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intangible assets - we allocate a portion of the purchase price of acquisitions to identifiable intangible assets and we amortize definite-lived assets over their estimated useful lives . we consider our indefinite-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . trade names are not amortized as they are believed to have an indefinite life . trade names are reviewed annually for impairment under asc 350. as a result of our acquisition of vertro , inc. ( `` vertro `` ) in march 2012 , we recognized an asset for the customer relationship with google of $ 8,820,000 and assigned it a useful life of 20 years . a primary reason for acquiring vertro was its relationship with google . up to the time of the acquisition , we principally had access to the yahoo ! inventory of advertisements . among the many valuable assets acquired in the vertro transaction was this google relationship and the access it provided to an enormous inventory of advertisements . in addition , we acquired the alot brand , whose products are monetized through google and has historically produced a better margin than monetization through yahoo ! . in determining the useful life of this asset , we considered the strategic importance of vertro 's strong relationship with google . vertro and its predecessor company had contracts and successful renewals with google that date back to 2006. the google contract has been extended through february 28 , 2019. we expect the relationship with google to continue through the 20 -year amortization period and beyond . at the time of the vertro acquisition , we engaged a third party valuation service to determine the fair value of the acquired assets . at the close of the 2017 and 2016 fiscal years , we again engaged a third party valuation service to reassess the fair value of the acquired assets . from time to time , both search marketplaces , google and yahoo ! , may implement policy or marketplace changes . in january 2013 google requested changes to our agreement that impacted marketing programs for one of our alot products , the appbar , the result of which was a decline in the number of product installs . since acquiring the alot brand in the vertro acquisition , we have materially expanded the brand into a number of additional owned and operated websites and applications . we expect products within the brand to ebb and flow as customer preferences change and google adjusts its marketplace policies . at the close of 2013 , we considered the google change and decided to transition out of the appbar product and replace it with web properties that we develop . at the close of 2014 , we determined that the asset continued to be recoverable despite the impact to the appbar product and our decision to transition away from it . we made this determination in part because during 2014 we completely replaced the revenue and margin from the appbar product with other alot-branded and google monetized products . in may 2015 , we purchased two domain websites and recorded the purchase at $ 715,874 . in 2017 , we determined that the seller would not meet the specific performance target for the second and third years and therefore , we adjusted the carrying value of the intangible asset to $ 300,000 . we recorded no impairment of intangible assets during 2017 or 2016 . see note 5 , intangible assets and goodwill , for more information . income taxes - we utilize the liability method of accounting for income taxes as set forth in asc 740 , income taxes ( “ asc 740 ” ) . under the liability method , deferred taxes are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities . a valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized . in assessing the need for a valuation allowance , we must project future levels of taxable income , which requires significant judgment . we examine evidence related to the history of taxable losses or income , the economic conditions in which we operate , organizational characteristics , our forecasts and projections , as well as factors affecting liquidity . all our deferred tax assets and liabilities are recorded as long-term assets and liabilities in the consolidated balance sheets . 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 reevaluated at the new tax rates . both the deferred tax assets and the deferred tax liabilities were reduced . the decrease in the deferred tax liability resulted in the one-time tax benefit . we believe it is more likely than not that essentially none of our deferred tax assets will be realized , and we have recorded a full valuation for the net deferred tax assets as of december 31 , 2017 and 2016 . we have adopted certain provisions of asc 740. this statement clarifies the criteria that an individual tax position must satisfy for some or all of the benefits of that position to be recognized in a company 's financial statements . asc 740 prescribes a f-9 recognition threshold of more likely than not , and a measurement attribute for all tax positions taken or expected to be taken on a tax return , in order to be recognized in the financial statements . story_separator_special_tag 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 . results of operations replace_table_token_2_th net revenue net revenue for the year ended december 31 , 2017 was $ 79.6 million compared to $ 71.5 million for the year ended december 31 , 2016 . the increase was primarily due to growth in the business acquired in february 2017. revenue from the acquired business line grew from $ 0.8 million in its first month of operations , february 2017 to $ 1.9 million in december 2017. we expect the new business line to continue to fuel company growth into the future . revenue from our validclick business , serving advertisements to publisher partners , increased 25 % in 2017 compared to 2016. revenue from our digital publishing business declined as we redirected resources and investment to the acquired business which has higher gross margins . the fourth quarter is traditionally the highest revenue quarter of the year . in 2017 , the fourth quarter revenue was $ 23.8 million , 21 % greater than the same quarter in 2016. the higher revenue in this year 's fourth quarter is attributable primarily to the new business line . cost of revenue cost of revenue is primarily generated by payments to website and application publishers who host our advertisements . the increase in cost of revenue in 2017 compared to 2016 is due to with the higher revenue from the acquired business and validclick . operating expenses replace_table_token_3_th 14 operating expenses decreased in the twelve months ended december 31 , 2017 as compared to the same period of the prior year . marketing costs or tac include those expenses required to attract traffic to our owned web properties . 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 reevaluated at the new tax rates . both the deferred tax assets and the deferred tax liabilities were reduced . the decrease in the deferred tax liability resulted in the one-time tax benefit . in 2016 , we recognized an income tax benefit of $ 29,260 . income ( loss ) from discontinued operations certain of our subsidiaries previously operated in the european union ( `` eu `` ) . though operations ceased in 2009 , 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 . story_separator_special_tag style= `` line-height:120

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 investing activities in both years has primarily consisted of capitalized internal development costs . cash flows - financing net cash provided by financing activities was $ 2,609,093 during 2017 which largely consisted of proceeds from the revolving credit facility used to pay off the debt acquired in the netseer asset acquisition . < div

in addition , the periods over which gains/losses related to pension assets and actuarial changes are amortized are different under fas and cas . as a result , annual retiree benefit plan expense amounts for fas are different from the amounts for cas even though the ultimate cost of providing benefits over the life of the plans is the same under either method . cas retiree benefit plan costs are charged to contracts and are included in segment operating income , and the difference between cas and fas expense is recorded in operating income at the consolidated company level . net actuarial gains or losses are amortized to expense on a plan-by-plan basis when they exceed the accounting corridor . the accounting corridor is a defined range within which amortization of net gains and losses is not required and is equal to 10 percent of the greater of plan assets or benefit obligations . gains or losses outside of the corridor are subject to amortization over our average employee future service period of approximately nine years . not all net periodic pension expense is recognized in net earnings in the year incurred because it is allocated as production costs and a portion remains in inventory at the end of a reporting period . the company 's funding policy for the qualified pension plans is to contribute , at a minimum , the statutorily required amount to an irrevocable trust . stock compensation the company 's stock compensation plans are classified as equity plans and compensation expense is generally recognized over the vesting period ( typically three years ) , net of estimated forfeitures . the company issues stock awards in the form of restricted performance stock rights and restricted stock rights under its existing plans . the fair value of stock awards is determined based on the closing market price of the company 's common stock on the grant date . at each reporting date , the number of shares is adjusted to equal the number ultimately expected to vest . accounting standards updates on may 28 , 2014 , the financial accounting standards board ( fasb ) issued accounting standards update ( asu ) no . 2014-09 , revenue from contracts with customers . asu 2014-09 supersedes existing revenue recognition guidance , including accounting standards codification no . 605-35 , revenue recognition - construction-type and production-type contracts . asu 2014-09 outlines a single set of comprehensive principles for recognizing revenue under u.s. gaap . among other things , it requires companies to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time . these concepts , as well as other aspects of asu 2014-09 , may change the method and or timing of revenue recognition for certain of our contracts . on july 9 , 2015 , the fasb approved a one year deferral of the effective date of asu 2014-09 to annual reporting periods beginning after december 15 , 2017. asu 2014-09 may be applied either retrospectively or through the use of a modified-retrospective method . we are currently evaluating both methods of adoption as well as the effect asu 2014-09 will have on the company 's consolidated financial position , annual results of operations and cash flows . on november 20 , 2015 , the fasb issued asu 2015-17 , balance sheet classification of deferred taxes . asu 2015-17 simplifies the presentation of deferred income taxes and requires that deferred tax assets and liabilities , as well as any related valuation allowance , be classified as noncurrent in a classified statement of financial position . the company adopted asu 2015-17 during the fourth quarter of 2015 and applied it retrospectively to all periods presented . - 49 - northrop grumman corporation other accounting standards updates effective after december 31 , 2015 , are not expected to have a material effect on the company 's consolidated financial position , annual results of operations and or cash flows . reclassifications as a result of the company 's adoption of asu 2015-17 , we now present deferred tax assets and liabilities as non-current . this change resulted in a reclassification of $ 404 million of net current deferred tax assets reported in our 2014 consolidated statement of financial position to non-current deferred tax assets . this reclassification reduced our current assets as of december 31 , 2014 , but had no impact on total assets . shareholders ' equity the company records the difference between the cost of shares repurchased and their par value as well as tax withholding in excess of related stock compensation expense as a reduction of paid-in capital to the extent available and then as a reduction of retained earnings . accumulated other comprehensive loss the components of accumulated other comprehensive loss are as follows : replace_table_token_33_th unamortized benefit plan costs consist primarily of net after-tax actuarial losses totaling $ 5.5 billion and $ 5.6 billion as of december 31 , 2015 and 2014 , respectively . net actuarial gains or losses are re-determined annually or upon remeasurement events and principally arise from changes in the interest rate used to discount our benefit obligations and differences between expected and actual returns on plan assets . reclassifications from accumulated other comprehensive income to net earnings related to the amortization of benefit plan costs were $ 388 million , $ 145 million and $ 319 million , net of taxes , for the years ended december 31 , 2015 , 2014 and 2013 , respectively . the reclassifications represent the amortization of net actuarial losses and prior service credits for the company 's retirement benefit plans , and are included in the computation of net periodic pension cost ( see note 12 for further information ) . story_separator_special_tag 2014 - cash used in financing activities for 2014 increased $ 2.4 billion , or 281 percent , as compared with 2013 . the increase was primarily due to the absence in 2014 of $ 2.8 billion of net proceeds from our issuance of unsecured senior notes , of which $ 850 million was used for the redemption of existing debt in 2013 , as well as increased share repurchases in 2014 . credit facility and unsecured senior notes - see note 9 to the consolidated financial statements in part ii , item 8 for further information on our credit facility and unsecured senior notes . financial arrangements - see note 11 to the consolidated financial statements in part ii , item 8 for further information on our use of standby letters of credit and guarantees . - 32 - northrop grumman corporation other sources of capital - we believe we can obtain additional capital , if necessary for long-term liquidity , from such sources as the public or private capital markets , the sale of assets , sale and leaseback of operating assets , and leasing rather than purchasing new assets . we have an effective shelf registration statement on file with the sec , which allows us to access capital in a timely manner . share repurchases - in october 2015 , the company completed its previously announced goal of repurchasing 60 million shares of common stock by the end of 2015. see note 2 of the consolidated financial statements in part ii , item 8 for further information on our share repurchase programs . contractual obligations the following table presents our contractual obligations as of december 31 , 2015 , and the estimated timing of future cash payments : replace_table_token_22_th ( 1 ) a “ purchase obligation ” is defined as an agreement to purchase goods or services that is enforceable and legally binding on us and that specifies all significant terms , including : fixed or minimum quantities to be purchased ; fixed , minimum , or variable price provisions ; and the approximate timing of the transaction . these amounts are primarily comprised of open purchase order commitments to suppliers and subcontractors pertaining to funded contracts . ( 2 ) other long-term liabilities , including their current portions , primarily consist of total accrued environmental reserves , deferred compensation and other miscellaneous liabilities , of which $ 113 million is related to environmental reserves recorded in other current liabilities . it excludes obligations for uncertain tax positions of $ 246 million , as the timing of such payments , if any , can not be reasonably estimated . the table above excludes estimated minimum funding requirements for retirement and other post-retirement benefit plans , as set forth by the employee retirement income security act , as amended ( erisa ) . for further information about future minimum contributions for these plans , see note 12 to the consolidated financial statements in part ii , item 8. further details regarding long-term debt and operating leases can be found in notes 9 and 11 , respectively , to the consolidated financial statements in part ii , item 8. critical accounting policies , estimates , and judgments our consolidated financial statements are based on the application of u.s. gaap , which require us to make estimates and assumptions about future events that affect the amounts reported in our consolidated financial statements and the accompanying notes . we employ judgment in making our estimates in consideration of historical experience , currently available information and various other assumptions that we believe to be reasonable under the circumstances . actual results could differ from our estimates and assumptions , and any such differences could be material to our consolidated financial statements . we believe the following accounting policies are critical to the understanding of our consolidated financial statements and require the use of significant management judgment in their application . for a summary of our significant accounting policies , see note 1 to the consolidated financial statements in part ii , item 8. revenue recognition due to the long-term nature of our contracts , we generally recognize revenue using the percentage-of-completion method of accounting as work on our contracts progresses , which requires us to make reasonably dependable estimates for the design , manufacture and delivery of our products and services . in accounting for these contracts , we utilize either the cost-to-cost or the units-of-delivery method of percentage-of-completion accounting , with cost-to-cost being the predominant method . sales may include estimated amounts not contractually agreed to by the customer , including cost or performance incentives ( such as award and incentive fees ) , un-priced change orders , claims and requests for equitable adjustment . amounts pertaining to cost and or performance incentives are included in estimated contract sales when they are reasonably estimable . - 33 - northrop grumman corporation our cost estimation process is based on the professional knowledge of our engineering , program management and financial professionals , and draws on their significant experience and judgment . we prepare eacs for our contracts and calculate an estimated contract operating margin based on estimated contract sales and cost . since contract costs are typically incurred over a period of several years , estimation of these costs requires the use of judgment . factors considered in estimating the cost of the work to be completed include the availability , productivity and cost of labor , the nature and complexity of work to be performed , the effect of change orders , availability and cost of materials , components and subcontracts , the effect of any delays in performance and the level of indirect cost allocations . we generally review and reassess our sales , cost and profit estimates for each significant contract at least annually or more frequently as determined by the occurrence of events , changes in circumstances and evaluations of contract performance to reflect the latest reliable

