the number of full-time-equivalent employees was virtually unchanged when comparing year-end 2011 to 2010. a significant portion of the decrease in employee benefits expense was attributable to a decrease in retirement plan expense . 15 analysis of fourth quarter 2011 earnings . net income for the fourth quarter of 2011 was $ 4.7 million , or $ .53 per share , as compared to $ 5.3 million , or $ .60 per share , for the preceding quarter and $ 4.1 million , or $ .46 per share , for the same quarter last year . the increase in net income for the fourth quarter of 2011 versus the same quarter last year was primarily attributable to an increase in net interest income of $ 921,000 and an increase in noninterest income , before gains on sales of securities , of $ 276,000. the positive impact of these items was partially offset by an increase in noninterest expense of $ 517,000. net interest income was up for the same reasons discussed with respect to the full 2011 year . noninterest income was up largely because the fourth quarter of 2010 included a $ 300,000 charge to establish a valuation allowance on one loan held for sale . the increase in noninterest expense occurred largely because the fourth quarter of 2011 included charges for litigation and real estate taxes paid by the bank to protect its interest in problem loans . the decline in net income for the fourth quarter of 2011 versus the preceding quarter was primarily attributable to an increase in the provision for loan losses of $ 670,000 and the aforementioned charges for litigation and problem loan expense . the fourth quarter 2011 provision for loan losses resulted from a combination of loan growth , $ 335,000 in net chargeoffs , an increase of $ 172,000 in reserves allocated to loans individually deemed to be impaired and an increase in collective impairment reserves on pools of loans primarily due to management 's current assessment of national and local economic conditions . asset quality .
| the growth in average interest-earning assets is principally comprised of increases in average loans outstanding of $ 125.7 million , or 13.3 % , nontaxable securities of $ 61.5 million , or 20.2 % , and taxable securities of $ 24.1 million , or 4.7 % . although most of the loan growth occurred in residential and commercial mortgage loans , commercial and industrial loans grew as well . management 's continued success in growing loans is attributable to a variety of factors including , among others , targeted solicitation efforts , increased focus on multifamily lending , new and expanded programs for first-lien home equity loans and jumbo residential mortgages and the bank 's positive reputation in its marketplace . home equity loans are included in residential mortgages on the corporation 's balance sheet . while the average balance of the bank 's taxable securities portfolio grew moderately when comparing 2012 to 2011 , the size of the portfolio declined by $ 106.9 million , or 17.8 % , when comparing year-end 2012 to 2011. the decline occurred because of the deleveraging transaction and the deployment of funds , when possible , into loans rather than securities . the most significant sources of funding for the growth in the average balances of loans and securities were growth in the average balances of savings , now and money market deposits of $ 93.2 million , or 12.5 % , noninterest-bearing checking deposits of $ 48.3 million , or 11.5 % , and borrowings of $ 31.0 million , or 13.7 % . the bank 's ability to continue to grow deposits is attributable to , among other things , expansion of the bank 's branch distribution system , targeted solicitation of local commercial businesses and municipalities , new and expanded lending relationships , the bank 's positive reputation in its marketplace , volatility in the equity markets and the acquisition of some local competitors by larger financial institutions . net interest margin declined from 3.63 % in 2011 to 3.34 % in 2012 as loans repriced and cash flows were deployed in a very low interest rate environment . also contributing to the decline in the
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challenging economic conditions in the u.s. , declining demand for leased office , retail , or mixed-use properties and or a decrease in market rental rates and or market values of real estate assets in our submarkets could have a negative impact on the value of our properties . if we were required under gaap to write down the carrying value of any of our properties due to impairment , or if as a result of an early lease termination we were required to remove or dispose of material amounts of tenant improvements that are not reusable to another tenant , our financial condition and results of operations could be negatively affected . leasing activity and rental rates the amount of net rental income generated by our properties depends principally on our ability to maintain the occupancy rates of currently leased space and to lease currently available space , newly developed or redeveloped properties and space available from unscheduled lease terminations . the amount of rental income we generate also depends on our ability to maintain or 30 increase rental rates in our submarkets . negative trends in one or more of these factors could adversely affect our rental income in future periods . equity method investment valuation our equity method investments , consisting of our investments in unconsolidated real estate ventures , may be adversely affected by changes in the real estate markets in which they operate . under the equity method , unconsolidated real estate ventures are recorded initially at cost and subsequently adjusted for equity in earnings , cash contributions , less distributions and impairments . as required under accounting rules , we evaluate and assess our equity method investments for other than temporary impairment at least quarterly . in valuing our equity method investments , fair value is determined through various valuation techniques , including but not limited to , discounted cash flow models , quoted market values and third party appraisals . however , such quoted data and other market information can vary , even for the same properties . to the extent that the real estate markets deteriorate or we are unable to lease our development projects , it could result in declines in the fair value of our equity method investments that are other than temporary and , we may realize losses that never materialize or we may fail to recognize losses in the appropriate period . rapidly changing conditions in the real estate markets in which we operate increase the complexity of valuing our equity method investments . our judgments and methodologies materially impact the valuation of the investments as reported in our financial statements . development and redevelopment programs historically , a significant portion of our growth has come from our development and redevelopment efforts . we have a proactive planning process by which we continually evaluate the size , timing , costs , and scope of our development and redevelopment programs and , as necessary , scale activity to reflect the economic conditions and the real estate fundamentals that exist in our strategic submarkets . we are currently proceeding with certain development and redevelopment projects , and we take a cautious and selective approach when determining if a certain development or redevelopment project will benefit our portfolio . in addition , we may be unable to lease committed development or redevelopment properties at underwritten rental rates or within projected timeframes or complete development or redevelopment properties on schedule or within budgeted amounts , which could adversely affect our financial condition , results of operations and cash flow . financial and operating performance our financial and operating performance is dependent upon the demand for office , residential and retail space in our markets , our leasing results , our acquisition , disposition and development activity , our financing activity , our cash requirements and economic and market conditions , including prevailing interest rates . adverse changes in economic conditions could result in a reduction of the availability of financing and potentially in higher borrowing costs . vacancy rates may increase , and rental rates may decline , during 2020 and possibly beyond as the current economic climate may negatively impact tenants . overall economic conditions , including but not limited to higher unemployment and deteriorating financial and credit markets , could have a dampening effect on the fundamentals of our business , including increases in past due accounts , tenant defaults , lower occupancy and reduced effective rents . these adverse conditions would negatively affect our future net income and cash flows and could have a material adverse effect on our financial condition . we believe that the quality of our assets and our strong balance sheet will enable us to raise debt capital , if necessary , in various forms and from different sources , including a traditional term or secured loans from banks , pension funds and life insurance companies . however , there can be no assurance that we will be able to borrow funds on terms that are economically attractive or at all . 31 the table below summarizes selected operating and leasing statistics of our wholly owned operating properties for the year ended december 31 , 2019 : replace_table_token_6_th ( 1 ) does not include properties under development , redevelopment , held for sale , or sold . ( 2 ) includes leasing related to completed developments and redevelopments , as well as sold properties . ( 3 ) calculated as percentage of total square feet . ( 4 ) includes base rent plus reimbursement for operating expenses and real estate taxes . ( 5 ) calculated on a weighted average basis . in seeking to increase revenue through our operating , financing , and investment activities , we also seek to minimize operating risks , including ( i ) tenant rollover risk , ( ii ) tenant credit risk and ( iii ) development risk . story_separator_special_tag tenant rollover risk : we are subject to the risk that tenant leases , upon expiration , will not be renewed , that space may not be relet , or that the terms of renewal or reletting ( including the cost of renovations ) may be less favorable to us than the current lease terms . leases that accounted for approximately 6.9 % of our aggregate final annualized base rents as of december 31 , 2019 ( representing approximately 7.7 % of the net rentable square feet of the properties ) are scheduled to expire without penalty in 2020 . we maintain an active dialogue with our tenants in an effort to maximize lease renewals . if we are unable to renew leases or relet space under expiring leases , at anticipated rental rates , or if tenants terminate their leases early , our results of operations and cash flow would be adversely impacted . tenant credit risk : in the event of a tenant default , we may experience delays in enforcing our rights as a landlord and may incur substantial costs in protecting our investment . our management regularly evaluates our accounts receivable reserve policy in light of our tenant base and general and local economic conditions . our accounts receivable allowance was $ 8.0 million or 4.0 % of total receivables ( including accrued rent receivable ) as of december 31 , 2019 compared to $ 12.9 million or 6.6 % of total receivables ( including accrued rent receivable ) as of december 31 , 2018 . 32 if economic conditions deteriorate , we may experience increases in past due accounts , defaults , lower occupancy and reduced effective rents . this condition would negatively affect our future net income and cash flows and could have a material adverse effect on our financial condition . development risk : development projects are subject to a variety of risks , including construction delays , construction cost overruns , inability to obtain financing on favorable terms , inability to lease space at projected rates , inability to enter into construction , development and other agreements on favorable terms , and unexpected environmental and other hazards . see item 1a. , “ risk factors . ” as of december 31 , 2019 the following development and redevelopment projects remain under construction in progress and we were proceeding on the following activity ( dollars , in thousands ) : replace_table_token_7_th ( a ) estimated costs include $ 37.8 million of building basis , representing the acquisition cost . ( b ) estimated costs includes $ 2.1 million of existing property basis through a ground lease . project includes 520 parking spaces . ( c ) the property was vacated during the third quarter of 2017. total project costs include $ 4.9 million of existing property basis . the renovation of the base building was substantially completed during the first quarter of 2019 and remaining costs as of december 31 , 2019 primarily represent tenant improvements . in addition to the properties listed above , we have classified two properties in philadelphia , pennsylvania as redevelopment . as of december 31 , 2019 , there has not been material construction spend on these projects . although we continue to evaluate opportunities to acquire assets , the abundance of capital and demand for assets has resulted in increasing prices . as a result , in the current environment , we are able to develop properties at a cost per square foot that is generally less than the cost at which we can acquire existing properties , thereby generating relatively better returns with lower annual maintenance expenses and capital costs . accordingly , we believe that successful lease-up and completion of our development pipeline will enhance our long-term return on equity and earnings growth as these developments are placed in-service . 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 of america ( gaap ) . the preparation of financial statements in conformity with gaap requires management to make estimates and assumptions that affect the reported amounts of assets , liabilities , and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the reporting periods . certain accounting policies are considered to be critical accounting policies , as they require management to make assumptions about matters that are highly uncertain at the time the estimate is made and changes in the accounting estimate are reasonably likely to occur from period to period . we believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements . impairment we assess each of our real estate investments for indicators of impairment quarterly or when circumstances indicate that a real estate investment may be impaired . when indicators of potential impairment are present that suggest that the carrying amounts of real estate investments and related intangible assets may not be recoverable , we assess the recoverability by determining whether the respective carrying values will be recovered through the estimated undiscounted future operating cash flows expected from the use of the assets and their eventual disposition over , in most cases , a ten-year holding period . if we believe there is a significant possibility that we might dispose of the assets earlier , we assess the recoverability using a probability weighted analysis of the estimated undiscounted future cash flows expected to be generated from the operations and eventual disposition of the assets over the various possible holding periods . if the recoverability assessment indicates that the carrying value of a tested real estate investment is not recoverable from estimated undiscounted future cash flows , it is written down to its estimated 33 fair value and an impairment is recognized .
| while noi is a relevant and widely used measure of operating performance of real estate investment trusts , it does not represent cash flow from operations or net income as defined by gaap and should not be considered as an alternative to those measures in evaluating our liquidity or operating performance . noi does not reflect interest expenses , real estate impairments , depreciation and amortization costs , capital expenditures , and leasing costs . we believe that net income , as defined by gaap , is the most appropriate earnings measure . see note 18 , `` segment information , ” to our consolidated financial statements for a reconciliation of noi to our consolidated net income ( loss ) as defined by gaap . comparison of the year ended december 31 , 2019 to the year ended december 31 , 2018 the following comparison for the year ended december 31 , 2019 to the year ended december 31 , 2018 , makes reference to the effect of the following : ( a ) “ same store property portfolio , ” which represents 73 properties containing an aggregate of approximately 13.9 million net rentable square feet , and represents properties that we owned for the twelve-month periods ended december 31 , 35 2019 and 2018 . the same store property portfolio includes properties acquired or placed in service on or prior to january 1 , 2018 and owned through december 31 , 2019 , ( b ) “ total portfolio , ” which represents all properties owned by us during 2019 and 2018 , ( c ) `` recently completed/acquired properties , '' which represents 17 properties placed into service or acquired on or subsequent to january 1 , 2018 , ( d ) `` development/redevelopment properties , '' which represents 5 properties currently in development/redevelopment . a property is excluded from our same store property portfolio and moved into development/redevelopment in the period that we determine to proceed with development/redevelopment for a future development strategy , and ( e ) `` 2018 and 2019 dispositions , '' which represents 11 properties disposed of during 2018 and 2019 . comparison of year ended december 31 , 2019 to the year ended december 31 , 2018 replace_table_token_8_th ( a ) represents certain revenues and expenses
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merchantable inventory and depletion costs as determined by forestry timber harvest models significant assumptions and estimates are used in the recording of timberland inventory cost and depletion . merchantable standing timber inventory is estimated by our land information services group annually , using industry-standard computer software . the inventory calculation takes into account growth , in-growth ( annual transfer of oldest pre-merchantable age class into merchantable inventory ) , timberland sales and the annual harvest specific to each business unit . the age at which timber is considered merchantable is reviewed periodically and updated for changing harvest practices , future harvest age profiles and biological growth factors . an annual depletion rate is established for each particular region by dividing merchantable inventory book cost by standing merchantable inventory . pre-merchantable records are maintained for each planted year age class , recording acres planted , stems per acre and costs of planting and tending . changes in the assumptions and or estimations used in these calculations may affect our timber inventory and depletion costs . factors that can impact timber volume include weather changes , losses due to natural causes , differences in actual versus estimated growth rates and changes in the age when timber is considered merchantable . a three percent company-wide change in estimated standing merchantable inventory would cause 2011 depletion expense to change by approximately $ 2 million . an acquisition of timberlands can also affect the depletion rate . upon the acquisition of timberland , we make a determination on whether to combine the newly acquired merchantable timber with an existing depletion pool or to create a new separate pool . the determination is based on the geographic location of the new timber , the customers/markets that will be served and species mix . in 2011 , we acquired approximately 308,000 acres of timberland mainly located in the gulf states region . the acquisition did not significantly impact 2011 depletion expense , but we anticipate 2012 depletion expense will increase by approximately $ 2 million due to a higher depletion rate . depreciation and impairment of long-lived assets depreciation expense is computed using the units-of-production method for the performance fibers plant and equipment and the straight-line method on all other property , plant and equipment over the useful economic lives of the assets involved . we believe that these depreciation methods are the most appropriate under the circumstances as they most closely match revenues with expenses versus other generally accepted accounting methods . long-lived assets are periodically reviewed for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable . cash flows used in such impairment analyses are based on long-range plan projections , which take into account recent sales and cost data as well as macroeconomic drivers such as customer demand and industry capacity . the physical life of equipment , however , may be shortened by economic obsolescence caused by environmental regulation , competition or other causes . beginning in the fourth quarter of 2008 , our wood products sawmills curtailed production due to weak market conditions . in 2012 , we expect to continue to operate at reduced production levels unless market conditions improve . based on long range plan projections , we estimate that our carrying amount ( book value ) is recoverable through future operations . environmental costs associated with dispositions and discontinued operations at december 31 , 2011 , we had $ 91 million of accrued liabilities for environmental costs relating to past dispositions and 22 index to financial statements discontinued operations . numerous cost assumptions are used in estimating these obligations . factors affecting these estimates include significant changes in contamination , discharge or treatment volumes , requirements to perform additional or different assessment or remediation , changes in environmental remediation technology , additional discovery of contaminated soil , groundwater or sediment off-site , remedy selection , changes in law or interpretation of existing law and the outcome of negotiations with governmental agencies . we periodically review our environmental liabilities and also engage third-party consultants to assess our ongoing remediation of contaminated sites . a significant change in any of the estimates could have a material effect on the results of our operations . typically , these cost estimates do not vary significantly on a quarter to quarter basis . in 2011 and 2010 , we increased the liability by $ 7 million and $ 3 million , respectively . see note 15 — liabilities for dispositions and discontinued operations for additional information . determining the adequacy of pension and other postretirement benefit assets and liabilities we have four qualified benefit plans which cover most of our u.s. workforce and an unfunded plan to provide benefits in excess of amounts allowable under current tax law to certain participants in the qualified plans . all plans are currently closed to new participants . pension expense for all plans was $ 11 million in 2011 . numerous estimates and assumptions are required to determine the proper amount of pension and postretirement liabilities and annual expense to record in our financial statements . the key assumptions include discount rate , return on assets , salary increases , health care cost trends , mortality rates , longevity and service lives of employees . although there is authoritative guidance on how to select most of these assumptions , we exercise some degree of judgment when selecting these assumptions based on input from our actuary . different assumptions , as well as actual versus expected results , would change the periodic benefit cost and funded status of the benefit plans recognized in the financial statements . story_separator_special_tag in determining pension expense in 2011 , a $ 26 million return was assumed based on an expected long-term rate of return of 8.5 percent . the actual return for 2011 was a gain of $ 9 million , or 3 percent . our long-term return assumption was established based on historical long-term rates of return on broad equity and bond indices , discussions with our actuary and investment advisors and consideration of the actual annualized rate of return from 1994 ( the date of our spin-off from itt corporation ) through 2011 . at the end of 2011 , we reviewed this assumption for reasonableness and determined that the 2011 long-term rate of return assumption should remain at 8.5 percent . at december 31 , 2011 , our asset mix consisted of 64 percent equities , 33 percent bonds and three percent real estate . we do not expect this mix to change materially in the near future . in determining future pension obligations , we select a discount rate based on information supplied by our actuary . the actuarial rates are developed by models which incorporate high quality ( aa rated ) , long-term corporate bond rates into their calculations . the discount rate decreased from 5.25 percent at december 31 , 2010 to 4.20 percent at december 31 , 2011 . the company 's pension plans were underfunded by $ 117 million at december 31 , 2011 , a $ 73 million decrease in funding status from december 31 , 2010 due primarily to the decreased discount rate . in 2011 , we had no mandatory pension contributions and did not make discretionary contributions to our qualified pension plans . we made discretionary contributions of $ 50 million in 2010 and contributions of $ 10 million in 2009 , of which $ 8 million was mandatory . future requirements will vary depending on actual investment performance , changes in valuation assumptions , interest rates , requirements under the pension protection act and other employee related matters . see note 20 — employee benefit plans for additional information . we expect pension expense to be approximately $ 18 million in 2012 , a $ 7 million increase from 2011 , mainly due to an increase in the amortization of actuarial losses resulting from a decrease in the discount rate . future pension expense will be impacted by many factors including actual investment performance , changes in discount rates , timing of contributions and other employee related matters . the sensitivity of pension expense and projected benefit obligation to changes in economic assumptions is highlighted below : replace_table_token_8_th realizability of both recorded and unrecorded tax assets and tax liabilities as a reit , our forest resources operations are generally not subject to income taxation . as such , our income taxes can vary 23 index to financial statements significantly based on the mix of income between our reit and trs businesses , thereby impacting our effective tax rate and the amount of taxes paid during fiscal periods . therefore , our projection of estimated income tax for the year and our provision for quarterly income taxes , in accordance with generally accepted accounting principles , may have significant variability . similarly , the assessment of the ability to realize certain deferred tax assets , or estimate deferred tax liabilities , may be subjective . we have recorded certain deferred tax assets that we believe will be realized in future periods . these assets are reviewed periodically in order to assess their realizability . this review requires us to make assumptions and estimates about future profitability affecting the realization of these tax benefits . if the review indicates that the realizability may be less than likely , a valuation allowance is recorded at that time . our income tax returns are subject to examination by u.s. federal , state , and foreign taxing authorities . in evaluating the tax benefits associated with various tax filing positions , we record a tax benefit for an uncertain tax position if it is more-likely-than-not to be realized upon ultimate settlement of the issue . we record a liability for an uncertain tax position that does not meet this criterion . the liabilities for unrecognized tax benefits are adjusted in the period in which it is determined the issue is settled with the taxing authorities , the statute of limitations expires for the relevant taxing authority to examine the tax position or when new facts or information becomes available . see note 8 — income taxes for additional information on our unrecognized tax benefits . 24 index to financial statements summary of our results of operations for the three years ended december 31 : replace_table_token_9_th ( a ) the 2011 results included a $ 7 million increase in a disposition reserve . see note 15 — liabilities for dispositions and discontinued operations for additional information . the 2010 results included a gain of $ 12 million from the sale of a portion of the company 's interest in its new zealand jv . see note 5 — joint venture investment for additional information . the 2009 results included income of $ 205 million related to the afmc . see note 8 — income taxes for additional information . ( b ) the 2011 results included a benefit of $ 16 million from the reversal of a reserve related to the taxability of the afmc . the 2010 results included a tax benefit of $ 24 million for the cbpc . the 2009 results included a tax expense of $ 12 million related to the afmc . see note 8 — income taxes for additional information .
| for example , we acquired 308,000 acres of timberland in 2011 , 3,000 acres in 2010 , none in 2009 , and 110,000 acres in 2008. we sold approximately 12,000 and 45,000 acres of non-strategic timberland in 2011 and 2010 , respectively . extract maximum value from our hbu properties . we will continue entitlement activity on development property while maintaining a rural hbu program of sales for conservation , recreation and industrial uses . during 2011 , we entitled 29,400 acres in florida and now have approximately 39,000 acres entitled in florida and georgia . maintain our global leadership in high purity cellulose specialties through investments to increase capacity , and improve product quality and technical expertise . in may 2011 , our board approved the cse to convert a fiber line at our jesup , georgia mill from absorbent materials to cellulose specialties . the cse will add approximately 190,000 metric tons of cellulose specialties capacity , bringing total cellulose specialties capacity to about 675,000 metric tons . upon completion , we will no longer produce absorbent materials ( about 260,000 metric ton capacity ) . with commitments for 85 percent of the new volume already in hand , we are close to being fully committed . we are on pace to complete the cse project by mid-2013 . this expansion will help differentiate our business as we will be able to increase our focus on high-end specialty pulp and development of products for customer specific applications while exiting the more commodity-like absorbent materials ( fluff pulp ) business . we continuously evaluate our capital structure . our year-end debt-to-capital ratio was 39 percent and our debt-to-ebitda ratio was 1.7 times . we believe that a debt-to-ebitda ratio of up to three times is appropriate to keep our weighted-average cost of capital low while maintaining an investment grade debt rating as well as retaining the flexibility to actively pursue growth opportunities . we have historically maintained conservative leverage and believe in keeping ample liquidity and financial flexibility . maintaining
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a number of new drugs and biologics have shown promising results in early clinical trials but subsequently failed to establish sufficient safety and efficacy data to obtain necessary regulatory approvals . furthermore , our business strategy includes the option of entering into collaborative arrangements with third parties to complete the development and commercialization of our drug candidates . in the event that third parties take over the clinical trial process for one of our drug candidates , the estimated completion date would largely be under control of that third party rather than us . we can not forecast with any degree of certainty which proprietary products , if any , will be subject to future collaborative arrangements , in whole or in part , and how such arrangements would affect our development plan or capital requirements . our programs may also benefit from subsidies , grants , contracts or government or agency-sponsored studies that could reduce our development costs . as a result of the uncertainties discussed above , among others , it is difficult to accurately estimate the duration and completion costs of our research and development projects or when , if ever , and to what extent we will receive cash inflows from the commercialization and sale of a product . our inability to complete our research and development projects in a timely manner or our failure to enter into 57 collaborative agreements , when appropriate , could significantly increase our capital requirements and could adversely impact our liquidity . these uncertainties could force us to seek additional , external sources of financing from time to time in order to continue with our business strategy . our inability to raise additional capital , or to do so on terms reasonably acceptable to us , would jeopardize the future success of our business . during the past five years through december 31 , 2018 , we incurred an aggregate of $ 469.9 million in research and development expenses . the following table indicates the amount incurred for each of our significant research programs and for other identified research and development activities during the years ended december 31 , 2018 , 2017 and 2016. the amounts disclosed in the following table reflect direct research and development costs , license fees associated with the underlying technology and an allocation of indirect research and development costs to each program . replace_table_token_5_th clinical development programs cdx-1140 cdx-1140 is a fully human agonist monoclonal antibody targeted to cd40 , a key activator of immune response , which is found on dendritic cells , macrophages and b cells and is also expressed on many cancer cells . potent cd40 agonist antibodies have shown encouraging results in early clinical studies ; however , systemic toxicity associated with broad cd40 activation has limited their dosing . cdx-1140 has unique properties relative to other cd40 agonist antibodies : potent agonist activity is independent of fc receptor interaction , contributing to more consistent , controlled immune activation ; cd40l binding is not blocked , leading to potential synergistic effects of agonist activity near activated t cells in lymph nodes and tumors ; and the antibody does not promote cytokine production in whole blood assays . cdx-1140 has shown direct anti-tumor activity in preclinical models of lymphoma . preclinical studies of cdx-1140 clearly demonstrate strong immune activation effects and low systemic toxicity and support the design of the phase 1 study to rapidly identify the dose for characterizing single-agent and combination activity . we initiated a phase 1 study of cdx-1140 in november 2017. this study is expected to enroll up to approximately 180 patients with recurrent , locally advanced or metastatic solid tumors and b cell lymphomas . the study is designed to determine the maximum tolerated dose , or mtd , during a dose-escalation phase ( 0.01 to 3.0 mg/kg once every four weeks until confirmed progression or intolerance ) and to recommend a dose level for further study in a subsequent expansion phase . the expansion is designed to further evaluate the tolerability and biologic effects of selected dose ( s ) of cdx-1140 in specific tumor types . secondary objectives include assessments of safety and tolerability , 58 pharmacodynamics , pharmacokinetics , immunogenicity and additional measures of anti-tumor activity , including clinical benefit rate . we believe that the potential for cdx-1140 will be best defined in combination studies with other immunotherapies or conventional cancer treatments . to this end , in the second quarter of 2018 , we amended the phase 1 study protocol to also explore cdx-1140 in combination with cdx-301 . dendritic cells , which express cd40 , are often rare or missing from the tumor microenvironment and are critical for initiating anti-tumor immunity . cdx-301 is being utilized to increase the number of dendritic cells in blood and tissue available for cdx-1140 activation . cdx-1140 should , in turn , activate and mature the dendritic cells , an important step for enhancing anti-tumor immune responses . several b cell lymphomas , including diffuse large b-cell lymphoma and follicular lymphoma , also express both cd40 and cd27 . celldex 's varlilumab is a potent cd27 agonist and has been shown to synergize with cdx-1140 in nhl models and may be evaluated in combination with cdx-1140 in the future . interim data from the phase 1 study were presented in november 2018 at the society for immunotherapy of cancer ( sitc ) annual meeting . seventeen patients with solid tumors were enrolled at the time of data analysis ( n=13 monotherapy ; n=4 combination ) . four single-agent dosing cohorts were complete ( 0.01 ; 0.03 , 0.09 and 0.18 mg/kg ) and enrollment to the 0.36 mg/kg monotherapy cohort was ongoing . enrollment to the first cdx-1140/cdx-301 combination cohort was also ongoing ( 0.09 mg/kg and 75 ug/kg , respectively ) . dose dependent biological effects consistent with cd40-mediated immune activation were reported . cdx-1140 was well tolerated and no mtd had been reached . story_separator_special_tag one patient experienced a grade 3 dose-limiting toxicity ( dlt ) ( pneumonitis and hypoxia ) at the single-agent 0.18 mg/kg dose . per protocol , three additional patients were enrolled in the cohort and no additional dlts have been observed in this or subsequent cohorts . while the cdx-1140 and cdx-301 combination cohort had just recently opened to enrollment at the time of presentation , preliminary evidence of enhanced immune activation was reported with no observed dlt . across both arms of the study , there were no significant drug-related changes observed in liver function tests or platelets , which have been observed with other cd40 agonists . continued enrollment is ongoing to define the mtd and select a dose for disease-specific expansion cohorts that will be monitored for clinical activity . we plan to present updated data from the study at a future medical meeting in 2019. cdx-3379 cdx-3379 is a human monoclonal antibody with half-life extension designed to block the activity of erbb3 ( her3 ) . we believe erbb3 may be an important receptor regulating cancer cell growth and survival as well as resistance to targeted therapies and is expressed in many cancers , including head and neck , thyroid , breast , lung and gastric cancers , as well as melanoma . we believe the proposed mechanism of action for cdx-3379 sets it apart from other drugs in development in this class due to its ability to block both ligand-independent and ligand-dependent erbb3 signaling by binding to a unique epitope . it has a favorable pharmacologic profile , including a longer half-life and slower clearance relative to other drug candidates in this class . we believe cdx-3379 also has potential to enhance anti-tumor activity and or overcome resistance in combination with other targeted and cytotoxic therapies to directly kill tumor cells . tumor cell death and the ensuing release of new tumor antigens has the potential to serve as a focus for combination therapy with immuno-oncology approaches , even in refractory patients . cdx-3379 has been evaluated in three phase 1 studies for the treatment of multiple solid tumors that express erbb3 and is currently being evaluated in a phase 2 study in combination with erbitux in erbitux-resistant , advanced head and neck squamous cell carcinoma . a phase 1a/1b study of cdx-3379 was conducted in solid tumors . the study included a single-agent , dose-escalation portion and combination expansion cohorts . the single-agent , dose-escalation portion of the study did not identify an mtd , and there were no dose limiting toxicities . four combination arms across multiple tumor types were added to evaluate cdx-3379 with several drugs 59 that target egfr , her2 or braf . they include combinations with erbitux® ( n=16 ) , tarceva® ( n=8 ) , zelboraf® ( n=9 ) and herceptin® ( n=10 ) . patients had advanced disease and were generally heavily pretreated . across the combination arms , the most frequent adverse events were diarrhea , nausea , rash and fatigue . objective responses were observed in the erbitux and zelboraf combination arms . in the erbitux arm , there was one durable complete response in a patient with head and neck cancer , who had been previously treated with erbitux and was refractory . in the zelboraf arm , there were two partial responses in patients who had lung cancer , one of whom had been previously treated with tafinlar® and was considered refractory , as well as an unconfirmed partial response in a patient with thyroid cancer . initial data were presented at the 2016 american society of clinical oncology ( asco ) annual meeting . in april 2018 , results from a window-of-opportunity study evaluating the effect of cdx-3379 on potential biomarkers in patients with head and neck squamous cell carcinoma ( hnscc ) were presented at the american association for cancer research ( aacr ) annual meeting . the study enrolled 12 patients with newly diagnosed hnscc who received two doses of cdx-3379 , at a two-week interval prior to tumor resection . cdx-3379 reduced phosphorylated erbb3 ( perbb3 ) levels in 83 % ( 10/12 ) of patient samples , with greater than or equal to 50 % decreases in 58 % of patients ( 7/12 ) , which met the primary study objective . stable disease was observed in 92 % ( 11/12 ) of patients prior to surgery , and a patient with hpv-negative disease experienced significant tumor shrinkage ( 92 % in primary tumor ; 26 % in metastatic lesion ) . cdx-3379 was well-tolerated , and no treatment-related adverse events were observed . preclinical data from the combination of cdx-3379 and erbitux in xenograft models of head and neck squamous cell carcinoma were also presented at the aacr annual meeting in april 2018. combining cdx-3379 and erbitux inhibited tumor growth more potently than erbitux alone . mechanistic studies demonstrated a reduction of pd-l1 expression from the combination . we have initiated an open-label phase 2 study in combination with erbitux in approximately 30 patients with human papillomavirus ( hpv ) negative , erbitux-resistant , advanced head and neck squamous cell carcinoma who have previously been treated with an anti-pd1 checkpoint inhibitor , a population with limited options and a particularly poor prognosis . we opened the study to enrollment in november 2017. the study employs a simon two-stage design with an interim futility analysis following enrollment of the first 13 patients . according to the study 's two-stage design , if at least one patient achieves an objective response in the first stage , enrollment may progress to the second stage . enrollment to the first stage of the phase 2 study ( n=13 ) is complete . while a confirmed complete response has been documented , celldex will conduct a comprehensive review , including the full data set , before making decisions on future development , as patients are still undergoing treatment and are eligible for evaluation . the primary objective of the study is objective response rate .
| we expect personnel expenses to decrease over the next twelve months due to our restructuring in april 2018. laboratory supplies expenses include laboratory materials and supplies , services , and other related expenses incurred in the development of our technology . the $ 0.3 million decrease in laboratory supply expenses for the year ended december 31 , 2018 , as compared to the year ended december 31 , 2017 , was primarily due to lower laboratory materials and supplies purchases . we expect laboratory supplies expenses to remain relatively consistent over the next twelve months , although there may be fluctuations on a quarterly basis . facility expenses include depreciation , amortization , utilities , rent , maintenance and other related expenses incurred at our facilities . the $ 1.1 million decrease in facility expenses for the year ended december 31 , 2018 , as compared to the year ended december 31 , 2017 , was primarily due to lower depreciation expense . we expect facility expenses to remain relatively consistent over the next twelve months , although there may be fluctuations on a quarterly basis . license fee expenses include annual license maintenance fees and milestone payments due upon the achievement of certain development , regulatory and or commercial milestones . license fee expense for the year ended december 31 , 2018 was consistent with the year ended december 31 , 2017. we expect license fee expense to remain relatively consistent over the next twelve months , although there may be fluctuations on a quarterly basis . product development expenses include clinical investigator site fees , external trial monitoring costs , data accumulation costs , contracted research and outside clinical drug product manufacturing . the $ 18.2 million decrease in product development expenses for the year ended december 31 , 2018 , as compared to the year ended december 31 , 2017 , was primarily due to a decrease in clinical trial expenses of $ 8.7 million and a decrease in contract manufacturing expenses of $ 7.2 million . the amount of product development expenses incurred
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the table below reconciles the gaap financial measures to the non-gaap financial measures for the fiscal years ended january 31 , 2015 , february 1 , 2014 and february 2 , 2013. replace_table_token_6_th ( 1 ) excluded charges for fiscal 2014 included $ 45.0 million in pre-tax charges related to asset impairment , $ 12.7 million in pre-tax charges related to certain corporate governance matters and ceo transition costs , $ 8.4 million in pre-tax charges related to the restructuring of the gilly hicks brand , $ 6.5 million in pre-tax charges related to the company 's profit improvement initiative and $ 5.6 million in pre-tax charges related to lease terminations and store closures . excluded charges for fiscal 2013 included $ 81.5 million in pre-tax charges related to the restructuring of the gilly hicks brand , $ 46.7 million in pre-tax charges related to asset impairment and $ 13.8 million in pre-tax charges related to the company 's profit improvement initiative . excluded charges for fiscal 2012 include $ 7.4 million in pre-tax charges related to asset impairments . ( 2 ) adjusted non-gaap net income per diluted share is based on diluted weighted-average shares outstanding of 72.9 million , 78.7 million and 83.2 million for fiscal 2014 , fiscal 2013 and fiscal 2012 , respectively . as of january 31 , 2015 , the company had $ 520.7 million in cash and equivalents , and $ 299.3 million in gross borrowings outstanding under its term loan facility . net cash provided by operating activities , the company 's primary source of liquidity , was $ 312.5 million for fiscal 2014 . the company used cash of $ 174.6 million for capital expenditures , $ 285.0 million to repurchase approximately 7.3 million shares of a & f 's common stock and $ 57.4 million to pay dividends during fiscal 2014 . in addition , the company had net proceeds from borrowings of $ 161.3 million during fiscal 2014 . the following data represents the amounts shown in the company 's consolidated statements of operations and comprehensive ( loss ) income for the last three fiscal years , expressed as a percentage of net sales : replace_table_token_7_th 24 financial summary the following summarized financial and statistical data compare fiscal 2014 , fiscal 2013 and fiscal 2012 : replace_table_token_8_th * totals may not foot due to rounding . * * net sales reflects the activity of stores open during the period and direct-to-consumer sales . * * * comparable store sales is defined as year-over-year sales for a store that has been open as the same brand at least one year and its square footage has not been expanded or reduced by more than 20 % within the past year and prior year 's net sales are converted at the current year 's exchange rate to remove the impact of currency fluctuation . direct-to-consumer comparable sales is defined as year-over-year sales with prior year 's net sales converted at the current year 's exchange rate to remove the impact of currency fluctuation . comparable sales include comparable direct-to-consumer sales . fiscal 2012 included a fifty-third week and , therefore , fiscal 2013 comparable sales are compared to the fifty-two week period ended february 2 , 2013 . 25 current trends and outlook 2014 was a year of significant transition for abercrombie & fitch . our board of directors was reconstituted , with new members bringing significant retail and other relevant experience . we undertook a significant change to a brand-driven organization , and recruited two brand presidents with significant retail experience to lead that transformation . our now former ceo , michael jeffries , departed at the end of the year and we are moving forward with a selection process for a new ceo . as we move into 2015 , we continue to evolve our business and respond to major changes and challenges in the macroeconomic and consumer environment . while our efforts may take some time to show meaningful results , we are confident that we are taking the right steps to enable our brands to deliver their full potential . our strategic priorities for fiscal 2015 include : improving comparable store sales trends continuing to invest in dtc and omnichannel capabilities ongoing process improvement and cost management pursuing additional opportunities to expand our brand reach , and ensuring we are properly organized for the next phase of growth and increase accountability to the bottom line we believe that the aggregate effect of these changes will enable us to improve our performance as we go forward . in what remains a very difficult consumer and competitive environment we expect the first half of fiscal 2015 to be challenging . foreign-currency exchange rates are expected to be a significant headwind to our results for fiscal 2015. we expect a negative impact from reduced sales of heavy logo merchandise to modestly abate in the first half of the year , and then neutralize in the second half of the year . we expect gross margin rate to be flat to slightly up . with regard to operating expense , we expect the benefit from foreign exchange rates and expected savings from our profit improvement initiative to be offset by the restoration of normal incentive compensation accruals and increased investment in dtc and omnichannel . excluded from our operating expense outlook are potential impairment and store closing charges and other potential business transformation and restructuring charges . in addition , we are projecting a full year weighted average share count of approximately 70 million shares , excluding the effect of potential share buybacks . we plan to open 15 full-price stores in fiscal 2015 in the key growth markets of china , japan and the middle east , and four full price stores in north america . we also plan to open 11 new outlet stores in the u.s. in addition , the company anticipates closing approximately 60 stores in the u.s. during the fiscal year through natural lease expirations . story_separator_special_tag with regard to capital allocation , we are targeting fiscal 2015 capital expenditures of approximately $ 150 million , which are prioritized towards new stores and store updates as well as dtc and it investments to support our growth initiatives . 26 key business indicators the following measurements are among the key business indicators reviewed by various members of management to gauge the company 's results : comparable store sales , defined as year-over-year sales for a store that has been open as the same brand at least one year and its square footage has not been expanded or reduced by more than 20 % within the past year , and with prior year 's net sales converted at the current year 's exchange rate to remove the impact of currency fluctuation ; comparable direct-to-consumer sales , defined as year-over-year sales with prior year 's net sales converted at the current year 's exchange rate to remove the impact of currency fluctuation ; comparable sales , defined as comparable store sales combined with comparable direct-to-consumer sales ; u.s. and international store performance ; store productivity ; gross margin ; selling margin , defined as sales price less original cost , by brand and by product category ; stores and distribution expense as a percentage of net sales ; marketing , general and administrative expense as a percentage of net sales ; operating income and operating income as a percentage of net sales ; net income ; inventory per gross square foot and inventory to sales ratio ; cash flow and liquidity determined by the company 's working capital and free cash flow ; store metrics such as sales per gross square foot , sales per selling square foot , average unit retail , average number of transactions per store , average units per transaction , average transaction values , and store contribution ( defined as store sales less direct costs of operating the store ) ; and , return on invested capital and return on equity . while not all of these metrics are disclosed publicly by the company due to the proprietary nature of the information , the company publicly discloses and discusses many of these metrics as part of its “ financial summary ” and in several sections within this management 's discussion and analysis of financial condition and results of operations . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > for fiscal 2014 compared to $ 469.1 million for fiscal 2013 , a decrease of $ 26.7 million . the decrease in marketing , general and administrative expense was driven primarily by a decrease in compensation expense , partially offset by an increase in marketing expenses . restructuring charges charges associated with the restructuring of the gilly hicks brand were $ 8.4 million for fiscal 2014 , of which $ 6.0 million related to lease terminations and $ 2.1 million related to asset impairment . charges associated with the restructuring of the gilly hicks brand were $ 81.5 million for fiscal 2013 , of which $ 42.7 million related to lease terminations and $ 37.9 million related to asset impairment . asset impairment the company incurred non-cash asset impairment charges of $ 45.0 million for fiscal 2014 related to 51 stores whose asset carrying values were determined to not be recoverable and exceeded fair value . store-related asset impairment charges for fiscal 2014 primarily related to the company 's abercrombie & fitch flagship store locations in tokyo , japan and seoul , korea , as well as nine hollister stores and nine abercrombie kids stores . additionally , in connection with the company 's plan to sell the corporate aircraft , the company incurred charges of approximately $ 11.3 million to record the expected loss on the disposal of the asset . for fiscal 2013 , the company incurred non-cash asset impairment charges of $ 46.7 million primarily related to 97 stores whose asset carrying values were determined to not be recoverable and exceeded fair value . 28 other operating income , net other operating income , net was $ 15.2 million for fiscal 2014 compared to other operating income , net of $ 23.1 million for fiscal 2013 . other operating income , net included income of $ 10.2 million related to insurance recoveries and $ 5.8 million related to gift card breakage , partially offset by losses of $ 2.0 million related to foreign currency transactions for fiscal 2014 , compared to income of $ 9.0 million related to insurance recoveries , income of $ 8.8 million related to gift card breakage and gains of $ 2.9 million related to foreign currency transactions for fiscal 2013 . operating income operating income was $ 113.5 million for fiscal 2014 compared to operating income of $ 80.8 million for fiscal 2013 . adjusted non-gaap operating income was $ 191.7 million for fiscal 2014 compared to adjusted non-gaap operating income of $ 222.9 million for fiscal 2013 , excluding pre-tax charges for gilly hicks restructuring , asset impairment , store closures , lease terminations , ceo transition costs , corporate governance matters , and the profit improvement initiative for fiscal 2014 and fiscal 2013 of $ 78.2 million and $ 142.1 million , respectively . the decrease in adjusted non-gaap operating income excluding the specified charges was primarily driven by the deleveraging effect of negative comparable store sales , both u.s. and international , and investment in direct-to-consumer operations partially offset by expense reductions primarily related to the company 's profit improvement initiative . u.s. stores operating income was $ 261.4 million for fiscal 2014 compared to $ 194.6 million for fiscal 2013 .
| the increase in direct-to-consumer net sales was primarily due to an 11 % increase in comparable international direct-to-consumer sales and a 6 % increase in comparable u.s. direct-to-consumer sales , which together equated into an 8 % increase in direct-to-consumer net sales , partially offset by the adverse effects of changes in foreign currency exchange rates of approximately $ 9.2 million . the direct-to-consumer business , including shipping and handling revenue , accounted for 22 % of total net sales in fiscal 2014 compared to 19 % in fiscal 2013 . 27 for fiscal 2014 , comparable sales by brand , including direct-to-consumer sales , decreased 4 % for abercrombie & fitch , decreased 7 % for abercrombie kids , and decreased 10 % for hollister . gross profit gross profit was $ 2.314 billion for fiscal 2014 compared to $ 2.575 billion for fiscal 2013 . the gross profit rate ( gross profit divided by net sales ) for fiscal 2014 was 61.8 % , down 80 basis points from the fiscal 2013 rate of 62.6 % . the decrease in the gross profit rate was primarily driven by increased promotional activity , including shipping promotions in the direct-to-consumer business , partially offset by lower average unit cost . stores and distribution expense stores and distribution expense was $ 1.703 billion for fiscal 2014 compared to $ 1.908 billion for fiscal 2013 . stores and distribution expense included $ 8.3 million of charges for fiscal 2014 and $ 1.1 million of charges for fiscal 2013 related to lease terminations , store closures and the company 's profit improvement initiative . excluding these charges , the stores and distribution expense rate was 45.3 % of net sales for fiscal 2014 , down 100 basis points from 46.3 % of net sales for fiscal 2013 . the decrease in stores and distribution expense as a percent of net sales was driven primarily by savings from the company 's profit improvement initiative , largely in store payroll and other controllable store expense , partially offset
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as a result , we will be reducing our average daily departures from cleveland by approximately 60 % . we expect to be able to keep almost all mainline departures ( reducing only one of our 26 peak day mainline departures ) , but will need to reduce regional departures from cleveland by over 70 % . we will make these reductions in roughly one-third increments in each of early april , may and june 2014. when the schedule reductions are fully implemented in june , we plan to offer 72 peak-day flights from cleveland , and serve 20 destinations from cleveland on a non-stop basis . we currently expect to reduce up to 470 airport operations and catering positions in cleveland . those reductions will likely begin in june . the company expects to record a special charge in 2014 related to the reduction in force and other contractual commitments at cleveland . the company is not currently able to estimate the amount of these charges or the time period in which they will be recorded , but such amounts could be significant . fuel . the company 's average aircraft fuel price per gallon including related taxes was $ 3.13 in 2013 as compared to $ 3.27 in 2012. if fuel prices rise significantly from their current levels , we may be unable to raise fares or other fees sufficiently to fully offset our increased costs . in addition , high fuel prices may impair our ability to achieve profitability . based on projected fuel consumption in 2014 , a one dollar change in the price of a barrel of crude oil would change the company 's annual fuel expense by approximately $ 94 million . to protect against increases in the prices of aircraft fuel , the company routinely hedges a portion of its future fuel requirements . 32 labor . as of december 31 , 2013 , united had approximately 80 % of employees represented by unions . during 2013 , the company accepted an integrated seniority list for its pilots from the air line pilots association , international . the company also announced that the fleet service , passenger service and storekeeper work groups at its united , cmi and mileageplus subsidiaries ratified new joint labor agreements . we are in the process of negotiating amended collective bargaining agreements with our remaining employee groups without joint collective bargaining agreements , including our technicians , flight attendants and dispatchers . the company can not predict the outcome of negotiations with its unionized employee groups , although significant increases in the pay and benefits resulting from new collective bargaining agreements would have a material financial impact on the company . casm . in 2014 , the company expects casm , excluding fuel , third-party business expense , profit sharing and special charges to increase 1 % to 2 % year-over-year . the company has begun a project to reduce its annual costs by $ 2 billion and generate an incremental $ 700 million in additional ancillary revenue by the end of 2017. the savings are comprised of $ 1 billion in annual fuel savings and $ 1 billion of non-fuel savings . story_separator_special_tag style= '' font-family : times new roman '' > ( a ) see part ii , item 6 of this report for the definition of these statistics . consolidated passenger revenue in 2013 increased $ 539 million , or 1.7 % , as compared to 2012. this increase was primarily due to an increase in consolidated yield of 1.8 % and an increase in average fare per passenger of 2.6 % , offset in part by a decline in capacity of 1.4 % and a reduction in traffic of 0.2 % as compared to the year-ago period . consolidated passenger revenue was also impacted by factors including additional competitive capacity in china and the japanese yen weakening against the u.s. dollar , resulting in lower pacific yields and a revenue management demand forecast which underestimated the amount of close-in booking demand resulting in a lower-than-expected yield mix . cargo revenue decreased by $ 136 million , or 13.4 % , in 2013 as compared to 2012 due to lower volumes on freight primarily in the domestic and atlantic regions offset slightly by an increase in mail revenue for the period . both freight volume and yield continued to decrease in 2013 compared to 2012 due primarily to the continuation of declining demand for shipments of freight . other operating revenue increased $ 724 million , or 20.4 % , in 2013 as compared to 2012 , which was primarily due to the sale of aircraft fuel of approximately $ 400 million to a third party . other operating revenue also increased due to additional revenue from non-airline partners under our mileageplus loyalty program , passenger ticket change fees and sales of airport lounge access . 34 operating expense the table below includes data related to the company 's operating expense for the year ended december 31 ( in millions , except percentage changes ) : replace_table_token_9_th the significant decrease in aircraft fuel expense was primarily attributable to decreased fuel prices , a 1.4 % reduction in capacity and gains ( losses ) from fuel hedging activity in both years , as shown in the table below : replace_table_token_10_th ( a ) includes ineffectiveness gains ( losses ) on cash-settled hedges and gains ( losses ) on cash-settled hedges that were not designated for hedge accounting . these amounts are recorded in nonoperating income ( expense ) : miscellaneous , net . ( b ) this figure does not include non-cash mark-to-market ( ncmtm ) gains , which the company records in nonoperating income ( expense ) : miscellaneous , net . ncmtm gains were $ 45 million and $ 38 million in 2013 and 2012 , respectively . story_separator_special_tag salaries and related costs increased $ 680 million , or 8.6 % , in 2013 as compared to 2012. the increase was due to higher pay rates driven by new collective bargaining agreements , profit sharing and other incentive programs , as well as increased pension and retirement plan costs . for 2014 , pensions and other postretirement benefits expense is expected to decrease due to significant plan changes , but will be offset by higher wage rates from new collective bargaining agreements . landing fees and other rent increased $ 161 million , or 8.3 % , in 2013 as compared to 2012 primarily due to a transition from paying regional carriers for landing fees to paying airports directly . landing fees paid directly to airports are charged to landing fees and other rent while payments to regional carriers are recorded to regional 35 capacity purchase . as a result of this change , there has been a significant shift of expense out of regional capacity purchase into landing fees and other rent in 2013. other rent also increased as a result of the increase in rent at newark liberty pursuant to an amendment to united 's terminal c lease signed in early 2013 that extended the term of the terminal c lease with respect to concourses c-1 and c-2 at newark liberty until 2033. aircraft maintenance materials and outside repairs increased $ 61 million , or 3.5 % , in 2013 as compared to 2012 primarily due to increased volume and scope of airframe heavy checks , mainly on the boeing 747 and boeing 757 fleet types , partially offset by a reduction in engine maintenance volumes driven mainly by the timing of overhauls . depreciation and amortization increased $ 167 million , or 11.0 % , in 2013 as compared to 2012 due to additions in owned property and equipment in the current year , specifically related to new aircraft and improvements at airport facilities , as well as accelerated depreciation of $ 89 million on 30 boeing 757-200 aircraft in process of being sold to a third party . other operating expenses increased $ 514 million , or 11.0 % , in 2013 as compared to 2012 due to the cost of aircraft fuel sold to a third party and an increase in other personnel-related expenses . the table below presents integration-related costs and special items incurred by the company during the years ended december 31 ( in millions ) : replace_table_token_11_th see note 17 to the financial statements included in part ii , item 8 of this report for additional information . nonoperating income ( expense ) the following table illustrates the year-over-year dollar and percentage changes in the company 's nonoperating income ( expense ) ( in millions except percentage changes ) : replace_table_token_12_th the decrease in interest expense of $ 52 million , or 6.2 % , in 2013 as compared to 2012 was primarily due to lower average debt principal outstanding for a majority of the year . 36 in 2013 , miscellaneous , net included a gain of $ 84 million from fuel hedge derivatives as compared to a gain of $ 37 million in 2012. united 's nonoperating expense also included a net gain of $ 70 million associated with marking to market the fair value of derivative assets and liabilities related to agreements that provide for united 's convertible debt to be settled with ual common stock as compared to a net gain of $ 42 million in 2012. this net gain and related derivatives are reflected only in the united stand-alone financial statements as they are eliminated at the consolidated level . see note 9 to the financial statements included in part ii , item 8 of this report for additional information . 2012 compared to 2011 operating revenue the table below illustrates the year-over-year percentage change in the company 's operating revenues for the years ended december 31 ( in millions , except percentage changes ) : replace_table_token_13_th the table below presents the company 's selected passenger revenue and selected operating data based on geographic region ( regional flights consist primarily of domestic routes ) : replace_table_token_14_th ( a ) see part ii , item 6 of this report for the definition of these statistics . 37 consolidated passenger revenue in 2012 increased approximately $ 72 million , or 0.2 % , as compared to 2011. this increase was due to an increase of 1.2 % in both average fare per passenger and yield , over the same period as a result of improved pricing primarily from industry capacity discipline , offset by a 1.0 % decline in passengers . the reduced traffic from both business and leisure passengers in 2012 was offset by higher fares , which drove improvements in both average fare per passenger and yield . cargo revenue decreased by $ 149 million , or 12.8 % , in 2012 as compared to 2011 due to excess industry capacity and a weaker demand environment . both cargo volume and yield declined in 2012 compared to 2011. freight revenue in 2012 decreased 13.4 % compared to 2011 due to lower volume , fuel surcharges and processing fees . mail revenue decreased 8.1 % in 2012 as compared to 2011 primarily due to lower volume . the company recorded a special adjustment in 2011 to decrease frequent flyer deferred revenue and increase revenue by $ 107 million in connection with a modification to the consolidated amended and restated co-branded card marketing services agreement ( the co-brand agreement ) with chase bank usa , n.a . ( chase ) . see note 17 to the financial statements included in part ii , item 8 of this report for additional information .
| % ( 4.3 ) % 5.9 % 0.6 % 0.7 % 5.1 % 1.7 % average fare per passenger 4.0 % ( 3.7 ) % 4.4 % 0.8 % 3.2 % 2.8 % 2.6 % yield 1.7 % ( 3.7 ) % 5.1 % ( 0.2 ) % 1.3 % 3.1 % 1.8 % prasm 2.7 % ( 3.2 ) % 7.2 % 0.8 % 2.3 % 5.7 % 3.1 % average stage length 2.3 % 0.3 % ( 0.6 ) % 2.1 % 2.1 % % 1.2 % passengers ( 3.4 ) % ( 0.5 ) % 1.5 % ( 0.2 ) % ( 2.4 ) % 2.2 % ( 0.9 ) % rpms ( traffic ) ( 1.2 ) % ( 0.5 ) % 0.8 % 0.8 % ( 0.5 ) % 2.0 % ( 0.2 ) % asms ( capacity ) ( 2.1 ) % ( 1.1 ) % ( 1.2 ) % ( 0.2 ) % ( 1.5 ) % ( 0.6 ) % ( 1.4 ) % passenger load factor ( points ) 0.8 0.4 1.6 0.8 0.9 2.1 1.0 < font size= '' 2 ''
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on july 18 , 2019 , at the special meeting of the company 's stockholders , the company 's stockholders approved an amendment to the company 's amended and restated certificate of incorporation to extend the date by which the company has to consummate a business combination for an additional four months , from august 1 , 2019 to december 1 , 2020. the affirmative vote of at least a majority of the outstanding shares of common stock was required to approve the extension . the charter amendment was approved with 11,297,309 votes cast in favor of the proposal , 886,001 vote cast against the proposal and no abstentions . the purpose of the extension was to allow the company more time to complete a business combination . in connection with the special meeting and the resulting charter amendment , 5,754,273 of the shares of the company 's common stock were redeemed from funds available in the trust account , for a redemption amount of approximately $ 10.48 per share . on july 25 , 2019 , we issued a press release announcing the execution of a business combination agreement ( the “ agreement ” ) among the company , stratos management systems , inc. , a delaware corporation ( “ computex ” ) , tango merger sub corp. , a delaware corporation “ merger sub ” ) and stratos management systems holdings , llc , a delaware limited liability company , pursuant to which the company agreed to acquire computex in a transaction ( the “ transaction ” ) that will result in computex becoming a wholly owned subsidiary of the company . computex is an industry-leading it service provider of choice focused on helping customers transform their businesses through technology . computex offers a comprehensive portfolio of managed it services to a wide range of clients including unified communications-as-a-service ( “ ucaas ” ) , directory and messaging services , enterprise networking , cybersecurity , collaboration , data center , integration , storage , backup , virtualization , and converged infrastructure . on december 20 , 2019 , we entered into amendment no . 1 to the agreement ( the “ amendment ” ) . the amendment amends the agreement to , among other things , ( i ) reduce the aggregate merger consideration payable from $ 65 million to $ 60 million , ( ii ) change the allocation of the merger consideration so that it is payable as follows : ( a ) an amount in cash equal to two-thirds of the cash raised by pensare in the pipe transaction less $ 5 million , subject to a cap of $ 20 million , ( b ) $ 5 million of any securities , other than shares of pensare 's common stock , sold in the pipe transaction ( the “ pipe securities ” ) , and ( c ) the balance of the merger consideration in shares of the company 's common stock , ( iii ) provide for the optional redemption of some or all of the pipe securities following the closing of the merger , to the extent that pensare raises additional funds in private placements following the of the merger , ( iv ) adjust a condition to the closing of the merger to require that pensare shall have at least an aggregate of $ 35 million of cash held either in or outside of the trust account at the effective time of the merger ( reduced from $ 150 million ) ; and ( v ) adjust the date by which the closing of the merger must occur from december 31 , 2019 to april 1 , 2020 . 25 on november 26 , 2019 , at the special meeting of the company 's stockholders , the company 's stockholders approved an amendment to the company 's amended and restated certificate of incorporation to extend the date by which the company has to consummate a business combination for an additional four months , from december 1 , 2019 to april 1 , 2020. the affirmative vote of at least a majority of the outstanding shares of common stock was required to approve the charter amendment . the charter amendment was approved with 7,731,372 votes cast in favor of the proposal , one vote cast against the proposal and no abstentions . the purpose of the extension was to allow the company more time to complete a business combination . in connection with the special meeting and the resulting charter amendment , 135,288 of the shares of the company 's common stock were redeemed from funds available in the trust account , for a redemption amount of approximately $ 10.56 per share . in connection with the proposed transaction , the company filed a definitive proxy statement with the sec relating to the transaction on february 13 , 2020. the definitive proxy statement was mailed to the company 's stockholders as of a record date established for voting on the transaction . on february 27 , 2020 , the company held a special meeting of stockholders in connection with the proposed business combination of the company and computex . at the special meeting , the company 's stockholders approved the business combination proposal , the certificate proposal and the incentive plan proposal , in each case as defined and described in greater detail in the definitive proxy statement . approval of the business combination proposal required the affirmative vote of a majority of the outstanding shares of the company 's common stock present and entitled to vote at the special meeting . approval of the certificate proposal required the affirmative vote of a majority of the outstanding shares of the company 's common stock entitled to vote at the special meeting . approval of the incentive plan proposal required the affirmative vote of the holders of a majority of the shares of the company 's common stock that were voted thereon at the special meeting . each of the proposals were approved with 6,030,888 votes cast in favor of the proposals , two votes cast against the proposals and no abstentions . story_separator_special_tag 91,637 shares of the company 's common stock were redeemed in connection with the special meeting . on april 3 , 2020 , the company , merger sub , holdings , and computex entered into amendment no . 2 , which provided for , among other things : ( i ) changing the aggregate merger consideration payable to $ 65 million ( subject to adjustment based on computex 's working capital and net debt at closing ) , consisting of $ 20 million of units of the company , shares of pensare 's common stock , and the assumption of computex 's indebtedness ; ( ii ) extending the date by which the combined company must file a resale registration statement from five days to fifteen business days following the closing of the transaction ; ( iii ) the right of holdings to nominate one , two or three members of the board of directors of the combined company , provided that holdings owns at least 10 % , 30 % or 50 % , respectively , of the stock consideration and converted shares , collectively , issuable to holdings in connection with the closing of the transaction ; ( iv ) adjusting certain terms and definitions relating to the consideration issued in the transaction to , among other things , provide for the units to be issued by the company in the private placement ; ( v ) the removal of the previously contemplated lock-up agreement by and among the company , holdings and navigation capital partners ii , l.p. ; and ( vi ) the acknowledgement by the company and merger sub that certain actions taken by computex prior to the effective time of the transaction related to the coronavirus disease 2019 shall not constitute a company material adverse effect under the agreement . also on april 3 , 2020 , the company entered into the securities purchase agreement pursuant to which certain investors agreed to purchase , and the company agreed to sell to the investors , in the private placement , units of securities of the company , each unit consisting of ( i ) $ 1,000 in principal amount of the company 's series a convertible debentures and ( ii ) a warrant to purchase 100 shares of the company 's common stock at an exercise price of $ 0.01 per whole share . the initial closing of the sale of units pursuant to the securities purchase agreement was contingent upon , among other customary closing conditions , the substantially concurrent consummation of the transaction , and occurred on april 7 , 2020. on april 7 , 2020 , we consummated the transaction pursuant to the agreement pursuant to which computex merged with and into merger sub ( the “ merger ” ) , with merger sub surviving the merger as a wholly owned subsidiary of the company . in connection with the closing , the company changed its name from “ pensare acquisition corp. ” to “ american virtual cloud technologies , inc. ” and merger sub changed its name from “ tango merger sub corp. ” to “ stratos management systems , inc. ” as a result of the consummation of the merger , the company ceased to be a shell company , as defined in rule 12b-2 of the exchange act , as of the closing date . story_separator_special_tag of the remaining proceeds of the initial public offering , including funds held in the trust account , to acquire a target business and to pay our expenses related thereto . to the extent that our capital stock or debt is used , in whole or in part , as consideration to complete our business combination , the remaining proceeds held in the trust account will be used as working capital to finance the operation of the target business or businesses , make other acquisitions and pursue our growth strategies . we intend to use the funds held outside the trust account primarily to complete a business combination . in order to finance transaction costs in connection with an intended business combination , the sponsor , or certain of our officers and directors may , but are not obligated to , loan us funds as may be required . if we complete a business combination , we will repay such loaned amounts out of the proceeds of the trust account released to us . in the event that a business combination does not close , we may use a portion of the working capital held outside the trust account to repay such loaned amounts but in no event will proceeds from our trust account be used to repay such amounts . 27 we believe we have raised sufficient additional funds , when taken together with funds that may be made available to us by our sponsor , officers , directors and their affiliates through loans , to meet the expenditures required for operating our business . however , if our estimate of the costs of consummating a business combination are less than the actual amounts necessary to do so , we may have insufficient funds available to complete a business combination . moreover , we may need to obtain additional financing either to complete our business combination or because we become obligated to redeem a significant number of our common stock upon completion of our business combination , in which case we may issue additional securities or incur debt in connection with such business combination . subject to compliance with applicable securities laws , we would only complete such financing simultaneously with the completion of our business combination . if we are unable to complete our business combination because we do not have sufficient funds available to us , we will be forced to cease operations and liquidate the trust account . in addition , following our business combination , if cash on hand is insufficient , we may need to obtain additional financing in order to meet our obligations . for the year ended march 31 , 2020 , the sponsor advanced the company $ 3,204,986 for working capital purposes .
| on august 1 , 2017 , we consummated the initial public offering of 27,000,000 units , at a price of $ 10.00 per unit , generating gross proceeds of $ 270,000,000. simultaneously with the closing of the initial public offering , we consummated the sale of 9,500,000 private placement warrants at a price of $ 1.00 per private placement warrant , generating total proceeds of $ 9,500,000. on august 4 , 2017 , the underwriters exercised their over-allotment option in full resulting in an additional 4,050,000 units being issued for $ 40,500,000 , less the underwriter 's discount of $ 1,012,500 , netting $ 39,487,500. in connection with the underwriters ' exercise of their over-allotment option in full , the company consummated the sale of an additional 1,012,500 private placement warrants at $ 1.00 per private placement warrant , generating total gross proceeds of $ 1,012,500. in order to fund working capital deficiencies or finance transaction costs in connection with an intended business combination , the sponsor , our officers and our directors or their affiliates , may , but are not obligated to , loan us funds , from time to time or at any time , in whatever amount they deem reasonable in their sole discretion . each loan is evidenced by a promissory note . the notes would be paid upon consummation of a business combination , without interest , or , at the lender 's discretion , up to $ 1,500,000 of such loans may be converted into warrants at a price of $ 1.00 per warrant . such warrants would be identical to the private placement warrants . following the initial public offering and the exercise of the over-allotment option , a total of $ 310,500,000 was placed in the trust account and we had $ 2,327,118 of cash held outside the trust account , after payment of all costs related to the initial public offering and the exercise of the over-allotment option , and available for working capital purposes . we incurred $ 8,646,303 in initial public offering related costs , including $ 7,762,500 of underwriting fees and $ 883,803 of other costs and expenses . as of march 31 , 2020 , we had cash and marketable securities held in the trust account of $ 813 and $ 1,868,304 in a trust escrow to be used for a
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we also experienced an increase in account delinquencies from dealer customers challenged by the covid-19 pandemic that failed to pay us on time or at all . further , because of the significant financial challenges that dealerships have faced and continue to face as a result of the covid-19 pandemic , we took measures to help our paying dealers maintain their business health during the covid-19 pandemic . we proactively reduced the subscription fees for paying dealers by at least 50 % on all marketplace subscriptions for the april and may 2020 service periods , as well as provided a fee reduction on all june 2020 marketplace subscriptions of 20 % for paying dealers in the united states and canada and 50 % for paying dealers in the united kingdom . these fee reductions resulted in a modification to contracts with initial contractual periods greater than one month . for any contract modified , we calculated the remaining transaction price and allocated the consideration over the remaining performance obligations . these fee reductions materially and adversely impacted revenue for the year ended december 31 , 2020 , resulting in an approximately $ 50 million decrease in marketplace subscription revenue . during the december 2020 and february 2021 service periods , we also suspended charging subscription fees for subscribing dealers in the united kingdom . these fee reductions did not materially impact revenue for the year ended december 31 , 2020 and are not expected to materially impact revenue for the year ending december 31 , 2021. we continue to monitor and assess the effects of the covid-19 pandemic on our paying dealers and may in the future take additional measures to help our paying dealers maintain their business health during the covid-19 pandemic . these effects from the covid-19 pandemic on our revenue caused us to implement certain cost-savings measures across our business . for example , during the second quarter of 2020 , we initiated a cost-savings initiative that included a reduction in our workforce of approximately 13 % , restricted future hiring , and limited discretionary spend across our business , including by eliminating , reducing or pausing certain vendor relationships and ceasing certain international operations and expansion efforts . in particular , we ceased marketplace operations in germany , italy , and spain , and halted any new international expansion efforts , which we believe allows us to focus our financial and human capital resources on our more established international markets in canada and the united kingdom . we also reduced consumer marketing across both algorithmic traffic acquisition and brand spend during the year ended december 31 , 2020 in comparison to the year ended december 31 , 2019 in an effort to reduce expenses and as a result of suppressed dealer inventory and the resulting reduced demand for leads by dealers . in may 2020 , cancellations by paying dealers began to stabilize , which we believe resulted from the resumption of consumer activity as well as the fee reductions that we provided to our customers . in july 2020 , we returned to normal contractual billings in all markets until subscription fees were reduced again for the december 2020 and february 2021 service periods for paying dealers in the united kingdom . additionally , we increased our consumer marketing expenses as consumer activity increased and governments began to implement phased re-opening policies . we continue to monitor and assess the effects of the covid-19 pandemic on our commercial operations , including the future impact on our revenue . however , we can not at this time accurately predict what effects these conditions will ultimately have on our future revenue and operations . see the “ risk factors ” section of this annual report on form 10-k for further discussion of the impacts of the covid-19 pandemic on our business . key business metrics we regularly review a number of metrics , including the key metrics listed below , to evaluate our business , measure our performance , identify trends affecting our business , formulate financial projections , and make operating and strategic decisions . we believe it is important to evaluate these metrics for the united states and international segments . the 36 international segment derives revenues from marketplace subscriptions , advertising services , and other revenues from customers outside of the united states . international markets perform differently from the united states market due to a variety of factors , including our operating history in each market , our rate of investment , market size , market maturity , competition and other dynamics unique to each country . monthly unique users for each of our websites , we define a monthly unique user as an individual who has visited any such website within a calendar month , based on data as measured by google analytics . we calculate average monthly unique users as the sum of the monthly unique users of each of our websites in a given period , divided by the number of months in that period . we count a unique user the first time a computer or mobile device with a unique device identifier accesses any of our websites during a calendar month . if an individual accesses a website using a different device within a given month , the first access by each such device is counted as a separate unique user . if an individual uses multiple browsers on a single device and or clears their cookies and returns to our site within a calendar month , multiple users would be recorded . we view our average monthly unique users as a key indicator of the quality of our user experience , the effectiveness of our advertising and traffic acquisition , and the strength of our brand awareness . measuring unique users is important to us and we believe it provides useful information to our investors because our marketplace subscription revenue depends , in part , on our ability to provide dealers with connections to our users and exposure to our marketplace audience . story_separator_special_tag we define connections as interactions between consumers and dealers on our marketplace through phone calls , email , managed text and chat , and clicks to access the dealer 's website or map directions to the dealership . replace_table_token_2_th ( 1 ) includes users from the autolist website . monthly sessions we define monthly sessions as the number of distinct visits to our websites that take place each month within a given time frame , as measured and defined by google analytics . we calculate average monthly sessions as the sum of the monthly sessions in a given period , divided by the number of months in that period . a session is defined as beginning with the first page view from a computer or mobile device and ending at the earliest of when a user closes their browser window , after 30 minutes of inactivity , or each night at midnight ( i ) eastern time for our united states and canada websites , other than the autolist website , ( ii ) pacific time for the autolist website , ( iii ) greenwich mean time for our u.k. websites , and ( iv ) central european time ( or central european summer time when daylight savings is observed ) for our germany , italy , and spain websites , which ceased operations in the second quarter of 2020. a session can be made up of multiple page views and visitor actions , such as performing a search , visiting vehicle detail pages , and connecting with a dealer . we believe that measuring the volume of sessions in a time period , when considered in conjunction with the number of unique users in that time period , is an important indicator to us of consumer satisfaction and engagement with our marketplace , and we believe it provides useful information to our investors because the more satisfied and engaged consumers we have , the more valuable our service is to dealers . replace_table_token_3_th ( 1 ) includes sessions from the autolist website . 37 number of paying dealers we define a paying dealer as a dealer account with an active , paid marketplace subscription at the end of a defined period . the number of paying dealers we have is important to us and we believe it provides valuable information to investors because it is indicative of the value proposition of our marketplace products , as well as our sales and marketing success and opportunity , including our ability to retain paying dealers and develop new dealer relationships . replace_table_token_4_th ( 1 ) includes paying dealers from the autolist website . ( 2 ) in our quarterly report on form 10-q for the quarter ended june 30 , 2020 , filed with the sec on august 6 , 2020 , we announced that we had modified our method for calculating paying dealers to align our data with an enterprise system upgrade , or the internal system upgrade , and had replaced our average annual revenue per subscribing dealer key metric with quarterly average revenue per subscribing dealer , or qarsd . as a result of the internal system upgrade , and to provide consistency in our year-to-year comparisons , we have recast our paying dealer calculation as of december 31 , 2019 to reflect the updated calculation methodology . quarterly average revenue per subscribing dealer ( qarsd ) w e define qarsd , which is measured at the end of a fiscal quarter , as the marketplace subscription revenue during that trailing quarter divided by the average number of paying dealers in that marketplace during the quarter . we calculate the average number of paying dealers for a period by adding the number of paying dealers at the end of such period and the end of the prior period and dividing by two . this information is important to us , and we believe it provides useful information to investors , because we believe that our ability to grow qarsd is an indicator of the value proposition of our products and the return on investment , or roi , that our paying dealers realize from our products . in addition , increases in qarsd , which we believe reflect the value of exposure to our engaged audience in relation to subscription cost , are driven in part by our ability to grow the volume of connections to our users and the quality of those connections , which result in increased opportunity to upsell package levels and cross-sell additional products to our paying dealers . replace_table_token_5_th adjusted ebitda to provide investors with additional information regarding our financial results , we monitor and have presented within this annual report on form 10-k adjusted ebitda , which is a non‑gaap financial measure . this non‑gaap financial measure is not based on any standardized methodology prescribed by united states generally accepted accounting principles , or gaap , and is not necessarily comparable to similarly titled measures presented by other companies . we define adjusted ebitda as net income , adjusted to exclude : depreciation and amortization , stock‑based compensation expense , acquisition-related expenses , restructuring expenses , other income , net , and the provision for ( benefit from ) income taxes . we have presented adjusted ebitda within this annual report on form 10-k because it is a key measure used by our management and board of directors to understand and evaluate our operating performance , generate future operating plans , and make strategic decisions regarding the allocation of capital . in particular , we believe that the exclusion of certain items in calculating adjusted ebitda can produce a useful measure for period‑to‑period comparisons of our business . we use adjusted ebitda to evaluate our operating performance and trends and make planning decisions . we believe adjusted ebitda helps identify underlying trends in our business that could otherwise be masked by the effect of the expenses that we exclude .
| the decrease in marketplace subscription revenue was also attributable to a 9 % decrease in the number of united states and international paying dealers , to 30,631 as of december 31 , 2020 from 33,618 as of december 31 , 2019 as paying dealers cancelled their subscriptions with us ( including , in some cases , with our permission prior to the end of the applicable contract term and notice period ) primarily as a result of the impact of the covid-19 pandemic . advertising and other revenue increased $ 3.6 million in the year ended december 31 , 2020 compared to the year ended december 31 , 2019 and represented 12 % of total revenue for the year ended december 31 , 2020 and 11 % of total revenue for the year ended december 31 , 2019. the increase was due primarily to a $ 7.4 million increase in other revenue primarily due to revenue from partnerships with financing services companies . the increase in advertising and other revenue was offset by a $ 3.8 million decrease in advertising revenue as some advertisers cancelled or reduced their advertising with us ( including , in some cases , with our permission prior to the end of the applicable contract term ) primarily as a result of the impact of the covid-19 pandemic . revenue by segment replace_table_token_12_th 44 united states revenue de creased $ 35.2 million , or 6 % , in the year ended december 31 , 2020 compared to the year ended december 31 , 2019 . this de crease in united states revenue was attributable primarily t o the approximately $ 47 million impact of fee reductions that we provided to our paying dealers during the second quarter of 2020 in response to the covid-19 pandemic . these fee reductions resulted in reductions in the overall transaction price . the decrease in united states revenue was also attributable to a 9 % de crease in united states paying dealers as paying dealers cancelled their subscriptions with us ( including , in certain cases , with our permission prior to the end of
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while we believe the number of instances where a visit was missed completely is small , we can not predict whether this will have a material impact on our clinical results until the data from the trials are analyzed . if too many subjects drop-out or the protocol is no longer effective , we may have to restart the clinical trial entirely . 67 in july 2020 the bahamian government halted travel from the u.s. into the bahamas , which resulted in the temporary cessation of participation in the bahamas registry trial . while this travel restriction has now been lifted , participation in the registry trial remains lower than anticipated , due in part to pandemic-related effects on international travel . we expect that the covid-19 pandemic will continue to impact our business , results of operations , clinical development timelines and financial condition . at this time , there is significant uncertainty relating to the trajectory of the covid-19 pandemic and impact of related responses . the impact of covid-19 on our future results will largely depend on future developments , which are highly uncertain and can not be predicted with confidence , such as the ultimate geographic concentration and continued spread of the disease , the duration of the pandemic , travel restrictions to and social distancing within the united states and other countries , business closures or business disruptions , the continued impact on financial markets and the global economy , and the effectiveness of the global response to contain and treat the disease . components of our results of operations revenue we have generated revenue from three sources : ● grant awards . extramural grant award funding , which is non-dilutive , has been a core strategy for supporting our ongoing clinical research . since 2016 we have been directly awarded approximately $ 11.9 million in grants , with details of these awards provided under the heading “ grant awards ” below . ● the bahamas registry trial . participants in the bahamas registry trial pay us a fee to receive lomecel-b , imported by us into the bahamas , and administered at one of two private medical clinics in nassau . while lomecel-b is considered an investigational product in the bahamas , under the approval terms received from the national stem cell ethics committee , we are permitted to charge a fee for participation in the registry trial . the fee is recognized as revenue , and is used to pay for the costs associated with manufacturing and testing of lomecel-b , administration , shipping and importation fees , data collection and management , biological sample collection and sample processing for biomarkers and other data , and overall management of the registry , including personnel costs . lomecel-b is considered investigational treatment in the bahamas and not licensed for commercial sale . ● contract development and manufacturing services . from time to time , we enter into fee-for-service agreements with third parties for our product development and manufacturing capabilities . co st of revenues we record cost of revenues based on expenses directly related to revenue . for grants we record allocated expenses for research and development costs to a grant as a cost of revenues . for the clinical trial revenue directly related expenses for that program are allocated and accrued as incurred . these expenses are similar to those described under “ research and development expense ” below . selling and marketing expenses selling and marketing expenses consist primarily of royalty and license fees associated with our agreements with the um , as well as attending and sponsoring industry , investment , organization and medical conferences and events . research and development expenses research and development costs are charged to expense when incurred in accordance with financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) 730 research and development , asc 730 addresses the proper accounting and reporting for research and development costs . it identifies : 1. those activities that should be identified as research and development , 2. the elements of costs that should be identified with research and development activities , and the accounting for these costs , and 3. the financial statement disclosures related to them . research and development . research and development include costs such as clinical trial expenses , contracted research and license agreement fees with no alternative future use , supplies and materials , salaries , share-based compensation , employee benefits , property and equipment depreciation and allocation of various corporate costs . we accrue for costs incurred by external service providers , including cros and clinical investigators , based on estimates of service performed and costs incurred . these estimates include the level of services performed by the third parties , subject enrollment in clinical trials , administrative costs incurred by the third parties , and other indicators of the services completed . based on the timing of amounts invoiced by service providers , we may also record payments made to those providers as prepaid expenses that will be recognized as expense in future periods as the related services are rendered . 68 we currently do not carry any inventory for our product candidates , as we have yet to launch a product for commercial distribution . historically our operations have focused on conducting clinical trials , product research and development efforts , and improving and refining our manufacturing processes , and accordingly , manufactured clinical doses of product candidates were expensed as incurred , consistent with the accounting for all other research and development costs . once we begin commercial distribution , all newly manufactured approved products will be allocated either for use in commercial distribution , which will be carried as inventory and not expensed , or for research and development efforts , which will continue to be expensed as incurred . story_separator_special_tag we expect that our research and development expenses will increase in the future as we increase our headcount to support increased research and development activities relating to our clinical programs , as well as incur additional expenses related to our clinical trials . general and administrative expenses general and administrative expenses consist primarily of salaries and other related costs , including stock-based compensation , for personnel in our executive , finance , business development and administrative functions . general and administrative expenses also include public company related expenses ; legal fees relating to corporate matters ; insurance costs ; professional fees for accounting , auditing , tax and consulting services ; travel expenses ; and facility-related expenses , which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs . we capitalized certain legal , professional and other third-party fees that were directly associated with in-process equity financings as deferred offering costs until the applicable equity financing was consummated . after consummation of an equity financing , these costs will be recorded in shareholders ' equity as a reduction of proceeds generated as a result of the offering . we expect that our general and administrative expenses will increase in the future as we increase our headcount to support increased administrative activities relating to our becoming a public company . we also expect to incur additional expenses associated with being a public company , including costs of accounting , audit , legal , regulatory and tax-related services associated with maintaining compliance with nasdaq and sec requirements ; director and officer insurance costs ; and investor and public relations costs . other income and expenses interest income consists of interest earned on cash equivalents . we expect our interest income to increase due to the $ 27.1 million in net proceeds from our ipo . other income consists of funds earned that are not part of our normal operations . in past years they have been primarily a result of tax refunds received for social security taxes as part of a research and development tax credit program . income taxes as of december 31 , 2020 , and 2019 , we are treated as a partnership for federal and state income tax purposes . consequently , we pass our earnings and losses through to our members based on the terms of our operating agreement . accordingly , no provision for income taxes has been recorded for the years ended december 31 , 2020 and 2019. as we convert from an llc to a c corporation during , we may incur income taxes if we have earnings . at this time the company has not evaluated the that impact of any future profits . 69 story_separator_special_tag roman , times , serif ; font-size : 10pt '' > replace_table_token_4_th operating activities . we have incurred losses since inception . net cash used in operating activities for the year ended december 31 , 2020 was $ 2.4 million , consisting primarily of our net loss of $ 3.7 million as we incurred expenses associated with research activities for our lead product candidates and incurred general and administrative expenses . net cash used in operating activities for the year ended december 31 , 2019 was $ 2.4 million , consisting primarily of our net loss of $ 3.0 million as we incurred expenses associated with research activities for our lead product candidates and incurred general and administrative expenses . investing activities . net cash used in investing activities for the year ended december 31 , 2020 was $ 0.3 million consisting of purchases of property and equipment and capitalized intangible costs . net cash used in investing activities for the year ended december 31 , 2019 was $ 0.1 million consisting of purchases of property and equipment and capitalized intangible costs . financing activities . net cash provided by financing activities for the year ended december 31 , 2020 was $ 1.6 million consisting of : $ 1.1 million in net proceeds received from subscription of our series c membership units issued prior to our 2021 corporate conversion event and $ 0.5 million from loans provided by the sba . net cash provided by financing activities for the year ended december 31 , 2019 was $ 0.4 million consisting of proceeds received from subscription of our membership units issued prior to our corporate conversion event . liquidity and capital resources since our inception , we have incurred significant operating losses . we expect to incur significant expenses and operating losses as we advance the preclinical and clinical development of our programs . we expect that our sales , research and development and general and administrative costs will increase in connection with conducting additional preclinical studies and clinical trials for our current and future programs and product candidates , contracting with cros to support preclinical studies and clinical trials , expanding our intellectual property portfolio , and providing general and administrative support for our operations . as a result , we will need additional capital to fund our operations , which we may obtain from additional equity or debt financings , collaborations , licensing arrangements , or other sources . to date , we have financed our operations primarily through private equity financings , grant awards , and fees generated from the bahamas registry trial , and contract manufacturing services . since we were formed , we have raised approximately $ 56.1 million in gross proceeds from the issuance of equity . as of december 31 , 2020 , we had $ 0.8 million in cash and cash equivalents and working capital deficit of approximately $ 2.0 million . we have $ 0.5 million of indebtedness as of december 31 , 2020 from loans provided by the small business administration ( sba ) and the paycheck protection program ( ppp ) . on march 4 , 2021 , the $ 0.3 million due for the ppp loan was forgiven .