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

as of december 31 , 2020 and 2019 , the balance of deferred revenue was $ 504 and $ 128 , respectively , all of which is expected to be realized in the next 12 months . in relation to the deferred revenue balance as of december 31 , 2019 , $ 128 was recognized into revenue during the year ended december 31 , 2020. as of december 31 , 2020 , $ 1,296 of revenue is expected to be recognized in the future for performance obligations that are unsatisfied or partially unsatisfied , related to pricing contracts that have a term of more than 12 months . $ 966 of revenue will be recognized in 2021 , $ 305 in 2022 , $ 18 in 2023 , and $ 7 in 2024. the actual timing of recognition may vary due to factors outside of the company 's control . the company excludes variable consideration related entirely to wholly unsatisfied performance obligations and contracts and recognizes such variable consideration based upon the right to invoice the customer . sales commissions are incurred and recorded on an ongoing basis over the term of the customer relationship . these costs are recorded in sales and marketing expenses . in addition , the company elected the practical expedient to not disclose the value of unsatisfied performance obligations for ( i ) contracts with an original expected length of one year or less and ( ii ) contracts for which the company recognizes revenue at the amount to which it has the right to invoice for services performed . ( k ) cost of revenue ( exclusive of depreciation and amortization ) the company 's cost of revenue primarily includes data acquisition costs and other cost of revenue . data acquisition costs consist primarily of the costs to acquire data either on a transactional basis or through flat-fee data licensing agreements , including unlimited usage agreements . data acquisition costs are recognized based on a straight-line amortization method . other cost of revenue includes expenses related to third-party infrastructure fees . ( l ) advertising and promotion costs advertising and promotion costs are charged to operations as incurred . advertising and promotion costs , included in sales and marketing expenses amounted to $ 85 and $ 108 for the years ended december 31 , 2020 and 2019 , respectively . f-10 ( m ) share-based compensation the company accounts for share-based compensation to employees in accordance with asc 718 , “ compensation—stock compensation . ” under asc 718 , the company measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award and , for those awards subject only to service conditions , the company recognizes the costs on a straight-line basis over the requisite service period for the entire award the employee is required to provide service in exchange for the award , which generally is the vesting period . for awards with performance and service conditions , we begin recording share-based compensation when achieving the performance criteria is probable and we recognize the costs using the accelerated attribution method . the estimated number of stock awards that will ultimately vest requires judgment , and to the extent actual results or updated estimates differ from the company 's current estimates , such amount will be recorded as a cumulative adjustment in the period estimates are revised . changes in the company 's estimates and assumptions may cause us to realize material changes in share-based compensation expense in the future . the company has issued share-based awards with performance-based vesting criteria . achievement of the milestones must be probable before the company begins recording share-based compensation expense . when the performance-based vesting criteria is considered probable , the company begins to recognize compensation expense at that time . in the period that achievement of the performance-based criteria is deemed probable , us gaap requires the immediate recognition of all previously unrecognized compensation since the original grant date . as a result , compensation expense recorded in the period that achievement is deemed probable could include a substantial amount of previously unrecorded compensation expense related to the prior periods . for any share-based awards where performance-based vesting criteria is no longer considered probable , previously recognized compensation cost would be reversed . as of december 31 , 2020 , the company has deemed the achievement of the performance-based criteria to be probable for all share-based awards with performance-based vesting criteria . the company applies asu 2018-07 , “ improvements to nonemployee share-based payment accounting , ” which generally expands the scope of asc 718 , compensation – stock compensation , to include share-based payment transactions for acquiring goods and services from nonemployees and supersedes the guidance in asc 505-50 , equity-based payments to non-employees , which previously included the accounting for nonemployee awards . ( n ) income taxes the company accounts for income taxes in accordance with asc 740 , “ income taxes , ” which requires the use of the asset and liability method of accounting for income taxes . deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards . 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 or laws is recognized in income in the period that the change in tax rates or laws is enacted . story_separator_special_tag we concluded that goodwill was not impaired as of december 31 , 2020 and 2019. for purposes of reviewing impairment and the recoverability of goodwill , we must make various assumptions regarding estimated future cash flows and other factors in determining the fair value of the reporting unit , including market multiples , discount rates , etc . 26 impairment of long-lived assets finite-lived intangible assets are amortized over their respective useful lives and , along with other long-lived assets , are evaluated for impairment periodically whenever events or changes in circumstances indicate that their related carrying amounts may not be recoverable in accordance with asc 360-10-15 , “ impairment or disposal of long-lived assets . ” in evaluating long-lived assets for recoverability , including finite-lived intangibles and property and equipment , the company uses its best estimate of future cash flows expected to result from the use of the asset and eventual disposition in accordance with asc 360-10-15. to the extent that estimated future undiscounted cash inflows attributable to the asset , less estimated future undiscounted cash outflows , are less than the carrying amount , an impairment loss is recognized in an amount equal to the difference between the carrying value of such asset and its fair value . assets to be disposed of and for which there is a committed plan of disposal , whether through sale or abandonment , are reported at the lower of carrying value or fair value less costs to sell . asset recoverability is an area involving management judgment , requiring assessment as to whether the carrying value of assets can be supported by the undiscounted future cash flows . in calculating the future cash flows , certain assumptions are required to be made in respect of highly uncertain matters such as revenue growth rates , gross margin percentages and terminal growth rates . we concluded there was no impairment as of december 31 , 2020 and 2019. share-based compensation we account for share-based compensation to employees in accordance with asc 718 , “ compensation—stock compensation . ” under asc 718 , we measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award and , for those awards subject only to service condition , recognizes the costs on a straight-line basis over the period the employee is required to provide service in exchange for the award , which generally is the vesting period . for awards with performance and service conditions , we begin recording share-based compensation when achieving the performance criteria is probable and we recognize the costs using the accelerated attribution method . the fair value of restricted stock units ( “ rsus ” ) is determined based on the number of shares granted and the quoted price of our common stock . the estimated number of stock awards that will ultimately vest requires judgment , and to the extent actual results or updated estimates differ from our current estimates , such amount will be recorded as a cumulative adjustment in the period estimates are revised . changes in our estimates and assumptions may cause us to realize material changes in share-based compensation expense in the future . we have issued share-based awards with performance-based vesting criteria . achievement of the milestones must be probable before we begin recording share-based compensation expense . when the performance-based vesting criteria is considered probable , we begin to recognize compensation expense at that time . in the period that achievement of the performance-based criteria is deemed probable , us gaap requires the immediate recognition of all previously unrecognized compensation since the original grant date . as a result , compensation expense recorded in the period that achievement is deemed probable could include a substantial amount of previously unrecorded compensation expense related to the prior periods . for any share-based awards where performance-based vesting criteria is no longer considered probable , previously recognized compensation cost would be reversed . as of december 31 , 2020 , we have deemed the achievement of the performance-based criteria to be probable for all share-based awards with performance-based vesting criteria . we apply asu 2018-07 , “ improvements to nonemployee share-based payment accounting , ” which generally expands the scope of asc 718 , compensation – stock compensation , to include share-based payment transactions for acquiring goods and services from nonemployees and supersedes the guidance in asc 505-50 , equity-based payments to non-employees , which previously included the accounting for nonemployee awards . recently issued accounting standards see item 8 of part ii , “ financial statements and supplementary data – note 2. summary of significant accounting policies - ( t ) recently issued accounting standards . ” 27 fourth quarter financial results for the three months ended december 31 , 2020 as compared to the three months ended december 31 , 2019 : total revenue decreased 1 % to $ 9.0 million . platform revenue increased 12 % to $ 8.6 million . services revenue decreased 74 % to $ 0.4 million . net loss narrowed 61 % to $ 1.9 million . adjusted ebitda increased 49 % to $ 1.2 million . gross profit increased 5 % to $ 5.1 million . gross margin increased to 57 % from 54 % . adjusted gross profit increased 11 % to $ 6.3 million . adjusted gross margin increased to 70 % from 62 % . generated $ 1.8 million in cash from operating activities in the fourth quarter . cash and cash equivalents were $ 13.0 million as of december 31 , 2020. full year financial results for the year ended december 31 , 2020 as compared to the year ended december 31 , 2019 : total revenue increased 14 % to $ 34.6 million . platform revenue increased 26 % to $ 32.5 million . services revenue decreased 54 % to $ 2.0 million . net loss narrowed 38 % to $

however , subject to revenue growth , our ability to generate positive cash flow , and the potential impact of covid-19 , we may have to raise capital through the issuance of additional equity and or debt , which , if we are able to obtain , could have the effect of diluting stockholders . any equity or debt financings , if available at all , may be on terms which are not favorable to us . off-balance sheet arrangements we do not have any outstanding off-balance sheet guarantees , interest rate swap transactions or foreign currency forward contracts . in addition , we do not engage in trading activities involving non-exchange traded contracts . in our ongoing business , we do not enter into transactions involving , or otherwise form relationships with , unconsolidated entities or financial partnerships that are established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes . forward-looking statements this form 10-k contains certain “ forward-looking statements ” within the meaning of the pslra , section 27a of the securities act , and section 21e of the exchange act . such forward-looking statements contain information about our expectations , beliefs or intentions regarding our product development and commercialization efforts , business , financial condition , results of operations , strategies or prospects . you can identify forward-looking statements by the fact that these statements do not relate strictly to historical or current matters . rather , forward-looking statements relate to anticipated or expected events , activities , trends or results as of the date they are made . because forward-looking statements relate to matters that have not yet occurred , these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements . many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements . these factors include the following : < p style= '' text-align : left ; margin-bottom:0pt ; margin-top:10pt ; font-weight : normal ; font-style : normal ; color : # auto ; text-transform : none ; font-variant :

assets constructed for others primarily consists of airport improvement projects , once placed into service , in which the company is considered the accounting owner of the facilities , and such assets are amortized to estimated residual value over the term of the company 's lease or the expected life of the asset . see note 4 for further information . based on a revision of the company 's future firm aircraft order book with boeing at the end of december 2015 , the company changed the estimated retirement dates of many of its owned 737-300 and 737-500 aircraft . previously , this fleet was estimated to retire by mid-2021 ; however , pursuant to this change , the fleet and related parts are expected to be retired by mid-2018 . see note 4 for further information on the company 's future firm aircraft deliveries . this change in retirement dates is considered a change in estimate . it has been accounted for on a prospective basis , and thus the 73 company will record accelerated depreciation expense over the remainder of the useful lives for each aircraft and its related parts . the impact of this change on the year ended december 31 , 2015 was immaterial . the impact of this change in estimate in 2016 is an approximate $ 89 million increase to depreciation and amortization expense . the company evaluates its long-lived assets used in operations for impairment when events and circumstances indicate that the undiscounted cash flows to be generated by that asset are less than the carrying amounts of the asset and may not be recoverable . factors that would indicate potential impairment include , but are not limited to , significant decreases in the market value of the long-lived asset ( s ) , a significant change in the long-lived asset 's physical condition , and operating or cash flow losses associated with the use of the long-lived asset . if an asset is deemed to be impaired , an impairment loss is recorded for the excess of the asset book value in relation to its estimated fair value . aircraft and engine maintenance the cost of scheduled inspections and repairs and routine maintenance costs for all aircraft and engines are charged to maintenance materials and repairs expense as incurred . the company also has “ power-by-the-hour ” agreements related to certain of its aircraft engines with external service providers . under these agreements , which the company has determined effectively transfer the risk and create an obligation associated with the maintenance on such engines to the counterparty , expense is recorded commensurate with each hour flown on an engine . in situations where the payments to the counterparty do not sufficiently match the level of services received during the period , expense is recorded on a straight-line basis over the term of the agreement based on the company 's best estimate of expected future aircraft utilization . for its engine maintenance contracts that do not transfer risk to the service provider , the company records expense on a time and materials basis when an engine repair event takes place . modifications that significantly enhance the operating performance or extend the useful lives of aircraft or engines are capitalized and amortized over the remaining life of the asset . goodwill and intangible assets the company applies a fair value based impairment test to the carrying value of goodwill and indefinite-lived intangible assets annually on october 1st , or more frequently if certain events or circumstances indicate that an impairment loss may have been incurred . the company assesses the value of goodwill and indefinite-lived assets under either a qualitative or quantitative approach . under a qualitative approach , the company considers various market factors , including applicable key assumptions listed below . these factors are analyzed to determine if events and circumstances could reasonably have affected the fair value of goodwill and indefinite-lived intangible assets . if the company determines that it is more likely than not that an indefinite-lived intangible asset is impaired , the quantitative approach is used to assess the asset 's implied fair value and the amount of the impairment . under a quantitative approach , the implied fair value of the company 's identifiable assets and liabilities is calculated based on key assumptions . if the company assets ' carrying value exceeds the fair value calculated using the quantitative approach , an impairment charge is recorded for the difference in fair value and carrying value . the following table is a summary of the company 's intangible assets , which are included as a component of other assets in the company 's consolidated balance sheet , as of december 31 , 2015 and 2014 : 74 replace_table_token_25_th ( a ) intangible assets primarily consist of acquired leasehold rights to certain airport owned gates at chicago 's midway international airport , takeoff and landing slots ( a “ slot ” is the right of an air carrier , pursuant to regulations of the federal aviation administration ( “ faa ” ) , to operate a takeoff or landing at a specific time at certain airports ) at certain domestic slot-controlled airports , and certain intangible assets recognized from the airtran acquisition . the increase in intangible assets during 2015 was primarily due to the acquisition of two additional airport gate rights at dallas love field , which were subleased from united airlines . the purchase price paid for these airport gate rights was included as a component of capital expenditures in the accompanying consolidated statement of cash flows . ( b ) useful life of leased slots is based on the stated lease term . the aggregate amortization expense for 2015 , 2014 , and 2013 was $ 19 million , $ 13 million , and $ 19 million , respectively . story_separator_special_tag percent , compared with 2014 , as the dollar increases were more than offset by the 7.2 percent increase in capacity . on a dollar basis , the majority of the increase was attributable to the timing of regular airframe maintenance checks , partially offset by reduced engine and avionic repair expense as a result of the b717 aircraft transitioning out of the company 's fleet . the company currently expects maintenance materials and repairs expense per asm for first quarter 2016 to increase , compared with first quarter 2015 . aircraft rentals expense for 2015 decrease d by $ 57 million , or 19.3 percent , compared with 2014 . on a per asm basis , aircraft rentals expense decrease d 22.7 percent , compared with 2014 . on both a dollar and per asm basis , the decrease was primarily due to the transition of leased b717 aircraft out of the company 's fleet for conversion and delivery to delta . the company currently expects aircraft rentals expense per asm for first quarter 2016 to be comparable to fourth quarter 2015 . landing fees and other rentals expense for 2015 increase d by $ 55 million , or 5.0 percent , compared with 2014 . on a per asm basis , landing fees and other rentals expense for 2015 decrease d 2.4 percent , compared with 2014 , as the dollar increases were more than offset by the 7.2 percent increase in capacity . on a dollar basis , the majority of the increase was due was due to higher space rental rates at various airports . the remaining increase was due to heavier landing weights for the company 's higher capacity 737-800 aircraft , which now make up a larger portion of the company 's fleet . the company currently expects landing fees and other rentals expense per asm for first quarter 2016 to decrease , compared with first quarter 2015 . depreciation and amortization expense for 2015 increase d by $ 77 million , or 8.2 percent , compared with 2014 . on a per asm basis , depreciation and amortization expense remained flat , compared with 2014 . on a dollar basis , the majority of the increase was due to the purchase and capital lease of new and used aircraft since 2014 , the majority of which replaced b717s removed from service in late 2014 . the company currently expects depreciation and amortization expense per asm for first quarter 2016 to increase , compared with first quarter 2015 , due to the accelerated retirement of the owned 737-300 and 737-500 fleet and the acquisition of new 737-800 and 737-700 aircraft . see note 1 to the consolidated financial statements for further information . the company incurred $ 39 million in acquisition and integration costs in 2015 , related to the airtran integration , compared with $ 126 million in 2014 . this expense primarily consisted of employee training , facilities integration , and certain expenses associated with the grounding and conversion costs resulting from the transition of b717s to delta . the company does not expect to incur any further acquisition and integration costs beyond 2015. see note 7 to the consolidated financial statements for further information . other operating expenses for 2015 increase d by $ 37 million , or 1.7 percent , compared with 2014 . on a per asm basis , other operating expenses for 2015 decrease d 4.8 percent , compared with 2014 , as the dollar increases were more than offset by the 7.2 percent increase in capacity . on a dollar basis , the increase was equally attributable to higher personnel expenses associated with travel costs of the company 's flight crew and credit card fees paid to third parties associated with the increase in passenger revenues . these and other smaller increases were partially offset by a decrease in security expenses as a result of the repeal of the tsa aviation security infrastructure fee in october 2014 and a litigation settlement received by the company in the first quarter of 2015. the company currently expects other operating expenses per asm for first quarter 2016 to be comparable with fourth quarter 2015 . other 47 other ( gains ) losses , net , primarily includes amounts recorded as a result of the company 's hedging activities . see note 10 to the consolidated financial statements for further information on the company 's hedging activities . the following table displays the components of other ( gains ) losses , net , for the years ended december 31 , 2015 , and 2014 : replace_table_token_14_th income taxes the company 's effective tax rate was approximately 37.3 percent for 2015 , compared with 37.4 percent for 2014 . on a non-gaap basis , the company currently projects a full year 2016 effective tax rate of approximately 37 to 38 percent based on forecasted financial results . however , the company 's effective tax rate during interim periods of 2016 may differ significantly from this full-year estimate . 48 reconciliation of reported amounts to non-gaap financial measures ( unaudited ) ( in millions , except per share and per asm amounts ) replace_table_token_15_th * as a result of prior hedge ineffectiveness and or contracts marked to market through earnings . ( a ) amounts net of tax see previous note regarding use of non-gaap financial measures . 49 2014 compared with 2013 operating revenues passenger revenues for 2014 increased by $ 937 million , or 5.6 percent , compared with 2013. holding other factors constant , approximately half of the increase in passenger revenues was attributable to the 2.4 point increase in load factor and the majority of the remaining increase was attributable to higher passenger yields , both driven by strong customer demand for air travel and successful execution of the company 's strategic initiatives . passenger revenue included an increase due to a change in estimate , which was recorded

the company also paid $ 180 million in dividends to shareholders during 2015 , compared to $ 139 million in 2014 and $ 71 million in 2013 . although the company currently intends to continue paying dividends on a quarterly basis for the foreseeable future , the company 's board of directors may change the timing , amount , and payment of dividends on the basis of results of operations , financial condition , cash requirements , future prospects , and other factors deemed relevant by the board of directors . the company is a “ well-known seasoned issuer ” and currently has an effective shelf registration statement registering an indeterminate amount of debt and equity securities for future sales . the company currently intends to use the proceeds from any future securities sales off this shelf registration statement for general corporate purposes . the company has access to a $ 1 billion unsecured revolving credit facility expiring in april 2018 . interest on the facility is based on the company 's credit ratings at the time of borrowing . at the company 's current ratings , the interest cost would be libor plus a spread of 112.5 basis points . the facility contains a financial covenant requiring a minimum coverage ratio of adjusted pre-tax income to fixed obligations , as defined . as of december 31 , 2015 , the company was in compliance with this covenant and there were no amounts outstanding under the revolving credit facility . 52 as of may 11 , 2015 , the company completed its previously authorized $ 1.0 billion share repurchase program , bringing in a total of 28.0 million shares over the course of the program . furthermore , on may 13 , 2015 , the company 's board of directors approved a new $ 1.5 billion share repurchase program . following the board of directors ' authorization of the company 's new $ 1.5 billion share repurchase program , the company entered into the following share repurchases : share repurchases shares received cash paid second quarter accelerated share repurchase program 8,085,077 < td