| contract manufacturing revenue for the year ended december 31 , 2020 was approximately $ 236,000 or 81 % lower when compared to the same period in 2019 , primarily due to covid-19 related decrease in travel , which restricted the business development and marketing of these services . related cost of revenues was approximately $ 3,803,000 and $ 3,885,000 for the year ended december 31 , 2020 and 2019 , respectively . cost of revenues for the year ended december 31 , 2020 was approximately $ 82,000 or 2 % lower when compared to the same period in 2019 , due to lower cost of revenues for grants incurred in 2020. this resulted in a gross profit of approximately $ 1,826,000 for the year ended december 31 , 2020 , an increase of approximately $ 72,000 or 4 % when compared with a gross profit of approximately $ 1,754,000 for the same period in 2019. general and administrative expense : general and administrative expenses for the year ended december 31 , 2020 decreased to approximately $ 2,731,000 , compared to $ 2,775,000 for the same period in 2019. the decrease of approximately $ 44,000 , or 2 % , was primarily related to lower compensation and professional expenses incurred during the current period . for 2020 , general and administrative expenses consisted primarily of rent , professional fees , insurance , and paid and accrued compensation costs . research and development expenses : research and development expenses for the year ended december 31 , 2020 , increased to approximately $ 2,674,000 , from approximately $ 1,792,000 for the same period in 2019. the increase of $ 882,000 , or 49 % , was primarily due to an increase in research and development expenses that were not reimbursable by grants . research and development expenses consisted primarily of the following items ( less those expenses allocated to the cost of revenues for the grants ) : replace_table_token_3_th 70 selling and marketing expenses : selling and marketing expenses for the year ended december 31 , 2020 increased to approximately $ 199,000 , compared to
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credit-related expenses increased $ 2.3 million after-tax primarily due to provisions for losses in 2015 compared to releases from the allowance for losses in 2014. the decrease in core earnings in 2015 compared to 2014 was offset in part by : ( 1 ) a $ 7.7 million after-tax increase in net effective spread resulting from net growth in outstanding business volume , excluding the effect of the october 1 , 2014 redemption of farmer mac 's investment in $ 78.5 million of high-yielding preferred stock , and ( 2 ) a $ 7.6 million after-tax decrease in preferred dividend expense resulting from the redemption of all outstanding shares of farmer mac ii llc preferred stock in first quarter 2015. the $ 1.9 million decrease in core earnings in 2014 compared to 2013 was primarily attributable to the effects of the capital restructuring initiative , which increased preferred dividend expense in 2014 by $ 6.3 million after-tax . core earnings for 2013 included a $ 2.0 million after-tax gain on the sale of an available-for-sale investment security on which farmer mac realized tax benefits of $ 1.1 million , as well as a $ 1.0 million after-tax gain from the repurchase of debt , neither of which recurred in 2014. also contributing to the decrease was a $ 1.9 million after-tax decrease in net effective spread resulting from the redemption of farmer mac 's investment in $ 78.5 million of high-yielding preferred stock . operating expenses increased $ 1.2 million after-tax in 2014 compared to 2013 due to increases in compensation expense and other costs related to corporate strategic initiatives . the decrease in core earnings was offset in part by the $ 11.4 million net economic benefit resulting from the cash management and liquidity initiative and a $ 1.8 million after-tax reduction in credit-related expenses due to releases from the allowance for losses in 2014. fair value changes on derivatives do not affect core earnings . for more information about the composition of core earnings , see `` —results of operations . '' net effective spread net effective spread was $ 119.4 million for 2015 compared to $ 113.7 million and $ 116.6 million , respectively , for 2014 and 2013. in percentage terms , net effective spread for 2015 was 0.87 percent , compared to 0.91 percent and 0.96 percent , respectively , for 2014 and 2013. for 2015 compared to 2014 , the contraction in net effective spread in percentage terms was attributable to the loss of $ 6.5 million in preferred dividend income ( 5 basis points ) from the october 2014 redemption of the high-yielding preferred stock previously held in farmer mac 's investment portfolio and a higher average balance in cash and cash equivalents intended to increase farmer mac 's liquidity position , partially offset by a shift towards products earning higher spreads . the year-over-year increase in dollars was primarily attributable to growth in outstanding business volume . for 2014 compared to 2013 , the contraction in net effective spread was primarily attributable to the loss of $ 2.1 million in preferred dividend income resulting from the october 2014 redemption of the high-yielding preferred stock previously held in farmer mac 's investment portfolio ( 2 basis points ) . also contributing to the decrease was a $ 2.2 million decrease in interest income received from non-accruing farm & ranch loans . 66 business volume farmer mac added $ 3.2 billion of new business volume during 2015. the new business volume included purchases of $ 748.4 million of newly originated farm & ranch loans , purchases of $ 743.2 million of agvantage securities , rural utilities loans added under ltspcs of $ 522.3 million , farm & ranch loans added under ltspcs of $ 427.8 million , purchases of $ 363.6 million of usda securities , the addition of a $ 300.0 million revolving floating rate agvantage facility , rural utilities loan purchases of $ 108.3 million , and purchases of $ 13.3 million of farmer mac guaranteed usda securities . taking into account maturities and paydowns on existing assets , farmer mac 's outstanding business volume was $ 15.9 billion as of december 31 , 2015 , an increase of $ 1.3 billion from december 31 , 2014 . capital as of december 31 , 2015 , farmer mac 's core capital level was $ 564.5 million , $ 102.4 million above the minimum capital level required by farmer mac 's statutory charter . as of december 31 , 2014 , farmer mac 's core capital level was $ 766.3 million , which was $ 345.0 million above the minimum capital requirement . the decrease in capital in excess of the minimum capital level was due primarily to the redemption of the farmer mac ii llc preferred stock in first quarter 2015. credit quality farmer mac continued to maintain favorable credit quality , as substandard assets and the total allowance for losses in terms of both dollars and percentage of the farm & ranch portfolio decreased from their respective levels in 2014. during 2015 , farmer mac reduced its total allowance for losses by $ 3.6 million , primarily attributable to the charge-off of the specific allowance in the amount of $ 3.7 million for two agricultural storage and processing loans that financed one canola facility . as of december 31 , 2015 , farmer mac 's 90-day delinquencies were $ 32.1 million ( 0.56 percent of the farm & ranch portfolio ) , compared to $ 18.9 million ( 0.35 of the farm & ranch portfolio ) as of december 31 , 2014 . the primary cause of the increase in 90-day delinquencies during 2015 was the delinquency of those two agricultural storage and processing loans . story_separator_special_tag although those two loans were outstanding and delinquent at december 31 , 2015 , farmer mac collected funds in the amount of $ 9.8 million to pay them off in january 2016. for more information about farmer mac 's credit metrics , including 90-day delinquencies , see `` management 's discussion and analysis of financial condition and results of operations—risk management—credit risk – loans and guarantees . '' critical accounting policies and estimates the preparation of farmer mac 's consolidated financial statements in conformity with gaap requires the use of estimates and assumptions that affect the amounts reported in the consolidated financial statements and related notes for the periods presented . actual results could differ from those estimates . the critical accounting policies that are both important to the presentation of farmer mac 's financial condition and results of operations and require complex , subjective judgments are the accounting policies for the allowance for losses and fair value measurement . allowance for losses farmer mac maintains an allowance for losses to cover estimated probable losses incurred as of the balance sheet date on loans held for investment ( `` allowance for loan losses '' ) and loans that underlie off- 67 balance sheet farmer mac guaranteed securities and ltspcs ( `` reserve for losses '' ) based on available information . for purposes of this accounting policy , the allowance for loan losses and the reserve for losses are described collectively as the `` allowance for losses '' because the estimation methodology is identical for loans that are held for investment and for loans that underlie off-balance sheet farmer mac guaranteed securities and ltspcs . disaggregation by commodity type is performed , where appropriate , in analyzing the need for an allowance for losses . the allowance for loan losses increases through periodic provisions for loan losses that are charged against net interest income . the reserve for losses increases through provisions for losses that are charged to non-interest expense . both the allowance for loan losses and reserve for losses decrease by charge-offs for actual losses , net of recoveries . charge-offs represent losses on the outstanding principal balance , any interest payments previously accrued or advanced , and expected costs of liquidation . negative provisions , or releases of allowance for losses , occur when the estimate of probable losses as of the end of a period is lower than the estimate at the beginning of the period . the total allowance for losses consists of a general allowance for losses and a specific allowance for individually identified impaired loans . general allowance for losses farm & ranch farmer mac 's methodology for determining its general allowance for losses incorporates farmer mac 's automated loan classification system . that system scores loans based on criteria such as historical repayment performance , indicators of current financial condition , loan seasoning , loan size , and loan-to-value ratio . for purposes of the loss allowance methodology , the loans in farmer mac 's portfolio of loans and loans underlying off-balance sheet farm & ranch guaranteed securities and ltspcs have been scored and classified for each calendar quarter since first quarter 2000. the allowance methodology captures the migration of loan scores across concurrent and overlapping three-year time horizons and calculates loss rates separately within each loan classification for ( 1 ) loans held for investment and ( 2 ) loans underlying off-balance sheet farm & ranch guaranteed securities and ltspcs . the calculated loss rates are applied to the current classification distribution of unimpaired loans in farmer mac 's portfolio to estimate probable losses , based on the assumption that the historical credit losses and trends used to calculate loss rates will continue in the future . management evaluates this assumption by taking into consideration various factors , including : economic conditions ; geographic and agricultural commodity/product concentrations in the portfolio ; the credit profile of the portfolio ; delinquency trends of the portfolio ; historical charge-off and recovery activities of the portfolio ; and other factors to capture current portfolio trends and characteristics that differ from historical experience . management believes that this methodology produces a reasonable estimate of probable losses , as of the balance sheet date , for all loans included in the farm & ranch line of business , including loans held for investment and loans underlying off-balance sheet farm & ranch guaranteed securities and ltspcs . 68 rural utilities farmer mac separately evaluates the rural utilities loans it holds for investment and loans underlying ltspcs to estimate any probable losses inherent in those assets . farmer mac has not provided an allowance for losses for the portfolio segment related to the rural utilities line of business based on the credit quality of the collateral supporting rural utilities assets . specific allowance for impaired loans farmer mac individually analyzes certain loans in its portfolio for impairment . farmer mac 's individually identified impaired loans generally include loans 90 days or more past due , in foreclosure , restructured , in bankruptcy , and certain performing loans that have previously been delinquent or are secured by real estate that produces agricultural commodities or products that are currently under stress . for individually identified impaired loans with an updated appraisal , other updated collateral valuation , or management 's estimate of discounted collateral value , this analysis compares the measurement of the fair value of the collateral to the total recorded investment in the loan . the total recorded investment in the loan includes principal , interest , and advances , net of any charge-offs . in the event that an individually analyzed loan 's collateral value does not equal or exceed its total recorded investment , farmer mac provides a specific allowance for loss in the amount of the difference between the recorded investment and fair value , less estimated costs to liquidate the collateral . estimated selling costs are based on historical selling costs incurred by farmer mac or management 's best estimate of selling costs for a particular property .
| this is also consistent with farmer mac 's previous treatment of these types of origination costs associated with securities underwriting that are capitalized and deferred during the life of the security . the inclusion of the effects of the cash management and liquidity initiative in core earnings is consistent with the inclusion in core earnings of the investment portfolio losses recognized in 2008 and 2009 that generated the capital loss carryforwards related to the tax benefits recognized in 2014. however , the interest expense , realized gains , and tax benefits for 2014 related to the cash management and liquidity initiative are not expected to significantly affect farmer mac 's earnings beyond 2014. the non-gaap financial measure of core earnings used by farmer mac may not be comparable to similarly labeled non-gaap financial measures disclosed by other companies . farmer mac 's disclosure of this non-gaap measure is intended to be supplemental in nature , and is not meant to be considered in isolation from , as a substitute for , or as more important than , the related financial information prepared in accordance with gaap . 71 a reconciliation of farmer mac 's net income attributable to common stockholders to core earnings is presented in the following table along with a breakdown of the composition of core earnings : table 1 replace_table_token_19_th ( 1 ) excludes realized gains related to securities sold , not yet purchased of $ 37.0 million during 2014 . ( 2 ) includes $ 7.5 million and $ 10.3 million related to the acceleration of premium amortization in 2014 and 2013 , respectively , due to significant refinancing activity in the rural utilities line of business . ( 3 ) relates to the write-off of deferred issuance costs as a result of the retirement of farmer mac ii llc preferred stock . 72 ( 4 ) includes reconciling adjustments to exclude amortization of premiums and discounts on assets consolidated at fair value to reflect core earnings amounts . also includes reconciling adjustments to include the reclassification of expenses related to interest rate swaps not designated as hedges and reclassification
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in line with our strategy of vertical integration and focus on domain expertise , we integrated our finance & accounting and consulting operating segments within each of the insurance and healthcare operating segments based on the respective industry-specific clients . finance & accounting and consulting services provided to clients outside of those industries , are part of our “ emerging business ” segment . in addition , we integrated our former travel , transportation and logistics , banking and financial services , and utilities operating segments under “ emerging business ” to further leverage and optimize the operating scale in providing operations management services . our reportable segments effective january 1 , 2020 are as follows : insurance , healthcare , analytics , and emerging business in conjunction with the new reporting structure , we recast our segment and goodwill disclosures for all prior periods presented to conform to the way we internally manage and monitor segment performance . our global delivery network , which includes highly trained industry and process specialists across the united states , latin america , south africa , europe and asia ( primarily india and the philippines ) , is a key asset . we have operations centers in 37 india , the united states , the united kingdom , the philippines , bulgaria , colombia , south africa , romania and the czech republic . continued impact of covid-19 on our business the global covid-19 pandemic continues to materially impact worldwide economic activity and levels of business confidence and has had widespread , rapidly-evolving and unpredictable impacts on global societies , economies , financial markets and business practices . during the first fiscal quarter ended march 31 , 2020 , covid-19 did not have a significant impact on our business , however , in subsequent quarters , covid-19 materially impacted us . our customers , contractors , suppliers , and other partners were prevented from conducting business activities as usual , including due to the health and safety measures in response to covid-19 , such as shutdowns , which were requested or mandated by governmental authorities . the disruption adversely affected our ability to provide our services and solutions and resulted in , among other things , significant loss of revenue , increased costs and the possibility of enhanced credit risk on our accounts receivable , which is reflected in our financial operating results . the continued spread of covid-19 and the measures taken by the governments of countries affected has disrupted the continuity of our provision of services to our customers and adversely impacted our business , financial condition or results of operations . we have a business continuity plan in place and have adapted delivery to a work from home model , while actively working to understand our clients ' changing requirements , continuing to ensure data security , prioritizing critical processes , adjusting service levels and managing discretionary costs ( such as travel costs ) and fixed costs ( such as non-critical personnel costs ) . while travel restrictions had a short-term impact on our ability to deliver our services in 2020 , we have been working to reduce our reliance on travel by incorporating into our business model the ability to conduct business using virtual conferencing and collaboration tools . our work from home delivery capability steadily improved throughout the year . we estimate that we are able to deliver over 95 % of our clients ' current requirements in a work from home model given the current lockdown restrictions in the locations in which we operate and certain clients not authorizing us to perform the remaining process work remotely due to its sensitive nature . in addition , we have also worked , and continue to work with national , state , and local authorities to comply with applicable rules and regulations related to covid-19 . there continues to be volatility and economic and geopolitical uncertainty in many markets around the world . despite the efforts described above , there is a risk that if jurisdictions in which we operate reinstate prior restrictions , stagnate in their reopening processes , or implement new restrictions in response to new outbreaks or continued spread , our operations and business could be materially impacted . we also took actions in response to the pandemic that focused on helping our employees . these actions included disseminating guidance and information to our employees , facilitating work from home , implementing best practices for employees while working from home , periodic ceo messaging , various programs aimed at employee wellness , including a global wellness program , enhanced leave for employees affected by covid-19 , enhanced awareness towards information security , and updated cyber security and data privacy policies , among others . we have implemented broad travel restrictions and largely moved to virtual-only events for the safety of our employees and our customers . we also implemented pandemic-specific protocols for our essential employees whose jobs require them to be on-site or with our customers by implementing additional safety measures at all of our facilities , including increased frequency in cleaning and disinfecting , and enhanced hygiene and social distancing practices . we incurred additional costs in order to ensure the continuity of our operations and shift towards a work from home model . such costs include purchase of desktops and laptops for our employees , software and internet connectivity devices , technology tools for productivity enhancement , accommodation , meal , overtime , transportation and regular sanitization and cleaning costs of our offices and facilities . we also expect that we will continue to incur additional costs to monitor and improve operational efficiency of our work from home model , implement new information technology solutions and security measures to safeguard against information security risks and protect the health and safety of our employees as they gradually return to the office . story_separator_special_tag we believe that these short-to-medium-term costs may benefit us in the long-term , as these steps have broadened our “ remote working ” capabilities , which we expect to become a permanent feature in our future delivery model , as well as our business continuity plans . in response to certain anticipated impacts from covid-19 , we also implemented a series of temporary cost reduction measures to further preserve financial flexibility . these actions included the postponement of certain discretionary spending including travel and marketing expenses , reevaluating the pace of our capital expenditures , rationalizing certain of our real estate and facilities , deferring scheduled increases in base salaries , deferring non-critical hiring , temporarily reducing the base salaries of our executive officers and certain other groups of employees among others . some of these actions have been reversed as of december 31 , 2020. we also took certain precautionary measures to maintain financial flexibility during this time , including drawing $ 100.0 million from our line of credit under our credit agreement on march 12 , 2020 , the proceeds of which were available for 38 working capital , general corporate or other purposes as needed , and which was repaid in full on april 20 , 2020. during the quarter ended march 31 , 2020 , to enhance our liquidity position in response to covid-19 , management elected to temporarily suspend share repurchases under the 2019 repurchase program . we resumed share repurchases effective july 1 , 2020 , considering improved market conditions , our capital and liquidity needs and other factors . the impact of covid-19 on our business , results of operations , financial position and cash flow in fiscal year 2020 has been explained in the discussion below , however the full extent of the impact for the period beyond the fiscal year 2020 is currently uncertain and will depend on many factors that are not within our control , including , but not limited to : the duration and scope of the pandemic ; the effectiveness of actions taken to contain or mitigate the pandemic and prevent or limit any reoccurrence ; governmental , business and individuals ' actions that have been and continue to be taken in response to the pandemic ; general economic uncertainty in key global markets and financial market volatility ; global economic conditions and levels of economic growth ; and the pace of recovery when covid-19 subsides . due to the above circumstances and as described generally in this annual report on form 10-k , our financial results , including but not limited to net revenues , income from operations , net income , cash flow and earnings per share , in future periods may differ materially from historical trends . we continue to monitor the implications of covid-19 on our business , as well as our customers ' and suppliers ' businesses . during the fourth quarter of 2020 , we performed our annual goodwill quantitative impairment test for any potential impairment . we considered the effects of covid-19 on our significant inputs used in determining the fair value of our reporting units . based on the results , the fair value of each of our reporting units exceeded their carrying value and the goodwill was not impaired . however , there can be no assurances that goodwill will not be impaired in future periods . estimating the fair value of goodwill requires the use of estimates and significant judgments that are based on a number of factors including actual operating results . these estimates and judgments may not be within the control of us and accordingly it is reasonably possible that the judgments and estimates could change in future periods . for additional information and risks related to covid-19 , see part i , item 1a , “ risk factors. ” revenues for the year ended december 31 , 2020 , we generated revenues of $ 958.4 million compared to revenues of $ 991.3 million for the year ended december 31 , 2019 , a decrease of $ 32.9 million , or 3.3 % . we serve clients mainly in the united states and the united kingdom , with these two regions generating 85.0 % and 9.3 % , respectively , of our total revenues for the year ended december 31 , 2020 and 82.5 % and 11.4 % , respectively , of our revenues for the year ended december 31 , 2019. for the years ended december 31 , 2020 and 2019 , our total revenues from our top ten clients accounted for 37.4 % and 36.1 % of our total revenues , respectively . our revenue concentration with our top clients remains largely consistent year-over-year and we continue to develop relationships with new clients to diversify our client base . we believe that the loss of any of our top ten clients could have a material adverse effect on our financial performance . our business we provide operations management and analytics services . we market our services to our existing and prospective clients through our sales and client management teams , which are aligned by key industry verticals and cross-industry domains such as finance and accounting . our sales and client management teams operate from the united states , europe and australia . operations management services : we provide our clients with a range of operations management services from our insurance , healthcare and emerging business operating segments , which typically involve the transfer by our clients to exl of certain of their business operations , such as claims processing , clinical operations , or financial transaction processing , after which we administer and manage those operations on an ongoing basis . as part of this transfer , we hire and train employees to work at our operations centers on the relevant business operations , implement a process migration to these operations centers and then provide services either to the client or directly to the client 's customers . each client contract has different terms based on the scope , deliverables and complexity of the engagement .
| revenue growth in healthcare of $ 3.7 million was primarily driven by expansion of business from our existing clients and new wins aggregating to $ 16.2 million , partially offset by our december 2019 wind-down of health integrated business revenues of $ 12.5 million during the year ended december 31 , 2020. healthcare revenues were 10.6 % and 9.8 % of our total revenues during the year ended december 31 , 2020 and 2019 , respectively . revenue decline in emerging business of $ 37.4 million was primarily driven by lower volumes due to the impact of covid-19 and ramp-down of certain client contracts aggregating to $ 35.6 million , and a decline of $ 1.8 million attributable to the depreciation of the indian rupee against the u.s. dollar during the year ended december 31 , 2020 , compared to the year ended december 31 , 2019. emerging business revenues were 15.9 % and 19.2 % of our total revenues during the year ended december 31 , 2020 and 2019 , respectively . revenue growth in analytics of $ 5.4 million was attributable to our recurring and project-based engagements from our new and existing clients , partially offset by lower volumes due to the impact of covid-19 aggregating to $ 5.4 million during the year ended december 31 , 2020 , compared to the year ended december 31 , 2019. analytics revenues were 37.8 % and 36.0 % of our total revenues during the year ended december 31 , 2020 and 2019 , respectively . 50 cost of revenues and gross margin : the following table sets forth cost of revenues and gross margin of our reportable segments . replace_table_token_2_th for the year ended december 31 , 2020 , cost of revenues was $ 623.9 million compared to $ 655.5 million for the year ended december 31 , 2019 , a decrease of $ 31.6 million , or 4.8 % . our gross margin for the year ended december 31 , 2020 was 34.9 % compared to 33.9 % for year ended december 31 , 2019 , an increase of 100 basis points ( `` bps '' ) .
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we ceased the sales the calibrators from ultra velocity in march 2020. in addition , we provided inventory , membership and business management software that designed by cks information co. , ltd. to our customers in the fiscal year of 2019. critical accounting policies and estimates principles of consolidation the accompanying consolidated financial statements , including the accounts of eos inc. and its wholly owned subsidiaries in taiwan , british virgin islands , and people 's republic of china , have been prepared in conformity with accounting principles generally accepted in the united states of america . since the company and emperor star are entities under common control prior to the acquisition of emperor star , the transaction is accounted for as a restructuring transaction . all the assets and liabilities of emperor star were transferred to the company at their respective carrying amounts on the date of transaction . the company has recast prior period financial statements to reflect the conveyance of emperor star 's common shares as if the restructuring transaction had occurred as of the earliest date of the consolidated financial statements . all material intercompany accounts , transactions , and profits have been eliminated in consolidation . the nature of and effects on earnings per share ( eps ) of nonrecurring intra-entity transactions involving long-term assets and liabilities is not required to be eliminated and eps amounts have been recast to include the earnings ( or losses ) of the transferred net assets . 13 the functional currency of the subsidiaries in taiwan is the new taiwan dollars and the subsidiary in people 's republic of china is the chinese yuan , or renminbi ; however , the accompanying consolidated financial statements have been translated and presented in united states dollars ( $ ) . in the accompanying consolidated financial statements and notes , “ $ ” , “ us $ ” and “ u.s . dollars ” mean united states dollars , “ nt $ ” and “ nt dollars ” mean new taiwan dollars , and “ rmb ” means chinese yuan , or renminbi . use of estimates the preparation of financial statements in conformity with generally accepted accounting principles in the united states of america , requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period . actual results could differ from those estimates . classification certain classifications have been made to the prior year financial statements to conform to the current year presentation . the reclassification had no impact on previously reported net income nor retained earnings . cash and cash equivalents cash and cash equivalents include cash and all highly liquid instruments with original maturities of three months or less . accounts receivable accounts receivable are stated at carrying value less estimates made for doubtful receivables . an allowance for impairment of trade receivables is established if the collection of a receivable becomes doubtful . such receivable becomes doubtful when there is objective evidence that the company will not be able to collect all amounts due according to the original terms of the receivables . significant financial difficulties of the debtor , probability that the debtor will enter into bankruptcy or financial reorganization , and default or delinquency in payments are considered indicators that the receivable is impaired . the amount of the allowance is the difference between the asset 's carrying amount and the present value of estimated future cash flows , discounted at the original effective interest rate . an impairment loss is recognized in the statement of income , as are subsequent recoveries of previous impairments . inventory inventory is stated at the lower of cost and net realizable value . net realizable value ( nrv ) is defined as estimated selling prices less costs of completion , disposal , and transportation . inventory consists mainly of finished goods held for resale . cost is determined on a weighted average cost method . the company periodically reviews the age and turnover of its inventory to determine whether any inventory has become obsolete or has declined in value , and incurs a charge to operations for known and anticipated inventory obsolescence . property and equipment property and equipment is carried at cost net of accumulated depreciation . repairs and maintenance are expensed as incurred . expenditures that improve the functionality of the related asset or extend the useful life are capitalized . when property and equipment is retired or otherwise disposed of , the related gain or loss is included in operating income . leasehold improvements are depreciated on the straight-line method over the shorter of the remaining lease term or estimated useful life of the asset . depreciation is calculated on the straight-line method , including property and equipment under capital leases , generally is five years . depreciation expense is $ 1,916 and $ 2,510 for the years ended december 31 , 2019 and 2018 , respectively . 14 impairment of long-lived assets the company has adopted accounting standards codification subtopic 360-10 , property , plant and equipment ( “ asc 360-10 ” ) . asc 360-10 requires that long-lived assets and certain identifiable intangibles held and used by the company be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . the company evaluates its long-lived assets for impairment annually or more often if events and circumstances warrant . events relating to recoverability may include significant unfavorable changes in business conditions , recurring losses , or a forecasted inability to achieve breakeven operating results over an extended period . the company evaluates the recoverability of long-lived assets based upon forecasted undiscounted cash flows . story_separator_special_tag should impairment in value be indicated , the carrying value of intangible assets will be adjusted , based on estimates of future discounted cash flows resulting from the use and ultimate disposition of the asset . asc 360-10 also requires assets to be disposed of be reported at the lower of the carrying amount or the fair value less costs to sell . management has determined that no impairments of long-lived assets currently exist as of december 31 , 2019 and 2018. long-term equity investment the company acquires equity investment to promote business and strategic objectives . the company accounts for non-marketable equity and other equity investments for which the company does not have control over the investees as : · equity method investments when the company has the ability to exercise significant influence , but not control , over the investee . its proportionate share of the income or loss is recognized monthly and is recorded in gain ( loss ) on equity investments . · non-marketable cost method investments when the equity method does not apply . significant judgment is required to identify whether an impairment exists in the valuation of the company 's non-marketable equity investments , and therefore the company considers this a critical accounting estimate . its yearly analysis considers both qualitative and quantitative factors that may have a significant impact on the investee 's fair value . qualitative analysis of its investments involves understanding the financial performance and near-term prospects of the investee , changes in general market conditions in the investee 's industry or geographic area , and the management and governance structure of the investee . quantitative assessments of the fair value of its investments are developed using the market and income approaches . the market approach includes the use of comparable financial metrics of private and public companies and recent financing rounds . the income approach includes the use of a discounted cash flow model , which requires significant estimates regarding the investees ' revenue , costs , and discount rates . the company 's assessment of these factors in determining whether an impairment exists could change in the future due to new developments or changes in applied assumptions . 15 other-than-temporary impairment the company 's long-term equity investments are subject to a periodic impairment review . impairments affect earnings as follows : · marketable equity securities include the consideration of general market conditions , the duration and extent to which the fair value is below cost , and our ability and intent to hold the investment for a sufficient period of time to allow for recovery of value in the foreseeable future . the company also considers specific adverse conditions related to the financial health of , and the business outlook for , the investee , which may include industry and sector performance , changes in technology , operational and financing cash flow factors , and changes in the investee 's credit rating . the company records other-than-temporary impairments on marketable equity securities and marketable equity method investments in gain ( loss ) on equity investments . · non-marketable equity investments based on the company 's assessment of the severity and duration of the impairment , and qualitative and quantitative analysis of the operating performance of the investee ; adverse changes in market conditions and the regulatory or economic environment ; changes in operating structure or management of the investee ; additional funding requirements ; and the investee 's ability to remain in business . a series of operating losses of an investee or other factors may indicate that a decrease in value of the investment has occurred that is other than temporary and that shall be recognized even though the decrease in value is in excess of what would otherwise be recognized by application of the equity method . a loss in value of an investment that is other than a temporary decline shall be recognized . evidence of a loss in value might include , but would not necessarily be limited to , absence of an ability to recover the carrying amount of the investment or inability of the investee to sustain an earnings capacity that would justify the carrying amount of the investment . the company records other-than-temporary impairments for non-marketable cost method investments and equity method investments in gain ( loss ) on equity investments . revenue recognition during the fiscal year 2018 , the company has adopted fasb accounting standards codification ( “ asc ” ) , topic 606 ( “ asc 606 ” ) , revenue from contracts with customers , using the modified retrospective method to all contracts that were not completed as of january 1 , 2018. the company recognized the cumulative effect of applying the new revenue standard as an adjustment to the opening balance of accumulated deficit at the beginning of 2018. the results for the company 's reporting periods beginning on and after january 1 , 2018 are presented under asc 606 , while prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for the prior period . based on the company 's review of existing sales contracts as of january 1 , 2018 , the company concluded that the adoption of the new guidance did not have a significant change on the company 's revenue during all periods presented . pursuant to asc 606 , the company recognizes revenue when its customer obtains control of promised goods or services , in an amount that reflects the consideration that the company expects to receive in exchange for those goods or services .
| selling , general and administrative expenses were $ 905,822 for the year ended december 31 , 2019 , representing an increase of $ 358,142 , or 65.39 % , as compared to $ 547,680 for the year ended december 31 , 2018. the increase in selling , general and administrative expenses was primarily attributable to the increase in payroll expenses of approximately $ 160,000 , accounting , legal and professional fees of approximately $ 90,000 , advertising expense of approximately $ 26,000 and travel of approximately $ 25,000 . 22 income from operations income from operations was $ 1,108,258 for the year ended december 31 , 2019 compared to income from operations of $ 1,013,760 for the year ended december 31 2018 , representing an increase of $ 94,498 , or 9.32 % . such increase was primarily due to the increase in sales of automobile carbon reduction machines , water purifying machines and nutrition supplements , partially offset by the decrease in sales of skin care products and the increase in selling , general and administrative expenses . other income ( expense ) other income ( expense ) was $ ( 26,491 ) for the year ended december 31 , 2019 , reflecting a decrease of $ 59,851 , or 179.41 % , compared to $ 33,360 for the year december 31 , 2018. the decrease was mainly attributable to the increase in loss on foreign currency exchange and the increase in loss on investment in equity securities under the equity method . net income as a result of the above factors , our net income was $ 1,081,767 for the year ended december 31 , 2019 , as compared to net income of $ 1,029,325 for the year ended december 31 , 2018 , representing an increase of $ 52,442 , or 5.09 % . liquidity and capital resources cash and cash equivalents were $ 295,594 at december 31 , 2019 and $ 36,130 at december 31 , 2018. our total current assets were $ 2,819,688 at december 31 , 2019 , as compared to $ 1,927,538 at december 31 , 2018. our total current liabilities were $ 221,694 at december 31 , 2019 , as compared to $
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any inventories expected to convert to sales beyond 12 months from the balance sheet date are classified as non-current . intangible assets the company evaluates its intangible assets for impairment at least on an annual basis and will evaluate them earlier if there are indicators of a potential impairment . those intangible assets that are classified as goodwill or as other intangibles with indefinite lives are not amortized . impairment testing is performed in two steps : ( i ) the company determines if there is impairment by comparing the fair value of a reporting unit with its carrying value , and ( ii ) if there is impairment , the company measures the amount of impairment loss by comparing the implied fair value of intangible assets with the carrying amount of the intangible assets . 12 income taxes the company has identified the united states and new york state as its major tax jurisdictions . the fiscal 2012 and forward years are still open for examination . for the year ended june 30 , 2015 , the company recognized a net income tax expense of $ 216,000. during the year ending june 30 , 2015 the company decreased its reserve for uncertain income tax positions by $ 67,000. the company 's practice is to recognize interest and penalties related to income tax matters in income tax expense and accrued income taxes . as of june 30 , 2015 , the company had accrued interest totaling $ 0 and $ 102,000 of unrecognized net tax benefits that , if recognized , would favorably affect the company 's effective income tax rate in any future period . the company uses the flow through method to account for investment tax credits earned on eligible research and development expenditures . under this method , the investment tax credits are recognized as a reduction to income tax expense . deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary 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 expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date . deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities . the components of the deferred tax assets and liabilities are individually classified as current and non-current based on their characteristics . deferred tax assets are reduced by a valuation allowance when , in the opinion of management , it is more likely than not that some portion or all of the deferred tax assets will not be realized . the company measures and recognizes the tax implications of positions taken or expected to be taken in its tax returns on an ongoing basis . liquidity and capital resources the company 's cash on hand as of june 30 , 2014 combined with proceeds from operating activities during fiscal 2015 were adequate to meet the company 's capital expenditure needs and debt obligations during fiscal 2015. the company 's primary internal source of liquidity is the cash flow generated from operations . the primary source of external financing is a revolving credit facility of $ 11,000,000 ( the “ revolving credit facility ” ) which expires in june 2017. as of june 30 , 2015 $ 3,000,000 was outstanding under this revolving line of credit . as of june 30 , 2015 , the company 's unused sources of funds consisted principally of $ 2,346,000 in cash and $ 8,000,000 unused balance available under its revolving line of credit . during the year ended june 30 , 2015 the company utilized its cash on hand at june 30 , 2014 ( $ 2,483,000 ) and a portion of its cash from operations ( $ 1,541,000 of $ 3,887,000 ) to repay outstanding debt ( $ 1,100,000 ) , purchase treasury stock ( $ 2,194,000 ) and purchase property , plant and equipment ( $ 730,000 ) . as of june 30 , 2015 , long-term debt consisted of a revolving credit facility of $ 11,000,000 ( the “ revolving credit facility ” ) which expires in june 2017 and two term loans , one for $ 6,000,000 which expires in june 2019 , and one for $ 6,500,000 which expires in june 2017 ( the “ term loans ” ) . repayment of the terms loans commenced on september 30 , 2012. the $ 6,000,000 term loan is being repaid with 28 equal , quarterly payments of $ 75,000 and the remaining balance of $ 3,900,000 due on or before the expiration date . the $ 6,500,000 term loan is being repaid in 20 equal , quarterly payments of $ 325,000. as of june 30 , 2015 , the company had $ 3,000,000 in outstanding borrowings and $ 8,000,000 in availability under the revolving credit facility . the company 's long-term debt is described more fully in note 6 to the condensed consolidated financial statements . the agreements contain various restrictions and covenants including , among others , restrictions on payment of dividends , restrictions on borrowings and compliance with certain financial ratios , as defined in the restated agreement . 13 outstanding balances and interest rates as of june 30 , 2015 and june 30 , 2014 are as follows : replace_table_token_4_th the company believes its current working capital , anticipated cash flows from operations and its revolving credit agreement will be sufficient to fund the company 's operations through at least the next twelve months . the company takes into consideration several factors in measuring its liquidity , including the ratios set forth below : replace_table_token_5_th as of june 30 , story_separator_special_tag any inventories expected to convert to sales beyond 12 months from the balance sheet date are classified as non-current . intangible assets the company evaluates its intangible assets for impairment at least on an annual basis and will evaluate them earlier if there are indicators of a potential impairment . those intangible assets that are classified as goodwill or as other intangibles with indefinite lives are not amortized . impairment testing is performed in two steps : ( i ) the company determines if there is impairment by comparing the fair value of a reporting unit with its carrying value , and ( ii ) if there is impairment , the company measures the amount of impairment loss by comparing the implied fair value of intangible assets with the carrying amount of the intangible assets . 12 income taxes the company has identified the united states and new york state as its major tax jurisdictions . the fiscal 2012 and forward years are still open for examination . for the year ended june 30 , 2015 , the company recognized a net income tax expense of $ 216,000. during the year ending june 30 , 2015 the company decreased its reserve for uncertain income tax positions by $ 67,000. the company 's practice is to recognize interest and penalties related to income tax matters in income tax expense and accrued income taxes . as of june 30 , 2015 , the company had accrued interest totaling $ 0 and $ 102,000 of unrecognized net tax benefits that , if recognized , would favorably affect the company 's effective income tax rate in any future period . the company uses the flow through method to account for investment tax credits earned on eligible research and development expenditures . under this method , the investment tax credits are recognized as a reduction to income tax expense . deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary 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 expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date . deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities . the components of the deferred tax assets and liabilities are individually classified as current and non-current based on their characteristics . deferred tax assets are reduced by a valuation allowance when , in the opinion of management , it is more likely than not that some portion or all of the deferred tax assets will not be realized . the company measures and recognizes the tax implications of positions taken or expected to be taken in its tax returns on an ongoing basis . liquidity and capital resources the company 's cash on hand as of june 30 , 2014 combined with proceeds from operating activities during fiscal 2015 were adequate to meet the company 's capital expenditure needs and debt obligations during fiscal 2015. the company 's primary internal source of liquidity is the cash flow generated from operations . the primary source of external financing is a revolving credit facility of $ 11,000,000 ( the “ revolving credit facility ” ) which expires in june 2017. as of june 30 , 2015 $ 3,000,000 was outstanding under this revolving line of credit . as of june 30 , 2015 , the company 's unused sources of funds consisted principally of $ 2,346,000 in cash and $ 8,000,000 unused balance available under its revolving line of credit . during the year ended june 30 , 2015 the company utilized its cash on hand at june 30 , 2014 ( $ 2,483,000 ) and a portion of its cash from operations ( $ 1,541,000 of $ 3,887,000 ) to repay outstanding debt ( $ 1,100,000 ) , purchase treasury stock ( $ 2,194,000 ) and purchase property , plant and equipment ( $ 730,000 ) . as of june 30 , 2015 , long-term debt consisted of a revolving credit facility of $ 11,000,000 ( the “ revolving credit facility ” ) which expires in june 2017 and two term loans , one for $ 6,000,000 which expires in june 2019 , and one for $ 6,500,000 which expires in june 2017 ( the “ term loans ” ) . repayment of the terms loans commenced on september 30 , 2012. the $ 6,000,000 term loan is being repaid with 28 equal , quarterly payments of $ 75,000 and the remaining balance of $ 3,900,000 due on or before the expiration date . the $ 6,500,000 term loan is being repaid in 20 equal , quarterly payments of $ 325,000. as of june 30 , 2015 , the company had $ 3,000,000 in outstanding borrowings and $ 8,000,000 in availability under the revolving credit facility . the company 's long-term debt is described more fully in note 6 to the condensed consolidated financial statements . the agreements contain various restrictions and covenants including , among others , restrictions on payment of dividends , restrictions on borrowings and compliance with certain financial ratios , as defined in the restated agreement . 13 outstanding balances and interest rates as of june 30 , 2015 and june 30 , 2014 are as follows : replace_table_token_4_th the company believes its current working capital , anticipated cash flows from operations and its revolving credit agreement will be sufficient to fund the company 's operations through at least the next twelve months . the company takes into consideration several factors in measuring its liquidity , including the ratios set forth below : replace_table_token_5_th as of june 30 ,
| 15 other expenses remained relatively constant at $ 5,000 and $ 14,000 for fiscal 2015 and 2014 , respectively . the company 's provision for income taxes for fiscal 2015 decreased by $ 315,000 to $ 216,000 as compared to $ 531,000 for the same period a year ago . the decrease in income taxes from fiscal 2014 to fiscal 2015 resulted primarily from the benefit resulting from r & d credits and a decrease in certain of the company 's income tax reserves . net income for fiscal 2015 increased by $ 1,369,000 to $ 4,845,000 as compared to $ 3,476,000 in fiscal 2014. this resulted primarily from the items discussed above . forward-looking information this annual report on form 10-k and the information incorporated by reference may include `` forward-looking statements '' within the meaning of section 27a of the securities act of 1933 and section 21e of the exchange act of 1934. the company intends the forward-looking statements to be covered by the safe harbor provisions for forward-looking statements . all statements regarding the company 's expected financial position and operating results , its business strategy , its financing plans and the outcome of any contingencies are forward-looking statements . the forward-looking statements are based on current estimates and projections about our industry and our business . words such as `` anticipates , '' `` expects , '' `` intends , '' `` plans , '' `` believes , '' `` seeks , '' `` estimates , '' or variations of such words and similar expressions are intended to identify such forward-looking statements . the forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those set forth or implied by any forward-looking statements . for example , the company is highly dependent on its chief executive officer for strategic planning . if he is unable to perform his services for any significant period of time , the company 's ability to grow could be adversely affected . in addition , factors that could cause actual results to
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non-operating items interest expense , net interest expense , net for 2020 increased $ 17.4 million , or 62.8 % , to $ 45.1 million , compared with $ 27.7 million in 2019. this increase was primarily due to a $ 9.6 million increase in non-cash interest expense resulting from the net impact of the issuance of $ 800.0 million of 0.375 % convertible notes and the repayment of $ 402.5 million principal amount of 1.25 % convertible notes , a $ 3.9 million decrease in capitalized interest , primarily due to u.s. manufacturing line 2 being placed in service in the first quarter of 2020 , and a $ 3.9 million decrease in interest income due to lower market rates and a shift in a portion of our investment portfolio to more liquid investments . loss on extinguishment of debt during 2019 , we incurred an $ 8.7 million loss on extinguishment of debt related to the repurchase of our 1.25 % notes . other income , net other income , net for 2020 increased $ 2.4 million , to $ 3.3 million , compared with $ 0.9 million in 2019. this increase was primarily driven by unrealized foreign currency gains due to the change in exchange rates , partially offset by a $ 1.8 million insurance recovery for damaged inventory in excess of our cost received during the year ended december 31 , 2019. income tax expense income tax expense was $ 2.9 million on pre-tax income of $ 9.7 million and $ 14.5 million for both 2020 and 2019 , respectively . our effective tax rate was 29.6 % and 19.8 % for 2020 and 2019 , respectively . the increase in our effective tax rate primarily resulted from a decrease to pre-tax income in the u.s. , which has a valuation allowance . see note 18 to the consolidated financial statements for additional information on our income tax expense . 34 adjusted ebitda the table below presents reconciliations of adjusted ebitda , a non-gaap financial measure , to net income , the most directly comparable financial measure prepared in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) : replace_table_token_5_th ( 1 ) the year ended december 31 , 2020 includes $ 14.6 million of cumulative amortization expense associated with customer relationships that were acquired on july 1 , 2018. for more information see note 13 to the consolidated financial statements . ( 2 ) the year ended december 31 , 2020 includes $ 7.3 million of stock-based compensation expense related to a company-wide 20th anniversary equity grant , a significant portion of which immediately vested . non-gaap financial measures management uses the following non-gaap financial measures : constant currency revenue growth represents the change in revenue between current and prior year periods using a constant currency , the exchange rate in effect during the applicable prior year period . we present constant currency revenue growth because we believe it provides meaningful information regarding our results on a consistent and comparable basis . management uses this non-gaap financial measure , in addition to financial measures in accordance with gaap , to evaluate our operating results . it is also one of the performance metrics that determines management incentive compensation . adjusted ebitda represents net income ( loss ) plus net interest expense , income tax expense ( benefit ) , depreciation and amortization , stock-based compensation and other significant unusual items , as applicable . we present adjusted ebitda because management uses it as a supplemental measure in assessing our operating performance , and we believe that it is helpful to investors , and other interested parties as a measure of our comparative operating performance from period to period . adjusted ebitda is a commonly used measure in determining business value and we use it internally to report results . these non-gaap financial measures should be considered supplemental to , and not a substitute for , our reported financial results prepared in accordance with gaap . in addition , the above definitions may differ from similarly titled measures used by others . non-gaap financial measures exclude the effect of items that increase or decrease our reported results of operations ; accordingly , we strongly encourage investors to review our consolidated financial statements in their entirety . liquidity and capital resources as of december 31 , 2020 , we had $ 907.2 million in cash and cash equivalents and $ 40.4 million of investments in marketable securities . we believe that our current liquidity will be sufficient to meet our projected operating , investing and debt service requirements for at least the next twelve months . convertible debt to finance our operations and global expansion , we have periodically issued convertible senior notes , which are convertible into our common stock . as of december 31 , 2020 , the following notes were outstanding : replace_table_token_6_th ( 1 ) per $ 1,000 face value of notes . in connection with the issuance of the 0.375 % convertible senior notes , we purchased capped call options ( “ capped calls ” ) on our common stock . by entering into the capped calls , we expect to reduce the potential dilution to our common stock ( or , in 35 the event the conversion is settled in cash , to provide a source of cash to settle a portion of our cash payment obligation ) in the event that at the time of conversion our stock price exceeds the conversion price under the convertible senior notes . the capped calls have an initial strike price of $ 335.90 per share and cover 3.5 million shares of our common stock . additional information regarding our debt is provided in note 12 to the consolidated financial statements . story_separator_special_tag summary of cash flows replace_table_token_7_th operating activities net cash provided by operating activities of $ 84.0 million in 2020 was primarily attributable to net income , as adjusted for depreciation and amortization , non-cash interest , and stock-based compensation , and a $ 63.4 million working capital cash outflow . the working capital outflow was driven by a $ 50.5 million increase in inventories , a $ 32.2 million increase in prepaid expenses and other assets and a $ 15.6 million increase in accounts receivable , partially offset by a $ 27.8 million increase in accrued expenses and other liabilities , primarily driven by manufacturing operations costs associated with the addition of our new contract manufacturer , as well as an increase in pharmacy rebates due to growth in the pharmacy channel . the increase in inventories was primarily driven by a planned inventory build associated with the further roll out of omnipod dash and an increase in work in progress inventory due to additional capacity from our new contract manufacturer . the increase in prepaid expenses and other assets was primarily driven by an increase in software licenses due to head count additions , and an increase in software-as-a-service to support our strategic initiatives . the increase in accounts receivable was primarily driven by revenue growth . net cash provided by operating activities of $ 98.4 million in 2019 was primarily attributable to net income , as adjusted for non-cash interest , stock-based compensation , depreciation and amortization , partially offset by a $ 19.7 million working capital cash outflow . the working capital outflow was driven by a $ 30.2 million increase in inventories and a $ 22.0 million increase in prepaid expenses and other assets , offset by a $ 25.6 million increase in accounts payable and a $ 17.7 million increase in accrued expenses and other liabilities , primarily driven by timing of payments . the increase in inventories was primarily due to an increase in raw materials and finished goods related to the startup of our u.s. manufacturing plant and an increase in work-in-process to support demand for our product . the increase in prepaid expenses and other assets was primarily driven by an increase in operating lease assets resulting from new leases entered into during the year and an increase in deferred commissions . investing activities net cash provided by investing activities was $ 14.0 million in 2020 , compared with net cash used in investing activities of $ 73.6 million in 2019. capital spending —capital expenditures were $ 129.0 million in 2020 and primarily related to equipment to increase our manufacturing capacity . capital expenditures were $ 163.7 million in 2019 and primarily related to the construction of our manufacturing and corporate headquarters facility in acton , massachusetts . we expect capital expenditures for 2021 to increase compared with 2020 as we continue to expand manufacturing capacity to support our growth and the launch of omnipod 5. we expect to fund our capital expenditures using a combination of existing cash and investments as well as cash generated from operations . purchases and sales of investments —during 2020 , net sales of marketable securities were $ 180.5 million , compared with net purchases of marketable securities of $ 97.3 million for 2019. the increase in net sales of marketable securities was driven by a shift in a portion of our investment portfolio to investments that are classified as cash equivalents in order to satisfy future cash needs . acquisition of intangible assets —in 2020 , following the resolution of a purchase price contingency associated with our 2018 acquisition of customer relationships from a former european distributor , we paid the distributor an additional $ 36.2 million for a total purchase price of $ 41.2 million . we had previously paid the distributor $ 3.8 million in 2019 and the remainder in 2018 . 36 financing activities net cash provided by financing activities was $ 605.5 million in 2020 , compared with $ 73.5 million in 2019. issuance of common stock —in 2020 , we sold 2.4 million common shares for $ 478.7 million in an underwritten registered offering . net proceeds from the offering were $ 477.5 million . the proceeds provide us with additional liquidity to mitigate risk and allow us to continue investing in the growth of our business and our strategic initiatives . debt issuance and repayment —in 2020 , we received proceeds of $ 70.0 million upon entering into a mortgage of our acton facility . additionally , we received proceeds of $ 60.0 million upon entering into two equipment financing transactions . refer to note 12 to our consolidated financial statements for additional information regarding these transactions . option exercises and payment of taxes for restricted stock net settlements —total proceeds from option exercises decreased 20.9 million to $ 25.7 million in 2020 , compared with $ 46.6 million in 2019. this decrease was primarily driven by less option exercises in 2020 from the retirement of our former ceo in the prior year period . payments for taxes related to net restricted and performance stock unit settlements increased $ 21.2 million to $ 29.8 million in 2020 , compared with $ 8.6 million in 2019. the increase in payments for taxes related to restricted stock net settlements was driven by increased vesting of restricted shares in 2020 , compared with 2019 , including the immediate vesting of a significant portion of a company-wide 20th anniversary equity grant in the fourth quarter 2020. revision to nine months ended september 30 , 2020 condensed consolidated cash flow statement in february 2021 , we identified an error in the presentation of certain cash flow activity that impacted several line items within the previously issued condensed consolidated statement of cash flows for the nine months ended september 30 , 2020. while these items affected cash flows from operating and investing activities , they had no impact on the net increase ( decrease ) in cash and cash equivalents or net income .
| we expect this revenue growth to be partially offset by the impact of lower new customer starts in 2020 stemming from covid-19 . international omnipod international omnipod revenue for 2020 increased $ 54.9 million , or 21.7 % , to $ 308.0 million , compared with $ 253.1 million in 2019. excluding the 1.8 % favorable impact of currency exchange , the remaining 19.9 % increase was primarily due to higher volumes as we continue to expand awareness and access to the omnipod . similar to in the u.s. , in 2021 , we expect higher international omnipod revenue due to continued volume growth and market penetration aided by the full launch of omnipod dash throughout our international markets and our virtual training capabilities . we expect this revenue growth to be partially offset by the impact of lower new customer starts in 2020 stemming from covid-19 and continued lockdowns in europe . drug delivery drug delivery revenue for 2020 increased $ 4.8 million , or 7.4 % , to $ 69.5 million , compared with $ 64.7 million in 2019. this increase was primarily due to increased demand for amgen 's neulasta ® onpro ® kit which includes our pods . in 2021 , we expect drug delivery revenue to decline or grow slightly dependent upon forecasted demand . operating expenses replace_table_token_4_th 33 cost of revenue cost of revenue for 2020 increased $ 64.2 million , or 24.9 % , to $ 322.1 million , compared with $ 257.9 million in 2019. gross margin was 64.4 % in 2020 , compared with 65.1 % in 2019. the 70 basis point decrease in gross margin was primarily due to start-up costs and inefficiencies driven by the addition of the second line at our u.s. manufacturing facility , as well as two months of higher depreciation expense for under-utilized plant capacity , recruiting and screening expenses , expedited shipping costs and manufacturing incentives totaling $ 8.5 million , primarily associated with our contract manufacturer in china as a result of
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these data have been presented , without objection , at multiple scientific and medical conferences in 2013 through 2016 by key heat study investigators and leading liver cancer experts . on october 16 , 2017 , the company announced the publication of the manuscript , “ phase iii heat study adding lyso-thermosensitive liposomal doxorubicin to radiofrequency ablation in patients with unresectable hepatocellular carcinoma lesions , ” in clinical cancer research , a peer-reviewed medical journal . the article reports on one of the largest controlled studies in hepatocellular carcinoma . it provides a comprehensive review of thermodox ® for the treatment of primary liver cancer . the article details learnings from the company 's 701 patient heat study and includes results from computer simulation studies and includes findings from a post hoc subgroup analysis , all of which are consistent with each other and which - when examined together - suggests a clearer understanding of a key thermodox® heat-based mechanism of action : the longer the target tissue is heated , the greater the doxorubicin tissue concentration . additionally , the article explores a new hypothesis prompted by these findings : thermodox® when used in combination with radiofrequency ablation ( rfa ) standardized to a minimum dwell time of 45 minutes ( srfa > 45 minutes ) , may increase the overall survival ( os ) of patients with hcc . the lead author is won young tak , m.d. , ph.d. , professor internal medicine , gastroenterology & hepatology , kyungpook national university hospital daegu , republic of korea , and there are 22 heat study co-authors along with nicholas borys , m.d. , celsion 's senior vice president and chief medical officer . the optima study . on february 24 , 2014 , we announced that the united states food and drug administration ( fda ) , after its customary 30-day review period , accepted our ind without comment , subject to compliance with regulatory standards , for our pivotal , double-blind , placebo-controlled phase iii trial of thermodox ® , our proprietary heat-activated liposomal encapsulation of doxorubicin in combination with rfa in primary liver cancer , also known as hcc ( the optima study ) . the optima study trial design is based on the comprehensive analysis of data from the heat study , which , as described previously , demonstrated that treatment with thermodox ® resulted in a 54 % risk improvement in overall survival in a large number of hcc patients that received an optimized rfa treatment for longer than 45 minutes . designed with extensive input from globally recognized hcc researchers and clinicians and , after formal written consultation with the fda , the optima study was launched in the first half of 2014. the optima study is expected to enroll up to 550 patients globally at up to 75 sites in the u.s. , canada , the eu , china and elsewhere in the asia pacific region , and will evaluate thermodox ® in combination with standardized rfa , which will require a minimum of 45 minutes across all investigators and clinical sites for treating lesions 3 to 7 centimeters , versus standardized rfa alone . the primary endpoint for the trial is os , and the secondary endpoints for the trial are pfs and safety . the statistical plan calls for two interim efficacy analyses by an independent dmc . on december 16 , 2015 , we announced that we had received the clinical trial application approval from the cfda to conduct the optima study in china . this clinical trial application approval will now allow celsion to enroll patients at up to 20 additional clinical sites in china . results from the optima study , if successful , will provide the basis for a global registration filing and marketing approval . on november 29 , 2016 , the company announced the results of an independent analysis conducted by the national institutes of health ( the “ nih ” ) from the heat study which reaffirmed the correlation between increased rfa burn time per tumor volume and improvements in overall survival . the nih analysis , which sought to evaluate the correlation between rfa burn time per tumor volume ( min/ml ) and clinical outcome , concluded that increased burn time per tumor volume significantly improved overall survival in patients treated with rfa plus thermodox® compared to patients treated with rfa alone . for all patients with single lesions treated with rfa plus thermodox ® : ● one unit increase in rfa duration per tumor volume improved overall survival by 20 % ( p=0.017 ; n=227 ) ; ● more significant differences in subgroup of patients with rfa burn times per tumor volume greater than 2.5 minutes per ml ; ● cox multiple covariate analysis showed overall survival to be significant ( p=0.038 ; hazard ratio = 0.85 ) ; and ● burn time per tumor volume did not have a significant effect on overall survival in single lesion patients treated with rfa only . on august 7 , 2017 , the company announced that the independent data monitoring committee ( dmc ) for the company 's optima study completed a regularly scheduled review of the first 50 % of patients enrolled in the trial and has unanimously recommended that the optima study continue according to protocol to its final data readout . the dmc reviewed study data at regular intervals , with the primary responsibilities of ensuring the safety of all patients enrolled in the study , the quality of the data collected , and the continued scientific validity of the study design . as part of its review of the first 275 patients , the dmc monitored a quality matrix relating to the total clinical data set , confirming the timely collection of data , that all data are current as well as other data collection and quality criteria . 41 the company hosted an investigators meeting with physicians in south east asia and key opinion leaders on july 22-23 , 2017 in bangkok , thailand . story_separator_special_tag a second investigators meeting was held on september 23 , 2017 with physicians in china . as of december 31 , 2017 , the company had initiated approximately 65 clinical sites in 14 countries and has plans to activate up to 8 additional clinical trial sites in china and vietnam by the middle of 2018. the dignity study . on december 14 , 2015 , we announced final data from the phase i/ii study of thermodox ® in recurrent chest wall ( rcw ) breast cancer ( the dignity study ) at the san antonio breast cancer symposium . the dignity study is designed to establish a safe therapeutic dose in phase i , and in phase ii to demonstrate local control , including complete and partial responses , and stable disease as its primary endpoint . the dignity study is also planned to evaluate kinetics in thermodox® produced from more than one manufacturing site . of the 28 patients enrolled and treated , 21 patients were eligible for evaluation of efficacy . approximately 62 % of evaluable patients experienced a local response , including six complete responses and seven partial responses . in order for us to focus on our most immediate registrational opportunities , our research in rcw breast cancer has been suspended . we may reinitiate this program following a successful trial in primary liver cancer . these data are consistent with the combined clinical data from two phase i trials , our phase i dignity 1 study and the duke university sponsored phase i trial of thermodox® plus hyperthermia in rcw breast cancer in december 2013. the two similarly designed phase i studies enrolled patients with highly resistant tumors found on the chest wall and who had progressed on previous therapy including chemotherapy , radiation therapy and hormone therapy . there were 29 patients treated in the two trials , including 11 patients in the dignity study and 18 patients in the duke study . of the 29 patients treated , 23 were eligible for evaluation of efficacy . a local response rate of over 60 percent was reported in 14 of the 23 evaluable patients with five complete responses and nine partial responses . acquisition of egen assets on june 20 , 2014 , we completed the acquisition of substantially all of the assets of egen , inc. , an alabama corporation ( egen ) , pursuant to an asset purchase agreement . clsn laboratories , inc. , a delaware corporation and a wholly-owned subsidiary of ours ( clsn laboratories ) , acquired all of egen 's right , title and interest in and to substantially all of the assets of egen , including cash and cash equivalents , patents , trademarks and other intellectual property rights , clinical data , certain contracts , licenses and permits , equipment , furniture , office equipment , furnishings , supplies and other tangible personal property . in addition , clsn laboratories assumed certain specified liabilities of egen , including the liabilities arising out of the acquired contracts and other assets relating to periods after the closing date . the total purchase price for the asset acquisition is up to $ 44.4 million , including potential future earnout payments of up to $ 30.4 million contingent upon achievement of certain earnout milestones set forth in the asset purchase agreement . the earn-out milestone liability was valued on the date of acquisition and is being valued at the end of each quarter with any change in its value recognized in the financial statements . at the closing , we paid approximately $ 3.0 million in cash after the expense adjustment and issued 193,728 shares of our common stock to egen . the shares of common stock were issued in a private transaction exempt from registration under the securities act of 1933 , as amended , pursuant to section 4 ( 2 ) thereof . in addition , 47,862 shares of common stock were held back by us at the closing and were issued to egen pending satisfactory resolution of any post-closing adjustments for expenses or in relation to egen 's indemnification obligations under the asset purchase agreement . these shares were issued on june 16 , 2017 . 42 there being no immediate opportunity to out-license therasilence , earnout payments have been adjusted and now up to $ 24.4 million will become payable , in cash , shares of our common stock or a combination thereof , at our option , upon achievement of two major milestone events as follows : ● $ 12.4 million will become payable upon achieving certain specified development milestones relating to an ovarian cancer study of gen-1 ( formerly known as egen-001 ) to be conducted by us or our subsidiary ; and ● $ 12.0 million will become payable upon achieving certain specified development milestones relating to a gen-1 glioblastoma multiforme brain cancer study to be conducted by us or our subsidiary . our obligations to make the earnout payments will terminate on the seventh anniversary of the closing date . as of now , the company does not anticipate that the ovarian cancer earnout payment will be made before the fourth quarter of 2019. the company is continuing to evaluate the development of gen-1 in glioblastoma multiforme brain cancer in light of other substantial competitive development programs in this indication . on june 9 , 2014 , we borrowed an additional $ 5.0 million pursuant to a certain loan and security agreement dated as of november 25 , 2013 , by and between hercules technology growth capital , inc. and us . we used the loan proceeds to pay the upfront cash payment to egen at closing and certain transaction costs incurred in connection with the acquisition . the acquisition of egen was accounted for under the acquisition method of accounting which required the company to perform an allocation of the purchase price to the assets acquired and liabilities assumed . the fair value of the consideration transferred for the acquisition is approximately $ 27.6 million .
| million in 2017 compared to $ 0.4 million in 2016. costs associated with the production of thermodox® to support the optima study decreased to $ 1.1 million in 2017 from $ 1.5 million incurred in 2017. costs associated with clsn laboratories ( which includes research and development activities and clinical studies for gen-1 , theraplas and therasilence ) were $ 2.5 million in 2017 compared to $ 3.2 million in 2016. the company has sufficient quantities of clinical supplies and the related components to fulfill its theromdox® requirements in the optima study through enrollment and is expanding its capabilities to produce gen-1 for its planned clinical study requirements beyond 2018. general and administrative expenses general and administrative expenses decreased by $ 0.6 million to $ 5.9 million in 2017 compared to $ 6.5 million in 2017. this decrease is primarily the result of reductions in professional fees of $ 0.3 million and a reduction of $ 0.3 million of non-cash amortization expense related to other intangible assets from the june 2014 egen acquisition . change in earn-out milestone liability the total aggregate purchase price for the acquisition of assets from egen included potential future earn-out payments contingent upon achievement of certain milestones . the difference between the aggregate $ 30.4 million in future earn-out payments and the $ 13.9 million included in the fair value of the acquisition consideration at june 20 , 2014 was based on the company 's risk-adjusted assessment of each milestone and utilizing a discount rate based on the estimated time to achieve the milestone . these milestone payments are fair valued at the end of each quarter and any change in their value will be recognized in the financial statement . as of december 31 , 2017 , the company fair valued these milestones at $ 12.5 million and recognized a non-cash benefit of $ 0.6
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story_separator_special_tag both ; margin : 4px 0px ; border-top-width : 0px ; width : 100 % ; background-color : # 000000 '' / > operating expenses for the diving business increased by $ 8,916 year over year due primarily to a goodwill impairment charge of $ 6,197 recognized in the current year . additionally , the acquisition of seabear contributed approximately $ 1,200 of incremental expense in 2016. operating results the company 's operating profit was $ 22,894 in fiscal 2016 compared to an operating profit of $ 17,853 in fiscal 2015. fishing operating profit increased by $ 17,037 to $ 43,092 from $ 26,055 in 2015 due primarily to the lower net legal expense noted above . excluding the effect of the change in legal expense , operating profit for this segment would have been approximately $ 7,100 higher than in 2015 driven by the increase in sales volume between years . the operating profit for camping was $ 2,077 compared to $ 3,847 and reflects the decline in tent sales year over year . operating profit for the watercraft recreation business increased by $ 1,728 in fiscal 2016 over fiscal 2015 due to the factors noted above . operating profit for the diving business declined $ 10,318 from fiscal 2015 due to the goodwill impairment charge , sales declines and incremental r & d costs from the seabear acquisition . other income and expenses interest expense of $ 727 decreased in 2016 from 2015 by $ 138. interest income was less than $ 100 in both years . net other income of $ 1,407 in fiscal 2016 compared favorably to net other expense of $ 1,299 in fiscal 2015. other income in 2016 included currency gains of $ 277 and market gains and dividends of $ 1,092 on deferred compensation plan assets . in 2015 , other expense included $ 1,196 of currency losses as well as $ 106 of market losses , net of dividend income , on the deferred compensation plan assets . the dividends and market gains and losses on deferred compensation plan assets recognized in the consolidated statement of operations in “ other ( income ) expense ” are offset as deferred compensation expense in “ operating expenses. ” pretax income and income taxes the company realized pretax income of $ 23,655 in fiscal 2016 compared to $ 15,753 in fiscal 2015. the company recorded income tax expense of $ 10,154 in 2016 , which equated to an effective tax rate of 42.9 % , compared to $ 5,137 in 2015 , which equated to an effective tax rate of 32.6 % . the fiscal 2016 tax expense reflects the impact of impairment charges against goodwill which is discussed in note 1 to the consolidated financial statements included elsewhere in this report . net income the company recognized net income of $ 13,501 , or $ 1.34 per diluted common share , in fiscal 2016 compared to $ 10,616 , or $ 1.06 per diluted common share , in fiscal 2015 based on the factors discussed above . 25 financial condition , liquidity and capital resources the company 's cash flows from operating , investing and financing activities , as reflected in the accompanying consolidated statements of cash flows , are summarized in the following table : replace_table_token_8_th operating activities the following table sets forth the company 's working capital position at the end of each of the years shown : replace_table_token_9_th cash flows provided by operations totaled $ 46,350 , $ 43,434 and $ 18,056 in fiscal 2017 , 2016 and 2015 , respectively . cash provided by the significant increase in net income in 2017 was nearly offset by an increase in inventory in the current year versus a decrease in inventory in the prior year . additionally , the change in cash flows provided by operations year over year was impacted by the effect in 2016 of $ 6,197 of non-cash goodwill impairment charges in the diving segment . depreciation and amortization charges were $ 13,080 , $ 11,833 and $ 11,702 in fiscal 2017 , 2016 and 2015 , respectively . investing activities cash flows used for investing activities were $ 58,008 , $ 20,741 and $ 10,394 in fiscal 2017 , 2016 and 2015 , respectively . the purchase of short-term investments in 2017 used cash of $ 46,607 while the purchases of the seabear and northport businesses in fiscal 2016 used cash of $ 9,152. expenditures for property , plant and equipment were $ 11,613 , $ 11,702 and $ 10,409 in fiscal 2017 , 2016 and 2015 , respectively . in general , the company 's ongoing capital expenditures are primarily related to tooling for new products and facilities and information systems improvements . financing activities the following table sets forth the company 's debt and capital structure at the end of the past two fiscal years : replace_table_token_10_th cash flows used for financing activities totaled $ 11,551 in fiscal 2017 compared to $ 4,736 in 2016 and $ 3,989 in 2015. dividend payments were $ 3,559 , $ 3,169 and $ 2,966 in 2017 , 2016 and 2015 , respectively . on october 24 , 2016 , the company repaid its outstanding term loans with ridgestone bank totaling $ 7,068. the early repayment of these loans resulted in payment of a 3 % pre-payment penalty . the company 's term loans had a maturity date of september 29 , 2029. the interest rate in effect on the term loans was 5.50 % at the date of repayment . payments on long-term debt were $ 332 and $ 360 in fiscal 2016 and 2015 , respectively . the company had current maturities of its long-term debt of $ 381 as of september 30 , 2016 , and no outstanding borrowings on its revolving credit facilities as of the end of fiscal 2017 or 2016. the company had outstanding borrowings on long-term debt ( net of current maturities ) of $ 7,008 as of september 30 , 2016 . story_separator_special_tag 26 on september 16 , 2013 , the company and certain of its subsidiaries entered into a credit facility with pnc bank national association and certain other lenders named therein . this credit facility consists of a revolving credit agreement dated september 16 , 2013 among the company , certain of the company 's subsidiaries , pnc bank , national association , as lender and as administrative agent and the other lenders named therein ( the “ revolving credit agreement ” or “ revolver ” ) . the revolver has a 60 month term and provides for borrowing of up to an aggregate principal amount not to exceed $ 90,000 with an accordion feature that gives the company the option to increase the maximum seasonal financing availability subject to the conditions of the revolving credit agreement and subject to the approval of the lenders . the revolver imposes a seasonal borrowing limit such that borrowings under the facility may not exceed $ 60,000 from the period june 30 th through october 31 st of each year under the agreement . the interest rate on the revolver is based on libor plus an applicable margin . the applicable margin resets each quarter and ranges from 1.25 % to 2.00 % and is dependent on the company 's leverage ratio for the trailing twelve month period . the interest rate on the revolver was approximately 2.5 % at september 29 , 2017 and 1.7 % at september 30 , 2016. the revolver is secured with a first priority lien on working capital assets and certain patents and trademarks of the company and its subsidiaries and a second priority lien on land , buildings , machinery and equipment of the company 's domestic subsidiaries . the revolving credit agreement limits asset or stock acquisitions to no more than $ 20,000 in the event that the company 's consolidated leverage ratio is greater than 2.5 times . no limits are imposed if the company 's consolidated leverage ratio is less than 2.5 times and the remaining borrowing availability under the revolver is greater than $ 10,000 at the time of the acquisition . the revolving credit agreement limits the amount of restricted payments ( primarily dividends and repurchases of common stock ) made during each fiscal year . the company may declare , and pay , dividends in accordance with historical practices , but in no event may the aggregate amount of all dividends or repurchases of common stock exceed $ 10,000 in any fiscal year . the revolving credit agreement includes maximum leverage ratio and minimum interest coverage ratio limitations . see note 14 to the consolidated financial statements included elsewhere in this report for discussion of the new revolving credit agreement entered into by the company on november 15 , 2017 , which replaced the revolving credit agreement described above . as of september 29 , 2017 , the company held approximately $ 39,205 of cash and cash equivalents in bank accounts in foreign jurisdictions . contractual obligations and off balance sheet arrangements the company has contractual obligations and commitments to make future payments under its operating leases and open purchase orders . the following schedule details these significant contractual obligations at september 29 , 2017. replace_table_token_11_th the company utilizes letters of credit primarily as security for the payment of future claims under its workers ' compensation insurance . letters of credit outstanding at september 29 , 2017 were $ 279 compared to $ 392 on september 30 , 2016 and were included in the company 's total loan availability . the company had no unsecured revolving credit facilities at its foreign subsidiaries as of september 29 , 2017 or september 30 , 2016 . 27 the company has no other off-balance sheet arrangements . the company anticipates making contributions to its defined benefit pension plans of $ 1,151 through september 28 , 2018. market risk management foreign exchange risk the company has significant foreign operations , for which the functional currencies are denominated primarily in euros , swiss francs , hong kong dollars and canadian dollars . as the values of the currencies of the foreign countries in which the company has operations increase or decrease relative to the u.s. dollar , the sales , expenses , profits , losses , assets and liabilities of the company 's foreign operations , as reported in the company 's consolidated financial statements , increase or decrease , accordingly . approximately 17 % of the company 's revenues for the fiscal year ended september 29 , 2017 were denominated in currencies other than the u.s. dollar . approximately 7 % were denominated in euros and approximately 6 % were denominated in canadian dollars , with the remaining 4 % denominated in various other foreign currencies . changes in foreign currency exchange rates can cause unexpected financial losses or cash flow needs . the company may mitigate the impact on its operating results of a portion of the fluctuations in certain foreign currencies through the use of foreign currency forward contracts . foreign currency forward contracts enable the company to lock in the foreign currency exchange rate for a fixed amount of currency to be paid or received on a specified date in the future . the company may use such foreign currency forward contracts to mitigate the risk associated with changes in foreign currency exchange rates on financial instruments and known commitments denominated in foreign currencies . as of september 29 , 2017 and september 30 , 2016 , the company held no foreign currency forward contracts . interest rate risk the company operates in a seasonal business and experiences significant fluctuations in operating cash flow as working capital needs increase in advance of the company 's primary selling and cash generation season , and decline as accounts receivable are collected and cash is accumulated or debt is repaid . commodities certain components used in the company 's products are exposed to commodity price changes . the company manages this risk through instruments such as purchase orders and non-cancellable supply contracts .
| ” pretax income and income taxes the company realized pretax income of $ 48,210 in fiscal 2017 compared to $ 23,655 in fiscal 2016. the company recorded income tax expense of $ 13,053 in 2017 , which equated to an effective tax rate of 27.1 % , compared to $ 10,154 in 2016 , which equated to an effective tax rate of 42.9 % . the fiscal 2017 tax expense reflects the impact of a current year first quarter foreign tax credit net tax benefit of $ 4,537 generated by the repatriation of $ 22,315 in that quarter from foreign jurisdictions into the u.s. additionally , the change in the comparative effective tax rate was also impacted from the result of no tax benefit being recorded on the non-deductible portion of the goodwill impairment charge recognized in the diving segment in 2016. net income the company recognized net income of $ 35,157 , or $ 3.51 per diluted common share , in fiscal 2017 compared to $ 13,501 , or $ 1.34 per diluted common share , in fiscal 2016 based on the factors discussed above . 23 fiscal 2016 vs. fiscal 2015 net sales net sales in 2016 increased by 1 % to $ 433,727 compared to $ 430,489 in 2015. foreign currency exchange had a $ 2,691 unfavorable impact , less than 1 % , on sales in 2016 versus 2015. net sales for the fishing business increased by $ 12,354 , or 5 % during 2016. the increase from fiscal 2015 was driven primarily by exceptional new product performance in both the minn kota and humminbird product lines . camping net sales decreased $ 7,555 , or 16 % , in 2016 from 2015. strong sales of jetboil products during 2016 was not able to offset declines in sales of tents year over year . net sales in the watercraft recreation business increased $ 1,427 , or 3 % , due primarily to solid product offerings in a strong paddling marketplace . diving net sales declined $ 2,988 , or 4 % , year over year . several factors contributed to this decline , including instability
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in addition , in 2018 , we completed the process of forming practice areas within our global network structure to bring together agencies operating in common disciplines . this action leverages existing resources and , in close coordination with our key client matrix organization , enhances the development of custom client solutions . 8 driven by our clients ' continuous demand for more effective and efficient marketing activities , we strive to provide an extensive range of advertising , marketing and corporate communications services through various client-centric networks that are organized to meet specific client objectives . these services include , among others , advertising , branding , content marketing , corporate social responsibility consulting , crisis communications , custom publishing , data analytics , database management , digital/direct marketing , digital transformation , entertainment marketing , experiential marketing , field marketing , financial/corporate business-to-business advertising , graphic arts/digital imaging , healthcare marketing and communications , in-store design , interactive marketing , investor relations , marketing research , media planning and buying , merchandising and point of sale , mobile marketing , multi-cultural marketing , non-profit marketing , organizational communications , package design , product placement , promotional marketing , public affairs , public relations , retail marketing , sales support , search engine marketing , shopper marketing , social media marketing and sports and event marketing . in the near term , barring unforeseen events and excluding the impact of changes in foreign exchange rates , because of continued improvement in operating performance by many of our agencies and new business activities , we expect our organic revenue to increase modestly for 2019 and over the long term to be in excess of the weighted average nominal gdp growth in our major markets . we expect to continue to identify acquisition opportunities intended to build upon the core capabilities of our strategic disciplines and business platforms , expand our operations in high-growth and emerging markets and enhance our capabilities to leverage new technologies that are being used by marketers today . we continually evaluate our portfolio of businesses to identify areas for investment and acquisition opportunities , as well as to identify non-strategic or underperforming businesses for disposition . during the third quarter of 2018 , we disposed of certain businesses , primarily in our crm execution & support discipline , and recorded a net gain of $ 178.4 million primarily related to the sale of sellbytel , our european-based outsourced sales , service and support company . also , during the third quarter , we took certain repositioning actions in an effort to continue to improve our strategic position and achieve operating efficiencies , and we recorded charges of $ 149.4 million for incremental severance , office lease consolidation and termination , asset write-offs , and other charges . we expect the reduction to our earnings for the disposition activity to be substantially offset by savings achieved from the operating efficiencies and cost reductions , as well as any incremental earnings from new acquisition activity , and we expect a net reduction to revenue of approximately 3 % to 3.5 % in the first half of 2019 and 2.5 % for the full year . given our size and breadth , we manage our business by monitoring several financial indicators . the key indicators that we focus on are revenue and operating expenses . we analyze revenue growth by reviewing the components and mix of the growth , including growth by principal regional market and marketing discipline , the impact from foreign currency exchange rate changes , growth from acquisitions , net of dispositions and growth from our largest clients . operating expenses are comprised of cost of services , selling , general and administrative expenses , or sg & a , and depreciation and amortization . in 2018 , our revenue increased 0.1 % compared to 2017 . changes in foreign exchange rates increased revenue 0.6 % , acquisition revenue , net of disposition revenue , reduced revenue 2.1 % , and organic growth increased revenue 2.6 % . across our principal regional markets , the changes in revenue were : north america decreased 2.8 % , europe increased 6.0 % , asia-pacific increased 3.6 % and latin america decreased 7.5 % . in north america , modest growth in the united states was offset by a decrease in revenue primarily resulting from the impact of the adoption of asc 606 , the disposition of our specialty print media business in the second quarter of 2017 and negative performance in canada . organic revenue growth in the united states was led by our crm consumer experience , healthcare , advertising and media and public relations businesses , and was partially offset by a decrease in our crm execution & support discipline . the revenue increase in europe resulted from strong organic revenue in the region , particularly in france , spain and the czech republic , modest organic revenue growth in the u.k. , and the strengthening of the euro and the british pound against the u.s. dollar in the first half of the year , which was partially offset by disposition activity and negative performance in germany . the decrease in revenue in latin america was primarily a result of the weakening of the brazilian real against the u.s. dollar . in asia-pacific , organic growth in most countries in the region , especially australia , china , new zealand and india , was partially offset by disposition activity . the change in revenue in 2018 compared to 2017 , in our four fundamental disciplines was : advertising increased 1.3 % , crm consumer experience increased 0.2 % , crm execution & support decreased 11.0 % , public relations increased 1.7 % and healthcare increased 12.7 % . we measure cost of services in two distinct categories : salary and service costs and occupancy and other costs . story_separator_special_tag as a service business , salary and service costs make up a significant portion of our operating expenses and substantially all these costs comprise the essential components directly linked to the delivery of our services . salary and service costs include employee compensation and benefits , freelance labor and direct service costs , which include third-party supplier costs and client-related travel costs . occupancy and other costs consist of the indirect costs related to the delivery of our services , including office rent and other occupancy costs , equipment rent , technology costs , general office expenses and other expenses . 9 sg & a expenses , which increased slightly year-over-year , primarily consist of third-party marketing costs , professional fees and compensation and benefits and occupancy and other costs of our corporate and executive offices , which includes group-wide finance and accounting , treasury , legal and governance , human resource oversight and similar costs . operating expenses , which include the net gain from the disposition of subsidiaries and the repositioning charges , as described above ( see note 13 to the consolidated financial statements ) , decreased $ 33.1 million , in 2018 compared to 2017 . salary and service costs , which tend to fluctuate with changes in revenue , increased $ 78.9 million , or 0.7 % , in 2018 compared to 2017 . the year-over-year increase primarily reflects the incremental severance and other charges of $ 73.7 million incurred in connection with the repositioning actions taken in the third quarter of 2018. occupancy and other costs , which are less directly linked to changes in revenue than salary and service costs , increased $ 68.8 million , or 5.5 % , in 2018 compared to 2017 . the year-over-year change reflects a decrease of $ 4.7 million , which was offset by $ 73.5 million of repositioning charges primarily related to office lease consolidation and termination actions taken in the third quarter of 2018. operating margin increased year-over-year to 14.0 % from 13.6 % and ebita margin increased year-over-year to 14.6 % from 14.4 % . the net gain on disposition of subsidiaries and repositioning expenses , increased operating profit and operating margin year-over year by $ 29.0 million and 0.2 % , respectively . net interest expense increased $ 10.3 million to $ 209.2 million in 2018 compared to 2017 . interest expense on debt increased $ 17.4 million to $ 241.9 million in 2018 . interest income in 2018 increased $ 7.5 million , compared to the prior year . our effective tax rate for 2018 , decreased period-over-period to 25.6 % from 36.9 % in 2017 . the decrease was primarily attributable to the reduction of the u.s. federal statutory income tax rate to 21 % from 35 % resulting from the tax act which was enacted in december 2017. additionally , income tax expense for 2018 reflects the following : a reduction of approximately $ 19 million , primarily as a result of the successful resolution of foreign tax claims , a reduction of $ 25.0 million related to the net income tax effect of the net gain on disposition of subsidiaries and repositioning actions ( see note 13 to the consolidated financial statements ) and additional income tax expense of $ 28.9 million , reflecting the finalization of the provisional estimate of the effect of the tax act recorded in the fourth quarter of 2017 ( see note 11 to the consolidated financial statements ) . net income - omnicom group inc. in 2018 increased , due to the factors described above , $ 238.0 million , or 21.9 % , to $ 1,326.4 million from $ 1,088.4 million in 2017 . the net gain on disposition of subsidiaries and repositioning actions , after the allocable share of $ 6.9 million to noncontrolling interests , and the additional income tax expense from the finalization of the provisional estimate of the effect of the tax act , increased net income - omnicom group inc. $ 18.2 million . diluted net income per share - omnicom group inc. increased 25.4 % to $ 5.83 in 2018 , compared to $ 4.65 in 2017 , due to the factors described above , as well as the impact of the reduction in our weighted average common shares outstanding resulting from repurchases of our common stock , net of shares issued for restricted stock awards , stock option exercises and the employee stock purchase plan . the net gain on disposition of subsidiaries and repositioning actions net of the additional income tax expense from the finalization of the provisional estimate of the effect of the tax act , increased diluted net income per share - omnicom group inc. $ 0.08 . critical accounting policies the following summary of our critical accounting policies provides a better understanding of our financial statements and the related discussion in this md & a . we believe that the following policies may involve a higher degree of judgment and complexity in their application than most of our accounting policies and represent the critical accounting policies used in the preparation of our financial statements . readers are encouraged to consider this summary together with our financial statements and the related notes , including note 2 , for a more complete understanding of the critical accounting policies discussed below . estimates we prepare our financial statements in conformity with u.s. gaap and are required to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes . we use a fair value approach in testing goodwill for impairment and when evaluating our equity method and cost method investments to determine if an other-than-temporary impairment has occurred . actual results could differ from those estimates and assumptions . acquisitions and goodwill we have made and expect to continue to make selective acquisitions 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| the components of revenue change in the united states ( “ domestic ” ) and the remainder of the world ( “ international ” ) were ( in millions ) : replace_table_token_7_th the components and percentages are calculated as follows : the foreign exchange impact is calculated by translating the current period 's local currency revenue using the prior period average exchange rates to derive current period constant currency revenue ( in this case $ 15,205.1 million for the total column ) . the foreign exchange impact is the difference between the current period revenue in u.s. dollars and the current period constant currency revenue ( $ 15,290.2 million less $ 15,205.1 million for the total column ) . acquisition revenue is calculated as if the acquisition occurred twelve months prior to the acquisition date by aggregating the comparable prior period revenue of acquisitions through the acquisition date . as a result , acquisition revenue excludes the positive or negative difference between our current period revenue subsequent to the acquisition date and the comparable prior period revenue and the positive or negative growth after the acquisition is attributed to organic growth . disposition revenue is calculated as if the disposition occurred twelve months prior to the disposition date by aggregating the comparable prior period revenue of dispositions through the disposition date . the acquisition revenue and disposition revenue amounts are netted in the table . organic growth is calculated by subtracting the foreign exchange rate impact , and the acquisition revenue , net of disposition revenue components from total revenue growth , excluding the impact of the adoption of asc 606. the impact of the adoption of asc 606 is discussed above in the “ accounting changes ” section . the percentage change is calculated by dividing the individual component amount by the prior period revenue base of that component ( $ 15,273.6 million for the total column ) . changes in the value of foreign currencies against the u.s. dollar affect our results of operations and financial position . for the most part , because the revenue and expense of our foreign operations are both denominated in the same local currency ,
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these factors include , among other things , whether the estimates have a significant impact on the financial statements , the nature of the estimates , the ability to readily validate the estimates with other information including independent third parties or available pricing , sensitivity of the estimates to changes in economic conditions and whether alternative methods of accounting may be utilized under gaap . management has discussed each critical accounting policy and the methodology for the identification and determination of critical accounting policies with the company 's audit committee . republic believes its critical accounting policies and estimates relate to the following : acll and provision — at december 31 , 2020 , the bank maintained an acll for expected credit losses inherent in the bank 's loan portfolio , which includes overdrawn deposit accounts . management evaluates the adequacy of the acll monthly , and presents and discusses the acll with the audit committee and the board of directors quarterly . effective january 1 , 2020 , the company adopted asc 326 financial instruments – credit losses , which replaced the pre-january 1 , 2020 “ probable-incurred ” method for calculating the company 's acl with the cecl method . cecl is applicable to financial assets measured at amortized cost , including loan and lease receivables and held-to-maturity debt securities . cecl also applies to certain off-balance sheet credit exposures . 46 when measuring an acl , cecl primarily differs from the probable-incurred method by : a ) incorporating a lower “ expected ” threshold for loss recognition versus a higher “ probable ” threshold ; b ) requiring life-of-loan considerations ; and c ) requiring reasonable and supportable forecasts . the company 's cecl method is a “ static-pool ” method that analyzes historical closed pools of loans over their expected lives to attain a loss rate , which is then adjusted for current conditions and reasonable , supportable forecasts prior to being applied to the current balance of the analyzed pools . due to its reasonably strong correlation to the company 's historical net loan losses , the company has chosen to use the u.s. national unemployment rate as its primary forecasting tool . for its cre loan pool , the company also uses one-year forecasts of vacancy rates for cre in the company 's market footprint . management 's evaluation of the appropriateness of the acll is often the most critical accounting estimate for a financial institution , as the acll requires significant reliance on the use of estimates and significant judgment as to the reliance on historical loss rates , consideration of quantitative and qualitative economic factors , and the reliance on a reasonable and supportable forecast . adjustments to the historical loss rate for current conditions include differences in underwriting standards , portfolio mix , delinquency level , or term , as well as for changes in environmental conditions , such as changes in property values or other relevant factors . one-year forecast adjustments to the historical loss rate are based on the u.s. national unemployment rate and vacancy rates for cre in the company 's market footprint . subsequent to the one-year forecasts , loss rates are assumed to immediately revert back to long-term historical averages . prospectively , the impact of utilizing the cecl approach to calculate the acll will be significantly influenced by the composition , characteristics and quality of the company 's loan portfolio , as well as the prevailing economic conditions and forecasts utilized . material changes to these and other relevant factors may result in greater volatility to the acll , and therefore , greater volatility to the company 's reported earnings . see additional detail regarding the company 's adoption of asc 326 and the cecl method under footnote 1 “ summary of significant accounting policies ” and footnote 4 “ loans and allowance for credit losses ” of part ii item 8 “ financial statements and supplementary data. ” management 's evaluation of the acll management evaluates the acll for its core banking operations separately from its non-traditional rpg operations . core banking operations consist of the company 's traditional banking , warehouse , and mortgage banking segments . rpg operations consist of the company 's trs and rcs segments . in prior periods under the probable-incurred standard , management conducted two annual calculations to evaluate the reasonableness of its core bank acll : ● an absorption rate , which considered annual net loan losses for the year just ended as a percent of the beginning-of-the-year acll ; and ● an exhaustion rate , which calculated how many years of charge-offs the beginning-of-year acll could withstand based on gross charge-offs for the year just ended . management considered these historic absorption and exhaustion formulas less meaningful at december 31 , 2020 because of its january 1 , 2020 cecl adoption and because core bank loan losses were substantially restrained during 2020 by pandemic-related financial relief provided to borrowers . see additional detail regarding pandemic-related financial relief provided to the bank 's loan clients under footnote 4 “ loans and allowance for credit losses ” of part ii item 8 “ financial statements and supplementary data. ” management evaluated the reasonableness of its core bank acll as of december 31 , 2020 by evaluating modified absorption and exhaustion rates that account for cecl life-of-loan considerations and the economic hardship and uncertainty brought about by the covid-19 pandemic . the modified absorption rate considered total core bank net loan losses from 2008 to 2013 as a percent of the end-of-year core bank acll . the modified exhaustion rate considered how many years of gross core bank loan charge-offs the end-of-year core bank acll could withstand based on average annual net core bank loan losses from 2008 to 2013. the years 47 2008 to 2013 represent a six-year period during which the u.s. unemployment rate rose above 8 % and the core bank incurred a historically high period of loan losses . story_separator_special_tag management believes core bank losses from 2008 to 2013 are more representative of current economic conditions than more recent years just prior to the onset of the covid-19 pandemic . at december 31 , 2020 , four years represented the weighted average term of the core bank loan portfolio , with this term adjusted to approximately six years after exclusion of the bank 's ppp portfolio , which is short-term and government guaranteed , and the bank 's warehouse portfolio , which is also generally short-term . the core bank 's modified absorption rate was 84 % and its modified exhaustion rate was 6.1 years at december 31 , 2020. management considers these rates reasonable under current economic conditions . the table below reflects the core bank 's modified and standard exhaustion and absorption rates for each of the last three years : replace_table_token_11_th based on management 's evaluation , a core bank acll of $ 52 million , or 1.11 % of total core bank loans , was an adequate estimate of expected losses within the loan portfolio as of december 31 , 2020 and resulted in core banking provision for its loans of $ 16.7 million during 2020. this compares to an acll of $ 30 million as of december 31 , 2019 and a loan provision of $ 3.1 million for 2019 under the probable incurred accounting standard . if the mix and amount of future charge-off percentages differ significantly from those assumptions used by management in making its determination , an adjustment to the core bank acll and the resulting effect on the income statement could be material . the rpg acll at december 31 , 2020 primarily relates to loans originated and held for investment through the rcs segment . rcs generally originates small-dollar , consumer credit products . in some instances , the bank originates these products , sells 90 % of the balances within three days of loan origination , and retains a 10 % interest . rcs loans typically earn a higher yield but also have higher credit risk compared to loans originated through core banking operations , with a significant portion of rcs clients considered subprime or near-prime borrowers . at december 31 , 2020 , management evaluated the acll on its only active rcs product that has incurred meaningful losses since inception , its line-of-credit product . due to the general short-term nature of this product , management utilized its traditional absorption and exhaustion calculations using 2020 charge-offs and net losses with the beginning-of-the-year acll . the absorption and exhaustion rates were 43 % and 2.1 years , respectively , and considered reasonable . rpg maintained an acll for loan products offered through its rcs segment at december 31 , 2020 , including its line-of-credit product and its healthcare-receivables products . at december 31 , 2020 , the acll to total loans estimated for each rcs product ranged from as low as 0.25 % for its healthcare-receivables portfolio to as high as 48.96 % for its line-of-credit portfolio . a lower reserve percentage was provided for rcs 's healthcare receivables at december 31 , 2020 , as such receivables have recourse back to the company 's third-party service providers in the transactions . based on management 's calculation , an acll of $ 9.0 million , or 6.7 % , of total rpg loans was an adequate estimate of expected losses within the rpg portfolio as of december 31 , 2020 . rpg 's trs segment offered its ea tax-credit product during the first two months of 2020 , 2019 , and 2018. an acll for losses on eas is estimated during the limited , short-term period the product is offered . eas are generally repaid within 35 days of origination . provisions for ea losses are estimated when advances are made , with all estimated provisions made in the first quarter of each year . no acll for eas existed as of december 31 , 2020 and 2019 , as all eas originated during the first two months of each year had either been paid off or charged-off by june 30 th of each year . related to the overall credit losses on eas , the bank 's ability to control losses is highly dependent upon its ability to predict the taxpayer 's likelihood to receive the tax refund as claimed on the taxpayer 's tax return . each year , the bank 's ea approval model is based primarily on the prior-year 's tax refund funding patterns . because much of the loan volume occurs each year before that year 's 48 tax refund funding patterns can be analyzed and subsequent underwriting changes made , credit losses during a current year could be higher than management 's predictions if tax refund funding patterns change materially between years . in response to changes in the legal , regulatory and competitive environment , management annually reviews and revises the ea 's product parameters . further changes in ea product parameters do not ensure positive results and could have an overall material negative impact on the performance of the ea and therefore on the company 's financial condition and results of operations . see additional discussion regarding the ea product under the sections titled : ● part i item 1a “ risk factors ” ● part ii item 8 “ financial statements and supplementary data , ” footnote 4 “ loans and allowance for credit losses ” rpg recorded a net charge of $ 14.4 million , $ 22.7 million , and $ 27.8 million to the provision during 2020 , 2019 , and 2018 , with the provision for each year primarily due to net losses on eas and growth in short-term , consumer loans originated through the rcs segment . if the number of future charge-offs on eas and rcs loans differ significantly from assumptions used by management in making its determination , an adjustment to the rpg acll and the resulting effect on the income statement could be material .