short-term credit arrangements and borrowings dte energy and dte electric note 17 capital and operating leases dte energy and dte electric note 18 commitments and contingencies dte energy and dte electric note 19 nuclear operations dte energy and dte electric note 20 retirement benefits and trusteed assets dte energy and dte electric note 21 stock-based compensation dte energy and dte electric note 22 segment and related information dte energy note 23 related party transactions dte electric note 24 supplementary quarterly financial information ( unaudited ) dte energy and dte electric note 1 — organization and basis of presentation corporate structure dte energy owns the following businesses : dte electric is a public utility engaged in the generation , purchase , distribution , and sale of electricity to approximately 2.2 million customers in southeastern michigan ; dte gas is a public utility engaged in the purchase , storage , transportation , distribution , and sale of natural gas to approximately 1.3 million customers throughout michigan and the sale of storage and transportation capacity ; and other businesses involved in 1 ) services related to the gathering , transportation , and storage of natural gas ; 2 ) power and industrial projects ; and 3 ) energy marketing and trading operations . dte electric and dte gas are regulated by the mpsc . certain activities of dte electric and dte gas , as well as various other aspects of businesses under dte energy are regulated by the ferc . in addition , the registrants are regulated by other federal and state regulatory agencies including the nrc , the epa , the mdeq , and for dte energy , the cftc . 73 dte energy company — dte electric company combined notes to consolidated financial statements — ( continued ) basis of presentation the accompanying consolidated financial statements of the registrants are prepared using accounting principles generally accepted in the united states of america . these accounting principles require management to use estimates and assumptions that impact reported amounts of assets , liabilities , revenues and expenses , and the disclosure of contingent assets and liabilities . actual results may differ from the registrants ' estimates . the information in these combined notes relates to each of the registrants as noted in the index of combined notes to consolidated financial statements . however , dte electric does not make any representation as to information related solely to dte energy or the subsidiaries of dte energy other than itself . certain prior year balances for the registrants were reclassified to match the current year 's consolidated financial statements presentation . due to the implementation of asu 2017-07 , amounts previously included in operation and maintenance were reclassified to non-operating retirement benefits , net on the consolidated statements of operations . see note 3 to the consolidated financial statements , `` new accounting pronouncements . `` principles of consolidation the registrants consolidate all majority-owned subsidiaries and investments in entities in which they have controlling influence . non-majority owned investments are accounted for using the equity method when the registrants are able to significantly influence the operating policies of the investee . when the registrants do not influence the operating policies of an investee , the cost method is used . these consolidated financial statements also reflect the registrants ' proportionate interests in certain jointly-owned utility plants . the registrants eliminate all intercompany balances and transactions . the registrants evaluate whether an entity is a vie whenever reconsideration events occur . the registrants consolidate vies for which they are the primary beneficiary . if a registrant is not the primary beneficiary and an ownership interest is held , the vie is accounted for under the equity method of accounting . when assessing the determination of the primary beneficiary , a registrant considers all relevant facts and circumstances , including : the power , through voting or similar rights , to direct the activities of the vie that most significantly impact the vie 's economic performance and the obligation to absorb the expected losses and or the right to receive the expected returns of the vie . the registrants perform ongoing reassessments of all vies to determine if the primary beneficiary status has changed . legal entities within dte energy 's power and industrial projects segment enter into long-term contractual arrangements with customers to supply energy-related products or services . the entities are generally designed to pass-through the commodity risk associated with these contracts to the customers , with dte energy retaining operational and customer default risk . these entities generally are vies and consolidated when dte energy is the primary beneficiary . in addition , dte energy has interests in certain vies through which control of all significant activities is shared with partners , and therefore are generally accounted for under the equity method . dte energy owns a 55 % interest in sgg , which owns and operates midstream natural gas assets . sgg has contracts through which certain construction risk is designed to pass-through to the customers , with dte energy retaining operational and customer default risk . sgg is a vie with dte energy as the primary beneficiary . the registrants have variable interests in nexus , which include dte energy 's 50 % ownership interest and dte electric 's transportation services contract . nexus is a joint venture which owns a 256-mile pipeline to transport utica and marcellus shale gas to ohio , michigan , and ontario market centers . nexus is a vie as it has insufficient equity at risk to finance its activities . the registrants are not the primary beneficiaries , as the power to direct significant activities is shared between the owners of the equity interests . dte energy accounts for its ownership interest in nexus under the equity method . the registrants hold ownership interests in certain limited partnerships . story_separator_special_tag 37 on january 11 , 2019 , nexus signed an agreement to purchase generation pipeline , llc , a public utility regulated by the public utilities commission of ohio . this 23-mile pipeline system supplies gas to industrial customers in the toledo , oh area , has existing interconnects with anr pipeline company and panhandle eastern pipeline company , and is located 4 miles away from nexus . the transaction is expected to close in the first half of 2019 upon regulatory approvals . ags and sgg provide a platform for midstream growth and access to further investment opportunities in the appalachian basin , an additional connection to the nexus pipeline which should drive incremental volumes on the nexus pipeline , and producer relationships that may lead to more partnering opportunities . gas storage and pipelines expects to maintain its steady growth by developing an asset portfolio with multiple growth platforms through investment in new projects and expansions . gas storage and pipelines will continue to look for additional investment opportunities and other storage and pipeline projects at favorable prices . power and industrial projects the power and industrial projects segment is comprised primarily of projects that deliver energy and utility-type products and services to industrial , commercial , and institutional customers , produce reduced emissions fuel , and sell electricity and pipeline-quality gas from renewable energy projects . power and industrial projects results are discussed below : replace_table_token_19_th 38 operating revenues — non-utility operations increased $ 115 million in 2018 and increased $ 183 million in 2017 . the changes are due to the following : 2018 ( in millions ) higher demand due to improved conditions in the steel business $ 59 higher production in the renewables business 25 higher production , offset by lower coal prices in the ref business 18 higher sales primarily associated with new contracts in the on-site business 13 $ 115 2017 ( in millions ) higher demand due to improved conditions in the steel business $ 107 higher production driven by new projects , offset by lower coal prices in the ref business 102 lower production and one-time recovery in 2016 , offset by an acquisition in the renewables business ( 9 ) lower sales primarily associated with expired contracts in the on-site business ( 17 ) $ 183 non-utility margin increased $ 40 million in 2018 and increased $ 10 million in 2017 . the changes are due to the following : replace_table_token_20_th operation and maintenance expense increased $ 21 million in 2018 and increased $ 25 million in 2017 . the 2018 increase was primarily due to higher production in the ref business of $ 11 million and new contracts in the on-site business of $ 8 million . the 2017 increase was primarily due to an increase in maintenance spending driven by improved conditions in the steel business of $ 16 million , higher maintenance and a new acquisition in the renewables business of $ 7 million , and an increase associated with new projects in the ref business of $ 5 million , offset by lower spending as a result of shenango plant closure activities in the first half of 2016 of $ 6 million . asset ( gains ) losses and impairments , net increased $ 7 million in 2018 from the net loss of $ 20 million in 2017 and decreased $ 21 million in 2017 from the net gain of $ 1 million in 2016 . the 2018 increase was primarily due to $ 15 million of a liability adjustment related to contingent consideration and an $ 8 million asset write-off associated with the renewable business in anticipation of a contract ending in 2020. the 2017 decrease was primarily due to an impairment in the ref business of $ 14 million and an impairment of a petroleum coke project of $ 6 million . 39 other ( income ) and deductions increased $ 26 million in 2018 and increased $ 14 million in 2017 . the 2018 increase was primarily due to higher production in the ref business of $ 20 million and decreased contributions to the dte energy foundation of $ 4 million . the 2017 increase was primarily due to increased equity earnings in the renewable business of $ 9 million and insurance settlements in the renewable and ref businesses of $ 6 million , offset by increased contributions to the dte energy foundation of $ 6 million . income taxes — benefit decreased by $ 35 million in 2018 and increased by $ 16 million in 2017 . the 2018 decrease was primarily due to the 2017 remeasurement of deferred tax assets and liabilities to reflect the reduction in the corporate tax rate from the enactment of the tcja in december 2017. the increase in 2017 was primarily due to the remeasurement of deferred tax assets and liabilities to reflect the reduction in the corporate tax rate from the enactment of the tcja in december 2017 of $ 21 million , an increase due to higher pretax loss of $ 7 million , and a decrease due to a worthless stock deduction associated with the shenango closure in 2016 of $ 10 million . income taxes — production tax credits increased by $ 35 million in 2018 and increased $ 39 million in 2017 . the increase in both periods was primarily due to higher production in the ref business . net loss attributable to noncontrolling interests decreased by $ 19 million in 2018 and increased by $ 8 million in 2017 . the 2018 decrease was primarily due to termination of a project in the ref business . the 2017 increase was primarily due to a change in the ownership percentage in one of the ref projects of $ 8 million . outlook — power and industrial projects has constructed and placed in service ref facilities at ten sites including facilities located at seven third-party owned coal-fired power plants . dte

these contracts contain provisions which allow the counterparties to require that dte energy post cash or letters of credit as collateral in the event that dte energy 's credit rating is downgraded below investment grade . certain of these provisions ( known as `` hard triggers '' ) state specific circumstances under which dte energy can be required to post collateral upon the occurrence of a credit downgrade , while other provisions ( known as `` soft triggers '' ) are not as specific . for contracts with soft triggers , it is difficult to estimate the amount of collateral which may be requested by counterparties and or which dte energy may ultimately be required to post . the amount of such collateral which could be requested fluctuates based on commodity prices ( primarily natural gas , power , and coal ) and the provisions and maturities of the underlying transactions . as of december 31 , 2018 , dte energy 's contractual obligation to post collateral in the form of cash or letters of credit in the event of a downgrade to below investment grade , under both hard trigger and soft trigger provisions , was approximately $ 638 million . dte energy believes it will have sufficient operating flexibility , cash resources , and funding sources to maintain adequate amounts of liquidity and to meet future operating cash and capital expenditure needs . however , virtually all of dte energy 's businesses are capital intensive , or require access to capital , and the inability to access adequate capital could adversely impact earnings and cash flows . see notes 9 , 10 , 14 , 16 , 18 , and 20 to the consolidated financial statements in item 8 of this report , `` regulatory matters , '' `` income taxes , '' `` long-term debt < font

commission revenue generated from reinsurance brokerage commission earned on ceded premium by the insurance entities is recognized over the term of the reinsurance agreements . policy fees . policy fees , which represents fees paid by policyholders to the mga 's on all new and renewal insurance policies , are generally recognized as income upon policy inception , which coincides with related service obligations . other revenue . the company offers its policyholders the option of paying their policy premiums in full at inception or in installments . the company charges fees to its policyholders that elect to pay their premium in installments and records such fees as revenue as the company bills the fees to the policyholder . deferred policy acquisition costs . the company defers direct commissions and premium taxes relating to the successful acquisition or renewal of insurance policies and defers the costs until recognized as expense over the terms of the policies to which they are related . deferred policy acquisition costs are recorded at their estimated realizable value . goodwill . goodwill arising from the acquisition of a business is initially measured at cost and not subject to amortization . the company assesses goodwill for potential impairments at the end of each fiscal year , or during the year if an event or other circumstance indicates that the company may not be able to recover the carrying amount of the asset . goodwill is included under other assets in the consolidated balance sheets . insurance liabilities . unpaid losses and loss adjustment expenses ( “ lae ” ) are provided for as claims are incurred . the provision for unpaid losses and lae includes : ( 1 ) the accumulation of individual case estimates for claims and claim adjustment expenses reported prior to the close of the accounting period ; ( 2 ) estimates for unreported claims based on industry data and actuarial analysis and ( 3 ) estimates of expenses for investigating and adjusting claims based on the experience of the company and the industry . the company estimates and accrues its right to subrogate reported or estimated claims against other parties . subrogated claims are recorded at amounts estimated to be received from the subrogated parties , net of related costs and netted against unpaid losses and lae . inherent in the estimates of ultimate claims and subrogation are expected trends in claim severity , frequency and other factors that may vary as claims are settled . the amount of uncertainty in the estimates is significantly affected by such factors as the amount of claims experience relative to the development period , knowledge of the actual facts and circumstances and the amount of insurance risk retained . in addition , the company 's policyholders are subject to adverse weather conditions , such as hurricanes , tornadoes , ice storms and tropical storms . the actuarial methods for making estimates for unpaid losses , lae and subrogation recoveries and for establishing the resulting net liability are periodically reviewed , and any adjustments are reflected in current earnings . provision for premium deficiency . it is the company 's policy to evaluate and recognize losses on insurance contracts when estimated future claims , deferred policy acquisition costs and maintenance costs under a group of existing contracts will exceed anticipated future premiums . no accruals for premium deficiency were considered necessary as of december 31 , 2020 and 2019. reinsurance . ceded written premium is recorded upon the effective date of the reinsurance contracts and earned over the contract period . amounts recoverable from reinsurers are estimated in a manner consistent with the provisions of the reinsurance agreements and consistent with the establishment of the gross insurance liability to the company . under asc 326 and given the short-term nature of these receivables , the company considered the effects of credit enhancements ( i.e . funds withheld liability , letters of credit and trust arrangements ) and other qualitative factors that allowed it to conclude there was no material risk exposure . there is no estimated credit loss allowance as of december 31 , 2020 established under asc 326 and the company did not have an allowance for uncollectible amounts due from reinsurers as of december 31 , 2019. income taxes . the company accounts for income taxes under the asset and liability method , that recognizes the amount of income taxes payable or refundable for the current year and recognizes deferred tax assets and liabilities based on the tax rates expected to be in effect during the periods in which the temporary differences reverse . temporary differences arise when income or expenses are recognized in different periods in the consolidated financial statements than on the tax returns . 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 tax assets are reduced by a valuation allowance if it is more likely than not that all , or some portion , of the benefits related to deferred tax assets will not be realized . income taxes include both estimated federal and state income taxes . income ( loss ) per share of common stock . basic earnings per share excludes dilution and is computed by dividing the company 's net income ( loss ) available to common stockholders , by the weighted-average number of shares of common stock outstanding during the period . diluted earnings per share is computed by dividing the company 's net income ( loss ) available to common stockholders , by the weighted average number of shares of common stock outstanding during the period plus the impact of all potentially dilutive common shares , primarily preferred stock , unvested shares and options . story_separator_special_tag in may 2020 , the floir approved an overall 12.4 % rate increase for upcic on florida personal residential homeowners line of business , effective may 2020 for new business and july 2020 for renewals . in december 2020 , the floir approved an overall 7.0 % rate increase for upcic on florida personal residential homeowners line of business , effective december 2020 for new business and march 2021 for renewals . total revenues increased by $ 133.4 million , or 14.2 % , to $ 1,072.8 million . weather events in excess of plan for named hurricanes and other severe weather events occurred during the year ended december 31 , 2020 , resulting in a $ 162.0 million impact after reinsurance . net loss and lae ratio was 82.2 % as compared to 71.6 % , driven by severe weather and prior years ' reserve development . 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 of several factors including ( 1 ) increased estimated core losses and lae for the current year compared to prior year , ( 2 ) premium growth and change in mix between florida and other states and ( 3 ) increased adverse weather events . the increase was partially offset by a reduced level of prior years ' reserve development in 2020. direct premiums written increased by $ 224.8 million , or 17.4 % , for the year ended december 31 , 2020 , driven by growth within our florida business of $ 184.6 million , or 17.3 % , and growth in our other states business of $ 40.1 million , or 17.7 % , as compared to the same period of the prior year . rate increases in florida and in certain other states along with slightly improved retention also contributed to the premium growth . premium in force increased in every state in which we are writing at december 31 , 2020 compared to december 31 , 2019. we implemented new guidelines during the year ended december 31 , 2020 on new business to address emerging loss trends that have since slowed the rate of growth in florida in certain territories during december 31 , 2020. we actively wrote policies in 19 states during 2020 compared to 18 in 2019. in addition , we are authorized to do business in tennessee and wisconsin and are proceeding with product filings in those states . during the second quarter of 2020 the company withdrew its application to write business in connecticut . policies in force , premium in force and total insured value all increased as of december 31 , 2020 when compared to december 31 , 2019 . 34 direct premium earned increased by $ 162.5 million , or 13.2 % , for the year ended december 31 , 2020 , reflecting the earning of premiums written over the past 12 months and changes in rates and policies in force during that time . reinsurance enables our insurance entities to limit potential exposures to catastrophic events and other covered events . ceded premium represents amounts paid to reinsurers for this protection . ceded premium earned increased $ 81.4 million , or 20.8 % , for the year ended december 31 , 2020 as compared to the same period of the prior year . the increase in reinsurance costs reflects both an increase in costs associated with the increase in exposures we insure , reinstatement premiums emerging during the year and increased pricing when compared to the expired reinsurance program . reinsurance costs , as a percentage of direct premium

the ratings of the insurance entities are subject to at least annual review by demotech , inc. , and may be revised upward or downward or revoked at the sole discretion of demotech , inc. financial stability ratings® are primarily directed towards policyholders , and are not evaluations directed toward the protection of investors in a company , including holders of a company 's common stock , and are not recommendations to buy , sell or hold securities . see “ part i—item 1a—risk factors—risks relating to our business and operations—a downgrade in our financial stability rating® may have an adverse effect on our competitive position , the marketability of our product offerings , and our liquidity , operating results and financial condition. ” off-balance sheet arrangements the company does not have any off-balance arrangements that are reasonably likely to have a material effect on the financial condition , results of operations , liquidity , or capital resources of the company , except for multi-year reinsurance contract commitments for future years that will be recorded at the commencement of the coverage period . see “ part ii—item 8—note 15 ( commitments and contingencies ) ” for more information . 49 contractual obligations the following table represents our contractual obligations for which cash flows are fixed or determinable as of december 31 , 2020 ( in thousands ) : replace_table_token_19_th ( 1 ) the 1-3 years amount represents the payment of reinsurance premiums payable under multi-year commitments . see “ part ii—item 8—note 15 ( commitments and contingencies ) . ” ( 2 ) there are generally no notional or stated amounts related to unpaid losses and lae . both the amounts and timing of future loss and lae payments are estimates and subject to the inherent variability of legal and market conditions affecting the obligations and make the timing of cash outflows uncertain . the ultimate amount and timing of unpaid losses and lae could differ materially from the amounts in the table above . further , the unpaid losses and lae do not represent all the obligations that will arise under the contracts , but rather only the estimated liability incurred through december 31 , 2020. unpaid losses and lae are net of estimated subrogation recoveries . in addition , these balances exclude amounts recoverable from our reinsurance program . see “ part ii—item 8—note 4 ( reinsurance ) . ” impact of inflation and changing prices < div

note 2 — acquisition : on december 14 , 2010 , the company acquired energy steel , a nuclear code accredited fabrication and specialty machining company located in lapeer , michigan dedicated primarily to the nuclear power industry . this transaction was accounted for under the acquisition method of accounting . accordingly , the results of energy steel were included in the company 's consolidated financial statements from the date of acquisition . the purchase price was $ 17,899 in cash , subject to the adjustments described below . acquisition-related costs of $ 676 were expensed in fiscal 2011 and were included in selling , general and administrative expenses in the consolidated statement of operations . during fiscal 2012 , the company received $ 384 from the seller due to a reduction in purchase price based upon the final determination of the working capital acquired in accordance with the purchase agreement . the purchase agreement also included a contingent earn-out , which ranged from $ 0 to $ 2,000 , dependent upon energy steel 's earnings performance in calendar years 2011 and 2012. in fiscal 2012 , $ 1,000 of the earn-out was paid . energy steel did not achieve the earnings performance requirements in calendar year 2012. therefore , the liability recorded for the remaining contingent earn-out of $ 975 was reversed . the consolidated statements of operations for fiscal 2013 and fiscal 2012 include $ ( 975 ) and $ 230 in selling , general and administrative expense and $ 44 and $ 204 in interest expense , respectively , for adjustments related to the contingent earn-out liability . also on december 14 , 2010 , the company and energy steel entered into a five-year lease agreement with essc investments , llc for energy steel 's manufacturing and office facilities located in lapeer , michigan , which lease includes an option to renew for an additional five year term . essc investments , llc is partly owned by the former sole shareholder of energy steel . 46 note 3 — inventories : major classifications of inventories are as follows : replace_table_token_14_th note 4 — property , plant and equipment : major classifications of property , plant and equipment are as follows : replace_table_token_15_th depreciation expense in fiscal 2014 , fiscal 2013 , and fiscal 2012 was $ 1,977 , $ 1,851 , and $ 1,685 , respectively . 47 note 5 — intangible assets : intangible assets are comprised of the following : replace_table_token_16_th intangible assets are amortized on a straight line basis over their estimated useful lives . intangible amortization expense was $ 180 , $ 180 and $ 250 in fiscal 2014 , fiscal 2013 and fiscal 2012 , respectively . as of march 31 , 2014 , amortization expense is estimated to be $ 180 in each of the fiscal years ending march 31 , 2015 , 2016 , 2017 , 2018 and 2019. there was no change in goodwill during fiscal 2014 or fiscal 2013. goodwill was $ 6,938 at march 31 , 2014 and 2013. note 6 — product warranty liability : the reconciliation of the changes in the product warranty liability is as follows : replace_table_token_17_th the product warranty liability is included in the line item “accrued expenses and other current liabilities” in the consolidated balance sheets . 48 note 7 — leases : the company leases equipment and office space under various operating leases . lease expense applicable to operating leases was $ 563 , $ 513 and $ 478 in fiscal 2014 , fiscal 2013 , and fiscal 2012 , respectively . property , plant and equipment include the following amounts for leases which have been capitalized : replace_table_token_18_th amortization of machinery and equipment under capital leases amounted to $ 72 , $ 84 and $ 82 in fiscal 2014 , fiscal 2013 , and fiscal 2012 , respectively , and is included in depreciation expense . as of march 31 , 2014 , future minimum payments required under non-cancelable leases are : replace_table_token_19_th note 8 — debt : short-term debt due to banks the company and its subsidiaries had no short-term borrowings outstanding at march 31 , 2014 and 2013. on december 3 , 2010 , the company entered into a revolving credit facility agreement that provides a $ 25,000 line of credit , including letters of credit and bank guarantees , expandable at the company 's option at any time up to a total of $ 50,000 . there are no sublimits in the agreement with regard to borrowings , issuance of letters of credit or issuance of bank guarantees for the company 's chinese subsidiary . the agreement has a three year term , with two automatic one year extensions . the agreement was automatically extended for one year in december 2013. at the company 's option , amounts outstanding under the agreement will bear interest at either : ( i ) a rate equal to the bank 's prime rate ; or ( ii ) a rate equal to libor plus a margin . the margin is based upon the company 's funded debt to earnings before interest expense , income taxes , depreciation and amortization ( “ebitda” ) and may range from 2.00 % to 1.00 % . amounts available for borrowing under the agreement are subject to an unused commitment fee of between 0.375 % and 0.200 % , depending on the above ratio . the bank 's prime rate was 3.25 % at march 31 , 2014 and 2013. outstanding letters of credit under the agreement are subject to a fee of between 1.25 % and 0.75 % , depending on the company 's ratio of funded debt to ebitda . the agreement allows the company to reduce the fee on outstanding letters of credit to a fixed rate of .55 % by securing outstanding letters of credit with cash and cash equivalents . story_separator_special_tag ' equity increased $ 11,375 or 14 % , at march 31 , 2013 compared with march 31 , 2012. this increase was primarily due to net income earned in fiscal 2013. on march 31 , 2013 , our net book value per share was $ 9.30 , up 13 % over march 31 , 2012. story_separator_special_tag total dollar value of orders received for which revenue has not yet been recognized . all 27 orders in backlog represent orders from our traditional markets in established product lines . approximately 25 % to 30 % of orders currently in backlog are not expected to be converted to sales during fiscal 2015. at march 31 , 2014 , approximately 26 % of our backlog was attributed to equipment for refinery project work , 28 % for chemical and petrochemical projects , 16 % for power , including nuclear energy , 25 % for u.s. navy projects and 5 % for other industrial or commercial applications . at march 31 , 2013 , approximately 40 % of our backlog was for refinery project work , 8 % for chemical and petrochemical projects , 25 % for power , including nuclear energy , 23 % for u.s. navy projects and 4 % for other industrial or commercial applications . at march 31 , 2014 , we had no projects on hold . we had one project for $ 1,129 cancelled in fiscal 2014. strategy and outlook we believe that a recovery in the refinery and petrochemical markets we serve is occurring . the u.s. petrochemical market was very strong in fiscal 2014. our pipeline has continued to stay at an elevated level over the past year , even as our order levels increased compared to the prior fiscal year . we believe that with stronger market conditions along with our efforts to increase our addressable market opportunities , we have the ability to double the size of our business over the course of the current market expansion . we have and continue to invest to gain capacity to serve our commercial customers as well as to expand the work we do for the u.s. navy . we intend to continue to look for organic growth opportunities as well as acquisitions or other business combinations that we believe will allow us to expand our presence in our existing and ancillary markets . we are focused on reducing earnings volatility , growing our business and diversifying our business and product lines . we believe that our fiscal year 2014 growth in orders and backlog are early evidence of the success of our strategy . as fiscal 2015 continues , we believe the energy markets will remain strong . we believe that with our strong project pipeline , we are likely to see improved quarterly order levels , though the timing of that improvement is still uncertain . we expect revenue to be approximately $ 120,000 to $ 130,000 in fiscal 2015 , a 17 % to 27 % increase as compared with fiscal 2014. our expected growth range for fiscal 2015 assumes conversion of existing backlog as well as continued market improvement and order placement by our customers . to achieve the upper end of the range , we will need to see strong order levels in the first half of the year . the continued conversion to revenue of the u.s. navy cvn-79 project and two large domestic nuclear power generation projects is expected to contribute significantly to sales in fiscal 2015. any unexpected delay in any of these projects could adversely impact our fiscal 2015 revenue and earnings . we have a number of large projects which are converting over a multi-year time period . the u.s. navy projects and large projects for the new nuclear reactors being built in the southeast u.s. will partially convert in fiscal 2015. however , the reactor projects , as well as the u.s. navy project , will continue into subsequent fiscal years . these projects made up over 30 % of our fiscal 2014 year-end backlog . we expect to convert approximately 70 % to 75 % of our march 31 , 2014 backlog to sales in fiscal 2015. we expect gross profit margin in fiscal 2015 to be in the 30 % to 32 % range . while we continue to see stronger activity in our key end markets , particularly the petrochemical and refining markets , our pricing power is still consistent with historic early cycle comparables . our margin expectations are constrained by the current mix of products sold to the chemical and petrochemical markets . we continue to believe that as the recovery in our markets continues , gross profit margins should improve with anticipated volume increases . as we look forward , due to changes in geographic and end use market mix , we expect gross margins are unlikely to reach the 40 % range achieved in the prior up cycle . we believe that at the peak of the current cycle a gross profit margin percentage in the mid-to-upper 30 % range is a more realistic expectation . we also expect this recovery , while including more domestic chemical and petrochemical opportunities , will be more focused on emerging markets , which historically have provided a more competitive pricing environment and , correspondingly , lower margins , than developed markets . 28 sg & a spending during fiscal 2015 is expected to be between 15 % and 16 % of sales . our effective tax rate during fiscal 2015 is expected to be between 33 % and 34 % . cash flow in fiscal 2015 is expected to be positive , driven primarily by net income , partly offset by capital spending , including the completion of our batavia capacity expansion , as well as a minimal need for additional working capital . contingencies and commitments we have been named as a defendant in certain lawsuits alleging personal injury from exposure