| increases in short-term interest rates , however , could have a negative impact on net interest income and net interest margin if the bank is unable to maintain its deposit balances and the cost of those deposits at the levels assumed in its interest-rate-risk model . in addition , a further flattening or inversion of the yield curve , causing the spread between long-term interest rates and short-term interest rates to decrease , could negatively impact the company 's net interest income and net interest margin . unknown variables , which may impact the company 's net interest income and net interest margin in the future , include , but are not limited to , the actual steepness of the yield curve , future demand for the bank 's financial products and the bank 's overall future liquidity needs . total company net interest income decreased $ 3.8 million , or 2 % , during 2020 compared to the same period in 2019. total company net interest margin decreased to 4.10 % during 2020 compared to 4.46 % in 2019 . the most significant components affecting the total company 's net interest income and net interest margin by reportable segment follow : traditional banking segment the traditional banking segment 's net interest income decreased $ 8.7 million , or 5 % , during 2020 compared to 2019. the traditional banking net interest margin decreased to 3.42 % for 2020 compared to 3.76 % for 2019 . 52 the following factors primarily impacted the traditional bank 's net interest income and net interest margin during 2020 : ● the traditional bank 's net interest spread , the weighted average rate earned on its interest-earning assets less the weighted average cost paid on its interest-bearing liabilities , compressed 30 basis points and its net interest margin compressed 33 basis points primarily because the core bank 's liabilities had less room to reprice downward than its interest-earning asset counterparts . ● because the bank is already paying zero interest on its noninterest-bearing funding sources , such as noninterest-bearing deposits and common stockholders ' equity ,
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currently , ggh is developing lots for sale to third party builders and is not engaged in any construction activity . to date , twenty-five lots have been sold . the company has closed on the sale of all 25 lots and recorded revenue of $ 1,468,000. revenue is recorded when the deeds are issued . as of december 31 , 2018 , the company has $ 995,327 of deposits for pending sales . 40 as reflected in our consolidated financial statements we have generated significant losses from operations of $ 5,254,781 and $ 7,685,390 for the years ended december 31 , 2018 and 2017 , respectively , consisting primarily of general and administrative expenses , raising substantial doubt that we will be able to continue operations as a going concern . we have suffered recurring losses from operations and our independent registered public accounting firm issued a report which includes an explanatory paragraph relating to our ability to continue as a going concern . our ability to execute our business plan is dependent upon our generating cash flow and obtaining additional debt or equity capital sufficient to fund operations . our business strategy may not be successful in addressing these issues and there can be no assurance that we will be able to obtain any additional capital . if we can not execute our business plan ( including acquiring additional capital ) , our stockholders may lose their entire investment in us . if we are able to obtain additional debt or equity capital ( of which there can be no assurance ) , we hope to acquire additional management as well as increase marketing our products and continue the development of our real estate holdings . financings in 2018 and 2017 , we raised , net of repayments , approximately $ 5,084,000 and $ 9,271,000 , respectively of new capital through the issuance of debt and equity . we used the net proceeds from the closings of these private placement offerings for general working capital and capital expenditures . initiatives we have implemented a number of initiatives designed to expand revenues and control costs . revenue enhancement initiatives include expanding marketing , investment in additional winery capacity and developing new real estate development revenue sources . in august 2017 , the company completed a strategic acquisition of land directly adjacent to its existing property at awe for $ 700,000 , which more than doubles the size of awe and provides room for continued expansion and growth . cost reduction initiatives include investment in equipment that will decrease our reliance on subcontractors , plus outsourcing and restructuring of certain functions . our goal is to become more self-sufficient and less dependent on outside financing . liquidity as reflected in our accompanying consolidated financial statements , we have generated significant losses which have resulted in a total accumulated deficit of approximately $ 81.2 million , raising substantial doubt that we will be able to continue operations as a going concern . our independent registered public accounting firm included an explanatory paragraph in their report for the years ended december 31 , 2018 and 2017 , stating that we have incurred significant losses and need to raise additional funds to meet our obligations and sustain our operations . our ability to execute our business plan is dependent upon our generating cash flow and obtaining additional debt or equity capital sufficient to fund operations . if we are able to obtain additional debt or equity capital ( of which there can be no assurance ) , we hope to acquire additional management as well as increase the marketing of our products and continue the development of our real estate holdings . our business strategy may not be successful in addressing these issues and there can be no assurance that we will be able to obtain any additional capital . if we can not execute our business plan on a timely basis ( including acquiring additional capital ) , our stockholders may lose their entire investment in us , because we may have to delay vendor payments and or initiate cost reductions , which would have a material adverse effect on our business , financial condition and results of operations , and we could ultimately be forced to discontinue our operations , liquidate and or seek reorganization under the u.s. bankruptcy code . 41 story_separator_special_tag -- > 43 selling and marketing expenses selling and marketing expenses were approximately $ 317,000 and $ 348,000 from continuing operations , for the years ended december 31 , 2018 and 2017 , respectively , representing a decrease of approximately $ 31,000 or 9 % . decreases of approximately $ 84,000 resulting from the decline in the value of the argentine peso vis-à-vis the u.s. dollar for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 were partially offset by an increase of approximately $ 53,000 in advertising costs and marketing efforts to promote the algodon brand . general and administrative expenses general and administrative expenses were approximately $ 6,424,000 and $ 7,015,000 from continuing operations for the years ended december 31 , 2018 and 2017 , respectively , representing a decrease of approximately $ 401,000 or 6 % , resulting primarily from the impact of the decline in the value of the argentine peso vis-à-vis the u.s. dollar for the year ended december 31 , 2018 compared to the year ended december 31 , 2017. depreciation and amortization expense depreciation and amortization expense was approximately $ 172,000 and $ 193,000 during the years ended december 31 , 2018 and 2017 , respectively , representing a decrease of approximately $ 21,000 or 11 % . it should be noted that approximately an additional $ 26,000 and $ 94,000 of depreciation and amortization expense was capitalized to inventory during the years ended december 31 , 2018 and 2017 , respectively . story_separator_special_tag the decrease in depreciation expense results from the impact of the decline in the value of the argentine peso relative to the u.s. dollar during the period , partially offset by increases resulting from the purchases of property and equipment during the period . most of our property and equipment is located in argentina and the gross cost being depreciated is impacted by the devaluation of the argentine peso relative to the u.s. dollar . interest expense , net interest expense was approximately $ 611,000 and $ 321,000 during the years ended december 31 , 2018 and 2017 , respectively , representing an increase of approximately $ 291,000 or 91 % . the increase is primarily due to the increase in debt principal outstanding during the period . loss from discontinued operations on november 29 , 2016 , our board of directors determined that it was in the company 's best interest to close down dpec capital and we ceased our broker-dealer operations december 31 , 2016. on february 21 , 2017 , our request to finra for broker-dealer withdrawal ( “ bdw ” ) became effective . the loss from discontinued operations , incurred by the broker dealer operations , was approximately $ 106,000 for the year ended december 31 , 2017. ggh also owned approximately 96.5 % of mercari communications group , ltd. ( “ mercari ” ) , a public shell corporation current in its sec reporting obligations . on december 20 , 2016 , we entered into a stock purchase agreement with a purchaser , whereby the purchaser agreed to purchase all of our shares or mercari for $ 260,000. the sale of mercari stock was completed on january 20 , 2017 and we received net proceeds after expenses of $ 199,200 . 44 liquidity and capital resources we measure our liquidity in variety of ways , including the following : for the years ended december 31 , 2018 2017 cash $ 58,488 $ 358,303 working capital deficiency $ ( 4,188,924 ) $ ( 62,464 ) based upon our working capital situation as of december 31 , 2018 , we require additional equity and or debt financing in order to sustain operations . these conditions raise substantial doubt about our ability to continue as a going concern . during the years ended december 31 , 2018 and 2017 , we have relied primarily on debt and equity offerings to third party independent , accredited investors to sustain operations . during the year ended december 31 , 2018 , we received proceeds of approximately $ 3,508,000 from the issuance of convertible debt , approximately $ 580,000 of proceeds from loans payable and approximately $ 1,324,000 proceeds from the sale of our common stock during the year ended december 31 , 2017 , we issued 775,931 shares of series b convertible preferred stock at $ 10.00 per share to accredited investors in a private placement transaction for gross proceeds of approximately $ 7,759,000 , received proceeds of $ 1,280,000 from the issuance of convertible debt ( of which $ 1,260,000 was subsequently converted to series b convertible preferred stock ) , and issued 22,500 shares of common stock at $ 2.00 per share to accredited investors in a private placement transaction for net proceeds of $ 40,500. we also received approximately $ 519,000 of cash proceeds from a bank loan . the proceeds from these financing activities were used to fund our existing operating deficits , expenditures associated with our real estate development projects , enhanced marketing efforts to increase revenues and the general working capital needs of the business . we will need to raise additional capital in order to meet our future liquidity needs for operating expenses , capital expenditures for the winery expansion and to further invest in our real estate development . if we are unable to obtain adequate funds on reasonable terms , we may be required to significantly curtail or discontinue operations . availability of additional funds as a result of the above developments , we have been able to sustain operations . however , we will need to raise additional capital in order to meet our future liquidity needs for operating expenses , capital expenditures for the winery expansion and to further invest in our real estate development . if we are unable to obtain adequate funds on reasonable terms , we may be required to significantly curtail or discontinue operations . 45 sources and uses of cash for the years ended december 31 , 2018 and 2017 net cash used in operating activities net cash used in operating activities for the years ended december 31 , 2018 and 2017 , amounted to approximately $ 4,346,000 and $ 8,075,000 , respectively . during the year ended december 31 , 2018 the net cash used in operating activities was primarily attributable to the net loss of approximately $ 5,678,000 , adjusted for approximately $ 878,000 of non-cash expenses and $ 454,000 of cash provided by changes in the levels of operating assets and liabilities . during the year ended december 31 , 2017 the net cash used in operating activities was primarily attributable to the net loss of approximately $ 7,913,000 , adjusted for approximately $ 865,000 of non-cash expenses and $ 1,028,000 cash used by changes in the levels of operating assets and liabilities . net cash used in investing activities net cash used in investing activities for the years ended december 31 , 2018 and 2017 amounted to approximately $ 292,000 and $ 849,000 , respectively .
| hotel room and event revenues were approximately ars $ 25.6 million and ars $ 14.1 million during years ended december 31 , 2018 and 2017 , respectively , representing an increase of approximately ars $ 11.5 million , or 82 % due to higher occupancy and higher room rates . real estate sale revenues were approximately ars $ 39.4 million and ars $ 0 million during the years ended december 31 , 2018 and 2017 , respectively , as a result of lot sales during 2018. restaurant revenues were approximately ars $ 7.5 million and ars $ 5.2 million during the years ended december 31 , 2018 and 2017 , respectively , representing an increase of approximately ars $ 2.3 million or 44 % . argentine winemaking revenues were approximately ars $ 6.2 million and ars $ 4.4 million during the years ended december 31 , 2018 and 2017 , respectively , representing an increase of approximately ars $ 1.9 million or 43 % . other revenues , including golf , tennis and agricultural revenues , were ars $ 5.1 million and ars $ 3.3 million during the years ended december 31 , 2018 and 2017 , respectively , representing an increase of approximately ars $ 1.8 million or 56 % , of which ars $ 1.4 million represents an increase in agricultural revenues . gross loss we generated a gross profit of approximately $ 1,658,000 from continuing operations for the year ended december 31 , 2018 as compared to a gross loss of approximately $ 130,000 from continuing operations for the year ended december 31 , 2017 , representing an increase of $ 1,788,000. the improvement results primarily from the increase in real estate sale revenues of approximately $ 2,561,000 and the increase in hotel and restaurant sales of approximately $ 859,000. the improvement in gross profit was partially offset by $ 1,276,000 impact of the decline in the value of the argentine peso vis-à-vis the u.s. dollar for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 , and by the increase in the cost of goods sold as
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accordingly , we believe these are the most critical to fully understand and evaluate our financial condition and results of operations . revenue recognition we recognize revenue from the sale of our products provided that persuasive evidence of an arrangement exists , delivery has occurred , the price is fixed or determinable and collectability is reasonably assured . contracts and or customer purchase orders are used to determine the existence of an arrangement . shipping documents and customer acceptance , when applicable , are used to verify delivery . we assess whether the fee is fixed or determinable based on the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment . we assess collectability based primarily on the creditworthiness of the customer as determined by credit checks and the customer 's payment history . 46 we recognize revenue when the product is shipped and title has transferred to the buyer . we bear all costs and risks of loss or damage to the goods up to that point . on most orders , our terms of sale provide that title passes to the buyer upon shipment by us . in certain cases , our terms of sale may provide that title passes to the buyer upon delivery of the goods to the buyer . we determine payments made to third-party sales representatives are appropriately recorded to sales and marketing expense and not a reduction of revenue as the sales agent services they provide have an identifiable benefit and are made at similar rates of other sales agent service providers . shipping and handling costs are included in the cost of goods sold . we present revenue net of sales taxes and any similar assessments . stock-based compensation expense our stock-based compensation expense was recorded as follows : replace_table_token_4_th effective january 1 , 2006 , we adopted new authoritative accounting guidance for stock-based compensation expense , which requires enterprises to measure the cost of employee services received in exchange for an award of equity instruments , including stock options , based on the grant date fair value of the award . we adopted the new guidance using the prospective transition method . under this transition method , beginning january 1 , 2006 , employee stock-based compensation expense includes : ( 1 ) compensation cost for all stock-based awards granted prior to , but not yet vested as of december 31 , 2005 , based on the intrinsic value method and ( 2 ) compensation cost for all stock-based awards granted or modified subsequent to december 31 , 2005 , based on the grant date fair value estimated in accordance with the new guidance . we grant stock options , stock purchase rights , stock appreciation units and restricted stock units to employees and directors . the stock-based awards are accounted for at fair value as of the measurement date . for stock options and restricted stock units , the measurement date is the grant date and for stock purchase rights the measurement date is the first day of the offering period . stock appreciation units are subject to remeasurement each reporting period . we measure restricted stock units based on the value of our common stock on the date of grant . our determination of the fair value of all of our other stock-based payment awards on the measurement date utilizes the black-scholes option pricing model , and is impacted by our common stock price as well as changes in assumptions regarding a number of highly complex and subjective variables . these variables include , but are not limited to , expected common stock price volatility over the term of the option awards , projected employee option exercise behaviors ( expected period between stock option vesting date and stock option exercise date , risk-free interest rates and expected dividends . we recognize the fair value over the period during which an employee is required to provide services in exchange for the award , known as the requisite service period ( usually the vesting period ) on a straight-line basis . stock-based compensation expense includes the impact of estimated forfeitures . we estimate future forfeitures at the date of grant and revise the estimates , if necessary , in subsequent periods if actual forfeitures differ from those estimates . the black-scholes pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable ; characteristics not present in our option grants . existing 47 valuation models , including the black-scholes model , may not provide reliable measures of the fair value of ourstock-based awards . consequently , there is a risk that our estimates of the fair value of our stock-based awards on the grant dates may bear little resemblance to the actual values realized upon exercise . stock options may expire or otherwise result in zero intrinsic value as compared to the fair values originally estimated on the grant date and reported in our consolidated financial statements . alternatively , value may be realized from these instruments that are significantly higher than the fair values originally estimated on the grant date and reported in our consolidated financial statements . with regard to stock appreciation units , the value remeasured each period may not be representative of the value realized upon exercise . story_separator_special_tag for the years ended december 31 , 2011 , 2010 and 2009 , we calculated the fair value of stock options granted to employees using the black-scholes pricing model with the following assumptions : replace_table_token_5_th stock appreciation units became exercisable upon the expiration of lock-up agreement entered into with substantially all of our stockholders in connection with our public offering in february 2011. thus , stock-based compensation expense in 2011 included a catch-up expense for stock appreciation units previously granted to certain employees as well as the ongoing expense relating to the portion of these awards vesting after our initial public offering in february 2011. prior to our initial public offering , no expense was recognized for these awards given their contingent nature . the expense was calculated using the black-scholes option pricing model and included the value of our common stock , which could vary significantly . for the year ended december 31 , 2011 , we calculated the fair value of stock appreciation units granted to employees using the black-scholes pricing model with the following assumptions : stock appreciation units weighted-average expected term ( years ) 3.91 weighted-average volatility 74 % risk-free interest rate 0.36 % 2.42 % expected dividends 0 % the first share purchase rights were granted february 2 , 2011 , the first day our common stock was listed on the new york stock exchange . the offering period , which extended through november 2011 , contained two purchase dates , one in may 2011 and one in november 2011. the second offering period commenced november 16 , 2011 and contains two purchase dates , one in may 2012 and one in november 2012. we account for the stock purchase rights at the grant date ( first day of the offering period ) by valuing the two purchase periods separately . the value of the stock purchase rights consists of : ( 1 ) the 15 % discount on the purchase of the stock , ( 2 ) 85 % of the call option and ( 3 ) 15 % of the put option . the call option and put option were valued using the black-scholes option pricing model with the following assumptions : replace_table_token_6_th 48 in addition to the assumptions used to calculate the fair value of our stock-based awards , we are required to estimate the expected forfeiture rate of all stock-based awards and only recognize expense for those awards we expect to vest . accordingly , the stock-based compensation expense recognized in our consolidated statement of operations for the year ended december 31 , 2011 has been reduced for estimated forfeitures . if we were to change our estimate of forfeiture rates , the amount of stock-based compensation expense could differ , materially under certain circumstances , from the amount recognized in our consolidated financial statements . for example , if we had decreased our estimate of expected forfeitures by 50 % , our stock-based compensation expense for the year ended december 31 , 2011 , net of expected forfeitures , would have increased by $ 20,000. this decrease in our estimate of expected forfeitures would increase the amount of expense for all unvested awards that have not yet been recognized by $ 522,000 as of december 31 , 2011 , which would be amortized over a weighted-average period of 3.0 years . in addition , if our stock-based compensation expense increases in the future , the impact of a change in the estimated forfeiture rate could be more significant . goodwill our methodology for allocating the purchase price relating to acquisitions is determined through established valuation techniques . goodwill is measured as the excess of the cost of the acquisition over the sum of the amounts assigned to tangible and identifiable intangible assets acquired less liabilities assumed . we evaluate goodwill , at a minimum , on an annual basis and whenever events and changes in circumstances suggest that the carrying amount may not be recoverable . we perform our annual goodwill impairment test as of december 31 of each year . first , impairment of goodwill is tested at the reporting unit level by comparing the reporting unit 's carrying amount ( book value ) , including goodwill , to the fair value of the reporting unit . we have only one reporting unit for the purposes of testing goodwill for impairment . if the carrying amount of the reporting unit exceeds its fair value , a second step is performed to measure the amount of impairment loss , if any . in step two , we calculate the implied fair value of goodwill as the excess of the fair value of a reporting unit over the fair values assigned to its assets and liabilities . if the implied fair value of goodwill is less than the carrying value of the reporting unit 's goodwill , we recognize the difference as an impairment loss . to determine the fair value of the reporting unit in the current year analysis , we used a weighted-average combination of income and market approaches . the income approach was based on the estimated discounted future cash flows of the reporting unit , including assumptions based on historical and forecasted revenue , operating expenses , taxes and working capital and capital asset requirements . the market approaches include a market capitalization analysis , guideline public company analysis and a guideline transactions analysis . the market approach was given a weighting of 50 % and the other approaches were equally weighted at 16.7 % . during the first step of our annual impairment analysis in the fourth quarter of 2011 , we determined that the carrying amount of our goodwill might not have been recoverable .
| the increase in revenue was primarily attributable to an increase in demand for our speed and agility products , as customers began to deploy more sophisticated product offerings , plus additional design wins and overall market expansion in 2010. although sales increased on a global basis , the increase was primarily realized in china and the u.s. we expect that our revenue for 2012 will be higher than our revenue for 2011. we also expect that a significant portion of our revenue will continue to be derived from a limited number of customers , as a result of growth in purchases by our key china , u.s. and european customers . our largest customer , huawei technologies , represented 51 % of our total revenue in 2011. as a result , the loss of , or a significant reduction in orders from , huawei technologies or any of our other key customers would materially and adversely affect our revenue and results of operations . we expect a significant portion of our sales to continue to be denominated in rmb , and therefore may be affected by changes in foreign exchange rates . cost of goods sold and gross margin our cost of goods sold consists primarily of the cost to produce wafers and to manufacture and test our products . we have a global set of suppliers to help balance considerations related to product availability , quality and cost . components of our cost of goods sold are denominated primarily in rmb . our manufacturing process extends from wafer fabrication through final module and subsystem assembly and test . the cost of our manufacturing , assembly and test processes includes the cost of personnel and the cost of our manufacturing equipment and facilities . our cost of goods sold is impacted by manufacturing variances such as assembly and test yields and production volume . we typically experience lower yields and higher associated costs on new products . in general , our cost of goods sold associated with a particular product declines over time as a result of decreases in wafer costs associated with the increase in the volume of wafers produced , as well as yield improvements and assembly and test enhancements .
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additionally , four of the largest grants awarded by pnmr supported nonprofits in various areas such as : adult literacy assistance for families trying to emerge from poverty food rescue from restaurants and grocers to help feed those in need assistance for low-income individuals to build a home , start a small business , or pursue higher education in 2011 , the pnm good neighbor fund provided $ 1.2 million of assistance with utility bills to 9,907 families . further , as part of the settlement in its 2010 electric rate case , pnm voluntarily agreed to contribute an additional $ 1.3 million to the good neighbor fund . this fund , along with additional collaboration with various other agencies , has helped to reduce the electricity affordability gap for many vulnerable customer groups such as seniors , young families , and medically challenged households . the pnm resources foundation helps nonprofits become more energy efficient through reduce your use grants . in 2011 , the foundation awarded more than $ 0.3 million to support 87 projects in new mexico and texas that helped purchase energy efficiency appliances and install high-performance windows and solar panels . since the program 's inception in 2008 , reduce your use grants have provided nonprofit agencies with $ 1.0 million of support in new mexico and texas . economic factors in 2011 , pnm and tnmp experienced weather-normalized , retail load growth of 1.4 % and 1.3 % over 2010. while growth was relatively modest , electricity demand in both utilities ' service territories was positive in 2011 and 2010 and fared better than many other areas of the united states . new mexico and texas have surpassed the national average the past several years in other economic indicators such as unemployment and employment growth . rate base potential growth based on the 5-year capital plan announced in december 2011 , pnm expects rate base to grow at a 2 % compound annual rate between 2011 and 2013. that growth figure could be 6 % from 2011 through 2016 through additional potential capital investments . the largest of these involves possibly being required to install scr technology to reduce emissions at sjgs and four corners . the addition of other facilities , such as renewable resources and peaking capacity , could also expand rate base . tnmp 's compound annual rate base growth rate from 2011 through 2013 is estimated at 8 % , predicated on the utility 's 5-year capital plan announced in december 2011. a significant portion of the capital additions should be recovered through the transmission and distribution cost recovery mechanisms . pnmr will continue to carefully balance the potential rate base growth for pnm and tnmp with customer rate impacts . results of operations a summary of net earnings ( loss ) attributable to pnmr is as follows : replace_table_token_11_th a- 30 the components of the changes in earnings ( loss ) from continuing operations attributable to pnmr by segment are : replace_table_token_12_th pnmr 's operational results were affected by the following : exit from unregulated businesses and pnm gas - as discussed above , pnmr sold first choice in 2011 , resulting in a pre-tax gain of $ 174.9 million . additionally , pnmr wrote-off its investment in optim energy in 2010 , recognizing a pre-tax impairment loss of $ 188.2 million . further , in january 2009 , pnm completed the sale of pnm gas , which is reflected as discontinued operations , realizing a pre-tax gain of $ 98.4 million . in addition to the impacts of these transactions , results of operations only include pnm gas through january 30 , 2009 , optim energy through december 31 , 2010 , and first choice through october 31 , 2011. rate increases for pnm and tnmp - additional information about these rate increases is provided in note 17. other factors - other factors impacting results of operation for each segment are discussed under results of operations below . the decrease in the number of common and common equivalent shares is primarily due to pnmr 's purchase of its equity described in note 6. liquidity and capital resources during 2011 , pnmr and pnm replaced their revolving credit facilities with new facilities . the new facilities provide capacities for short-term borrowing and letters of credit of $ 300.0 million for pnmr and $ 400.0 million for pnm . in addition , tnmp has a $ 75.0 million revolving credit facility . total availability for pnmr on a consolidated basis was $ 584.9 million at february 22 , 2012. the company utilizes these credit facilities and cash flows from operations to provide funds for both construction and operational expenditures . pnmr also has intercompany loan agreements with each of its subsidiaries . in 2011 , pnmr completed the sale of first choice . pnmr used the proceeds of $ 329.3 million to purchase 7.0 million shares of its outstanding common stock , all $ 100.0 million of its outstanding convertible preferred stock , series a , and $ 50.0 million of its outstanding 9.25 % senior unsecured notes as well as to reduce short-term debt . also , pnm issued $ 160.0 million of new senior unsecured notes and used the proceeds to reduce short-term debt . tnmp refinanced an existing $ 50.0 million term loan , which reduced the interest rate on the debt . the company projects that its total capital requirements , consisting of construction expenditures and dividends , will total $ 1,540.4 million for 2012-2016. this estimate does not include any amounts related to environmental upgrades at sjgs or four corners that may be required by epa to address regional haze ( note 16 ) , additional renewable resources that may be required to meet the rps , or additional peaking resources that may be needed to meet needs outlined in pnm 's current irp . story_separator_special_tag in addition to internal cash generation , the company anticipates that it will be necessary to obtain additional long-term financing in the form of debt refinancing , new debt issuances , and or new equity in order to fund its capital requirements during the 2012-2016 period . the company currently believes that its internal cash generation , existing credit arrangements , and access to public and private capital markets will provide sufficient resources to meet the company 's capital requirements . results of operations - pnmr segment information the following discussion is based on the segment methodology that pnmr 's management uses for making operating decisions and assessing performance of its various business activities . see note 3 for more information on pnmr 's operating segments . a- 31 the following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto . trends and contingencies of a material nature are discussed to the extent known . refer also to disclosure regarding forward looking statements in item 1 and to part ii , item 7a . risk factors . pnm electric the table below summarizes operating results for pnm electric : replace_table_token_13_th the table below summarizes the significant changes to total revenues , cost of energy , and gross margin : replace_table_token_14_th a- 32 the following table shows pnm electric operating revenues by customer class and average number of customers : replace_table_token_15_th the following table shows pnm electric gwh sales by customer class : replace_table_token_16_th the results of operations of pnm electric are primarily driven by the rate making decisions and other actions of the nmprc . on august 21 , 2011 , pnm implemented a $ 72.1 million annual non-fuel rate increase for its retail customers , including those customers formerly served by tnmp ( “ pnm south ” ) . in addition , pnm was allowed to implement a fppac for its pnm south retail customers . this rate increase , combined with a base rate increase in april 2010 , improved 2011 revenues and margins by $ 32.1 million . increases in retail loads were primarily driven by weather in 2011 , with cooler temperatures in the first quarter and warmer weather in the third quarter , improving revenues and margins by $ 12.0 million . higher transmission revenues associated with new long-term point to point customers and the june 1 , 2011 implementation of a requested increase in transmission rates , which is subject to refund pending final outcome of the case , also improved revenues and margins . in 2010 , revenues and margins increased due to the rate increase from pnm 's 2008 electric rate case , which was implemented in two phases in july 2009 and april 2010. retail loads improved in 2010 driven primarily by weather impacts , as average usage per customer remained flat due in large part to implementation of energy efficiency programs for retail customers . such increases were partially offset by lower off-system sales volumes due to lower available excess generation from baseload facilities due to outages and increased loads . these reductions in revenues , along with reductions in generation fuel costs due to outages and an increase in the volumes and pricing of economy purchases were offset through the fppac for retail customers , except pnm south customers and certain wholesale customers . unregulated revenues and margins are primarily from pnm 's share of pvngs unit 3 , which is excluded from retail regulation . revenues and margins decreased significantly in 2011 as long-term tolling agreements for the output of pvngs unit 3 , which contained favorable pricing terms , expired on december 31 , 2010. pnm hedged the output of pvngs in 2011 , however , the prices received under the 2011 agreements were significantly below those received in 2010 due to depressed market prices . pnm continues to hedge part of the output of pvngs unit 3 for 2012 and 2013 although market prices remain depressed . a- 33 unregulated revenues and margins in 2009 reflect a pre-tax charge of $ 32.0 million associated with a settlement arising out of certain transactions in the california energy markets during 2000 and 2001. the revenues and costs associated with luna , lordsburg , and the valencia ppa were included in unregulated margins prior to may 2009 , at which time these resources began to be recovered in retail rates . pnm offers several energy efficiency programs and initiatives to its retail customers regulated by the nmprc . in addition , pnm is allowed to earn incentives/disincentives adders on these programs , based on the energy savings of the programs . pnm recovers these energy efficiency program costs and adders via a rate rider . in 2011 , revenues and margins improved by $ 13.0 million , of which $ 3.1 million is adder revenues and the remaining $ 9.9 million increase is offset with an increase in operating expense for the energy efficiency program costs . pnm expects to continue to earn incentive adder revenues based on future program participation , although the disincentive component of the adder revenues was removed upon implementation of the 2010 electric rate case in august 2011. pnm is currently collecting adder revenues of $ 1.3 million . economic hedges related to unregulated activities improved margins in 2011. contractual positions at december 31 , 2011 were favorable compared to market prices at that date . in addition , unrealized losses recorded in 2010 reversed upon settlement in 2011. in 2011 , operating expenses reflect regulatory disallowances of $ 17.5 million resulting from pnm 's 2010 electric rate case . no disallowances were recorded in 2010. operating expenses increased associated with energy efficiency program costs of $ 9.9 million , which are recovered through a rate rider as discussed above . certain process improvement initiatives to reduce future spending of $ 6.7 million , renewal of native american rights-of-way at higher costs , and an increase in taxes due to new mexico gross receipts tax on prior year billings also increased operating expenses .
| additional information about all rate filings is provided in note 17. a recap of these proceedings is as follows : pnm nmprc proceedings ◦ 2012 renewable energy rate rider - surcharge to recover approximately $ 95 million of pnm 's investment in its 22mw solar facility and other nmprc approved renewable energy costs , to be implemented in august 2012 , subject to nmprc approval ◦ 2010 electric rate case - $ 72.1 million increase in annual non-fuel revenues effective august 21 , 2011 ◦ 2008 electric rate case - $ 77.1 million increase in annual non-fuel revenues , implemented 65 % on july 1 , 2009 and 35 % on april 1 , 2010 ferc proceedings ◦ transmission rate case - $ 11.1 million requested annual increase in revenues , implemented june 1 , 2011 , subject to refund pending ferc final determination ◦ firm-requirements wholesale customer rate case - $ 8.7 million requested annual increase in revenues to be implemented april 14 , 2012 , subject to refund pending ferc final determination tnmp puct proceedings ◦ ams cost recovery - surcharge to recover $ 113.3 million over 12 years beginning august 11 , 2011 ◦ 2010 rate case - $ 10.25 million increase in revenues effective february 1 , 2011 ◦ transmission cost recovery - $ 5.5 million increase in revenues effective may 14 , 2010 ◦ 2008 rate case - $ 12.7 million increase in revenues effective september 1 , 2009 a- 27 fair and timely rate treatment from regulators is crucial to achieving pnmr 's strategic goals because it leads to pnm and tnmp earning their allowed returns . pnmr believes that if the regulated utilities earn their allowed returns , it would be viewed positively by rating agencies and would further improve credit ratings , which could lower costs to customers . also , earning allowed returns should result in increased earnings for pnmr , which should lead to increased total returns to investors . in 2011 , pnmr common stock appreciated 40.0 % and outpaced the appreciation in the s & p 500 and s & p 400 utilities indices . pnm 's interest in pvngs unit 3 is permanently excluded from nmprc jurisdictional rates . while pvngs unit 3 's financial contribution is not calculated in the authorized returns on its regulated business , it impacts pnm 's earnings and has demonstrated to be a valuable asset .
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excluding the bai brands merger , packaging and ingredient costs for the year ending december 31 , 2017 are expected to increase 0.5 % on a constant volume/mix basis as compared to the year ended december 31 , 2016 . the adoption of a new accounting standard will result in incremental income tax benefit of approximately $ 14 million . refer to item 1a , `` risk factors '' of this annual report on form 10-k for additional information about risks and uncertainties facing our company . seasonality the beverage market is subject to some seasonal variations . our beverage sales are generally higher during the warmer months and also can be influenced by the timing of holidays as well as weather fluctuations . segments we report our business in three operating segments : the beverage concentrates segment reflects sales of our branded concentrates and syrup to third party bottlers primarily in the u.s. and canada . most of the brands in this segment are csd brands . the packaged beverages segment reflects sales in the u.s. and canada from the manufacture and distribution of finished beverages and other products , including sales of our own brands and third party brands , through both dsd and wd . the latin america beverages segment reflects sales in mexico , the caribbean and other international markets from the manufacture and distribution of concentrates , syrup and finished beverages . segment results are based on management reports . net sales and sop are the significant financial measures used to assess the operating performance of our operating segments . 26 volume in evaluating our performance , we consider different volume measures depending on whether we sell beverage concentrates or finished beverages . beverage concentrates sales volume in our beverage concentrates segment , we measure our sales volume in two ways : ( 1 ) `` concentrate case sales '' and ( 2 ) `` bottler case sales . '' the unit of measurement for both concentrate case sales and bottler case sales equals 288 fluid ounces of finished beverage , the equivalent of 24 twelve ounce servings . concentrate case sales represent units of measurement for concentrates sold by us to our bottlers and distributors . a concentrate case is the amount of concentrate needed to make one case of 288 fluid ounces of finished beverage . it does not include any other component of the finished beverage other than concentrate . our net sales in our concentrate businesses are based on our sales of concentrate cases . although net sales in our concentrate businesses are based on concentrate case sales , we believe that bottler case sales are also a significant measure of our performance because they measure sales of packaged beverages into retail channels . packaged beverages and latin america beverages sales volume in our packaged beverages and latin america beverages segments , we measure volume as case sales to customers . a case sale represents a unit of measurement equal to 288 fluid ounces of packaged beverage sold by us . case sales include both our owned brands and certain brands licensed to and or distributed by us . volume in bottler case sales in addition to sales volume , we measure volume in bottler case sales ( `` volume ( bcs ) '' ) as sales of packaged beverages , in equivalent 288 fluid ounce cases , sold by us and our bottling partners to retailers and independent distributors . our contract manufacturing sales are not included or reported as part of volume ( bcs ) . bottler case sales and concentrates and packaged beverage sales volumes are not equal during any given period due to changes in bottler concentrates inventory levels , which can be affected by seasonality , bottler inventory and manufacturing practices and the timing of price increases and new product introductions . 27 results of operations executive summary - 2016 financial overview and recent developments on november 21 , 2016 , we entered into the merger agreement with bai brands whereby we agreed to acquire bai brands for consideration of approximately $ 1,700 million , subject to certain adjustments in the merger agreement . on january 31 , 2017 , we completed the bai brands merger and paid $ 1,548 million , net of the company 's previous ownership interest , and held back $ 103 million , which was placed in escrow , in exchange for the remaining ownership interests and seller transaction costs . as a result , our existing equity interest in bai brands was remeasured to fair value , which resulted in a gain of $ 28 million , which will be recognized in the first quarter of 2017 and included in other operating ( income ) expense , net . during the fourth quarter of 2016 , we completed the issuance of senior unsecured notes with an aggregate principal amount of $ 1,550 million . the net proceeds from the offering , together with cash on hand , funded the bai brands merger . during the fourth quarter of 2016 , we redeemed a portion of the 6.82 % senior notes due on may 1 , 2018 ( the `` 2018 notes '' ) and retired , at a premium , an aggregate principal amount of approximately $ 360 million . the loss on early extinguishment of the 2018 notes was approximately $ 31 million . during the years ended december 31 , 2016 , 2015 , and 2014 , we repurchased 5.7 million , 6.5 million , and 6.8 million shares of our common stock , respectively , valued at approximately $ 519 million in 2016 , $ 521 million in 2015 , and $ 400 million in 2014 . during the first quarter of 2017 , our board declared a dividend of $ 0.58 per share , which will be paid on april 5 , 2017 , to shareholders of record as of march 14 , 2017 . the dividend declared during the first quarter of 2017 increased approximately 9.4 % compared to the dividend declared in the previous quarter . story_separator_special_tag we expect to repurchase $ 450 million to $ 500 million of our common stock during the year ending december 31 , 2017 . 28 references in the financial tables to percentage changes that are not meaningful are denoted by `` nm . '' year ended december 31 , 2016 compared to year ended december 31 , 2015 consolidated operations the following table sets forth our consolidated results of operations for the years ended december 31 , 2016 and 2015 : replace_table_token_3_th volume ( bcs ) . volume ( bcs ) increased 1 % for the year ended december 31 , 2016 compared with the year ended december 31 , 2015 . in the u.s. and canada , volume was 1 % higher , and in mexico and the caribbean , volume in creased 5 % , compared with the prior year . both branded csd and ncb volume increased 1 % compared to the prior year . in branded csds , squirt increased 6 % primarily driven by increased sales to third-party bottlers and product innovation in our latin america beverages segment and our hispanic strategy in the u.s. schweppes grew 8 % reflecting distribution gains in our sparkling water and growth in the ginger ale category . dr pepper had gains of 1 % driven primarily by increases in our fountain business . regular dr pepper increased compared to the prior year , which was partially offset by declines in diet . peñafiel increased 3 % in our latin america beverages segment as a result of distribution gains , increased promotional activity and product innovation , partially offset by increased competition . crush grew 3 % in the current year . these gains were partially offset by a 2 % decline in our other csd brands compared to the prior year . canada dry , 7up , a & w and sunkist soda ( our `` core 4 brands '' ) were flat compared to the prior year , driven by an 6 % increase in canada dry fully offset by a 5 % decline in 7up , a 2 % decrease in a & w and a 1 % decline in sunkist soda . in branded ncbs , our water category increased 18 % primarily due to incremental promotional activity behind bai brands primarily in our club channel , distribution gains for bai brands , fiji and core hydration , and an increase in aguafiel due to category growth in mexico . clamato increased 10 % primarily due to increased promotional activity , distribution gains , and product innovation in our latin america beverages segment and increased promotional activity in the u.s .. these increases were partially offset by declines in hawaiian punch , mott 's and our other ncb brands in total . hawaiian punch declined 6 % due to category headwinds and higher pricing for our single-serve packages while mott 's decreased 3 % due to declines in the juice category and higher pricing for our single-serve packages , partially offset by gains in our sauce products . our other ncb brands in total declined 8 % . snapple was flat compared to prior year . 29 net sales . net sales in creased $ 158 million , or approximately 3 % , for the year ended december 31 , 2016 , compared with the year ended december 31 , 2015 . the primary drivers of the increase in net sales included : favorable product and package mix , which increased net sales by about 2.5 % ; increase in shipments , which increased net sales by 1.0 % ; higher pricing , which increased net sales by 1.0 % ; unfavorable foreign currency translation of $ 79 million , which decreased net sales by 1.0 % ; and unfavorable segment mix , which decreased net sales by 0.5 % . gross profit . gross profit in creased $ 135 million , or approximately 4 % , for the year ended december 31 , 2016 compared with the year ended december 31 , 2015 . gross margin was 59.9 % for the year ended december 31 , 2016 compared to the gross margin of 59.3 % for the year ended december 31 , 2015 . the following drivers impacted the gross margin : favorable comparison in our mark-to-market activity on commodity derivative contracts , which increased our gross margin by 0.5 % . lower commodity costs , led by packaging , and the change in our last-in , first-out ( `` lifo '' ) inventory provision , which increased our gross margin by 0.5 % ; increase in our net pricing , which increased our gross margin by 0.4 % ; ongoing productivity improvements , which increased our gross margin by 0.4 % ; unfavorable product , package and segment mix , which decreased our gross margin by 0.7 % ; unfavorable foreign currency effects , which decreased our gross margin by 0.3 % ; and increase in our other manufacturing costs , which decreased our gross margin by 0.2 % . the favorable mark-to-market activity on commodity derivative contracts for the year ended december 31 , 2016 was $ 21 million in unrealized gains versus $ 13 million in unrealized losses in the prior year . selling , general and administrative expenses . selling , general and administrative ( `` sg & a '' ) expenses increased $ 16 million for the year ended december 31 , 2016 compared with the prior year . the increase was primarily driven by higher people costs , a $ 4 million arbitration award related to our mexican joint venture , increased professional fees , a non-recurring charge of $ 4 million related to the transition of a certain employee benefit program and increases in other miscellaneous expenses . these increases were partially offset by lower logistics costs , driven by fuel rates , the impact of favorable foreign currency effects , which decreased sg & a expenses by $ 27 million , and a $ 23 million favorable comparison in the mark-to-market activity on commodity derivative contracts .
| our core 4 brands grew 1 % compared to the prior year as a result of a 6 % increase in canada dry , partially offset by a 6 % decrease in 7up , a 3 % decline in sunkist soda and a 2 % decrease in a & w . crush increased 3 % for the current year . these increases were partially offset by a 7 % decline in our other brands . packaged beverages the following table details our packaged beverages segment 's net sales and sop for the years ended december 31 , 2016 and 2015 : replace_table_token_6_th volume . sales volume was flat for the year ended december 31 , 2016 as compared with the year ended december 31 , 2015 as increases in our branded ncb volumes were fully offset by declines in our branded csd volumes and contract manufacturing . branded csd volumes de creased 1 % for the year ended december 31 , 2016 compared with the year ended december 31 , 2015 . volume for our core 4 brands de creased 1 % , led by a 4 % decrease in 7up , a 3 % decrease in a & w and a 1 % decline in sunkist soda , partially offset by a 6 % in crease in canada dry . our other csd brands decreased 6 % . the decreases were partially offset by a 5 % gain in squirt . dr pepper was flat compared to the prior year as increases in regular were fully offset by declines in diet . branded ncb volumes in creased 2 % for the year ended december 31 , 2016 compared with the year ended december 31 , 2015 . our water category increased 23 % primarily due to distribution gains for bai brands , fiji and core hydration , and incremental promotional activity behind bai brands primarily in our club channel . clamato and snapple increased 5 % and 1 % , respectively . our other ncb brands increased 3 % , led by body
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concurrent with the ipo , all then-outstanding shares of our convertible preferred stock outstanding ( see note 4 ) automatically converted into an aggregate of 11,107,018 issued common shares . in advance of the ipo , on october 8 , 2020 , our board of directors approved a 1-for-7.4276 reverse stock split of our capital stock . all share and per share information included in the accompanying financial statements has been adjusted to reflect this reverse stock split . we have incurred significant net operating losses in every year since our inception and expect to continue to incur significant operating expenses and increasing operating losses for the foreseeable future . our net losses were $ 26.8 million and $ 4.7 million for the years ended december 31 , 2020 and 2019 , respectively . our net losses may fluctuate significantly from quarter to quarter and year to year and could be substantial . as of december 31 , 2020 and 2019 , we had an accumulated deficit of $ 32.8 million and $ 6.0 million , respectively , from research and development and general and administrative activities since our inception . we anticipate that our operating expenses will increase significantly as we : conduct additional clinical trials of our lead product candidate , tp-03 , for the treatment of demodex blepharitis including our phase 2b/3 trial , saturn-1 , and our phase 3 trial , saturn-2 ; advance the clinical development of tp-03 for the treatment of mgd , tp-04 for the potential treatment of rosacea and tp-05 for potential lyme prophylaxis and community malaria reduction ; seek regulatory and marketing approvals for product candidates that successfully complete clinical development , if any ; establish our own sales force in the united states to commercialize our products for which we obtain regulatory approval ; engage with contract manufacturers to ensure a sufficient supply chain capacity to provide commercial quantities of any products for which we may obtain marketing approval ; maintain , expand and protect our intellectual property portfolio ; hire additional staff , including clinical , scientific , technical , regulatory , marketing , operations , financial , and other support personnel , to execute our business plan ; and add information systems and personnel to support our product development and potential future commercialization efforts , and to enable us to operate as a public company . we do not have any products approved for sale and we have not yet generated any revenue from product sales . we do not expect to generate revenues from product sales unless and until we successfully complete clinical development and obtain regulatory approval for a product candidate and commercially launch such product . until such time as we can generate significant revenue from product sales , if ever , we expect to finance our operations through private or public equity or debt 106 financings , or collaborations , strategic alliances , or licensing arrangements with third parties . adequate funding may not be available to us when needed on acceptable terms , or at all . if we raise additional funds through collaborations , strategic alliances , or licensing arrangements with third parties , we may have to relinquish valuable rights to our intellectual property , future revenue streams , research programs or product candidates or grant licenses on terms that may not be favorable to us . if we are unable to raise additional capital or enter into such agreements as and when needed , we could be forced to significantly delay , scale back , or discontinue our product development and or commercialization plans , which would negatively and adversely affect our financial condition . because of the numerous risks and uncertainties associated with drug product development , we are unable to accurately predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability . even if we are able to generate revenue from product sales , we may not become profitable . if we fail to become profitable or are unable to sustain profitability on a continuing basis , then we may be unable to continue our operations at planned levels . as of december 31 , 2020 , our aggregate cash and cash equivalents was $ 168.1 million – see “ liquidity and capital resources. ” impact of the covid-19 pandemic on our operations efforts to contain the spread of covid-19 in the united states ( including in california where our corporate headquarters and laboratory facility are located ) and other countries have included quarantines , shelter-in-place orders , and various other government restrictions in order to control the spread of this virus . we have been carefully monitoring the covid-19 pandemic as it continues to progress and its potential impact on our business . we have taken important steps to ensure the workplace safety of our employees when working within our laboratory and administrative offices , or when traveling to our clinical trial sites . we have also implemented an interim work-from-home policy and we may take further actions as may be required by federal , state or local authorities . to date , we have been able to continue our key business activities and advance our clinical programs . however , in the future , it is possible that our clinical development timelines and business plans could be adversely affected . we maintain regular communication with our vendors and clinical sites to appropriately plan for , and mitigate , the impact of the covid-19 pandemic on our operations . specifically , for our phase 2b/3 saturn-1 trial , we have instituted various protocols for our sites , including increasing health screening of individuals and providing enhanced communication and training to staff regarding covid-19 . we have also over-enrolled trial participants and identified additional clinical sites in case there are site closures due to covid-19 . however , the ultimate effect from this pandemic on our development timelines for tp-03 and our other product candidates is inherently uncertain . story_separator_special_tag see the section titled “ risk factors ” in this report for a further discussion of the potential adverse impact of covid-19 on our business , results of operations and financial condition . components of our results of operations operating expenses our operating expenses since inception have consisted solely of research and development expenses and general and administrative expenses . research and development expenses our research and development expenses consist of expenses incurred in connection with the development of our product candidates , including : fees paid to third parties to conduct certain research and development activities on our behalf , including under agreements with cros ; payments under licensing agreements , such as our upfront in-license fee for lotilaner ; consulting costs and certain allocated payroll and employee-related expenses ( including stock-based compensation and salaries ) for personnel engaged in research and development functions ; 107 costs related to compliance with clinical regulatory requirements ; costs of procuring drug products for use in our preclinical studies and clinical trials ; and facilities expenses , which include direct and allocated expenses for rent of our laboratory . we expense both internal and external research and development expenses as incurred or as certain upfront or milestone payments become contractually due to licensors upon achievement of clinical or regulatory events . we recognize external research and development costs based on an evaluation of the progress-to-completion of ( i ) specific tasks performed or deliverables provided by cros and contract manufacturing organizations ( `` cmos '' ) and ( ii ) patient visits for dosing or other follow-up . to estimate period expense for recognition , we use information provided to us by our service providers and we then apply the corresponding fee schedule . we track our external research and development expenses on a program-by-program basis , such as fees paid to cros , cmos , and research laboratories in connection with our pre-clinical development , process development , manufacturing and clinical development activities . however , we do not currently track employee time on a program-by-program basis . for the years ended december 31 , 2020 and 2019 , substantially all of our external and internal research and development expenses are attributable to our tp-03 program for demodex blepharitis . we expect our research and development expenses to increase substantially in the future , as we seek to initiate and progress additional clinical trials for our product candidates , including tp-03 for the potential treatment of mgd , tp-04 for the potential treatment of rosacea , and tp-05 for potential lyme prophylaxis and community malaria reduction . we expect to complete our clinical programs for these product candidates , and as appropriate , pursue regulatory approval and prepare for the possible commercialization for each . general and administrative expenses our general and administrative expenses consist of personnel-related costs including payroll , benefits , and stock-based compensation for our executive , finance , and other administrative functions . other general and administrative expenses include consulting fees , legal services , rent and other facilities costs , and other general operating expenses not otherwise classified as research and development expenses . we expect that our general and administrative expenses will increase substantially in the future as a result of expanding our operations , including hiring personal , preparing for potential commercialization of our product candidates , and additional facility occupancy costs , as well various incremental costs associated with being a public company ( including increased legal and accounting fees , regulatory costs associated with maintaining compliance with the rules of the nasdaq stock market and sec regulations , investor relations activities , directors and officers liability insurance premiums , and other accompanying compliance and governance costs ) . other income ( expense ) , net other income ( expense ) , net consists primarily of ( i ) interest income earned on our cash and cash equivalents and ( ii ) interest expense on convertible promissory notes ( converted to equity instruments in december 2019 ; comprised of coupon interest , amortization of debt issuance costs , and non-cash accretion of its estimated discount at issuance ) . income tax provision since our inception , we have not recorded any u.s. federal or state income tax benefits for the net operating losses we have incurred in each year , or for our earned research and development tax credits , due to our uncertainty of realizing a benefit from either . as a result of the tax cuts and jobs act of 2017 , net operating losses ( for u.s. income tax purposes ) generated prior to december 31 , 2018 can be carried forward for up to 20 years , while net operating losses generated after december 31 , 2017 can be carried forward indefinitely , but are limited to 80 % utilization against taxable income . our california net operating losses will begin to expire in 2037. the federal research and development tax credits begin to expire in 2037 unless previously utilized , and the california credit carryforwards are available indefinitely . story_separator_special_tag liquidity over the next five years . funding requirements our primary use of cash is to fund operating expenditures . these consist of research and development expenses ( including activities within our pre-clinical , clinical , regulatory , and drug manufacturing initiatives ) and general and administrative expenses . our use of cash is impacted by the timing and extent of the required payments for each of these activities . we believe that our cash and cash equivalents of $ 168.1 million as of december 31 , 2020 , and our expected $ 70 million of initial proceeds from our march 2021 out-license of tp-03 in the china territory ( see above and note 11 ) , will enable us to fund our operating expenses and capital expenditure requirements into the first half of 2023. we have based this cash runway estimate on our current assumptions . these assumptions may require future adjustments as part of our ongoing business decisions within pipeline development and other corporate initiatives .
| during the year ended december 31 , 2019 , interest expense recognized on these notes was $ 0.1 million and was partially offset by interest income from our bank deposits and money market fund investments . these convertible promissory notes were all converted in december 2019 and we therefore had no interest expense for the year ended december 31 , 2020. loss on extinguishment of convertible notes the loss on extinguishment of convertible notes was due to the extinguishment of convertible promissory notes issued to our co-founders and certain other related parties , aggregating $ 2.0 million in principal value ( see section below ) . on december 13 , 2019 we completed the issuance of series b preferred stock upon which the then-outstanding notes , along with accrued interest , converted into 2.0 million shares of series b preferred stock . since these notes were converted in december 2019 , no change in fair value of derivative liabilities was recorded for the year ended december 31 , 2020 . 109 change in fair value of derivative liabilities during may , august , and october 2019 , we issued convertible promissory notes to our co-founders and certain other related parties , aggregating $ 2.0 million in principal value . these notes contained stock-settled redemption features that were required to be separately accounted for as derivative liabilities on the balance sheet until december 13 , 2019 when we completed a qualified equity financing . these then-outstanding notes converted at the option of the holder into 2.0 million shares of series b preferred stock . change in fair value of derivative liabilities consists of non-cash changes in the fair value of these stock-settled redemption features . we classified the rights as a derivative liability on our balance sheet that was initially recorded at fair value and that we remeasured to fair value at december 13 , 2019 , and we recognized changes in the fair value of the derivative associated with the rights as a component of other income ( expense ) in our
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the decrease in research and development expense was a result of an increase in research and development costs in fiscal 2016 that met the requirements for capitalization , and was partially offset by the increase in personnel costs and professional fees . the company 's software development efforts during fiscal year 2015 were focused on stabilizing and maintaining our suite of software solutions . those efforts did not meet the requirements for capitalization of software development costs . in the current fiscal year , however , the company has rebalanced software development efforts to focus on innovation that addresses future client needs and drives higher quality in the value-based world in which our clients operate . these enhancement efforts do meet the requirements for capitalization . research and development expenses in fiscal 2016 and 2015 , as a percentage of revenues , were 28 % and 32 % , respectively . gain on sale of business replace_table_token_8_th in the fourth quarter of fiscal 2016 , we sold our looking glass® patient engagement suite of solutions to document storage systems , inc. ( dss ) for $ 2,000,000 in cash . our looking glass® patient engagement suite consisted primarily of patient scheduling and surgery management software , which was based upon the legacy forsite2020 solution obtained in connection with the acquisition of unibased in february 2014. as a result , we recorded a $ 238,000 gain on sale of business in fiscal 2016. other income ( expense ) replace_table_token_9_th interest expense consists of interest and commitment fees on the line of credit and interest on the term loans , and is inclusive of deferred financing cost amortization . amortization of deferred financing cost and debt discount were $ 71,000 in both fiscal 2016 and 2015 . interest expense was lower in fiscal 2016 primarily as a result of a lower principal amount outstanding . the decrease in miscellaneous income from 2015 to 2016 was primarily due to the warrant valuation adjustment in fiscal 2015 , which was driven by the company 's stock price , as well as the receipt of $ 750,000 in cash from the unibased escrow 22 index to financial statements disbursement in fiscal 2015. in fiscal 2016 and 2015 , valuation adjustments to our warrants liability included in miscellaneous income totaled $ 159,000 and $ 1,629,000 , respectively . provision for income taxes we recorded tax benefit of $ 12,000 and tax expense of $ 8,000 in fiscal 2016 and 2015 , respectively . please refer to note 8 - income taxes to our consolidated financial statements included in part ii , item 8 herein for details on current and deferred tax ( expense ) benefit for federal and state income taxes . backlog replace_table_token_10_th at january 31 , 2017 , the company had contracts and purchase orders from clients and remarketing partners for systems and related services that have not been delivered or installed , which if fully performed , would generate future revenues of $ 50,623,000 compared with $ 67,145,000 at january 31 , 2016 . the company 's proprietary software backlog consists of signed agreements to purchase either perpetual software licenses or term licenses . typically , perpetual licenses included in backlog are either not yet generally available or the software is generally available and the client has not taken possession of the software . term licenses included in backlog consist of signed agreements where the client has already taken possession , but the payment for the software is bundled with maintenance and support fees over the life of the contract . the decrease in backlog is primarily due to the conversion of a long-delayed term license into a perpetual license agreement coupled with an overall reduction in scope . backlog was further reduced by the sale of our patient engagement suite of solutions . third-party hardware and software consists of signed agreements to purchase third-party hardware or third-party software licenses that have not been delivered to the client . these are products that the company resells as components of the solution a client purchases and are expected to be delivered in the next twelve months as implementations commence . professional services backlog consists of signed contracts for services that have yet to be performed . typically , backlog is recognized within twelve months of the contract signing . the decrease in professional services backlog is a result of revenue recognition exceeding bookings . audit services backlog consists of signed contracts for audit services that have yet to be performed . typically , backlog is recognized within twelve months of the contract signing . maintenance and support backlog consists of maintenance agreements for perpetual licenses and or third party software or hardware , in each case consisting of signed agreements to purchase such services but that represent future performance for the contracted maintenance and support term . clients typically prepay maintenance and support fees on an annual basis with some monthly pre-payment arrangements existing . maintenance and support fees are generally billed 30-60 days prior to the beginning of the maintenance period . the company does not expect any significant client attrition over the next 12 months outside of the ordinary course of business . maintenance and support backlog at january 31 , 2017 was $ 19,193,000 , as compared to $ 23,292,000 at january 31 , 2016 . the decrease in maintenance and support is primarily due to the sale of our patient engagement suite of solutions . the company expects to recognize $ 12,819,000 out of january 31 , 2017 maintenance and support backlog in fiscal 2017 . relating specifically to saas-model client agreements signed as of january 31 , 2017 , the company expects to generate revenues of $ 13,861,000 from such saas agreements through their respective renewal dates in fiscal years 2017 through 2021. the company expects to recognize $ 5,516,000 out of january 31 , 2017 saas backlog in fiscal 2017 . story_separator_special_tag the commencement of revenue recognition for saas varies depending on the size and complexity of the system , the implementation schedule requested by the client and ultimately the official go-live on the system . therefore , it is difficult for the company to accurately 23 index to financial statements predict the revenue it expects to achieve in any particular period . the decrease in saas backlog is a result of revenue recognition exceeding bookings . backlog was further reduced by the sale of our patient engagement suite of solutions . additional commentary regarding the average duration of client contracts and risks relating to termination can be found in part i , item 1 , “ business ” ( see specifically the contracts , license and services fees section ) and part i , item 1a , “ risk factors ” herein . termination rights in the company 's master agreements are generally limited to termination for cause , except for select exceptions , as further discussed in the contracts , license and services fees section of part i , item 1 , “ business ” herein . however , there can be no assurance that a client will not cancel all or any portion of an agreement or delay portions of an agreement , as further discussed in part i , item 1a , “ risk factors ” herein . such events could have a material adverse effect on the company 's ability to recognize amounts and the company 's financial condition and results of operations . use of non-gaap financial measures in order to provide investors with greater insight , and allow for a more comprehensive understanding of the information used by management and the board of directors in its financial and operational decision-making , the company has supplemented the consolidated financial statements presented on a gaap basis in this annual report on form 10-k with the following non-gaap financial measures : ebitda , adjusted ebitda , adjusted ebitda margin and adjusted ebitda per diluted share . these non-gaap financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of company results as reported under gaap . the company compensates for such limitations by relying primarily on our gaap results and using non-gaap financial measures only as supplemental data . we also provide a reconciliation of non-gaap to gaap measures used . investors are encouraged to carefully review this reconciliation . in addition , because these non-gaap measures are not measures of financial performance under gaap and are susceptible to varying calculations , these measures , as defined by the company , may differ from and may not be comparable to similarly titled measures used by other companies . ebitda , adjusted ebitda , adjusted ebitda margin , and adjusted ebitda per diluted share we define : ( i ) ebitda as net earnings ( loss ) before net interest expense , income tax expense ( benefit ) , depreciation and amortization ; ( ii ) adjusted ebitda as net earnings ( loss ) before net interest expense , income tax expense ( benefit ) , depreciation , amortization , stock-based compensation expense , transaction expenses and other expenses that do not relate to our core operations ; ( iii ) adjusted ebitda margin as adjusted ebitda as a percentage of gaap net revenue ; and ( iv ) adjusted ebitda per diluted share as adjusted ebitda divided by adjusted diluted shares outstanding . ebitda , adjusted ebitda , adjusted ebitda margin and adjusted ebitda per diluted share are used to facilitate a comparison of our operating performance on a consistent basis from period to period and provide for a more complete understanding of factors and trends affecting our business than gaap measures alone . these measures assist management and the board and may be useful to investors in comparing our operating performance consistently over time as they remove the impact of our capital structure ( primarily interest charges ) , asset base ( primarily depreciation and amortization ) , items outside the control of the management team ( taxes ) and expenses that do not relate to our core operations including : transaction-related expenses ( such as professional and advisory services ) , corporate restructuring expenses ( such as severances ) and other operating costs that are expected to be non-recurring . adjusted ebitda removes the impact of share-based compensation expense , which is another non-cash item . adjusted ebitda per diluted share includes incremental shares in the share count that are considered anti-dilutive in a gaap net loss position . the board of directors and management also use these measures ( i ) as one of the primary methods for planning and forecasting overall expectations and for evaluating , on at least a quarterly and annual basis , actual results against such expectations ; and ( ii ) as a performance evaluation metric in determining achievement of certain executive and associate incentive compensation programs . our lender uses a measurement that is similar to the adjusted ebitda measurement described herein to assess our operating performance . the lender under our credit agreement requires delivery of compliance reports certifying compliance with financial covenants , certain of which are based on a measurement that is similar to the adjusted ebitda measurement reviewed by our management and board of directors . ebitda , adjusted ebitda and adjusted ebitda margin are not measures of liquidity under gaap or otherwise , and are not alternatives to cash flow from continuing operating activities , despite the advantages regarding the use and analysis of these measures as mentioned above .
| the decreased fiscal 2016 revenues as compared to 2015 revenues are primarily attributable to the expiration of a clinical analytics contract . hardware and third-party software — revenues from hardware and third-party software sales in fiscal 2016 were $ 287,000 , as compared to $ 19,000 in fiscal 2015 . fluctuations from year to year are a function of client demand . professional services — revenues from professional services in fiscal 2016 were $ 2,396,000 , as compared to $ 2,212,000 in fiscal 2015 . the increase was primarily attributable to implementation services in connection with a sale of coding and cdi perpetual license in the second quarter of fiscal 2015 , which resulted in additional revenue being recognized in the current fiscal year . maintenance and support — revenues from maintenance and support in fiscal 2016 were $ 14,810,000 , as compared to $ 15,145,000 in fiscal 2015 . the decrease in maintenance and support in fiscal 2016 resulted primarily from the sale of our looking glass® patient engagement suite of solutions , as well as a few customer cancellations , and was partially offset by increased revenue associated with a sale of coding and cdi perpetual license in the second quarter of fiscal 2015. software as a service ( saas ) — revenues from saas in fiscal 2016 were $ 6,713,000 , as compared to $ 8,011,000 in fiscal 2015 . the year-to-year decrease was attributable to cancellations by three customers of our financial management solutions . cost of sales replace_table_token_5_th cost of system sales includes amortization and impairment of capitalized software expenditures , royalties and the cost of third-party hardware and software . cost of system sales , as a percentage of system sales , varies from period-to-period depending on hardware and software configurations of the systems sold . the decrease in expense in fiscal 2016 was primarily due to a reduction in software amortization expense , and was partially offset by the increase in sales of third-party hardware . we incurred $
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as a result , our manufacturing base and strategy do not require substantial investment in leading edge process equipment , allowing us to utilize our facilities and equipment over an extended period of time with moderate required capital investments . generally , incremental capacity expansions in our business line of the market result in more moderate industry capacity expansion as compared to leading edge processes . as a result , this market , and we , specifically , are less likely to experience significant industry overcapacity , which can cause product prices to decline significantly . in general , we seek to invest in manufacturing capacity that can be used for multiple high-value applications over an extended period of time . we believe this capital investment strategy enables us to optimize our capital investments and facilitates deeper and more diversified product and service offerings . our success going forward will depend upon our ability to adapt to future challenges such as the emergence of new competitors for our products and services or the consolidation of current competitors . additionally , we must innovate to remain ahead of , or at least rapidly adapt to , technological breakthroughs that may lead to a significant change in the technology necessary to deliver our products and services . we believe that our established relationships and close collaboration with leading customers enhance our visibility into new product opportunities , market and technology trends and improve our ability to meet these challenges successfully . in our semiconductor manufacturing services business , we strive to maintain competitiveness and our position as a primary manufacturing services provider to our customers by offering high-value added processes , high-flexibility and excellent service by tailoring existing standard processes to meet customers ' design needs and porting customers ' own process technologies into our fabrication facilities . other significant events in january 2014 , our audit committee commenced an internal investigation that resulted in the restatement of certain financial statements for prior periods . as a result of the restatement , we have incurred substantial accounting , legal and other related costs associated with the restatement and certain litigation and other regulatory investigations and actions related thereto . we incurred restatement related costs of $ 40.9 million for the year ended december 31 , 2014 , where there were no similar costs in 2013 or 2012. we expect to continue to incur substantial restatement related costs in 2015 related to ongoing litigation and regulatory investigations , which could have a material adverse effect on our operating results and liquidity for the foreseeable future . see liquidity and capital resources on september 13 , 2013 , we closed an underwritten registered public offering of 1,700,000 shares of our common stock owned by certain of our stockholders at a price per share of $ 21.20. we did not receive any proceeds from the sale of our common stock by the selling stockholders but paid certain expenses in connection with such secondary offering . on july 18 , 2013 , we issued the 2021 notes , at a price of 99.5 % . interest on the 2021 notes accrues at a rate of 6.625 % per annum , payable semi-annually on january 15 and july 15 of each year , beginning on january 15 , 2014. we used net proceeds of the 2021 notes , together with cash on hand , to repay all of our then outstanding 10.5 % senior notes due april 15 , 2018 ( the 2018 notes ) , including applicable premium and accrued interest , and to pay related fees and expenses of the 2021 notes offering . on february 8 , 2013 , we closed an underwritten registered public offering of 5,750,000 shares of our common stock owned by certain of our stockholders at a price per share of $ 14.50. we did not receive any proceeds from the sale of our common stock by the selling stockholders but paid certain expenses in connection with such secondary offering . on may 1 , 2012 , we closed an underwritten registered public offering of 7,000,000 shares of our common stock owned by certain of our stockholders at a price per share of $ 11.40. we did not receive any proceeds from the sale of our common stock by the selling stockholders but paid certain expenses in connection with such secondary offering . 43 index to financial statements business lines we operate three separate business lines within one segment : display solutions , power solutions and semiconductor manufacturing services . display solutions : our display solutions products include source and gate drivers and timing controllers that cover a wide range of flat panel displays used in uhd , hd , light emitting diode , or led , 3d and oled televisions , notebooks , mobile communications and entertainment devices . our display solutions support the industry 's most advanced display technologies , such as amoleds , and ltps tft , as well as high-volume display technologies such as a-si tfts . our display solutions business represented 28.6 % , 27.6 % and 35.4 % of our net sales for the fiscal years ended december 31 , 2014 , 2013 and 2012 , respectively . power solutions : our power solutions line produces power management semiconductor products including discrete and integrated circuit solutions for power management in high-volume consumer applications . these products include mosfets , insulated-gate bipolar transistors ( igbts ) power modules , ac-dc converters , dc-dc converters , led drivers , switching regulators and linear regulators for a range of devices , including televisions , smartphones , mobile phones , desktop pcs , notebooks , tablet pcs , other consumer electronics , and industrial applications such as power suppliers , led lighting , motor control and home appliances . our power solutions business represented 19.7 % , 18.4 % and 15.5 % of our net sales for the fiscal years ended december 31 , 2014 , 2013 and 2012 , respectively . story_separator_special_tag semiconductor manufacturing services : our semiconductor manufacturing services line provides specialty analog and mixed-signal foundry services to fabless semiconductor companies and idms that serve the consumer , computing , communication , industrial , automotive and iot applications . we manufacture wafers based on our customers ' product designs . we do not market these products directly to end customers but rather supply manufactured wafers and products to our customers to market to their end customers . we offer approximately 459 process flows to our manufacturing services customers . we also often partner with key customers to jointly develop or customize specialized processes that enable our customers to improve their products and allow us to develop unique manufacturing expertise . our manufacturing services are targeted at customers who require differentiated , specialty analog and mixed-signal process technologies such as high voltage cmos , embedded memory and power . these customers typically serve consumer , computing , communication , industrial , automotive and iot applications . our semiconductor manufacturing services business represented 51.6 % , 53.9 % and 49.0 % of our net sales for the fiscal years ended december 31 , 2014 , 2013 and 2012 , respectively . explanation and reconciliation of non-us gaap measures adjusted ebitda and adjusted net income we use the terms adjusted ebitda and adjusted net income throughout this report . adjusted ebitda , as we define it , is a non-us gaap measure . we define adjusted ebitda for the periods indicated as net income ( loss ) , adjusted to exclude ( i ) depreciation and amortization , ( ii ) interest expense , net , ( iii ) income tax expenses ( benefits ) , ( iv ) restructuring and impairment charges , ( v ) equity-based compensation expense , ( vi ) foreign currency loss ( gain ) , net , ( vii ) derivative valuation loss ( gain ) , net , ( viii ) secondary offering and others , ( ix ) loss on early extinguishment of senior notes and ( x ) restatement related expenses . see the footnotes to the table below for further information regarding these items . we present adjusted ebitda as a supplemental measure of our performance because : adjusted ebitda eliminates the impact of a number of items that may be either one time or recurring items that we do not consider to be indicative of our core ongoing operating performance ; we believe that adjusted ebitda is an enterprise level performance measure commonly reported and widely used by analysts and investors in our industry ; our investor and analyst presentations will include adjusted ebitda ; and we believe that adjusted ebitda provides investors with a more consistent measurement of period to period performance of our core operations , as well as a comparison of our operating performance to that of other companies in our industry . we use adjusted ebitda in a number of ways , including : for planning purposes , including the preparation of our annual operating budget ; to evaluate the effectiveness of our enterprise level business strategies ; in communications with our board of directors concerning our consolidated financial performance ; and in certain of our compensation plans as a performance measure for determining incentive compensation payments . 44 index to financial statements we encourage you to evaluate each adjustment and the reasons we consider them appropriate . in evaluating adjusted ebitda , you should be aware that in the future we may incur expenses similar to the adjustments in this presentation . adjusted ebitda is not a measure defined in accordance with us gaap and should not be construed as an alternative to income from continuing operations , cash flows from operating activities or net income ( loss ) , as determined in accordance with us gaap . a reconciliation of net income ( loss ) to adjusted ebitda is as follows : replace_table_token_5_th ( a ) this adjustment is comprised of all items included in the restructuring and impairment charges line item on our consolidated statements of operations , and eliminates the impact of restructuring and impairment charges related to ( i ) for 2014 , the impact of impairment charges of $ 10.3 million related to the closure of our 6-inch fab , and ( ii ) for 2013 , restructuring charges of $ 1.8 million related to the restructuring of our 6-inch fab , and the impact of impairment charges of $ 3.4 million related to the impairment of goodwill , $ 1.9 million related to the impairment of certain technology and $ 0.5 million of machinery and equipment purchased in connection with our acquisition of dawin electronics , which we refer to as the dawin acquisition , and the impact of impairment charges of $ 0.6 million related to the impairment of certain existing technology . ( b ) this adjustment eliminates the impact of non-cash equity-based compensation expenses . although we expect to incur non-cash equity-based compensation expenses in the future , we believe that analysts and investors will find it helpful to review our operating performance without the effects of these non-cash expenses , as supplemental information . ( c ) this adjustment eliminates the impact of non-cash foreign currency translation associated with intercompany debt obligations and foreign currency denominated receivables and payables , as well as the cash impact of foreign currency transaction gains or losses on collection of such receivables and payment of such payables . although we expect to incur foreign currency translation gains or losses in the future , we believe that analysts and investors will find it helpful to review our operating performance without the effects of these primarily non-cash gains or losses , as supplemental information . ( d ) this adjustment eliminates the impact of gain or loss recognized in income on derivatives , which represents hedge ineffectiveness or derivatives value changes excluded from the risk being hedged . we enter into derivative transactions to mitigate foreign exchange risks . as our derivative transactions are limited to a certain portion of our expected cash flows denominated in u.s.
| net sales from our semiconductor manufacturing services line were $ 360.5 million for the year ended december 31 , 2014 , a $ 34.8 million , or 8.8 % , decrease compared to $ 395.4 million for the year ended december 31 , 2013. the decrease was attributable to reduced levels of demand for our products by customers primarily serving the smartphone market . all other . all other net sales were $ 0.6 million for the year ended december 31 , 2014 and $ 0.5 million for the year ended december 31 , 2013 . 51 index to financial statements net sales by geographic region we report net sales by geographic region based on the location of customers . revenue from a foreign subsidiary of a multi-national corporation is classified based on the location of the subsidiary . the following table sets forth our net sales by geographic region and the percentage of total net sales represented by each geographic region for the years ended december 31 , 2014 and 2013 : replace_table_token_9_th net sales in korea for the year ended december 31 , 2014 decreased from $ 313.6 million to $ 260.1 million compared to the year ended december 31 , 2013 , or by $ 53.5 million , or 17.1 % , primarily due to the decline in demand for our products for large display applications , discontinued use of a distributor in korea and selling direct to oem subsidiaries in asia pacific . net sales in asia pacific for the year ended december 31 , 2014 increased from $ 284.4 million to $ 324.2 million compared to the year ended december 31 , 2013 , or by $ 39.8 million , or 14.0 % . the increase was attributable to the discontinued use of a distributor in korea and selling direct to oem subsidiaries in asia pacific . net sales in the u.s. for the year ended december 31 , 2014 decreased from $ 100.8 million to $ 91.3 million compared to the year ended december 31 , 2013 , or by $ 9.5 million , or 9.4 % . net sales in europe for the year ended december 31 , 2014 decreased from $ 32.1 million to $ 21.2 million compared to the
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we will report our financial results consistent with this new segment reporting structure beginning with the fiscal quarter ending on september 27 , 2019. as part of the regulatory process in connection with the l3harris merger , we entered into a definitive agreement on april 4 , 2019 to sell the harris night vision business to elbit systems of america , llc , a subsidiary of elbit systems ltd. , for $ 350 million in cash , subject to customary purchase price adjustments as set forth in the definitive agreement . the sale 35 transaction was conditioned on completion of the l3harris merger , as well as customary closing conditions , including receipt of regulatory approvals . the harris night vision business , which is reported as part of our communication systems segment in this report , is a global supplier of high-performance , vision-enhancing products for u.s. and allied military and security forces and commercial customers . during the fourth quarter of fiscal 2019 , we received all necessary regulatory approvals for the l3harris merger and the assets and liabilities of the harris night vision business were classified as held for sale in our consolidated balance sheet at june 28 , 2019. we expect to close the sale of the harris night vision business during the third quarter of calendar year 2019 and use the proceeds from the sale to pre-fund l3harris pension plans and return cash to shareholders . business considerations general we generate revenue , income and cash flows by developing , manufacturing or providing , and selling advanced , technology-based solutions that solve government and commercial customers ' mission-critical challenges . we support government and commercial customers in more than 100 countries , with our largest customers being various departments and agencies of the u.s. government and their prime contractors . our products , systems and services have defense and civil government applications , as well as commercial applications . as of the end of fiscal 2019 , we had approximately 18,200 employees , including approximately 8,000 engineers and scientists . we generally sell directly to our customers , and we utilize agents and intermediaries to sell and market some products and services , especially in international markets . as of june 28 , 2019 , we structured our operations primarily around the products , systems and services we sold and the markets we served , and we reported the financial results of our continuing operations in the following three reportable segments , which were also referred to as our business segments : communication systems , serving markets in tactical communications and defense products , including tactical ground and airborne radio communications solutions and night vision technology , and in public safety networks ; electronic systems , providing electronic warfare , avionics , and c4isr solutions for defense and classified customers and mission-critical communication systems for civil and military aviation and other customers ; and space and intelligence systems , providing intelligence , space protection , geospatial , complete earth observation , universe exploration , pnt , and environmental solutions for national security , defense , civil and commercial customers , using advanced sensors , antennas and payloads , as well as ground processing and information analytics . as described in more detail in note 1 : significant accounting policies under “ principles of consolidation ” and in note 3 : discontinued operations and divestitures in the notes , we completed the divestitures of caprock and it services in fiscal 2017. caprock and it services were part of our former critical networks segment and are reported as discontinued operations in this report . our historical financial results have been restated for all periods presented in this report to account for businesses reported as discontinued operations in this report . except for disclosures related to our cash flows , or unless otherwise specified , disclosures in this report relate solely to our continuing operations . as described in more detail in note 2 : accounting changes or recent accounting pronouncements in the notes , effective june 30 , 2018 we adopted asc 606 and asu 2017-07 on a retrospective basis . asc 606 superseded nearly all revenue recognition guidance under gaap and international financial reporting standards and superseded some cost guidance for construction-type and production-type contracts . asu 2017-07 changed the presentation of components of net periodic pension and postretirement benefit costs other than the service cost component in our consolidated statement of income . our historical results , discussion and presentation as set forth in our consolidated financial statements and accompanying notes and this md & a reflect the impact of the adoption of these new standards for all periods presented in order to present all information on a comparable basis . value drivers of our business in recent years , we have reshaped our portfolio of businesses to focus on high-growth , high-margin businesses , successfully integrated exelis , and made investments that led to several new product launches and strategic program awards . that multi-year strategy set the stage for a fiscal 2019 capped by financial results that exceeded targets we set at the beginning of the fiscal year , and for combining with l3 technologies following the close of the year to form l3harris technologies . fiscal 2019 was a transformative year as we accelerated growth across all three business segments , expanded margins through our focus on operational excellence and recorded higher orders that drove a 12 percent increase in backlog for the fiscal year . we paid dividends , repurchased shares and repaid debt that expanded our future financial flexibility . story_separator_special_tag in addition , we formed a dedicated integration team to plan for a seamless day one transition to the new l3harris following the closing of the l3harris merger on june 29 , 2019. we plan to build on our strong fiscal 2019 performance , and together with a well-funded 36 u.s. government budget and a continued focus on operational excellence and innovation , we believe we are well positioned to achieve our strategic priorities for the fiscal transition period and the next fiscal year , which include the following : integrating flawlessly ; building a new high-performance culture ; driving excellence everywhere ; accelerating innovation ; and growing the company . we are focused on successfully integrating the two companies to maximize the benefits of the transformative merger . as our integration efforts focus on driving greater cost and operational efficiencies and capturing opportunities to drive revenue growth , we continue to execute against our strategic priorities and focus on maintaining our deep customer relationships , commercializing our technology and driving operational excellence . our operational excellence program , e 3 ( excellence everywhere every day ) , is focused on winning enduring customer loyalty through our deep commitment to excellence , innovation , customer satisfaction and continuous improvement in everything we do . prior to the l3harris merger , we made substantial progress in standardizing our it systems , which we expect will dramatically reduce the number of enterprise resource planning platforms , simplify our operating environment , drive productivity through growth in shared services , automate core processes and lay the foundation of our enterprise-wide digital strategy . we are working toward eliminating many of our data centers and making the remainder cloud-enabled . we also are continuing to focus on cost savings in our supply chain through “ value engineering ” and “ should-cost ” analysis , as well as improving supplier performance and reducing sole-sourced components on legacy solutions . we will continue these efforts as we integrate the two companies . innovation is at the core of our success , and r & d investment represents the foundation for innovation . we are fundamentally reshaping how we design and develop new products to get more out of our r & d investment . we are deploying “ devops ” to streamline software development , which has grown to be a significant portion of our engineering work today and is expected to increase over time . we also use standardized processes and common metrics to track progress , gauge success and drive disciplined execution , as well as core technology centers to more fully leverage r & d investment across our company . our commitment to excellence and innovation carries through to the l3harris merger and the integration process . our goal is to maximize the benefits of this transformative merger , creating significantly greater scale and bringing together two engineering-driven companies and workforces with similar cultures that value technology leadership . together , the two companies ' complementary technologies and capabilities strengthen core franchises and provide new opportunities for innovation to solve our customers ' most complex challenges . the integration process represents a significant opportunity to achieve synergy savings . we also are combining top talent and technology from each company in a market-focused reorganization that will align with our strategic growth platforms and will help improve our competitive position , increase operational efficiency , and capture synergies , while we continue to bring innovative and affordable solutions to our customers . as our integration efforts focus on driving greater cost and operational efficiencies and revenue growth through synergies , we will continue to maintain our focus on continuing to execute against our strategic priorities and other things that we can control - including satisfying our customers , driving operational excellence , improving cash flow and optimizing capital deployment . the l3harris merger also provides a unique opportunity for portfolio shaping actions , and we will continue to evaluate what businesses are strategic and what businesses are better served under a different owner . during fiscal 2019 , we returned to our shareholders $ 325 million in dividends and another $ 200 million through share repurchases and we also used $ 281 million for net repayment of borrowings . in the fiscal transition period , we believe accelerating revenue growth across our business segments and margin expansion will improve our operating cash flow , which we expect to use for increased dividends , share repurchases and reinvestment to grow our strategic businesses . key indicators we believe our value drivers , when implemented , will improve our financial results , including : revenue ; income from continuing operations and income from continuing operations per diluted common share ; income from continuing operations as a percentage of revenue ; net cash provided by operating activities ; return on invested capital ; return on average equity ; consolidated total indebtedness to total capital ratio ; and net unfunded defined benefit plans liability . the measure of our success is reflected in our results of operations and liquidity and capital resources key indicators as discussed below . fiscal 2019 story_separator_special_tag from military and government customers for tactical radios , public safety communications , electronic warfare equipment , air traffic management , electronic attack and release systems and isr . we believe we can leverage our domain expertise and proven technology provided in the u.s. to further expand our international business . we believe that our experience , technologies and capabilities are well aligned with the demand and requirements of the markets noted above in this report . however , we remain subject to the spending levels , pace and priorities of the u.s. government as well as international governments and commercial customers , and to general economic conditions that could adversely affect us , our customers and our suppliers .
| equity at the beginning and end of the fiscal year ) increased to 29 percent in fiscal 2019 from 23 percent in fiscal 2018 ; our consolidated total indebtedness to total capital ratio at june 28 , 2019 was 51 percent , compared with our 65 percent covenant limitation under our senior unsecured revolving credit facility ; and our net unfunded defined benefit plans liability increased $ 460 million in fiscal 2019 to $ 1,174 million at june 28 , 2019 compared with $ 714 million at june 29 , 2018 , primarily due to a lower discount rate . refer to md & a heading “ liquidity , capital resources and financial strategies ” below in this report for more information on net cash provided by ( used in ) operating , investing and financing activities . industry-wide opportunities , challenges and risks department of defense and other u.s. federal markets : our largest customers are various departments and agencies of the u.s. government — the percentage of our revenue that was derived from sales to u.s. government customers , including foreign military sales funded through the u.s. government , whether directly or through prime contractors , in fiscal 2019 , 2018 and 2017 was approximately 77 percent , 75 percent and 74 percent , respectively . on february 9 , 2018 , president trump signed into law the bipartisan budget act of 2018 ( “ bba 2018 ” ) , a two-year budget agreement aimed to provide stability to the u.s. government budget process for the government fiscal year ( “ gfy ” ) 2018 and gfy 2019 ( u.s. government fiscal years begin october 1 and end september 30 ) . while the bba 2018 raised the spending caps for gfy 2018 and gfy 2019 previously constrained by the budget control act of 2011 ( “ bca ” ) and temporarily suspended the statutory debt ceiling through march 1 , 2019 , it did not modify the
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we outsource manufacturing of our hardware products using a limited number of contract manufacturers . we procure a majority of the components used in our products directly from third-party vendors and have them delivered to our contract manufacturers for manufacturing and assembly . once our contract manufacturers perform sub-assembly and assembly quality tests , they are assembled to our specified configurations . we perform final manufacturing assurance tests , labeling , final configuration , including a final firmware installation and shipment to our customers . as a consequence of the rapidly evolving nature of our business and our limited operating history , we believe that period-to-period comparisons of revenue and other operating results , including gross margin and operating expenses as a percentage of our revenue should not be relied upon as indications of future performance . although we have experienced significant percentage growth in our revenue , we do not believe that our historical growth rates are likely to be sustainable or indicative of future growth . recent developments in april 2013 , we acquired 100 % of the stock of nexgen storage , inc. , or nexgen , a developer of hybrid storage systems based in louisville , colorado . the acquisition of nexgen adds to our storage solution portfolio and expands our reach into small to medium enterprises . the consideration for the nexgen acquisition was $ 110.7 million , consisting of ( i ) $ 109.0 million in cash , ( ii ) $ 1.4 million in assumed stock options , and ( iii ) $ 0.3 million related to the elimination of intercompany balances . in addition , we agreed to pay $ 5.0 million in cash to one of the selling stockholders in 12 equal quarterly installments and 339,627 in shares of our common stock to another selling stockholder , which is subject to a repurchase right that lapses in 12 equal quarterly installments . the quarterly installments for both the cash and restricted stock amounts are subject to ongoing employment requirements . as -40- such , the associated compensation expense will be recognized over the service period . we also assumed nexgen 's options and restricted stock units that were unvested at the time of the merger that were converted into unvested options to purchase 822,927 shares of our common stock and 84,808 of our restricted stock units . subsequent to the acquisition , we will recognize over the underlying future service period up to approximately $ 23.7 million of compensation expense related to the fair value of the cash , restricted stock , and the assumed stock-based awards . the assets , liabilities and operating results of nexgen are reflected in our consolidated financial statements following the date of acquisition . in march 2013 , we acquired 100 % of the stock of id7 ltd. and scst limited , together the id7 entities , for total cash consideration of approximately $ 5.9 million . the id7 entities , located in england and wales , are the primary developers of the scst storage subsystem enabling enhanced shared storage software functionality for any linux server or appliance . in connection with the acquisition , we issued 135,131 shares of our common stock to the former shareholders of the id7 entities , which is subject to a repurchase right , that lapse 25 % after one year and the remaining 75 % in 12 equal quarterly installments thereafter . subsequent to the acquisition , we will recognize over the underlying future service period up to approximately $ 2.4 million of stock-based compensation expense related to the fair value of the restricted stock awards . the assets , liabilities and operating results of the id7 entities are reflected in our consolidated financial statements following the date of acquisition . components of consolidated statements of operations revenue we derive revenue primarily from the sale of our storage class memory products and support services . we sell our solutions through our global direct sales force , oems , and other channel partners . we provide our support services pursuant to support contracts , which involve hardware support , software support , and software upgrades on a when-and-if available basis for a period of one to five years . revenue from support services for fiscal 2011 , 2012 , and 2013 represented $ 4.5 million , $ 14.6 million , and $ 34.8 million , respectively . for all periods presented , our software revenue was not significant to our consolidated statement of operations . cost of revenue cost of revenue consists primarily of material costs including amounts paid to our suppliers and contract manufacturers for hardware components and assembly of those components into our products . the largest portion of our cost of revenue consists of the cost of non-volatile memory components . given the commodity nature of memory components , neither we nor our contract manufacturers generally enter into long-term supply contracts for our product components , which can cause our cost of revenue to fluctuate . cost of revenue is recorded when the related product revenue is recognized . cost of revenue also includes costs related to allocated personnel expenses related to customer support , warranty costs , costs of shipping , manufacturing operations , amortization of intangible assets , costs of licensed technology , and carrying value adjustments recorded for excess and obsolete inventory . operating expenses the largest component of our operating expenses is personnel costs , consisting of salaries , benefits , and incentive compensation for our employees , which includes stock-based compensation . our headcount increased from 441 employees as of june 30 , 2011 to 669 employees as of june 30 , 2012 , and to 938 employees as of june 30 , 2013. as a result , operating expenses have increased significantly over these periods . story_separator_special_tag -41- sales and marketing sales and marketing expenses consist primarily of personnel costs , including incentive compensation , product demonstration expenses , travel-related costs , facilities-related costs , depreciation associated with sales and marketing acquired assets , contract labor and consulting expenses associated with sales and marketing activities , and amortization of intangible assets . research and development research and development expenses consist primarily of personnel costs , including incentive compensation , depreciation associated with research and development acquired assets , contract labor and consulting services , amortization of intangible assets , facilities-related costs , travel-related costs , and prototype expenses . we expense research and development costs as incurred . general and administrative general and administrative expenses consist primarily of personnel costs , including incentive compensation , legal expenses , depreciation expense , facilities-related expenses for our executive , finance , human resources , information technology , and legal organizations , consulting and professional services , and travel-related costs . other income ( expense ) , net other income ( expense ) , net consists of changes in the fair value of a derivative related to a repurchase of our common stock , interest expense , interest income , and transactional foreign currency gains and losses . trends in our business gross margin our gross margin will vary due to product mix and pricing , customer demand , and cost of materials . we anticipate gross margin to decrease in fiscal 2014 compared to fiscal 2013 as a result of our growth strategy . sales and marketing we plan to continue to invest in sales by increasing our sales headcount . our sales personnel are typically not immediately productive and therefore the increase in sales and marketing expense when we add new sales representatives is not immediately offset by increased revenue and may not result in increased revenue over the long-term . we expect sales and marketing expenses to increase in absolute dollars as we expect to continue hiring new sales representatives . we also expect to expand marketing activities to drive sales opportunities and brand awareness . research and development we expect to continue to devote substantial resources to the development of our products including the development of new products . we believe that these investments are necessary to maintain and improve our competitive position . we expect research and development expenses to increase in absolute dollars as we expect to continue to invest in additional engineering personnel and infrastructure required to support the development of new products and to enhance existing products . -42- general and administrative while we expect personnel costs , including stock-based compensation expense , to be the primary component of general and administrative expenses , we also expect to continue to incur significant legal and accounting costs related to compliance with rules and regulations applicable to public companies . we expect that general and administrative expenses will continue to increase in absolute dollars primarily due to general growth of the business , infrastructure costs to support our growth , and in legal costs related to intellectual property . results of operations for the fiscal years ended june 30 , 2011 , 2012 , and 2013 revenue the following table presents our revenue for the periods indicated and related changes as compared to the prior periods ( dollars in thousands ) : replace_table_token_3_th 2011 compared to 2012 . revenue increased $ 162.1 million from fiscal 2011 to fiscal 2012 , primarily due to the increase in the overall volume of our products shipped . 2012 compared to 2013 . revenue increased $ 73.0 million from fiscal 2012 to fiscal 2013 , primarily due to the increase in the overall volume of our products shipped . revenue from our 10 largest customers , including the applicable oems , for each fiscal year was 92 % , 91 % , and 84 % of revenue for fiscal 2011 , 2012 , and 2013 , respectively . our direct customer facebook , apple , through a reseller , and oem customer hp , each accounted for 30 % , 25 % , and 17 % of our revenue , respectively , in fiscal 2012 and 29 % , 15 % , and 17 % of our revenue , respectively , in fiscal 2013. no other customer accounted for 10 % or greater of revenue in fiscal 2012 and 2013. revenue from customers with a ship-to location in the united states accounted for 82 % , 74 % , and 60 % of revenue for fiscal 2011 , 2012 , and 2013 , respectively . cost of revenue and gross margin the following table presents our cost of revenue and gross margin for the periods indicated and related changes as compared to the prior periods ( dollars in thousands ) : replace_table_token_4_th ( 1 ) we define gross margin as our gross profit expressed as a percentage of total revenues 2011 compared to 2012 . cost of revenue increased $ 75.0 million and gross profit increased $ 87.1 million from fiscal 2011 to fiscal 2012 , primarily due to the increase in the volume of our products shipped . our gross margin decreased from fiscal 2011 to fiscal 2012 due to higher raw material costs associated with the early stage of the iodrive2 product lifecycle and also related to product mix . -43- 2012 compared to 2013 . cost of revenue increased $ 18.9 million from fiscal 2012 to fiscal 2013 primarily due to the increase in the volume of our products shipped and for litigation settlement related expenses of $ 4.1 million . our gross profit increased $ 54.2 million and our gross margin increased from fiscal 2012 to fiscal 2013 primarily due to the increase in the volume of our products shipped , lower raw material costs , and product mix , partially offset by litigation settlement related expenses of $ 4.1 million .
| operating expenses increased sequentially in all quarters , with the exception of the three months ended september 30 , 2012 , as we continued to add headcount and incurred related costs to accommodate our growth . liquidity and capital resources primary sources of liquidity as of june 30 , 2013 , our principal sources of liquidity consisted of cash and cash equivalents of $ 238.4 million and net accounts receivable of $ 69.1 million . in june 2011 , we completed an initial public offering of our common stock in which we issued and sold 12,600,607 shares and received net proceeds of approximately $ 218.9 million . in november 2011 , we completed a follow-on public offering of our common stock in which we issued and sold 3,000,000 shares and received net proceeds of approximately $ 94.0 million . we had working capital of $ 304.7 million as of june 30 , 2013. through june 30 , 2013 , we used the net ipo proceeds to complete the acquisitions of io turbine , the id7 entities , and nexgen , and for working capital and general corporate purposes , including expansion of our sales organization and further development and expansion of our product offerings . historically , our primary sources of liquidity have been from customer payments for our products and services , the issuance of common and convertible preferred stock and convertible notes , and proceeds from our revolving line of credit . the revolving line of credit matured on december 31 , 2012. cash flow analysis replace_table_token_11_th operating activities our operating cash flow primarily depends on the timing and amount of cash receipts from our customers , inventory purchases , and payments for operating expenses . our net cash used in operating activities for fiscal 2011 was $ 9.9 million . during this period our operating cash outflows , which consisted primarily of purchases of inventory and investments made to hire additional headcount to support our current and anticipated growth , were partially offset by cash collections from our customers . our net income for 2011 was $ 4.6 million . significant non-cash -47- expenses included in net
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on july 31 , 2015 , prior to the separation , viavi transferred substantially all of the assets and liabilities and operations of the ccop segment and waveready product lines to lumentum . our financial statements for periods prior to the separation were prepared on a stand-alone basis and were derived from viavi 's consolidated financial statements and accounting records . for the period from june 28 , 2015 to august 1 , 2015 , expenses were allocated to us using estimates that we consider to be a reasonable reflection of the utilization of services provided to or benefits received by us . the consolidated financial statements include certain assets and liabilities that were historically held at the viavi level but which were transferred to us in the separation . viavi 's debt and related interest expense were not attributed or allocated to us for the periods presented since we are not the legal obligor of the debt and viavi 's borrowings were not directly attributable to us . certain intercompany transactions between us and viavi were considered to be effectively settled in the consolidated financial statements at the time the transactions were recorded . the total net effect of the settlement of these intercompany transactions is reflected in our consolidated statements of cash flows as a financing activity and on the consolidated balance sheets as viavi net investment . the consolidated statements of operations includes our direct expenses for cost of sales , r & d , sales and marketing , and administration as well as allocations of expenses arising from shared services and infrastructure provided by viavi to us through the separation . these allocated expenses include costs of information technology , human resources , accounting , legal , real estate and facilities , corporate marketing , insurance , treasury and other corporate and infrastructure services . in addition , other costs allocated to us include restructuring and stock-based compensation related to viavi 's corporate and shared services employees as well as other public company costs . these expenses were allocated to us using estimates that we consider to be a reasonable reflection of the utilization of services provided to or benefits received by our business . the allocation methods include revenue , headcount , square footage , actual consumption and usage of services and others . critical accounting policies and estimates the preparation of the consolidated financial statements in accordance with gaap in the united states requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes . management bases its estimates on historical experience and various other assumptions believed to be reasonable . although these estimates are based on management 's best knowledge of current events and actions that may impact us in the future , actual results may be different from the estimates . our critical accounting policies are those that affect our financial statements materially and involve difficult , subjective or complex judgments by management . those policies are short-term investments , impairment of marketable and non-marketable securities , inventory valuation , goodwill and intangibles , long-lived asset valuation , pension benefits , revenue recognition , stock-based compensation , income taxes , restructuring , derivative liabilities , business combinations , and warranty . 32 short-term investments we classify our investments in debt as available-for-sale and record these investments at fair value . investments with an original maturity of three months or less at the date of purchase are considered cash equivalents , while all other investments are classified as short-term based on management 's intent and ability to use the funds in current operations . unrealized gains and losses are reported as a component of other comprehensive loss . realized gains and losses are determined based on the specific identification method , and are reflected as interest and other income ( expense ) , net in our consolidated statements of operations . we regularly review our investment portfolio to identify and evaluate investments that have indicators of possible impairment . factors considered in determining whether a loss is other-than-temporary include , but are not limited to : the length of time and extent a security 's fair value has been below its cost , the financial condition and near-term prospects of the investee , the credit quality of the security 's issuer , likelihood of recovery and our intent and ability to hold the security for a period of time sufficient to allow for any anticipated recovery in value . for our debt instruments , we also evaluate whether we have the intent to sell the security or it is more likely than not that we will be required to sell the security before recovery of its cost basis . impairment of marketable and non-marketable securities we periodically review our marketable and non-marketable securities for impairment . if we conclude that any of these investments are impaired , we determine whether such impairment is other-than-temporary . we consider factors such as the duration , severity and the reason for the decline in value , the potential recovery period and whether we intend to sell . for marketable debt securities , we also consider whether ( i ) it is more likely than not that we will be required to sell the debt securities before recovery of their amortized cost basis , and ( ii ) the amortized cost basis can not be recovered as a result of credit losses . if any impairment is considered other-than-temporary , we will write-down the security to its fair value . inventory valuation inventory is valued at standard cost , which approximates actual cost computed on a first-in , first-out basis , not in excess of net realizable value . we assess the value of our inventory on a quarterly basis and write down those inventories which are obsolete or in excess of our forecasted usage to their estimated realizable value . story_separator_special_tag our estimates of realizable value are based upon our analysis and assumptions including , but not limited to , forecasted sales levels by product , expected product lifecycle , product development plans and future demand requirements . our product line management personnel play a key role in our excess review process by providing updated sales forecasts , managing product transitions and working with manufacturing to minimize excess inventory . if actual market conditions are less favorable than our forecasts or actual demand from our customers is lower than our estimates , we may be required to record additional inventory write-downs . if actual market conditions are more favorable than anticipated , inventory previously written down may be sold , resulting in lower cost of sales and higher income from operations than expected in that period . goodwill goodwill represents the excess of the purchase price of an acquired business over the fair value of the identifiable assets acquired and liabilities assumed . we test for impairment of goodwill on an annual basis in the fourth quarter and at any other time when events occur or circumstances indicate that the carrying amount of goodwill may not be recoverable . refer to “ note 13. goodwill and other intangible assets ” in the notes to consolidated financial statements . an entity has the option to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test . if an entity determines that as a result of the qualitative assessment that it is more likely than not ( i.e. , greater than 50 % likelihood ) that the fair value of a reporting unit is less than its carrying amount , then the quantitative test is required . otherwise , no further testing is required . the two-step quantitative goodwill impairment test requires us to estimate the fair value of our reporting units . if the carrying value of a reporting unit exceeds its fair value , the goodwill of that reporting unit is potentially impaired and we proceed to step two of the impairment analysis . in step two of the analysis , we measure and record an impairment loss equal to the excess of the carrying value of the reporting unit 's goodwill over its implied fair value , if any . application of the goodwill impairment test requires judgments , including : identification of the reporting units , assigning assets and liabilities to reporting units , assigning goodwill to reporting units , a qualitative assessment to determine whether there are any impairment indicators , and determining the fair value of each reporting unit . we estimate the fair value of a reporting unit using the market approach , which estimates the fair value based on comparable market prices . significant estimates in the market approach include : identifying similar companies with comparable business factors such as size , growth , profitability , risk and return on investment , and assessing comparable revenue and operating income multiples in estimating the fair value of the reporting unit . we base our estimates on historical experience and on various assumptions about the future that we believe are reasonable based on available information . unanticipated events and circumstances may occur that affect the accuracy of our assumptions , 33 estimates and judgments . for example , if the price of our common stock were to significantly decrease combined with other adverse changes in market conditions , thus indicating that the underlying fair value of our reporting units may have decreased , we might be required to reassess the value of our goodwill in the period such circumstances were identified . intangible assets intangible assets consist primarily of intangible assets purchased through acquisitions . purchased intangible assets primarily include acquired developed technologies ( developed and core technology ) . intangible assets are amortized using the straight-line method over the estimated economic useful lives of the assets , which is the period during which expected cash flows support the fair value of such intangible assets . long-lived asset valuation ( property , plant and equipment and intangible assets subject to amortization ) we test long-lived assets for recoverability , at the asset group level , when events or changes in circumstances indicate that their carrying amount may not be recoverable . circumstances which could trigger a review include , but are not limited to : significant decreases in the market price of the asset , significant adverse changes in the business climate or legal factors , accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset , current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset , or current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life . recoverability is assessed based on the difference between the carrying amount of the asset and the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset . an impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value . revenue recognition we recognize revenue when all four revenue recognition criteria have been met : ( i ) persuasive evidence of an arrangement exists , ( ii ) the product has been delivered or the service has been rendered , ( iii ) the price is fixed or determinable and ( iv ) collection is reasonably assured . revenue from product sales is recorded when all of the foregoing conditions are met and risk of loss and title passes to the customer . our products typically include a warranty and the estimated cost of product warranty claims , based on historical experience , is recorded at the time the sale is recognized . sales to customers are generally not subject to price protection or return rights .
| the following table presents net revenue by the three geographic regions we operate in and net revenue from countries that exceeded 10 % or more of our total net revenue ( in millions , except for percentages ) : replace_table_token_7_th during fiscal 2017 , 2016 and 2015 , net revenue from customers outside the united states , based on customer shipping location , represented 85.2 % , 82 % and 80.6 % of net revenue , respectively . our net revenue is primarily denominated in u.s. dollars , including our net revenue from customers outside the united states as presented above . we expect revenue from customers outside of the united states to continue to be an important part of our overall net revenue and an increasing focus for net revenue growth opportunities . 38 gross margin and segment gross margin the following table summarizes segment gross margin for fiscal 2017 , 2016 and 2015 ( in millions , except for percentages ) : replace_table_token_8_th ( 1 ) the unallocated corporate items for the years presented include the effects of amortization of acquired developed technology intangible assets , share-based compensation and certain other charges . we do not allocate these items to the gross margin for each segment because management does not include such information in measuring the performance of the operating segments . gross margin gross margin in fiscal 2017 increased by 1.1 % to 31.8 % from 30.7 % in fiscal 2016 . this increase was primarily due to an increase in opcomms gross margins partially offset by a decrease in lasers gross margins . gross margin in fiscal 2016 was relatively flat compared to fiscal 2015. a decrease in lasers gross margins was offset by an increase in opcomms gross margins . as discussed in more detail under “ net revenue ” above , we sell products in certain markets that are consolidating , undergoing product , architectural and business model transitions , have high customer concentrations , are highly competitive ( increasingly due to asia-pacific-based competition ) , are price sensitive and or are affected by customer seasonal and mix variant buying patterns . we expect these factors to continue
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general economy many of our industrial businesses are driven in large part by global economic growth , especially in the united states . in 2010 , the u.s. economy , as measured by real gross domestic product ( gdp ) , grew at a modest pace during the first half of the year , reflecting the beginning of a turnaround from the global economic recession that led to severely restricted access to capital , reduced economic demand and significant declines in energy demand . however , the broader economy slowed down considerably in the second half of 2010. industrial production and capacity utilization rates were similarly strong in the first half of the year . however , the u.s. recovery appeared to lose some of its momentum in the third quarter of 2010 and concerns for a double-dip recession resurfaced , as the continued weak housing market and lack of job creation diminished consumer confidence . additionally , industrial production fell in september for the first time in more than a year , signaling a slight cooling in manufacturing activity , as total production and manufacturing output both moderated through the second half of the year . however , full year 2010 industrial production posted its strongest increase on an annual basis since 1998 , rising 5.8 % in 2010 after falling 9.3 % in 2009. in 2011 , the broader economy is expected to continue to recover , and we are cautiously optimistic that our commercial and industrial markets will continue to improve . defense during 2010 approximately 41 % of our business is in the military sector , predominantly in the united states , and characterized by long-term programs and contracts driven primarily by the u.s. department of defense ( dod ) budgets and funding levels . in 2010 , u.s. military spending levels , as measured by the u.s. dod funding , began to slow after years of strong growth . however , increased isr funding in 2010 was one of the key positives as it relates to our business , as our embedded computing products and electronics systems provided increased growth , and are expected to continue to receive solid funding moving forward . the u.s. defense budget request for 2011 , a leading indicator of our defense market , increased approximately 2 % in the president 's latest proposal , including supplemental spending of approximately $ 159 billion , although it is expected that the final defense budget passed by congress may result in slightly lower funding levels . the fy 2011 defense budget begins to 30 implement several of the recommendations of the quadrennial defense review completed in early 2010 and will play a key role in shaping future military budgets . we have a well-diversified portfolio of products and services that supply all branches of the u.s. military , with content on many high performance defense platforms including : aircraft carriers , submarines , destroyers , and the f-18 super hornet for the u.s. navy ; the u.s. coast guard deepwater program ; the f-35 jsf , p-8 poseidon , f-16 falcon , f-22 raptor , v-22 osprey , and unmanned aerial vehicle programs , such as the global hawk , for the u.s. air force ; and the uh-60 black hawk , ah-64 apache , and ch-47 chinook helicopters , the abrams tank , the bradley fighting vehicle , and the stryker for the u.s. army . in addition , we are involved in many of the future military systems that are currently in development , such as the u.s army 's ground combat vehicle , and the u.s. navy 's bams variant of the global hawk platform . we also provide a variety of products to non-u.s. military programs in europe , the asia pacific region , the middle east , south america , and canada . in naval defense , the fiscal year 2011 budget indicates continued support and funding for the u.s. navy 's shipbuilding program , and includes beginning construction of two virginia class submarines in fy2011 , additional funding for the restart of the ddg 51 class destroyer construction program , and continued development of the ohio class ssbn submarine replacement program ( orp ) . the orp program has been targeted to receive $ 672 million of research and development ( r & d ) funding in fy 2011 , followed by more than $ 1 billion expected in fy 2012. the u.s. navy is expected to procure 9 new ships in fiscal year 2011 and 50 ships through fiscal year 2015. in addition to the increase in production from one to two virginia class submarines per year starting in fiscal year 2011 , as part of an eight submarine multi-year contract , work on the new cvn-79 ford class aircraft carrier is expected to ramp up significantly in 2011 as part of the 5-year build cycle on aircraft carriers . overall , the fy 2011 budget includes increased funding for the u.s. navy shipbuilding program , with plans to balance capability , affordability , and industrial base stability . in aerospace defense , we anticipate incremental funding on programs such as the f-35 , global hawk , and p-8 as they transition from development to production programs , as well as strong demand for helicopters , which continue to be in high utilization in both iraq and afghanistan . however , we expect our performance in this market to be offset by the winding down of the f-22 program and lower volumes on the f-16 . in ground defense , new production orders and resets on the bradley fighting vehicle slowed as u.s. military ground forces shifted from iraq to afghanistan , lessening the need for an equivalent complement of wheeled vehicles given the mountainous terrain . while we anticipate ground vehicle upgrades and modernization programs will continue to be funded , the timing is uncertain following years of rapid growth from the supplemental defense budgets . story_separator_special_tag however , current platforms , such as the abrams , bradley , and stryker , have strong longrun momentum , and we anticipate future spending will continue to leverage technology upgrades onto these programs , as well as the development of newer manned and unmanned platforms . while the core defense budget is expected to grow moderately , reductions in supplemental spending , as well as the trimming of procurement and investment accounts , could negatively impact overall demand for some of our technologies . in the near-term , however , the global war on terror , emerging security challenges around the globe , and the need to replace worn-out equipment make precipitous reductions unlikely . while dod funding fluctuates year-by-year and program-by-program , the primary risk facing us would be the termination of a nuclear program , such as the aircraft carrier or submarine . although we monitor the budget process as it relates to programs in which we participate , we can not predict the ultimate impact of future dod budgets . commercial aerospace approximately 13 % of our revenue is derived from the global commercial aerospace market . our primary focus in this market is oem products and services for commercial jets . however , we have expanded into the regional and business jet sectors with new content on the cessna , embraer , and learjet platforms , and we are providing increasing content to commercial helicopters . our motion control segment primarily provides flight control and utility actuation systems , sensors , and other electronics to boeing as well as electronic products to airbus . our metal treatment segment forms all of the wing skins for airbus aircraft , as well as the boeing 747-8 aircraft , and also services highly stressed components on turbine engines , landing gear , and aircraft structures . demand for our commercial aerospace products and services is primarily driven by increased customer production levels , including new platforms for both boeing and airbus , increased demand for sikorsky helicopters , and our successful introduction of new products for existing programs . the commercial aerospace business is expected to improve in 2011. the largest driver of the commercial aerospace business is oem parts , which is highly dependent on new aircraft production . industry data supports a modest increase in commercial aircraft deliveries over the next few years , as 2011 will mark the first year in a multi-year production up-cycle for the commercial aerospace market due to announced increases in production by both boeing and airbus , with oem-oriented companies expected to perform well over this timeframe . industry experts also expect an improving outlook for both regional and business jets . global airline traffic is another indicator for long-term growth in the commercial aerospace industry , and economic growth is one of the primary drivers of global airline traffic demand . according to the international air transport 31 association , the airline industry is expected to see a strong cyclical upswing in revenues , improved utilization of capacity by airlines and solid global airline traffic in 2011 , although it is still likely to feel the effects of higher fuel prices and economic uncertainty . oil and gas approximately 14 % of our revenue is derived from the oil and gas market . we provide critical-function valves , process vessels , and control electronics to this market through our flow control segment as well as metal treatment services on highly stressed metal components . our significant portfolio of advanced technologies for this market includes integrated systems technologies developed for secondary refining processes such as delayed coking , catalytic cracking , and hydrotreating , as well as a large portfolio of safety-related valve and pressure protection technologies , and digital process control electronics , which provide protection throughout the entire refinery , as well as in petrochemical and other processing plants . we recently expanded our offering in this market through the development of a state-of-the-art manufacturing facility to be used to build large , thick-walled vessels ( such as coke drums , fractionators , fluid catalytic cracking units and hydrotreaters ) for the refining , chemical and nuclear power industries . the most prevalent driver impacting this market is capital spending by refiners for maintenance , upgrades , capacity expansion , safety improvements , and compliance with environmental regulations , which is experienced by both our domestic and international customers . refiner profitability and global crude oil prices in general will impact their capital spending levels . in 2010 , the oil and gas market was negatively impacted by a reduction in new capital equipment orders due to the lack of capital spending , the aftermath of the bp oil spill and general economic uncertainty . while oil prices began improving throughout the year , refinery margins remained low and led to reduced capital expenditures in 2010 , which is likely to continue into the first half of 2011. crude oil prices increased more than 28 % during 2010 and are forecast to continue to grow in 2011 , albeit at a slower pace , according to the energy information administration , as the world economy recovers and demand continues to outpace supply . however , we believe a base level of maintenance capital spending will result in continued demand for our products , in particular for our pressure-relief valve technologies and field services , as refineries opportunistically service or upgrade equipment which has been operating at full capacity in recent years . we also expect to see increased demand for our complete coker deheading system , which includes top and bottom unheading valves , isolation valves , cutting tools , and valve automation , process control , and protection systems , which enables safer coke drum operation during the refining process . additionally , global environmental concerns will drive incremental spending to comply with more stringent emissions standards .
| the growth within our defense markets was driven by strong increases in the aerospace and naval markets within our motion control and flow control segments , respectively . most notably , the improvements were driven by increased sales supporting isr applications , including the global hawk unmanned aerial vehicle and various helicopter programs , as well as the virginia class submarine program . these increases were largely offset by declines in the ground defense market within our motion control segment , which was due to lower sales of embedded computing products for tanks and light armored vehicles , such as the stryker and bradley fighting vehicles , as well as lower sales due to the cancellation of the fcs program . backlog increased 3 % to $ 1,670 million at december 31 , 2010 , from $ 1,627 million at december 31 , 2009. new orders increased by $ 188 million ( $ 1,918 million versus $ 1,730 million ) , or 11 % , during 2010. this increase is attributable to a large number of orders , distributed across our ground defense , aerospace defense , commercial aerospace , and oil and gas markets , partially offset by the timing of new orders on long-term naval defense contracts . acquisitions contributed an incremental $ 34 million to new orders from the comparable period in 2009. operating income for 2010 was $ 180 million , which increased $ 11 million , or 6 % , from $ 169 million in 2009. organic operating income increased by approximately $ 21 million , or 12 % , but was partially offset by $ 10 million of unfavorable foreign currency translation . our segment organic operating margin was 11.8 % for 2010 , a 110 basis point improvement , compared to 10.7 % in the prior year . our metal treatment , flow control , and motion control segments ' organic operating income increased 32 % , 15 % and 8 % , respectively , mainly due to both improved absorption on increased sales volumes and benefits generated from our cost reduction and restructuring programs . please refer to note 10 to the
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during this time of deliberation , we remain focused on the promise of delivering access to high quality , affordable healthcare to all of our members and believe we are well positioned to meet the needs of the changing healthcare landscape . we have more than three decades of experience , spanning six presidents from both sides of the aisle , in delivering high-quality healthcare services on behalf of states and the federal government to under-insured and uninsured families , commercial organizations and military families . this expertise has allowed us to deliver cost effective services to our government sponsors and our members . while healthcare experts maintain focus on personalized healthcare technology , we continue to make strategic decisions to accelerate development of new software platforms and analytical capabilities . we continue to believe we have both the capacity and capability to successfully navigate industry changes to the benefit of our members , customers and shareholders . for additional information regarding regulatory trends and uncertainties , see part i , item 1 `` business - regulation '' and item 1a , `` risk factors . '' 2019 highlights our financial performance for 2019 is summarized as follows : year-end managed care membership of 15.2 million , an increase of 1.1 million members , or 8 % over 2018 . total revenues of $ 74.6 billion , representing 24 % growth year-over-year . hbr of 87.3 % for 2019 , compared to 85.9 % for 2018 . sg & a expense ratio of 9.3 % for 2019 , compared to 10.7 % for 2018 . adjusted sg & a expense ratio of 9.2 % for 2019 , compared to 10.0 % for 2018 . diluted eps of $ 3.14 for 2019 , compared to $ 2.26 for 2018 . adjusted diluted eps of $ 4.42 for 2019 , compared to $ 3.54 for 2018 . operating cash flows of $ 1.5 billion , or 1.1 times net earnings , for 2019 . 39 a reconciliation from gaap diluted eps to adjusted diluted eps is highlighted below , and additional detail is provided above under the heading `` non-gaap financial presentation `` : replace_table_token_5_th ( 1 ) other adjustments include the following items : 2019 - non-cash goodwill and intangible asset impairment of $ 271 million or $ 0.57 per diluted share , net of an income tax benefit of $ 0.08 and debt extinguishment costs of $ 30 million or $ 0.05 per diluted share , net of an income tax benefit of $ 0.02 ; and 2018 - the impact of retroactive changes to the california minimum medical loss ratio ( mlr ) of $ 30 million of expense or $ 0.06 per diluted share , net of an income tax benefit of $ 0.02 . the 2018 results include the following items , which in the aggregate had no net effect on diluted eps : during the year ended december 31 , 2018 , we received 2014-2017 cost reconciliation information related to the california medicaid in-home support services ( ihss ) program , which ended december 31 , 2017. as a result , our 2018 results include an estimated pre-tax benefit of $ 140 million related to the ihss program reconciliation . on september 30 , 2018 , our contract to provide health care coordination services to the u.s. department of veterans affairs under the patient-centered community care and veterans choice programs expired . in connection with the conclusion of the contract , during the year ended december 31 , 2018 , we recorded a pre-tax charge of $ 110 million for negotiated settlements and severance costs . we will continue to provide close out and transition services through 2021. during the year ended december 31 , 2018 , we recorded pre-tax expense of $ 30 million associated with a contribution commitment to our charitable foundation . the following items contributed to our revenue and membership growth in 2019 : arizona . in october 2018 , our arizona subsidiary , health net access , began providing physical and behavioral health care services under a new integrated contract through the arizona health care cost containment system complete care program in the central and southern regions . arkansas . in february 2018 , our arkansas subsidiary , arkansas total care , began managing a medicaid special needs population comprised of people with high behavioral health needs and individuals with developmental/intellectual disabilities . arkansas total care assumed full-risk on this population in march 2019. cmg . in march 2018 , we completed the acquisition of cmg , an at-risk primary care provider serving medicaid , medicare advantage , and health insurance marketplace patients in florida . correctional . in july 2019 , centurion began operating under a contract to provide comprehensive healthcare services to inmates housed in arizona 's state prison system , and also began operating under a re-awarded contract to continue the provision of mental and dental health services to the georgia department of correction 's state prison facilities . in february 2019 , centurion began operating under a new contract to provide comprehensive healthcare services to detainees of the metropolitan detention center located in albuquerque , new mexico . in december 2018 , centurion began operating under a new contract to provide comprehensive healthcare services to detainees of volusia county detention facilities located near daytona , florida . in july 2018 , centurion began operating under a contract to provide healthcare services for correctional facilities in pima county , arizona . in april 2018 , we completed the acquisition of mhm , a national provider of healthcare and staffing services to correctional systems and other government agencies . under the terms of the agreement , centene also acquired the remaining 49 % ownership of centurion , the correctional healthcare services joint venture between centene and mhm . in addition , during 2018 , centurion 's contracts for correctional facilities were reprocured in new hampshire and tennessee . 40 fidelis care . story_separator_special_tag in july 2018 , we completed the acquisition of substantially all of the assets of fidelis care for $ 3.6 billion of cash consideration , making fidelis care centene 's health plan in new york state . florida . in december 2018 , our florida subsidiary , sunshine health , began providing physical and behavioral healthcare services through florida 's statewide medicaid managed care program under its new five year contract which was implemented for all 11 regions by february 2019. health insurance marketplace . in january 2019 , we expanded our offerings in the 2019 health insurance marketplace . we entered pennsylvania , north carolina , south carolina , and tennessee , and expanded our footprint in six existing markets : florida , georgia , indiana , kansas , missouri , and texas . in january 2018 , we expanded our offerings in the 2018 health insurance marketplace . we entered kansas , missouri and nevada , and expanded our footprint in the following six existing markets : florida , georgia , indiana , ohio , texas , and washington . health net federal services . in january 2018 , our subsidiary , health net federal services , began operating under the tricare west region contract to provide administrative services to military health system eligible beneficiaries . healthsmart . in may 2019 , we acquired healthsmart , a third party administrator providing customizable and scalable health plan solutions for self-funded employers , universities and colleges , and native american tribal enterprises . services include plan administration , care management and wellness programs , network , casualty claim , and pharmacy benefit solutions . illinois . in january 2018 , our illinois subsidiary , illinicare health , began operating under a state-wide contract for the medicaid managed care program . implementation dates varied by region and the contract was fully implemented statewide in april 2018. interpreta . in march 2018 , we acquired an additional 61 % ownership in interpreta , a clinical and genomics data analytics business , bringing our total ownership to 80 % . iowa . in july 2019 , our iowa subsidiary , iowa total care , inc. , began operating under a new statewide contract for the ia health link program . kansas . in january 2019 , our kansas subsidiary , sunflower health plan , continued providing managed care services to kancare beneficiaries statewide under a new contract . medicare . in january 2019 , we expanded our medicare offerings , entering illinois and new mexico . in january 2018 , we expanded our offerings in medicare . we entered arkansas , indiana , kansas , louisiana , missouri , pennsylvania , south carolina , and washington and expanded our footprint in ohio . new hampshire . in september 2019 , our new hampshire subsidiary , nh healthy families , began operating under a new five-year contract to continue to provide service to medicaid enrollees statewide . new mexico . in january 2019 , our new mexico subsidiary , western sky community care , began operating under a new statewide contract in new mexico for the centennial care 2.0 program . pennsylvania . in january 2018 , our pennsylvania subsidiary , pennsylvania health and wellness , began serving enrollees in the community healthchoices program as part of the statewide contract that was fully implemented in january 2020. qualchoice . in april 2019 , we completed the acquisition of qca health plan , inc. and qualchoice life and health insurance company , inc. the acquisition expands our footprint in arkansas by adding additional members primarily through commercial products . spain . in december 2019 , our spanish subsidiary , ribera salud , acquired 93 % of hospital povisa , s.a. , a private hospital in the vigo region of spain . in june 2019 , primero salud , acquired additional ownership in ribera salud , increasing our ownership in the spanish healthcare company from 50 % to 90 % . in december 2018 , primero salud acquired 89 % of torrejón salud , a public-private partnership in the community of madrid . 41 washington . in january 2018 , our washington state subsidiary , coordinated care of washington , began providing managed care services to apple health 's fully integrated managed care beneficiaries in the north central region . this integration continued into 2019 with the addition of the greater columbia , king and pierce regions going live january 2019 , followed by the north sound region in july 2019. in addition , we realized the full year benefit in 2019 of acquisitions , investments , and business commenced during 2018. the growth items listed above were partially offset by the following items : beginning january 1 , 2019 , health net of arizona , inc. began discontinuing and non-renewing all of its employer group plans for small and large business groups in arizona . the effective date of coverage termination for existing groups is dependent on remaining renewals ; however , coverage is no longer provided to any group policyholders and or members as of december 31 , 2019. in 2018 , we were successful in reprocuring our contracts in mississippi , new hampshire and washington . however , the medicaid programs were expanded to include additional insurers , which has reduced our market share . we no longer serve medicaid and correctional members in massachusetts . effective october 2018 , we no longer provide health care coordination services to veterans under the patient-centered community care and veterans choice programs . beginning in january 2018 , the state of california no longer includes costs for ihss in its medicaid contracts . we expect the following items to contribute to our revenue or future growth potential : we expect to realize the full year benefit in 2020 of acquisitions , investments , and business commenced during 2019 , as discussed above . in february 2020 , we began operating in illinois under the first phase of an expanded contract for the medicaid managed care program .
| the hbr represents medical costs as a percentage of premium revenues , excluding premium tax and health insurer fee revenues that are separately billed , and reflects the direct relationship between the premiums received and the medical services provided . the hbr for the year ended december 31 , 2019 was 87.3 % , an increase of 140 basis points over the comparable period in 2018 . the hbr increase was primarily attributable to the health insurance marketplace business where margins have normalized , as expected , from the favorable performance in 2018 and the health insurer fee moratorium . also , the 2018 hbr benefited from the recognition of the ihss program reconciliation . cost of services cost of services increased by $ 79 million in the year ended december 31 , 2019 , compared to the corresponding period in 2018 . the cost of service increase is primarily attributable to the operations of newly acquired businesses , partially offset by the veterans affairs contract expiration , effective october 2018. the cost of service ratio for the year ended december 31 , 2019 was 84.3 % , compared to 85.0 % in 2018 . the decrease in the cost of service ratio was primarily due to the veterans affairs contract expiration . selling , general and administrative expenses sg & a increased by $ 490 million in the year ended december 31 , 2019 , compared to the corresponding period in 2018 . the sg & a increase was primarily attributable to the acquisition of fidelis care , expansions , new programs , and growth in many of our states in 2019 , including growth in the health insurance marketplace business , partially offset by a decrease in acquisition related costs . the sg & a expense ratio was 9.3 % for the year ended december 31 , 2019 , compared to 10.7 % for the year ended december 31 , 2018 . the year-over-year decrease was primarily due to $ 336 million of lower acquisition related
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as of december 31 , 2020 , the weighted average remaining term of our leases was 14.5 years ( based on annualized base rent ) , excluding renewal options that have not been exercised , with 4.8 % of our annualized base rent attributable to leases expiring prior to january 1 , 2026. renewal options are exercisable at the option of our tenants upon expiration of their base lease term . our leases providing for tenant renewal options generally provide for periodic contractual rent escalations during any renewed term that are similar to those applicable during the initial term of the lease . as of december 31 , 2020 , 61.1 % of our annualized base rent was attributable to master leases , where we have leased multiple properties to a tenant under a master lease . since properties are generally leased under a master lease on an `` all or none '' basis , the structure prevents a tenant from `` cherry picking '' locations , where it unilaterally gives up underperforming properties while maintaining its leasehold interest in well-performing properties . covid-19 pandemic update covid-19 has created significant uncertainty and economic disruption , which is likely to persist , or increase , for a period of unknown duration . the pandemic has adversely affected us and our tenants , and the full extent to which it will adversely affect our financial condition , liquidity , and results of operations is difficult to predict and depends on evolving factors , including the duration and scope of the pandemic , and governmental and social responses thereto . we continue to closely monitor the impact of covid-19 on all aspects of our business , including our portfolio and the creditworthiness of our tenants . as the pandemic intensified at the end of the first quarter of 2020 , we adopted a more cautious investment strategy , as we placed an increased emphasis on liquidity , prudent 45 balance sheet management and financial flexibility . in march 2020 , we initiated steps to safeguard the health and safety of our employees , and transitioned all of our employees to a remote work environment . we successfully executed our business continuity plan , with all of our core financial , operational and telecommunication systems operating from a cloud-based environment with no disruption . more recently , our employees have been able to work in our headquarters , located in princeton , new jersey , on a schedule designed to promote appropriate social distancing and health and safety . the impact of the pandemic is rapidly evolving . it continues to adversely impact commercial activity and cause uncertainty and volatility in financial markets . the pandemic has adversely affected our tenants ' ability to meet their financial obligations to us ( including the payment of rent and deferred rent ) , exposed us to increased risk of tenant default or bankruptcy , and impaired the value of certain of our properties . the pandemic has caused a large number of our tenants , to suspend or reduce their operations , which has adversely affected their ability to pay rent to us . as of december 31 , 2020 , we granted tenant-requested rent deferrals relating to approximately $ 18.5 million of rent , representing 10 % of our annualized base rent as of december 31 , 2020. during the year ended december 31 , 2020 , we collected substantially all of the $ 2.6 million in deferred rent we were owed from tenants where repayment was anticipated . the adverse impacts of the pandemic and the responses designed to mitigate its effects ( such as local , state , regional or national lockdowns or other limitations on business activities ) have varied , and likely will continue to vary , by geography . it is possible that our properties and tenants located in certain areas will be more adversely affected than our properties and tenants located in other areas . while our properties are diversified by geography , our business includes substantial holdings in the following states as of december 31 , 2020 ( based on annualized base rent ) : texas ( 14.9 % ) , georgia ( 9.6 % ) , florida ( 6.1 % ) , arkansas ( 4.8 % ) and ohio ( 4.1 % ) . if the pandemic surges in these states or other areas from which we derive significant revenue , the adverse impact of the pandemic on us and our tenants would likely increase . similarly , as of december 31 , 2020 , leases representing approximately 20.0 % of our annualized base rent were with tenants in industries that have been particularly adversely affected by the covid-19 pandemic , including casual and family dining ( 7.8 % of annualized base rent ) , health and fitness ( 5.2 % of annualized base rent ) , entertainment ( 3.4 % of annualized base rent ) , movie theaters ( 2.3 % of annualized base rent ) and home furnishings ( 1.3 % of annualized base rent ) .see “ our real estate investment portfolio—diversification by industry ” and “ —diversification by geography , ” below for additional information about our exposure to various states and industries . the pandemic could cause our occupancy to decrease , which would lead to increased property-level expenses , as we would be obligated to pay costs ( e.g. , real estate taxes , maintenance costs and insurance ) that would otherwise be paid by a tenant at a property subject to a triple-net lease . additionally , while we recently have begun to accelerate our investment program , the pandemic has caused us to adopt a more cautious investment strategy , as we emphasize liquidity and financial flexibility , that has slowed our pace of external growth . story_separator_special_tag conditions in the bank lending and capital markets have been volatile and may deteriorate as a result of the pandemic , and our ability , and that of our tenants , to access capital may become constrained or eliminated , or the terms on which capital may be accessed may deteriorate significantly . one of our main operating functions is our proactive asset management approach . accordingly , we continue to actively engage in discussions with our tenants regarding the impact of covid-19 on their business operations , liquidity , and financial position , and , where appropriate , negotiate rent deferrals or other concessions . as noted above , as of december 31 , 2020 , we granted tenant-requested rent deferrals relating to approximately $ 18.5 million of rent , which represents 10 % of our annualized base rent as of december 31 , 2020. these rent deferrals were negotiated on a tenant-by-tenant basis and , in general , allow a tenant to defer all or a portion of its rent for 2020 , with all of the deferred rent to be paid to us pursuant to a schedule that generally extends up to 24 months from the original due date of the deferred rent . it is possible that the existing deterioration , or further deterioration , in our tenants ' ability to operate their businesses caused by covid-19 or otherwise , will cause our tenants to be unable or unwilling to meet their contractual obligations to us , including the payment of rent ( including deferred rent ) or to request further rent deferrals or other forms of rent relief , such as rent reductions . given the significant uncertainty around the duration and severity of the impact of covid-19 , we are unable to predict the impact it will have on our tenants ' continued ability to pay rent ( including deferred rent ) . therefore , information provided regarding october rent collections should not serve as an indication of expected future rent collections . 46 the extent to which covid-19 impacts our operations will depend on future developments , which are highly uncertain and can not be predicted with confidence , including the duration of the outbreak , geographic and industry variations in covid-19 's impact and actions taken to contain covid-19 . the impact of covid-19 on our tenants and properties will likely have a continuing adverse impact on us , particularly if tenants are unable to meet their rental payment obligations to us ( including the payment of deferred rent ) , our vacancy rate increases or if we choose to grant further rent deferrals or other concessions . liquidity and capital resources as of december 31 , 2020 , we had $ 2.4 billion of net investments in our investment portfolio , consisting of investments in 1,181 properties ( inclusive of two undeveloped land parcels and 115 properties which secure our investments in mortgage loans receivable ) , with annualized base rent of $ 184.0 million . substantially all of our cash from operations is generated by our investment portfolio . our liquidity requirements for operating our company consist primarily of the funds necessary to pay principal and interest payments on our outstanding indebtedness , and the general and administrative expenses of operating our business and managing our portfolio . the occupancy level of our portfolio is high , just below 100 % and because of substantially all of our leases are triple-net , our tenants are generally responsible for the maintenance , insurance and property taxes associated with our properties . when a property becomes vacant because the existing tenant has vacated the property due to default or at the expiration of the lease term the existing tenant did not renew their lease and we had not re-leased the property , we incur the property costs not paid by the tenant , as well as those property costs accruing during the time it takes to locate a substitute tenant or to sell the property . as of december 31 , 2020 , only three properties were vacant , less than 1 % of our portfolio , and all remaining properties were subject to a lease ( excluding two undeveloped land parcels ) , which represents a 99.7 % occupancy rate . we expect to incur some property costs from time to time in periods during which properties that become vacant are being marketed for lease or sale . in addition , we may recognize an expense for certain property costs , such as real estate taxes billed in arrears , if we believe the tenant is likely to vacate the property before making payment on those obligations . the amount of such property costs can vary quarter-to-quarter based on the timing of property vacancies and the level of underperforming properties ; however , we do not expect that such costs will be significant to our operations . we intend to continue to grow through additional investments in stand-alone single tenant properties . to accomplish this objective , we seek to acquire real estate with a combination of debt and equity capital and with cash from operations that we do not distribute to our stockholders . when we sell properties , we generally reinvest the cash proceeds from our sales in new property acquisitions . our short-term liquidity requirements also include the funding needs associated with nine properties where we have agreed to provide construction financing or reimburse the tenant for certain development , construction and renovation costs in exchange for specified contractually payments of interest or increased rent that generally increases in proportion with our level of funding . as of december 31 , 2020 , we had agreed to provide construction financing or reimburse the tenant for certain development , construction and renovation costs in an aggregate amount of $ 61.9 million , and , as of such date , we had funded $ 45.6 million of this commitment .
| interest on loans and direct financing lease receivables increased by $ 5.1 million during the year ended december 31 , 2020 , as compared to the year ended december 31 , 2019 , primarily due to our investments in loans receivable beginning in 2019 and additional investments in loans receivable during 2020 , which led to a higher average daily balance of loans receivable outstanding during year ended december 31 , 2020. other revenue . other revenue for the year ended december 31 , 2020 , decreased by approximately $ 0.6 million , as compared to the year ended december 31 , 2019 , primarily due to the receipt of lease termination fees from former tenants during the year ended december 31 , 2019. no lease termination income was recorded during the year ended december 31 , 2020. expenses : general and administrative expenses . general and administrative expenses increased $ 2.7 million for the year ended december 31 , 2020 , as compared to the year ended december 31 , 2019. this increase in general and administrative expenses was primarily due to the increase of personnel due to operating our larger real estate portfolio , including increased equity-based compensation expense , legal fees and directors ' fees . property expenses . property expenses increased by $ 0.8 million for the year ended december 31 , 2020 , as compared to the year ended december 31 , 2019. the increase in property expenses was primarily due to increased reimbursable costs , insurance expenses and operational costs during the year ended december 31 , 2020. depreciation and amortization expense . depreciation and amortization expense increased by $ 16.7 million for the year ended december 31 , 2020 as compared to the year ended december 31 , 2019. depreciation and amortization expense increased in proportion to the general increase in the size of our real estate portfolio . provision for impairment of real estate . impairment charges on real estate investments were $ 8.4 million and $ 2.9 million ,
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in october 2017 , the board approved a 10 % increase in our quarterly dividend to $ 0.68 per share , or an annual rate of $ 2.72 per share , resulting in a dividend yield of 4.1 % using the year-end stock price of $ 66.21 per share . our financial position remains strong with liquid cash and investments of $ 105.6 million and no debt as of december 31 , 2017 . we agreed to sell our omaha-based private wealth operations , which closed in january 2018. revenues we derive our revenues from investment advisory fees , trust fees , and other revenues . our advisory fees are generated by westwood management and westwood international advisors , which manage client accounts under investment advisory and subadvisory agreements . advisory fees are calculated based on a percentage of assets under management and are paid in accordance with the terms of the agreements . advisory fees are paid quarterly in advance based on assets under management on the last day of the preceding quarter , quarterly in arrears based on assets under management on the last day of the quarter just ended , or are based on a daily or monthly analysis of assets under management for the stated period . we recognize advisory fee revenues as services are rendered . a limited number of our clients have a contractual performance-based fee component in their contracts , which generates additional revenues if we outperform a specified index over a specific period of time . we record revenue for performance-based fees at the end of the measurement period . since our advance paying clients ' billing periods coincide with the calendar quarter to which such payments relate , revenue is recognized within the quarter , and our consolidated financial statements contain no deferred advisory fee revenues . 26 our trust fees are generated by westwood trust pursuant to trust or custodial agreements . trust fees are separately negotiated with each client and are generally based on a percentage of assets under management . westwood trust also provides trust services to a small number of clients on a fixed fee basis . trust fees are primarily paid quarterly in arrears , based on a daily average of assets under management for the quarter . since billing periods for most of westwood trust 's clients coincide with the calendar quarter , revenue is fully recognized within the quarter and our consolidated financial statements do not contain a significant amount of deferred revenue . our other revenues generally consist of interest and investment income . although we generally invest most of our cash in u.s. treasury securities , we also invest in equity and fixed income instruments and money market funds , including seed money for new investment strategies . employee compensation and benefits employee compensation and benefits costs generally consist of salaries , incentive compensation , equity-based compensation expense and benefits . sales and marketing sales and marketing costs relate to our marketing efforts , including travel and entertainment , direct marketing and advertising costs . westwood mutual funds westwood mutual funds expenses relate to our marketing , distribution and administration of the westwood funds ® . information technology information technology expenses are generally costs associated with proprietary investment research tools , maintenance and support , computing hardware , software licenses , telecommunications and other related costs . professional services professional services expenses generally consist of costs associated with subadvisory fees , audit , legal and other professional services . legal settlement legal settlement expenses consist of settlements related to litigation claims , net of any amounts covered by our insurance policies . general and administrative general and administrative expenses generally consist of costs associated with the lease of office space , amortization , depreciation , insurance , custody expense , board of directors fees , investor relations , licenses and fees , office supplies and other miscellaneous expenses . 27 assets under management assets under management increased $ 3.0 billion , or 14 % , to $ 24.2 billion at december 31 , 2017 compared to $ 21.2 billion at december 31 , 2016 . quarterly average assets under management increased $ 2.0 billion , up 9 % , to $ 23.1 billion for 2017 compared with $ 21.2 billion for 2016 . the increase in average assets under management is due principally to market appreciation over the last twelve months and $ 713 million in a long-only convertibles fund that transitioned from assets under advisement ( “ aua ” ) to aum during the third quarter of 2017. assets under management increased $ 479 million , or 2 % , to $ 21.2 billion at december 31 , 2016 compared to $ 20.8 billion at december 31 , 2015 . quarterly average assets under management decreased $ 0.3 billion , down 2 % , to $ 21.2 billion for 2016 compared with $ 21.5 billion for 2015 . the following table sets forth our assets under management as of december 31 , 2017 , 2016 and 2015 : replace_table_token_7_th ( 1 ) aum for 2017 , 2016 and 2015 excludes approximately $ 382 million , $ 1.0 billion and $ 337 million of aua , respectively , related to our model portfolios , for which we provide consulting advice but do not have direct discretionary investment authority . during the third quarter of 2017 , approximately $ 713 million related to a long-only convertibles fund transitioned from aua to aum . our assets under management disclosure reflects management 's view of our three types of accounts : institutional , private wealth and mutual funds . institutional includes separate accounts of corporate pension and profit sharing plans , public employee retirement funds , taft-hartley plans , endowments , foundations and individuals ; subadvisory relationships where westwood provides investment management services for funds offered by other financial institutions ; pooled investment vehicles , including the ucits fund and collective investment trusts ; and managed account relationships with brokerage firms and other registered investment advisors that offer westwood products to their customers . story_separator_special_tag private wealth includes assets for which westwood trust provides trust and custodial services and participation in common trust funds that it sponsors to institutions and high net worth individuals pursuant to trust or agency agreements and assets for which westwood advisors , l.l.c . provides advisory services in ten limited liability companies to high net worth individuals . investment subadvisory services are provided for the common trust funds by westwood management , westwood international advisors and external , unaffiliated subadvisors . for certain assets in this category westwood trust currently provides limited custody services for a minimal or no fee , viewing these assets as potentially converting to fee-generating managed assets in the future . as an example , some assets in this category consist of low-basis stock currently held in custody for clients where we believe such assets may convert to fee-generating managed assets upon an inter-generational transfer of wealth . mutual funds include the westwood funds® , a family of mutual funds for which westwood management serves as advisor . these funds are available to individual investors , as well as offered as part of our investment strategies for institutional and private wealth accounts . 28 roll-forward of assets under management replace_table_token_8_th ( 1 ) institutional inflows include approximately $ 713 million of assets related to a long-only convertibles fund , which transitioned from aua to aum during the third quarter of 2017 . ( 2 ) private wealth outflows include approximately $ 397 million of assets related to the sale of our omaha-based component of our private wealth business . the increase in assets under management for the year ended december 31 , 2017 was due to market appreciation of $ 3.4 billion , partially offset by net outflows of $ 398 million , which included approximately $ 713 million of inflows in our strategic global convertibles strategy that transitioned from aua to aum in the third quarter of 2017. flows were primarily related to net outflows in our smidcap strategies and largecap value strategy , partially offset by net inflows in our smallcap value and market neutral income strategies . replace_table_token_9_th ( 1 ) institutional outflows include approximately $ 30 million in an account that transitioned to our model portfolio for which we no longer have direct discretionary investment authority . this account is now included in aua aggregating $ 1.0 billion as of december 31 , 2016. the increase in assets under management for the year ended december 31 , 2016 was due to market appreciation of $ 2.0 billion , partially offset by net outflows of $ 1.5 billion . flows were primarily related to net outflows in our smidcap , income opportunity , largecap value , allcap value and market neutral income strategies , partially offset by net inflows in our emerging markets plus and smallcap value strategies . 29 replace_table_token_10_th ( 1 ) institutional inflows include approximately $ 330 million of assets related to our global convertibles strategy , which transitioned from aua to aum during the fourth quarter of 2015. the increase in assets under management for the year ended december 31 , 2015 was due to the acquisition of woodway , which contributed $ 1.6 billion of assets under management , and net inflows of $ 174 million , partially offset by market depreciation of $ 1.2 billion . flows were primarily related to net inflows in our income opportunity , emerging markets , and emerging markets plus strategies , partially offset by net outflows in our smidcap , largecap value , and short duration high yield strategies . 30 story_separator_special_tag $ 16.8 million in excess of its minimum capital requirement . we had no debt at december 31 , 2017 or december 31 , 2016 . 33 replace_table_token_14_th historically we have funded our operations and cash requirements with cash generated from operating activities . we may also use cash from operations to pay dividends to our stockholders . as of december 31 , 2017 and 2016 , we had no debt . the changes in net cash provided by operating activities generally reflect the changes in earnings plus the effects of non-cash items and changes in working capital . changes in working capital , especially accounts receivable and accounts payable , generally result from timing differences between collection of fees billed and payment of operating expenses . during 2017 , cash flow provided by operating activities , principally our advisory segment , aggregated $ 48.0 million compared to cash provided by operations of $ 47.4 million during 2016 and $ 55.2 million during 2015 . the decrease of $ 7.8 million from 2015 to 2016 was primarily due to changes in operating assets and liabilities and net income , partially offset by cash transferred from our investment accounts . cash flow used in investing activities during 2017 and 2016 of $ 1.2 million and $ 1.8 million , respectively , was primarily related to purchases of property and equipment . cash flow used in investing activities during 2015 of $ 25.1 million was due to the acquisition of woodway . cash used in financing activities of $ 28.6 million during 2017 , compared to $ 34.9 million and $ 22.1 million during 2016 and 2015 , respectively . the decrease primarily related to the 2016 payment of contingent consideration related to the acquisition of our westwood trust houston office and repurchases of common stock under our share repurchase plan during fiscal 2016. our future liquidity and capital requirements will depend upon numerous factors , including our results of operations , the timing and magnitude of capital expenditures or strategic initiatives , our dividend policy and other business and risk factors described under “ item 1a . risk factors ” in this report . we believe that current cash and short-term investment balances and cash generated from operations will be sufficient to meet both the operating and capital requirements of our ordinary business operations through at least the next twelve months . however there can be no assurance that we will not require additional financing within this time frame .
| we recorded a net $ 4.0 million charge related to a legal settlement , net of associated insurance coverage , during the third quarter of 2017. see further discussion of the settlement in note 13 “ commitments and contingencies ” to our consolidated financial statements included in part ii , item 8 , “ financial statements and supplementary data ” . general and administrative . general and administrative expenses increased 24 % to $ 11.2 million for 2017 compared with $ 9.1 million for 2016 , primarily due to a $ 1.6 million foreign currency transaction loss recorded in 2017 as a result of a 7 % decrease in the canadian dollar exchange rate . 31 provision for income taxes . the effective tax rate increased to 41.0 % for 2017 compared to 33.4 % for 2016 . the increase is primarily related to the tax reform act signed into law in december 2017. we recorded $ 3.4 million incremental income tax expense related to the mandatory deemed repatriation of earnings in our canadian subsidiary and the revaluation of our deferred tax assets as a result of the decrease in the federal tax rate . year ended december 31 , 2016 compared to year ended december 31 , 2015 total revenues . total revenues decreased $ 7.9 million , or 6 % , to $ 123.0 million for 2016 compared with $ 130.9 million for 2015. the decrease was attributable to a $ 7.8 million decrease in asset-based advisory fees and a $ 2.1 million decrease in performance-based fees , offset by a $ 1.5 million increase in trust fees . advisory-based fees decreased as a result of lower average assets under management in 2016 compared to 2015. trust fees increased as a result of a full year of revenue generated by woodway . employee compensation and benefits . employee compensation and benefit costs decreased $ 2.1 million , or 3 % , to $ 61.5 million in 2016 compared with $ 63.6 million in 2015. this decrease was primarily due to a $ 3.0 million decrease in incentive
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· return on average assets was 0.22 percent for 2015 , compared to 0.36 percent in 2014 , and 0.57 percent in 2013 . · return on average equity was 2.15 percent in 2015 , compared to 3.41 percent in 2014 , and 5.21 percent in 2013 . · non-performing assets to total assets in 2015 was 0.79 percent , an improvement from 1.88 percent in 2014 . · net interest margin , fully taxable equivalent , of 4.07 percent in 2015 was down from 4.12 percent in 2014 . · efficiency ratio , fully taxable equivalent , was 85.0 percent in 2015 up from 82.9 percent in 2014 . · in 2015 there were $ 1.3 million in merger and conversion costs and $ 536 thousand in expenses from the newly established residential mortgage unit . story_separator_special_tag benefited from a reduction in the cost of interest-bearing liabilities which fell from 0.65 percent in 2013 to 0.52 percent in 2014. the average yield on loans decreased from 5.91 percent in 2013 to 5.42 percent in 2014 rate and volume analysis net interest income increased by $ 6.3 million between the years ended december 31 , 2015 and 2014 and by $ 0.9 million between the years ended december 31 , 2014 and 2013. the following is an analysis of the changes in net interest income comparing the changes attributable to rates and those attributable to volumes ( in thousands ) : replace_table_token_3_th ( 1 ) loans include loans held for sale and nonaccrual loans . yields related to loans exempt from income taxes are stated on a taxable-equivalent basis assuming a federal income tax rate of 34.0 percent . the taxable-equivalent adjustment was $ 8 thousand for 2015 and $ 0 for 2014 and 2013 . ( 2 ) yields related to investment securities exempt from income taxes are stated on a taxable-equivalent basis assuming a federal income tax rate of 34.0 percent . the taxable-equivalent adjustment was $ 16 thousand , $ 100 thousand and $ 37 thousand for 2015 , 2014 and 2013 , respectively . changes in net interest income are attributed to either changes in average balances ( volume change ) or changes in average rates ( rate change ) for earning assets and sources of funds on which interest is received or paid . volume change is calculated as change in volume times the previous rate while rate change is change in rate times the previous volume . the change attributed to rates and volumes ( change in rate times change in volume ) is considered above as a change in volume . 24 non interest income the following table provides a summary of non-interest income for the periods presented . replace_table_token_4_th 2015 compared to 2014 non-interest income totaled $ 2.2 million in 2015 , which was an increase from $ 1.2 million in 2014. noninterest income to average assets of 0.33 percent was up substantially from 0.22 percent in 2014. charges and fees on deposit accounts increased $ 400 thousand primarily due to increased deposit accounts from the merger . in 2015 there was a loss on sale on loans and other assets of $ 112 thousand due to the loss on the sale of a bank owned property compared to a gain on sale of loans and other assets of $ 189 thousand in 2014. in 2015 there were gains of $ 266 thousand on the sale of foreclosed assets , compared to a loss of $ 625 thousand in 2014 which was driven by write-downs of $ 643 thousand on foreclosed assets . other noninterest income of $ 1.1 million in 2015 was up from $ 1.0 million in 2014 primarily due to increased revenue as a result of the merger . in 2016 we expect non-interest income to average assets to increase as a result of increased loan sales from the mortgage unit , increased sba loan sales , and higher services charges on deposit accounts . 2014 compared to 2013 non-interest income totaled $ 1.2 million in 2014 compared to $ 1.9 million in 2013. noninterest income to average assets of 0.22 percent in 2014 was down from 0.40 percent in 2013. service charges were up slightly in 2014 compared to 2013. securities gains totaled $ 116 thousand as the company recognized gains upon selling bonds for balance sheet management purposes . gain on sale of loans and other assets of $ 189 thousand were down from $ 526 thousand in 2013 due to fewer sales of sba loans originated by the company . loss on the sale of foreclosed assets in 2014 of $ 625 thousand was driven by write-downs of $ 643 thousand on foreclosed assets and was up from $ 198 thousand in 2013 . 25 non-interest expense the following table provides a summary of non-interest expense for the periods presented . replace_table_token_5_th ( 1 ) in 2015 data processing and .professional services included $ 1.3 million of merger and conversion related expenses 2015 compared to 2014 non-interest expense totaled $ 23.2 million in 2015 compared to $ 16.4 million in 2014. noninterest expense to average assets increased from 3.26 percent in 2014 to 3.39 percent in 2015. salaries and employee benefits , occupancy and equipment , data processing , and other non-interest expense categories in 2015 were all significantly impacted by the merger which added employees , branches and other facilities , and equipment to the company 's expense base . in addition in 2015 there were $ 1.3 million in merger and conversion costs , which included professional fees and other expenses required to close the merger as well as costs to convert data processing to the company 's integrated platform , and $ 536 thousand in expenses from the newly established residential mortgage unit . in 2016 we expect non-interest expense to average assets to decrease as a result of lower conversion costs , the absence of merger costs , and asset growth greater than expense growth . story_separator_special_tag 2014 compared to 2013 non-interest expense totaled $ 16.4 million in 2014 compared to $ 14.6 million in 2013. non-interest expense to average assets increased from 3.15 percent in 2013 to 3.26 percent in 2014. salaries and employee benefits increased mainly due to the addition of lending personnel . occupancy and equipment increased year to year with the addition of two new facilities . depository insurance in 2014 increased due to higher asset balances than in 2013. data processing costs in 2013 were elevated due to a core conversion and thus without such activity in 2014 costs decreased . in 2014 advertising costs increased substantially compared to 2013 as a result of a new direct mail deposit gathering campaign . service contract costs in 2014 were higher than in 2013 with the implementation of new software and automation solutions . 26 taxes 2015 compared to 2014 in 2015 income tax expense totaled $ 1.6 million compared to $ 1.1 million in 2014. income taxes to average assets were 0.24 percent compared to 0.22 percent in the prior year . taxes were elevated by $ 0.3 million due to merger and acquisition expenses which were nondeductible resulting in an effective tax rate of about 52 percent compared to about 38 percent in 2014. in 2016 we expect our effective tax rate to be in the range of 38 percent . 2014 compared to 2013 in 2014 income tax expense totaled $ 1.1 million compared to $ 1.7 million in 2013. income taxes to average assets were 0.22 percent compared to 0.36 percent in the prior year . the effective tax rate was about 38 percent in 2014 compared to about 38 percent in 2013. loan portfolio composition the company had total net loans outstanding , including organic and purchased loans , of approximately $ 723.4 million at december 31 , 2015 and $ 359.5 million at december 31 , 2014. loans secured by real estate , consisting of commercial or residential property , are the principal component of our loan portfolio . we do not generally originate traditional long-term residential mortgages for our portfolio but we do originate and hold traditional second mortgage residential real estate loans , adjustable rate mortgages and home equity lines of credit . even if the principal purpose of the loan is not to finance real estate , when reasonable , we attempt to obtain a security interest in the real estate in addition to any other available collateral to increase the likelihood of ultimate repayment or collection of the loan . organic loans our organic loans increased $ 105.9 million , or 30.2 % , to $ 455.9 million at december 31 , 2015 from december 31 , 2014 , as we continue to originate well-underwritten loans . our goal of streamlining the credit process has improved our efficiency and is a competitive advantage in many of our markets . in addition , continued training and recruiting of experienced loan officers has provided us with the opportunity to close larger and more complex deals than we historically have . finally , the overall business environment continues to rebound from recessionary conditions . organic loans include loans which were originally purchased non-credit impaired loans but have been renewed . purchased loans purchased non-credit impaired loans of $ 233.5 million at december 31 , 2015 were up from $ 5.9 million at december 31 , 2014 as a result of the merger . during 2015 , our purchased credit impaired ( “ pci ” ) loans increased by $ 30.8 million from december 31 , 2014 to $ 38.3 million at december 31 , 2015. the activity within the purchased credit impaired loans will be impacted by how quickly these loans are resolved and or our future acquisition activity . prior to the gulfsouth transaction in 2012 the company had no purchased loans . 27 the following tables summarize the composition of our loan portfolio for the periods presented ( dollars in thousands ) : replace_table_token_6_th replace_table_token_7_th replace_table_token_8_th 28 replace_table_token_9_th replace_table_token_10_th loan portfolio maturities the following table sets forth the maturity distribution of our loans , including the interest rate sensitivity for loans maturing after one year . replace_table_token_11_th 29 nonaccrual , past due , and restructured loans loans are considered past due when the contractual amounts due with respect to principal and interest are not received within 30 days of the contractual due date . loans are generally classified as nonaccrual if they are past due for a period of 90 days or more , unless such loans are well secured and in the process of collection . if a loan or a portion of a loan is classified as doubtful or as partially charged off , the loan is generally classified as nonaccrual . loans that are on a current payment status or past due less than 90 days may also be classified as nonaccrual if repayment in full of principal and interest is in doubt . loans may be returned to accrual status when all principal and interest amounts contractually due are reasonably assured of repayment within an acceptable period of time , and there is a sustained period of repayment performance of interest and principal by the borrower in accordance with the contractual terms . pci loans with common risk characteristics are grouped in pools at acquisition . these loans are evaluated for accrual status at the pool level rather than the individual loan level and performance is based on our ability to reasonably estimate the amount and timing of future cash flows rather than a borrower 's ability to repay contractual loan amounts . since we are able to reasonably estimate the amount and timing of future cash flows on the company 's pci loan pools , none of these loans have been identified as nonaccrual . however , pci loans included in pools are identified as nonperforming if they are past due 90 days or more at acquisition or become 90 days or more past due after acquisition .
| noninterest income to average assets of 0.22 percent in 2014 was down from 0.40 percent in 2013 as a result of increased losses on foreclosed assets and reduced gains on sales of loans . noninterest expense to average assets increased from 3.15 percent in 2013 to 3.26 percent in 2014 due higher employee costs mainly due to the addition of lending personnel . the resulting pretax income to average assets was 0.57 percent in 2014 compared to 0.80 percent in 2013 . 22 net interest income and yield analysis the following table summarizes the major components of net interest income and the related yields and costs for the periods presented . replace_table_token_2_th ( 1 ) loans include loans held for sale and nonaccrual loans . yields related to loans exempt from income taxes are stated on a taxable-equivalent basis assuming a federal income tax rate of 34.0 percent . the taxable-equivalent adjustment was $ 8 thousand for 2015 and $ 0 for 2014 and 2013. loan fees included in loan income was $ 1.5 million , $ 646 thousand , and $ 666 thousand for 2015 , 2014 and 2013 , respectively . ( 2 ) yields related to investment securities exempt from income taxes are stated on a taxable-equivalent basis assuming a federal income tax rate of 34.0 percent . the taxable-equivalent adjustment was $ 16 thousand , $ 100 thousand and $ 37 thousand for 2015 , 2014 and 2013 , respectively . ( 3 ) net interest spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities . ( 4 ) net interest margin represents net interest income divided by average interest-earning assets . 2015 compared to 2014 net interest income improved to $ 25.0 million in 2015 from $ 18.7 million in 2014. the increase in net interest income was the result of a significant increase in earning assets primarily from the merger but also from organic business activity . average earning assets increased from $ 455.5 million in 2014 to
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we do not sell software separately ; however , we offer post-contract software support services for certain of our instruments that contain software that is essential to their functionality . we have entered into collaboration , license , and research and development contracts , and have received government grants to conduct research and development activities . revenue is recognized when persuasive evidence of an arrangement exists , delivery has occurred or services have been rendered , the price to the buyer is fixed or determinable , and collectibility is reasonably assured . revenue from the sales of our products that are not part of multiple element arrangements are recognized when no significant obligation remains undelivered and collection is reasonably assured , which is generally when delivery has occurred . delivery occurs when there is a transfer of title and risk of loss passes to the buyer . payments received in advance of revenue recognition are classified as deferred revenue in the consolidated balance sheets . the evaluation of these revenue recognition criteria requires significant management judgment . for instance , we use judgment to assess collectibility based on factors such as the customer 's creditworthiness and past collection history , if applicable . if we determine that collection is not reasonably assured , revenue recognition is deferred until receipt of payment . we also use judgment to assess whether a price is fixed or determinable , including , but not limited to , reviewing contractual terms and conditions related to payment . certain of our sales contracts involve the delivery or performance of multiple products or services . significant contract interpretation is sometimes required to determine the appropriate accounting for revenue from multiple element arrangements , including whether the deliverables should be treated as separate units of accounting for revenue recognition purposes , how the related sales price should be allocated among the elements , when to recognize revenue for each element and the period over which revenue should be recognized . revenue recognition for contracts with multiple deliverables is based on the individual units of accounting determined to exist in the contract . on january 1 , 2011 , new accounting guidance regarding revenue recognition for arrangements with multiple deliverables became effective . as a result , for sales of products and services after 2010 , we allocate the contract consideration at the inception of the contract to the deliverables based upon their relative selling prices . a 50 delivered item is considered to be a separate unit of accounting when it has value to the customer on a stand-alone basis . we use our best estimate of selling price for individual deliverables when vendor specific objective evidence or third-party evidence is unavailable . when the contractual price of each deliverable in an arrangement falls within the range established for estimated selling prices , we recognize revenue for the deliverable based on the contractual price . in other cases , we allocate revenue to each deliverable based on its selling price . revenue is only recognized for each deliverable when the revenue recognition criteria have been met . for sales of products and services prior to 2011 , we allocated revenue for transactions that included multiple elements to each unit of accounting based on its relative fair value , and recognized revenue for each unit of accounting when the applicable revenue recognition criteria were met . when objective and reliable evidence of fair value existed for the undelivered items but not for the delivered items , the residual method was used to allocate arrangement consideration . under the residual method , the amount of arrangement consideration allocated to the delivered items equaled the total arrangement consideration less the aggregate fair value of the undelivered items . when we were unable to establish stand-alone value for delivered items or when fair value of undelivered items had not been established , revenue was deferred until all elements were delivered and services had been performed , or until fair value could objectively be determined for any remaining undelivered elements . if the only undelivered element was post-contract software support services for which objective and reliable evidence of fair value had not been established , the entire arrangement consideration was recognized ratably over the service period . until the third quarter of 2009 , product installation was considered essential to the functionality of our biomark systems . accordingly , revenue recognition for all sales of our biomark systems began upon installation . during the third quarter of 2009 , we began shipping our biomark systems fully-assembled and calibrated . we concluded that installation was no longer essential to the functionality of these instruments since the installation could be performed by the customer or an independent third party . as a result , beginning in the fourth quarter of 2009 , we have treated our biomark systems and their related installation as separate units of accounting and instrument revenue is recognized upon delivery , provided that other applicable revenue recognition criteria have been satisfied . installation revenue is recognized when the installation service is complete . our products are sold with no right of return . accruals for estimated warranty expenses are provided for at the time the associated revenue is recognized . we use judgment to estimate these accruals and , if we were to experience an increase in warranty claims or if costs of servicing our products under warranty were greater than our estimates , our cost of product revenue could be adversely affected in future periods . we have entered into license , collaboration and research and development arrangements that generally provide us with up-front and periodic milestone payments . revenue from license agreements is recognized when payment is received , up-front fees are generally recognized over the term of the agreement , milestone payments are generally recognized when the milestones are achieved , and fees based upon agreed rates for time incurred by our research team are recognized as time is incurred on the project . story_separator_special_tag revenue from government grants relates to the achievement of agreed upon milestones and expenditures and is recognized in the period in which the related costs are incurred , provided that the conditions under which the government grants are awarded have been substantially met and only perfunctory obligations remain outstanding . with respect to the edb grants , upon satisfaction of grant conditions , we received incentive grant payments equal to a portion of qualifying expenses we incurred in singapore . qualifying expenses include salaries , overhead , outsourcing and subcontracting expenses , operating expenses and raw material purchases . royalties paid are not qualifying expenses under the incentive grant program . we submitted requests to the edb for incentive grant payments on a quarterly basis , which were subject to the edb 's review and our satisfaction of the grant conditions . our first grant agreement with the edb was completed in july 2010 , at which time we submitted our final progress report and evidence of achievement of our development targets under the letter agreement . in october 2010 , we received confirmation from edb that all of our obligations under the first grant 51 had been met and , in october 2010 , we received our final grant payment relating thereto . our second grant agreement with the edb was completed in may 2011. based on correspondence with edb , we believe we have satisfied our obligations applicable to our edb grant revenue through december 31 , 2011. changes in judgments and estimates regarding application of these revenue recognition guidelines as well as changes in facts and circumstances could result in a change in the timing or amount of revenue recognized in future periods . stock-based compensation we measure the cost of employee services received in exchange for an award of equity instruments , including stock options and restricted stock units , based on the grant date fair value of the award . the fair value of options on the grant date is estimated using the black-scholes option-pricing model , which requires the use of certain subjective assumptions , including expected term , volatility , risk-free interest rate and the fair value of our common stock . these assumptions generally require significant judgment . our board of directors sets the terms , conditions and restrictions related to the grant of stock options and restricted stock units , including the number of shares underlying the grants and the vesting criteria . with respect to performance-based stock options , depending on the extent to which the vesting criteria are met , our board of directors determines the number of shares that vest under the grants . the resulting costs of our equity awards , net of estimated forfeitures , are recognized over the period during which an employee is required to provide service in exchange for the award , usually a time-based vesting period . we amortize the fair value of stock-based compensation on a straight-line basis over the requisite service periods . for performance-based stock options , we recognize stock-based compensation over the requisite service periods using the accelerated attribution method . we account for stock options issued to nonemployees at their estimated fair value determined using the black-scholes option-pricing model . the fair value of the options granted to nonemployees is remeasured as they vest and the resulting change in value , if any , is recognized as expense during the period in which the related services are rendered . our common stock has a limited trading history because our common stock was not publicly traded until our initial public offering , or ipo , in february 2011. accordingly , the expected volatility of our common stock was derived from the historical volatilities of several unrelated public companies within the life science industry . when selecting our industry peer companies , we considered the company 's stage of development , size and financial leverage . these historical volatilities are weighted based on certain qualitative factors and combined to produce a single volatility factor . the risk-free interest rate is based on the u.s. treasury yield in effect at the time of grant for zero coupon u.s. treasury notes with maturities approximately equal to each grant 's expected life . we estimate the expected lives of employee options using the simplified method as the midpoint of the expected time-to-vest and the contractual term . for out-of-the-money option grants , we estimate the expected lives based on the midpoint of the expected time to a liquidity event and the contractual term . the calculated fair value of our stock options could change significantly if we determine that another method is more reasonable , or if another method for calculating these input assumptions is prescribed by authoritative guidance . higher volatility and longer expected lives result in an increase in stock-based compensation expense determined at the date of grant . stock-based compensation expense affects our cost of product revenue , research and development expense , and selling , general and administrative expense . we estimate our forfeiture rate based on an analysis of our actual forfeitures and we will continue to evaluate the appropriateness of the forfeiture rate based on actual forfeiture experience , analysis of employee turnover behavior and other factors . quarterly changes in the estimated forfeiture rate can have a significant 52 effect on reported stock-based compensation expense , as the cumulative effect of adjusting the rate for all expense amortization is recognized in the period the forfeiture estimate is changed . if a revised forfeiture rate is higher than the previously estimated forfeiture rate , an adjustment is made that will result in a decrease to the stock-based compensation expense recognized in the consolidated financial statements . if a revised forfeiture rate is lower than the previously estimated forfeiture rate , an adjustment is made that will result in an increase to the stock-based compensation expense recognized in the consolidated financial statements .