contractual obligations as of march 31 , 2014 , our contractual and commercial obligations for the next five fiscal years ending march 31 and thereafter were as follows : replace_table_token_5_th ( 1 ) for additional information , see note 7 to the consolidated financial statements in item 8 of part ii of this annual report on form 10-k. ( 2 ) amounts represent anticipated contributions during fiscal 2015 to our postretirement medical benefit plan , which provides healthcare benefits for eligible retirees and eligible survivors of retirees . on february 4 , 2003 , we terminated postretirement healthcare benefits for our u.s. employees . benefits payable to retirees of record on april 1 , 2003 remained unchanged . we expect to be required to make cash contributions in connection with these plans beyond one year , but such amounts can not be estimated . no contributions are expected to be made to our defined benefit pension plan for fiscal 2015. orders and backlog orders in fiscal 2014 increased 34 % to $ 128,152 from $ 95,828 , in fiscal 2013. orders represent communications received from customers requesting us to supply products and services . revenue is recognized on orders received in accordance with our revenue recognition policy included in note 1 to the consolidated financial statements contained in item 8 of part ii of this annual report on form 10-k. domestic orders were 72 % , or $ 92,838 , and international orders were 28 % , or $ 35,314 , of our total orders in fiscal 2014. this compared to domestic orders of $ 52,273 or 55 % , and international orders of $ 43,555 or 45 % of our total orders in fiscal 2013. domestic orders increased by $ 40,565 , or 78 % due to increased demand in the petrochemical processing industries . international orders decreased by $ 8,241 , or 19 % , due to lower orders in canada and asia , partially offset by increased orders in the middle east and south america . backlog was $ 112,108 at march 31 , 2014 , up 31 % compared with $ 85,768 at march 31 , 2013. backlog is defined by us as the

​ comprehensive earnings : ​ comprehensive earnings include net earnings , foreign currency translation adjustments and unrealized gains/losses on commodity and or foreign currency hedging contracts , available for sale securities and certain postretirement benefit obligations . ​ earnings per share : ​ a dual presentation of basic and diluted earnings per share is not required due to the lack of potentially dilutive securities under the company 's simple capital structure . therefore , all earnings per share amounts represent basic earnings per share . ​ 38 the class b common stock has essentially the same rights as common stock , except that each share of class b common stock has ten votes per share ( compared to one vote per share of common stock ) , is not traded on any exchange , is restricted as to transfer and is convertible on a share-for-share basis , at any time and at no cost to the holders , into shares of common stock which are traded on the new york stock exchange . ​ use of estimates : ​ the preparation of consolidated financial statements in conformity with accounting principles generally accepted in the u.s. requires management to make estimates and assumptions that affect the amounts reported . estimates are used when accounting for sales discounts , allowances and incentives , product liabilities , assets recorded at fair value , income taxes , depreciation , amortization , employee benefits , contingencies and intangible asset and liability valuations . actual results may or may not differ from those estimates . ​ recently adopted accounting pronouncements : ​ in june 2016 , the fasb issued asu no . 2016-13 , ( asc topic 326 ) which replaces the current incurred loss impairment method with a new method that reflects expected credit losses . subsequent to the issuance of asc topic 326 , the fasb clarified and amended guidance through several accounting standard updates ; hereinafter the collection of credit loss guidance is referred to as “ asc topic 326 ” . under this new guidance an entity would recognize an impairment allowance equal to its current estimate of credit losses on financial assets measured at amortized cost . the company adopted asu 2016-13 and related amendments ( asc topic 326 ) on january 1 , 2020. the adoption of this asc did not have a material impact on the company 's consolidated financial statements . ​ in august 2018 , the fasb issued asu 2018-14 , ( asc subtopic 715-20 ) which expands disclosure requirements for employer sponsored defined benefit pension and other retirement plans . the company adopted asu 2018-14 on january 1 , 2020 because this asu affects the company 's post-retirement health benefits plan ( see note 7 ) . the adoption of the new accounting rules did not have a material impact on the company 's consolidated financial statements . ​ recently issued accounting pronouncements - not yet adopted : ​ in december 2019 , the fasb issued asu no . 2019-12 which is designed to simplify the accounting for income taxes by removing certain exceptions to the general principles in topic 740. asu no . 2019-12 is effective for fiscal years beginning after december 15 , 2020 , including interim periods within those fiscal years ; this asu allows for early adoption in any interim period after issuance of the update . the company is currently assessing the impact this asu will have on its consolidated financial statements . ​ in march 2020 , the fasb issued asu 2020-04 which provides optional guidance for a limited time to ease the potential burden in accounting for reference rate reform . the new guidance provides optional expedients and exceptions for applying u.s. gaap to contracts , hedging relationships and other transactions affected by reference rate reform if certain criteria are met . the amendments apply only to contracts and hedging relationships that reference libor or another reference rate expected to be discontinued due to reference rate reform . these amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before december 31 , 2022. the company is currently evaluating our contracts and the optional expedients provided by the new standard . ​ ​ 39 ​ note 2—accrued liabilities : ​ accrued liabilities are comprised of the following : ​ replace_table_token_9_th ​ ​ ​ note 3—industrial development bonds : ​ industrial development bonds are due in 2027. the average floating interest rate , which is reset weekly , was 0.7 % and 1.6 % in 2020 and 2019 , respectively . see note 10 of the company 's notes to consolidated financial statements for fair value disclosures . ​ note 4—income taxes : ​ the domestic and foreign components of pretax income are as follows : ​ replace_table_token_10_th ​ the provision for income taxes is comprised of the following : ​ replace_table_token_11_th ​ 40 significant components of the company 's net deferred tax liability at year end were as follows : ​ replace_table_token_12_th ​ at december 31 , 2020 , the company has benefits related to state tax credit carry-forwards expiring by year as follows : $ 495 in 2020 , $ 771 in 2021 , $ 221 in 2023 , $ 253 in 2024 , $ 50 in 2028 , $ 131 in 2029 , $ 213 in 2030 , $ 225 in 2031 , $ 238 in 2032 , $ 211 in 2033 and $ 234 in 2034. the company expects that not all the credits will be utilized before their expiration and has provided a valuation allowance for the expired amounts . such valuation allowances were $ 837 and $ 770 at december 31 , 2020 and 2019 , respectively . story_separator_special_tag plant efficiencies driven by capital investments and ongoing cost containment programs contributed to the above discussed decreases in adjusted cost of goods sold as a percentage of sales in 2019. the prior year 2018 gross margin was adversely affected by the implementation and start-up of new manufacturing packaging lines and resulting operational inefficiencies , as well as unfavorable experience from self-insurance programs . ​ selling , marketing and administrative expenses were $ 127,802 in 2019 compared to $ 117,691 in 2018 , an increase of $ 10,111 or 8.6 % . selling , marketing and administrative expenses include $ 10,884 and $ ( 1,064 ) in certain deferred compensation expenses ( credits ) in 2019 and 2018 , respectively . these deferred compensation expenses principally result from changes in the market value of investments and investment income from trading securities relating to compensation deferred in previous years and are not reflective of current operating results . adjusting for the aforementioned , selling , marketing and administrative expenses decreased from $ 118,755 in 2018 to $ 116,918 in 2019 , a decrease of $ 1,837 or 1.5 % . as a percent of net product sales , these adjusted expenses decreased from 23.0 % of net product sales in 2018 to 22.3 % of net product sales in 2019 , a 0.7 favorable percentage point change . higher price realization , lower general and administrative expenses , primarily legal and professional fees , and lower freight and delivery unit costs were the principal drivers in these favorable reductions , including reductions as a percentage of sales , in 2019 . ​ selling , marketing and administrative expenses include freight , delivery and warehousing expenses . these expenses decreased from $ 49,527 in 2018 to $ 49,288 in 2019 , a decrease of $ 239 or 0.5 % . as a percent of net product sales , these adjusted expenses decreased from 9.6 % in 2018 to 9.4 % in 2019 , a 0.2 favorable percentage point change . during 2019 , the company implemented additional freight and delivery computer systems and carrier selection processes , including enhanced competitive bidding , which facilitated this favorable unit cost reduction in 2019 . ​ earnings from operations were $ 69,214 in 2019 compared to $ 70,482 in 2018 , a decrease of $ 1,268. earnings from operations include $ 11,292 and $ ( 1,103 ) in certain deferred compensation expense ( credits ) in 2019 and 2018 , respectively , which are discussed above . adjusting for these deferred compensation expenses , adjusted earnings from operations increased from $ 69,379 in 2018 to $ 80,506 in 2019 , an increase of $ 11,127 or 16.0 % . increased sales and higher price realization in 2019 , as well as reductions in certain costs and expenses discussed above , contributed to these improved results . ​ management believes the comparisons presented in the preceding paragraphs , after adjusting for changes in deferred compensation , are more reflective of the underlying operations of the company . ​ other income , net was $ 16,190 in 2019 compared to $ 2,724 in 2018 , an increase of $ 13,466. other income , net principally reflects $ 11,292 and $ ( 1,103 ) of aggregate net gains ( losses ) and investment income on trading securities in 2019 and 19 2018 , respectively . these trading securities provide an economic hedge of the company 's deferred compensation liabilities ; and the related net gains ( losses ) and investment income were offset by a like amount of expense in aggregate product cost of goods sold and selling , marketing , and administrative expenses in the respective years as discussed above . other income , net includes investment income on available for sale securities of $ 4,423 and $ 3,535 in 2019 and 2018 , respectively . other income , net also includes foreign exchange losses of $ 533 and $ 659 in 2019 and 2018 , respectively . ​ the company 's effective income tax rate was 24.1 % and 22.4 % in 2019 and 2018 , respectively . the increase in the effective tax rate for 2019 reflects higher state income taxes , including increases in reserves for uncertain state tax benefits , and increases in valuation allowances for state income tax credit carry-forwards which are not likely to be fully realized in the future . ​ net earnings attributable to tootsie roll industries , inc. were $ 64,920 in 2019 compared to $ 56,893 in 2018 , and net earnings per share were $ 0.96 and $ 0.84 in 2019 and 2018 , respectively , an increase of $ 0.12 per share or 14 % . higher sales , including higher sales realization , and cost and expense reduction discussed above , were the principal drivers of this improvement in 2019 compared to 2018. earnings per share in 2019 benefited from the reduction in average shares outstanding resulting from purchases of the company 's common stock in the open market by the company . average shares outstanding decreased from 68,072 in 2018 to 67,416 in 2019 which reflects share repurchases of $ 34,116 during 2019. net earnings attributable to tootsie roll industries , inc. were $ 14,555 in fourth quarter 2019 compared to $ 12,175 in fourth quarter 2018 , and net earnings per share were $ 0.22 and $ 0.18 in fourth quarter 2019 and 2018 , respectively an increase of $ 0.04 per share or 22 % . ​ story_separator_special_tag roman ' , 'times ' , 'serif ' ; font-size:10pt ; text-align : justify ; margin:0pt 0.1pt 0pt 0pt ; `` > ​ intangible assets ​ the company 's intangible assets consist primarily of goodwill and acquired trademarks . in accordance with accounting guidance , goodwill and other indefinite-lived assets , trademarks , are not amortized , but are instead subjected to annual testing for impairment unless certain triggering events or circumstances are noted