| consumables revenue increased by $ 5.6 million , or 58 % , resulting from our higher installed base of instruments and the launch of our assays business in the first half of 2011. instrument revenue increased by $ 4.5 million , or 22 % , resulting from an increase in instrument sales volume of 19 % , primarily driven by sales of our access array instrument . average instrument selling prices were higher for 2011 compared to 2010 due to the launch of our biomark hd system in the first quarter of 2011 , which has a higher average selling price than our other systems , and increased sales in japan and europe , where average selling prices are higher , partially offset by increased sales of our access array systems , which has a lower average selling price compared to our biomark and ep1 systems . we expect unit sales of both instruments and consumables to continue to increase in future periods as we continue our efforts to grow our customer base and expand our geographic market coverage . however , we expect the average selling prices of our instruments to fluctuate over time based on product mix . license and collaboration revenue license and collaboration revenue was $ 1.7 million for 2011 compared to $ 1.6 million for 2010 , primarily related to a fixed-fee research and development collaboration agreement ( the agreement or arrangement ) that we entered into in may 2010. the arrangement provided for an up-front fee of $ 0.7 million that was recognized on a straight-line basis over the estimated period of performance under the agreement . in march 2011 , we amended the agreement and received an additional $ 0.3 million payment . under the amendment , certain milestones and the payment terms associated with satisfaction of the milestones were modified . the $ 0.7 million up-front 55 payment and the $ 0.3 million payment received in march 2011 were being recognized on a straight-line basis through september 30 , 2011 , which was management 's best estimate of its
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we expect to incur increased expenses and increasing operating losses for the foreseeable future as we complete the development of twirla , respond to the crl and supplement our nda with the results of the secure trial , complete the qualification and validation of our commercial manufacturing process , initiate pre-launch commercial activities , commercially launch twirla , advance our other product candidates and expand our research and development programs . substantially all of our resources are currently dedicated to developing and seeking regulatory approval for twirla . we will require additional capital for the commercial launch of twirla , if approved , as well as advancing the development of our other product candidates . we do not own any manufacturing facilities and rely on our third party manufacturer , corium international , inc. , or corium , for all aspects of the manufacturing of twirla . we will continue to invest in the manufacturing process for twirla , and incur significant expenses , in order to complete the equipment qualification and validation related to the expansion of corium 's manufacturing capabilities in order to be capable of supplying projected commercial quantities of twirla , if approved . based on our interactions with the fda on the cmc issues raised in the crl and our plan with corium to validate the commercial scale equipment to manufacture twirla , we expect to be able to address these issues in the resubmission of our nda . we continue to plan the process of scaling up the commercial manufacturing capabilities for twirla with corium and the associated costs and timelines . we expect the validation and expansion to be completed in coordination with our planned commercialization activities . if we obtain regulatory approval for twirla , we expect to incur significant expenses in order to create an infrastructure to support the commercialization of twirla , including sales , marketing , distribution , medical affairs and compliance functions , which will require additional capital . in december 2016 , we completed a phase 3 trial , the secure trial , in which we enrolled over 2,000 women for up to one year of treatment . we announced top-line data in early january 2017 and expect to file our resubmission to the u.s. food and drug administration , or fda , in the first half of 2017. we have incurred and will continue to incur additional costs associated with operating as a public company . accordingly , we will need additional financing to support our continuing operations and pipeline in addition to twirla . we will seek to fund our operations through public or private equity or debt financings or other sources , which may include collaborations with third parties . adequate additional financing may not be available to us on acceptable terms , or at all . our failure to raise capital as and when needed would have a negative 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 to date , we have not generated any revenue . in the future , we may generate revenue from product sales , license fees , milestone payments and royalties from the sale of products developed using our intellectual property . our ability to generate revenue and become profitable depends on our ability to successfully commercialize twirla and any product candidates that we may advance in the future . if we 108 fail to complete the development of twirla or any other product candidates we advance 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 adversely affected . research and development expenses since our inception , we have focused our resources on our research and development activities . research and development expenses consist primarily of costs incurred for the development of twirla and other current and future product candidates , and include : expenses incurred under agreements with contract research organizations , or cros , and investigative sites that conduct our clinical trials and preclinical studies ; employee-related expenses , including salaries , benefits , travel and stock-based compensation expenses ; the cost of acquiring , developing and manufacturing clinical trial materials , including the supply of our product candidates ; costs associated with research , development and regulatory activities ; and costs associated with equipment scale-up required for commercial production . research and development costs are expensed as incurred . costs for certain development activities , such as clinical trials , are recognized based on an evaluation of the progress to completion of specific tasks using data such as subject enrollment , clinical site activations or information provided to us by our third party vendors . 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 do not currently utilize a formal time allocation system to capture expenses on a project-by-project basis , as the majority of our past and planned expenses have been and will be in support of twirla . in 2017 , we expect the expenses associated with the secure clinical trial to decrease as we complete the close-out activities associated with the trial and no additional clinical trials are planned at this time . during 2017 , we expect to increase activities related to equipment qualification and validation of our commercial manufacturing process as we continue to prepare for the commercialization of twirla . to date , our research and development expenses have related primarily to the development of twirla . story_separator_special_tag as we complete the close-out activities associated with the secure clinical trial , we expect research and development expenses to begin to shift away from costs associated with our secure clinical trial and toward the costs associated with preparing the resubmission of our new drug application , or nda , and completing the qualification and validation of our commercial manufacturing process . in july 2016 , we began preparations for an initial phase 2 clinical trial examining the use of ag200-sp along with a smaller lower-dose combination ethinyl estradiol/levongestrel patch ( smp ) in the fourth week of the woman 's cycle . we have decided to postpone the trial and will continue to evaluate the timing for initiating dosing of the subjects for this phase 2 clinical trial , which is dependent on available capital resources . we began incurring expenses for the clinical development of ag200-sp in the second half of 2016. for the years ended december 31 , 2016 , 2015 and 2014 , our research and 109 development expenses were approximately $ 20.9 million , $ 25.6 million and $ 13.4 million , respectively . the following table summarizes our research and development expenses by functional area . replace_table_token_10_th although we are currently in the process of completing the close-out activities associated with our secure phase 3 clinical trial for twirla , it is difficult to determine with any certainty the exact duration and completion costs of our clinical trials of twirla and any of our other current and future product candidates we may advance , including ag200-sp . it is also difficult to determine if , when or to what extent we will generate revenue from the commercialization and sale of our product candidates that obtain regulatory approval . our current business plan contemplates resubmission of our nda in the first half of 2017 and assumes a six month review by the fda . we may , however , never succeed in achieving regulatory approval for twirla or any of our product candidates . the duration , costs and timing of clinical trials and development of our other product candidates in addition to twirla will depend on a variety of factors , including the uncertainties of future clinical trials and preclinical studies , the slower than expected rate of enrollment we experienced for our secure phase 3 clinical trial for twirla , obtaining additional capital , and significant and changing government regulation . in addition , the probability of success for each product candidate will depend on numerous factors , including competition , manufacturing capability and commercial viability . 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 , or experience issues with our manufacturing capabilities we could be required to expend significant additional financial resources and time with respect to the development of that product candidate . we will determine which programs to pursue and how much to fund each program in response to the scientific and clinical success of each product candidate , as well as an assessment of each product candidate 's commercial potential . substantially all of our resources are currently dedicated to developing and seeking regulatory approval for twirla . we will require additional capital for the commercial launch of twirla , if approved , as well as advancing the development of our other product candidates . general and administrative expenses general and administrative expenses consist principally of salaries and related costs for personnel in executive , finance and administrative functions including payroll taxes and health insurance , stock-based compensation and travel expenses . other general and administrative expenses include facility-related costs , insurance and professional fees for legal , patent review , consulting and accounting services . general and administrative expenses are expensed as incurred . for the years ended december 31 , 2016 , 2015 and 2014 , our general and administrative expenses totaled approximately $ 8.8 million , $ 7.5 million and $ 5.2 million , respectively . we anticipate that our general and administrative expenses will increase in the future with the continued research , 110 development and potential commercialization of twirla , its planned line extensions , and any of our other product candidates , and as we operate as a public company . these increases will likely include increased legal and accounting services , stock registration and printing fees , addition of new personnel to support compliance and communication needs , increased insurance premiums , outside consultants and investor relations . additionally , if in the future we believe regulatory approval of twirla or any of our other product candidates appears likely , we anticipate that we would begin preparations for commercial operations , which would result in an increase in payroll and other expenses , particularly with respect to the sales and marketing of our product candidates . critical accounting policies and significant judgments and estimates our discussion and analysis of our financial condition and results of operations are based on our financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles , or u.s. gaap . the preparation of these financial statements requires us to make significant estimates and judgments that affect the reported amounts of assets , liabilities and expenses and related disclosures . on an ongoing basis , our actual results may differ significantly from our estimates .
| certain of our warrants to purchase shares of our convertible preferred stock ( prior to our ipo ) and common stock ( post ipo ) are recorded at fair value and are subject to re-measurement at each balance sheet date . these liabilities are re-measured at each balance sheet date with the corresponding charge to earnings recorded within change in fair value of warrant liability . the fair value of the convertible preferred stock warrants ( prior to the ipo ) and common stock warrants with non-standard anti-dilution provisions are determined using the black-scholes option pricing model which incorporates a number of assumptions and judgments to estimate the fair value of these warrants including the fair value per share of the underlying stock , the remaining contractual term of the warrants , risk-free interest rate , expected dividend yield , credit spread and expected volatility of the price of the underlying stock . during the year ended december 31 , 2016 , the fair value of our warrant liability changed by $ 0.2 million compared to year ended december 31 , 2015 , primarily due to the decrease in the fair value of the underlying common stock . loss on extinguishment of debt . in february 2015 , we entered into the hercules loan agreement with hercules for a term loan of up to $ 25.0 million . a first tranche of $ 16.5 million was funded upon execution of the hercules loan agreement , approximately $ 15.5 million of which was used to repay our existing loan with oxford . as a result of the repayment of the loan with oxford , we recorded a loss on the extinguishment of debt of approximately $ 1.0 million representing the difference between the amount paid to oxford and the carrying amount of the oxford loan . included in the loss on extinguishment of debt is the prepayment premium , the unamortized discount and the write off of deferred financing costs . benefit from income taxes . benefit from income taxes for the years ended december 31 , 2016 and 2015 represents the proceeds we received from
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while we believe that each of these metrics is indicative of our overall level of analytical activity and the underlying growth in our business , increases or decreases in these metrics do not necessarily correlate to proportional increases or decreases in revenue or net income . for instance , although increased levels of analytical activity historically have corresponded to increases in revenue over the long term , differences in fees charged for different analytical packages exist and differences in how analytics trigger the applicability of our data-driven intervention platforms may result in increases in analytical activity that do not result in proportional increases in revenue or net income ( and vice versa ) . accordingly , while we believe the presentation of these operating metrics is helpful to investors in understanding our business , these metrics have limitations and should not be considered as substitutes for analysis of our financial results reported under gaap . in addition , we believe that other companies , including companies in our industry , do not present similar operating metrics and that there is no commonly accepted method of calculating these metrics , which may reduce their usefulness as comparative measures . ( 2 ) unique patient count is defined as each unique , longitudinally matched , de-identified natural person represented in our more 2 registry® as of the end of the period presented . ( 3 ) medical event count is defined as the total number of discrete medical events as of the end of the period presented ( for example , a discrete medical event typically results from the presentation of a patient to a physician for the diagnosis of diabetes and congestive heart failure in a single visit , the presentation of a patient to an emergency department for chest pain , etc. ) . ( 4 ) patient analytics months , or pam , is defined as the sum of the analytical processes performed on each respective patient within patient populations covered by clients under contract . as used in the metric , an `` analytical process '' is a distinct set of data calculations undertaken by us which is initiated and completed by our analytical platform to examine a specific question such as whether a patient is believed to have a condition such as diabetes , or worsening of the disease , during a specific time period . ( 5 ) revenue mix excludes advisory services . ( 6 ) revenue from data analytics subscriptions is defined as revenue that results from subscription agreements/contracts for the provision of data analytics ( which include such components as the company 's data integration , data management , data analytics , and data reporting ) services . ( 7 ) revenue from data-driven intervention platform services is defined as revenue that results from contracts for the provision of data- driven intervention platform services . 53 trends and factors affecting our future performance a number of factors influence our growth and performance . we see many of these factors as being more quantitatively driven , such as the rate of growth of the underlying data counts within our datasets , the ongoing investment in innovation , and our level of analytical activity . additionally , there are several factors that influence our growth and performance that are less quantitatively driven , including seasonality , macro-economic forces , and trends within healthcare ( such as payment models , incentivization , and regulatory oversight ) , that can be driven by changes in federal and state laws and regulations , as well as private sector market forces . growth of datasets . healthcare costs in the united states have been increasing significantly for many years . this rise in healthcare costs has driven a broad transition from consumption-based payment models to quality and value-based payment models across the healthcare landscape . as a result , the specific disease and comorbidity status , clinical and quality outcomes , resource utilization , and care details of the individual patient have become increasingly relevant to the various constituents across the healthcare delivery system . concurrently , the count and complexity of diseases , diagnostics , and treatmentsas well as payment models and regulatory oversight requirementshave soared . in this setting , granular data has become critical to determining and improving quality and financial performance in healthcare . our more 2 registry® is our largest principal dataset and serves as a proxy for our general growth of datasets within inovalon . the growth of our datasets that inform our analytical capabilities and comparative analytics is a key aspect of our provision of value to our clients and is indicative of our overall growth and capabilities . innovation and platform development . our business model is based upon our ability to deliver value to our clients through the combination of advanced , cloud-based data analytics and data-driven intervention platforms focused on the achievement of meaningful and measureable improvements in clinical quality outcomes and financial performance in healthcare . our ability to deliver this value is dependent in part on our ability to continue to innovate , design new capabilities , enter into new agreements with clients for new platforms , and bring these capabilities to market in an enterprise scale . our continued ability to innovate our platform and bring differentiated capabilities to market is an important aspect of our business success . our investment in innovation includes costs for research and development , capitalized software development , and capital expenditures related to hardware and software platforms on which our data analytics and data-driven interventions capabilities are deployed as summarized below ( in thousands , except percentages ) . replace_table_token_7_th ( 1 ) research and development primarily includes employee costs related to the development and enhancement of our service offerings . 54 ( 2 ) capitalized software development includes capitalized costs incurred to develop and enhance functionality for our data analytics and data-driven intervention platforms . ( 3 ) research and development infrastructure investments include strategic capital expenditures related to hardware and software platforms under development or enhancement . story_separator_special_tag data analytics and data-driven intervention mix . our business and operational models are highly scalable and leverage variable costs to support revenue generating activities . our data analytic service costs are less variable in nature and require lower incremental capital expenditures . as a result , following initial development and deployment investments , our big data analytics platform and data technology capabilities allow us to process significant volumes of transactions with lower incremental costs . conversely , our data- driven intervention costs are generally variable in nature and require incremental costs to generate additional revenue . as a result , the mix of our data analytics and data interventions activities affects our financial performance . client and analytical process count growth . our business is generally driven by the number of underlying patients for which our analytics and data-driven intervention platforms are being utilized . as such , we track the number of analytical processes that we run on patients each month in fulfillment of our client contracts , as totaled for the trailing 12 months . this metric is referred to as the trailing 12 month patient analytical months , or pam . we believe that pam is indicative of our overall level of analytical activity , and we expect our period-to-period comparisons of our pam to be indicative of underlying growth of our business , although changes in levels of analytical activity do not always directly translate to changes in financial performance of our business . differences in fees charged for different analytical packages exist and differences in how analytics trigger the applicability of our data-driven intervention platforms may result in increases in analytical activity that do not result in proportional increases in revenue , or net income ( and vice versa ) . therefore , in situations in which a new engagement is initiated for analytical processes that have a higher than average fee rate , revenue could expand disproportionately faster than the increase in pam . likewise , if engagements for analytical processes that have a higher than average fee rate are concluded then such conclusions can negatively affect revenue disproportionately more than pam . seasonality . the nature of our customers ' end-market results in seasonality reflected in both revenue and cost of revenue differences during the year . regulatory impact of data submission deadlines in , for example , march , june , september , and january drive timing of analytics and data processing activity variances from quarter to quarter . further , regulatory clinical encounter deadlines of june 30th and december 31st drive intervention concentrations variances from quarter to quarter . the timing of these factors results in analytical and intervention activity mix variances which impact financial performance from quarter to quarter . finally , quarter to quarter financial performance may increasingly vary from historical seasonal trends as we further expand into adjacent markets and increase the portion of our revenue generated from new offerings . regulatory , economic and industry trends . our clients are affected , sometimes directly , and sometimes counter-intuitively , by macro- economic trends such as economic growth ( or economic recession ) , inflation , and unemployment . further , industry trends in federal and state laws and regulations , as well as emerging trends in private sector payment models , affect our clients ' businesses and their need for technologies and services to support these challenges . these factors have various effects on our business , and on occasion have resulted in the slowing or cessation of the decision-making process by clients adopting our technologies and services . on the other hand , changes in macro-economic trends and the industry landscape have accelerated the need for our technologies and services from time-to-time , particularly as regulators introduce complex requirements with which our clients must comply . 55 shift to fully automated data-driven intervention platform services . the proportion of our revenue derived from pure data analytics and fully automated data-driven intervention platform services revenue is expected to continue to expand over time as a percentage of total revenue as a result of our continued expansion of our cloud-based interconnectivity technologies and the continued expansion of interconnectivity within the healthcare landscape . in order to drive value for our clients and serve them irrespective of their level of connectivity , we continue to provide cloud-based partially automated data-driven intervention platform services , converting the performance of such services to cloud-based fully automated data-driven intervention platform services wherever possible . as the healthcare infrastructure becomes more interconnected and our integration and interconnectivity technologies continue to expand , enabled by our continued investment in innovation , we believe that we will be able to achieve more rapid implementation , and greater value impact , at more efficient costs . components of results of operations revenue we earn revenue primarily through the sale or subscription licensing of our cloud-based data analytics , data-driven intervention platform services , our advisory services and business intelligence solutions , and through the sale of perpetual licenses and peripheral services related to our specialty pharmacy software platform . our cloud-based data analytics services are performed either at the beginning of a data-driven intervention process , which typically aligns with regulatory submission deadlines , or on a monthly basis , depending on the particular client 's needs . cloud-based data analytics revenue is driven primarily by the number of identified gaps in care , quality , data integrity , and financial performance identified in a client 's dataset , the number of unique patients in a client 's dataset , a minimum data analytics processing fee , and a contractually negotiated transactional price for each identified gap or unique patient . subscription licensing revenue is driven primarily by the number of clients , the number of unique patients in a client 's population dataset , the number of analytical services contracted for by a client , and the contractually negotiated price of such services . cloud-based data-driven intervention platform service revenue represents revenue that is generated from fully automated processes ( i.e.
| cost of revenue as a percentage of revenue was 37 % , and 33 % , for the years ended december 31 , 2016 and 2015 , respectively . 2015 compared with 2014. in 2015 , cost of revenue increased by approximately $ 33.4 million , or 30 % , compared with the year ended december 31 , 2014. the increase in cost of revenue was primarily due to the corresponding increase in revenue of $ 75.7 million or 21 % , during the period and also resulted from an increase in employee-related expenses related partially to the newly acquired data-driven advisory services service line and a greater volume of data-driven intervention platform services as a percentage of total revenue . cost of revenue as a percentage of revenue was 33 % in 2015 compared to 31 % in 2014. sales and marketing 2016 compared with 2015. during the year ended december 31 , 2016 , sales and marketing expenses increased by approximately $ 12.4 million , or 84 % , compared with the year ended december 31 , 2015. approximately $ 10.5 million of the increase was directly attributable to salaries and benefits for employees that was driven by our investment in new sales personnel to focus on adding new clients and capturing an increased amount of the market opportunity . 2015 compared with 2014. in 2015 , sales and marketing expenses increased by approximately $ 7.5 million , or 106 % , compared to 2014. the increase was primarily attributable to increased employee related expenses of approximately $ 6.5 million , and marketing program spend of approximately $ 1.0 million , both of which was driven by our investment in additional sales personnel to focus on adding new clients and capturing an increased amount of our market opportunity , as well as the addition of the sales and marketing personnel acquired with avalere . research and development 2016 compared with 2015. during the year ended december 31 , 2016 , research and development expense increased by
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we believe mortgage origination loan applications decreased by approximately 20 % in 2017 relative to 2016 , primarily due to significantly lower mortgage refinance volumes resulting from rising interest rates . for 2018 , we expect the trend in rising interest rates to continue and therefore we expect 2018 mortgage unit volumes to be approximately 10 % lower relative to 2017 levels , mostly due to lower expected refinance activity . we generate the majority of our revenues from clients with operations in the u.s. residential real estate , mortgage origination and mortgage servicing markets . approximately 38.7 % , 43.0 % , and 33.5 % of our operating revenues for the year ended december 31 , 2017 , 2016 and 2015 , respectively , were generated from our ten largest clients who consist of some of the largest u.s. mortgage originators and servicers . one of our clients , bank of america , accounted for 11.1 % of our operating revenues , respectively , for the year ended december 31 , 2017 , and two of our clients , wells fargo and bank of america , accounted for 14.0 % and 11.5 % , respectively , of our operating revenues for the year ended december 31 , 2016 , with both of our business segments reporting revenue from these customers . no client accounted for 10.0 % or more of our operating revenues for the year ended december 31 , 2015 . recent company developments acquisitions in august 2017 , we completed the acquisitions of mercury , myriad and clareity for total cash of approximately $ 189.4 million . the acquisition of myriad included contingent consideration of up to $ 3.0 million , to be paid in cash by 2019 upon the achievement of certain revenue targets in fiscal years 2017 and 2018. see note 16 - acquisitions for further discussion . financing activities in august 2017 , we amended and restated our credit agreement . the credit agreement provides for a $ 1.8 billion term facility , and a $ 700.0 million five-year revolving facility . the term facility matures and the revolving facility expires in august 2022. the revolving facility includes a $ 100.0 million multicurrency revolving sub-facility and a $ 50.0 million letter of credit sub-facility . the credit agreement also provides for the ability to increase the term facility and revolving facility by up to $ 100.0 million in the aggregate ; however , the lenders are not obligated to do so . see note 8 - long term debt for further discussion . productivity & cost management in line with our on-going commitment to operational excellence and margin expansion , we achieved our cost reduction target of $ 30.0 million in 2017. savings were realized through the reduction of operating costs , selling , general and administrative costs , outsourcing certain business process functions , consolidation of real estate facilities and other operational improvements . unless otherwise indicated , the management 's discussion and analysis of financial condition and results of operations in this annual report on form 10-k relate solely to the discussion of our continuing operations . 23 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > , we wrote-off unamortized debt issuance costs of $ 1.8 million due to financing activities in august 2017. impairment loss on investment in affiliates our consolidated impairment loss on investment in affiliates was $ 3.8 million for the year ended december 31 , 2017 , a decrease of $ 19.6 million , or 83.7 % . such write-downs are due to other-than-temporary losses in value in investments , reflecting our expected inability to recover the carrying amount of the investments . loss on investments and other , net our consolidated loss on investments and other , net was $ 2.3 million for the year ended december 31 , 2017 , an unfavorable variance of $ 22.1 million when compared to 2016 . the variance is primarily due to the prior year gain of $ 8.0 million on the fair value adjustment of the contingent consideration related to the acquisition of fnc , inc. ( `` fnc '' ) in april 2016 , a prior year gain of $ 11.4 million from the sale of investments , prior year losses of $ 2.0 million related to supplemental benefit plans , current year losses of $ 5.1 million from the final settlement of a previously terminated pension plan , current year 25 net losses of $ 1.9 million in connection with the purchase of mercury , partially offset by higher realized gains on investments of $ 2.3 million . provision for income taxes our consolidated provision for income taxes from continuing operations was $ 18.2 million and $ 54.5 million for the years ended december 31 , 2017 and 2016 , respectively . our effective income tax rate was 10.8 % and 33.3 % for the years ended december 31 , 2017 and 2016 , respectively . t he change in the effective income tax rate was primarily due to the enactment of the tax cuts and jobs act ( `` tcja '' ) enacted in december 2017 , which required the remeasurement of our federal deferred tax assets and liabilities due to the reduction of u.s. corporate income tax rate from 35.0 % to 21.0 % . see note 9 - income taxes of the notes to consolidated financial statements included in item 8 - financial statements and supplementary data of this annual report on form 10-k for further discussion . income from discontinued operations , net of tax our consolidated income from discontinued operations , net of tax was $ 2.3 million for the year ended december 31 , 2017 , a favorable variance of $ 3.8 million , when compared to 2016 , due primarily to a legal settlement gain in the current year , partially offset by legal costs . story_separator_special_tag year ended december 31 , 2016 compared to year ended december 31 , 2015 operating revenues our consolidated operating revenues were $ 2.0 billion for the year ended december 31 , 2016 , an increase of $ 424.4 million when compared to 2015 , and consisted of the following : replace_table_token_5_th our pirm segment revenues decreased by $ 5.8 million , or 0.8 % , when compared to 2015 . acquisition activity contributed $ 14.5 million in 2016. excluding acquisition activity , the decrease of $ 20.3 million was primarily due to lower property insights of $ 20.8 million from lower project-related revenues and lower other revenues of $ 5.3 million , partially offset by higher insurance & spatial solutions of $ 5.8 million from improved pricing and new product offerings . our uws segment revenues increased by $ 431.5 million , or 52.3 % , when compared to 2015 . acquisition activity contributed $ 384.8 million in 2016 . excluding acquisition activity , the increase of $ 46.7 million was primarily due to higher mortgage loan origination volumes and market-share gains , which increased our revenues from property tax solutions by $ 37.5 million , credit solutions by $ 36.2 million and flood data solutions by $ 7.5 million , partially offset by lower valuation solutions of $ 3.5 million and lower other revenues of $ 31.0 million due to certain business line exits and market volume decreases . our corporate and eliminations revenues were comprised of intercompany revenue eliminations between our operating segments . cost of services ( exclusive of depreciation and amortization ) our consolidated cost of services was $ 1.0 billion for the year ended december 31 , 2016 , an increase of $ 267.4 million , or 34.4 % , when compared to 2015 . acquisition activity contributed an increase of $ 272.5 million in 2017. excluding acquisition activity , the decrease of $ 5.1 million was primarily due to lower costs of $ 26.0 million resulting from our on-going operational efficiency programs and favorable product mix , partially offset by higher costs of $ 20.9 million associated with higher mortgage origination volumes . 26 selling , general and administrative expense our consolidated selling , general and administrative expenses was $ 458.1 million for the year ended december 31 , 2016 , an increase of $ 60.3 million , or 15.2 % , when compared to 2015 . acquisition activity contributed an increase of $ 74.7 million in 2017. excluding acquisition activity , the decrease of $ 14.4 million was primarily due to our on-going operational efficiency programs which resulted in lower compensation-related expenses of $ 20.4 million and lower professional fees of $ 18.4 million , partially offset by higher external services costs of $ 17.1 million ( including cyber-security and compliance costs ) , higher provision for doubtful accounts of $ 5.1 million and other of $ 2.2 million . depreciation and amortization our consolidated depreciation and amortization expense was $ 172.6 million for the year ended december 31 , 2016 , an increase of $ 22.2 million , or 14.8 % , when compared to 2015 . acquisition activity contributed $ 32.3 million in 2017. excluding acquisition activity , the decrease of $ 10.1 million was primarily due to assets that were fully depreciated in the prior year primarily in the uws segment . operating income our consolidated operating income was $ 277.9 million for the year ended december 31 , 2016 , an increase of $ 74.5 million , or 36.6 % , when compared to 2015 , and consisted of the following : replace_table_token_6_th our pirm segment operating income increased by $ 5.0 million , or 5.2 % , when compared to 2015 and operating margins increased 50 basis points primarily due to the impact of improved pricing and new product offerings in our insurance & spatial solutions and the impact of our on-going operational efficiency programs ; partially offset by lower project-related revenues . our uws segment operating income increased by $ 63.2 million , or 32.9 % , when compared to 2015 . acquisition-related activity contributed $ 15.4 million to operating income in 2016 . excluding acquisition activity , operating income increased $ 47.8 million and operating margins increased 434 basis points primarily due to an increase in mortgage loan origination volumes , market-share gains , product mix , and the impact of ongoing operational efficiency programs . corporate and eliminations operating loss decreased $ 6.3 million , or 7.3 % , due to higher non-recurring selling , general and administrative expenses primarily related to investments related to our operational efficiency programs in 2015. total interest expense , net our consolidated total interest expense , net was $ 60.3 million for the year ended december 31 , 2016 , a decrease of $ 2.1 million , or 3.4 % , when compared to 2015 . the decrease was primarily due to lower interest rates , partially offset by a higher average outstanding principal balance in the current year and an out-of-period adjustment recorded during the first quarter of 2015 , which reduced interest expense by $ 5.2 million . the lower interest rates were the result of our financing activities in july 2016 in which we amended our credit agreement and redeemed our 7.25 % senior notes . loss on early extinguishment of debt our consolidated loss on early extinguishment of debt was $ 26.6 million for the year ended december 31 , 2016 , an increase of $ 25.0 million when compared to 2015 . the increase is primarily related to our extinguishment of debt of $ 24.4 million in connection with the redemption of all outstanding balances under the 7.25 % senior notes in july 2016 and $ 2.2 million in connection with the pay down on the 7.55 % senior debentures in november 2016. for the year ended december 31 , 2016 , we wrote-off unamortized debt issuance costs of $ 1.6 million due to financing activities in april 2015 .
| excluding acquisition activity , the decrease of $ 87.7 million was primarily due to lower revenues and our on-going operational efficiency programs . selling , general and administrative expense our consolidated selling , general and administrative expenses were $ 459.8 million for the year ended december 31 , 2017 , an increase of $ 1.7 million , or 0.4 % , when compared to 2016 . acquisition activity contributed an increase of $ 7.2 million in 2017 . excluding acquisition activity , the decrease of $ 5.5 million was primarily due to lower personnel-related expenses of $ 59.8 million largely from lower variable compensation and the favorable impact of our ongoing operational efficiency programs . these programs also lowered facility costs by $ 2.3 million , travel and communication costs by $ 2.4 million and other costs by $ 9.4 million , partially offset by higher legal settlement costs of $ 14.0 million , higher external services costs of $ 32.4 million ( including investments in technology , innovation and compliance-related capabilities ) and higher professional fees of $ 22.0 million . depreciation and amortization our consolidated depreciation and amortization expense was $ 177.8 million for the year ended december 31 , 2017 , an increase of $ 5.2 million , or 3.0 % , when compared to 2016 . acquisition activity contributed $ 10.4 million in 2017 . excluding acquisition activity , the decrease of $ 5.2 million was primarily due to assets that were fully depreciated in the prior year , primarily in the uws segment . 24 operating income our consolidated operating income was $ 238.6 million for the year ended december 31 , 2017 , a decrease of $ 39.3 million , or 14.1 % , when compared to 2016 , and consisted of the following : replace_table_token_4_th our pirm segment operating income decreased by $ 12.6 million , or 12.4 % , when compared to 2016 . acquisition-related activity contributed $ 3.2 million to operating income in 2017
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the year over year increase was due to an increase in government servicing volume . revenue increased for the year ended december 31 , 2013 compared to 2012 and for the year ended december 31 , 2012 compared to 2011 due to growth in servicing volume under the company 's contract with the department and an increase in collection revenue from getting defaulted ffelp loan assets current on behalf of guaranty agencies . these increases were partially offset by decreases in traditional ffelp and guaranty servicing revenue . before tax operating margin increased for the year ended december 31 , 2013 compared to 2012 , as a result of the investments made and certain costs incurred by the company in 2012 to improve performance metrics under the department servicing contract and to implement and comply with the department 's special direct consolidation loan initiative . in addition , intangible assets for this segment were fully amortized in 2012. tuition payment processing and campus commerce revenue increased in the year s ended december 31 , 2013 and december 31 , 2012 , compared to the same periods in 2012 and 2011 , respectively , due to an increase in the number of managed tuition payment plans as a result of providing more plans at existing schools and obtaining new school customers . 27 before tax operating margin increased for the year ended december 31 , 2013 compared to 2012 . the increase was the result of efficiencies gained in the operations of the business and a decrease in amortization expense related to intangible assets . in addition , certain investments were made by the company during 2012 in new products and services to meet customer needs and expand product and service offerings . enrollment services enrollment services revenue has decreased year over year due to a decrease in inquiry generation and management revenue as a result of the regulatory uncertainty regarding recruiting and marketing to potential students in the for-profit college industry , which has caused schools to decrease spending on marketing efforts . additionally , clients are shifting marketing budgets to more efficient or lower cost channels , which has caused a reduction in volume . the company continues to focus on improving the profitability of this segment by reducing operating expenses in reaction to the ongoing decline in revenue and gross margin . asset generation and management the company acquired $ 4.1 billion of ffelp student loans during 2013 , compared to $ 3.9 billion in 2012 and $ 2.8 billion in 2011. the average loan portfolio balance for the years ended december 31 , 2013 , 2012 , and 2011 was $ 25.0 billion , $ 23.7 billion , and $ 24.0 billion , respectively . core student loan spread increased to 1.54 % for the year ended december 31 , 2013 , compared to 1.44 % for the year ended december 31 , 2012. this increase was due to the improved corresponding relationship between the interest rate indices governing what the company earns on its loans and what the company pays to fund such loans . due to historically low interest rates , the company continues to earn significant fixed rate floor income . during the years ended december 31 , 2013 , 2012 , and 2011 , the company earned $ 148.4 million , $ 145.3 million , and $ 144.5 million , respectively , of fixed rate floor income ( net of $ 31.0 million , $ 19.3 million , and $ 20.2 million of derivative settlements , respectively , used to hedge such loans ) . corporate activities whitetail rock capital management , llc ( `` wrcm '' ) , the company 's sec-registered investment advisory subsidiary , recognized revenue of $ 17.4 million , $ 9.3 million , and $ 5.1 million for the years ended december 31 , 2013 , 2012 , and 2011 , respectively . these amounts include performance fees earned from the sale of managed securities . liquidity and capital resources as of december 31 , 2013 , the company had cash and investments of $ 255.3 million . for the year ended december 31 , 2013 , the company generated $ 387.2 million in net cash provided by operating activities . forecasted undiscounted future cash flows from the company 's ffelp student loan portfolio financed in asset-backed securitization transactions are estimated to be approximately $ 2.17 billion as of december 31 , 2013 . as of december 31 , 2013 , $ 45.0 million was outstanding on the company 's unsecured line of credit and $ 230.0 million was available for future use . the unsecured line of credit has a maturity date of march 28 , 2018. during the year ended december 31 , 2013 , the company repurchased 393,259 shares of class a common stock for $ 13.1 million ( $ 33.40 per share ) . during the year ended december 31 , 2013 , the company repurchased $ 90.5 million ( par value ) of its own asset-backed and unsecured debt securities for a gain totaling $ 11.7 million . during the year ended december 31 , 2013 , the company paid cash dividends of $ 18.6 million . 28 the company intends to use its liquidity position to capitalize on market opportunities , including ffelp student loan acquisitions ; strategic acquisitions and investments in its core business areas of loan financing , loan servicing , payment processing , and enrollment services ; and capital management initiatives , including stock repurchases , debt repurchases , and dividend distributions . story_separator_special_tag such loans become 60 or 90 days delinquent , and the company has also retained credit risk related to certain non-federally insured loans sold and will pay cash to purchase back any of these loans which become 60 days delinquent . further , delinquencies have the potential to adversely impact the company 's earnings through increased servicing and collection costs and account charge-offs . story_separator_special_tag for a summary of the activity in the allowance for loan losses and accrual related to the company 's loan repurchase obligations for the years ended december 31 , 2013 , 2012 , and 2011 , and a summary of the company 's federally insured student loan delinquency amounts as of december 31 , 2013 , 2012 , and 2011 , see note 3 of the notes to consolidated financial statements included in this report . charge-offs of federally insured loans decreased in 2013 as compared to 2012 and 2011. during 2012 and 2011 , the company focused significant time and resources on improving the performance metrics results for the department servicing contract , which negatively impacted delinquencies and charge-offs of its own portfolio during these periods . 36 student loan spread analysis the following table analyzes the student loan spread on the company 's portfolio of student loans , which represents the spread between the yield earned on student loan assets and the costs of the liabilities and derivative instruments used to fund the assets . replace_table_token_18_th a trend analysis of the company 's core and variable student loan spreads is summarized below . ( a ) prior to april 1 , 2012 , the interest earned on the majority of the company 's ffelp student loan assets was indexed to the three-month commercial paper rate . as allowed by legislation , effective april 1 , 2012 , the company elected to change the index on which the special allowance payments are calculated for ffelp loans from the commercial paper rate to the one-month libor rate . the company funds the majority of its assets with three-month libor indexed floating rate securities . the relationship between the indices in which the company earns interest on its loans and funds such loans has a significant impact on student loan spread . this table ( the right axis ) shows the difference between the company 's liability base rate and the one-month libor ( q2 2012 - q4 2013 ) or commercial paper rate indices ( q1 2011 - q1 2012 ) by quarter . 37 variable student loan spread increased during the year ended december 31 , 2013 as compared to 2012 as a result of the tightening of the asset/liability base rate spread as reflected in the previous table . the primary difference between variable student loan spread and core student loan spread is fixed rate floor income . a summary of fixed rate floor income and its contribution to core student loan spread follows : replace_table_token_19_th ( a ) includes settlement payments on derivatives used to hedge student loans earning fixed rate floor income . the high levels of fixed rate floor income earned during 2013 , 2012 , and 2011 are due to historically low interest rates . if interest rates remain low , the company anticipates continuing to earn significant fixed rate floor income in future periods . see item 7a , “ quantitative and qualitative disclosures about market risk - interest rate risk , ” which provides additional detail on the company 's portfolio earning fixed rate floor income and the derivatives used by the company to hedge these loans . 38 summary and comparison of operating results replace_table_token_20_th 39 the following table summarizes the components of `` net interest income after provision for loan losses '' and `` derivative settlements , net . '' replace_table_token_21_th liquidity and capital resources the company 's fee generating businesses are non-capital intensive and all produce positive operating cash flows . as such , a minimal amount of debt and equity capital is allocated to the fee-based segments and any liquidity or capital needs are satisfied using cash flow from operations . therefore , the liquidity and capital resources discussion is concentrated on the company 's liquidity and capital needs to meet existing debt obligations in the asset generation and management operating segment . the company may issue equity and debt securities in the future in order to improve capital , increase liquidity , refinance upcoming maturities , or provide for general corporate purposes . moreover , the company may from time-to-time repurchase certain amounts of its outstanding secured and unsecured debt securities , including debt securities which the company may issue in the future , for cash and or through exchanges for other securities . such repurchases or exchanges may be made in open market transactions , privately negotiated transactions , or otherwise . any such repurchases or exchanges will depend on prevailing market conditions , the company 's liquidity requirements , contractual restrictions , compliance with securities laws , and other factors . the amounts involved in any such transactions may be material . the company has historically utilized operating cash flow , secured financing transactions ( which include warehouse facilities , asset-backed securitizations , and liquidity programs offered by the department ) , operating lines of credit , and other borrowing arrangements to fund its asset generation and management operations and student loan acquisitions . in addition , the company has used operating cash flow , borrowings on its unsecured line of credit , and unsecured debt offerings to fund corporate activities , business acquisitions , and repurchases of common stock . the company has also used its common stock to partially fund certain business acquisitions . sources of liquidity currently available as of december 31 , 2013 , the company had cash and investments of $ 255.3 million . in addition , the company has historically generated positive cash flow from operations . for the years ended december 31 , 2013 , 2012 , and 2011 , the company 's net cash provided by operating activities was $ 387.2 million , $ 299.3 million , and $ 310.9 million , respectively . 40 the company has a $ 275.0 million unsecured line of credit with a maturity date of march 28 , 2018. as of december 31 , 2013 , $ 45.0 million was outstanding on the unsecured line of credit and $ 230.0 million was available for future use .
| the company 's operating expenses do not follow the seasonality of the revenues . this is primarily due to generally fixed year-round personnel costs and seasonal marketing costs . based on the timing of revenue recognition and when expenses are incurred , revenue and pre-tax operating margin are higher in the first quarter as compared to the remainder of the year . summary and comparison of operating results replace_table_token_14_th 34 enrollment services operating segment – results of operations summary and comparison of operating results replace_table_token_15_th the following tables summarize the components of `` enrollment services revenue '' and `` cost to provide enrollment services . '' replace_table_token_16_th ( a ) inquiry generation revenue decreased $ 3.4 million ( 19.1 % ) and $ 6.9 million ( 28.1 % ) and inquiry management ( agency ) revenue decreased $ 13.1 million ( 17.9 % ) and $ 5.9 million ( 7.5 % ) for the years ended december 31 , 2013 and 2012 , respectively , compared to 2012 and 2011 , respectively . revenues from these services have been affected by the ongoing regulatory uncertainty regarding recruiting and marketing to potential students in the for-profit college industry , which has caused schools to decrease spending on marketing efforts . additionally , clients are shifting marketing budgets to more efficient or lower cost channels , which has caused a reduction in volume . the decrease in inquiry generation gross profit margin is due to increased costs for higher quality sources and a shift in revenue from higher profit margin clients to clients with lower profit margins . ( b ) content solutions revenue decreased $ 3.3 million ( 17.6 % ) and $ 1.1 million ( 5.5 % ) for the years ended december 31 , 2013 , and 2012 , respectively , compared to 2012 and 2011 , respectively , due to the divesture of the company 's list marketing business during 2013 and as the result of a decrease in list marketing services during 2012 . 35 asset generation and management
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we sold 692,000 tons of potash during 2013 , a decline of 147,000 tons compared with 2012. our 2013 sales volumes were impacted by unseasonable spring weather patterns and significant cautiousness in the global potash market caused by pricing uncertainty , particularly in the last six months of the year . during the spring of 2013 , persistent wet weather across much of the midwestern growing area of the united states compressed the spring planting season , limiting the amount of potash that was applied in this area during the first half of the year . during the latter half of the year , sales volumes were impacted by the lack of confidence in price stability and cautiousness from dealers resulting from a lack of immediate demand by retailers and farmers . as north american brownfields have come into production , north american potash supply has exceeded demand , causing an increase in north american potash inventory levels . potash pricing has been declining for two and a half years . uralkali announced in july 2013 that it would withdraw from its bpc marketing arrangement and subsequently announced its intention to pursue a volume-over-price strategy . these announcements accelerated price erosion globally , including in north america . these statements subsequently led to a deferral of potash purchasing in the fall of 2013. the specific timing of when farmers apply potash remains highly weather dependent and varies across the numerous growing regions within the united states . in addition , potash demand is significantly influenced by dealer storage volumes and the marketing programs of potash producers and retailers . the combination of these items results in variability in potash sales and shipments , thereby increasing volatility of sales volumes from quarter to quarter and season to season . potash prices . potash prices are a significant driver of profitability for our business . our average net realized sales price decreased to $ 382 per ton in 2013 from $ 454 per ton in 2012. this was the third straight year of decreased potash prices and our net realized sales price . the decrease in 2013 was largely due to continued downward pressure on potash prices driven by the uncertainty in the global potash market caused by the uralkali announcements discussed previously , and a general view in the market that there is adequate global potash supply . uncertainty around global potash demand levels , especially into large international markets such as china and india , has also put pressure on domestic potash prices . while new contracts for a portion of china 's expected demand for the first half of 2014 were recently announced , uncertainty continues to exist around china 's expected full year demand , as well as the impact of those contracts on future pricing and volumes into india . suppliers to these markets have accumulated inventory and have to manage production volumes . the larger canadian producers have announced production curtailments in the fall and winter of 2013. these pressures and the ongoing uncertainty in global potash demand continue to cloud the long-term global potash market . further , north american potash inventory levels remain above the five-year average , which also pressures pricing . throughout the latter half of 2013 , sales levels and pricing have been soft as dealers have been postponing fertilizer purchases in response to the market uncertainty caused by these global concerns about the balance between supply and demand . due to the significant decline in potash pricing , we incurred a net loss for the three months ended december 31 , 2013. as a result , we initiated cost saving initiatives as discussed below . if potash prices remain soft , we expect to incur additional net losses in 2014 until meaningful production from the hb solar solution mine come into production , which is expected to lower our per-ton operating costs . trio ® prices and demand . the average net realized sales price of trio ® increased to $ 352 per ton in 2013 from $ 329 per ton in 2012. trio ® domestic pricing has historically tended to move in a relatively close correlation to potash pricing . over the last year , dealers ' and farmers ' recognition of the added value of magnesium and sulfate and the low-chloride benefits from this specialty product has translated into higher prices despite sequentially lower potash prices . demand for granular-sized trio ® continues to exceed production , which has also been supportive of trio ® pricing . demand for standard-sized trio ® , however , has been less predictable , particularly in the export market . we expect that the general softness in the potash market , combined with a decrease in the market price for sulfur , could negatively impact pricing for our standard-sized trio ® . major capital projects . during 2013 , we substantially completed the majority of the construction activities associated with the initial design for the hb solar solution mine , the north compaction project and the moab cavern system . 40 in late 2013 , we began initial commissioning of the hb solar solution processing plant and expect this work to continue through much of 2014. the total expected investment for the project is between $ 235 million and $ 245 million , of which $ 234.0 million had been invested as of december 31 , 2013. the north compaction project is approaching completion . the first two compaction lines are in service and the third compaction line is expected to be completed in the first half of 2014. the new facility uses state-of-the-art equipment to enable us to produce high quality granular product and expands our granulation capacity to accommodate the increased tonnage expected from the hb solar solution mine and ongoing upgrades at our west facility . total capital expenditures for this project totaled $ 97.0 million in 2013. the total capital investment for this project is anticipated to be less than $ 100 million . story_separator_special_tag we continued to develop additional solution mining opportunities at our moab facility by expanding our producing cavern systems . during 2013 , we completed drilling activities into our third multi-lateral cavern system . this was the largest cavern system we have drilled , nearly three times the size of our other caverns . we expect this cavern system will provide higher grade extraction brines that will offset the typical decreasing production profile as other cavern systems are depleted and will allow for incremental production opportunities in future years . the total capital investment for this project was $ 19.5 million in 2013. we have several ongoing recovery enhancement projects at the west facility with total expected investment of approximately $ 25 million to $ 35 million , with $ 21.2 million invested through december 31 , 2013. the projects underway at the west facility , some of which began in 2012 , are intended to sustain and increase production by improving recoveries at the west facility that have decreased in recent quarters as we transition into different ore zones that are more difficult to process . the majority of these projects are expected to be completed in the first half of 2014. the capabilities of the new north compaction facility now allow us the flexibility to make design changes at the west facility to increase recovery . there is a level of coordination among the projects at the west facility and north compaction facility that will cause some variation in production at the west facility as the projects are placed in service and resulting design changes are realized . we expect the level of capital project investment to decrease significantly in 2014 , as we have substantially completed these major capital projects in the last two years . during 2014 , we intend to focus on optimizing and gaining the efficiencies from these projects , which are intended to increase production , decrease our per ton operating costs and increase our overall marketing flexibility . east facility production . we have dedicated significant resources to the long-term improvement plan that we began in early 2012 to address production challenges at the east facility . at our east facility , our recovery and production of both potash and langbeinite are directionally impacted by the ore grade and the development work we do in the mine 's complex mixed ore zones . during the second half of 2013 , our production of both potash and langbeinite declined from the second quarter of 2013 as we encountered lower grades within the mixed ore zones in which we were mining . as a result , we incurred higher production costs , which were allocated over fewer production tons , thereby resulting in higher per-ton cost of goods sold and a lower of cost or market inventory charge . in the fourth quarter of 2013 , we made operational changes that have resulted in slightly improved ore grades , albeit lower than the comparable ore grades mined in 2012. production costs in the fourth quarter of 2013 were impacted by the planned annual maintenance activities at our east facility that occurred in october 2013. as a consequence of the production results in 2013 , combined with decreased potash prices , we recorded lower of cost or market adjustments of approximately $ 3.7 million , of which a majority is associated with inventory we produced at our east facility . our production and recovery results historically have had a positive correlation to ore grade . our ore grade is also influenced by the amount of development activity we perform . other expense ( income ) . in 2013 , our application for certain new mexico employment-related tax credits was denied . we believe the denial is improper and we intend to vigorously pursue recovery of these credits . nonetheless , we recorded a reserve of approximately $ 2.8 million for tax credits relating to the denied credits . cost saving initiatives . in january 2014 , in response to the declining potash prices since mid-2013 and the substantial completion of our major capital projects , we undertook a number of cost saving actions that are intended to better align our cost structure with the current business environment . these initiatives include the elimination of approximately 7 % of the workforce , including capital project related support associated with the our major capital projects , decreases in executive compensation , reduction in the use of outside professionals , and cutbacks in other general and administrative areas . we estimate that these measures will result in annual savings of approximately $ 15 million , with the majority being in general and administrative expense and the remainder being cost of goods sold . the workforce reduction occurred in january of 2014 , generating a pre-tax charge of approximately $ 1.5 million to $ 2.0 million . 41 selected operating and financial data the following tables present selected operations data for the periods noted . analysis of the details of this information is contained throughout this discussion . we present this table as a summary of information relating to key indicators of financial condition and operating performance that we believe are important . we calculate average net realized sales price by deducting freight costs from gross revenues and then by dividing this result by tons of product sold during the period . 42 replace_table_token_10_th ( 1 ) additional information about our non-gaap financial measures is set forth under the heading '' non-gaap financial measures. ” ( 2 ) amounts do not include by-product credits . on a per-ton basis , by-product credits were $ 9 for the year ended december 31 , 2013 , and $ 8 for both of the years ended 2012 , and 2011 . by-product credits were $ 6.5 million , $ 6.5 million and $ 6.0 million for the years ended december 31 , 2013 , 2012 , and 2011 , respectively .
| potash pricing continued to come under pressure due to uncertainty surrounding increased global potash supply and north american inventory levels that were above the five-year average . the table below shows our potash sales mix for 2013 and 2012 . the percentage of sales into the industrial market increased in 2013 compared with 2012 , as a result of an increase in sales of standard-sized potash for industrial purposes as we reduced our level of standard-sized inventory during 2013. replace_table_token_12_th we continue to focus on increasing the flexibility of our operations to produce the right amount of product for the demands of our specific markets . for example , we have invested in granulation facilities at each of our operations . the flexibility to produce more granular-sized product is important as we continue to see long-term trends that support utilization of potash in agriculture . data generated by fertecon limited , a fertilizer industry consultant , shows that , over the past 25 years , domestic potash consumption has averaged approximately 9.3 million tons with annual volatility of approximately 10 % . these results have occurred through historical periods of low and high agricultural commodity prices , weather conditions , variability in oil and gas drilling , negative farmer margins , and a variety of other macro-economic factors . continuing improvements in agriculture production technology , such as hybrid seeds and equipment advancements , now allow for the potential of higher yields per acre . these improvements need to be matched with potassium application rates to maximize agricultural productivity . we believe these factors suggest increased domestic potash consumption is possible in the coming years . the replacement of potassium in the soil is critical to continue high-yielding agricultural production and to satisfy the demands placed on soils for plant nutrition . the international plant nutrition institute has tracked historical soil potassium levels and trends show a decline in soil potassium which will lead to an increasing
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these favorable variances were partially offset by a $ 100 thousand increase in provision for loan losses , a $ 201 thousand , or 2 % decrease in noninterest income , and a $ 1.4 million increase in income tax expense . net interest income increased from a higher net interest margin and from higher average earning asset balances . average earning asset balances increased 4 % and the net interest margin increased 16 basis points to 3.77 % for the year ended december 31 , 2017 , compared to 3.61 % for the same period in 2016 . noninterest income decreased primarily from lower service charges on deposit accounts . noninterest expense decreased primarily from lower fdic assessment , lower supplies expense , and lower amortization expense of core deposit intangibles . based on management 's analysis and the supporting allowance for loan loss calculation , a provision for loan losses of $ 100 thousand was recorded during the year ended december 31 , 2017 . a provision for loan losses was not required during the year ended december 31 , 2016 . for a more detailed discussion of the provision for loan losses , see `` provision for loan losses '' below . included in the $ 1.4 million increase in income tax expense was the $ 752 thousand charge to income tax expense related to the re-measurement of net deferred tax assets resulting from the new federal corporate income tax rate established by the tax cut and jobs act ( the act ) . for a more detailed discussion of the act , see the section of this report entitled `` supervision and regulation . '' non-gaap financial measures this report refers to the efficiency ratio , which is computed by dividing noninterest expense , excluding oreo income , amortization of intangibles , and losses on disposal of premises and equipment , by the sum of net interest income on a tax-equivalent basis and noninterest income , excluding securities losses/ ( gains ) . this is a non-gaap financial measure that the company believes provides investors with important information regarding operational efficiency . such information is not prepared in accordance with u.s. generally accepted accounting principles ( gaap ) and should not be construed as such . management believes , however , such financial information is meaningful to the reader in understanding operating performance , but cautions that such information not be viewed as a substitute for gaap . the company , in referring to its net income , is referring to income under gaap . the components of the efficiency ratio calculation are summarized in the following table ( dollars in thousands ) . replace_table_token_4_th 26 this report also refers to net interest margin , which is calculated by dividing tax equivalent net interest income by total average earning assets . because a portion of interest income earned by the company is nontaxable , the tax equivalent net interest income is considered in the calculation of this ratio . tax equivalent net interest income is calculated by adding the tax benefit realized from interest income that is nontaxable to total interest income then subtracting total interest expense . the tax rate utilized in calculating the tax benefit for both 2017 and 2016 is 34 % . the reconciliation of tax equivalent net interest income , which is not a measurement under gaap , to net interest income , is reflected in the table below ( in thousands ) . replace_table_token_5_th critical accounting policies general the company 's consolidated financial statements and related notes are prepared in accordance with gaap . the financial information contained within the statements is , to a significant extent , financial information that is based on measures of the financial effects of transactions and events that have already occurred . a variety of factors could affect the ultimate value that is obtained either when earning income , recognizing an expense , recovering an asset or relieving a liability . the bank uses historical losses as one factor in determining the inherent loss that may be present in the loan portfolio . actual losses could differ significantly from the historical factors used . in addition , gaap itself may change from one previously acceptable method to another . although the economics of transactions would be the same , the timing of events that would impact transactions could change . presented below is a discussion of those accounting policies that management believes are the most important ( “ critical accounting policies ” ) to the portrayal and understanding of the company 's financial condition and results of operations . the critical accounting policies require management 's most difficult , subjective , and complex judgments about matters that are inherently uncertain . in the event that different assumptions or conditions were to prevail , and depending upon the severity of such changes , the possibility of materially different financial condition or results of operations is a reasonable likelihood . allowance for loan losses the allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings . loan losses are charged against the allowance when management determines that the loan balance is uncollectible . subsequent recoveries , if any , are credited to the allowance . for further information about the company 's loans and the allowance for loan losses , see notes 1 , 3 , and 4 in this form 10-k. the allowance for loan losses is evaluated on a quarterly basis by management and is based upon management 's periodic review of the collectability of the loans in light of historical experience , the nature and volume of the loan portfolio , adverse situations that may affect the borrower 's ability to repay , estimated value of any underlying collateral , and prevailing economic conditions . this evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available . story_separator_special_tag 27 the company performs regular credit reviews of the loan portfolio to review credit quality and adherence to underwriting standards . the credit reviews consist of reviews by its internal credit administration department and reviews performed by an independent third party . upon origination , each loan is assigned a risk rating ranging from one to nine , with loans closer to one having less risk . this risk rating scale is our primary credit quality indicator . the company has various committees that review and ensure that the allowance for loans losses methodology is in accordance with gaap and loss factors used appropriately reflect the risk characteristics of the loan portfolio . the allowance represents an amount that , in management 's judgment , will be adequate to absorb any losses on existing loans that may become uncollectible . management 's judgment in determining the level of the allowance is based on evaluations of the collectability of loans while taking into consideration such factors as trends in delinquencies and charge-offs , changes in the nature and volume of the loan portfolio , current economic conditions that may affect a borrower 's ability to repay and the value of the collateral , overall portfolio quality , and review of specific potential losses . the evaluation also considers the following risk characteristics of each loan portfolio class : 1-4 family residential mortgage loans carry risks associated with the continued creditworthiness of the borrower and changes in the value of the collateral . real estate construction and land development loans carry risks that the project may not be finished according to schedule , the project may not be finished according to budget , and the value of the collateral may , at any point in time , be less than the principal amount of the loan . construction loans also bear the risk that the general contractor , who may or may not be a loan customer , may be unable to finish the construction project as planned because of financial pressure or other factors unrelated to the project . other real estate loans carry risks associated with the successful operation of a business or a real estate project , in addition to other risks associated with the ownership of real estate , because repayment of these loans may be dependent upon the profitability and cash flows of the business or project . commercial and industrial loans carry risks associated with the successful operation of a business because repayment of these loans may be dependent upon the profitability and cash flows of the business . in addition , there is risk associated with the value of collateral other than real estate which may depreciate over time and can not be appraised with as much reliability . consumer and other loans carry risk associated with the continued creditworthiness of the borrower and the value of the collateral , if any . these loans are typically either unsecured or secured by rapidly depreciating assets such as automobiles . they are also likely to be immediately and adversely affected by job loss , divorce , illness , personal bankruptcy , or other changes in circumstances . the allowance for loan losses consists of specific and general components . the specific component relates to loans that are classified as impaired , and is established when the discounted cash flows , fair value of collateral less estimated costs to sell , or observable market price of the impaired loan is lower than the carrying value of that loan . for collateral dependent loans , an updated appraisal is ordered if a current one is not on file . appraisals are performed by independent third-party appraisers with relevant industry experience . adjustments to the appraised value may be made based on recent sales of like properties or general market conditions among other considerations . the general component covers loans that are not considered impaired and is based on historical loss experience adjusted for qualitative factors . the historical loss experience is calculated by loan type and uses an average loss rate during the preceding twelve quarters . the qualitative factors are assigned by management based on delinquencies and asset quality , national and local economic trends , effects of the changes in the value of underlying collateral , trends in volume and nature of loans , effects of changes in the lending policy , the experience and depth of management , concentrations of credit , quality of the loan review system , and the effect of external factors such as competition and regulatory requirements . the factors assigned differ by loan type . the general allowance estimates losses whose impact on the portfolio has yet to be recognized by a specific allowance . allowance factors and the overall size of the allowance may change from period to period based on management 's assessment of the above described factors and the relative weights given to each factor . for further information regarding the allowance for loan losses see notes 1 and 4 to the consolidated financial statements . other real estate owned ( oreo ) other real estate owned ( oreo ) consists of properties obtained through a foreclosure proceeding or through an in-substance foreclosure in satisfaction of loans and properties originally acquired for branch operations or expansion but no longer intended to be used for that purpose . oreo is initially recorded at fair value less estimated costs to sell to establish a new cost basis . oreo is subsequently reported at the lower of cost or fair value less costs to sell , determined on the basis of current appraisals , 28 comparable sales , and other estimates of fair value obtained principally from independent sources , adjusted for estimated selling costs . management also considers other factors or recent developments , such as changes in absorption rates or market conditions from the time of valuation and anticipated sales values considering management 's plans for disposition , which could result in adjustments to the collateral value estimates indicated in the appraisals .
| the higher yield on earning assets was attributable to an increase in yields from all earning asset classes and a change in the composition of earning assets . yields increased on loans , securities , and interest-bearing deposits in banks by 8 basis points , 15 basis points , and 43 basis points , respectively . a change in the asset composition also favorably impacted the earning asset 31 yield , as average loan balances increased to 74 % of average earning assets for the year ended december 31 , 2017 , compared to 71 % of average earning assets for the same period in 2016 . loan yields were higher than yields on securities and interest-bearing deposits in other banks . the increase in interest expense as a percent of average earning assets was primarily attributable to higher interest rates paid on interest-bearing deposits , with that largest impact coming from the cost of interest-bearing checking accounts , which increased by 16 basis points comparing the periods . the following table provides information on average interest-earning assets and interest-bearing liabilities for the years ended december 31 , 2017 , 2016 , and 2015 , as well as amounts and rates of tax equivalent interest earned and interest paid ( dollars in thousands ) . the volume and rate analysis table analyzes the changes in net interest income for the periods broken down by their rate and volume components ( in thousands ) . 32 replace_table_token_6_th ( 1 ) income and yields are reported on a taxable-equivalent basis assuming a federal tax rate of 34 % . the tax-equivalent adjustment was $ 372 thousand , $ 391 thousand , and $ 309 thousand for 2017 , 2016 , and 2015 , respectively . ( 2 ) loans placed on a non-accrual status are reflected in the balances . 33 replace_table_token_7_th provision for loan losses the provision for loan losses represents management 's analysis of the existing loan portfolio and related credit risks . the provision for
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due to system constraints and the nature of certain allowances , it is sometimes not practicable to apply allowances to the item cost of inventory . in those instances , the allowances are applied as a reduction of merchandise costs using a rational and systematic methodology , which results in the recognition of these incentives when the inventory related to the vendor consideration received is sold . vendor allowances applied as a reduction of merchandise costs totaled $ 121.9 million , $ 114.3 million and $ 109.9 million for the fiscal years ended september 28 , 2013 , september 29 , 2012 and september 24 , 2011 , respectively . vendor advertising allowances that represent a reimbursement of specific identifiable incremental costs of advertising the vendor 's specific products are recorded as a reduction to the related expense in the period that the related expense is incurred . vendor advertising allowances recorded as a reduction of advertising expense totaled $ 14.5 million , $ 13.2 million , and $ 13.1 million for the fiscal years ended september 28 , 2013 , september 29 , 2012 and september 24 , 2011 , respectively . if vendor advertising allowances were substantially reduced or eliminated , the company would likely consider other methods of advertising as well as the volume and frequency of the company 's product advertising , which could increase or decrease the company 's expenditures . similarly , the company is not able to assess the impact of vendor advertising allowances on creating additional revenue , as such allowances do not directly generate revenue for the company 's stores . uncertain tax positions despite the company 's belief that its tax positions are consistent with applicable tax laws , the company believes that certain positions are likely to be challenged by taxing authorities . settlement of any challenge can result in no change , a complete disallowance , or some partial adjustment reached through negotiations or litigation . significant judgment is required in evaluating the company 's tax positions . the company 's positions are evaluated in light of changing facts and circumstances , such as the progress of its tax audits as well as evolving case law . income tax expense includes the impact of provisions for and changes to uncertain tax positions as the company considers appropriate . unfavorable settlement of any particular position would require use of cash . favorable resolution would be recognized as a reduction to income tax expense at the time of resolution . story_separator_special_tag width= '' 100 % '' / > sales by product category for the fiscal years ended september 28 , 2013 and september 29 , 2012 , respectively , were as follows : replace_table_token_12_th the grocery category includes grocery , dairy and frozen foods . the non-foods category includes alcoholic beverages , tobacco , pharmacy , health and video . the perishables category includes meat , produce , deli and bakery . changes in grocery segment sales for the fiscal year ended september 28 , 2013 are summarized as follows ( in thousands ) : replace_table_token_13_th during fiscal 2012 and 2013 , the company devoted the majority of its grocery segment capital expenditures to improvements in the configuration and appearance of a number of its stores . these projects cost less than a store remodel that includes additional square footage , allowing the company to improve a larger number of stores . the company also introduced a new store design in a new store opened during fiscal 2013. these factors along with effective promotions and cost competitiveness drove fiscal 2013 increased sales . fuel stations and pharmacies have been effective in giving customers a competitive choice and allowing them to consolidate shopping trips at company supermarkets . the ingles advantage savings and rewards card ( the “ ingles advantage card ” ) also contributes to the increase in net sales and comparable store sales . information obtained from holders of the ingles advantage card assists the company in optimizing product offerings and promotions specific to customer shopping patterns . net sales to outside parties for the company 's milk processing subsidiary decreased $ 1.5 million , or 1.1 % , in fiscal 2013 compared with fiscal 2012. the price of raw milk increased during fiscal 2013 , but case volumes sold decreased as a result of industry consolidation and overall decreased milk consumption . the company expects sales growth to be higher in the 2014 fiscal year compared with fiscal 2013 sales growth . the company anticipates adding more retail square footage than in the past few years and expects to benefit from recent interior improvements to a larger number of stores . fiscal 2014 sales growth will also be influenced by market fluctuations in the per gallon price of gasoline and milk , changes in commodity food prices and general economic conditions . gross profit . gross profit for the year ended september 28 , 2013 increased $ 7.0 million , or 0.9 % , to $ 827.8 million compared with $ 820.8 million , for the year ended september 29 , 2012. as a percentage of sales , gross profit totaled 22.2 % for the year ended september 28 , 2013 and 22.1 % for the year ended september 29 , 2012. the increase in grocery segment gross profit dollars was primarily due to the higher sales volume , including the 53 rd week in last fiscal year . grocery segment gross profit as a percentage of total sales ( excluding gasoline ) was 26.1 % for fiscal 2013 compared with 25.9 % for the comparable fiscal 2012 period . the beneficial impact of a favorable change in sales mix and distribution efficiencies has been partially offset by competitive effects . the company strives to keep prices as low as possible in order to grow sales and market share . story_separator_special_tag 21 gross profit for the company 's milk processing subsidiary for the year ended september 28 , 2013 decreased 1.3 % compared with the year ended september 29 , 2012. gross profit as a percentage of sales was 10.7 % for fiscal 2013 compared with 10.8 % for fiscal 2012. in addition to the direct product cost , the cost of goods sold line item for the grocery segment includes inbound freight charges and the costs related to the company 's distribution network . the milk processing segment is a manufacturing process ; therefore , the costs mentioned above as well as purchasing and receiving costs , production costs , inspection costs , warehousing costs , internal transfer costs , and other costs of distribution incurred by the milk processing segment are included in the cost of sales line item , while these items are included in operating and administrative expenses for the grocery segment . operating and administrative expenses . operating and administrative expenses increased $ 8.9 million , or 1.28 % , to $ 706.5 million for the year ended september 28 , 2013 , from $ 697.6 million for the year ended september 29 , 2012. as a percentage of sales , operating and administrative expenses were 18.9 % for the fiscal year ended september 28 , 2013 compared with 18.8 % for the fiscal year ended september 29 , 2012. excluding gasoline , which does not have significant direct operating expenses , the ratio of operating expenses to sales was 22.1 % for fiscal 2013 compared with 21.9 % for fiscal 2012. a breakdown of the major increases ( decreases ) in operating and administrative expenses is as follows : replace_table_token_14_th salaries and wages increased due to the addition of labor hours required for the increased sales volume , including costs related to the new distribution facility opened during the third quarter of fiscal 2012. depreciation and amortization decreased as a result of the company 's lower capital expenditures compared to prior years . store supplies increased in conjunction with the company 's program to improve the appearance , layout and convenience in a number of stores . taxes and licenses increased due to higher property taxes and licenses from additional products and services offered in the company 's stores . insurance expense increased due to higher claims under the company 's self insurance programs . gain from sale or disposal of assets . gain from sale or disposal of assets totaled $ 4.3 million for fiscal 2013 compared with gains of $ 0.7 million for fiscal 2012. during fiscal 2013 , the company sold a former store property for $ 7.5 million and recognized a pre-tax gain of $ 3.9 million . there were no other significant sale or disposal transactions during fiscal 2013 or 2012. other income , net . other income , net totaled $ 2.9 million and $ 3.5 million for the fiscal years ended september 28 , 2013 and september 29 , 2012 , respectively . other income consists primarily of sales of waste paper and packaging . interest expense . interest expense decreased $ 0.9 million for the year ended september 28 , 2013 to $ 59.1 million from $ 60.0 million for the year ended september 29 , 2012. total debt was $ 912.5 million at the end of fiscal 2013 compared with $ 835.2 million at the end of fiscal 2012. interest expense decreased due to the refinancing of existing debt at lower rates . interest on the $ 99.7 million of recovery zone facility bonds issued in december 2010 was capitalized as part of the construction cost of the company 's new distribution and warehouse facility , until the facility opened during the third quarter of fiscal 2012. loss on early extinguishment of debt . in connection with the early payoff of the $ 575.0 million senior notes due 2017 , the company paid $ 27.8 million in debt extinguishment costs and expensed $ 15.3 million of unamortized loan costs . 22 income taxes . income tax expense as a percentage of pre-tax income decreased to 20.8 % for the 2013 fiscal year compared with 35.5 % for the 2012 fiscal year . the decrease in the effective tax rate is primarily attributable to tax credits representing a greater percentage of pre-tax income and reductions in certain statutory state income tax rates . net income . net income totaled $ 20.8 million for the fiscal year ended september 28 , 2013 compared with net income of $ 43.4 million for the fiscal year ended september 29 , 2012. the decrease is attributable to the debt extinguishment costs incurred in fiscal 2013. basic and diluted earnings per share for class a common stock were $ 0.89 and $ 0.87 , respectively , for the fiscal year ended september 28 , 2013 compared with $ 1.87 and $ 1.79 , respectively , for the fiscal year ended september 29 , 2012. basic and diluted earnings per share for class b common stock were each $ 0.85 for the fiscal year ended september 28 , 2013 compared with $ 1.70 of basic and diluted earnings per share for the fiscal year ended september 29 , 2012. fiscal year ended september 29 , 2012 compared to the fiscal year ended september 24 , 2011 the company achieved record sales for the 48 th consecutive year for the fiscal year ended september 29 , 2012. total and comparable store sales increased , both with and without the inclusion of gasoline sales , and excluding the effect of the 53 rd week in fiscal 2012. during the third quarter of fiscal 2012 , the company opened a 839,000 square foot addition to its distribution facilities , which the company expects to provide cost savings and operating efficiencies for many future years . customer behavior continued to be influenced by an uncertain economic environment and by energy prices that were higher than previous years .
| in 2013 , we have concluded that the income and expense amounts associated with 19 shopping center rentals should be presented as “ gross ” rather than “ net ” . accordingly , the prior year consolidated statements of income have been revised to eliminate the amounts presented as rental income , net while increasing net sales and cost of goods sold by $ 8.9 million and $ 7.4 million , respectively , in 2012 and $ 9.1 million and $ 7.2 million , respectively , in 2011. management does not believe these corrections are material to the financial statements . the following table sets forth , for the periods indicated , selected financial information as a percentage of net sales . replace_table_token_11_th fiscal year ended september 28 , 2013 compared to the fiscal year ended september 29 , 2012 the company achieved record sales for the 49 th consecutive year for the fiscal year ended september 28 , 2013. total and comparable store sales increased , both with and without the inclusion of gasoline sales , and the extra 53 rd week in fiscal 2012. during the third quarter of fiscal 2013 , the company accomplished a significant refinancing that included replacement of existing senior notes with a ten year term at a lower interest rate . the company extended the terms and improved other features of both its $ 175 million line of credit facility and its 2010 credit facility to construct an addition to its distribution facility . net income for the fiscal year ended september 28 , 2013 was $ 20.8 million , compared with $ 43.4 million for the fiscal year ended september 29 , 2012. in conjunction with the refinancing discussed above , the company incurred $ 43.1 million of pre-tax debt extinguishment costs . excluding these costs , net income for fiscal 2013 would have been higher than fiscal 2012 , even though fiscal 2012 contained 53 weeks compared with 52 weeks of fiscal 2013. net sales . net sales for the fiscal year ended september 28 , 2013 increased 0.5 % to $ 3.74 billion , compared
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average daily sales in the first half of 2013 trailed the first half of 2012 by 3.3 % as we had 71 fewer average sales representatives . however , average daily sales in the second half of 2013 rose above the average daily sales in the second half of 2012 by 0.5 % as the number of average sales representatives exceeded the prior year period by 13 . due to a continuing focus on controlling costs and improving the efficiency of our operations , our selling , general and administrative expenses continued to decrease as a percentage of sales in 2013 , even with the increased cost of a national sales meeting held in 2013 and the additional costs of transitioning our addison operations to the mccook facility as we continue to focus on cost controls and leverage gained on fixed costs . results of operations are examined in detail following a recap of our major activities in 2013 . 2013 activities following are some of our 2013 highlights : sales force transformation - effective january 1 , 2013 all of our u.s. based sales representatives became employees of the company , completing the transition from an independent agent model to an employee only u.s. sales team . increased sales team - we increased the number of net active sales representatives from 757 on january 1 , 2013 to 806 on december 31 , 2013. website redesign - we completed the launch of our redesigned website in the first quarter of 2013. the website enables new and existing customers to perform product searches , obtain pricing and place orders directly via the internet . national sales meeting - we convened our first national sales meeting in six years in the first quarter . the meeting included training , a supplier trade show and updates on our strategy , and provided our sales representatives an opportunity to network and share best practices . completed transition to the mccook facility - we completed the transition of distribution operations previously conducted at the addison , illinois distribution center to the new state-of-the-art mccook facility , which we believe will lead to increased operating efficiencies and enhanced customer service as a result of reductions in delivery times and increased fulfillment rates . signed an asset purchase agreement to sell non-core business - we entered into an agreement to sell asmp , our last non-core business , allowing us to focus our attention exclusively on our higher margin mro operations . the sale was finalized 15 february 14 , 2014. the company anticipates recognizing a pretax gain of approximately $ 1.6 million , subject to working capital adjustments , in the first quarter of 2014. irs settlement - we entered into an agreement to settle a prior year employment tax matter with the irs for $ 0.4 million less than our original estimate . lean six sigma - we began to integrate a lean six sigma process of continuous improvement into varying aspects of our business . improved operational performance - we continued to improve the fundamentals of our business , measured as improved order completeness and line service levels to our customers as well as reduced customer backorders . we believe we have created a scalable infrastructure that will allow us to take full advantage of future growth opportunities . we will continue to strive to be our customers ' first choice for maintenance , repair and operational solutions . story_separator_special_tag our deferred tax assets to offset future taxable income and , therefore , increased our deferred tax valuation allowance . in 2013 we continued to be in a full tax valuation allowance position and the $ 0.1 million of income tax benefit was primarily due to the allocation of income tax between continuing and discontinued operations . 18 results of continuing operations for 2012 as compared to 2011 replace_table_token_7_th net sales net sales decreased 8.9 % in 2012 to $ 273.6 million from $ 300.4 million in 2011 on one additional selling day in 2012. excluding the negative canadian exchange rate impact of $ 0.4 million , net sales decreased 8.8 % for the year . the decrease in sales was primarily due to a decrease in sales coverage due to a 14 % net decline in sales representatives during the year . however , the sales force began to stabilize in the second half of the year as we ended 2012 with approximately the same number of sales representatives as we had at the end of the second quarter of 2012. additionally , government sales decreased $ 10.1 million in 2012 compared to 2011 which benefited from troop deployments . for the year , average daily sales were $ 1.086 million in 2012 compared to $ 1.197 million in 2011 . gross profit gross profit decreased 11.0 % in 2012 to $ 157.4 million from $ 176.9 million in 2011 . as a percent of net sales , gross profit margin decreased to 57.5 % in 2012 from 58.9 % in 2011 . this decrease was principally due to a non-cash expense of $ 3.9 million related to discontinuing certain products , a decrease of $ 2.6 million in outbound freight recoveries and a shift toward higher volume national customers with lower margins . national accounts represented 12.7 % of net sales in 2012 compared to 11.2 % in 2011 . 19 selling expenses selling expenses decreased 7.1 % to $ 80.3 million in 2012 from $ 86.5 million in 2011 primarily due to implementing cost control measures across the organization and lower sales . selling expenses increased as a percent of sales to 29.4 % in 2012 from 28.8 % in 2011 , primarily due to the impact of fixed selling costs on the decreased sales levels . story_separator_special_tag general and administrative expenses general and administrative expenses decreased $ 3.6 million , or 3.8 % , primarily due to $ 5.0 million less erp related expenses in 2012 compared to 2011 and $ 4.3 million of reduced compensation costs driven primarily by a cost reduction strategy implemented in 2012 including a reduction in work force . these savings were partially offset by an increase of $ 2.7 million in depreciation and facility costs , $ 2.2 million of consulting fees related to our turnaround strategy and $ 0.5 million related to the move into our new distribution center and headquarters . severance expenses severance expenses were $ 8.0 million in 2012 compared to $ 1.6 million in 2011 . the severance charge recorded in 2012 primarily related to the elimination of corporate and distribution positions , as a result of a strategic restructuring plan . gain on sale of assets in 2012 , in conjunction with the construction of the mccook facility and the relocation of our headquarters to chicago , illinois , we sold four properties : our former des plaines , illinois headquarters and packaging facility , our addison , illinois distribution center ; our vernon hills , illinois distribution center ; and a des plaines , illinois administrative building . we received cash proceeds of $ 12.3 million from the sales of the four facilities which resulted in a gain of $ 3.7 million . goodwill impairment during 2012 , we determined that operating losses and the reduction in our market capitalization below book value were indicators of potential goodwill impairment . when we performed an impairment analysis of our goodwill balance , we determined that the full amount of the goodwill was impaired and we recorded a non-cash charge of $ 28.3 million . other operating expenses , net in 2011 , we recorded a $ 1.2 million expense for the estimated cost of settling the employment tax matter related to the classification of the sales representatives of one of our subsidiaries as independent contractors . no such charges were incurred in 2012. other expenses , net other expenses , net increased to $ 0.8 million in 2012 from $ 0.6 million in 2011. the 2012 expense was primarily due to interest on borrowings from our revolving line of credit , while the 2011 expense primarily consisted of interest assessed on unclaimed property settlements . income tax expense ( benefit ) in 2012 , we recorded income tax expense of $ 17.9 million on a pre-tax loss of $ 46.1 million , which included a $ 33.3 million increase in the valuation allowance on our deferred tax assets . the increase in the valuation allowance was primarily due to cumulative losses we had incurred over several reporting periods . we determined that it was more likely than not that we would not be able to utilize our deferred tax assets to offset future taxable income and , therefore , increased our deferred tax valuation allowance . the 2011 income tax benefit was $ 1.8 million on a pre-tax loss of $ 6.4 million , resulting in an effective tax rate of 27.8 % . 20 liquidity and capital resources cash provided by operating activities was $ 0.6 million in 2013 compared to cash used in operating activities of $ 8.3 million in 2012 and $ 23.1 million in 2011 . the increase in cash from operations in 2013 primarily resulted from improved operating results . in 2012 , cash used in operations was primarily due to operating losses and in 2011 , cash was primarily used to support increased levels of accounts receivable and inventory . capital expenditures were $ 2.9 million in 2013 compared to $ 18.3 million in 2012 and $ 11.1 million in 2011. capital expenditures in 2013 were primarily for warehouse equipment to support operations in the mccook facility , and for improvements to our sales order entry system and our redesigned website . capital expenditures in 2012 were primarily for warehouse equipment for the opening of the mccook facility , the build out of the leased headquarters and expenditures related to our website redevelopment . capital expenditures in 2011 included $ 5.9 million related to our erp system . in 2012 , we received cash proceeds of $ 12.3 million from the sale of four properties . we have the ability to borrow funds through an asset-based loan and security agreement ( `` loan agreement '' ) which consists of a $ 40.0 million revolving credit facility with a $ 10.0 million sub-facility for letters of credit . in december , 2013 , we entered into a second amendment to loan and security agreement ( `` second amendment '' ) which revised certain terms of the original loan agreement , including , among other items , applicable interest rates , financial covenants and dividend restrictions . the terms of the loan agreement as amended are more fully detailed in note 8 – loan agreement of the consolidated financial statements included in item 8 of this form 10-k. net proceeds from the subsequent sale of asmp in the first quarter of 2014 were used to pay down outstanding borrowings . at december 31 , 2013 , our outstanding revolving line of credit borrowings were $ 16.1 million , similar to 2012 , and we had additional borrowing availability of $ 17.9 million . in addition to other customary representations , warranties and covenants , we are required to meet a minimum trailing twelve month ebitda to fixed charges ratio and a minimum quarterly tangible net worth level as defined in the second amendment .
| selling expenses increased $ 4.0 million to $ 84.3 million in 2013 from $ 80.3 million in 2012. the increase was primarily due to $ 2.2 million in increased health insurance costs and $ 1.2 million of expenses related to our 2013 national sales meeting . selling expenses as a percent of net sales were 31.3 % in 2013 compared to 29.4 % in 2012 . 17 general and administrative expenses general and administrative expenses consist of expenses to operate our distribution network and overhead expenses to manage the business . general and administrative expenses decreased $ 10.2 million to $ 79.5 million in 2013 from $ 89.8 million in 2012. the decrease was driven by actions taken in the first half of 2012 to reduce costs , primarily through a reduction in employee headcount and outside services . employee compensation , excluding stock-based compensation , decreased $ 7.3 million and legal , consulting and other outside service expenses decreased $ 7.2 million in 2013 compared to the prior year . this was partially offset by a $ 2.6 million increase in stock-based compensation and $ 1.1 million increase in temporary labor in 2013. severance expenses severance expenses of $ 0.8 million for the year ended december 31 , 2013 primarily related to various organizational restructurings . severance expenses of $ 8.0 million for the year ended december 31 , 2012 primarily related to the elimination of corporate and distribution positions as a result of a strategic restructuring plan . gain on sale of assets in 2012 , in conjunction with the opening of the new mccook facility and the relocation of our headquarters to chicago , illinois , we sold four properties : our former des plaines , illinois headquarters and packaging facility , our addison , illinois distribution center ; our vernon hills , illinois distribution center ; and a des plaines , illinois administrative building . we received cash proceeds of $ 12.3 million from the sale of the four facilities ,
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acquisitive – we define acquisitive revenue as the revenue generated from acquired products and services from the date of acquisition to the first anniversary date of that acquisition . this type of growth comes as a result of our strategy to purchase , integrate , and leverage the value of assets we acquire . we also include the impact of divestitures in this growth metric . due to the size of the merger , we have not included markit 's 2017 reported results versus 2016 results in the acquisitive category , nor have we included 2016 reported stub period results versus 2015 stub period results in the acquisitive category , but have broken out their respective period results in the organic , acquisitive ( for acquisitions completed by legacy markit prior to the merger ) , and foreign currency growth metrics . foreign currency – we define the foreign currency impact on revenue as the difference between current revenue at current exchange rates and current revenue at the corresponding prior period exchange rates . due to the significance of revenue transacted in foreign currencies , we believe it is important to measure the impact of foreign currency movements on revenue . in addition to measuring and reporting revenue by segment , we also measure and report revenue by transaction type . understanding revenue by transaction type helps us identify and address broad changes in product mix . we summarize our transaction type revenue into the following three categories : recurring fixed revenue represents revenue generated from contracts specifying a relatively fixed fee for services delivered over the life of the contract . the fixed fee is typically paid annually or more periodically in advance . these contracts typically consist of subscriptions to our various information offerings and software maintenance , and the revenue is usually recognized over the life of the contract . the initial term of these contracts is typically annual and non-cancellable for the term of the subscription and may contain provisions for minimum monthly payments . recurring variable revenue represents revenue from contracts that specify a fee for services which is typically not fixed . the variable fee is usually paid monthly in arrears . recurring variable revenue is based on , among other factors , the number of trades processed , assets under management , or the number of positions we value . many of 34 these contracts do not have a maturity date , while the remainder have an initial term ranging from one to five years . recurring variable revenue was derived entirely from the financial services segment for all periods presented . non-recurring revenue represents consulting ( e.g. , research and analysis , modeling , and forecasting ) , services , single-document product sales , software license sales and associated services , conferences and events , and advertising . our non-recurring products and services are an important part of our business because they complement our recurring business in creating strong and comprehensive customer relationships . non-gaap measures . we use non-gaap financial measures such as ebitda , adjusted ebitda , and free cash flow in our operational and financial decision-making . we believe that such measures allow us to focus on what we deem to be more reliable indicators of ongoing operating performance ( adjusted ebitda ) and our ability to generate cash flow from operations ( free cash flow ) . we also believe that investors may find these non-gaap financial measures useful for the same reasons , although we caution readers that non-gaap financial measures are not a substitute for u.s. gaap financial measures or disclosures . none of these non-gaap financial measures are recognized terms under u.s. gaap and do not purport to be an alternative to net income or operating cash flow as an indicator of operating performance or any other u.s. gaap measure . throughout this md & a , we provide reconciliations of these non-gaap financial measures to the most directly comparable u.s. gaap measures . ebitda and adjusted ebitda . ebitda and adjusted ebitda are used by many of our investors , research analysts , investment bankers , and lenders to assess our operating performance . for example , a measure similar to adjusted ebitda is required by the lenders under our term loan and revolving credit agreements . we define ebitda as net income plus or minus net interest , plus provision for income taxes , depreciation , and amortization . our definition of adjusted ebitda further excludes primarily non-cash items and other items that we do not consider to be useful in assessing our operating performance ( e.g. , stock-based compensation expense , restructuring charges , acquisition-related costs and performance compensation , exceptional litigation , net other gains and losses , pension mark-to-market and settlement expense , the impact of joint ventures and noncontrolling interests , and discontinued operations ) . free cash flow . we define free cash flow as net cash provided by operating activities less capital expenditures . non-gaap measures are frequently used by securities analysts , investors , and other interested parties in their evaluation of companies comparable to us , many of which present non-gaap measures when reporting their results . these measures can be useful in evaluating our performance against our peer companies because we believe the measures provide users with valuable insight into key components of u.s. gaap financial disclosures . for example , a company with higher u.s. gaap net income may not be as appealing to investors if its net income is more heavily comprised of gains on asset sales . likewise , excluding the effects of interest income and expense moderates the impact of a company 's capital structure on its performance . however , non-gaap measures have limitations as an analytical tool . because not all companies use identical calculations , our presentation of non-gaap financial measures may not be comparable to other similarly titled measures of other companies . story_separator_special_tag they are not presentations made in accordance with u.s. gaap , are not measures of financial condition or liquidity , and should not be considered as an alternative to profit or loss for the period determined in accordance with u.s. gaap or operating cash flows determined in accordance with u.s. gaap . as a result , these performance measures should not be considered in isolation from , or as a substitute analysis for , results of operations as determined in accordance with u.s. gaap . strategic acquisitions and divestitures acquisitions have been an important part of our growth strategy . we completed two acquisitions during the year ended november 30 , 2017 for a total purchase price of approximately $ 445 million . in 2016 , in addition to the merger , we completed two other acquisitions for a total purchase price of approximately $ 1.1 billion . we paid a total purchase price of approximately $ 370 million for acquisitions we completed during the year ended november 30 , 2015 . our consolidated financial statements include the results of operations and cash flows for these business combinations beginning on their respective dates of acquisition . for a more detailed description of our recent acquisition activity , see “ item 8 - financial statements and supplementary data - notes to consolidated financial statements - note 3 ” in part ii of this form 10-k. during 2015 , we conducted a complete review of our entire business portfolio . as a result of that review , we determined that the oe & rm and globalspec product offerings no longer fit with our strategic goals , and in the fourth quarter of 2015 , we decided to divest those product groups . in the second quarter of 2016 , we completed the sale of both of these product groups . the results of these product groups have been classified as discontinued operations in the accompanying financial statements and footnotes . we will continue to evaluate the long-term potential and strategic fit of all of our assets . 35 global operations approximately 40 percent of our revenue is transacted outside of the united states ; however , only about 20 percent of our revenue is transacted in currencies other than the u.s. dollar . as a result , a strengthening u.s. dollar relative to certain currencies has historically resulted in a negative impact on our revenue ; conversely , a weakening u.s. dollar has historically resulted in a positive impact on our revenue . however , the impact on operating income is diminished due to certain operating expenses denominated in currencies other than the u.s. dollar . our largest foreign currency exposures are the british pound , euro , canadian dollar , singapore dollar , and indian rupee . see “ quantitative and qualitative disclosures about market risk – foreign currency exchange rate risk ” for additional discussion of the impacts of foreign currencies on our operations . pricing information we customize many of our sales offerings to meet individual customer needs and base our pricing on a number of factors , including various price segmentation models which utilize customer attributes , value attributes , and other data sources . attributes can include a proxy for customer size ( e.g. , barrels of oil equivalent and annual revenue ) , industry , users , usage , breadth of the content to be included in the offering , and multiple other factors . because of the level of offering customization we employ , it is difficult for us to evaluate pricing impacts on a period-to-period basis with absolute certainty . this analysis is further complicated by the fact that the offering sets purchased by customers are often not constant between periods . as a result , we are not able to precisely differentiate between pricing and volume impacts on changes in revenue comprehensively across the business . other items cost of operating our business . we incur our cost of revenue primarily through acquiring , managing , and delivering our offerings . these costs include personnel , information technology , data acquisition , and occupancy costs , as well as royalty payments to third-party information providers . our sales , general , and administrative expenses include wages and other personnel costs , commissions , corporate occupancy costs , and marketing costs . a large portion of our operating expenses are not directly commensurate with volume sold , particularly in our recurring revenue business model . stock-based compensation expense . we issue equity awards to our employees primarily in the form of restricted stock units , performance stock units , and stock options , for which we record cost over the respective vesting periods . the typical vesting period is three years . as of november 30 , 2017 , we had approximately 10.7 million unvested rsus/rsas and 13.4 million unvested stock options outstanding . critical accounting policies and estimates our consolidated financial statements are prepared in accordance with u.s. gaap . in applying u.s. gaap , we make significant estimates and judgments that affect our reported amounts of assets , liabilities , revenues , and expenses , as well as disclosure of contingent assets and liabilities . we believe that our accounting estimates and judgments are reasonable when made , but in many instances , alternative estimates and judgments would also be acceptable . in addition , changes in the accounting estimates are reasonably likely to occur from period to period . accordingly , actual results could differ significantly from our estimates . to the extent that there are material differences between these estimates and actual results , our financial condition or results of operations will be affected . we base our estimates on historical experience and other assumptions that we believe are reasonable , and we evaluate these estimates on an ongoing basis . we refer to accounting estimates of this type as critical accounting policies and estimates , which are discussed further below . revenue recognition . the majority of our offerings are provided under agreements containing standard terms and conditions .
| we have noted financial services growth percentages as not meaningful ( n/m ) where applicable , as absolute growth percentages are not meaningful comparisons due to the timing of the merger in 2016. increase ( decrease ) in total revenue ( all amounts represent percentage points ) organic acquisitive foreign currency 2017 vs. 2016 4 % 29 % ( 1 ) % 2016 vs. 2015 — % 27 % ( 2 ) % 38 organic revenue growth in 2017 was attributable to both recurring and nonrecurring revenue growth , while organic revenue growth in 2016 was flat . the recurring-based business represented 83 percent of total revenue in 2017 , compared to 82 percent and 81 percent of total revenue in 2016 and 2015 , respectively . the recurring-based business increased 3 percent organically in 2017 , led by transportation and financial services offerings , partially offset by resources , and had relatively flat organic growth in 2016. the non-recurring business increased 9 percent organically in 2017 , led by transportation and financial services offerings , and decreased 3 percent organically in 2016 , which was adversely impacted by lower consulting , software , and services revenue , mostly in our resources segment . the non-recurring revenue increase in 2017 and revenue decline in 2016 was also partially due to the timing of the biennial cycle of the bpvc standard . bpvc contributed approximately $ 12 million of revenue in the 2017 results and $ 10 million in the 2015 results . acquisition-related revenue growth for 2017 was primarily due to the merger , as well as the run-out of the carproof and opis acquisitions from the first quarter of 2016. acquisition-related revenue growth for 2017 was also minimally impacted by the acquisitions of automotivemastermind and macroeconomic advisers in the fourth quarter of 2017. acquisition-related revenue growth for 2016 was primarily due to the merger , as well as the acquisitions of carproof and opis and the run-out of our 2015 acquisitions . foreign currency movements had a moderately adverse impact on our 2017 and 2016 revenue growth as the u.s. dollar continued to maintain its strength against foreign currencies . due to the extent of our global operations , foreign currency movements could have an adverse impact on our results in the future . revenue by segment replace_table_token_3_th the percentage change in revenue for each segment is due to the factors described in the following table . replace_table_token_4_th resources revenue encountered significant energy industry headwinds in 2016 and into early 2017 due to
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the growth of our business and our future success depend on many factors , including our ability to continue to expand our client base to include larger opportunities , grow revenue from our existing client base , innovate and expand internationally . while these areas represent significant opportunities for us , they also pose risks and challenges that we must successfully address in order to sustain the growth of our business and improve our operating results . in order to pursue these opportunities , we anticipate that we will continue to expand our operations and headcount in the near term . due to our continuing investments to grow our business , increase our sales and marketing efforts , pursue new opportunities , enhance our solution and build our technology , we expect our cost of revenue and operating expenses to increase in absolute dollars in future periods . however , we expect these expenses to decrease as a percentage of revenue as we grow our revenue and gain economies of scale by increasing our client base without direct incremental development costs and by utilizing more of the capacity of our data centers . key operating and financial performance metrics in addition to measures of financial performance presented in our consolidated financial statements , we monitor the key metrics set forth below to help us evaluate growth trends , establish budgets , measure the effectiveness of our sales and marketing efforts and assess operational efficiencies . annual dollar-based retention rate we believe that our annual dollar-based retention rate provides insight into our ability to retain and grow revenue from our clients , and is a measure of the long-term value of our client relationships . our annual dollar-based retention rate is calculated by dividing our retained net invoicing by our retention base net invoicing on a monthly basis , which we then average using the rates for the trailing twelve months for the period being presented . we define retention base net invoicing as recurring net invoicing from all clients in the comparable prior year period , and we define retained net invoicing as recurring net invoicing from that same group of clients in the current period . we define recurring net invoicing as subscription and related usage revenue excluding the impact of service credits , reserves and deferrals . historically , the difference between recurring net invoicing and our subscription and related usage revenue has been within 10 % . the following table shows our annual dollar-based retention rate for the periods presented : replace_table_token_6_th the increase in our annual dollar-based retention rate from 2015 to 2016 was primarily due to our larger clients increasing the number of agent seats . 48 adjusted ebitda we monitor adjusted ebitda , a non-gaap financial measure , to analyze our financial results and believe that it is useful to investors , as a supplement to u.s. gaap measures , in evaluating our ongoing operational performance and enhancing an overall understanding of our past financial performance . we believe that adjusted ebitda helps illustrate underlying trends in our business that could otherwise be masked by the effect of the income or expenses that we exclude from adjusted ebitda . furthermore , we use this measure to establish budgets and operational goals for managing our business and evaluating our performance . we also believe that adjusted ebitda provides an additional tool for investors to use in comparing our recurring core business operating results over multiple periods with other companies in our industry . adjusted ebitda should not be considered in isolation from , or as a substitute for , financial information prepared in accordance with u.s. gaap and our calculation of adjusted ebitda may differ from that of other companies in our industry . we compensate for the inherent limitations associated with using adjusted ebitda through disclosure of these limitations , presentation of our financial statements in accordance with u.s. gaap and reconciliation of adjusted ebitda to the most directly comparable u.s. gaap measure , net loss . we calculate adjusted ebitda as net loss before ( 1 ) depreciation and amortization , ( 2 ) stock-based compensation , ( 3 ) interest income , expense and other , ( 4 ) provision for income taxes , and ( 5 ) other unusual items that do not directly affect what we consider to be our core operating performance . the following table shows a reconciliation of net loss to adjusted ebitda for the periods presented ( in thousands ) : replace_table_token_7_th ( 1 ) see item 6 of this form 10-k for depreciation and amortization expenses included in our results of operations for the periods presented . ( 2 ) see note 7 of the notes to the consolidated financial statements under item 8 of this form 10-k for stock-based compensation expense included in our results of operations for the periods presented . ( 3 ) included in cost of revenue . see note 10 of the notes to the consolidated financial statements under item 8 of this form 10-k. the $ 3.1 million represents a credit recorded in the fourth quarter of 2016 following a favorable ruling from the fcc 's wireline bureau . ( 4 ) included in general and administrative expense . the $ 2.8 million represents a credit recorded in the second quarter of 2014 following a favorable ruling from a state 's revenue authority . the $ 2.0 million represents an expense recorded in the third quarter of 2014 for an accrued liability for the then tentative fcc civil penalty . see note 10 of the notes to the consolidated financial statements under item 8 of this form 10-k. 49 ( 5 ) included in cost of revenue . the 2014 amount represents an immaterial out of period adjustment recorded in the fourth quarter of 2014 for 2008 through 2013 . ( 6 ) included in general and administrative expense . story_separator_special_tag the 2015 amount represent immaterial out of period adjustments recorded in the first two quarters of 2015 for 2011 through 2014. the 2014 amount represents an out of period adjustment recorded in the fourth quarter of 2014 for 2008 through 2013. key components of our results of operations revenue our revenue consists of subscription and related usage as well as professional services . we consider our subscription and related usage to be recurring revenue . this recurring revenue includes fixed subscription fees for the delivery and support of our vcc cloud platform , as well as related usage fees . the related usage fees are based on the volume of minutes for inbound and outbound client interactions . we also offer bundled plans , generally for smaller deployments , where the client is charged a single monthly fixed fee per agent seat that includes both subscription and unlimited usage in the contiguous 48 states and , in some cases , canada . we offer monthly , annual and multiple-year contracts for our clients , generally with 30 days ' notice required for changes in the number of agent seats . our clients can use this notice period to rapidly adjust the number of agent seats used to meet their changing contact center volume needs , including to reduce the number of agent seats to zero . as a general matter , this means that a client can effectively terminate its agreement with us upon 30 days ' notice . fixed subscription fees , including plans with bundled usage , are generally billed monthly in advance , while variable usage fees are billed in arrears . fixed subscription fees are recognized on a straight-line basis over the applicable term , predominantly the monthly contractual billing period . support activities include technical assistance for our solution and upgrades and enhancements on a when and if available basis , which are not billed separately . variable subscription related usage fees for non-bundled plans are billed in arrears based on client-specific per minute rate plans and are recognized as actual usage occurs . we generally require advance deposits from clients based on estimated usage . all fees , except usage deposits , are non-refundable . in addition , we generate professional services revenue from assisting clients in implementing our solution and optimizing use . these services include application configuration , system integration and education and training services . professional services are primarily billed on a fixed-fee basis and are typically performed by us directly . in limited cases , our clients choose to perform these services themselves or engage their own third-party service providers to perform such services . professional services are recognized as the services are performed using the proportional performance method , with performance measured based on labor hours , provided all other criteria for revenue recognition are met . cost of revenue our cost of revenue consists primarily of personnel costs ( including stock-based compensation ) , fees that we pay to telecommunications providers for usage , usf contributions and other regulatory costs , depreciation and related expenses of the servers and equipment , costs to build out and maintain co-location data centers , and allocated office and facility costs and amortization of acquired technology . cost of revenue can fluctuate based on a number of factors , including the fees we pay to telecommunications providers , which vary depending on our clients ' usage of our vcc cloud platform , the timing of capital expenditures and related depreciation charges and changes in headcount . we expect to continue investing in our network infrastructure and operations and client support function to maintain high quality and availability of service . as our business grows , we expect to realize economies of scale in network infrastructure , personnel and client support . operating expenses we classify our operating expenses as research and development , sales and marketing and general and administrative expenses . research and development . our research and development expenses consist primarily of salary and related expenses ( including stock-based compensation ) for personnel related to the development of improvements and expanded features for our services , as well as quality assurance , testing , product management and allocated overhead . we expense research and development expenses as they are incurred except for internal use software development costs that qualify for capitalization . we believe that continued investment in our solution is important 50 for our future growth , and we expect research and development expenses to increase in absolute dollars in the foreseeable future , although these expenses as a percentage of our revenue are expected to decrease over time . sales and marketing . sales and marketing expenses consist primarily of salaries and related expenses ( including stock-based compensation ) for employees in sales and marketing , sales commissions , as well as advertising , marketing , corporate communications , travel costs and allocated overhead . we expense sales commissions associated with the acquisition or renewal of client contracts as incurred in the period the contract is acquired or the renewal occurs . we believe it is important to continue investing in sales and marketing to continue to generate revenue growth . accordingly , we expect sales and marketing expenses to increase in absolute dollars as we continue to support our growth initiatives . general and administrative . general and administrative expenses consist primarily of salary and related expenses ( including stock-based compensation ) for management , finance and accounting , legal , information systems and human resources personnel , professional fees , compliance costs , other corporate expenses and allocated overhead . we expect that general and administrative expenses will fluctuate in absolute dollars from period to period but decline as a percentage of revenue over time .
| these increases were offset in part by a $ 1.3 million decrease in telecommunication carrier costs relating to our clients ' long distance call usage due to improved usage efficiencies and by a $ 3.1 million reversal in the fourth quarter of 2016 of accrued usf charges due to a favorable ruling from the fcc 's wireline bureau . gross profit replace_table_token_10_th the increase in gross profit for 2016 compared to 2015 was primarily due to economies of scale for subscription , improved efficiencies in usage , and higher amounts charged for , and better efficiencies in , professional services . in addition , the reversal of $ 3.1 million in usf charges during the fourth quarter of 2016 related to the favorable ruling from the fcc 's wireline bureau resulted in an increase in gross profit and gross margin for 2016 compared to 2015 . excluding the effect of the usf reversal , the increase in gross margin for 2016 compared to 2015 was primarily due to higher amounts charged for , and better efficiencies in , professional services , improved efficiencies in usage , and economies of scale for subscription . operating expenses research and development replace_table_token_11_th the increase in research and development expenses for 2016 compared to 2015 was primarily due to a $ 0.4 million increase in consulting expenses , a $ 0.3 million increase in depreciation expenses , a $ 0.3 million increase in travel expenses , and a $ 0.3 million increase in stock-based compensation expenses . sales and marketing replace_table_token_12_th the increase in sales and marketing expenses for 2016 compared to 2015 was primarily due to a $ 4.2 million increase in cash-based personnel costs driven by increased headcount , a $ 3.0 million increase in commissions paid to sales personnel due to increased bookings , a $ 1.5 million increase in discretionary and other marketing-related expenses , a $ 0.8 million increase in travel expenses , a $ 0.6 million increase in facilities and allocated overhead costs , and a $ 0.6 million increase in stock-based compensation . these
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the amount and timing of this revenue depend on a number of factors , including : whether the professional services arrangement was sold as a single arrangement with , or in contemplation of , a new aspenone licensing arrangement ; the number , value and rate per hour of service transactions booked during the current and preceding periods ; the number and availability of service resources actively engaged on billable projects ; the timing of milestone acceptance for engagements contractually requiring customer sign-off ; the timing of collection of cash payments when collectability is uncertain ; and the size of the installed base of license contracts . cost of revenue cost of subscription and software . our cost of subscription and software revenue consists of ( i ) royalties , ( ii ) amortization of capitalized software and intangibles , ( iii ) distribution fees , and ( iv ) costs of providing premier plus sms bundled with our aspenone licensing and point product arrangements . cost of services and other . our cost of services and other revenue consists primarily of personnel-related and external consultant costs associated with providing customers professional services and training . operating expenses selling and marketing expenses . selling expenses consist primarily of the personnel and travel expenses related to the effort expended to license our products and services to current and potential customers , as well as for overall management of customer relationships . marketing expenses include expenses needed to promote our company and our products and to conduct market research to help us better understand our customers and their business needs . research and development expenses . research and development expenses consist primarily of personnel expenses related to the creation of new software products , enhancements and engineering changes to existing products and costs of acquired technology prior to establishing technological feasibility . general and administrative expenses . general and administrative expenses include the costs of corporate and support functions , such as executive leadership and administration groups , finance , legal , human resources and corporate communications , and other costs , such as outside professional and consultant fees and provision for bad debts . other income and expenses interest income . interest income is recorded for the accretion of interest on the investment in marketable securities and short-term money market instruments . interest expense . interest expense is primarily related to our credit agreement . other income ( expense ) , net . other income ( expense ) , net is comprised primarily of foreign currency exchange gains ( losses ) generated from the settlement and remeasurement of transactions denominated in currencies other than the functional currency of our operating units . during fiscal 2017 , other income also included a $ 0.7 million litigation related recovery receipt . provision for income taxes . provision for income taxes is comprised of domestic and foreign taxes . we record interest and penalties related to income tax matters as a component of income tax expense . our effective income tax rate may fluctuate between fiscal years and from quarter to quarter due to items arising from discrete events , such as tax benefits from the disposition of employee equity awards , settlements of tax audits and assessments and tax law changes . our effective income tax rate is also impacted by , and may fluctuate in any given period because of , the composition of income in foreign jurisdictions where tax rates differ . key business metrics background 26 we utilize certain key non-gaap and other business measures to track and assess the performance of our business and we make these measures available to investors . we have refined the set of appropriate business metrics in the context of our evolving business and use the following non-gaap business metrics in addition to gaap measures to track our business performance : annual spend ; free cash flow ; and non-gaap operating income . none of these metrics should be considered as an alternative to any measure of financial performance calculated in accordance with gaap . annual spend annual spend is an estimate of the annualized value of our portfolio of term license arrangements , as of a specific date . management believes that this financial measure is a useful metric to investors as it provides insight into the growth component of license bookings during a fiscal period . annual spend is calculated by summing the most recent annual invoice value of each of our active term license contracts . annual spend also includes the annualized value of standalone sms agreements purchased in conjunction with term license agreements . comparing annual spend for different dates can provide insight into the growth and retention rates of our business , and since annual spend represents the estimated annualized billings associated with our active term license agreements , it provides insight into the future value of subscription and software revenue . annual spend increases as a result of : new term license agreements with new or existing customers ; renewals or modifications of existing term license agreements that result in higher license fees due to price escalation or an increase in the number of tokens ( units of software usage ) or products licensed ; and escalation of annual payments in our active term license contracts . annual spend is adversely affected by term license and standalone sms agreements that are renewed at a lower entitlement level or not renewed and , to a lesser extent , by customer contracts that are terminated during the contract term due to the customer 's business ceasing operations . we estimate that annual spend grew by approximately 6.4 % during fiscal 2018 , from $ 459.6 million at june 30 , 2017 to $ 489.3 million at june 30 , 2018 . we estimate that annual spend grew by approximately 4.1 % during fiscal 2017 , from $ 441.4 million at june 30 , 2016 to $ 459.6 million at june 30 , 2017 . story_separator_special_tag the growth was attributable primarily to an increase in the number of tokens or products sold . free cash flow we use a non-gaap measure of free cash flow to analyze cash flows generated from our operations . management believes that this financial measure is useful to investors because it permits investors to view our performance using the same tools that management uses to gauge progress in achieving our goals . we believe this measure is also useful to investors because it is an indication of cash flow that may be available to fund investments in future growth initiatives or to repay borrowings under the credit agreement , and it is a basis for comparing our performance with that of our competitors . the presentation of free cash flow is not meant to be considered in isolation or as an alternative to cash flows from operating activities as a measure of liquidity . free cash flow is calculated as net cash provided by operating activities adjusted for the net impact of ( a ) purchases of property , equipment and leasehold improvements , ( b ) capitalized computer software development costs , ( c ) excess tax benefits from stock-based compensation , ( d ) non-capitalized acquired technology , and ( e ) other nonrecurring items , such as acquisition related payments and litigation related payments ( receipts ) . 27 the following table provides a reconciliation of gaap cash flow from operating activities to free cash flow for the indicated periods : replace_table_token_6_th excess tax benefits are related to stock-based compensation tax deductions in excess of book compensation expense and reduce our income taxes payable . we have included the impact of excess tax benefits within free cash flow in fiscal 2017 and 2016 to be consistent with the treatment of other tax benefits . as a result of adopting asu no . 2016-09 , effective july 1 , 2017 , excess tax benefits from stock-based compensation are now reflected in the consolidated statements of operations as a component of the provision for income taxes , whereas they were previously a component of stockholders ' deficit . for a more detailed description of the standard , refer to note 2 , `` significant accounting policies , '' to our consolidated financial statements . in fiscal 2018 , 2017 and 2016 , we have excluded payments of $ 0.1 million , $ 2.2 million , and $ 1.3 million , respectively , for non-capitalized acquired technology ( including $ 0.1 million and $ 0.5 million in fiscal 2018 and 2017 , respectively , of final payments related to non-capitalized acquired technology from prior fiscal years ) from free cash flow to be consistent with the treatment of other transactions where the acquired technology assets were capitalized . in fiscal 2018 and 2016 , we have excluded litigation related payments of $ 4.5 million and $ 3.0 million , respectively . refer to note 15 , `` commitments and contingencies , '' to our consolidated financial statements . in fiscal 2017 , we have excluded a $ ( 0.7 ) million litigation related recovery receipt . fiscal 2018 compared to fiscal 2017 total free cash flow increased $ 24.8 million during fiscal 2018 as compared to the prior fiscal year primarily due to changes in working capital . for a more detailed description of these changes refer to `` liquidity and capital resources . '' fiscal 2017 compared to fiscal 2016 total free cash flow increased $ 22.1 million during fiscal 2017 as compared to the prior fiscal year primarily due to higher net income of $ 22.2 million . for a more detailed description of these changes refer to `` liquidity and capital resources . '' non-gaap operating income non-gaap operating income excludes certain non-cash and non-recurring expenses , and is used as a supplement to operating income presented on a gaap basis . we believe that non-gaap operating income is a useful financial measure because removing certain non-cash and other items provides additional insight into recurring profitability and cash flow from operations . 28 the following table presents our net income , as adjusted for stock-based compensation expense , non-capitalized acquired technology and amortization of purchased technology intangibles , and other items , such as litigation judgments and acquisition related expenses , for the indicated periods : replace_table_token_7_th non-gaap operating income increased $ 1.2 million , or approximately 1 % , in fiscal year 2018 as compared to the prior year primarily due to a larger base of license arrangements recognized on a ratable basis amounting to $ 17.5 million . non-gaap operating income increased $ 3.1 million , or approximately 1 % , in 2017 as compared to the prior year due to an increase in revenue primarily due to a larger base of license arrangements recognized on a ratable basis amounting to $ 13.1 million . in fiscal 2017 and 2016 , we acquired technology that did not meet the accounting requirements for capitalization and therefore the cost of the acquired technology was expensed as research and development . we have excluded the expense of the acquired technology from non-gaap operating income to be consistent with transactions where the acquired assets were capitalized . in fiscal 2018 , we incurred an expense associated with a litigation judgment in the amount of $ 1.7 million . in fiscal 2016 , we incurred fees associated with an acquisition bid . 29 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > by $ 13.4 million during fiscal 2018 as compared to the prior fiscal year and gross profit margin remained consistent at 89.8 % in fiscal 2018 compared to 90.1 % in fiscal 2017 . the year-to-year increase in gross profit was primarily attributable to the growth of our subscription and software revenue , while gross profit margin remained consistent .
| under the aspenone licensing model , revenue from committed professional service arrangements that are sold as a single arrangement with , or in contemplation of , a new aspenone licensing transaction is deferred and recognized on a ratable basis over the longer of ( a ) the period the services are performed or ( b ) the term of the related software arrangement . as our typical contract term approximates five years , professional services revenue on these types of arrangements will usually be recognized over a longer period than the period over which the services are performed . revenue from professional service arrangements bundled with and recognized over the term of aspenone transactions was consistent year-over-year . fiscal 2017 compared to fiscal 2016 the decrease in services and other revenue of $ 2.5 million during fiscal 2017 as compared to the prior fiscal year was attributable to lower professional services revenue of $ 1.6 million and lower training revenue of $ 0.8 million . cost of revenue cost of subscription and software revenue replace_table_token_11_th cost of subscription and software revenue increased by $ 2.2 million during fiscal 2018 as compared with the prior fiscal year and increased by $ 0.7 million during fiscal year 2017 as compared with the prior fiscal year . subscription and software 31 gross profit margin was 95.1 % in fiscal 2018 and was consistent with 95.4 % and 95.4 % in fiscal years 2017 and 2016 , respectively . cost of services and other revenue replace_table_token_12_th cost of services and other revenue includes the cost of providing professional services and training . fiscal 2018 compared to fiscal 2017 cost of services and other revenue increased by $ 1.0 million during fiscal 2018 as compared to the prior fiscal year . the increase was due to higher cost of professional services revenue of $ 0.7 million and higher cost of training revenue of $ 0.3 million ,
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representing the first line extension with the redneck riviera brand , granny rich reserve is a premium priced blend of traditional corn whiskey , aged three years or more , blended with american single malt aged at least four years . introduction of new portland mule ready-to-drink ( rtd ) cocktail . in january 2019 , we announced our landmark entry into the fast growing ready-to-drink ( rtd ) market with the introduction of the portland mule ready-to-drink cocktail . portland mule comes in a 250ml , or 8.4 oz can , designed by the award-winning design team at sandstrom partners , and has a 10.5 % alcohol by volume . in august 2019 , we announced the portland mule – marionberry flavor ready-to-drink cocktail . acquisition of craft canning & bottling – creates significant increase in canning operations . in january 2019 , we completed the acquisition of portland-based craft canning + bottling ( “ craft canning ” ) a leading provider of mobile canning and bottling services in oregon , washington and colorado . craft canning will combine operations with eastside 's motherlode co-packing subsidiary , positioning the combined business unit to be a preeminent local provider to the fast-growing wine and ready-to-drink ( rtd ) cocktail segments . acquisition of the high-end , luxury tequila brand , azuñia . in september 2019 , we completed the acquisition of azuñia tequila from intersect beverage . azuñia tequila offers four premium tequila products ; blanco organic tequila , reposado organic tequila , añejo tequila , and azuñia black tequila . primarily sold into on-premise locations throughout the western and southeastern united states . the azuñia tequila brand provides eastside distilling with a second national anchor brand , along with eastside 's redneck riviera whiskey portfolio . introduction of new redneck riviera “ howdy dew ! ” in october 2019 , we announced the redneck riviera ready-to-drink cocktail “ howdy dew ! ” . representing the second line extension with the redneck riviera brand , howdy dew ! comes in a 12 oz can , designed by the award-winning design team at sandstrom partners , and has a 5.5 % alcohol by volume . available information our executive offices are located at 1001 se water ave , suite 390 , portland , oregon 97214. our telephone number is ( 971 ) 888-4264 and our internet address is www.eastsidedistilling.com . the information on , or that may be , accessed from our website is not part of this annual report . story_separator_special_tag increased to $ 1.4 million , or approximately 32 % , from $ 1.1 million for the comparable 2018 period . the increase is attributable to the higher federal excise taxes as a result of the increase in spirit shipments from our production facility above 100,000 proof gallons , as well as an increase in customer programs and incentives due to increased distribution . the customer programs and incentives for redneck riviera whiskey in 2019 was $ 0.4 million compared to $ 0.1 million in 2018 for which 50 % of these charges are expected to be reimbursed upon the eventual sale of the brand by the licensor if the licensing agreement remains in force . cost of sales consists of the costs of ingredients utilized in the production of spirits , manufacturing labor and overhead , warehousing rent , packaging , and inbound freight charges . during the year ended december 31 , 2019 , cost of sales increased to $ 10.1 million , or approximately 166 % , from $ 3.8 million for the year ended december 31 , 2018. the increase is attributable to the costs associated with our increased sales in the period , as well as higher manufacturing overhead related to increased facilities costs . in addition , during 2019 we wrote-off $ 0.3 million of obsolete inventory . the cost of sales we reported in both 2019 and 2018 , are based on small production lots . our objective is to achieve economies of scale as we continue to scale our operations and therefore drive improvement in our per unit cost of sales , which is likely to include expanding our outsourced production . 30 gross profit is calculated by subtracting the cost of products sold from net sales . gross margin is gross profits stated as a percentage of net sales . the following table compares our gross profit and gross margin in the years ended december 31 , 2019 and 2018 : replace_table_token_7_th our gross margin of 35 % of net sales in the year ended december 31 , 2019 decreased from our gross margin of 38 % for the year ended december 31 , 2018 primarily due to a change in product and services mix , higher raw material costs , higher facilities costs due to the manufacturing footprint relative to current volume , and obsolete inventory write-off . the gross margin of the azuñia tequila products in the fourth quarter was significantly lower than our corporate average for the spirits products and therefore accounts for 2 % of the decline in gross margin from 2018 to 2019. our goal is to improve our overall gross margin by increasing the efficiencies of our production facility and evaluate outsourced production as a means to lower cost of goods sold . as we generate increased volumes , our margins may continue to fluctuate as a result of other key factors : raw material costs which tend to fluctuate , product and service sales mix and the related customer programs and incentives , which are subject to seasonal fluctuations and the competitive environments . advertising , promotional and selling expenses for the year ended december 31 , 2019 increased to $ 7.5 million or approximately 72 % from $ 4.3 million for the year ended december 31 , 2018. this increase is primarily due to our increased sales compensation of $ 2.9 million in 2019 from $ 1.5 million in 2018 as we increased our national sales force and as a result of the azuñia acquisition . story_separator_special_tag the advertising , promotional and selling expenses for redneck riviera whiskey in 2019 was $ 4.0 million compared to $ 2.3 in 2018 for which 50 % of these charges are expected to be reimbursed upon the eventual sale of the brand by the licensor if the licensing agreement remains in force . ( dollars in thousands ) replace_table_token_8_th general and administrative expenses for the year ended december 31 , 2019 increased to $ 11.5 million , or approximately 85 % , from $ 6.2 million for the year ended december 31 , 2018. this increase is primarily due to increased headcount from the acquisitions and the associated compensation and benefits , higher depreciation and amortization from the craft canning and azuñia acquisitions , and certain one-time costs related to bonuses paid , legal expenses , and acquisition-related expenses . total other expense , net was $ 3.2 million for the year ended december 31 , 2019 , compared to $ 0.8 million for the year ended december 31 , 2018 , an increase of 306 % . this increase was due to revaluation of the azuñia acquisition partially offset by a decrease in interest expense . net loss available to common shareholders during the year ended december 31 , 2019 was $ 16.9 million as compared to a loss of $ 9.0 million for the year ended december 31 , 2018. the increase in our net loss was primarily attributable to our greater operating expenses as advertising , promotional and selling expenses grew 72 % from the prior year as the promotional expenses to support redneck riviera grew in connection with the growth in national distribution , and general and administrative expenses grew in both cash and non-cash expenses as the azuñia acquisition added amortization of intangibles added to the non-cash expenses and professional fees added to the cash expenses in 2019. the growth in operating expenses was partially offset by an increase in gross profit . 31 liquidity and capital resources year ended december 31 , 2019 our primary capital requirements are for cash used in operating activities , the financing of inventories , and financing acquisitions . funds for our cash and liquidity needs have historically not been generated from operations but rather from short-term credit in the form of extended payment terms from suppliers as well as from convertible debt and equity financings . for the years ended december 31 , 2019 and 2018 , we incurred net losses of approximately $ 16.9 million and $ 9.0 million respectively and as of december 31 , 2019 , we had an accumulated deficit of approximately $ 44.2 million . we have been dependent on raising capital from debt and equity financings to meet our needs for cash flow used in operating activities . for the year ended december 31 , 2019 , we raised approximately $ 2.5 million in additional capital through equity and debt financing ( net of repayments ) . see notes 10 and 11 to our financial statements for a description of our debt . at december 31 , 2019 , we had $ 0.3 million of cash on hand with a positive working capital of $ 8.3 million . our ability to meet our ongoing operating cash needs over the next 12 months depends on reducing our operating costs , raising additional debt or equity capital and generating positive operating cash flow , primarily through increased sales , improved profit growth and controlling expenses . we intend to implement actions to improve profitability , by managing expenses while continuing to increase sales . additionally , we are seeking to leverage our large inventory balances and our accounts receivable balance to help satisfy its working capital needs over the next 12 months . see notes 10 , 11 and 18 to our financial statements for a description of our debt and the debt refinancing initiatives completed in the first quarter of 2020. if we are unable to obtain additional financing , or additional financing is not available on acceptable terms , we may seek to sell assets , reduce operating expenses or reduce or eliminate marketing initiatives , and take other measures that could impair our ability to be successful . our cash flow related information for the years 2019 and 2018 is as follows : replace_table_token_9_th operating activities total cash used from operating activities was $ 9.1 million compared to $ 13.9 million in 2018. the decrease in cash usage can be primarily attributed to a $ 0.3 million decrease in accounts receivable , and a $ 1.2 million increase in accounts payable and accrued liabilities , partially offset by a $ 0.4 million inventory build which consisted of an increase of $ 2.3 million of finished goods inventory , with $ 1.1 million of that increase resulting from the azuñia acquisition , and $ 1.1 million from our inventory build up to support redneck riviera . in 2018 , the inventory build was $ 7.0 million which was principally raw spirit inventory . accounts receivable increased $ 0.2 million and a $ 0.2 million increase in accrued liabilities was partially offset by a $ 0.7 million increase in accounts payable . investing activities cash used in investing activities consists primarily of acquisitions and purchases of property and equipment . we incurred capital expenditures of $ 3.6 million and $ 1.3 million in 2019 and 2018 , respectively . the increase in cash usage can largely be attributed to the $ 1.5 million craft canning acquisition , net of cash acquired , in january 2019 , and the further buildout and equipment additions to our primary production facility in milwaukie , oregon . 32 financing activities our operating losses and working capital needs were primarily funded by existing cash on hand and $ 2.5 million in proceeds from the issuance of common stock and debt ( net of repayments ) .
| rich tisa trust u/a/d march 27 , 2018 , dwight p. wiles , trustee , and eastside distilling , inc. ( the “ company ) . under the license agreement , the licensor is required to reimburse the licensee for 50 % of the designated marketing expenses incurred . the reimbursement is payable upon the sale of the brand within the term of the agreement , which is 10 years , with a renewable option for any additional 10 years , by the licensor , and is thus deemed to be a contingent asset . for the years ended december 31 , 2019 and 2018 , the 50 % redneck riviera marketing expense reimbursement was $ 2.4 million and $ 1.2 million , respectively . ( dollars in thousands ) replace_table_token_4_th on december 31 , 2019 , management made a strategic shift to focus the company 's sale and marketing efforts on the nationally branded product platform , resulting in the decision to close all four of its retail stores in the portland , oregon area . this decision does not meet the criteria for reporting discontinued operations until the retail stores are closed / abandoned , which is planned to occur by march 31 , 2020. as a result , the retail operations will not be reported as discontinued operations as of december 31 , 2019. the table below show results of retail operations compared to total company operations for 2019 and 2018 . ( dollars in thousands ) replace_table_token_5_th year ended december 31 , 2019 compared to the year ended december 31 , 2018 our sales for the year ended december 31 , 2019 increased to $ 17.0 million , or approximately 136 % , from $ 7.2 million for the year ended december 31 , 2018. replace_table_token_6_th our overall 2019 sales was primarily driven by increases in wholesale sales and co-packing . wholesale sales increased primarily due to increased points of distribution of the redneck riviera whiskey products , which drove brand sales to $ 3.8 million
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the operational start date for the program is currently scheduled for october 2013 with an effective date of january 2014. in addition to the mmai , we will also serve other seniors and persons with disabilities in the medicaid program as the state expands the integrated care program that was implemented in suburban cook county and the five collar counties in may of 2011. on february 14 , 2013 , we announced that the florida agency for health care administration awarded our florida health plan contracts in three regions under the statewide medicaid managed care long-term care program . as a result of the awards , we will now enter into a comprehensive pre-contracting assessment , with the program currently scheduled to commence on december 1 , 2013. under the program , we will provide long-term care benefits , including institutional and home and community-based services . on february 11 , 2013 , we announced that our new mexico health plan was selected by the new mexico human services department , or hsd , to participate in the new centennial care program . in addition to continuing to provide physical and acute health care services , under the new program our new mexico health plan will expand its services to provide behavioral health and long-term care services . the selection of our new mexico health plan was made by hsd pursuant to its request for proposals issued in august 2012. the operational start date for the program is currently scheduled for january 2014. our molina medicaid solutions segment provides design , development , implementation , and business process outsourcing solutions to state governments for their medicaid management information systems , or mmis . mmis is a core tool used to support the administration of state medicaid and other health care entitlement programs . molina medicaid solutions currently holds mmis contracts with the states of idaho , louisiana , maine , new jersey , and west virginia , as well as a contract to provide drug rebate administration services for the florida medicaid program . on october 12 , 2012 , the governor of the u.s. virgin islands announced a partnership in which we will provide mmis to the u.s. virgin islands through our west virginia fiscal agent operation . the contract outlining the sharing of our platform went through several rounds of review at the federal level and has been approved by cms . the partnership will benefit both the virgin islands and taxpayers by circumventing the costs associated with establishing an independent system while gaining leverage from operating under a common platform . this partnership can serve as a model for the country by demonstrating that state and territorial governments can reduce local and federal costs by sharing such technologies for their medicaid populations . on july 13 , 2012 , our molina medicaid solutions segment received full federal certification of its medicaid management information system , or mmis , in the state of idaho from cms . as a result of the cms certification , the state of idaho is entitled to receive federal reimbursement of 75 % of its mmis operations costs retroactive to june 1 , 2010 , the date that the system first began processing claims . our mmis in maine received full federal certification from cms on december 19 , 2011. on june 9 , 2011 , molina medicaid solutions received notice from the state of louisiana that the state intends to award the contract for a replacement mmis to another company . for the year ended december 31 , 2012 , our revenue under the louisiana mmis contract was $ 54.9 million , or 29.2 % of total service revenue . we expect that we will continue to perform under this contract through implementation and acceptance of the successor mmis . based upon our past experience and our knowledge of the louisiana mmis bid process , we believe that implementation and acceptance of the successor mmis will not occur until 2014 at the earliest . through implementation and acceptance of the successor mmis we expect to recognize approximately $ 40 million in revenue annually under our louisiana mmis contract . composition of revenue and membership health plans segment our health plans segment derives its revenue , in the form of premiums , chiefly from medicaid contracts with the states in which our health plans operate . premium revenue is fixed in advance of the periods covered and , except as described in “ critical accounting policies ” below , is not generally subject to significant accounting estimates . for the year ended december 31 , 2012 , we received approximately 96 % of our premium revenue as a fixed amount per member per month , or pmpm , pursuant to our medicaid contracts with state agencies , our medicare contracts with cms , and our contracts with other managed care organizations for which we operate as a subcontractor . these premium revenues are recognized in the month that members are entitled to receive health care services . the state medicaid programs and the federal medicare program periodically adjust premium rates . for the year ended december 31 , 2012 , we recognized approximately 4 % of our premium revenue in the form of “ birth income ” — a one-time payment for the delivery of a child — from the medicaid programs in all of our state health plans except new mexico . such payments are recognized as revenue in the month the birth occurs . the amount of the premiums paid to us may vary substantially between states and among various government programs . pmpm premiums for the children 's health insurance program , or chip , members are generally among our lowest , with rates as 37 low as approximately $ 75 pmpm in california . premium revenues for medicaid members are generally higher . among the tanf , medicaid population — the medicaid group that includes mostly mothers and children — pmpm premiums range between approximately $ 110 in california to $ 260 in ohio . story_separator_special_tag among our abd membership , pmpm premiums range from approximately $ 330 in utah to $ 1,400 in ohio . contributing to the variability in medicaid rates among the states is the practice of some states to exclude certain benefits from the managed care contract ( most often pharmacy , inpatient , behavioral health and catastrophic case benefits ) and retain responsibility for those benefits at the state level . medicare membership generates the highest pmpm premiums in the aggregate , at approximately $ 1,200 pmpm . the following table sets forth the approximate total number of members by state health plan as of the dates indicated : replace_table_token_5_th ( 1 ) our contract with the state of missouri expired without renewal on june 30 , 2012 molina medicaid solutions segment 38 the payments received by our molina medicaid solutions segment under its state contracts are based on the performance of multiple services . the first of these is the design , development and implementation , or ddi , of an mmis . an additional service , following completion of ddi , is the operation of the mmis under a business process outsourcing , or bpo arrangement . while providing bpo services ( which include claims payment and eligibility processing ) we also provide the state with other services including both hosting and support and maintenance . because we have determined the services provided under our molina medicaid solutions contracts represent a single unit of accounting , we recognize revenue associated with such contracts on a straight-line basis over the period during which bpo , hosting , and support and maintenance services are delivered . composition of expenses health plans segment operating expenses for the health plans segment include expenses related to the provision of medical care services , general and administrative expenses , and premium tax expenses . our results of operations are impacted by our ability to effectively manage expenses related to medical care services and to accurately estimate medical costs incurred . expenses related to medical care services are captured in the following four categories : fee-for-service : physician providers paid on a fee-for-service basis are paid according to a fee schedule set by the state or by our contracts with these providers . most hospitals are paid on a fee-for-service basis in a variety of ways , including per diem amounts , diagnostic-related groups or drgs , percent of billed charges , and case rates . as discussed below , we also pay a small portion of hospitals on a capitated basis . we also have stop-loss agreements with the hospitals with which we contract . under all fee-for-service arrangements , we retain the financial responsibility for medical care provided . expenses related to fee-for-service contracts are recorded in the period in which the related services are dispensed . the costs of drugs administered in a physician or hospital setting that are not billed through our pharmacy benefit manager are included in fee-for-service costs . capitation : many of our primary care physicians and a small portion of our specialists and hospitals are paid on a capitated basis . under capitation contracts , we typically pay a fixed pmpm payment to the provider without regard to the frequency , extent , or nature of the medical services actually furnished . under capitated contracts , we remain liable for the provision of certain health care services . certain of our capitated contracts also contain incentive programs based on service delivery , quality of care , utilization management , and other criteria . capitation payments are fixed in advance of the periods covered and are not subject to significant accounting estimates . these payments are expensed in the period the providers are obligated to provide services . the financial risk for pharmacy services for a small portion of our membership is delegated to capitated providers . pharmacy : pharmacy costs include all drug , injectibles , and immunization costs paid through our pharmacy benefit manager . as noted above , drugs and injectibles not paid through our pharmacy benefit manager are included in fee-for-service costs , except in those limited instances where we capitate drug and injectible costs . other : other medical care costs include medically related administrative costs , certain provider incentive costs , reinsurance cost , and other health care expense . medically related administrative costs include , for example , expenses relating to health education , quality assurance , case management , disease management , and 24-hour on-call nurses . salary and benefit costs are a substantial portion of these expenses . for the years ended december 31 , 2012 , 2011 , and 2010 , medically related administrative costs were approximately $ 127.5 million , $ 102.3 million , and $ 85.5 million , respectively . our medical care costs include amounts that have been paid by us through the reporting date as well as estimated liabilities for medical care costs incurred but not paid by us as of the reporting date . see “ critical accounting policies ” below for a comprehensive discussion of how we estimate such liabilities . molina medicaid solutions segment cost of service revenue consists primarily of the costs incurred to provide business process outsourcing and technology outsourcing services under our mmis contracts . general and administrative costs consist primarily of indirect administrative costs and business development costs . in some circumstances we may defer recognition of incremental direct costs ( such as direct labor , hardware , and software ) associated with a contract if revenue recognition is also deferred . such deferred contract costs are amortized on a straight-line basis over the remaining original contract term , consistent with the revenue recognition period . 2012 financial performance summary 39 the following table and narrative briefly summarizes our financial and operating performance for the years ended december 31 , 2012 , 2011 , and 2010 . all ratios , with the exception of the medical care ratio and the premium tax ratio , are shown as a percentage of total revenue .
| 45 absent the adjustment to new mexico premium revenue and the addition of the pharmacy benefit in ohio , premium revenue pmpm increased approximately 4.4 % , from $ 218 in 2010 to $ 227 in 2011. increased enrollment among the abd and medicare populations contributed to the higher premium revenue pmpm . medicare premium revenue was $ 388 million for the year ended december 31 , 2011 , compared with $ 265 million for the year ended december 31 , 2010 . medical care costs the following table provides the details of consolidated medical care costs for the periods indicated ( dollars in thousands except pmpm amounts ) : replace_table_token_14_th the medical care ratio decreased to 86.8 % for the year ended december 31 , 2011 , compared with 87.6 % for the year ended december 31 , 2010 . the medical care ratio of the california health plan increased to 86.9 % for the year ended december 31 , 2011 , from 84.6 % for the year ended december 31 , 2010 . the california health plan received premium reductions of approximately 3 % and 1 % effective july 1 , 2011 , and october 1 , 2011 , respectively . in the second half of 2011 , the california health plan added approximately 14,500 new abd members with average premium revenue of approximately $ 385 pmpm . the medical care ratio of the florida health plan decreased to 91.9 % for the year ended december 31 , 2011 , from 95.4 % for the year ended december 31 , 2010 , primarily due to initiatives that have reduced pharmacy and behavioral health costs , and a premium rate increase of approximately 7.5 % effective september 1 , 2011. the medical care ratio of the michigan health plan decreased to 86.3 % for the year ended december 31 , 2011 , from 89.3 % for the year ended december 31 , 2010 , primarily due to improved medicare performance and lower inpatient facility costs . the michigan health plan received a premium rate increase of approximately 1 % effective october 1 , 2011. the medical care ratio of the missouri health
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we expect our expenses and capital requirements will increase substantially in connection with our ongoing activities as we : advance the clinical development of ba3011 ; advance the clinical development of ba3021 ; expand our pipeline of bispecific and other cab antibody-based product candidates ; continue to invest in our cab technology platform ; maintain , protect and expand our intellectual property portfolio , including patents , trade secrets and know-how ; seek marketing approvals for any product candidates that successfully complete clinical trials ; establish additional product collaborations and commercial manufacturing relationships with third parties ; build sales , marketing and distribution infrastructure and relationships with third parties to commercialize product candidates for which we may obtain marketing approval ; continue to expand our operational , financial and management information systems ; and attract , hire and retain additional clinical , scientific , management , administrative and commercial personnel . furthermore , we expect to incur additional costs associated with operating as a public company , including significant legal , accounting , insurance , investor relations and other administrative and professional services expenses that we did not incur as a private company . as a result , we will require substantial additional capital to develop our product candidates and fund operations for the foreseeable future . until such time as we can generate significant revenue from product sales , if ever , we expect to finance our operations through a combination of public or private equity offerings , debt financings , collaborations and other similar arrangements . the amount and timing of our future funding requirements will depend on many factors , including the pace and results of our development efforts . we can not assure you that we will ever be profitable or generate positive cash flow from operating activities . because of the numerous risks and uncertainties associated with product development , we are unable to accurately predict the timing or amount of increased expenses or when , or if , we will be able to achieve profitability . even if we do achieve profitability , we may not be able to sustain or increase profitability on a quarterly or annual basis . if we fail to become profitable or are unable to sustain profitability on a continuing basis , then we may be unable to raise capital , maintain our research and development efforts , expand our business or continue our operations at planned levels , and as a result we may be forced to substantially reduce or terminate our operations . through the date of our initial public offering , or ipo , in december 2020 , we had funded our operations primarily through the receipt of $ 71.0 million from our collaboration agreements , $ 27.6 million from the 122 issuance of convertible debt and $ 138.3 million from the issuance of equity securities . in december 2020 , we completed our initial public offering in which we sold 12,075,000 shares of our common stock at the initial public offering price to the public of $ 18.00 per share , which included the exercise in full of the underwriters ' option to purchase additional shares , for aggregate cash proceeds of $ 217.4 million . we incurred $ 19.0 million of issuance costs in connection with our initial public offering . upon the closing of our initial public offering , all outstanding shares of our convertible preferred stock converted into 13,876,510 shares of our common stock and 1,492,059 shares of our class b common stock . as of december 31 , 2020 , our cash and cash equivalents totaled approximately $ 238.6 million . based on our current operating plan , our current cash and cash equivalents are expected to be sufficient to fund our ongoing operations at least through the end of 2022. however , 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 . bioatla was formed in april 2007 as a delaware limited liability corporation . we initially operated as a service provider and service-related partnered drug developer for primarily human therapeutic proteins and simultaneously refined our proprietary cab technology platform and related technologies . since 2013 , we transitioned away from our services business to focus on internal development of our own proprietary products . impact of covid-19 on our business on march 11 , 2020 , the world health organization declared the outbreak of covid-19 caused by a novel strain of coronavirus as a pandemic , which continues to spread throughout the united states and around the world . the worldwide covid-19 pandemic may affect our ability to complete our current preclinical studies and clinical trials , initiate and complete our planned preclinical studies and clinical trials , disrupt regulatory activities or have other adverse effects on our business , results of operations , financial condition and prospects . in addition , the pandemic has caused substantial disruption in the financial markets and may adversely impact economies worldwide , both of which could adversely affect our business , operations and ability to raise funds to support our operations . to date , we have not experienced material business disruptions , including with respect to any of the clinical trials we are conducting , or impairments of any of our assets as a result of the pandemic . we are following , and plan to continue to follow , recommendations from federal , state and local governments regarding workplace policies , practices and procedures . in march 2020 , we implemented a remote working policy for many of our employees , began restricting non-essential travel and temporarily reduced salaries of our employees from march 2020 to july 2020. we are complying with all applicable guidelines for our clinical trials , including remote clinical monitoring . story_separator_special_tag in april 2020 , we borrowed $ 0.7 million under the paycheck protection program under the cares act , as discussed further under liquidity and capital resources. we are continuing to monitor the potential impact of the pandemic , but we can not be certain what the overall impact will be on our business , financial condition , results of operations and prospects . financial operations overview revenue to date , we have not generated any revenue from the sale of products and do not expect to generate meaningful revenue in the near future . in december 2015 , we entered into a four-year preclinical research agreement with pfizer , which expired according to its terms in december 2019. in april 2019 , we entered into a global co-development and collaboration agreement with beigene , ltd. which , as amended in december 2019 and october 2020 , provides for the development , manufacturing and commercialization of ba3071 . under the terms of our beigene collaboration , beigene is generally responsible for developing ba3071 and is responsible for global regulatory filings and commercialization . subject to the terms of the agreement , beigene holds an exclusive license with us to develop and manufacture the product candidate globally . beigene is responsible for all costs of development , manufacturing and commercialization globally . in addition , we may in the future seek third-party collaborators or joint venture partners for 123 development and commercialization of additional cab product candidates . at the time of execution of the beigene collaboration , we received a $ 20.0 million upfront payment and in december 2019 , we received an additional $ 5.0 million for the reimbursement of manufacturing costs . we are eligible to receive up to $ 225.5 million in subsequent development and regulatory milestones globally and commercial milestones in the beigene territory , together with tiered royalties , ranging from the high-single digits to the low twenties , on sales worldwide . pursuant to the terms of the october 2020 amendment , we agreed to transfer certain know-how and materials to beigene related to the manufacture of ba3071 . during 2020 , we recognized revenue only from our collaboration with beigene . during 2019 , we recognized revenue from our collaboration with beigene and , to a much lesser degree , from our collaboration with pfizer . operating expenses research and development research and development expenses consist primarily of costs incurred in the discovery and development of our product candidates . external expenses consist of : fees paid to third parties such as contractors , clinical research organizations ( cros ) and consultants , including through our relationship with bioduro , and other costs related to preclinical and clinical trials ; fees paid to third parties such as contract manufacturing organizations ( cmos ) and other vendors for manufacturing research and clinical trial materials ; and expenses related to laboratory supplies and services . unallocated expenses consist of : personnel-related expenses , including salaries , benefits and equity-based compensation expenses , for personnel in our research and development functions ; and related equipment and facilities depreciation expenses . we expense research and development costs in the periods in which they are incurred . nonrefundable advance payments for goods or services to be received in future periods for use in research and development activities are deferred and capitalized . the capitalized amounts are then expensed as the related goods are delivered and service are performed . we expect our research and development expenses to increase substantially for the foreseeable future as we continue to invest in research and development activities to advance our product candidates and our clinical programs and expand our product candidate pipeline . the process of conducting the necessary preclinical and clinical research to obtain regulatory approval is costly and time-consuming . 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 . accordingly , to the extent that our product candidates continue to advance into clinical trials , including larger and later-stage clinical trials , our expenses will increase substantially and may become more variable . the actual probability of success for our product candidates may be affected by a variety of factors , including the safety and efficacy of our product candidates , the quality and consistency in their manufacture , investment in our clinical programs and competition with other products . as a result of these variables , we are unable to determine the duration and completion costs of our research and development projects and programs or when and to what extent we will generate revenue from the commercialization and sale of our product candidates . we may never succeed in achieving regulatory approval for any of our product candidates . 124 general and administrative our general and administrative expenses consist primarily of personnel-related expenses for personnel in our executive , finance , corporate and other administrative functions , intellectual property and patent costs , facilities and other allocated expenses , other expenses for outside professional services , including legal , human resources , audit and accounting services and insurance costs . personnel-related expenses consist of salaries , benefits and equity-based compensation . we expect our general and administrative expenses to increase as a result of operating as a public company , including additional costs ( i ) to comply with the rules and regulations of the sec and those of the nasdaq global market , ( ii ) for legal and auditing services , ( iii ) for additional insurance , ( iv ) for investor relations activities and ( v ) for other administrative and professional services . we also expect our intellectual property expenses to increase as we expand our intellectual property portfolio . interest income interest income consists primarily of interest earned on our cash and cash equivalent balances .
| general and administrative expense general and administrative expenses were $ 10.6 million and $ 7.5 million for the years ended december 31 , 2020 and 2019 , respectively . the increase of $ 3.1 million was primarily driven by a $ 2.3 million increase in stock-based compensation due to awards issued in connection with the december 2020 ipo , a $ 0.8 million increase in personnel related expenses as we expanded our administrative functions in support of our development activities , a $ 0.5 million increase in professional fees related to accounting and audit services , a $ 0.3 million increase in facility and related expenses , a $ 0.2 million increase in depreciation expense and a $ 0.1 million increase in insurance expense . these increases were offset by a $ 0.6 million decrease in travel related expense and a $ 0.5 million decrease in equity-based compensation related to a decrease in the fair value of awards under our profits interest plan . interest income interest income was $ 0.1 million for both the year ended december 31 , 2020 and 2019. interest expense interest expense was $ 1.4 million and $ 1.6 million for the years ended december 31 , 2020 and 2019 , respectively . the decrease of $ 0.2 million was primarily due to reduced interest expense as a result of the settlement of all of our convertible debt in july 2020 , offset by the impact of the timing of new convertible debt issuances in 2019 and 2020. change in fair value of derivative liability change in fair value of derivative liability was $ 1.6 million and $ 0.1 million for the years ended december 31 , 2020 and 2019 , respectively . the increase of $ 1.5 million was primarily due to changes in the fair value of embedded derivatives issued in connection with our outstanding convertible promissory notes . 127 extinguishment of
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although we have made improvements throughout the year , it will take time for the financial statements to reflect the changes and as such , for the thr ee years ended december 31 , 2016 we have reported recurring losses from operations and have not generated cash from operations . our level of cash used in operations , the potential need for additional capital , and the uncertainties surrounding our ability to raise additional capital , raises substantial doubt about our abil ity to continue as a going concern . as a result , the opinion we have received from our independent registered public accounting firm , on our consolidated financial statements , contains an explanatory paragraph stating that there is a substantial doubt rega rding our ability to continue as a going concern . the accompanying financial statements have been prepared on a going concern basis , which assumes that we will continue in operation for the next 12 months and will be able to realize our assets and discharge our liabilities and commitments in the normal course of business . the financial statements do not include any adjustments that might be necessary if the company is unable to continue as a going concern . critical accounting policies the preparation of consolidated financial statements and related disclosures in conformity with generally accepted accounting principles in the united states ( “ gaap ” ) requires us to make estimates and assumptions that affect the amounts reported in the consol idated financial statements and the accompanying notes . the following is a summary of those accounting policies that we believe are necessary to understand and evaluate our reported financial results . revenue recognition . we sell our products in north america directly to customers through our field sales force and through non-exclusive distributors . we sell our products internationally through exclusive and non-exclusive distributors as well as directly to customers in certain countries . sales are recor ded upon shipment from our facility , and payment of our invoices is generally due within 90 days or less . internationally , we primarily sell products through independent distributors . we record revenue based on four basic criteria that must be met before revenue can be recognized : ( i ) persuasive evidence of an arrangement exists ; ( ii ) delivery has occurred and title and the risks and rewards of ownership have been transferred to our customer , or services have been rendered ; ( iii ) the price is fixed or determinable ; and ( iv ) collectability is reasonably assured . revenue is recorded for all sales upon shipment assuming all other revenue recognition criteria are met . sales of our laser systems include separate deliverables consisting of the product , disposables used with the laser systems , installation , and training . for sale of deliverables that are part of a multiple-element arrangement , we apply a method which approximates the relative selling price method , which requires that arrangement consideration be all ocated at the inception of an arrangement to all deliverables using the relative selling price method . this requires us to use estimated selling prices of each of the deliverables in the total arrangement . the sum of those prices is then compared to the arrangement , and any difference is applied to the separate deliverable ratably . this method also establishes a selling price hierarchy for determining the selling price of a deliverable , which includes : ( i ) vendor-specific objective evidence ( “ vsoe ” ) , if available , ( ii ) third-party evidence if vsoe is not available , and ( iii ) estimated selling price if neither vsoe nor third-party evidence is available . vsoe is determined based on the value we sell the undelivered element to a customer as a stand-alone product . revenue attributable to the undelivered elements is included in deferred revenue when the product is shipped and is recognized when the related service is performed . disposables not shipped at time of sale and installation services are typically shippe d or installed within 30 days . training is included in deferred revenue when the product is shipped and is recognized when the related service is performed or upon the appropriate expiration of time offered under the agreement . key judgments related to ou r revenue recognition include the collectability of payment from the customer , the satisfaction of all elements of the arrangement having been delivered , and that no additional customer credits and discounts are needed . we evaluate a customer 's credit worthiness prior to the shipment of the product . based on our assessment of the available credit information , we may determine the credit risk is higher than normally acceptable , and we will either decline the purchase or defer the revenue until payment is reasonably assured . future obligations required at the time of sale may also cause us to defer the revenue until the obligation is satisfied . although all sales are final , we accept returns of products in certain , limited circumstances and record a provision for sales returns based on historical experience concurrent with the recognition of revenue . the sales returns allowance is recorded as a reduction of accounts receivable and revenue . extended warranty contracts , which are sold to our laser and certain i maging customers , are recorded as revenue on a straight-line basis over the period of the contracts , which is typically one year . 40 for sales transactions involving used laser trade-ins , we record the purchased trade-ins as inventory at the fair value of th e asset surrendered with the offset to accounts receivable . in determining the estimated fair value of used laser trade-ins , we make an assessment of usable parts and key components and consider the ultimate resale value of the certified pre-owned ( or “ cpo ” ) laser with applicable margins . we sell these cpo laser trade-ins as refurbished lasers . story_separator_special_tag trade-in rights are not established or negotiated with customers during the initial sales transaction of the original lasers . trade-in rights are promotional events used at our discretion to encourage existing laser customers to purchase new lasers . a customer is not required to trade in a laser nor are we required to accept a trade-in . however , the promotional value offered in exchange for the trade-in laser is not o ffered without a laser trade-in . the transaction is treated as a monetary transaction as each sale transaction involving a customer trade-in includes significant boot of greater than 25 % of the fair value of the exchange . as a monetary transaction , the sal e is recognized following our laser system revenue recognition policy . there have been no sales transactions in which the cash consideration was less than 25 % of the total transaction value . we recognize revenue for royalties under licensing agreements for our patented technology when the product using our technology is sold . we estimate and recognize the amount earned based on historical performance and current knowledge about the business operations of our licensees . our estimates have been consistent with amounts historically reported by the licensees . licensing revenue related to exclusive licensing arrangements is recognized concurrent with the related exclusivity period . from time to time , we may offer sales incentives and promotions on our products . we record the cost of sales incentives at the date at which the related revenue is recognized as a reduction in revenue , an increase in cost of goods sold , or a selling expense , as applicable , or later , in the case of incentives offered after the initial sale has occurred . accounting for stock-based payments . we recognize compensation cost related to all stock-based payments based on the grant-date fair value using the black-scholes option valuation model , taking into consideration the probability of vesting and estimated forfeitures . valuation of accounts receivable . we maintain an allowance for uncollectible accounts receivable to estimate the risk of extending credit to customers . we evaluate our allowance for doubtful accounts based upon our kn owledge of customers and their compliance with credit terms . the evaluation process includes a review of customers ' accounts on a regular basis , which incorporates input from sales , service , and finance personnel . the review process evaluates all account b alances with amounts outstanding more than 90 days from the due date and other specific amounts for which information obtained indicates that the balance may be uncollectible . the allowance for doubtful accounts is adjusted based on such evaluation , with a corresponding provision included in general and administrative expenses . account balances are charged off against the allowance when we believe it is probable the receivable will not be recovered . we do not have any off-balance-sheet credit exposure related to our customers . valuation of inventory . inventory is valued at the lower of cost or market , with cost determined using the first-in , first-out method . we periodically evaluate the carrying value of inventory and maintain an allowance for excess an d obsolete inventory to adjust the carrying value as necessary to the lower of cost or market . we evaluate quantities on hand , physical condition , and technical functionality , as these characteristics may be impacted by anticipated customer demand for current products and new product introductions . unfavorable changes in estimates of excess and obsolete inventory would result in an increase in cost of revenue and a decrease in gross profit . valuation of long-lived assets . property , plant , and equipment and certain intangibles with finite lives are amortized over their estimated useful lives . useful lives are based on our estimate of the period that the assets will generate revenue or otherwise productively support our business goals . we monitor events and changes in circumstances that could indicate that the carrying balances of long-lived assets may exceed the undiscounted expected future cash flows from those assets . if such a condition were to exist , we would determine if an impairment loss should be recognized by comparing the carrying amount of the assets to their fair value . valuation of goodwill and other intangible assets . goodwill and other intangible assets with indefinite lives are not subject to amortization but are evaluated for impairment annually or whenever events or changes in circumstances indicate that the asset might be impaired . we conducted our annual impairment analysis of our goodwill as of june 30 , 2016 and concluded there had been no impairment in goodwill . we closely monitor our stock price and market capitalization and perform such analysis when events or circumstances indicate that there may have been a change to the carrying value of those assets . 41 warranty cost . we provide warranties against defects in materials and work manship of our laser systems for specified periods of time . for the years ended december 31 , 2016 , 2015 , and 2014 laser systems sold domestically were covered by our warranty for a period of up to two years from the date of sale by us or the distributor to the end-user . laser systems sold internationally were covered by our warranty for a period of up to 28 months from the date of sale to the international distributor . estimated warranty expenses are recorded as an accrued liability with a corresponding p rovision to cost of revenue . this estimate is recognized concurrent with the recognition of revenue on the sale to the distributor or end-user . warranty expenses expected to be incurred after one year from the time of sale to the distributor are classified as a long-term warranty accrual .
| in 2015. we expect general and administrative expenses to decrease as a percentage of revenue in fiscal 2017. engineering and development expense . engineering and development expenses for fiscal 2016 increased by $ 0.5 million , or 7 % , to $ 7.8 million , or 15 % of net revenue , as compared with $ 7.3 million , or 15 % of net revenue , in fiscal 2015. the increase was primarily related to increased payroll , consulting and temporary labor expenses of $ 351,000 and increased supplies of $ 16,000 resulting from our development efforts relating to our new and existing products and technologies . we expect to continue our investment in engineering and development activity , although we expect engineering and development expenses to a decrease as a percentage of revenue in fiscal 2017. excise tax expense . beginning in 2013 , the affordable care act imposed a 2.3 % medical device excise tax on certain product sales to customers located in the u.s. excise tax expenses for fiscal 2016 was $ 0 , or 0 % of net revenue , as compared with $ 361,000 , or 1 % of net revenue , for fiscal 2015. the decrease of $ 361,000 , or 100 % , was directly associated with the protecting americans from tax hikes act of 2015 ( the “ path act ” ) , which suspended the medical device excise tax for calendar years 2016 and 2017. due to the path act , we do not anticipate any excise tax expenses on our products during 2017. non-operating income ( loss ) ( loss ) gain on foreign currency transactions . we recognized a $ 332,000 loss on foreign currency transactions for fiscal 2016 compared to a $ 259,000 loss for fiscal 2015 due to exchange rate fluctuations primarily between the u.s. dollar and the euro . during fiscal 2016 , the euro continued to fluctuate against the u.s. dollar . interest income
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to that end , we have intensified our efforts in product and application development and are continuing to enhance our capabilities in this area . we are also working closely with customers across a range of applications to understand the processing and performance profiles for their products , and are pursuing commercial opportunities with customers at various levels of maturity from initial data demonstration and product and process validation , through to larger scale trials , product testing , product qualification and product launch . this approach is integral to our specialty materials strategy , where the market opportunities are driven by the important value-adding role our biopolymers can play as components of other material systems or by bringing unique functional advantages such as biodegradability to customer applications . this is a critical area of focus for us and our success depends on working effectively with customers to identify uses and applications for our pha biopolymers that substantiate the commercial potential for our products . in 2015 we continued to work on customer projects across our target applications spaces -- pvc processing aids and property modifiers , pla modification , functional biodegradation and coatings for paper . during the year , we reported initial customer conversions for several smaller customers and we made progress advancing complex development programs for several larger opportunities . we also secured a significant commercial conversion with kolar filtration in the area of functional biodegradation . specifically , we signed a global , exclusive distribution agreement with kolar for pha-based denitrification pellets used in ornamental and hobby aquaria , ornamental ponds , fish hatcheries , and commercial aqua farming . in the area of pvc modification , we secured our first commercial order from a new customer for a-pha used in a pvc flooring application -- protective vinyl floor tiles sold in major home improvements stores . in 2016 , we will continue to work closely with customers across our target application spaces to successfully complete development programs and to convert them to repeat , commercial sales . our crop science program has been a technically challenging long-term effort , initially directed toward the production of pha in plant crops . based on our observations in this research , we began refocusing our crop science program around new genetic and informatics tools and intellectual property for enhancing the photosynthetic capacity of plants . in 2015 , we launched our refocused crop science program under the name “ yield10 bioscience. ” we are seeking to spin out yield10 into a separately funded venture focused entirely on the further development and commercialization of these technologies , and we have begun talking to potential investors and industry collaborators regarding the opportunity to participate in the venture . we have also named a scientific advisory board to provide technical advice and industry experience to yield10 . we have incurred significant losses since our inception , including each of the three years ended december 31 , 2015. as of december 31 , 2015 , our accumulated deficit from inception to date was $ 325,753 and total stockholders ' equity was $ 13,028 . 27 collaborative arrangements we are not currently participating in any collaborative arrangements . our historical strategy for collaborative arrangements has been to retain substantial participation in the future economic value of our technology while receiving current cash payments to offset research and development costs and working capital needs . by their nature , our collaborative agreements have been complex , containing multiple elements covering a variety of present and future activities . government grants as of december 31 , 2015 , proceeds of $ 2,079 remain available under our u.s. government grants . this includes amounts for reimbursement to our subcontractors , as well as reimbursement for our employees ' time , benefits and other expenses related to future performance . the status of our united states and foreign government grants is as follows : funding agency total government funds total received through remaining amount available as of contract/grant expiration program title december 31 , 2015 december 31 , 2015 production of high oil , transgene free camelina sativa plants through genome editing department of energy $ 1,997 $ — $ 1,997 september 2017 renewable enhanced feedstocks for advanced biofuels and bioproducts ( `` refabb '' ) department of energy 6,000 5,933 67 february 2016 subcontract from university of california ( los angeles ) project funded by arpa-e entitled “ plants engineered to replace oil : energy plant design ” department of energy 819 819 — september 2015 capacity building for commercial-scale phb camelina development national research council canada 269 269 — september 2014 subcontract from university of massachusetts ( amherst ) project funded by arpa-e entitled “ development of a dedicated high value biofuels crop ” department of energy 663 648 15 december 2015 development of a sustainable value added fish feed using phb producing camelina national research council canada 96 83 — january 2015 total $ 9,844 $ 7,752 $ 2,079 critical accounting estimates and judgments our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue , costs and expenses , and related disclosures . we evaluate our estimates and assumptions on an ongoing basis . our actual results may differ from these estimates . we believe that our significant accounting policies , which are described in note 2 to our consolidated financial statements , involve a degree of judgment and complexity . accordingly , we believe that the specific accounting policies described below are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations . 28 revenue recognition we recognize revenue in accordance with accounting standards on revenue recognition . story_separator_special_tag principal sources of revenue are government research grants , product sales , license fees , royalty revenues and research and development payments that are primarily derived from collaborative agreements with other companies . our policy is to recognize product revenue when evidence of an arrangement exists , title has passed or services have been rendered , the selling price is fixed or determinable and payment by the customer is reasonably assured . revenue from product sales to customers is recognized when all elements of the sale have been delivered . our product return policy provides for discretion in accepting customer product returns during a period of sixty days after product delivery . until sufficient experience is developed on which to base an estimate of product returns , we defer recognition of product revenue and related costs until the later of ( i ) the end of the sixty day period or ( ii ) when the customer payment has been received . we recognize government grants as revenue because the grants are central to the company 's ongoing crop science program . revenue is earned as research expenses related to the grants are incurred . funds received from government grants in advance of work being performed are recorded as deferred revenue until earned . fees to license the use of our proprietary and licensed technologies are recognized only after both the license period has commenced and the licensed technology , if any , has been delivered to the licensee . royalty revenue is recognized when it becomes determinable and collection is reasonably assured . otherwise we recognize royalty revenue upon receipt of payment . inventory we state inventory at the lower of cost or market and value inventory using the average cost method . we analyze our inventory levels quarterly and write down , as a cost of product revenue , inventory we consider to be in excess of expected sales requirements , that fails to meet commercial sales specifications or that has become obsolete . stock-based compensation the accounting standard for stock-based compensation requires that all stock-based awards to employees be recognized as an expense in the consolidated financial statements and that such expense be measured at the fair value of the award . determining the appropriate fair value model and calculating the fair value of stock-based payment awards requires the use of highly subjective assumptions , including the expected life of the stock-based payment awards and stock price volatility . we use the black-scholes option-pricing model to value our service-based option grants and determine the related compensation expense . during 2014 , we issued restricted stock units containing market and performance vesting conditions to our chief executive officer . we estimated the fair value and derived service period of these awards using a monte carlo valuation model . the assumptions used in calculating the fair value of stock-based awards represent management 's best estimates , but the estimates involve inherent uncertainties and the application of management judgment . see note 12 to the consolidated financial statements for further discussion on the key assumptions used to determine the fair values of option grants pursuant to the black-scholes option pricing model . story_separator_special_tag t ; '' > $ 2,800 and $ 3,778 for the fiscal years ended december 31 , 2014 and 2013 , respectively . during the twelve months ended december 31 , 2014 , we recognized $ 546 of product revenue compared to $ 461 in 2013 from sales of biopolymers . the increase of $ 85 for the twelve months ended december 31 , 2014 was primarily related to increased sales of compounded product . at december 31 , 2014 and december 31 , 2013 , short-term deferred revenue on the company 's balance sheet included $ 57 and $ 537 of deferred product revenue , respectively . during the fiscal year ended december 31 , 2014 , we recognized $ 1,807 of grant revenue compared to $ 2,480 in 2013. the decrease of $ 673 in grant revenue for the twelve months ended december 31 , 2014 consisted primarily of a net decrease in revenue recognized from the refabb grant of $ 400 in comparison to the prior year and resulted from a reduction in labor and other direct charges incurred in connection with the grant . completion of the initial phase of the ucla arpa-e grant resulted in a net decrease in revenue recognized of $ 208 in comparison to the year ended december 31 , 2013. during 2013 we recognized $ 618 in research and development revenue earned from a funded research and development arrangement with a third party that completed during that year . during the twelve months ended december 31 , 2014 , we recognized $ 447 of license fee and royalty revenue , including license and royalty revenue from related parties , compared to $ 219 for the twelve months ended december 31 , 2013. the increase of $ 228 in license fee and royalty revenue was primarily related to revenue from tepha , inc. , a related party . costs and expenses replace_table_token_8_th cost of product revenue cost of product revenue was $ 1,482 and $ 1,908 for the fiscal years ended december 31 , 2014 and 2013 , respectively . these costs primarily include the cost of inventory associated with product revenue recognized during the respective years and inventory impairment charges . the decrease of $ 426 year-over-year is primarily attributable to lower inventory logistics costs partially offset by an increase in inventory impairment expense . we routinely evaluate our inventory in order to determine whether its current book value is below the cash value we expect to realize from its sale . during our fiscal years ended december 31 , 2014 and 2013 , we recorded impairment charges of $ 873 and $ 746 , respectively , for slow moving or obsolete inventory that we determined was unlikely to be sold .