if actual amounts are ultimately different from previous estimates , the revisions are included in the company 's results of operations for the period in which the actual amounts become known . the company 's significant accounting policies are discussed in note 1 of the company 's notes to consolidated financial statements . ​ following is a summary and discussion of the more significant accounting policies and estimates which management believes to have a significant impact on the company 's operating results , financial position , cash flows and footnote disclosure . ​ revenue recognition ​ as more fully discussed in note 1 , the company adopted the new accounting revenue recognition guidance ( asc 606 ) effective january 1 , 2018. as a result of adoption , the cumulative impact to retained earnings at january 1 , 2018 was a net after-tax increase of $ 3,319 ( $ 4,378 pre-tax ) . the adoption principally changed the timing of recognition of certain trade promotions and related adjustments thereto which affect net product sales . the comparative prior information has not been restated and continues to be reported under the accounting standards in effect for such period . the adoption of the new standard in 2018 did not have a material effect on 2018 , 2019 and 2020 results , and management does not believe that it will have a material effect on results in future years . revenue for net product sales continues to be recognized at a point in time when products are delivered to or picked up by the customer , as designated by customers ' purchase orders , as discussed in note 1 . ​ provisions for bad debts are recorded as selling , marketing and administrative expenses . write-offs of bad debts did not exceed 0.1 % of net product sales in each of 2020 , 2019 and 2018 , and accordingly , have not been significant to the company 's financial position or results of operations . < p style= '' font-family : 'times new

our goodwill is recorded in our retail segment and will be amortized and deducted for federal income tax purposes over 15 years . note 7 : investments our consolidated balance sheet at april 27 , 2013 , included $ 10.8 million of available-for-sale investments and $ 1.1 million of trading securities in other current assets and $ 29.2 million of available-for sale investments in other long-term assets . available-for-sale investments of $ 10.2 million and trading securities of $ 1.0 million were included in other long-term assets in our consolidated balance sheet at april 28 , 2012. at april 27 , 2013 , $ 29.9 million of these investments were to enhance returns on our cash . the remaining investments of $ 11.2 million at april 27 , 2013 , and our fiscal 2012 investments were designated to fund future obligations of our non-qualified defined benefit retirement plan and our executive deferred compensation plan . all unrealized gains or losses in the tables below relate to available-for-sale investments and were included in accumulated other comprehensive loss within our consolidated statement of changes in equity because none of them were considered other-than-temporary during fiscal 2013 or fiscal 2012. if there were a decline in fair value of an investment below its costs and the decline was considered other-than-temporary , the amount of decline below cost would be charged against earnings . the following is a summary of investments at april 27 , 2013 , and april 28 , 2012 : replace_table_token_30_th 53 the following table summarizes sales of available-for-sale securities ( for the fiscal years ended ) : replace_table_token_31_th the fair value of fixed income available-for-sale securities by contractual maturity was $ 10.8 million within one year , $ 20.8 million within two to five years , $ 1.0 million within six to ten years and $ 0.5 million thereafter . note 8 : accrued expenses and other current liabilities replace_table_token_32_th note 9 : debt replace_table_token_33_th we maintain a revolving credit facility secured primarily by all of our accounts receivable , inventory , and cash deposit and securities accounts . availability under the agreement fluctuates according to a borrowing base calculated on eligible accounts receivable and inventory . the credit agreement includes affirmative and negative covenants that apply under certain circumstances , including a 1.05 to 1.00 fixed charge coverage ratio requirement that applies when excess availability under the line is less than 12.5 % of the revolving credit commitment of $ 150 million . at april 27 , 2013 , we were not subject to the fixed charge coverage ratio requirement , had no borrowings outstanding under the agreement , and had excess availability of $ 143.3 million . industrial revenue bonds were used to finance the construction of some of our manufacturing facilities . the facilities constructed from the bond proceeds are mortgaged as collateral for the bonds . interest for our remaining bond is at a variable rate and at april 27 , 2013 , was approximately 0.3 % . this bond matures in june 2014. fair value of our debt approximates the carrying value . capital leases consist primarily of long-term commitments for the purchase of it equipment and have maturities ranging from fiscal 2014 to fiscal 2016. interest rates range from 7.6 % to 9.1 % . maturities of long-term debt , subsequent to april 27 , 2013 , are $ 0.5 million in fiscal 2014 , $ 7.4 million in fiscal 2015 , and $ 0.2 million in fiscal 2016 . 54 cash paid for interest during fiscal years 2013 , 2012 and 2011 was $ 0.7 million , $ 1.6 million , and $ 1.9 million , respectively . note 10 : operating leases we have operating leases for one manufacturing facility , executive and sales offices , warehouses , showrooms and retail facilities , as well as for transportation , information technology and other equipment . the operating leases expire at various dates through fiscal 2027. we have certain retail facilities which we sublease to outside parties . the total rent liability included in our consolidated balance sheet as of april 27 , 2013 , and april 28 , 2012 , was $ 11.7 million and $ 10.7 million , respectively . the future minimum rentals for all non-cancelable operating leases and future rental income from subleases are as follows ( for the fiscal years ) : replace_table_token_34_th rental expense and rental income for operating leases were as follows ( for the fiscal years ended ) : replace_table_token_35_th note 11 : retirement and welfare voluntary 401 ( k ) retirement plans are offered to eligible employees within certain u.s. operating units . for most operating units , we make matching contributions based on specific formulas . we also maintain an executive deferred compensation plan for eligible highly compensated employees . an element of this plan allows contributions for eligible highly compensated employees . as of april 27 , 2013 , and april 28 , 2012 , we had $ 10.0 million and $ 8.3 million , respectively , of obligations for this plan included in other long-term liabilities . we had life insurance contracts and mutual funds at april 27 , 2013 , and at april 28 , 2012 , with combined cash surrender and market values of $ 10.0 million and $ 8.3 million , respectively , included in other long-term assets related to this plan . we maintain a non-qualified defined benefit retirement plan for certain former salaried employees . included in other long-term liabilities were plan obligations of $ 17.0 million and $ 16.3 million at april 27 , 2013 , and april 28 , 2012 , respectively , which represented the unfunded projected benefit obligation of this plan . during fiscal 2013 , the total cost recognized for this plan was $ 0.8 million , which primarily related to interest cost . story_separator_special_tag during the fourth quarter of fiscal 2013 , pursuant to the existing board authorization , we adopted a plan to purchase company stock pursuant to rule 10b5-1 of the securities exchange act of 1934. the plan was effective march 30 , 2013. under this plan , our broker has the authority to purchase company shares on our behalf , subject to sec regulations and the price , market volume and timing constraints specified in the plan . the plan expires at the close of business on june 30 , 2013. with the cash flows we anticipate generating in fiscal 2014 we expect to continue being opportunistic in purchasing company stock . other the following table summarizes our contractual obligations of the types specified : replace_table_token_20_th * we have purchase order commitments of $ 87.0 million related to open purchase orders , primarily with foreign and domestic casegoods , leather and fabric suppliers , which are generally cancellable if production has not begun . our consolidated balance sheet at the end of fiscal 2013 reflected a $ 1.4 million net liability for uncertain income tax positions . it is reasonably possible that $ 0.2 million of this liability will be settled within the next 12 months . the remaining balance will be paid or released as tax audits are completed or settled , statutes of limitations expire or other new information becomes available . our debt-to-capitalization ratio was 1.6 % at april 27 , 2013 , and 2.1 % at april 28 , 2012. capitalization is defined as total debt plus total equity . continuing compliance with existing federal , state and local statutes dealing with protection of the environment is not expected to have a significant effect upon our capital expenditures , earnings , competitive position or liquidity . business outlook we are confident the integrated retail model developed over the last several years is the right strategy to take our company forward to deliver profitable growth . our operating platform is efficient and that , combined with the strongest brand in the industry , positions us to continue to benefit from a strengthening economy , particularly with an ongoing recovery in the housing market . we have much to look forward to in terms of increasing the value of our enterprise through the build out of la-z-boy branded outlets throughout north america and have every intention of aggressively pursuing many and varied growth opportunities . the furniture industry typically experiences weaker demand during the summer months and , as a result , our plants shut down for one week of vacation and maintenance during the first quarter , which ends in july . accordingly , the first quarter is usually our weakest in terms of sales and earnings . due to seasonality , we ship product for 12 weeks instead of the usual 13 weeks . 34 critical accounting policies our consolidated financial statements have been prepared in conformity with u.s. generally accepted accounting principles . in some cases , these principles require management to make difficult and subjective judgments regarding uncertainties and , as a result , such estimates and assumptions may significantly impact our financial results and disclosures . estimates are based on currently known facts and circumstances , prior experience and other assumptions believed to be reasonable . we use our best judgment in valuing these estimates and may , as warranted , use external advice . actual results could differ from these estimates , assumptions , and judgments and these differences could be significant . we make frequent comparisons throughout the year of actual experience to our assumptions in order to mitigate the likelihood of significant adjustments . adjustments are recorded when the differences are known . the following critical accounting policies affect our consolidated financial statements . revenue recognition and related allowances substantially all of our shipping agreements with third-party carriers transfer the risk of loss to our customers upon shipment . accordingly , our shipments using third-party carriers are generally recognized as revenue upon shipment of the product . in all cases , for product shipped on our company-owned trucks , revenue is recognized upon delivery . this revenue includes amounts billed to customers for shipping . provisions are made at the time revenue is recognized for estimated product returns and warranties , as well as other incentives that may be offered to customers . we also recognize revenue for amounts received from our customers in connection with our shared advertising cost arrangement . we import certain products from foreign ports , which are shipped directly to our domestic customers . in this case , revenue is not recognized until title is assumed by our customer , which is normally after the goods pass through u.s. customs . incentives offered to customers include cash discounts and other sales incentive programs . estimated cash discounts and other sales incentives are recorded as a reduction of revenues when the revenue is recognized . trade accounts receivable arise from the sale of products on trade credit terms . on a quarterly basis , our management team reviews all significant accounts as to their past due balances , as well as collectability of the outstanding trade accounts receivable for possible write off . it is our policy to write off the accounts receivable against the allowance account when we deem the receivable to be uncollectible . additionally , for those dealers that are significantly past due , we review their sales orders and ship product when collectability of the incremental sale is reasonably assured . we have notes receivable balances due to us from various customers . these notes receivable generally relate to past due accounts receivable which were converted to a note receivable in order to secure further collateral from the customer . the collateral from the customer is generally in the form of inventory or real estate . additionally , we have personal guarantees from some of these customers on these notes receivable . in