| the $ 178 increase is primarily related to increased revenues from tepha , a related party that licenses our technology for use in certain medical applications . we anticipate that product revenue will increase over the next twelve months as we increase production of our pha biopolymers and gain market acceptance for our products . however , we expect to continue to see variations in quarterly sales as we work with customers to build our specialty biopolymers business . costs and expenses replace_table_token_5_th cost of product revenue cost of product revenue from continuing operations was $ 660 and $ 1,482 for the twelve months ended december 31 , 2015 and 2014 , respectively . these costs primarily include the cost of inventory associated with product revenue recognized during the respective years and inventory impairment charges recorded during each of the periods . the decrease of $ 822 year-over-year is primarily attributable to a decrease in inventory impairment charges . the company recognized an inventory impairment charge of $ 209 during the twelve months ended december 31 , 2015 as compared to $ 873 for the twelve months ended december 31 , 2014. cost of product revenue for each period also includes the cost of sample inventory shipped to prospective customers , warehousing and certain freight charges . the company also recorded a charge of $ 888 during the year ended december 31 , 2014 , within discontinued operations , for the write-down of inventory to its estimated fair market value . although there may be fluctuations from period to period , we expect our overall cost of product revenue from continuing operations will increase substantially over the next twelve months , as a result of the anticipated transition of cost of biopolymer pilot production from research and development expense to cost of product revenue . 30 research and development expenses research and development expenses from continuing operations were $ 16,572 and $ 17,342 for the twelve months
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item 14. principal accounting fees and services paritz & co. p.a . ( `` paritz `` ) is the company 's principal auditing accountant firm . the company 's board of directors has considered whether the provisions of audit services are compatible with maintaining paritz 's independence . the engagement of our independent registered public accounting firm was approved by our of our board directors prior to the start of the audit of our consolidated financial statements for the years ended december 31 , 2015 . 26 the following table represents aggregate fees billed to the company for the years ended december 31 , 2015 by paritz and 2014 by pls cpa ( the former auditors ) . replace_table_token_10_th all audit work was performed by the auditors ' full time employees . part iv item 15. exhibits , financial statement schedules the following is a complete list of exhibits filed as part of this form 10-k. exhibit number corresponds to the numbers in the exhibit table of item 601 of regulation s-k. replace_table_token_11_th * filed as exhibits with the company 's s-1 registration statement filed with the securities and exchange commission ( www.sec.gov ) , dated march 6 , 2012 . ( 1 ) pursuant to rule 406t of regulation s-t , this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the securities act of 1933 , is deemed not filed for purposes of section 18 of the securities exchange act of 1934 , and otherwise is not subject to liability under these sections . 27 signatures pursuant to the requirements of section 13 or 15 ( d ) of the securities exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . free flow , inc. sabir saleem april 22 , 2016 sabir saleem ( chief executive officer/principal executive officer & principal accounting officer ) pursuant to the requirements of the securities exchange act of 1934 , this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated . sabir saleem april 22 , 2016 sabir saleem , director fernandino ferrara april 22 , 2016 fernandino ferrara , director 28 story_separator_special_tag managements ' discussion and analysis the following discussion should be read in conjunction with our audited consolidated financial statements and notes thereto included herein . this discussion contains forward-looking statements , such as statements relating to our financial condition , results of operations , plans , objectives , future performance and business operations . these statements relate to expectations concerning matters that are not historical facts . these forward-looking statements reflect our current views and expectations based largely upon the information currently available to us and are subject to inherent risks and uncertainties . although we believe our expectations are based on reasonable assumptions , they are not guarantees of future performance and there are a number of important factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements . by making these forward-looking statements , we do not undertake to update them in any manner except as may be required by our disclosure obligations in filings we make with the securities and exchange commission under the federal securities laws . our actual results may differ materially from our forward-looking statements . the independent registered public accounting firm 's report on the company 's financial statements as of december 31 , 2015 includes a `` going concern '' explanatory paragraph that describes substantial doubt about the company 's ability to continue as a going concern . plan of operations we have only recently generated limited revenues . we will need substantial additional capital to support our proposed future operations . we have limited revenues . we have no committed source for any funds as of date hereof , no representation is made that any funds will be available when needed . in the event funds can not be raised when needed , we may not be able to carry out our business plan , may never achieve sales , and could fail in business as a result of these uncertainties . story_separator_special_tag story_separator_special_tag item 14. principal accounting fees and services paritz & co. p.a . ( `` paritz `` ) is the company 's principal auditing accountant firm . the company 's board of directors has considered whether the provisions of audit services are compatible with maintaining paritz 's independence . the engagement of our independent registered public accounting firm was approved by our of our board directors prior to the start of the audit of our consolidated financial statements for the years ended december 31 , 2015 . 26 the following table represents aggregate fees billed to the company for the years ended december 31 , 2015 by paritz and 2014 by pls cpa ( the former auditors ) . replace_table_token_10_th all audit work was performed by the auditors ' full time employees . part iv item 15. exhibits , financial statement schedules the following is a complete list of exhibits filed as part of this form 10-k. exhibit number corresponds to the numbers in the exhibit table of item 601 of regulation s-k. replace_table_token_11_th * filed as exhibits with the company 's s-1 registration statement filed with the securities and exchange commission ( www.sec.gov ) , dated march 6 , 2012 . ( 1 ) pursuant to rule 406t of regulation s-t , this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the securities act of 1933 , is deemed not filed for purposes of section 18 of the securities exchange act of 1934 , and otherwise is not subject to liability under these sections . 27 signatures pursuant to the requirements of section 13 or 15 ( d ) of the securities exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . free flow , inc. sabir saleem april 22 , 2016 sabir saleem ( chief executive officer/principal executive officer & principal accounting officer ) pursuant to the requirements of the securities exchange act of 1934 , this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated . sabir saleem april 22 , 2016 sabir saleem , director fernandino ferrara april 22 , 2016 fernandino ferrara , director 28 story_separator_special_tag managements ' discussion and analysis the following discussion should be read in conjunction with our audited consolidated financial statements and notes thereto included herein . this discussion contains forward-looking statements , such as statements relating to our financial condition , results of operations , plans , objectives , future performance and business operations . these statements relate to expectations concerning matters that are not historical facts . these forward-looking statements reflect our current views and expectations based largely upon the information currently available to us and are subject to inherent risks and uncertainties . although we believe our expectations are based on reasonable assumptions , they are not guarantees of future performance and there are a number of important factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements . by making these forward-looking statements , we do not undertake to update them in any manner except as may be required by our disclosure obligations in filings we make with the securities and exchange commission under the federal securities laws . our actual results may differ materially from our forward-looking statements . the independent registered public accounting firm 's report on the company 's financial statements as of december 31 , 2015 includes a `` going concern '' explanatory paragraph that describes substantial doubt about the company 's ability to continue as a going concern . plan of operations we have only recently generated limited revenues . we will need substantial additional capital to support our proposed future operations . we have limited revenues . we have no committed source for any funds as of date hereof , no representation is made that any funds will be available when needed . in the event funds can not be raised when needed , we may not be able to carry out our business plan , may never achieve sales , and could fail in business as a result of these uncertainties . story_separator_special_tag
| during the year ended december 31 , 2015 , the company recognized a net loss of $ 417,325 plus provision of $ 250,000.and $ 86,233 to impair the trade mark and write-off inventory respectively . during the year ended december 31 , 2014 , the company used $ 27,350 in its operations which include a net loss of $ 44,018. the company 's capitalization is 100,000,000 common shares with a par value of $ 0.0001 per share and 20,000,000 preferred stock , with a par value of $ 0.0001 per share . the company has no material commitments for capital expenditures within the next year , however if operations are commenced , substantial capital will be needed to pay for participation , investigation , acquisition and working capital . need for additional financing the company does not have capital sufficient to meet its cash needs . the company will have to seek loans or equity placements to cover such cash needs . no commitments to provide additional funds have been made by the company 's management or other stockholders . accordingly , there can be no assurance that any additional funds will be available to the company to allow it to cover the company 's expenses as they may be incurred . significant accounting policies revenue recognition the company recognizes revenue on arrangements in accordance with securities and exchange commission staff accounting bulletin topic 13 , revenue recognition and fasb asc 605-15-25 , revenue recognition . in all cases , revenue is recognized only when the price is fixed or determinable , persuasive evidence of an arrangement exists , the service is performed and collectability is reasonably assured . earnings per share the company has adopted asc 260-10-50 , earnings per share , which provides for calculation of `` basic '' and `` diluted '' earnings per share . basic earnings per share includes no dilution and is computed by dividing net income or loss available to common shareholders by the weighted average common shares outstanding for the period . diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity . basic and diluted losses per share were
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we have generated limited operating revenues since inception and , as of december 31 , 2012 , we had an accumulated deficit of approximately $ 274.2 million . we expect to continue to incur losses for the next several years , and it is possible we may never achieve profitability . 2013 priorities our top priorities for 2013 include completing the fda submission and cms coverage application for our cologuard test . if for any reason our fda submission is substantially delayed , the fda does not approve our pma or such approval is substantially delayed , our business and prospects would likely be materially adversely impacted . likewise it would be a material adverse event for our business if we do not receive a positive national coverage decision and favorable reimbursement rate from cms or if for any other reason we are unable to successfully commercialize our cologuard test . in 2013 we also plan to focus on building our manufacturing capacity which includes continuous improvements to our fda compliant quality management system . we currently expect that upon initial commercial launch we will process a significant percentage of cologuard test volume . accordingly , another 2013 priority for us is establishing a clia certified lab facility to process cologuard tests and provide patient results . in addition , in 2013 we plan to work toward launch readiness through building and deploying a top notch marketing team and continuing our outreach and education efforts to physicians , third party payors and advocates . 20 we also have identified a new opportunity for our sdna colorectal cancer screening technology focused on the inflammatory bowel disease ( ibd ) patient population . we initiated an ibd clinical trial in the first quarter 2013 that will focus on this specific patient group , and plan on enrolling around 300 ibd patients into the trial . furthermore , we will work on developing enhancements to our cologuard test and identifying and conducting research on other potential pipeline products targeting other cancers , such as esophageal and pancreatic cancer . story_separator_special_tag 2010. the increase in sales and marketing expense was a result of hiring additional marketing personnel . replace_table_token_9_th investment income . investment income increased to $ 169,000 for the year ended december 31 , 2011 from $ 46,000 for the year ended december 31 , 2010. this increase was primarily due to an overall higher cash and marketable securities balance during the year ended december 31 , 2011 as compared to the same period of 2010 . 23 interest expense . interest expense increased to $ 21,000 for the year ended december 31 , 2011 from $ 20,000 for the year ended december 31 , 2010. this slight increase was due to additional interest expense recognized from our loan from the wisconsin department of commerce . other income . there was no other income for the year ended december 31 , 2011 compared to $ 244,000 for the year ended december 31 , 2010. this decrease was due to the receipt of a qualifying therapeutic discover project grant issued by the federal government in 2010 which was not available in 2011. liquidity and capital resources we have financed our operations since inception primarily through private and public offerings of our common stock , cash received from labcorp in connection with our license agreement with labcorp , and cash received in january 2009 from genzyme in connection with the genzyme strategic transaction . as of december 31 , 2012 , we had approximately $ 13.3 million in unrestricted cash and cash equivalents and approximately $ 94.8 million in marketable securities . all of our investments in marketable securities are comprised of fixed income investments and all are deemed available-for-sale . the objectives of this portfolio are to provide liquidity and safety of principal while striving to achieve the highest rate of return , consistent with these two objectives . our investment policy limits investments to certain types of instruments issued by institutions with investment grade credit ratings and places restrictions on maturities and concentration by type and issuer . net cash used in operating activities was $ 44.2 million , $ 27.5 million , and $ 13.4 million for the years ended december 31 , 2012 , 2011 and 2010 , respectively . the principal use of cash in operating activities for each of the years ended december 31 , 2012 , 2011 and 2010 was to fund our net loss . the increase in net cash used in operating activities for the year ended december 31 , 2012 as compared to the year ended december 31 , 2011 was primarily due to increased research and development activities . the increase for the year ended december 31 , 2011 as compared to the year ended december 31 , 2010 , was also primarily due to increases in research and development activities . cash flows from operations can vary significantly due to various factors , including changes in our operations , prepaid expenses , accounts payable and accrued expenses . net cash used in investing activities was $ 38.4 million , $ 43.4 million , and $ 14.9 million for the years ended december 31 , 2012 , 2011 , and , 2010 , respectively . the decrease in cash used in investing activities for the year ended december 31 , 2012 when compared to the same period in 2011 was the result of increased maturities of marketable securities . excluding the impact of purchases and maturities of marketable securities , net cash used in investing activities was $ 0.7 million for the year ended december 31 , 2012 , compared to net cash used in investing activities of $ 2.1 million for the year ended december 31 , 2011 which was primarily the result of a decrease in purchases of property and equipment . story_separator_special_tag excluding the impact of purchases and maturities of marketable securities , net cash used in investing activities for the year ended december 31 , 2010 was primarily the result of purchases of property and equipment net cash provided by financing activities was $ 60.0 million , $ 27.9 million and $ 85.2 million for the years ended december 31 , 2012 , 2011 and 2010 , respectively . the increase in cash provided by financing activities for the year ended december 31 , 2012 when compared to the same period in 2011 was primarily the result of an increase in the proceeds from the sale of common stock from $ 27.2 million in 2011 to $ 57.8 million in 2012. excluding the impact of the sale of common stock , net cash provided by financing activities was $ 2.3 million for the year ended december 31 , 2012 , compared to net cash provided by financing activities of $ 0.7 million for the same period in 2011. this increase in cash provided by financing activities was primarily due to an increase in proceeds from the exercise of common stock options for the year ended december 31 , 2012. the decrease in cash provided by 24 financing activities for the year ended december 31 , 2011 when compared to the same period in 2010 was primarily the result of a decrease in proceeds from the sale of common stock from $ 82.3 million in 2010 to $ 27.2 million in 2011. excluding the impact of the sale of common stock , the decrease in net cash provided by financing activities was primarily due to a decrease in proceeds from the genzyme strategic transaction from $ 1.9 million for the year ended december 31 , 2010 to none for the year ended december 31 , 2011 , and an increase in proceeds from the exercise of common stock options from $ 0.5 million for the year ended december 31 , 2010 to $ 0.7 million for the year ended december 31 , 2011 , slightly offset by the decrease in restricted cash of $ 0.5 million during the year ended december 31 , 2010. we expect that cash and cash equivalents and marketable securities on hand at december 31 , 2012 , will be sufficient to fund our current operations for at least the next twelve months , based on current operating plans . however , since we have no current sources of material ongoing revenue , it is possible that we may need to raise additional capital to fully fund our current strategic plan , the primary goal of which is commercializing our fda approved non-invasive sdna colorectal pre-cancer and cancer screening test . if we are unable to obtain sufficient additional funds to enable us to fund our operations through the completion of such plan , our results of operations and financial condition would be materially adversely affected and we may be required to delay the implementation of our plan and otherwise scale back our operations . even if we successfully raise sufficient funds to complete our plan , we can not assure that our business will ever generate sufficient cash flow from operations to become profitable . in order to complete our clinical trial for our cologuard test , we expect to spend approximately $ 3.0 million to $ 4.0 million in 2013. expenditures include costs for personnel , consultants , lab testing and clinical trial sites . we believe we have enough cash on hand to fund these planned clinical trial expenditures . although we believe that we have sufficient capital to fund our operations for at least the next twelve months , we may not have sufficient capital to fully fund the commercial development of our cologuard test . the table below reflects our estimated fixed obligations and commitments as of december 31 , 2012 : replace_table_token_10_th ( 1 ) includes expected interest payments related to long-term debt obligations . ( 2 ) we have entered into license and collaborative agreements with johns hopkins university , the mayo foundation , genzyme , mdx health ( formerly oncomethylome sciences ) , and hologic , inc. see note 7 in the notes to the financial statements for further information . commitments under license agreements generally expire concurrent with the expiration of the intellectual property licensed from the third party . operating leases reflect remaining obligations associated with the leased facility at our headquarters in madison , wi . capital leases reflect obligations under a capital equipment leasing arrangement . 25 net operating loss carryforwards as of december 31 , 2012 , we had federal and state net operating loss carryforwards of approximately $ 250.7 million and $ 158.7 million , respectively . the company also had federal and state research tax credit carryforwards of approximately $ 4.2 million and $ 9.0 million , respectively . the net operating loss and tax credit carryforwards will expire at various dates through 2032 , if not utilized . the internal revenue code and applicable state laws impose substantial restrictions on a corporation 's utilization of net operating loss and tax credit carryforwards if an ownership change is deemed to have occurred . a valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before we are able to realize their benefit , or that future deductibility is uncertain . in general , companies that have a history of operating losses are faced with a difficult burden of proof on their ability to generate sufficient future income in order to realize the benefit of the deferred tax assets . we have recorded a valuation against our deferred tax assets based on our history of losses . the deferred tax assets are still available for us to use in the future to offset taxable income , which would result in the recognition of tax benefit and a reduction to our effective tax rate .
| general and administrative expenses increased to $ 9.9 million for the year ended december 31 , 2012 from $ 8.1 million for the year ended december 31 , 2011. this increase was primarily a result of 21 increased payroll and related expenses due to new general and administrative hires and increased operations . replace_table_token_5_th sales and marketing expenses . sales and marketing expenses increased to $ 4.8 million for the year ended december 31 , 2012 from $ 2.9 million for the year ended december 31 , 2011. the increase in sales and marketing expenses was a result of hiring additional marketing personnel and increased expenses incurred as a result of implementing a go-to market strategy , branding and other marketing expenses . replace_table_token_6_th investment income . investment income increased to $ 262,000 for the year ended december 31 , 2012 from $ 169,000 for the year ended december 31 , 2011. this increase was primarily due to an overall higher cash and marketable securities balance during the year ended december 31 , 2012 as compared to the same period of 2011. interest expense . interest expense increased to $ 41,000 for the year ended december 31 , 2012 from $ 21,000 for the year ended december 31 , 2011. this increase was due to interest expense recognized from a capital lease entered into in 2012. comparison of the years ended december 31 , 2011 and 2010 revenue . total revenue decreased to $ 4.2 million for the year ended december 31 , 2011 from $ 5.3 million for the year ended december 31 , 2010. total revenue is primarily composed of the amortization of up-front technology license fee payments associated with our amended license agreement with labcorp and our collaboration , license and purchase agreement with genzyme . the unamortized labcorp up-front payment was amortized on a straight-line basis over the exclusive license period , which ended in december 2010. the unamortized genzyme up-front payment and holdback amounts are being amortized on a straight-line basis over the initial genzyme collaboration
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the interest rate for this loan had been 6.73 % until october 31 , 2011 and would have converted to a variable rate on november 1 , 2011. the balance of the term loan is approximately $ 9.0 million at october 31 , 2011 and it requires monthly principal and interest installments until october 2035. on november 14 , 2011 , we amended certain terms of our rabobank credit facility . the maturity date was extended to june 30 , 2018 from june 30 , 2013 , and the borrowing capacity was increased to $ 100.0 million from $ 80.0 million , subject to underlying collateral value . the interest rate for the amended line of credit will be the london interbank offer rate ( “ libor ” ) plus 1.80 % beginning july 1 , 2013 until the maturity date . currently , the interest rate on the line of credit is libor plus 1.50 % and the principal balance is approximately $ 54.0 million at october 31 , 2011. additionally , on november 14 , 2011 we entered into a forward interest rate swap to manage the variable interest rate risk associated with the rabobank credit facility . the forward interest rate swap establishes a fixed interest rate of 4.30 % on $ 40.0 million of outstanding line of credit borrowings beginning july 1 , 2013 until june 30 , 2018. we currently have an interest rate swap which locks in the interest rate on $ 42.0 million of outstanding line of credit borrowings at 5.13 % until june 30 , 2013. in january 2012 , our company entered into a series of operating leases for approximately 1,000 acres of lemon , orange , specialty citrus and other crop orchards in lindsay , california . each of the leases is for a ten-year term and provides for four five-year renewal options with an aggregate base rent of approximately $ 500,000 per year . the leases also contain profit share arrangements with the landowners as additional rent on each of the properties and a provision for the potential purchase of the properties by limoneira in the future . due to the timing of the growing and harvesting seasons and as a result that the farming costs associated with the leased property were incurred by the lessor prior to lease commencement , limoneira will not share in the citrus crop revenue in its fiscal year 2012. fiscal year 2013 and forward operating results on the leased property are expected to be similar on a per acre basis as existing citrus orchard operating results . 34 results of operations the following table shows the results of operations for : replace_table_token_4_th non-gaap financial measures due to significant depreciable assets associated with the nature of our operations and interest costs associated with our capital structure , management believes that earnings before interest expense , income taxes , depreciation and amortization ( “ ebitda ” ) and adjusted ebitda , which excludes impairments on real estate development assets , is an important measure to evaluate our company 's results of operations between periods on a more comparable basis . such measurements are not prepared in accordance with u.s. generally accepted accounting principles ( “ gaap ” ) and should not be construed as an alternative to reported results determined in accordance with gaap . the non-gaap information provided is unique to our company and may not be consistent with methodologies used by other companies . ebitda and adjusted ebitda are summarized and reconciled to net income ( loss ) which management considers to be the most directly comparable financial measure calculated and presented in accordance with gaap as follows : replace_table_token_5_th 35 fiscal year 2011 compared to fiscal year 2010 revenues total revenue for fiscal year 2011 was $ 52.5 million compared to $ 54.3 million for fiscal year 2010. the 3 % decrease of $ 1.8 million was primarily the result of decreased agribusiness and real estate development revenue , as detailed below : replace_table_token_6_th · lemons : the increase in fiscal year 2011 was primarily the result of increased volume of fresh lemons sold and increased sales prices for lemon by-products . during fiscal years 2011 and 2010 , fresh lemon sales were $ 27.8 million and $ 26.5 million , respectively , on 1.8 million and 1.4 million cartons of lemons sold at average per carton prices of $ 15.44 and $ 18.93 , respectively . additionally , during fiscal year 2011 , $ 2.3 million of lemon by-products were sold at an average price per ton of $ 187 compared to $ 1.7 million sold at an average price per ton of $ 104 in fiscal year 2010 . · avocados : the decrease in fiscal year 2011 was primarily due to decreased production partially offset by higher prices and a crop insurance settlement . the california avocado crop typically experiences alternating years of high and low production due to plant physiology and , as a result , we expect our avocado production to be higher in fiscal year 2012 than in fiscal year 2011. during fiscal years 2011 and 2010 , 4.3 million and 17.7 million pounds of avocados were sold at an average price per pound of $ 1.60 and $ 0.65 , respectively . fiscal year 2011 revenue included a $ 0.6 million avocado crop insurance claim settlement . · navel and valencia oranges : the decrease in fiscal year 2011 was primarily due to decreased sales prices for navel oranges . during fiscal years 2011 and 2010 , navel orange sales were $ 2.9 million and $ 3.5 million , respectively , on 323,000 and 337,000 field boxes of navel oranges sold at average per field box prices of $ 8.98 and $ 10.40 , respectively . this decrease was partially offset by increased valencia orange sales . story_separator_special_tag · specialty citrus and other crops : the increase in fiscal year 2011 was primarily due to increased sales prices for cara cara oranges sold and increased volume of moro blood oranges sold compared to fiscal year 2010. during fiscal years 2011 and 2010 , cara cara orange sales were $ 1.0 million and $ 0.9 million , respectively on 63,000 and 59,000 field boxes of cara cara oranges sold at average per field box prices of $ 15.87 and $ 15.25 , respectively . during fiscal years 2011 and 2010 , moro blood orange sales were $ 0.5 million and $ 0.4 million , respectively , on 27,000 and 18,000 field boxes of moro blood oranges sold at average per field box prices of $ 18.51 and $ 22.22 , respectively . · real estate development revenue was $ 2.5 million in fiscal year 2011 compared to $ 3.3 million in fiscal year 2010. the decrease in fiscal year 2011 was primarily due to donna circle 's $ 2.3 million sales price in fiscal year 2011 compared to cactus wren 's $ 3.0 million sales price in fiscal year 2010 . 36 costs and expenses total costs and expenses for fiscal year 2011 were $ 51.5 million compared to $ 51.2 million for fiscal year 2010. this 1 % increase of $ 0.3 million was primarily attributable to increases in our agribusiness costs of $ 4.1 million , offset by decreases in real estate development expenses , including impairment charges , and selling , general and administrative expenses of $ 2.1 million and $ 1.7 million , respectively . costs associated with our agribusiness segment include packing costs , harvest costs , growing costs , costs related to the lemons we process and sell for third-party growers and depreciation expense . the significant variances are discussed below : replace_table_token_7_th · packing costs : the increase in fiscal year 2011 primarily resulted from 0.4 million more cartons of fresh lemons being packed and sold compared to fiscal year 2010 . · harvest costs : the decrease in fiscal year 2011 primarily resulted from 13.4 million less pounds of avocados being harvested compared to fiscal year 2010 . · third-party grower costs : the increase in fiscal year 2011 is primarily attributable to a higher percentage of third-party grower lemons relative to the total volume of cartons sold , which directly correlates to amounts expensed and paid to third-party growers . real estate development expenses consist of costs incurred for our various real estate projects , impairment charges and depreciation expense . real estate development expenses for fiscal year 2011 were $ 4.7 million compared to $ 6.8 million for fiscal year 2010. this 31 % decrease of $ 2.1 million was primarily attributable to the following : · cost of sales of $ 2.3 million in fiscal year 2011 associated with the sale of donna circle compared to cost of sales of $ 3.0 million during fiscal year 2010 associated with the sale of cactus wren . · a $ 1.2 million decrease in the impairments of real estate development assets for fiscal year 2011 compared to fiscal year 2010. as the rate of decline in real estate values slowed , we incurred $ 1.2 million of impairment charges during fiscal year 2011 compared to $ 2.4 million for fiscal year 2010. selling , general and administrative expenses for fiscal year 2011 were $ 9.3 million compared to $ 11.0 million for fiscal year 2010. this 15 % decrease of $ 1.7 million is primarily attributable to the following : · in fiscal year 2010 , we incurred legal and accounting expenses of $ 1.4 million associated with the filing of our form 10 and other costs associated with the filing of quarterly reports on form 10-q and current reports on form 8-k , as well as our compliance with other obligations of the exchange act and the listing of our common stock on nasdaq . by comparison , such sec compliance and related costs were $ 0.8 million in fiscal year 2011 . · in fiscal year 2010 , we incurred a $ 1.3 million charge associated with the forgiveness of notes receivable from three of our senior executive officers . these notes were issued to the officers to allow them to pay the payroll taxes associated with compensation for shares issued to them under our stock grant performance bonus plan . during the first quarter of fiscal 2010 , the outstanding balances of these loans were repaid by the officers by exchanging 6,756 of the shares issued to them valued at $ 150.98 per shares , which was the current market value on the date they were exchanged ( and was prior to our 10-for-1 stock split ) and loan forgiveness by our company totaling $ 0.7 million . the loan forgiveness resulted in additional compensation to the officers and our company paid , on their behalf , $ 0.6 million in payroll taxes associated with this compensation . there were no such charges in fiscal year 2011 . 37 · fiscal year 2011 stock based compensation expense of $ 0.8 million included second-year vesting associated with a stock grant to management for fiscal year 2010 performance . by comparison , fiscal year 2010 expense of $ 1.2 million included first-year vesting associated with a stock grant to management for fiscal year 2010 performance plus third-year vesting associated with a stock grant to management for fiscal year 2008 performance . additionally , in fiscal year 2011 , we did not incur any expense for bonus compensation , whereas in fiscal year 2010 we incurred $ 0.4 million of expense .
| the significant components of our cash flows provided by ( used in ) operating activities are as follows : · net income ( loss ) was $ 1.6 million , $ 0.3 million and ( $ 2.9 ) million for fiscal years 2011 , 2010 and 2009 , respectively . the increase of $ 1.3 million in fiscal year 2011 as compared to fiscal year 2010 was primarily attributable to an increase in other income of $ 4.4 million , a decrease in operating income of $ 2.1 million and an increase in income tax provision of $ 0.8 million . the increase of $ 3.2 million in fiscal year 2010 as compared to fiscal year 2009 was primarily attributable to a $ 10.6 million increase in operating income , a $ 5.7 increase in other expense and a $ 2.2 million decrease in income tax benefit . · depreciation and amortization was $ 2.2 million , $ 2.3 million and $ 2.3 million for fiscal years 2011 , 2010 and 2009 , respectively . depreciation and amortization for each of fiscal years 2011 , 2010 and 2009 remained stable primarily because the balance of depreciable assets did not change significantly . · in fiscal year 2011 , we sold the rancho refugio/caldwell ranch which resulted in a gain of $ 1.4 million . no such transaction occurred in fiscal years 2010 or 2009 . · non-cash impairments of real estate development assets resulting from continued weakness in the real estate market were $ 1.2 million , $ 2.4 million and $ 6.2 million for fiscal years 2011 , 2010 and 2009 , respectively . · during fiscal 2009 , our company sold 335,000 shares of its investment in calavo which resulted in a gain of $ 2.7 million . no such transaction occurred in fiscal years 2011 or 2010 . · non-cash stock compensation expense was $ 0.8 million , $ 1.2 million and $ 0.8 million for fiscal years 2011 , 2010 and
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) , or the notes to the consolidated financial statements ( item 8 ) in this annual report on form 10-k or described in any of the company 's annual , quarterly or current reports . any forward-looking statement made by the company or on its behalf speaks only as of the date that it was made . the company does not undertake to update any forward-looking statement to reflect the impact of events , circumstances , or results that arise after the date that the statement was made , except as required by applicable securities laws . you , however , should consult further disclosures ( including disclosures of a forward-looking nature ) that the company may make in any subsequent annual report on form 10-k , quarterly report on form 10-q , or current report on form 8-k. results of operations overview the company focuses on the following four core strategic objectives . management believes these strategic objectives will guide its efforts to achieve its vision , to deliver the unparalleled customer experience , all the while seeking to improve net income and strengthen the balance sheet while undertaking prudent risk management . the first strategic objective is to continuously improve operating efficiencies . the company focuses on identifying efficiencies that simplify our organizational and reporting structures , streamline back office functions and take advantage of synergies and newer technologies among various platforms and distribution networks . the company has and expects to continue identifying ongoing efficiencies through the normal course of business that , when combined with increased revenue , will contribute to improved operating leverage . for 2017 , total revenue increased 9.4 percent , while noninterest expense increased 5.8 percent , as compared to the previous year . as part of this initiative , the company continues to invest in technological advances that it believes will help management drive operating leverage in the future through improved data analysis and automation . the company also continues to evaluate core systems and will invest in enhancements that it believes will yield operating efficiencies . 21 the second strategic objective is to increase on net interest income through profitable loan and deposit growth and the optimization of the balance sheet . for 2017 , we made progress on this strategy , as illustrated by an increase in net interest income of $ 63.6 million , or 12.8 percent , as compared t o the previous year . the company has shown increased net interest income through the effects of increased interest rates and volumes , and the mix of average earning assets and a low cost of funds in its cons olidated balance sheets . average loan balances increased $ 85 0.8 million , or 8.5 percent , from december 31 , 2016. the funding for these assets was driven primarily by a 5.6 percent increase in average interest-bearing liabilities . net interest margin , on a tax-equivalent basis , increased 27 basis point s compared to the same period in 2016. the third strategic objective is to grow the company 's revenue from noninterest sources . the company has continued to emphasize its diverse operations throughout all economic cycles . this strategy has provided revenue diversity , helping to reduce the impact of sustained low interest rates and position the company to benefit in periods of growth . noninterest income increased $ 21.1 million , or 5.2 percent , to $ 423.6 million for the year ended december 31 , 2017 , compared to the same period in 2016. this change is discussed in greater detail below under noninterest income . the company continues to emphasize its asset management , brokerage , bankcard services , healthcare services , institutional banking , and treasury management businesses . at december 31 , 2017 , noninterest income represented 43.1 percent of total revenues , as compared to 44.8 percent at december 31 , 2016. the fourth strategic objective is effective capital management . the company places a significant emphasis on maintaining a strong capital position , which management believes promotes investor confidence , provides access to funding sources under favorable terms , and enhances the company 's ability to capitalize on organic growth , new business development , and acquisition opportunities . the company continues to maximize shareholder value through a mix of reinvesting in organic growth , evaluating acquisition opportunities that complement the strategies , increasing dividends over time , and appropriately utilizing a share repurchase program . at december 31 , 2017 , the company had a total risk-based capital ratio of 14.04 percent and $ 2.2 billion in total shareholders ' equity , an increase of $ 219.1 million , or 11.2 percent , compared to total shareholders ' equity at december 31 , 2016. the company repurchased 217,071 shares of common stock at an average price of $ 70.37 per share during 2017 and paid $ 51.9 million in dividends , which represents a 5.8 percent increase compared to dividends paid during 2016. story_separator_special_tag style= '' margin-bottom:0pt ; margin-top:0pt ; text-indent:0 % ; font-family : times new roman ; font-size:10pt ; '' > 25 table 2 rate-volume analysis ( in thousands ) this analysis attributes changes in net interest income either to changes in average balances or to changes in average interest rates for earning assets and interest-bearing liabilities . the change in net interest income that is due to both volume and interest rate has been allocated to volume and interest rate in proportion to the relationship of the absolute dollar amount of the change in each . all interest rates are presented on a tax-equivalent basis and give effect to tax-exempt interest income net of the disallowance of interest expense for federal income tax purposes , related to certain tax-free assets . the loan average balances and rates include nonaccrual loans . replace_table_token_7_th replace_table_token_8_th 26 table 3 analysis of net interest margin ( in thousands ) replace_table_token_9_th the company experienced an increase in net interest income of $ 63.6 million , or 12.8 percent , for the year-ended december 31 , 2017 , compared to 2016. this follows an increase of $ 83.3 story_separator_special_tag million , or 20.2 percent , for the year-ended december 31 , 2016 , compared to 2015. average earning assets for the year ended december 31 , 2017 increased by $ 761.4 million , or 4.2 percent , compared to the same period in 2016. net interest margin , on a tax-equivalent basis , increased to 3.15 percent for 2017 compared to 2.88 percent in 2016. as illustrated in table 2 , the 2016 and 2015 increases are primarily due to the favorable volume variances in earning assets driven by the impacts of the acquisition of marquette financial companies ( marquette ) in 2015. the company funds a significant portion of its balance sheet with noninterest-bearing demand deposits . noninterest-bearing demand deposits represented 37.9 percent , 40.2 percent and 41.8 percent of total outstanding deposits at december 31 , 2017 , 2016 and 2015 , respectively . as illustrated in table 3 , the impact from these interest-free funds was 18 basis points in 2017 , as compared to nine basis points in 2016 and eight basis points in 2015. the company has experienced an increase in net interest income during 2017 due to a volume variance of $ 33.9 million and a rate variance of $ 29.7 million . the average rate on earning assets during 2017 has increased by 42 basis points , while the average rate on interest-bearing liabilities increased by 24 basis points , resulting in an 18 basis point increase in spread . the volume of loans has increased from an average of $ 10.0 billion in 2016 to an average of $ 10.8 billion in 2017. loan-related earning assets tend to generate a higher spread than those earned in the company 's investment portfolio . by design , the company 's investment portfolio is moderate in duration and liquid in its composition of assets . during 2018 , approximately $ 900 million of available for sale securities are expected to have principal repayments . this includes approximately $ 243 million which will have principal repayments during the first quarter of 2018. the available for sale investment portfolio had an average life of 51.7 months , 54.3 months , and 44.8 months as of december 31 , 2017 , 2016 , and 2015 , respectively . provision and allowance for loan losses the allowance for loan losses ( all ) represents management 's judgment of the losses inherent in the company 's loan portfolio as of the balance sheet date . an analysis is performed quarterly to determine the appropriate balance of the all . the analysis reflects loan quality trends , including the levels of and trends related to non-accrual loans , past due loans , potential problem loans , criticized loans and net charge-offs or recoveries , among other factors . after the balance sheet analysis is performed for the all , the provision for loan losses is computed as the amount required to adjust the all to the appropriate level . table 4 presents the components of the allowance by loan portfolio segment . the company manages the all against the risk in the entire loan portfolio and therefore , the allocation of the all to a particular loan segment may change in the future . management of the company believes the present all is adequate considering the company 's loss experience , delinquency trends and current economic conditions . future economic conditions and borrowers ' ability to meet their obligations , however , are uncertainties which could affect the company 's all and or need to change its current level of provision . for more information on loan portfolio segments and all 27 methodology refer to note 3 , “ loans and allowance for loan losses , ” in the notes to t he consolidated financial statements . table 4 allocation of allowance for loan losses ( in thousands ) this table presents an allocation of the allowance for loan losses by loan portfolio segment , which represents the inherent probable loss derived by both quantitative and qualitative methods . the amounts presented are not necessarily indicative of actual future charge-offs in any particular category and are subject to change . replace_table_token_10_th table 5 presents a five-year summary of the company 's all . also , please see “ quantitative and qualitative disclosures about market risk—credit risk management ” on page 51 in this report for information relating to nonaccrual , past due , restructured loans , and other credit risk matters . for more information on loan portfolio segments and all methodology refer to note 3 , “ loans and allowance for loan losses , ” in the notes to the consolidated financial statements . as illustrated in table 5 below , the all increased as a percentage of total loans to 0.89 percent as of december 31 , 2017 , compared to 0.87 percent as of december 31 , 2016. based on the factors above , the provision for loan loss totaled $ 41.0 million for the year-ended december 31 , 2017 , which is an increase of $ 8.5 million , or 26.2 percent , compared to the same period in 2016. this provision for loan losses totaled $ 32.5 million and $ 15.5 million for the years-ended december 31 , 2016 and 2015 , respectively . 28 table 5 analysis of allowance for loan losses ( in thousands ) replace_table_token_11_th noninterest income a key objective of the company is the growth of noninterest income to provide a diverse source of revenue not directly tied to interest rates . fee-based services are typically non-credit related and are not generally affected by fluctuations in interest rates . noninterest income increased in 2017 by $ 21.1 million , or 5.2 percent , compared to 2016 and increased in 2016 by $ 31.9 million , or 8.6 percent , compared to 2015. the increase in 2017 is primarily attributable to trust and securities processing , increase in bank-owned and company-owned life insurance income , brokerage income , and bankcard income , partially offset by lower gains on sales of available-for-sale securities and equity earnings on alternative investments .
| see table 18 in item 7a on page 48 for an illustration of the impact of an interest rate increase or decrease on net interest income as of december 31 , 2017. the company had an increase of $ 21.1 million , or 5.2 percent , in noninterest income in 2017 , as compared to 2016 , and a $ 31.9 million , or 8.6 percent , increase in 2016 , compared to 2015. the increase in 2017 is primarily attributable to trust and securities processing , and increases in bank-owned and company-owned life insurance income , brokerage income , and bankcard income , partially offset by lower gains on sales of available-for-sale securities and equity earnings on alternative investments . the change in noninterest income in 2017 from 2016 , and 2016 from 2015 is illustrated on table 6 on page 30 . 22 noninterest expense increased in 201 7 by $ 3 8 . 4 million , or 5 . 8 percent , compared to 201 6 and increased by $ 27 . 8 million , or 4 . 4 percent , in 201 6 compared to 201 5 . the increase in 201 7 is primarily driven by an increase of $ 2 3 . 8 million , or 6 . 1 percent , in salary and employee benefit expense , an increase of $ 6.3 million , or 17.6 percent , in processing fees , and an increase of $ 5.7 million , or 8.5 percent , in equipment expense . the increase in noninterest expense in 201 7 from 201 6 , and 201 6 from 201 5 is ill ustrated on table 7 on page 31 . net interest income net interest income is a significant source of the company 's earnings and represents the amount by which interest income on earning assets exceeds the interest expense paid on liabilities . the volume of interest earning assets and the related funding sources , the overall mix of these assets
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ugi international results in fiscal 2015 include the operations of finagaz in france for the period subsequent to its acquisition on may 29 , 2015. due to the seasonality of finagaz ' operations favoring the winter heating season , the timing of the totalgaz acquisition ( excluding the impacts of transition and acquisition expenses ) did not have a material impact on net income attributable to ugi corporation . fiscal 2015 ugi international net income includes after-tax acquisition and transition expenses associated with finagaz of $ 14.9 million , a $ 4.6 million after-tax loss on an early extinguishment of debt at antargaz , and a $ 1.4 million net loss from finagaz operations subsequent to its acquisition . although the euro , and to a lesser extent the british pound sterling , were significantly weaker versus the u.s. dollar during fiscal 2015 32 which reduced ugi international net income , the effects of these weaker currencies on ugi international net income were offset , in large part , by gains on foreign currency exchange contracts . as further described below under the caption , “ non-gaap financial measures - adjusted net income attributable to ugi and adjusted earnings per diluted share , ” ugi management uses “ adjusted net income attributable to ugi ” and “ adjusted diluted earnings per share , ” both of which are non-gaap financial measures , when evaluating ugi 's overall performance . adjusted net income attributable to ugi excludes ( 1 ) net after-tax gains and losses on commodity derivative instruments not associated with current-period transactions and ( 2 ) other significant discrete items that management believes affect the comparison of period-over-period results ( as such items are further described below ) . volatility in net income attributable to ugi as determined in accordance with accounting principles generally accepted in the u.s. ( “ gaap ” ) can occur as a result of gains and losses on commodity derivative instruments not associated with current-period transactions . these gains and losses result principally from recording changes in unrealized gains and losses on unsettled commodity derivative instruments and , to a much lesser extent , certain realized gains and losses on settled commodity derivative instruments that are not associated with current-period transactions . fiscal 2015 results we recorded gaap net income attributable to ugi corporation for fiscal 2015 of $ 281.0 million , equal to $ 1.60 per diluted share , compared to gaap net income attributable to ugi corporation for fiscal 2014 of $ 337.2 million , equal to $ 1.92 per diluted share . the $ 56.2 million decrease in gaap net income attributable to ugi includes after-tax losses on commodity derivative instruments not associated with current-period transactions in fiscal 2015 of $ 53.3 million ( equal to $ 0.30 per diluted share ) compared to after-tax losses in fiscal 2014 of $ 6.6 million ( equal to $ 0.04 per diluted share ) . the $ 53.3 million of after-tax losses on commodity derivative instruments not associated with current-period transactions recorded in fiscal 2015 reflect the effects of substantial declines in worldwide energy commodity prices . although our gaap net income was affected by these after-tax losses on commodity derivative contracts not associated with current-period transactions , because these contracts economically hedge future anticipated purchases of energy commodities we expect that such losses on these contracts will be largely offset by lower costs of commodity purchases when such derivative contracts are settled and the associated energy commodity is purchased or sold . gaap net income attributable to ugi in fiscal 2014 also reflects the retroactive effect to fiscal 2013 of a change in tax laws in france , which increased fiscal 2014 tax expense , and reduced fiscal 2014 gaap net income attributable to ugi , by $ 5.7 million or $ 0.03 per diluted share . adjusted net income attributable to ugi was $ 353.8 million ( equal to $ 2.01 per diluted share ) in fiscal 2015 compared to $ 353.8 million ( equal to $ 2.02 per diluted share ) in fiscal 2014. fiscal 2015 changes in net income by business unit compared to fiscal 2014 reflect ( 1 ) a $ 13.9 million increase in adjusted net income at ugi international ( after excluding the after-tax effects of $ 14.9 million and $ 4.3 million of finagaz acquisition and transition expenses in fiscal 2015 and fiscal 2014 , respectively ; a $ 4.6 million after-tax loss on extinguishment of debt at antargaz in fiscal 2015 ; and a $ 5.7 million income tax expense associated with the retroactive change in french tax law in fiscal 2014 ) ; ( 2 ) an $ 8.9 million decrease in adjusted net income from midstream & marketing ; ( 3 ) a $ 3.0 million decrease in net income from our gas utility ; and ( 4 ) a $ 2.0 million decrease in adjusted net income attributable to ugi from amerigas propane . ugi international average temperatures during fiscal 2015 were significantly warmer than normal but slightly colder than in fiscal 2014. ugi international unit margins in fiscal 2015 benefited from lower lpg supply costs . the decrease in adjusted midstream & marketing results principally reflects slightly lower total margin and higher operating and depreciation expenses due in part to the expansion of our midstream assets . the lower amerigas propane results principally reflect the effects on volumes sold of weather that was warmer than normal and warmer than in fiscal 2014. gas utility results in fiscal 2015 were slightly lower than the prior year , notwithstanding a slight increase in total margin , reflecting higher operating and administrative expenses . although the euro , and to a lesser the british pound sterling , were significantly weaker during fiscal 2015 , the effects of these weaker currencies on ugi international net income were offset in large part by gains on foreign currency exchange contracts . story_separator_special_tag we believe each of our business units has sufficient liquidity in the forms of revolving credit facilities and , with respect to energy services , an accounts receivable securitization facility , to fund business operations during fiscal 2016. ugi utilities has $ 247.0 million of long-term debt maturing in fiscal 2016 and flaga refinanced its 26.7 million of long-term debt due in late fiscal 2016 in october 2015 ( see “ financial condition and liquidity ” below ) . ugi utilities intends to refinance its maturing debt on a long-term basis . looking ahead , our results in fiscal 2016 will be influenced by a number of factors including heating-season weather , the level and volatility of commodity prices for natural gas , lpg , electricity and oil , and economic conditions in the u.s. and europe . we have made substantial progress on growth initiatives that will fuel earnings growth in the future . we expect that our midstream & marketing businesses will continue to benefit from the growing demand for natural gas in the northeast and mid-atlantic 33 regions and the current infrastructure gap that exists in bringing marcellus shale gas to markets in these regions . in addition , we expect to see the beneficial earnings impact from investments that are already in progress or recently completed , including projects to address the marcellus shale infrastructure gap . acquisition activity in europe over the last several years makes us an attractive supply partner and creates new business opportunities and our acquisition of finagaz in france strengthens our position in europe . at gas utility , we expect to continue to experience growth from conversions from oil as a result of sustained low natural gas prices and it is likely that ugi gas will file a base rate case in fiscal 2016 , its first such filing in over twenty years . to the extent normal weather patterns return in our european lpg operations , we expect to reap the benefits from our acquisition activity in this region . non-gaap financial measures - adjusted net income attributable to ugi and adjusted earnings per diluted share as previously mentioned , ugi management uses “ adjusted net income attributable to ugi ” and “ adjusted diluted earnings per share , ” both of which are non-gaap financial measures , when evaluating ugi 's overall performance . adjusted net income attributable to ugi is net income attributable to ugi after excluding net after-tax gains and losses on commodity derivative instruments not associated with current-period transactions ( principally comprising changes in unrealized gains and losses on commodity derivative instruments ) , losses on extinguishments of debt , finagaz and , in fiscal 2013 , heritage propane transition and acquisition expenses and , in fiscal 2014 , the retroactive impact of a change in french tax law . for further information on the company 's accounting for commodity derivative instruments , see note 2 to consolidated financial statements . non-gaap financial measures are not in accordance with , or an alternative to , gaap and should be considered in addition to , and not as a substitute for , the comparable gaap measures . management believes that these non-gaap measures provide meaningful information to investors about ugi 's performance because they eliminate the impact of gains and losses on commodity derivative instruments not associated with current-period transactions and other discrete items that can affect the comparison of period-over-period results . the following table reconciles net income attributable to ugi corporation , the most directly comparable gaap measure , to adjusted net income attributable to ugi corporation , and reconciles diluted earnings per share , the most comparable gaap measure , to adjusted diluted earnings per share , to reflect the adjustments referred to above : replace_table_token_8_th ( a ) fiscal 2014 and fiscal 2013 amounts have been adjusted to conform to the fiscal 2015 definition of adjusted net income attributable to ugi corporation and adjusted diluted earnings per share . 34 results of operations the following analyses compare the company 's results of operations for ( 1 ) fiscal 2015 with fiscal 2014 and ( 2 ) fiscal 2014 with the fiscal year ended september 30 , 2013 ( “ fiscal 2013 ” ) . fiscal 2015 compared with fiscal 2014 consolidated results net income attributable to ugi corporation by business unit : replace_table_token_9_th ( a ) fiscal 2015 includes a net after-tax loss of $ 4.6 million associated with an early extinguishment of debt at antargaz and after-tax acquisition and transition expenses associated with finagaz of $ 14.9 million . fiscal 2014 includes after-tax acquisition-related expenses associated with finagaz of $ 4.3 million and income tax expense of $ 5.7 million to reflect the retroactive effects of a change in tax laws in france . ( b ) includes net after-tax losses on commodity derivative instruments not associated with current-period transactions of $ 53.3 million and $ 6.6 million in fiscal 2015 and fiscal 2014 , respectively . n.m. — variance is not meaningful . fiscal 2015 highlights ugi international fiscal 2015 net income includes a net after-tax loss of $ 4.6 million associated with an early extinguishment of debt at antargaz and after-tax acquisition and integration-related costs associated with finagaz of $ 14.9 million . ugi international fiscal 2014 net income includes after-tax acquisition-related expenses associated with finagaz of $ 4.3 million and income tax expense of $ 5.7 million to reflect the retroactive effects of a change in tax laws in france . fiscal 2015 ugi international local currency operating results ( excluding acquisition and transition expenses associated with finagaz ) improved reflecting higher average unit margins resulting from a significant decline in lpg commodity prices . midstream & marketing benefited from colder than normal fiscal 2015 winter weather in the northeast and mid-atlantic regions of the united states , which resulted in continued high demand for natural gas and continued high prices for pipeline capacity .
| net income in fiscal 2014 includes after-tax losses of $ ( 6.6 ) million ( equal to $ ( 0.04 ) per diluted share ) on commodity derivative instruments not associated with current-period transactions while net income in fiscal 2013 includes after-tax gains of $ 4.3 million ( equal to $ 0.02 per diluted share ) on commodity derivative instruments not associated with current-period transactions . 40 replace_table_token_15_th ( a ) total margin represents total revenues less total cost of sales . total margin in fiscal 2014 excludes net pre-tax losses of $ 9.5 million on amerigas propane unsettled commodity derivative instruments entered into beginning april 1 , 2014 , not associated with current-period transactions . ( b ) partnership adjusted ebitda ( earnings before interest expense , income taxes and depreciation and amortization ) should not be considered as an alternative to net income ( as an indicator of operating performance ) and is not a measure of performance or financial condition under gaap . management uses partnership adjusted ebitda as the primary measure of segment profitability for the amerigas propane segment ( see note 22 to consolidated financial statements ) . partnership adjusted ebitda for fiscal 2013 includes transition expenses of $ 26.5 million associated with the integration of heritage propane acquired in january 2012. deviation from average heating degree days for the 30-year period 1971-2000 based upon national weather statistics provided by noaa for 335 airports in the united states , excluding alaska . the 2.4 % increase in retail gallons sold in fiscal 2014 reflects average temperatures based upon heating degree days that were 3.4 % colder than normal and 8.8 % colder than the prior year . the colder average weather reflects significantly colder winter weather in the eastern half of the united states partially offset by warmer weather in the western u.s. the effects of the colder winter weather on retail gallons sold , however , were muted by supply challenges in certain regions of the u.s. that experienced prolonged periods of unusually cold winter weather . in order to ensure that customers in these regions were adequately supplied during these extreme weather conditions , the partnership instituted supply allocation measures in certain areas , which limited total retail volumes sold and increased distribution costs per gallon . retail propane revenues increased $ 529.7 million during fiscal 2014
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management believes the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements . in addition to the accounting policies mentioned below , see `` item 8. financial statements and supplementary data — notes to consolidated financial statements — note 2 '' for other significant accounting policies . revenue recognition we recognize revenue on the sale of products when title of the goods has transferred , there is persuasive evidence of an arrangement ( such as a purchase order from the customer ) , the sales price is fixed or determinable and collectability is reasonably assured . we record a provision for estimated sales returns . the provision recorded for estimated sales returns and allowances is deducted from gross sales to arrive at net sales in the period the related revenue is recorded . these estimates are based on historical sales returns , analysis of credit memo data and other known factors . actual returns and claims in any future period are inherently uncertain and thus may differ from our estimates . if actual or expected future returns and claims are significantly greater or lower than the reserves that we have established , we will record a reduction or increase to net revenues in the period in which we make such a determination . the allowance for sales returns balance at december 31 , 2012 and 2011 was $ 1.0 million and $ 1.0 million , respectively . we accrue for discounts and rebates on product sales in the same period as the related revenues are recorded based on our current expectations , after considering historical experience . changes in such accruals may be required if future rebates and incentives differ from our estimates . rebates and incentives are recognized as a reduction of sales if distributed in cash or customer account credits . rebates and incentives are recognized as cost of sales if we provide products or services for payment . we maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make payments for products sold or services rendered . the allowance for doubtful accounts is estimated based on a variety of factors , including credit reviews , historical experience , length of time receivables are past due , current economic trends and changes in customer payment behavior . also , we record specific provisions for individual accounts when we become aware of a customer 's inability to meet its financial obligations to us , such as in the case of bankruptcy filings or deterioration in the customer 's operating results or financial position . our historical reserves have been sufficient to cover losses from uncollectible accounts . however , because we can not predict future changes in the financial stability of our customers , actual future losses from uncollectible accounts may differ from our estimates and may have a material effect on our consolidated financial position , results of operations and cash flows . we incurred $ 0.1 million , $ 0.3 million , and $ 0.9 million of bad debt expense in 2012 , 2011 , and 2010 , respectively . we also license our intellectual property including our patented technologies , trademarks , and database of infrared codes . when our license fees are paid on a per unit basis we record license revenue when our customers ship a product incorporating our intellectual property , persuasive evidence of an arrangement exists , the sales price is fixed or determinable , and collectability is reasonably assured . revenue for term license fees is recognized on a straight-line basis over the effective term of the license when we can not reliably predict in which periods , within the term of the license , the licensee will benefit from the use of our patented inventions . warranty we warrant our products against defects in materials and workmanship arising during normal use . we service warranty claims directly through our customer service department or contracted third-party warranty repair facilities . our warranty periods range up to three years . we estimate and recognize product warranty costs , which are included in cost of sales , as we sell the related products . warranty costs are forecasted based on the best available information , primarily historical claims experience and the expected cost per claim . the costs we have incurred to service warranty claims have been minimal . however , actual claim costs may differ from the amounts estimated . if a significant product defect were to be discovered on a high volume product , our financial statements may be materially impacted . 23 inventories our wireless remote control device , component part , and raw material inventories are valued at the lower of cost or market value . cost is determined using the first-in , first-out method . we write-down our inventory for the estimated difference between cost and estimated market value based upon our best estimates of market conditions . we carry inventory in amounts necessary to satisfy our customers ' inventory requirements on a timely basis . we continually monitor our inventory status to control inventory levels and write-down any excess or obsolete inventories on hand . our total excess and obsolete inventory reserve on december 31 , 2012 and 2011 was $ 2.0 million and $ 3.4 million , respectively , or 2.3 % and 3.7 % , respectively , of total inventory . if actual market conditions are less favorable than those projected by management , additional inventory write-downs may be required which may have a material impact on our financial statements . such circumstances may include , but are not limited to , the development of new competing technology that impedes the marketability of our products or the occurrence of significant price decreases in our raw material or component parts , such as integrated circuits . each percentage point change in the ratio of excess and obsolete inventory reserve to inventory would impact cost of sales by approximately $ 0.9 million . story_separator_special_tag business combinations we are required to allocate the purchase price of acquired companies to the tangible and intangible assets and the liabilities assumed , as well as in-process research and development ( `` ipr & d '' ) , based upon their estimated fair values . we engage independent third-party appraisal firms to assist us in determining the fair values of assets acquired and liabilities assumed . such valuations require management to make significant fair value estimates and assumptions , especially with respect to intangible assets . management estimates the fair value of certain intangible assets by utilizing the following ( but not limited to ) : future free cash flow from customer contracts , customer lists , distribution agreements , acquired developed technologies , trademarks , trade names and patents ; expected costs to develop ipr & d into commercially viable products and cash flows from the products once they are completed ; brand awareness and market position , as well as assumptions regarding the period of time the brand will continue to be used in our product portfolio ; and discount rates utilized in discounted cash flow models . our estimates are based upon assumptions believed to be reasonable ; however , unanticipated events or circumstances may occur which may affect the accuracy of our fair value estimates , including assumptions regarding industry economic factors and business strategies . valuation of long-lived assets and intangible assets we assess long-lived and intangible assets for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable . factors considered important which may trigger an impairment review , if significant , include the following : underperformance relative to historical or projected future operating results ; changes in the manner of use of the assets ; changes in the strategy of our overall business ; negative industry or economic trends ; a decline in our stock price for a sustained period ; and a variance between our market capitalization relative to net book value . if the carrying value of the asset is larger than its undiscounted cash flows , the asset is impaired . the impairment is measured as the difference between the net book value of the asset and the asset 's estimated fair value . fair value is estimated utilizing the assets projected discounted cash flows . in assessing fair value , we must make assumptions regarding estimated future cash flows , the discount rate and other factors . capitalized software development costs at each balance sheet date , we compare the unamortized capitalized software development costs to the net realizable value of the related product . the amount by which the unamortized capitalized software development costs exceed the net realizable value of the related product is written off . the net realizable value is the estimated future gross revenues attributable to each product reduced by its estimated future completion and disposal costs . any remaining amount of capitalized software 24 development costs that have been written down are considered to be the cost for subsequent accounting purposes , and the amount of the write-down is not subsequently restored . goodwill we evaluate the carrying value of goodwill on december 31 of each year and between annual evaluations if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount . such circumstances may include , but are not limited to : ( 1 ) a significant adverse change in legal factors or in business climate , ( 2 ) unanticipated competition or ( 3 ) an adverse action or assessment by a regulator . when performing the impairment review , we determine the carrying amount of each reporting unit by assigning assets and liabilities , including the existing goodwill , to those reporting units . a reporting unit is defined as an operating segment or one level below an operating segment ( referred to as a component ) . a component of an operating segment is deemed a reporting unit if the component constitutes a business for which discrete financial information is available , and segment management regularly reviews the operating results of that component . we have a single reporting unit . on december 31 , 2012 , we had goodwill of $ 30.9 million . to evaluate whether goodwill is impaired , we conduct a two-step quantitative goodwill impairment test . in the first step we compare the estimated fair value of the reporting unit to which the goodwill is assigned to the reporting unit 's carrying amount , including goodwill . we estimate the fair value of our reporting unit based on income and market approaches . under the income approach , we calculate the fair value of a reporting unit based on the present value of estimated future cash flows . under the market approach , we estimate the fair value based on market multiples of enterprise value to ebitda for comparable companies . if the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit , then we perform the second step of the impairment test in order to determine the implied fair value of the reporting unit 's goodwill . to calculate the implied fair value of the reporting unit 's goodwill , the fair value of the reporting unit is first allocated to all of the other assets and liabilities of that unit based on their fair values . the excess of the reporting unit 's fair value over the amount assigned to its other assets and liabilities is the implied fair value of goodwill . an impairment loss would be recognized equal to the amount by which the carrying value of goodwill exceeds its implied fair value . determining the fair value of a reporting unit or an indefinite-lived purchased intangible asset is judgmental in nature and involves the use of significant estimates and assumptions .
| international retail sales increased 10 % from $ 43.4 million in 2011 to $ 47.8 million in 2012 due primarily to increased sales in the u.k. and latin america . in addition , north american retail sales increased $ 1.2 million , from $ 3.1 million to $ 4.3 million . gross profit . gross profit in 2012 was $ 133.4 million compared to $ 130.1 million in 2011 . gross profit as a percent of sales increased to 28.8 % in 2012 from 27.8 % in 2011 . this improvement is primarily due to an increase in units produced internally versus units produced by third-party manufacturers . gross profit in 2012 was also positively affected by us entering into a licensing agreement with a customer in the gaming industry , as well as the signing of a long-term , confidential settlement and license agreement with logitech . compared to 2011 , this favorability was partially offset by pricing pressure from customers . research and development ( `` r & d '' ) expenses . r & d expenses increased 15 % to $ 14.2 million in 2012 from $ 12.3 million in 2011 . the increase is due to additional labor dedicated to general r & d activities in an effort to continue to develop new products and technologies . 27 selling , general and administrative ( `` sg & a '' ) expenses . sg & a expenses increased 2 % to $ 93.1 million in 2012 from $ 91.2 million in 2011 . legal expenses increased by $ 1.3 million as a result of litigation costs related to protecting our intellectual property . employee bonus expense increased by $ 3.2 million . partially offsetting these expense increases was a $ 2.5 million favorable currency effect due primarily to the euro weakening compared to the u.s. dollar . interest income ( expense ) , net . net interest expense was $ 0.2 million in 2012 compared to $ 0.3 million in 2011 . the decrease in interest expense was due to lower credit needs during 2012 , primarily as a result of positive operating cash flows
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in order to achieve our new strategic business model , we decided to sell both our subsidiaries because they were not producing enough profit and were not a strategic fit with our goal of developing the market for hydrogen energy systems . further , the hydrogen energy market for residential users was not developing at all based on cost inefficiencies , and debt levels were beginning to impact us adversely . beginning in march 2020 , the following steps were undertaken to implement the business transition plan : ● march 2020 - commenced discussions with investor regarding financing options for our company and strategic acquisitions . ● april 21 , 2020 - concluded the disposition of the pvbj subsidiary ● may 2020 - commenced discussions and diligence for an investment in a hydrogen production project in the netherlands , known as volt h2 ● may 18 , 2020 - concluded the disposition of the pride group subsidiary ● july 2020 - concluded 2nd and 3rd tranches of debt financing with proceeds earmarked for an investment in volt h2 . ● august 12 , 2020 - concluded acquisition of an equity interest in volt h2 ● september 30 , 2020 – moved the company 's headquarters from dallas , texas to jersey city , new jersey ● october 6 , 2020 – changed the company name to vision hydrogen corporation and effected a twenty-for-one reverse stock split of our outstanding common stock ● january 2021 – closed on the sale of 12,500,000 shares of common stock in a registered offering , resulting in gross proceeds of $ 2.5 million . 19 with the initial investment into the hydrogen production market via volt h2 , the first step in transitioning our hydrogen business focus has been completed . we now will continue to operate the business in a manner that is aligned with our primary hydrogen business strategy . discontinued operations on april 21 , 2020 , our board of directors authorized our resale of pvbj back to pvbj pursuant to the terms as follows : ( a ) benis holdings llc applied the $ 221,800 earn-out liability as consideration towards the purchase of pvbj ; ( b ) paul benis applied the remaining salary due to him , as prorated from the closing date to the expiration date of the employment agreement ( january 31 , 2021 ) , to the purchase of pvbj by benis holdings llc as additional consideration thereof , and we have no further salary obligation to paul benis , who resigned as our executive officer ; and ( c ) as additional consideration for the purchase of pvbj by benis holdings llc , pvbj continues to be responsible for the line of credit ( refer to note 15 ) . on may 18 , 2020 , in accordance to nevada statute 78.565 , we completed and executed the may 18 , 2020 purchase and sale agreement between us and turquino providing for our sale of 100 % of pride 's outstanding stock pride to turquino in return for turquino 's assumption of the hidalgo notes and the doyle notes and the debt obligations and accrued interest related thereto ( the “ agreement ” ) . in conjunction therewith , hidalgo and doyle assigned the notes to turquino , at which time turquino became responsible for the debt obligations upon the notes , we have no further note obligations to hidalgo or doyle , and we reduced our debt by approximately $ 600,000 or 65 % of the corporate debt obligations . pursuant to nevada statute section 78.565 , approval of the agreement only required the approval of the board of directors and did not require shareholder approval . the agreement provides that the parties mutually release one another and discharge and release the other party ( and their respective current and former officers , directors , employees , shareholders , note holders , attorneys , assigns , agents , representatives , predecessors and successors in interest ) , from any and all claims , demands , obligations , or causes of action . hidalgo , our chief executive officer , and a managing member of turquino , are related parties in connection with the exchange agreement , the notes , and the agreement . december 31 , 2020 pvbj proceeds on sale ( earn-out payable exchange ) $ 214,074 less : net asset value ( 1,383,440 ) loss on disposal of assets $ ( 1,169,366 ) pride proceeds on sale ( debt forgiveness ) $ 500,321 less net asset value ( 120,380 ) gain on disposal of assets $ 379,941 story_separator_special_tag expenses . and . for the year ended december 31 , 2020 , we used $ 497,101 in cash in investing activities due to the cash disposed of in the disposition of the two subsidiaries , pride and pvbj , and $ 175,000 in the investment in volt . there was no cash used or provided by from investing activities for the year ended december 31 , 2019. for the year ended december 31 , 2020 , we generated $ 611,252 in financing activities , which represented $ 580,232 in proceeds from related party debt , $ 75,000 in proceeds from the issuance of convertible debt , $ 26,020 in proceeds from equity financing and $ 20,000 in proceeds from ppp notes payable , offset by $ 90,000 in convertible debt repayment . for the year ended december 31 , 2019 , we generated $ 42,622 of cash from financing activities , which represented $ 92,500 proceeds from issuance of convertible debt and $ 40,122 in equity financing , offset by $ 90,000 in legal fees associated with financing . in the future we expect to incur expenses related to compliance for being a public company . we expect that our general and administrative expenses will increase as we expand our business development , add infrastructure , and incur additional costs related to being a story_separator_special_tag in order to achieve our new strategic business model , we decided to sell both our subsidiaries because they were not producing enough profit and were not a strategic fit with our goal of developing the market for hydrogen energy systems . further , the hydrogen energy market for residential users was not developing at all based on cost inefficiencies , and debt levels were beginning to impact us adversely . beginning in march 2020 , the following steps were undertaken to implement the business transition plan : ● march 2020 - commenced discussions with investor regarding financing options for our company and strategic acquisitions . ● april 21 , 2020 - concluded the disposition of the pvbj subsidiary ● may 2020 - commenced discussions and diligence for an investment in a hydrogen production project in the netherlands , known as volt h2 ● may 18 , 2020 - concluded the disposition of the pride group subsidiary ● july 2020 - concluded 2nd and 3rd tranches of debt financing with proceeds earmarked for an investment in volt h2 . ● august 12 , 2020 - concluded acquisition of an equity interest in volt h2 ● september 30 , 2020 – moved the company 's headquarters from dallas , texas to jersey city , new jersey ● october 6 , 2020 – changed the company name to vision hydrogen corporation and effected a twenty-for-one reverse stock split of our outstanding common stock ● january 2021 – closed on the sale of 12,500,000 shares of common stock in a registered offering , resulting in gross proceeds of $ 2.5 million . 19 with the initial investment into the hydrogen production market via volt h2 , the first step in transitioning our hydrogen business focus has been completed . we now will continue to operate the business in a manner that is aligned with our primary hydrogen business strategy . discontinued operations on april 21 , 2020 , our board of directors authorized our resale of pvbj back to pvbj pursuant to the terms as follows : ( a ) benis holdings llc applied the $ 221,800 earn-out liability as consideration towards the purchase of pvbj ; ( b ) paul benis applied the remaining salary due to him , as prorated from the closing date to the expiration date of the employment agreement ( january 31 , 2021 ) , to the purchase of pvbj by benis holdings llc as additional consideration thereof , and we have no further salary obligation to paul benis , who resigned as our executive officer ; and ( c ) as additional consideration for the purchase of pvbj by benis holdings llc , pvbj continues to be responsible for the line of credit ( refer to note 15 ) . on may 18 , 2020 , in accordance to nevada statute 78.565 , we completed and executed the may 18 , 2020 purchase and sale agreement between us and turquino providing for our sale of 100 % of pride 's outstanding stock pride to turquino in return for turquino 's assumption of the hidalgo notes and the doyle notes and the debt obligations and accrued interest related thereto ( the “ agreement ” ) . in conjunction therewith , hidalgo and doyle assigned the notes to turquino , at which time turquino became responsible for the debt obligations upon the notes , we have no further note obligations to hidalgo or doyle , and we reduced our debt by approximately $ 600,000 or 65 % of the corporate debt obligations . pursuant to nevada statute section 78.565 , approval of the agreement only required the approval of the board of directors and did not require shareholder approval . the agreement provides that the parties mutually release one another and discharge and release the other party ( and their respective current and former officers , directors , employees , shareholders , note holders , attorneys , assigns , agents , representatives , predecessors and successors in interest ) , from any and all claims , demands , obligations , or causes of action . hidalgo , our chief executive officer , and a managing member of turquino , are related parties in connection with the exchange agreement , the notes , and the agreement . december 31 , 2020 pvbj proceeds on sale ( earn-out payable exchange ) $ 214,074 less : net asset value ( 1,383,440 ) loss on disposal of assets $ ( 1,169,366 ) pride proceeds on sale ( debt forgiveness ) $ 500,321 less net asset value ( 120,380 ) gain on disposal of assets $ 379,941 story_separator_special_tag expenses . and . for the year ended december 31 , 2020 , we used $ 497,101 in cash in investing activities due to the cash disposed of in the disposition of the two subsidiaries , pride and pvbj , and $ 175,000 in the investment in volt . there was no cash used or provided by from investing activities for the year ended december 31 , 2019. for the year ended december 31 , 2020 , we generated $ 611,252 in financing activities , which represented $ 580,232 in proceeds from related party debt , $ 75,000 in proceeds from the issuance of convertible debt , $ 26,020 in proceeds from equity financing and $ 20,000 in proceeds from ppp notes payable , offset by $ 90,000 in convertible debt repayment . for the year ended december 31 , 2019 , we generated $ 42,622 of cash from financing activities , which represented $ 92,500 proceeds from issuance of convertible debt and $ 40,122 in equity financing , offset by $ 90,000 in legal fees associated with financing . in the future we expect to incur expenses related to compliance for being a public company . we expect that our general and administrative expenses will increase as we expand our business development , add infrastructure , and incur additional costs related to being a
| 20 we incurred other expenses totaling $ 155,503 for the year ended december 31 , 2020 , including $ 129,180 for cancellation of equity line of credit , $ 59,298 of interest expense – related party , $ 43,353 of interest expense and $ 4,875 of change in fair value earn-out , offset by a gain of $ 81,203 for notes payable cancellation . we incurred other expenses totaling $ 251,808 for the year ended december 31 , 2019 , including $ 233,345 of interest expense – related party , $ 42,897 of interest expense and $ 18,463 change in fair value earn-out . as a result of the foregoing , we had net losses of $ 1,411,562 and $ 712,441 for the years ended december 31 , 2020 and 2019 , respectively . for discontinued operations please refer to note 15. liquidity and capital resources as of december 31 , 2020 , we had a working capital deficit of $ 600,416 , comprised of $ 580,232 of loan payable – related party , $ 69,521 of accounts payable and accrued expenses , $ 20,000 in loan payable and $ 16,515 in accrued interest , which made up current liabilities at december 31 , 2020 , offset by $ 70,000 in other current asset , $ 8,750 of prepaid expenses and $ 7,102 of cash . at december 31 , 2020 , non-current assets included $ 175,000 investment in volt . for the year ended december 31 , 2020 , we used $ 412,583 of cash in operating activities , which represented our net loss from continuing operations of $ 466,731 , $ 94,180 in other assets , $ 50,462 in depreciation and amortization , $ 7,993 in stock-based compensation and $ 4,875 in change in fair value , offset by $ 98,691 in accounts payable and $ 4,671 in prepaid expenses . for the year ended december 31 , 2019 , we used $ 575,635 of cash in operating activities , which represented our net loss from continuing operations of $ 780,091 , $ 140,571 in accounts payable , $ 23,089 in stock-based compensation , $ 18,463 in change in fair value , $ 14,403 in amortization and $ 7,750 in prepaid
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the sepa , primarily focused on the european economic community and the united kingdom , is designed to facilitate lower costs for cross-border payments and reduce timeframes for settling electronic payment transactions . recent moves to set an end date for the transition to sepa payment mechanisms will drive more volume to these systems with the potential to cause banks to review the capabilities of the systems supporting these payments . our retail and wholesale banking solutions facilitate key functions that help financial institutions address these mandated regulations . financial institution consolidation . consolidation continues on a national and international basis , as financial institutions seek to add market share and increase overall efficiency . such consolidations have increased , and may continue to increase , in their number , size and market impact as a result of the recent global economic crisis and the financial crisis affecting the banking and financial industries . there are several potential negative effects of increased consolidation activity . continuing consolidation of financial institutions may result in a smaller number of existing and potential customers for our products and services . consolidation of two of our customers could result in reduced revenues if the combined entity were to negotiate greater volume discounts or discontinue use of certain of our products . additionally , if a non-customer and a customer combine and the combined entity decides to forego future use of our products , our revenue would decline . conversely , we could benefit from the combination of a non-customer and a customer when the combined entity continues use of our products and , as a larger combined entity , increases its demand for our products and services . we tend to focus on larger financial institutions as customers , often resulting in our solutions being the solutions that survive in the consolidated entity . global vendor sourcing . global and regional financial institutions , processors and retailers are aiming to reduce the costs in supplier management by picking suppliers who can service them across all their geographies instead of allowing each country operation to choose suppliers independently . our global footprint from both customer and a delivery perspective enable us to be successful in this global sourced market . however , projects in these environments tend to be more complex and therefore of higher risk . electronic payments convergence . as electronic payment volumes grow and pressures to lower overall cost per transaction increase , financial institutions are seeking methods to consolidate their payment processing across the enterprise . we believe that the strategy of using service-oriented-architectures to allow for re-use of common electronic payment functions such as authentication , authorization , routing and settlement will become more common . using these techniques , financial institutions will be able to reduce costs , increase overall service levels , enable one-to-one marketing in multiple bank channels , leverage volumes for improved pricing and liquidity , and manage enterprise risk . our product strategy is , in part , focused on this trend , by creating integrated payment functions that can be re-used by multiple bank channels , across both the consumer and wholesale bank . while this trend presents an opportunity for us , it may also expand the competition from third-party electronic payment technology and service providers specializing in other forms of electronic payments . many of these providers are larger than us and have significantly greater financial , technical and marketing resources . mobile banking and payments . there is a growing demand for the ability to carry out banking services or make payments using a mobile phone . our customers have been making use of existing products to deploy mobile banking , mobile payment and mobile commerce and mobile payment solutions for their customers in many countries . in addition , aci has invested in mobile products of our own and via partnerships to support mobile functionality in the marketplace . the banking , financial services and payments industries have come under increased scrutiny from federal , state and foreign lawmakers and regulators in response to the crises in the financial markets and the global recession . in particular , the dodd-frank wall street reform and consumer protection act ( the dodd-frank act ) , which was signed into law july 21 , 2010 , represents a comprehensive overhaul of the u.s. financial services industry and requires the implementation of many new regulations that will have a direct impact on our customers and potential customers . these regulatory changes may create both opportunities and challenges for us . the application of the new regulations on our customers could create an opportunity for us to market our product capabilities and the flexibility of our solutions to assist our customers in addressing these regulations . at the same time , these regulatory changes may have an adverse impact on our operations and our financial results as we adjust our activities in light of increased compliance costs and customer requirements . it is currently too difficult to predict the long term extent to which the dodd-frank act or the resulting regulations will impact our business and the businesses of our current and potential customers . 30 several other factors related to our business may have a significant impact on our operating results from year to year . for example , the accounting rules governing the timing of revenue recognition in the software industry are complex and it can be difficult to estimate when we will recognize revenue generated by a given transaction . factors such as maturity of the software product licensed , payment terms , creditworthiness of the customer , and timing of delivery or acceptance of our products often cause revenues related to sales generated in one period to be deferred and recognized in later periods . for arrangements in which services revenue is deferred , related direct and incremental costs may also be deferred . story_separator_special_tag additionally , while the majority of our contracts are denominated in the united states dollar , a substantial portion of our sales are made , and some of our expenses are incurred , in the local currency of countries other than the united states . fluctuations in currency exchange rates in a given period may result in the recognition of gains or losses for that period . we continue to seek ways to grow through organic sources , partnerships , alliances , and acquisitions . we continually look for potential acquisitions designed to improve our solutions ' breadth or provide access to new markets . as part of our acquisition strategy , we seek acquisition candidates that are strategic , capable of being integrated into our operating environment , and financially accretive to our financial performance . acquisitions official payments holdings , inc. on november 5 , 2013 , we completed the tender offer for opay and all its subsidiaries . the company paid $ 8.35 per share of common stock for approximately $ 139.8 million using cash on hand and a temporary draw on the revolving credit facility for the common stock outstanding . as a leading provider of electronic bill payment solutions in the u.s. , serving federal , state and local governments , municipal utilities , higher education institutions and charitable giving organizations , opay 's proven team , loyal user base and vertical expertise make it an ideal match for the company . the acquisition will further extend aci 's leadership in the fast-growing electronic bill presentment and payment ( ebpp ) space , expanding its portfolio across key sectors including federal , state and local governments , municipal utilities , higher education institutions and charitable giving organizations . online resources corporation on march 11 , 2013 , we completed the tender offer for orcc and all its subsidiaries . the company paid cash of $ 3.85 per share of common stock for approximately $ 132.9 million and $ 127.2 million for the series a-1 convertible preferred stock for a total purchase price of $ 260.1 million ( the merger ) . as a leading provider of online banking and full service bill pay solutions , the acquisition of orcc added ebpp solutions as a strategic part of aci 's universal payments portfolio . it also strengthened the company 's online banking capabilities with complementary technology , and expanded the company 's leadership in serving community banking and credit union customers . each outstanding option to acquire orcc common stock was canceled and terminated at the effective time of the merger and converted into the right to receive an equivalent number of options to purchase aci common stock . each orcc restricted stock unit was vested immediately prior to the effective time of the merger and received $ 3.85 per share . we used funds from the $ 300 million of senior bank financing arranged through wells fargo securities , llc to fund the acquisition . see note 4 , debt , for terms of the financing arrangement . profesionales en transacciones electronicas s.a. on march 1 , 2013 , the company acquired 100 % of ptesa-v , 100 % of ptesa-e , and the aci related assets of ptesa-c , collectively ptesa . the common stock of ptesa-e and ptesa-v were acquired for $ 2.8 million and the assets of ptesa-c were acquired for $ 11.4 million , for a total aggregate purchase price of $ 14.2 million . ptesa has been a long-term partner of the company , serving customers in south america in sales , service and support functions . the addition of the ptesa team to the company reinforces its commitment to serve the latin american market . backlog included in backlog estimates are all software license fees , maintenance fees and services fees specified in executed contracts , as well as revenues from assumed contract renewals to the extent that we believe recognition of the related revenue will occur within the corresponding backlog period . we have historically included assumed renewals in backlog estimates based upon automatic renewal provisions in the executed contract and our historic experience with customer renewal rates . 31 our 60-month backlog estimate represents expected revenues from existing customers using the following key assumptions : maintenance fees are assumed to exist for the duration of the license term for those contracts in which the committed maintenance term is less than the committed license term . license , facilities management , and software hosting arrangements are assumed to renew at the end of their committed term at a rate consistent with our historical experiences . non-recurring license arrangements are assumed to renew as recurring revenue streams . foreign currency exchange rates are assumed to remain constant over the 60-month backlog period for those contracts stated in currencies other than the u.s. dollar . our pricing policies and practices are assumed to remain constant over the 60-month backlog period . in computing our 60-month backlog estimate , the following items are specifically not taken into account : anticipated increases in transaction , account , or processing volumes in customer systems . optional annual uplifts or inflationary increases in recurring fees . services engagements , other than facilities management and software hosting engagements , are not assumed to renew over the 60-month backlog period . the potential impact of merger activity within our markets and or customers . we review our customer renewal experience on an annual basis . the impact of this review and subsequent update may result in a revision to the renewal assumptions used in computing the 60-month and 12-month backlog estimates . in the event a revision to renewal assumptions is determined to be necessary , prior periods will be adjusted for comparability purposes . the following table sets forth our 60-month backlog estimate , by geographic region , as of december 31 , 2013 , september 30 , 2013 , june 30 , 2013 , march 31 , 2013 , and december 31 , 2012 ( in millions ) .
| the increase in total revenue , excluding the addition of orcc and opay , is primarily due to the inclusion of s1 operations for a full year as well as increased sales and an increase in the number and size of projects that were completed and recognized during the year ended december 31 , 2013 as compared to the same period in 2012 . 33 license revenue customers purchase the right to license aci software for the term of their agreement which term is generally 60 months . within these agreements are specified capacity limits typically based on customer transaction volume . aci employs measurement tools that monitor the number of transactions processed by customers and if contractually specified limits are exceeded , additional fees are charged for the overage . capacity overages may occur at varying times throughout the term of the agreement depending on the product , the size of the customer , and the significance of customer transaction volume growth . depending on specific circumstances , multiple overages or no overages may occur during the term of the agreement . as a result of the maturation of certain retail payment engine products , certain of our initial license fees are being recognized ratably over an extended period . initial license and capacity fees that are recognized as revenue ratably over an extended period are included in our monthly license revenues . due to the relative size and varying periods over which these revenues are being recognized , our monthly license revenues have decreased as compared to the same period in 2012. initial license revenue initial license revenue includes license and capacity revenues that do not recur on a monthly or quarterly basis . included in initial license revenue are license and capacity fees that are recognizable at the inception of the agreement and license and capacity fees that are recognizable at interim points during the term of the agreement , including those that are recognizable annually due to negotiated customer payment terms . initial license revenue increased by $ 13.5 million , or 10.7 % , during the year ended december 31 , 2013 , as compared to the same period in 2012 with the americas reportable
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for more information about the disposition of the tucson st. mary 's hotel , see note 24 of our consolidated financial statements - “ sale of tucson saint mary 's suite hospitality property ” . our expenses consist primarily of property taxes , insurance , corporate overhead , interest on mortgage debt , professional fees , depreciation of the hotels and hotel operating expenses . hotel operating expenses consist primarily of payroll , guest and maintenance supplies , marketing and utilities expenses . under the terms of its partnership agreement , the partnership is required to reimburse us for all such expenses . accordingly , management believes that a review of the historical performance of the operations of the hotels , particularly with respect to occupancy , which is calculated as rooms sold divided by total rooms available , average daily rate ( “ adr ” ) , calculated as total room revenue divided by number of rooms sold , and revenue per available room ( “ revpar ” ) , calculated as total room revenue divided by number of rooms available , is appropriate for understanding revenue from the hotels . in fiscal year 2017 , occupancy increased 1.47 % to 74.83 % from 73.36 % in the prior fiscal year . adr increased by $ 5.15 or 7.3 % to $ 75.74 in fiscal year 2017 from $ 70.59 in fiscal year 2016. the increased occupancy and adr resulted in an increase in revpar of $ 4.94 or 9.54 % to $ 56.73 in fiscal year 2017 from $ 51.79 in fiscal year 2016. the increased occupancy and increased rates reflect a continued stronger economy which has allowed us to increase our rates while increasing our occupancy , especially in our ontario , california and our yuma , arizona properties which were offset by a small decline in our tucson , arizona hotel property . we anticipate our tucson , arizona hotel property to rebound in the fiscal year ending january 31 , 2018 as it has already started to economically turnaround in february 2017 and march 2017. we anticipate in the next few fiscal years that steady demand will exist with a significant increase in hotel room supply resulting in additional pressure on the hotel industry to lower rates to maintain current occupancy levels . the following table shows certain historical financial and other information for the periods indicated : replace_table_token_4_th no assurance can be given that occupancy , adr and revpar will not increase or decrease as a result of changes in national or local economic or hospitality industry conditions . we enter into transactions with certain related parties from time to time . for information relating to such related party transactions see the following : ● for a discussion of management and licensing agreements with certain related parties , see “ item 1 – business – management and licensing contracts. ” ● for a discussion of guarantees of our mortgage notes payable by certain related parties , see note 11 to our consolidated financial statements – “ mortgage notes payable. ” ● for a discussion of our equity sales and restructuring agreements involving certain related parties , see notes 3 , 4 , 5 , 6 and 7 to our consolidated financial statements – “ sale of ownership interests in albuquerque subsidiary , ” “ sale of ownership interests in tucson hospitality properties subsidiary , ” “ sale of ownership interests in ontario hospitality properties subsidiary , ” “ sale of ownership interests in yuma hospitality properties subsidiary , ” and “ sale of ownership interests in tucson saint mary 's suite hospitality ” , respectively . ● for a discussion of other related party transactions , see note 18 to our consolidated financial statements – “ other related party transactions. ” 9 results of operations of the trust for the fiscal year ended january 31 , 2017 compared to the fiscal year ended january 31 , 2016. story_separator_special_tag were approximately $ 3,680,000 for the fiscal year ended january 31 , 2017 compared to approximately $ 3,357,000 in the prior year period for an increase of approximately $ 323,000 , or 9.6 % , increase in costs . room expenses increased as occupancy at the hotels increased and management elected to deep clean the hotel property rooms and additional expenses were incurred with the increased occupancy . food and beverage expenses included food and beverage costs , personnel and miscellaneous costs to provide banquet events . for the fiscal year ended january 31 , 2017 , food and beverage expenses were approximately $ 286,000 as compared to approximately $ 312,000 for the fiscal year ended january 31 , 2016 , a savings of approximately $ 26,000 , or 8.2 % . these costs decreased slightly during fiscal year 2017 as compared to fiscal year 2016 , as management sourced its food from cheaper vendors and in some cases , reevaluated the hotel property 's limited food offerings to provide a better , more efficient menu . telecommunications expense , consisting of telephone and internet costs , were relatively flat for the fiscal year ended january 31 , 2017 at approximately $ 25,000 as compared to the prior fiscal year ended january 31 , 2016 at approximately $ 24,000. management anticipates this will be consistent for the fiscal year ending january 31 , 2018. general and administrative expenses include overhead charges for management , accounting , shareholder and legal services . general and administrative expenses of approximately $ 3,264,000 for the twelve months ended january 31 , 2017 decreased approximately $ 251,000 from approximately $ 3,013,000 for the twelve months ended january 31 , 2016 primarily due to increased bad debt expenses , credit card expenses and professional fees at our hotel properties . story_separator_special_tag 11 sales and marketing expense increased approximately $ 21,000 , or 2.3 % , from approximately $ 937,000 for the twelve months ended january 31 , 2017 from approximately $ 916,000 for the twelve months ended january 31 , 2016. management added some additional sales and marketing resources at our properties to increase the marketing exposure in the local community which resulted in additional hotel room revenues . repairs and maintenance expense slightly decreased by approximately $ 57,000 from approximately $ 1,038,000 reported for the twelve months ended january 31 , 2016 compared with approximately $ 981,000 for the twelve months ended january 31 , 2017. we completed significant property improvements at our ontario , california and our yuma , arizona properties during the fiscal year ended january 31 , 2016 which resulted in decreased repairs and maintenance expenses during the fiscal year ended january 31 , 2017. management continues to complete repairs and maintenance initiatives to ensure the hotel product exceeds our guests ' satisfaction and complies with the increasing best western standards . hospitality expense increased by approximately $ 75,000 , or 10.4 % , from $ 725,000 for the twelve months ended january 31 , 2016 to approximately $ 800,000 for the twelve months ended january 31 , 2017. the increase was primarily due to additional product mix provided during the hotels ' complimentary breakfast and happy hour required by best western . utility expenses increased approximately $ 25,000 to approximately $ 807,000 reported for the twelve months ended january 31 , 2017 compared with approximately $ 782,000 for the twelve months ended january 31 , 2016. increased utility costs occurred as a result of increased occupancy levels at our hotel properties . hotel property depreciation expense significantly increased as the hotel properties are reported within continued operations instead of discontinued operations – assets held for sale . hotel property depreciation expenses increased approximately $ 1,149,000 from approximately $ 945,000 reported for the twelve months ended january 31 , 2016 compared with approximately $ 2,094,000 for the twelve months ended january 31 , 2017. in the fiscal year ending january 31 , 2017 , the trust recaptured the depreciation not recognized while the hotel properties were in the discontinued operations – assets held for sale reporting classification . real estate and personal property taxes , insurance and ground rent expense increased slightly by approximately $ 19,000 , or 3.0 % , from approximately $ 620,000 for the twelve months ended january 31 , 2016 to approximately $ 639,000 for the twelve months ended january 31 , 2017. interest expenses were flat at approximately $ 731,000 for the twelve months ended january 31 , 2017 to approximately $ 730,000 for the twelve months ended january 31 , 2016. income tax benefit was approximately $ 228,000 for the twelve months ended january 31 , 2017 , a change decrease of approximately $ 321,000 from the prior fiscal year income tax provision of approximately $ 97,000. decrease in the income tax provision is due to the overall increased consolidated net loss from continued operations net of sales of ownership interests in our properties . sales of ownership interests in our properties for tax purposes are considered income but under generally accepted accounting principles ( “ gaap ” ) , they are considered an increase in the trusts ' equity . ibc development segment general and administrative expenses include overhead charges for management , accounting , reservations support staff and hotel onboarding . general and administrative expenses of approximately $ 1,083,000 for the twelve months ended january 31 , 2017 increased approximately $ 803,000 from approximately $ 280,000 for the twelve months ended january 31 , 2016 primarily due to increased bad debt expenses , credit card expenses , support staff and hotel onboarding costs significantly increased . sales and marketing expense includes reservation acquisition expenses , consultants , internet advertising , tradeshows and sales commissions expenses which increased by approximately $ 446,000 , from approximately $ 195,000 for the twelve months ended january 31 , 2016 to approximately $ 641,000 for the twelve months ended january 31 , 2017. as reservations income increases , sales and marketing expenses increase as reservation acquisitions expenses increased . in addition , management added significant amount of sales and marketing resources . 12 revenue – discontinuing operations hotel operations & corporate overhead segment our tucson st. mary 's hotel was sold to an unrelated third party on october 14 , 2015. for the twelve months ended january 31 , 2017 , we had $ 0 of total revenues compared to approximately $ 5,206,000 of total revenues for the fiscal year ending january 31 , 2016. for the fiscal year ending january 31 , 2016 , our tucson st. mary 's hotel had approximately $ 2,172,000 of room revenues , approximately $ 659,000 of food and beverage revenues and approximately $ 2,375,000 of other income generated by the sale of the hotel . expenses – discontinuing operations hotel operations & corporate overhead segment for the twelve months ended january 31 , 2017 , we had approximately $ 36,000 of total expenses compared to approximately $ 3,376,000 of total expenses for the fiscal year ended january 31 , 2016. for the fiscal year ending january 31 , 2017 , our tucson st. mary 's hotel incurred primarily general and administrative expenses . for the fiscal year ended january 31 , 2016 , our tucson st. mary 's hotel was owned and operated by the trust for approximately 9 months and incurred normal routine operating expenses including approximately $ 977,000 rooms expenses , approximately $ 546,000 food and beverage expenses , approximately $ 288,000 general and administrative expenses , approximately $ 159,000 of sales and marketing expenses , approximately $ 247,000 of repairs and maintenance expenses , approximately $ 183,000 of hospitality expenses , approximately $ 438,000 utilities , approximately $ 233,000 of depreciation
| we also realized an approximate 34 % increase in management and trademark fee revenues during fiscal year 2017 as management and trademark revenues were approximately $ 296,000 during fiscal year 2017 as compared to approximately $ 222,000 during fiscal year 2016 management and trademark fee revenues increased during fiscal year 2017 as a result of increased revenues in the two hotels owned by affiliates of mr. wirth and on may 1 , 2016 , the trust increase the management fees charged from 3 % to 5 % . in february 2017 , one of the two hotels owned by affiliates of mr. wirth was sold to a third party so the management fees relating to the hotel property that was sold will not continue throughout the fiscal year ending january 31 , 2018. during fiscal year 2018 , we expect management and trademark fee revenues to be relatively flat and comparable to fiscal year 2017 management and trademark fee revenues . other revenues were relatively flat for the twelve months ended january 31 , 2017 compared to the twelve months ended january 31 , 2016 . 10 ibc development segment for the fiscal year ended january 31 , 2017 , we had total revenue of approximately $ 668,000 compared to approximately $ 203,000 for the fiscal year ended january 31 , 2016 , an increase of approximately $ 465,000 or 228 % . we have continued to make significant sales , marketing and technology investment in this segment . we anticipate strong growth in this segment over the next several fiscal years but can provide no assurance regarding such growth . expenses – continuing operations : hotel operations & corporate overhead segment total expenses , including interest expense net of the income tax benefit , of approximately $ 13,951.000 for the twelve months ended january 31 , 2017 reflects an increase of approximately $ 1,182,000 compared to total expenses , including interest expense and income tax provision of approximately $ 12,769,000 for the twelve months ended january 31 , 2016. the increase was primarily due to an increase
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factors leading to impairment include significant under-performance relative to historical or projected results , significant changes in the manner of use of the acquired assets or the strategy for our overall business and significant negative industry or economic trends . membership deposit liabilities in our traditional golf business , private country club members generally pay an advance initiation fee deposit upon their acceptance as a member to the their country club . initiation fee deposits are refundable 30 years after the date of acceptance as a member . the difference between the initiation fee deposit paid by the member and the present value of the refund obligation is deferred and recognized into revenue in the consolidated statements of operations on a straight-line basis over the expected life of an active 29 membership , which is estimated to be seven years . the determination of the estimated average expected life of an active membership is based on company-specific historical data and involves judgment and estimation . the present value of the refund obligation is recorded as a membership deposit liability in the consolidated balance sheets and accretes over a 30-year nonrefundable term using the effective interest method . this accretion is recorded as interest expense , net in the consolidated statements of operations . valuation of securities fair value of securities is based on an internal model and involves significant judgement . the inputs to our model includes discount rates , prepayment speeds , default rates and severity assumptions . see note 10 to our consolidated financial statements in part ii , item 8 . “ financial statements and supplementary data ” for information regarding the fair value of our investments , and respective estimation methodologies , as of december 31 , 2018 . impairment of securities and other investments temporary declines in value generally result from changes in market factors , such as market interest rates and credit spreads , or from certain macroeconomic events , including market disruptions and supply changes , which do not directly impact our ability to collect amounts contractually due . we continually evaluate the credit status of each of our securities and the collateral supporting our securities . this evaluation includes a review of the credit of the issuer of the security ( if applicable ) , the credit rating of the security , the key terms of the security ( including credit support ) , debt service coverage and loan to value ratios , the performance of the pool of underlying loans and the estimated value of the collateral supporting such loans , including the effect of local , industry and broader economic trends and factors . these factors include loan default expectations and loss severities , which are analyzed in connection with a particular security 's credit support , as well as prepayment rates . these factors are also analyzed in relation to the amount of the unrealized loss and the period elapsed since it was incurred . the result of this evaluation is considered when determining management 's estimate of cash flows , particularly with respect to developing the necessary inputs and assumptions . each security is impacted by different factors and in different ways ; generally the more negative factors which are identified with respect to a given security , the more likely we are to determine that we do not expect to receive all contractual payments when due with respect to that security . significant judgment is required in this analysis . we evaluate our other investments for impairment whenever events or changes in circumstances indicate that the carrying amount might not be recoverable . the evaluation of recoverability is based on management 's assessment of the financial condition and near term prospects of the commercial real estate project , the length of time and the extent to which the market value of the investment has been less than cost , availability and cost of financing , demand for space , competition for tenants , changes in market rental rates , and operating costs . as these factors are difficult to predict and are subject to future events that may alter management 's assumptions , the values estimated by management in its recoverability analyses may not be realized , and actual losses or impairment may be realized in the future . stock-based compensation we account for stock-based compensation for options in accordance with the fair value recognition provisions , under which we use the black-scholes option valuation model , which requires the input of subjective assumptions . these assumptions include expected volatility , expected dividend yield of our stock , expected term of the awards and the risk-free interest rate . recent accounting pronouncements see note 2 in part ii , item 8 . “ financial statements and supplementary data ” for information about recent accounting pronouncements . 30 story_separator_special_tag and higher membership dues rates and ( iv ) a $ 2.3 million increase in net driving range revenues at public golf properties as a result of the continued member growth of the players club program . sales of food and beverages sales of food and beverages decreased by $ 1.8 million during the year ended december 31 , 2017 compared to the year ended december 31 , 2016 primarily due to a decrease from properties that were exited in 2016 . 33 operating expenses operating expenses decreased by $ 6.2 million during the year ended december 31 , 2017 compared to the year ended december 31 , 2016 primarily due to : ( i ) a $ 9.0 million decrease from properties that were exited in 2016 , partially offset by ( ii ) a $ 2.2 million increase in course cleanup , repairs and maintenance primarily due to hurricane-related damage and ( iii ) a $ 0.4 million increase in legal costs . story_separator_special_tag cost of sales - food and beverages cost of sales - food and beverages decreased by $ 0.6 million during the year ended december 31 , 2017 compared to the year ended december 31 , 2016 primarily due to a decrease from properties that were exited in 2016. general and administrative expense ( including acquisition and transaction expense ) general and administrative expense increased by $ 2.2 million during the year ended december 31 , 2017 compared to the year ended december 31 , 2016 primarily due to an increase of $ 5.7 million related to the development of the entertainment golf business , offset by decreases of $ 2.2 million in corporate professional fees and $ 0.7 million in traditional golf transaction expenses . management fee and termination payment to affiliate management fee and termination payment to affiliate increased $ 10.7 million during the year ended december 31 , 2017 compared to the year ended december 31 , 2016 due to the payment in connection with the termination of the management agreement . depreciation and amortization depreciation and amortization expense decreased by $ 2.2 million during the year ended december 31 , 2017 compared to the year ended december 31 , 2016 primarily due to certain assets being fully depreciated in 2016 from scheduled lease expirations partially offset by an increase in depreciation from additional capital leases . impairment the impairment of $ 0.1 million during the year ended december 31 , 2017 is due to valuation allowance recorded on a residential mortgage loan . the impairment of $ 10.4 million during the year ended december 31 , 2016 is primarily due to : ( i ) a $ 3.9 million valuation allowance on a corporate loan , ( ii ) a $ 0.2 million valuation allowance on two residential mortgage loans , ( iii ) a $ 0.1 million other-than-temporary impairment charge on a cmbs security , ( iv ) a $ 3.6 million impairment on one golf property when we reclassified the property to held-for-sale and ( v ) a $ 2.6 million impairment charge related to two golf properties . realized and unrealized ( gain ) loss on investments the realized and unrealized ( gain ) loss on investments increased by $ 5.6 million during the year ended december 31 , 2017 compared to the year ended december 31 , 2016 . during the year ended december 31 , 2017 , we recorded : ( i ) a net realized loss of $ 0.4 million on the sale of agency rmbs , ( ii ) an unrealized loss of $ 0.6 million on the mark-to-market value of agency rmbs , ( iii ) a realized loss of $ 4.6 million on the settlement of derivatives and ( iv ) an unrealized loss of $ 0.6 million on the mark-to-market value of derivatives . during the year ended december 31 , 2016 , we recorded : ( i ) an $ 8.3 million loss on the sale of agency rmbs , ( ii ) a $ 10.7 million gain on the sale of cdo bonds , ( iii ) a $ 0.5 million gain on non-agency rmbs , ( iv ) an $ 18.3 million gain associated with the settlement of derivatives , ( v ) a $ 1.2 million unrealized gain associated with derivatives and ( vi ) a $ 23.1 million unrealized loss on agency rmbs due to a change to an intent to sell . interest and investment income interest and investment income decreased by $ 68.1 million during the year ended december 31 , 2017 compared to the year ended december 31 , 2016 primarily due to : ( i ) a $ 33.2 million decrease related to our subprime mortgage loan call option , which was sold in the fourth quarter of 2016 , ( ii ) a $ 20.5 million decrease of pik interest earned on a resorts-related loan as a result of a pay down in the third quarter of 2016 and final pay down in the third quarter of 2017 , ( iii ) a $ 5.0 million decrease on the accretion of discount recognized on a resorts-related loan and ( iv ) a $ 10.2 million decrease in real estate securities and loans , offset by an increase of $ 0.8 million in corporate bank interest . interest expense , net interest expense , net decreased by $ 33.3 million during the year ended december 31 , 2017 compared to the year ended december 31 , 2016 primarily due to : ( i ) a $ 33.2 million decrease related to our subprime mortgage loan call option which was sold in the fourth quarter of 2016 , ( ii ) a $ 1.7 million decrease due to lower average balance of repurchase agreements on agency rmbs , ( iii ) a $ 0.6 34 million decrease as a result of a lower weighted average coupon on the junior subordinated notes payable , offset by ( iv ) an increase of $ 2.2 million on the financings related to the traditional golf business . gain on deconsolidation the gain on deconsolidation of $ 82.1 million during the year ended december 31 , 2016 is related to the deconsolidation of cdo vi . there were no deconsolidations during the year ended december 31 , 2017. other income ( loss ) , net other income ( loss ) , net increased by $ 3.9 million during the year ended december 31 , 2017 compared to the year ended december 31 , 2016 due in part to : ( i ) a $ 2.9 million writedown on our equity method investment during the year ended december 31 , 2016 ; ( ii ) a decrease of $ 0.9 million in disposal related expenses in the traditional golf business during the year ended december 31 , 2017 as compared to the year ended december 31 , 2016 and ( iii ) a $ 0.5 million decrease in loss on extinguishment of debt due to fewer write-offs of traditional golf liabilities ; partially offset by decreases in collateral management fee
| 2018 , ( ii ) $ 5.4 million related to our entertainment golf venue opened in orlando , florida in 2018 , partially offset by ( iii ) a decrease of $ 8.5 million due to fewer traditional golf properties owned or operated in 2018 . 31 cost of sales - food and beverages cost of sales - food and beverages decreased by $ 0.8 million during the year ended december 31 , 2018 compared to the year ended december 31 , 2017 primarily due to a $ 1.4 million decrease in the traditional golf business for properties no longer owned or operated as of december 31 , 2018 , partially offset by $ 0.6 million of food and beverage costs incurred at our entertainment golf venue opened in orlando , florida in 2018. general and administrative expense ( including acquisition and transaction expense ) general and administrative expense increased by $ 7.1 million during the year ended december 31 , 2018 compared to the year ended december 31 , 2017 primarily due to payroll-related expenses in our entertainment golf and corporate segments as a result of the internalization effective january 1 , 2018. management fee and termination payment to affiliate management fee and termination payment to affiliate decreased by $ 21.4 million during the year ended december 31 , 2018 compared to the year ended december 31 , 2017 due to the internalization effective january 1 , 2018. depreciation and amortization depreciation and amortization decreased by $ 4.6 million during the year ended december 31 , 2018 compared to the year ended december 31 , 2017 primarily due to discontinuation of depreciation on the traditional golf real estate assets classified as held-for-sale in march 2018 , partially offset by depreciation on assets placed into service at our entertainment golf venue in orlando , florida . pre-opening costs pre-opening costs were $ 2.5 million during the year ended december 31 , 2018 compared to $ 0.3 million during the
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we also own and operate salem radio network® ( “ srn ” ) , srn news network ( “ snn ” ) , salem music network ( “ smn ” ) , solid gospel network ( “ sgn ” ) , salem media representatives ( “ smr ” ) and vista media representatives ( “ vmr ” ) . srn , snn , smn and sgn are networks that develop , produce and syndicate a broad range of programming specifically targeted to christian and family-themed talk stations , music stations and general news talk stations throughout the united states , including salem owned and operated stations . smr , a national advertising sales firm with offices in 11 u.s. cities , specializes in placing national advertising on religious and other commercial radio stations . as of december 2014 , we merged vista media representatives ( “ vmr ” ) , our national advertising sales firm established for non-christian format stations , into smr as our smr and vmr sales teams consistently pursue advertising for all station formats . we currently program 42 of our stations with our christian teaching and talk format , which is talk programming with christian and family themes . we also program 28 news talk stations , 12 contemporary christian music stations , 10 business format stations , and nine spanish-language christian teaching and talk stations . the business format features financial commentators , business talk , and nationally recognized bloomberg programming . the business format operates similar to our christian teaching and talk format as it features long-form block programming . each of our radio stations has a website specifically designed for that station . revenues generated from our radio stations are reported as broadcast revenue in our consolidated financial statements include in item 9 of this annual report on form 10k . broadcast revenues are impacted by the rates radio stations can charge for programming and advertising time , the level of airtime sold to programmers and advertisers , the number of impressions delivered or downloads made , and the number of events held , including the size of the event and the number of attendees . block programming rates are based upon our stations ' ability to attract audiences that will support the program producers through contributions and purchases of their products . advertising rates are based upon the demand for advertising time , which in turn is based on our stations and networks ' ability to produce results for their advertisers . we market ourselves to advertisers based on the responsiveness of our audiences . we do not subscribe to traditional audience measuring services for most of our radio stations . in select markets , we subscribe to nielsen audio , which develops quarterly reports measuring a radio station 's audience share in the demographic groups targeted by advertisers . each of our radio stations and our networks has a pre-determined level of time available for block programming and or advertising , which may vary at different times of the day . 51 nielsen audio uses ppm technology to collect data for its ratings service . ppm is a small device that is capable of automatically measuring radio , television , internet , satellite radio and satellite television signals encoded by the broadcaster . the ppm offers a number of advantages over traditional diary ratings collection systems , including ease of use , more reliable ratings data , shorter time periods between when advertising runs and actual listening data , and little manipulation of data by users . a disadvantage of the ppm includes data fluctuations from changes to the “ panel ” ( a group of individuals holding ppm devices ) . this makes all stations susceptible to some inconsistencies in ratings that may or may not accurately reflect the actual number of listeners at any given time . in markets where we subscribe to nielsen audio under the ppm , our ratings have been less consistent . as is typical in the radio broadcasting industry , our second and fourth quarter advertising revenue generally exceeds our first and third quarter advertising revenue . this seasonal fluctuation in advertising revenue corresponds with quarterly fluctuations in the retail advertising industry . additionally , we experience increased demand for advertising during election years by way of political advertisements . quarterly revenue from the sale of block programming time does not tend to vary significantly because program rates are generally set annually and are recognized on a per program basis . our cash flows from broadcasting are affected by transitional periods experienced by radio stations when , based on the nature of the radio station , our plans for the market and other circumstances , we find it beneficial to change the station format . during this transitional period , when we develop a radio station 's listener and customer base , the station may generate negative or insignificant cash flow . trade or barter agreements are common in the broadcast industry . our radio stations utilize trade agreements to exchange advertising time for goods or services in lieu of cash . we enter trade and barter agreements if the goods or services we receive can be used in our business or can be sold under listener purchase programs . we minimize use of trade agreements with our general policy of not preempting paid airtime for trade . in each of the years ending december 31 , 2014 and 2013 , we sold 97 % , of our broadcast revenue for cash . broadcast operating expenses include : ( i ) employee salaries , commissions and related employee benefits and taxes , ( ii ) facility expenses such as rent and utilities , ( iii ) marketing and promotional expenses , ( iv ) production and programming expenses , and ( v ) music license fees . in addition to these expenses , our network incurs programming costs and lease expenses for satellite communication facilities . story_separator_special_tag digital media ( formerly “ internet and e-commerce ” ) web based and digital content has been a significant growth area for salem and continues to be a focus of future development . salem web network ( “ swn ” ) and our other web based businesses provide christian and conservative-themed content , audio and video streaming , and other resources digitally through the web . swn 's web portals include christian content websites : oneplace.com , christianity.com , crosswalk.com® , godvine.com , jesus.org and biblestudytools.com . our conservative opinion websites , collectively known as townhall media , include townhall.com , hotair.com , twitchy.com , humanevents.com and redstate.com . we also issue digital newsletters , including eagle financial publications , that provide market analysis and investment advice for individual subscribers from financial commentators . church product websites including worshiphousemedia.com , sermonspice.com , and churchstaffing.com offer downloads and service platforms to pastors and other educators . our web content is accessible through all of our radio station websites that feature content of interest to local listeners throughout the united states . e-commerce sites include salem consumer products ( “ scp ” ) , an e-commerce business that sells books , dvd 's and editorial content developed by our on-air personalities , eagle wellness , an online site offering complimentary health advice and sales of nutritional products . the revenues generated from this segment are reported as digital media revenue in our consolidated statements of operations included in this annual report on form 10-k. digital media revenues are impacted by the rates our sites can charge for advertising time , the level of advertisements sold , the number of impressions delivered or the number of downloads made , and the number digital subscriptions sold . like our broadcasting segment , our second and fourth quarter advertising revenue generally exceeds our first and third quarter advertising revenue . this seasonal fluctuation in advertising revenue corresponds with quarterly fluctuations in the retail advertising industry . we also experience fluctuations in quarter over quarter comparisons based on the date in which the easter holiday is observed , as this holiday generates a higher volume of video downloads from our church product sites . additionally , we experience increased demand for advertising time and placement during election years for political advertisements . 52 the primary operating expenses incurred in the ownership and operation of our internet businesses include : ( i ) employee salaries , commissions and related employee benefits and taxes , ( ii ) facility expenses such as rent and utilities , ( iii ) marketing and promotional expenses , ( iv ) royalties , ( v ) streaming costs , and ( vi ) cost of goods sold associated with scp and wellness products . publishing our acquisition of regnery publishing on january 10 , 2014 , represented a major shift in our publishing operating segment . regnery publishing is a publisher of conservative books that was founded in 1947. regnery has published dozens of bestselling books by leading conservative authors and personalities , including ann coulter , newt gingrich , michelle malkin , david limbaugh , ed klein , laura ingraham , mark steyn and dinesh d'souza . our publishing operating segment also includes salem publishing and xulon press . salem publishing produces and distributes numerous christian and conservative opinion print magazines , including : homecoming ® the magazine , youthworker journal , singing news ® , faithtalk magazine , and preaching magazine . through december 2014 , we also printed and produced townhall magazine . xulon press is a print-on-demand self-publishing service for christian authors . revenues generated from these entities are reported as publishing revenue in our consolidated financial statements included in item 8 of this annual report on form 10k . publishing revenue is impacted by the retail price of books and e-books , the number of books sold , the number and retail price of e-books sold , the number and rate of print magazine subscriptions sold , the rate and number of pages of advertisements sold in each print magazine , and the number and rate at which self-published books are made . regnery publishing revenue has been impacted by elections as they generate higher levels of interest and demand for publications containing conservative and political based opinions . operating expenses incurred by salem publishing include : ( i ) employee salaries , commissions and related employee benefits and taxes , ( ii ) facility expenses such as rent and utilities , ( iii ) marketing and promotional expenses , ( iv ) printing and production costs , including paper costs , ( v ) cost of goods sold , and ( vi ) inventory reserves . known trends and uncertainties although advertising revenues have stabilized following the decline that began in 2008 , broadcast advertising revenue growth remains challenged . we are particularly dependent on broadcast revenue from our los angeles and dallas markets , which generated 11.9 % and 12.7 % , respectively , of our net broadcasting revenue for the year ending december 31 , 2014. revenues from print magazines , including advertising revenue and subscription revenues , are challenged both economically and by the increase in use of other mediums to deliver the information . book sales are contingent upon overall economic conditions and our ability to attract and retain authors . because digital media is a concentrated growth area for us , decreases in revenue streams from these areas could affect our operating results , financial condition and results of operations . to address these issues , we continue to explore opportunities in which we can cross-promote our brand and our content , including our broadcast markets , digital media , internet sites , mobile applications , and our printing and publication media .
| the asset acquisition cost is included in projects-in-process as of december 2014. the fm translator will operate in our greenville , south carolina market . · on october 1 , 2014 , we completed the acquisition of radio station kxxt-am in phoenix , arizona for $ 0.6 million in cash . we began operating the station under an lma as of june 6 , 2014. the accompanying consolidated statements of operations reflect the operating results of this entity as of the lma date . we recorded goodwill of $ 1,400 associated with the excess value of this entity attributable to the audience reach obtained . · on june 6 , 2014 , we made an early payment of $ 1.5 million in cash against the $ 2.5 million deferred payment liability due january 2015 for our acquisition of entities of eagle publishing . · on may 22 , 2014 , we completed the acquisition of radio station wocn-am , miami , florida and the related transmitter site for $ 2.5 million in cash . · on may 6 , 2014 , we completed the acquisition of wrth-fm ( formerly wolt-fm ) in greenville , south carolina for $ 1.1 million in cash . · on april 14 , 2014 , we completed the acquisition of three fm translators for $ 0.4 million in cash . the fm translators will serve our orlando , florida , tampa , florida and omaha , nebraska markets . · on february 7 , 2014 , we completed the acquisition of radio stations kdis-fm , little rock , arkansas and krdy-am , san antonio , texas for $ 2.0 million in cash . · we recorded an increase of $ 0.3 million in the fair value of the contingent earn-out consideration associated with our december 2013 acquisition of twitchy.com , which is reflected as an expense in our operating results for the year ending december 31 , 2014 . 54 · as of december 31 , 2014 , we paid $ 0.3 million in cash , the maximum amount earned
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opened a new development and support office in san jose , ca . 13 entered partnerships with microsoft bing and openx . hired a chief revenue officer who built a media and publisher sales and account management organization . began developing relationships in china that could result in media spend in the usa . continued the migration to mobile , going from 52.4 % mobile in 2016 to 62.1 % in 2017. critical accounting policies and estimates the preparation of financial statements in conformity with u.s. gaap requires management to make estimates and assumptions that affect the reported amount of assets and liabilities , the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses during the reported periods . the more critical accounting estimates include estimates related to revenue recognition and accounts receivable allowances . we also have other key accounting policies , which involve the use of estimates , judgments and assumptions that are significant to understanding our results , which are described in note 2 to our audited financial statements for 2017 and 2016 appearing elsewhere in this report . story_separator_special_tag statutory requirements made it necessary to have a continued presence in the eu for varying terms until november 2015. profits and losses generated from the remaining assets and liabilities are accounted for as discontinued operations . in the third quarter of 2016 , our petition with the uk ( united kingdom ) companies house to strike off and dissolve the remaining subsidiary in the eu was approved . as a result , for the twelve months ended december 31 , 2017 , we recognized a net loss from discontinued operations of $ 1,109 due to a charge from a service provider . as of december 31 , 2016 , we recorded a net income of $ 155,287 due primarily to the adjustment of certain accrued liabilities . no further charges or adjustments are expected . liquidity and capital resources on march 27 , 2017 , we amended our business financing agreement with western alliance bank ( `` western alliance bank '' ) , the parent company of bridge bank , n.a. , our original lender ( see note 6 , `` revolving credit line '' ) . the renewal provided continued access to the revolving line of credit up to $ 10 million through september 2018 , included the collateral acquired in the netseer asset acquisition and modified certain financial covenants . on july 31 , 2017 , we entered into the ninth business financing modification agreement with western alliance bank . the amendment changed certain financial ratios , definitions , the advance rate , the finance charge and the non-formula availability . as of december 31 , 2017 , the balance of the revolving 15 line of credit was $ 4.9 million and had approximately $ 3.7 million in availability . the credit facility matures in september 2018. during september 2017 , 45,900 shares of our common stock were repurchased in the open market at an average price of $ .98 per shares under the company 's current share repurchase program and were subsequently retired , which was announced on december 9 , 2016. the program authorized the repurchase of the company 's common stock totaling $ 500,000. the program terminated on november 30 , 2017. during the third quarter of 2017 , we filed an s-3 registration statement with the securities and exchange commission ( `` sec '' ) to replace an existing , expiring s-3 `` shelf '' registration statement , which permits us to offer and sell up to $ 15 million of our securities from time to time in one or more offerings . to date , we have not taken down any sales from this shelf registration statement . though we believe the revolving line of credit and its expected renewal , as well as cash generated by operations , will provide sufficient cash for operations over the next twelve months , we may still elect to sell securities to the public or to selected investors , or borrow under the current or any replacement line of credit or other debt instruments in order to fund the development of our technologies , make acquisitions , pursue new business opportunities or grow existing businesses . cash flows - operating net cash used in operating activities was $ 1,148,281 during 2017 . we reported a net loss of $ 3,057,700 , which included a deferred income tax benefit of $ 1,406,600 due to the recent change in tax legislation . additional non-cash expenses included were depreciation and amortization of $ 3,029,801 and stock-based compensation of $ 1,279,807 . the change in operating assets and liabilities was a net use of cash of $ 1,396,224 primarily due to a change in the accounts payable balance by $ 437,241 and the accounts receivable balance by $ 1,216,611 largely due to the working capital needs of the business acquired in february 2017. our terms are such that we generally collect receivables prior to paying trade payables . media sales , which are part of the acquired business , typically have slower payment terms than the terms of related payables . we expect to grow the media sales business and therefore , expect to have a greater need for working capital funding . we believe the revolving line of credit and its expected renewal will be adequate to fund working capital needs for the next twelve months . during 2016 , cash provided by operating activities was $ 1,053,019 . we reported a net loss of $ 772,584 , which included the non-cash expenses of depreciation and amortization of $ 2,209,738 and stock-based compensation expenses of $ 1,264,266 . the change in operating assets and liabilities was a net use of cash of $ 1,441,713 . cash flows - investing net cash used in investing activities was $ 1,322,930 and $ 1,116,371 for 2017 and 2016 , respectively . cash used in story_separator_special_tag opened a new development and support office in san jose , ca . 13 entered partnerships with microsoft bing and openx . hired a chief revenue officer who built a media and publisher sales and account management organization . began developing relationships in china that could result in media spend in the usa . continued the migration to mobile , going from 52.4 % mobile in 2016 to 62.1 % in 2017. critical accounting policies and estimates the preparation of financial statements in conformity with u.s. gaap requires management to make estimates and assumptions that affect the reported amount of assets and liabilities , the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses during the reported periods . the more critical accounting estimates include estimates related to revenue recognition and accounts receivable allowances . we also have other key accounting policies , which involve the use of estimates , judgments and assumptions that are significant to understanding our results , which are described in note 2 to our audited financial statements for 2017 and 2016 appearing elsewhere in this report . story_separator_special_tag statutory requirements made it necessary to have a continued presence in the eu for varying terms until november 2015. profits and losses generated from the remaining assets and liabilities are accounted for as discontinued operations . in the third quarter of 2016 , our petition with the uk ( united kingdom ) companies house to strike off and dissolve the remaining subsidiary in the eu was approved . as a result , for the twelve months ended december 31 , 2017 , we recognized a net loss from discontinued operations of $ 1,109 due to a charge from a service provider . as of december 31 , 2016 , we recorded a net income of $ 155,287 due primarily to the adjustment of certain accrued liabilities . no further charges or adjustments are expected . liquidity and capital resources on march 27 , 2017 , we amended our business financing agreement with western alliance bank ( `` western alliance bank '' ) , the parent company of bridge bank , n.a. , our original lender ( see note 6 , `` revolving credit line '' ) . the renewal provided continued access to the revolving line of credit up to $ 10 million through september 2018 , included the collateral acquired in the netseer asset acquisition and modified certain financial covenants . on july 31 , 2017 , we entered into the ninth business financing modification agreement with western alliance bank . the amendment changed certain financial ratios , definitions , the advance rate , the finance charge and the non-formula availability . as of december 31 , 2017 , the balance of the revolving 15 line of credit was $ 4.9 million and had approximately $ 3.7 million in availability . the credit facility matures in september 2018. during september 2017 , 45,900 shares of our common stock were repurchased in the open market at an average price of $ .98 per shares under the company 's current share repurchase program and were subsequently retired , which was announced on december 9 , 2016. the program authorized the repurchase of the company 's common stock totaling $ 500,000. the program terminated on november 30 , 2017. during the third quarter of 2017 , we filed an s-3 registration statement with the securities and exchange commission ( `` sec '' ) to replace an existing , expiring s-3 `` shelf '' registration statement , which permits us to offer and sell up to $ 15 million of our securities from time to time in one or more offerings . to date , we have not taken down any sales from this shelf registration statement . though we believe the revolving line of credit and its expected renewal , as well as cash generated by operations , will provide sufficient cash for operations over the next twelve months , we may still elect to sell securities to the public or to selected investors , or borrow under the current or any replacement line of credit or other debt instruments in order to fund the development of our technologies , make acquisitions , pursue new business opportunities or grow existing businesses . cash flows - operating net cash used in operating activities was $ 1,148,281 during 2017 . we reported a net loss of $ 3,057,700 , which included a deferred income tax benefit of $ 1,406,600 due to the recent change in tax legislation . additional non-cash expenses included were depreciation and amortization of $ 3,029,801 and stock-based compensation of $ 1,279,807 . the change in operating assets and liabilities was a net use of cash of $ 1,396,224 primarily due to a change in the accounts payable balance by $ 437,241 and the accounts receivable balance by $ 1,216,611 largely due to the working capital needs of the business acquired in february 2017. our terms are such that we generally collect receivables prior to paying trade payables . media sales , which are part of the acquired business , typically have slower payment terms than the terms of related payables . we expect to grow the media sales business and therefore , expect to have a greater need for working capital funding . we believe the revolving line of credit and its expected renewal will be adequate to fund working capital needs for the next twelve months . during 2016 , cash provided by operating activities was $ 1,053,019 . we reported a net loss of $ 772,584 , which included the non-cash expenses of depreciation and amortization of $ 2,209,738 and stock-based compensation expenses of $ 1,264,266 . the change in operating assets and liabilities was a net use of cash of $ 1,441,713 . cash flows - investing net cash used in investing activities was $ 1,322,930 and $ 1,116,371 for 2017 and 2016 , respectively . cash used in
| the decrease in marketing costs in the twelve months ended december 31 , 2017 was a strategy initiated at the beginning of 2017 in anticipation of the acquisition in february 2017. this strategy was designed to focus resources and investment towards a higher growth and gross margin ( after tac ) business at the expense of growth in another business line at lower gross margin . compensation expense increased 49.3 % in the twelve months ended december 31 , 2017 due primarily to an increase in the number of employees . the higher headcount is primarily due to the additional employees from the february 2017 acquisition . our total employment , both full-time and part-time , was 89 at december 31 , 2017 compared to 72 at the same time last year . we expect compensation expense to increase , though moderately , in the coming quarters as we hire additional developers and sales personnel to support the anticipated growth . selling , general and administrative costs were $ 8.3 million , an increase of 67.0 % over 2016. the primary reasons for the higher cost in the twelve months ended december 31 , 2017 compared to the same period last year is due to the acquisition in february 2017. among the higher 2017 expenses compared to 2016 were it costs approximately $ 1.3 million higher ; amortization and depreciation expense approximately $ 852,000 higher ; facilities cost approximately $ 290,000 higher and travel and entertainment costs approximately $ 255,000 higher . we expect selling , general and administrative costs to decrease in 2018. interest expense , net interest expense , net , which represents interest expense on the bank credit facility , was higher in 2017 compared to the same periods in 2016 because of a higher average outstanding revolving credit line balance and higher interest rates this year compared to last year . income tax benefit in 2017 , we recognized an income tax benefit of $ 1,498,076 due to the passing of the tax cuts and jobs act in december 2017. the new law reduced corporate income tax rates from 35 % to 21 % . as a result , the deferred tax assets and liabilities recorded in the consolidated balance sheet were
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segment operating income and margin rate segment operating income , as reconciled in the reconciliation of segment operating income to total operating income table below , is a non-gaap measure and is used by management as an internal measure for financial performance of our operating segments . segment operating income reflects total earnings from our four segments , including allocated pension expense recognized under cas , and excludes unallocated corporate items , including fas pension expense . replace_table_token_10_th 2015 - segment operating income for 2015 decreased $ 179 million , or 6 percent , as compared with 2014 and segment operating margin rate decreased to 12.4 percent from 12.9 percent in 2014 . the decrease in segment operating income was principally due to lower sales volume and the absence in 2015 of the $ 75 million in settlements described above and a benefit of approximately $ 45 million from lower 2014 cas costs due to passage of the highway and transportation funding act of 2014 ( hatfa ) . the absence in 2015 of the noted settlements and hatfa benefits was the primary driver of the lower 2015 operating margin rate . 2014 - segment operating income for 2014 increased $ 19 million , or 1 percent , as compared with 2013 and segment operating margin rate increased to 12.9 percent from 12.5 percent in 2013. the increase in segment operating income and margin rate was principally due to the benefits recognized as a result of the settlements and the hatfa legislation described above . these increases more than offset the impact of lower sales volume . net eac adjustments - we record changes in estimated contract operating margin at completion ( net eac adjustments ) using the cumulative catch-up method of accounting . in aggregate , net eac adjustments can have a significant effect on reported sales and operating income and are presented in the table below : replace_table_token_11_th net eac adjustments by segment are presented in the table below : replace_table_token_12_th - 26 - northrop grumman corporation reconciliation of segment operating income to total operating income - the table below reconciles segment operating income to total operating income by including the impact of net fas/cas pension adjustments , as well as certain corporate-level expenses , which are not considered allowable or allocable under applicable cas or far ( unallocated corporate expenses ) . see note 3 to the consolidated financial statements in part ii , item 8 for further information on the net fas/cas pension adjustment and unallocated corporate expenses . replace_table_token_13_th aerospace systems replace_table_token_14_th 2015 - aerospace systems sales for 2015 were comparable to the prior year . sales in 2014 included the $ 75 million in settlements described above . excluding the settlements , sales for 2015 increased $ 82 million , or 1 percent , as compared to 2014. the increase in unmanned systems ( ums ) sales reflects higher volume on a number of programs , including global hawk . these increases were partially offset by lower volume on the fire scout and nato alliance ground surveillance ( ags ) programs . military aircraft systems ( mas ) sales increased principally due to the transition to full rate production on the e-2d advanced hawkeye program , increased deliveries on the f-35 program and higher volume on the joint surveillance target attack radar system ( jstars ) program . these increases were partially offset by lower volume on the f/a-18 program due to fewer deliveries as the program ramps down . space sales include higher volume on restricted programs , partially offset by lower volume on the advanced extremely high frequency ( aehf ) program . operating income for 2015 decreased $ 95 million , or 7 percent , and operating margin rate decreased to 12.2 percent from 13.2 percent . lower operating income and margin rate in 2015 were primarily due to the benefits recognized in 2014 associated with the settlements described above . 2014 - aerospace systems sales for 2014 were comparable to 2013 , and include the impact of the settlements described in the segment operating income and margin rate section above . excluding the settlements , aerospace systems had lower sales on ums , space and mas programs . the decrease in ums programs reflects declines of $ 136 million on global hawk due to lower production activity and $ 111 million on fire scout as a result of lower development activity . these declines were partially offset by $ 135 million of higher volume on the nato ags program . the decrease in space programs was mainly due to lower volume on the james webb space telescope and aehf programs . the decrease in mas programs was primarily the result of lower volume on the jstars , f-35 and b-2 programs , partially offset by higher volume of $ 87 million on the e-2d advanced hawkeye program . operating income for 2014 increased $ 100 million , or 8 percent , and operating margin rate increased to 13.2 percent , from 12.1 percent . higher operating income and margin rate in 2014 were primarily due to the settlements described above and improved performance . - 27 - northrop grumman corporation electronic systems replace_table_token_15_th 2015 - electronic systems sales for 2015 decreased $ 109 million , or 2 percent , as compared with 2014 . the decrease was primarily due to lower volume on airborne intelligence , surveillance , and reconnaissance & targeting ( aisr & t ) systems and land & self protection systems ( l & sps ) , partially offset by higher volume on navigation & maritime systems ( n & ms ) programs . aisr & t sales decreased primarily due to lower volume on the litening program . the decline in l & sps is due to in-theater force reductions and ramp-down on an international program , partially offset by increased deliveries on infrared countermeasures ( ircm ) programs and ramp-up on the g/ator program . story_separator_special_tag the increase in n & ms sales reflects higher volume from ramp-up activities on a number of marine and undersea systems programs . operating income for 2015 decreased $ 80 million , or 7 percent , and operating margin rate decreased to 15.6 percent from 16.5 percent . operating income and margin rate for 2015 decreased primarily due to business mix changes , which resulted in lower volume for mature fixed price production programs and higher volume for cost-type development programs , and less favorable performance on aisr & t and l & sps programs . 2014 - electronic systems sales for 2014 decreased $ 198 million , or 3 percent , as compared with 2013 . lower sales are principally due to lower volume for l & sps programs , including lower deliveries of $ 174 million on ircm and laser systems ; lower volume for u.s. intelligence , surveillance , reconnaissance and targeting programs , including $ 93 million of lower deliveries on combat avionics ; and $ 109 million of lower volume for n & ms programs . the declines were partially offset by higher sales of $ 178 million on international programs . operating income for 2014 decreased $ 78 million , or 6 percent , and operating margin rate decreased to 16.5 percent from 17.1 percent . operating income and margin rate for 2014 declined primarily due to a reduction in net eac adjustments , lower volume and the absence in 2014 of the benefit from the reversal of a $ 26 million non-programmatic risk reserve in 2013 . information systems replace_table_token_16_th 2015 - information systems sales for 2015 decreased $ 328 million , or 5 percent , as compared with 2014 . the decrease is primarily driven by lower volume on command and control ( c2 ) and civil programs . the decrease in c2 is mainly driven by lower volume on the consolidated afloat network and enterprise services program , the impact of in-theater force reductions , and completion of the ground combat vehicle contract . the decrease in civil is primarily due to the restructuring of the emergency communications transformation program stage ii contract . operating income for 2015 increased $ 5 million , or 1 percent , and operating margin rate increased to 10.5 percent from 9.8 percent . the increase in operating income and margin rate reflects improved performance , partially offset by the decline in sales volume described above . 2014 - information systems sales for 2014 decreased $ 374 million , or 6 percent , as compared with 2013 . sales principally declined as a result of lower volume of $ 294 million on c2 programs and $ 62 million on communications programs due to in-theater force reductions , reduced funding levels and the wind-down of various programs . operating income for 2014 decreased $ 22 million , or 3 percent , and operating margin rate increased to 9.8 percent from 9.6 percent . the lower operating income is primarily a result of the lower sales described above . the higher operating margin rate reflects additional operating income resulting from improved performance . - 28 - northrop grumman corporation technical services replace_table_token_17_th 2015 - technical services sales for 2015 increased $ 39 million , or 1 percent , as compared with 2014 . the increase was principally due to higher volume on mission solutions and readiness ( ms & r ) programs , partially offset by lower volume on integrated logistics and modernization ( il & m ) programs . the increase in ms & r was primarily due to higher volume on the saudi arabian ministry of national guard training support program ( through our interest in a joint venture for which we consolidate the financial results ) . the decrease in il & m was mainly due to ramp-down activities on the intercontinental ballistic missile ( icbm ) program , partially offset by increased volume on the jstars and hunter programs . operating income for 2015 decreased $ 7 million , or 3 percent , and operating margin rate decreased to 8.9 percent from 9.3 percent . the declines in both operating income and operating margin rate were principally due to lower income from an unconsolidated joint venture than in the prior year period . 2014 - technical services sales for 2014 decreased $ 44 million , or 2 percent , as compared with 2013 . the decrease was primarily due to lower volume on the icbm , hunter and combined tactical training range programs , which were partially offset by growth in international sales , principally as a result of the acquisition of qantas defence services pty limited ( qds ) in the first quarter of 2014 . operating income and margin rate for 2014 were comparable to 2013 . product and service analysis the following table presents product and service sales and operating costs and expenses by segment : replace_table_token_18_th ( 1 ) the reconciliation of segment operating income to total operating income , as well as a discussion of the reconciling items , is included in the segment operating results section above . - 29 - northrop grumman corporation product sales and product costs 2015 - product sales for 2015 were comparable with 2014 . sales in 2014 included the $ 75 million in settlements at aerospace systems as described above and sales in 2015 reflect lower product sales at information systems and higher product sales at technical services . the decrease at information systems was primarily due to lower product sales on certain cyber programs , partially offset by higher f-35 volume . the increase at technical services was primarily due to higher volume on intercompany restricted work . product costs for 2015 increased $ 174 million , or 1 percent , as compared to 2014 . the increase was primarily due to higher product costs at aerospace systems and electronic systems due to lower performance and changes in business mix .
| the increase in operating costs and expenses as a percentage of sales was driven by $ 179 million of lower segment operating income , as described in the segment operating results section below , and $ 21 million in higher unallocated corporate expenses , partially offset by a $ 79 million increase in our net fas ( gaap financial accounting standards ) /cas pension adjustment . for further information regarding net fas/cas pension adjustment and unallocated corporate expenses , see note 3 to the consolidated financial statements in part ii , item 8 . 2014 – operating costs and expenses as a percentage of sales declined in 2014 as compared with 2013 , which increased our operating margin rate to 13.3 percent from 12.7 percent in the prior year period . the reduction in - 24 - northrop grumman corporation operating costs and expenses as a percentage of sales was driven by a $ 101 million increase in our net fas/cas pension adjustment and $ 19 million of higher segment operating income , partially offset by $ 50 million in higher unallocated corporate expenses . 2015 – general and administrative expenses as a percentage of sales increased to 10.9 percent in 2015 from 10.0 percent in 2014 , principally due to an increase in ir & d as we continue to invest in future business opportunities . 2014 – general and administrative expenses as a percentage of sales increased to 10.0 percent in 2014 from 9.1 percent in 2013 , principally due to an increase in ir & d as we continue to invest in future business opportunities . for further information regarding product and service sales and costs , see the product and service analysis section that follows segment operating results . operating income and margin rate we define operating income as sales less operating costs and expenses , which includes general and administrative expenses . operating margin rate is defined as operating income as a percentage of sales . 2015 – operating income decreased $ 120 million , or 4 percent , as compared
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as organizations derive benefits from our solutions , we are able to expand within organizations as additional use cases are presented across departments , divisions and geographic locations and customers become increasingly reliant on our solutions in their daily workflow . in order for us to continue to develop new products , grow our existing business and expand into additional markets , we must generate and sustain sufficient operating profits and cash flow in future periods . this will require us to generate additional sales from current products and new products currently under development . we continue to build out our sales organization to drive current products and to introduce new products into the marketplace . in december 2019 , a novel strain of coronavirus , known as covid-19 , was reported in wuhan , china and has since extensively impacted the global health and economic environment . in march 2020 , the world health organization characterized covid-19 as a pandemic . we have taken numerous steps , and will continue to take further actions as appropriate , to minimize the impact of the covid-19 pandemic on our business , results of operations and financial performance . to ensure the health and well-being of our employees , beginning in march 2020 , we instructed employees at our offices to work from home on a temporary basis . starting in the second quarter of 2020 , we implemented cost containment strategies across all areas of the organization , including continued curtailment of company travel and partnering with suppliers , landlords and vendors for price concessions and payment deferrals during this interim period . as a result of preventative and protective actions taken by federal , state and local governments , including the implementation of stay-at-home orders and social distancing policies that resulted in significantly reduced commercial activity , and certain temporary government-imposed moratoria on collection customers ' activities , we experienced reduced transaction volume in the second and third quarters of 2020. transaction volume returned to pre-covid levels by the end of the third quarter 2020 , except for collection customer volume . collection customer transaction volume remained below pre-covid levels during the fourth quarter of 2020 , down $ 0.9 million , primarily attributable to our idiverified service , which is an ancillary collections market offering that is purely transactional and of a lower margin profile , for the three months ended december 31 , 2020 , compared to the three months ended march 31 , 2020. we expect collection customer transaction volume , including that of our idiverified service , to return to pre-covid levels in the second half of 2021. beginning the second quarter of 2020 , we took a proactive customer-centric approach working with customers who were impacted by covid-19 . customers who had minimum contractual commitments and requested concessions because they were temporarily unable to meet their minimum contractual commitments as a result of covid-19 were granted reductions , or eliminations where applicable , of minimums on a month-to-month basis . the end date of the customer 's agreement was extended by one month for each month of the temporary concession . during the second quarter of 2020 , we provided concessions to a total of 152 customers , representing a $ 342 thousand reduction in minimum committed spend . during the third quarter of 2020 , we provided concessions to a total of 22 customers , representing a $ 94 thousand reduction in minimum committed spend . during the fourth quarter of 2020 , we provided concessions to a total of 7 customers , representing a $ 32 thousand reduction in minimum committed spend . we continue to take precautionary measures intended to minimize the risk of the covid-19 pandemic to our employees , our customers , and the communities in which we operate . these measures may result in inefficiencies , delays and additional costs to our business . the covid-19 pandemic and its impact on us and the economy has significantly limited our ability to forecast our future operating results , including our ability to predict revenue and expense levels , and plan for and model future operating results . we will continue to evaluate the nature and extent of the impact of the covid-19 pandemic to our business . 23 to further support our liquidity , beginning april 1 , 2020 , we elected , under section 2302 of the coronavirus aid , relief , and economic security act ( “ cares act ” ) , to defer payment of the employer portion of social security payroll tax . under the cares act , employers can forgo timely payment of the employer portion of social security taxes that would otherwise be due from march 27 , 2020 through december 31 , 2020 , without penalty or interest charges . employers must pay 50 % of the deferred amount by december 31 , 2021 , and the remainder by december 31 , 2022. on may 5 , 2020 , we received funding under a promissory note dated may 5 , 2020 evidencing an unsecured non-recourse loan in the principal amount of $ 2.2 million under the cares act ( the “ loan ” ) . we submitted an application for forgiveness of the loan in november 2020. we will continue to assess the cares act and other applicable government legislation aimed at assisting businesses during the covid-19 pandemic . in accordance with best practices and guidance from the centers for disease control and prevention , we implemented protective safeguards , including daily temperature checks , mandatory wearing of masks , social distancing , plexiglass protective barriers , and an entire office hvac uv-c system . we began our first phase of employees returning to the boca raton , florida office in june 2020. we will continue to assess the need and timing of additional employees returning to the office . given the dynamic nature of this health emergency , the full impact of the covid-19 pandemic on our ongoing business , results of operations and overall financial performance can not be reasonably estimated at this time . story_separator_special_tag industry trends and uncertainties operating results are affected by the following factors that impact the data and analytics sector in the united states : the macroeconomic conditions , including the availability of affordable credit and capital , interest rates , inflation , employment levels and consumer confidence , influence our revenue . macroeconomic conditions also have a direct impact on overall technology , marketing and advertising expenditures in the u.s. as marketing budgets are often more discretionary in nature , they are easier to reduce in the short term as compared to other corporate expenses . future widespread economic slowdowns in any of the industries or markets our clients serve could reduce the technology and marketing expenditures of our clients and prospective customers . our revenue is also significantly influenced by industry trends , including the demand for business analytics services in the industries we serve . companies are increasingly relying on business analytics and related technologies to help process data in a cost-efficient manner . as customers have gained the ability to rapidly aggregate data generated by their own activities , they are increasingly expecting access to real-time data and analytics from their service providers as well as solutions that fully integrate into their workflows . the increasing number and complexity of regulations centered around data and provision of information services makes operations for businesses in the data and analytic sector more challenging . the enactment of new or amended legislation or industry regulations pertaining to consumer or private sector privacy issues could have a material adverse impact on information and marketing services . legislation or industry regulations regarding consumer or private sector privacy issues could place restrictions upon the collection , sharing and use of information that is currently legally available , which could materially increase our cost of collecting and maintaining some data . these types of legislation or industry regulations could also prohibit us from collecting or disseminating certain types of data , which could adversely affect our ability to meet our clients ' requirements and our profitability and cash flow targets . company specific trends and uncertainties our operating results are also directly affected by company-specific factors , including the following : some of our competitors have substantially greater financial , technical , sales and marketing resources , better name recognition and a larger customer base . even if we introduce advanced products that meet evolving customer requirements in a timely manner , there can be no assurance that our new products will gain market acceptance . certain companies in the data and analytics sector have expanded their product lines or technologies in recent years as a result of acquisitions . further , more companies have developed products which conform to existing and emerging industry standards and have sought to compete on the basis of price . we anticipate increased competition from large data and analytics vendors . increased competition in the data and analytics sector could result in significant price competition , reduced profit margins or loss of market share , any of which could have a material adverse effect on our business , operating results and financial condition . there can be no assurance that we will be able to compete successfully in the future with current or new competitors . 24 critical accounting policies and estimates management 's discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states ( “ us gaap ” ) . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenue and expenses , and related disclosure of contingent assets and liabilities . on an ongoing basis , we evaluate our estimates , including those related to the allowance for doubtful accounts , useful lives of intangible assets , recoverability of the carrying amounts of goodwill and intangible assets , share-based compensation and income tax provision . 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 . we believe the following critical accounting policies govern our more significant judgments and estimates used in the preparation of our consolidated financial statements . revenue recognition we recognize revenue in accordance with asc 606 , “ revenue from contracts with customers ” ( “ topic 606 ” ) . under this standard , revenue is recognized when control of goods or services is transferred to the company 's customers , in an amount that reflects the consideration the company expects to be entitled to in exchange for those goods or services . our performance obligation is to provide on demand solutions to our customers by leveraging our proprietary technology and applying machine learning and advanced analytics to our massive data assets . the pricing for the customer contracts is based on usage , a monthly fee , or a combination of both . revenue is generally recognized on ( a ) a transactional basis determined by the customers ' usage , ( b ) a monthly fee or ( c ) a combination of both . revenue pursuant to transactions determined by the customers ' usage is recognized when the transaction is complete , and either party may terminate the transactional agreement at any time . revenue pursuant to contracts containing a monthly fee is recognized ratably over the contract period , which is generally 12 months , and the contract shall automatically renew for additional , successive 12-month terms unless written notice of intent not to renew is provided by one party to the other at least 30 days or 60 days prior to the expiration of the then current term . our revenue is recorded net of applicable sales taxes billed to customers .
| adjusted ebitda is a financial measure equal to net loss , the most directly comparable financial measure based on us gaap , excluding interest expense ( income ) , net , depreciation and amortization , share-based compensation expense , write-off of long-lived assets and others , and sales and use tax expense , as noted in the tables below . we define adjusted gross profit as revenue less cost of revenue ( exclusive of depreciation and amortization ) , and adjusted gross margin as adjusted gross profit as a percentage of revenue . replace_table_token_1_th 28 the following is a reconciliation of gross profit , the most directly comparable gaap financial measure , to adjusted gross profit : replace_table_token_2_th in order to assist readers of our consolidated financial statements in understanding the operating results that management uses to evaluate the business and for financial planning purposes , we present non-gaap measures of adjusted ebitda , adjusted gross profit and adjusted gross margin as supplemental measures of our operating performance . we believe they provide useful information to our investors as they eliminate the impact of certain items that we do not consider indicative of our cash operations and ongoing operating performance . in addition , we use them as an integral part of our internal reporting to measure the performance and operating strength of our business . we believe adjusted ebitda , adjusted gross profit and adjusted gross margin are relevant and provide useful information frequently used by securities analysts , investors and other interested parties in their evaluation of the operating performance of companies similar to ours and are indicators of the operational strength of our business . we believe adjusted ebitda eliminates the uneven effect of considerable amounts of non-cash depreciation and amortization , share-based compensation expense and the impact of other non-recurring items , providing useful comparisons versus prior periods or forecasts . our adjusted gross profit is a measure used by management in evaluating the business 's current operating performance by excluding the impact of prior historical costs of assets that are expensed systematically and allocated over the estimated useful lives of the assets , which may not be indicative of the current operating activity . our adjusted gross profit is calculated by using revenue , less
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the company received an initial delivery of shares , representing an estimated 75 percent of the shares to be purchased by the company under the first quarter 2016 asr program . the specific number of shares that the company ultimately will repurchase under the first quarter 2016 asr program will be determined based generally on a discount to the volume-weighted average price per share of the company 's common stock during a calculation period to be completed no later than april 2016. the purchase will be recorded as a treasury share purchase for purposes of calculating earnings per share . subsequent to the launch of the first quarter 2016 asr program , the company has $ 200 million remaining under its existing $ 1.5 billion share repurchase program . see part ii , item 5 for further information on the company 's share repurchase authorizations . 41 company overview following the company 's effective completion of the airtran integration at the end of 2014 , one of the company 's primary areas of focus was on allowing its expanded network to develop , while also improving the reliability of its operations . throughout most of 2015 , the company had a significantly higher than normal portion of its network considered under development , due to new service implemented upon converting both international and domestic destinations over from airtran to southwest , as well as growth in existing southwest markets including dallas , houston , washington d.c , and new york . in 2016 , the portion of those markets under development will return to a more long-term historical figure based on capacity . following the integration of airtran , the company also made investments in its 2015 flight schedule to improve its overall on-time performance . the company 's on-time performance during 2015 as reported through november 2015 was approximately 80 percent , which increased approximately 7 points compared to full year 2014. during 2015 , the company took several steps designed to enhance its existing service in cities across the network or to connect existing cities with new service not previously offered by southwest , most notably : the company began offering daily nonstop flights to 20 new cities from dallas love field , marking the company 's most robust schedule ever offered at dallas love field , with 180 daily departures to 50 nonstop destinations . the company connected central america to the company 's network with the addition of liberia , costa rica ; san jose , costa rica ; and belize city , belize in 2015. the company began service to puerto vallarta , mexico in june 2015. during october 2015 , the all-new international terminal at houston hobby opened and the company commenced service from houston hobby to mexico ( cancun , mexico city , puerto vallarta , cabo san lucas/los cabos ) , belize city , belize ; san jose , costa rica ; liberia , costa rica ; and montego bay , jamaica . during 2015 , the company took delivery of 19 737-800 aircraft from boeing and 24 pre-owned boeing 737-700 aircraft from third parties , and retired four boeing 737 classic ( 737-300 and 737-500 ) aircraft during the year . following airtran 's final passenger service on december 28 , 2014 , the company removed all remaining boeing 717-200 aircraft ( `` b717s '' ) from service . as of december 31 , 2015 , 87 of airtran 's 88 b717 aircraft had been delivered to delta pursuant to a lease/sublease agreement , and one b717 aircraft was undergoing conversion in preparation for delivery to delta . see note 7 to the consolidated financial statements for further information . the company is scheduled to be the launch customer for boeing 's new , more fuel-efficient 737 max 8 aircraft , which is expected to enter service in 2017. the 737 max 8 is expected to reduce fuel burn and co2 emissions approximately 20 percent , compared with the original next-generation 737s ( 737-300 and 737-500 ) when they first entered service . southwest is also scheduled to be the launch customer for the boeing 737 max 7 series aircraft , with deliveries expected to begin in 2019. currently , the company has firm orders in place for 170 max 8 aircraft and 30 max 7 aircraft . at the end of december 2015 , the company revised its future firm delivery schedule to reflect 33 additional -800s , and the conversion of its remaining 25 -700 firm orders to -800s . in addition , two pre-owned -700s were added to its delivery schedule . the incremental seat gauge and aircraft will be used to replace the capacity associated with the company 's year-end decision to further accelerate the retirement of its classic fleet to no later than mid-2018 , as compared to the previous plan of 2021. the company continues to plan for modest year-over-year fleet growth through 2018 of no more than two percent , on average . the company also expects an approximate five to six percent increase year-over-year in 2016 asms . the revised delivery schedule is currently estimated to increase the company 's firm aircraft capital commitments by $ 400 million beyond 2015. replacing the boeing 737-300s and boeing 737-500s with more efficient and cost-effective aircraft is expected to provide significant cost savings , along with improving the customer experience with better ontime performance and wifi-equipped aircraft . additional information regarding the company 's aircraft delivery schedule is included in note 4 to the consolidated financial statements . story_separator_special_tag 42 during 2015 , the following events took place regarding the company 's unionized employee groups in contract negotiations : dispatchers , represented by the transport workers union , local 550 ( `` twu 550 '' ) , ratified a new four-year contract which becomes amendable on november 30 , 2019. flight simulator technicians , represented by the international brotherhood of teamsters , ratified a new four-year contract which becomes amendable on april 30 , 2019. meteorologists , represented by twu 550 , approved their first-ever collective-bargaining agreement following certification by the national mediation board late last year . this new , four-year contract becomes amendable on june 1 , 2019. flight attendants , represented by the transport workers union , local 556 , reached a tentative collective-bargaining agreement with the company , which was announced in july 2015. the flight attendants failed to ratify this agreement , as announced by the company on july 24 , 2015 , and the parties will continue negotiations . pilots , represented by the southwest airlines pilots ' association , reached a tentative collective bargaining agreement with the company , which was announced september 17 , 2015. the pilots failed to ratify this agreement , as announced by the company on november 4 , 2015 , and the parties will continue negotiations . ramp , operations , provisioning , and freight agents , represented by the transport workers union local 555 , reached a tentative collective bargaining agreement with the company , which was announced on december 29 , 2015. the agreement has been presented to members for ratification and the vote will be closed in first quarter 2016 . 2015 compared with 2014 operating revenues passenger revenues for 2015 increase d by $ 641 million , or 3.6 percent , compared with 2014 . holding load factor and yield constant , the increase was primarily attributable to a 7.2 percent increase in capacity as strong customer demand for low-fare air travel enabled the company to fill the additional seats , as evidenced by a company record annual load factor of 83.6 percent . on a unit basis , passenger revenue decrease d 3.4 percent , year-over-year , largely driven by a 4.7 percent decrease in passenger revenue yield , year-over-year . freight revenues for 2015 increase d by $ 4 million , or 2.3 percent , compared with 2014 , primarily due to increased pounds shipped . based on current trends , the company currently expects freight revenues in first quarter 2016 to be comparable to fourth quarter 2015 . the company recorded a special revenue adjustment during 2015 of $ 172 million . this adjustment represented a one-time non-cash reduction to the deferred revenue liability as a result of the july 2015 amended agreement with chase and the resulting change in accounting methodology . the adjustment is classified as a special item and thus excluded from the company 's non-gaap financial results . see note 1 to the consolidated financial statements and the note regarding use of non-gaap financial measures for further information . other revenues for 2015 increase d by $ 398 million , or 51.6 percent , compared with 2014 , primarily as a result of the july 2015 amended agreement with chase and the resulting change in accounting methodology . the agreement resulted in an acceleration of the timing of revenue recognition on a prospective basis beginning july 1 , 2015 , as well as a change in classification . the transportation element of the consideration received is now allocated a lower relative value , resulting in a reduction in the revenues classified as passenger on a prospective basis , and the higher relative value associated with the non-transportation elements results in an increase in the portion of revenues classified as other within the consolidated statement of income ; however , the precise revenue impact for future periods is not determinable until the volume of future transactions for the period is known . ancillary revenues increased slightly year-over-year , primarily due to an increase in earlybird check-in® and a1-15 select boarding positions sold at the 43 gate , which was partially offset by the decrease in revenues from the termination of airtran passenger service and related ancillary fees . while some yield softness has continued into january , demand for low-fare air travel , thus far , remains strong . based on favorable booking and revenue trends , and including the estimated $ 110 million first quarter 2016 effect of the amended agreement with chase , the company is currently expecting first quarter 2016 operating unit revenues to be flat with first quarter 2015. see note 1 to the consolidated financial statements for further information . operating expenses operating expenses for 2015 decrease d by $ 676 million , or 4.1 percent , compared with 2014 , while capacity increased 7.2 percent over the same period . historically , except for changes in the price of fuel , changes in most operating expenses for airlines are driven by changes in capacity , or asms . the following table presents the company 's operating expenses per asm for 2015 and 2014 , followed by explanations of these changes on a per asm basis and or on a dollar basis : replace_table_token_10_th operating expenses per asm for 2015 decrease d by 10.6 percent , compared with 2014 , primarily due to a decrease in fuel and oil expense , partially offset by an increase in salaries , wages , and benefits expense . on a non-gaap basis , operating expenses per asm for 2015 , excluding fuel and special items , increase d 0.1 percent year-over-year primarily due to higher salaries , wages , and benefits expense . based on current cost trends , the company expects its first quarter 2016 unit costs , excluding fuel , special items , and profitsharing to increase approximately two percent , compared with first quarter 2015 . see the previous note regarding use of non-gaap financial measures .
| also , operating expenses decreased 4.1 percent , primarily as a result of lower fuel prices , which more than offset increases in certain cost categories discussed below , including salaries , wages , and benefits expense , which included the company 's record employee profitsharing expense of $ 620 million . excluding special items in both years , non-gaap net income was a record $ 2.4 billion , or $ 3.52 per diluted share , a 68.6 percent increase in non-gaap net income year-over-year . year ended december 31 , 2015 operating income was $ 4.1 billion and non-gaap operating income was $ 4.0 billion . both gaap and non-gaap annual operating income results for 2015 were company records and significantly surpassed the prior year performance . for the twelve months ended december 31 , 2015 , the company 's exceptional earnings performance , combined with its actions to prudently manage invested capital , produced a 32.7 percent pre-tax return on invested capital , excluding special items ( `` roic '' ) . this represented a significant increase compared with the company 's roic of 21.2 percent for the twelve months ended december 31 , 2014 . the increase in roic was achieved primarily through successful integration of airtran , operational and network enhancements , and declining fuel prices . during 2015 , the company continued to return significant value to its shareholders . the company returned a record $ 1.4 billion to shareholders through a combined $ 180
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the remaining coal-fired generating units at the belle river and monroe facilities are expected to be retired by 2040. the retired facilities will be replaced with renewables , energy waste reduction , demand response , and natural gas fueled generation . in april 2018 , dte electric received approval from the mpsc to build a natural gas fueled combined cycle generation facility to provide approximately 1,100 megawatts of energy beginning in 2022. in august 2018 , dte electric began construction on its natural gas fueled combined cycle generation facility . in march 2018 , dte electric filed its 2018 renewable energy plan with the mpsc proposing approximately 1,000 additional megawatts of energy from new wind and solar projects to be completed by 2022. the mpsc had previously approved 300 of the 1,000 additional megawatts for wind projects in an mpsc order received in september 2016. in january 2018 , dte electric filed with the mpsc its five-year distribution operations investment and maintenance plan to improve system reliability . dte electric plans to seek regulatory approval for capital expenditures consistent with prior ratemaking treatment . for further discussion of regulatory matters , see note 9 to the consolidated financial statements , `` regulatory matters . '' dte gas ' capital investments over the 2019-2023 period are estimated at $ 2.5 billion comprised of $ 1.2 billion for base infrastructure , and $ 1.3 billion for gas main renewal , meter move out , and pipeline integrity programs . dte gas plans to seek regulatory approval for capital expenditures consistent with ratemaking treatment . dte energy 's non-utility businesses ' capital investments are primarily for expansion , growth , and ongoing maintenance . gas storage and pipelines ' capital investments over the 2019-2023 period are estimated at $ 4.0 billion to $ 5.0 billion for gathering and pipeline investments and expansions . power and industrial projects ' capital investments over the 2019-2023 period are estimated at $ 1.0 billion to $ 1.4 billion for industrial energy services and rng projects . 30 environmental matters the registrants are subject to extensive environmental regulation . additional costs may result as the effects of various substances on the environment are studied and governmental regulations are developed and implemented . actual costs to comply could vary substantially . the registrants expect to continue recovering environmental costs related to utility operations through rates charged to customers , as authorized by the mpsc . air — dte electric is subject to the epa ozone and fine particulate transport and acid rain regulations that limit power plant emissions of so 2 and no x . the epa and the state of michigan have also issued emission reduction regulations relating to ozone , fine particulate , regional haze , mercury , and other air pollution . these rules have led to controls on fossil-fueled power plants to reduce so 2 , no x , mercury , and other emissions . additional rulemakings may occur over the next few years which could require additional controls for so 2 , no x , and other hazardous air pollutants . to comply with existing requirements , dte electric spent approximately $ 2.4 billion through 2018 . dte electric does not anticipate additional capital expenditures through 2025 . the epa has implemented regulatory actions under the clean air act to address emissions of ghgs from the utility sector and other sectors of the economy . among these actions , in 2015 the epa finalized performance standards for emissions of carbon dioxide from new and existing egus . in february 2016 , the u.s. supreme court granted petitioners ' requests for a stay of the carbon rules for existing egus ( also known as the epa clean power plan ) pending final review by the courts . the clean power plan has no legal effect while the stay is in place . on march 28 , 2017 , a presidential executive order was issued on `` promoting energy independence and economic growth . '' the order instructs the epa to review , and if appropriate , suspend , revise or rescind the clean power plan rule . following the issuance of this order , the federal government requested the u.s. court of appeals for the d.c. circuit to hold all legal challenges in abeyance until the review of these regulations is completed . on october 10 , 2017 , the epa proposed to rescind the clean power plan and announced its intent to issue an anpr seeking input as to whether it should replace the rule and , if so , what form it should take . in august 2018 , the epa proposed revised emission guidelines for ghgs from existing electric utility generating units . the proposed rule , named the affordable clean energy ( ace ) rule , is intended to replace the clean power plan rule . comments on the proposed ace rule were due on october 31 , 2018. it is not possible to determine the potential impact of the epa 's proposed ace rule on existing sources at this time . pending or future legislation or other regulatory actions could have a material impact on dte electric 's operations and financial position and the rates charged to its customers . impacts include expenditures for environmental equipment beyond what is currently planned , financing costs related to additional capital expenditures , the purchase of emission credits from market sources , higher costs of purchased power , and the retirement of facilities where control equipment is not economical . dte electric would seek to recover these incremental costs through increased rates charged to its utility customers , as authorized by the mpsc . story_separator_special_tag increased costs for energy produced from traditional coal-based sources due to recent , pending , and future regulatory initiatives , could also increase the economic viability of energy produced from renewable , natural gas fueled generation , and or nuclear sources , energy waste reduction initiatives , and the potential development of market-based trading of carbon instruments which could provide new business opportunities for dte energy 's utility and non-utility segments . at the present time , it is not possible to quantify the financial impacts of these climate related regulatory initiatives on the registrants or their customers . see items 1. and 2. business and properties and note 18 to the consolidated financial statements in item 8 of this report , `` commitments and contingencies , '' for further discussion of environmental matters . 31 outlook the next few years will be a period of rapid change for dte energy and for the energy industry . dte energy 's strong utility base , combined with its integrated non-utility operations , position it well for long-term growth . looking forward , dte energy will focus on several areas that are expected to improve future performance : electric and gas customer satisfaction ; electric distribution system reliability ; new electric generation ; gas distribution system renewal ; rate competitiveness and affordability ; regulatory stability and investment recovery for the electric and gas utilities ; employee safety and engagement ; cost structure optimization across all business segments ; cash , capital , and liquidity to maintain or improve financial strength ; and investments that integrate assets and leverage skills and expertise . dte energy will continue to pursue opportunities to grow its businesses in a disciplined manner if it can secure opportunities that meet its strategic , financial , and risk criteria . story_separator_special_tag electric sales increased for residential , commercial , and industrial primarily due to favorable weather in 2018. operation and maintenance expense increased $ 55 million in 2018 and decreased $ 26 million in 2017 . the increase in 2018 was primarily due to increased uncollectible expense of $ 34 million due to customer billing initiatives following implementation of the new billing system , increased power plant generation expense of $ 24 million , an increase in energy waste reduction expense of $ 10 million to meet higher energy savings targets , partially offset by decreased distribution operations expense of $ 13 million . the decrease in 2017 was primarily due to decreased power plant generation expenses of $ 66 million , partially offset by increased storm restoration expenses of $ 27 million , and increased line clearance expenses of $ 10 million . the decrease in power plant generation includes an increase of $ 6 million of costs related to the 2016 fire at a generation facility , offset by $ 21 million of insurance proceeds received in 2017. depreciation and amortization expense increased $ 83 million in 2018 and increased $ 3 million in 2017 . in 2018 , the increase was primarily due to an increase to depreciable base of $ 46 million and an increase of $ 42 million associated with the trm , partially offset by a decrease in regulatory asset amortization of $ 5 million . in 2017 , the increase was due to $ 45 million of increased expense from an increased depreciable base , partially offset by a decrease of $ 29 million associated with the trm , and a decrease of $ 13 million in amortization of regulatory assets . 34 other ( income ) and deductions increased $ 26 million in 2018 and increased $ 8 million in 2017 . the increase in 2018 was primarily due to higher interest expense of $ 9 million and change in investment earnings ( loss of $ 11 million in 2018 compared to a gain of $ 26 million in 2017 ) , partially offset by decreased non-operating retirement benefits expense of $ 13 million and a contribution to the dte energy foundation of $ 7 million in 2017. the increase in 2017 was primarily due to higher interest expense of $ 10 million , lower interest income of $ 8 million related to a sales and use tax settlement received in 2016 , and a $ 7 million contribution to the dte energy foundation , partially offset by $ 12 million of higher investment earnings and a $ 3 million decrease in low income self-sufficiency plan ( lsp ) contributions to not-for-profit organizations in 2016. outlook — dte electric will continue to move forward in its efforts to achieve operational excellence , sustain strong cash flows , and earn its authorized return on equity . dte electric expects that planned significant capital investments will result in earnings growth . dte electric will maintain a strong focus on customers by increasing reliability and satisfaction while keeping customer rate increases affordable . looking forward , additional factors may impact earnings such as weather , the outcome of regulatory proceedings , benefit plan design changes , investment returns and changes in discount rate assumptions in benefit plans and health care costs , uncertainty of legislative or regulatory actions regarding climate change , and effects of energy waste reduction programs . dte electric filed a rate case with the mpsc on july 6 , 2018 requesting an increase in base rates of $ 328 million based on a projected twelve-month period ending april 30 , 2020. the requested increase in base rates is primarily due to an increase in net plant resulting from infrastructure investments , depreciation expense , as requested in the 2016 dte electric depreciation case filing , and reliability improvement projects . the rate filing also requests an increase in return on equity from 10.0 % to 10.5 % and includes projected changes in sales , operation and maintenance expenses , and working capital .
| for the energy trading segment , non-utility margin includes revenue and realized and unrealized gains and losses from physical and financial power and gas marketing , optimization , and trading activities , net of purchased power and gas related to these activities . dte energy evaluates its operating performance of these non-utility businesses using the measure of operating revenues net of fuel , purchased power , and gas expenses . 32 utility margin and non-utility margin are not measures calculated in accordance with gaap and should be viewed as a supplement to and not a substitute for the results of operations presented in accordance with gaap . utility margin and non-utility margin do not intend to represent operating income , the most comparable gaap measure , as an indicator of operating performance and are not necessarily comparable to similarly titled measures reported by other companies . the following sections provide a detailed discussion of the operating performance and future outlook of dte energy 's segments . segment information , described below , includes intercompany revenues and expenses , and other income and deductions that are eliminated in the consolidated financial statements . replace_table_token_11_th electric the results of operations discussion for dte electric is presented in a reduced disclosure format in accordance with general instruction i ( 2 ) ( a ) of form 10-k for wholly-owned subsidiaries . the electric segment consists principally of dte electric . electric results are discussed below : replace_table_token_12_th see dte electric 's consolidated statements of operations in item 8 of this report for a complete view of its results . for an explanation of differences between the electric segment and dte electric 's consolidated statements of operations , refer to note 20 to the consolidated financial statements , `` retirement benefits and trusteed assets . '' utility margin increased $ 98 million in 2018 and decreased $ 45 million in 2017 . revenues associated with certain mechanisms and surcharges are offset by related expenses elsewhere in the registrants ' consolidated statements of operations . 33 the following table details changes in various utility margin components relative to the comparable prior period : replace_table_token_13_th replace_table_token_14_th ( a ) represents power that is not distributed by dte electric . ( b ) represents deliveries for self-generators that have
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while the florida legislation addressing abuses associated with aobs may be beneficial in reducing one aspect of the concerns affecting the florida market , the overall impact of the deterioration in claims-related tactics and behaviors , including other first-party litigation , thus far has continued to outpace benefits arising from the 2019 aob reform legislation . despite our initiatives , such as those mentioned above , our costs to settle claims in florida have increased for the reasons mentioned above . for example , the company has previously increased its current year loss estimates and increased estimates associated with prior years ' claims . over the past three years , even as we have increased our estimates of prospective losses each year , we have recorded adverse claim development on prior years ' loss reserves and further strengthened current year losses during the year to address the increasing impact florida 's market disruptions have had on the claims process and the establishment of reserves for losses and lae . the full extent and duration of these market disruptions is unknown and still unfolding , and we will monitor the impact of such disruptions on the recording and reporting of claim costs . direct premiums written continue to increase across the states we conduct business . as a result of our business strategy , rate changes and marketing and underwriting initiatives , we have seen increases in policy count , in-force premium and total insured value in almost all states for the past three years . direct premiums written for states outside of florida increased 17.7 % , representing a $ 40.1 million increase during 2020. direct premium for florida increased 17.3 % , representing a $ 184.6 million increase during 2020. the following table provides direct premiums written for florida and other states for the years ended december 31 , 2020 and 2019 ( dollars in thousands ) : replace_table_token_4_th we seek to grow and generate long-term rate adequate premium in each state where we offer policies , including florida . diversified sources of business are an important objective and premium growth outside florida is a measure monitored by management toward meeting that objective . 27 the geographical distribution of our policies in force , premium in force and total insured value across all states were as follows , as of december 31 , 2020 , 2019 and 2018 ( dollars in thousands , rounded to the nearest thousand ) : replace_table_token_5_th replace_table_token_6_th 28 replace_table_token_7_th also see “ results of operations ” below and “ part i—item 1a—risk factors—risks relating to our business and operations—because we conduct the majority of our business in florida , our financial results depend on the regulatory , economic and weather conditions in florida ” for discussion on geographical diversification . key performance indicators the company considers the measures and ratios in the following discussion to be key performance indicators for its businesses . management believes that these indicators are helpful in understanding the underlying trends in the company 's businesses . some of these indicators are reported on a quarterly basis and others on an annual basis . please also refer to “ item 8—note 2 ( summary of significant accounting policies ) ” for definitions of certain other terms we use when describing our financial results . these indicators may not be comparable to other performance measures used by the company 's competitors and should only be evaluated together with our consolidated financial statements and accompanying notes . definitions of key performance indicators book value per common share ― the ratio of total stockholders ' equity , adjusted for preferred stock liquidation , divided by the number of common shares outstanding as of a reporting period . book value per common share is the excess of assets over liabilities at a reporting period attributed to each share of stock . changes in book value per common share informs shareholders of retained equity in the company on a per share basis which may assist in understanding market value trends for the company 's stock . combined ratio ― the combined ratio is a measure of underwriting profitability for a reporting period and is calculated by dividing total operating costs and expenses ( which is made up of losses and lae and general and administrative expenses ) by premiums earned , net , which is net of ceded premiums earned . the combined ratio and changes to the ratio over time provide management with an understanding of costs to operate its business in relation to net premiums it is earning and the impact of rate , underwriting and other business management actions on underwriting profitability . a combined ratio below 100 indicates underwriting profit ; a combined ratio above 100 indicates underwriting losses . core loss ratio ― a common operational metric used in the insurance industry to describe the ratio of current accident year expected losses and lae to premiums earned . core loss ratio is an important measure identifying profitability trends of premiums in force . core losses consists of all other losses and lae , excluding weather events beyond those expected and prior years ' reserve development . the financial benefit from the management of claims , including claim fees ceded to reinsurers , is recorded in the condensed consolidated financial statements as a reduction to core losses . debt-to-equity ratio ― long-term debt divided by stockholders ' equity . this ratio helps management measure the amount of financing leverage in place in relation to equity and future leverage capacity . 29 debt-to-total capital ratio ― long-term debt divided by the sum of total stockholders ' equity and long-term debt ( often referred to as total capital resources ) . this ratio helps management measure the amount of financing leverage in place ( long-term debt ) in relation to total capital resources and future leverage capacity . direct premiums written ( “ dpw ” ) ― reflects the total value of policies issued during a period before considering premiums ceded to reinsurers . story_separator_special_tag direct premiums written , comprised of renewal premiums , endorsements and new business , is initially recorded as unearned premium in the balance sheet which is then earned pro-rata over the next year or remaining policy term . direct premiums written reflects current trends in the company 's sale of property and casualty insurance products and amounts that will be recognized as earned premiums in the future . dpw ( florida ) ― includes only dpw in the state of florida . this measure allows management to analyze growth in our primary market and is also a measure of business concentration risk . expense ratio ( including policy acquisition cost ratio and other operating cost ratio ) ― calculated as general and administrative expenses as a percentage of premiums earned , net . general and administrative expenses is comprised of policy acquisition costs and other operating costs , which includes such items as underwriting costs , facilities and corporate overhead . the expense ratio , including the sub-expense ratios of policy acquisition cost ratio and other operating cost ratio , are indicators to management of the company 's cost efficiency in acquiring and servicing its business and the impact of expense items to overall profitability . losses and loss adjustment expense ratio or loss and lae ratio ― a measure of the cost of claims and claim settlement expenses incurred in a reporting period as a percentage of premiums earned in that same reporting period . losses and lae incurred in a reporting period includes both amounts related to the current accident year and prior accident years , if any , referred to as development . ultimate losses and lae are based on actuarial estimates with changes in those estimates recognized in the period the estimates are revised . losses and lae consist of claim costs arising from claims occurring and settling in the current period , an estimate of claim costs for reported but unpaid claims , an estimate of unpaid claim costs for incurred-but-not-reported claims and an estimate of claim settlement expenses associated with reported and unreported claims which occurred during the reporting period . the loss and lae ratio can be measured on a direct basis , which includes losses and lae divided by direct earned premiums , or on a net basis , which includes losses and lae after amounts have been ceded to reinsurers divided by net earned premiums ( i.e . , direct premium earned less ceded premium earned ) . the net loss and lae ratio is a measure of underwriting profitability after giving consideration to the effect of reinsurance . trends in the net loss and lae ratio are an indication to management of current and future profitability . monthly weighted average renewal retention rate ― measures the monthly average of policyholders that renew their policies over the period of a calendar year . this measure allows management to assess customer retention . premiums earned , net ― the pro-rata portion of current and previously written premiums that the company recognizes as earned premium during the reporting period , net of ceded premium earned . ceded premiums are premiums paid or payable by the company for reinsurance protection . written premiums are considered earned and are recognized pro-rata over the policy coverage period . premiums earned , net is a measure that allows management to identify revenue trends . policies in force ― represents the number of active policies with coverage in effect as of the end of the reporting period . the change in the number of policies in force is a growth measure and provides management with an indication of progress toward achieving strategic objectives . inherent seasonality in our business makes this measure more useful when comparing each quarter 's balance to the same quarter in prior years . premium in force ― is the amount of the annual direct written premiums previously recorded by the company for policies which are still active as of the reporting date . this measure assists management in measuring the level of insured exposure and progress toward meeting revenue goals for the current year , and provides an indication of business available for renewal in the next twelve months . inherent seasonality in our business makes this measure more useful when comparing each quarter 's balance to the same quarter in prior years . return on average equity ( “ roae ” ) ― calculated by dividing earnings ( loss ) per common share by average book value per common share . average book value per common share is computed as the sum of book value per common share at the beginning and the end of a period , divided by two . roae is a capital profitability measure of how effectively management creates profits per common share . total insured value ― represents the amount of insurance limits available on a policy for a single loss based on all policies active as of the reporting date . this measure assists management in measuring the level of insured exposure . unearned premiums ― represents the portion of direct premiums corresponding to the time period remaining on an insurance policy and available for future earning by the company . trends in unearned premiums generally indicate expansion , if growing , or contraction , if reducing , which are important indicators to management . inherent seasonality in our business makes this measure more useful when comparing each quarter 's balance to the same quarter in prior years . weather events ― an estimate of losses and lae from weather events occurring during the current accident year that exceed initial estimates of expected weather events when establishing the core loss ratio for each accident year . this metric informs management of factors impacting overall current year profitability . 30 reinsurance reinsurance enables our insurance entities to limit potential exposures to catastrophic events . reinsurance contracts are typically classified as treaty or facultative contracts .
| diluted earnings per common share ( “ eps ” ) was $ 0.60 compared to $ 1.36. weighted average diluted common shares outstanding were lower by 6.6 % to 32.0 million shares as of december 31 , 2020 from 34.2 million shares as of december 31 , 2019. book value per share decreased by $ 0.70 , or 4.6 % , to $ 14.43 at december 31 , 2020 from $ 15.13 at december 31 , 2019. declared and paid dividends per common share of $ 0.77 , including a $ 0.13 special dividend in december 2020. repurchased 1,610,783 shares in 2020 at an aggregate cost of $ 28.9 million . offered universal direct sm in all 19 states in which the company writes policies as of december 31 , 2020. contributed $ 114 million of capital to upcic during 2020 to support insurance operations . upcic commenced writing homeowners policies in iowa . received certificate of authority from tennessee . 33 a detailed discussion of our results of operations follows the table below ( in thousands , except per share data ) . replace_table_token_8_th net income was $ 19.1 million for the year ended december 31 , 2020 , compared to net income of $ 46.5 million for the same period in 2019. diluted eps for the year ended december 31 , 2020 was $ 0.60 compared to $ 1.36 in 2019 , a decrease of $ 0.76 , or 55.9 % . weighted average diluted common shares outstanding for the year ended december 31 , 2020 were lower by 6.6 % to 32.0 million shares from 34.2 million shares for the same period of the prior year . benefiting the year ended december 31 , 2020 were increases in premiums earned , net , realized gains on investments , commission revenue , policy fees and other revenue , offset by a decrease in net investment income , a lower level of unrealized gains in the fair value of our equity securities in 2020 and increased total operating costs and expenses . direct premium earned and premiums earned , net were up 13.2 % and 9.6 % , respectively , due to growth of policies in almost all states in which we are licensed and writing during the past 12 months and rate increases implemented during 2020 , offset by higher costs for reinsurance flowing through to premiums earned , net . increases in losses and lae were the result
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