pension plan contributions in fiscal 2013 included a $ 20 million discretionary contribution made to improve the funded status of the plan and as part of our broader pension de-risking strategy . the primary components of the increase in working capital are listed below : · increase in other liabilities of $ 11.0 million , mainly due to increases in customer deposits , warranty and freight , which have all increased as a result of our volume increases . · decrease in accounts payable of $ 6.1 million . · decrease in accounts receivable of $ 7.1 million primarily due to an increase in cash collections , which resulted in lower days sales outstanding . the improvement in our cash collections was the result of an improvement in the financial health of our customer base , including our independent la-z-boy furniture galleries® dealers . during fiscal 2012 , net cash provided by operating activities was $ 82.8 million , which included cdsoa funds received during the year . we generated net income of $ 88.9 million during the year , partially offset by a non-cash increase in deferred taxes of $ 42.1 million . depreciation and amortization totaled $ 23.5 million , partially offset by $ 5.8 million in pension contributions . working capital increased and the major components of the change are listed below : · increase in other liabilities of $ 12.6 million , mainly due to higher accrued incentive compensation of $ 6.2 million , income taxes of $ 3.8 million and freight of $ 1.5 million . · increase in accounts payable of $ 7.5 million , offset by increased inventory levels of $ 7.4 million . these increases were primarily due to increased raw material inventory in our upholstery segment . < table cellpadding= '' 0 '' cellspacing= '' 0 '' class= '' dspflisttable '' style= '' width : 100 % ;

( 12 ) assets or a portion thereof are pledged as collateral for the 2018-1 issuer . see note 6 `` debt `` . ( 13 ) $ 690 of the total par amount for this security is at p+ 3.75 % . ( 14 ) non-income producing . ( 15 ) loan includes interest rate floor of 1.00 % . ( 16 ) loan includes interest rate floor of 0.75 % . ( 17 ) loan includes interest rate floor of 0.50 % . ( 18 ) loan includes interest rate floor of 0.00 % . ( 19 ) security valued using unobservable inputs ( level 3 ) . 155 ( 20 ) the company holds non-controlling , affiliate interest in an aircraft-owning special purpose vehicle through this investment . ( 21 ) assets or a portion thereof are pledged as collateral for the bcsf revolving credit facility . see note 6 `` debt `` . ( 22 ) the company generally earns a higher interest rate on the `` last out `` tranche of debt , to the extent the debt has been allocated to `` first out `` and `` last out `` tranches , whereby the `` first out `` tranche will have priority as to the `` last out `` tranche with respect to payments of principal , interest and any other amounts due thereunder . ( 23 ) $ 2,267 of the total par amount for this security is at p+ 3.50 % . ( 24 ) $ 472 of the total par amount for this security is at p+ 3.50 % . ( 25 ) security exempt from registration under the securities act of 1933 ( the `` securities act `` ) , and may be deemed to be `` restricted securities `` under the securities act . as of december 31 , 2018 , the aggregate fair value of these securities is $ 308,692 or 30.8 % of the company 's net assets . the acquisition dates of the restricted securities are as follows : investment acquisition date bcc jetstream holdings aviation ( on ii ) , llc - equity interest 6/1/2017 bcc jetstream holdings aviation ( off i ) , llc - equity interest 6/1/2017 antares bain capital complete financing solution llc - investment vehicle 11/29/2017 cb titan holdings , inc. - equity interest 11/14/2017 impala private investments , llc - equity interest 11/10/2017 abracon group holding , llc . - equity interest 7/18/2018 armor group , lp - equity interest 8/28/2018 grammer investment holdings llc - warrants 10/1/2018 grammer investment holdings llc - equity interest 10/1/2018 grammer investment holdings llc - preferred equity 10/1/2018 adt pizza , llc - equity interest 10/29/2018 pp ultimate holdings b , llc - equity interest 12/20/2018 ( 26 ) loan includes interest rate floor of 1.25 % . see notes to consolidated financial statements 156 bain capital specialty finance , inc. notes to consolidated financial statements ( in thousands , except share and per share data ) note 1. organization bain capital specialty finance , inc. ( the `` company `` ) was formed on october 5 , 2015 and commenced investment operations on october 13 , 2016. the company has elected to be treated and is regulated as a business development company ( a `` bdc `` ) under the investment company act of 1940 , as amended ( the `` 1940 act `` ) . in addition , for tax purposes the company has elected to be treated and intends to operate in a manner so as to continuously qualify as a regulated investment company ( a `` ric `` ) under subchapter m of the internal revenue code of 1986 , as amended ( the `` code `` ) , commencing concurrently with its election to be treated as a bdc . the company is externally managed by bcsf advisors , lp ( the `` advisor `` or `` bcsf advisors `` ) , our investment adviser that is registered with the securities and exchange commission ( the `` sec `` ) under the investment advisers act of 1940 , as amended ( the `` advisers act `` ) . the advisor also provides the administrative services necessary for the company to operate ( in such capacity , the `` administrator `` or `` bcsf advisors `` ) . on november 19 , 2018 , the company closed its initial public offering ( the `` ipo `` ) , which was a qualified ipo , issuing 7,500,000 shares of its common stock at a public offering price of $ 20.25 per share . shares of common stock of the company began trading on the new york stock exchange under the symbol `` bcsf `` on november 15 , 2018. the company 's primary focus is capitalizing on opportunities within its advisor 's senior direct lending strategy , which seeks to provide risk-adjusted returns and current income to its stockholders by investing primarily in middle-market companies with between $ 10.0 million and $ 150.0 million in ebitda . the company focuses on senior investments with a first or second lien on collateral and strong structures and documentation intended to protect the lender . the company generally seeks to retain voting control in respect of the loans or particular classes of securities in which the company invests through maintaining affirmative voting positions or negotiating consent rights that allow the company to retain a blocking position . the company may also invest in mezzanine debt and other junior securities and in secondary purchases of assets or portfolios , as described below . investments are likely to include , among other things , ( i ) senior first lien , stretch senior , senior second lien , unitranche , ( ii ) mezzanine debt and other junior investments and ( iii ) secondary purchases of assets or portfolios that primarily consist of middle-market corporate debt . story_separator_special_tag ( 3 ) the negative fair value is the result of the capitalized discount on the loan or the unfunded commitment being valued below par . ( 4 ) $ 204 of the total par amount for this security is at p + 4.75 % . ( 5 ) $ 158 of the total par amount for this security is at p + 4.75 % . ( 6 ) $ 53 of the total par amount for this security is at p + 5.75 % . ( 7 ) $ 391 of the total par amount for this security is at p + 4.50 % . 107 results of operations our operating results for the years ended december 31 , 2019 , 2018 and 2017 were as follows ( dollars in thousands ) : replace_table_token_24_th net increase in net assets resulting from operations can vary from period to period as a result of various factors , including additional financing , new investment commitments , the recognition of realized gains and losses and changes in unrealized appreciation and depreciation on the investment portfolio . due to these factors , comparisons may not be meaningful . investment income replace_table_token_25_th interest income from investments , which includes interest and accretion of discounts and fees , increased to $ 180.4 million for the year ended december 31 , 2019 from $ 73.4 million for the year ended december 31 , 2018 , primarily due to the growth of our investment portfolio . our investment portfolio at amortized cost increased to $ 2,537.3 million from $ 1,753.1 million for the years ended december 31 , 2019 and 2018 , respectively . dividend income decreased to $ 16.7 million for the year ended december 31 , 2019 from $ 25.4 million for the year ended december 31 , 2018 , primarily due to the closing of the abcs distribution transaction on april 30 , 2019. as of december 31 , 2019 , the weighted average yield of our investment portfolio decreased to 7.8 % from 8.8 % as of december 31 , 2018 , at amortized cost . interest income from investments , which includes interest and accretion of discounts and fees , increased to $ 73.4 million for the year ended december 31 , 2018 from $ 24.4 million for the year ended december 31 , 2017 , primarily due to the growth of our investment portfolio . our investment portfolio at amortized cost increased to $ 1,753.1 million from $ 821.3 million for the years ended december 31 , 2018 and 2017 , respectively . dividend income increased to $ 25.4 million for the year ended december 31 , 2018 , primarily due to the growth in our joint venture , abcs . as of december 31 , 2018 , the weighted average yield of our investment portfolio increased to 8.8 % from 8.3 % as of december 31 , 2017 , at amortized cost . 108 operating expenses the composition of our operating expenses for the years ended december 31 , 2019 , 2018 and 2017 were as follows ( dollars in thousands ) : replace_table_token_26_th interest and debt financing expenses interest and debt financing expenses on our borrowings totaled approximately $ 66.3 million and $ 24.0 million for the years ended december 31 , 2019 and 2018 , respectively . interest and debt financing expense for the year ended december 31 , 2019 as compared to december 31 , 2018 , increased primarily due to higher principal balances outstanding on our revolving credit facilities throughout 2019 and the issuance of our 2019-1 debt in august 2019. on april 30 , 2019 , the company entered into a new loan and security agreement with jpmorgan chase bank , n.a . , and wells fargo bank , n.a . , the jpm credit facility . interest and debt financing expenses on our borrowings totaled approximately $ 24.0 million and $ 3.6 million for the years ended december 31 , 2018 and 2017 , respectively . interest and debt financing expense for the year ended december 31 , 2018 as compared to december 31 , 2017 , increased primarily due to higher principal balances outstanding of our revolving credit facilities , the issuance of our 2018-1 notes , and an increase in the average libor rate . our smbc revolving credit facility was terminated on november 21 , 2018. the weighted average interest rate ( excluding deferred upfront financing costs and unused fees ) on our debt outstanding was 4.7 % and 4.3 % as of december 31 , 2019 and 2018 , respectively . management fees management fee ( net of waivers ) increased to $ 24.5 million for the year ended december 31 , 2019 from $ 8.8 million for the year ended december 31 , 2018. management fees increased to $ 32.7 million for the year ended december 31 , 2019 from $ 17.5 million for the year ended december 31 , 2018 , primarily due to an increase in assets to $ 2.6 billion as of december 31 , 2019 from $ 1.8 billion as of december 31 , 2018. management fees waived for the years ended december 31 , 2019 and 2018 , were $ 8.2 million and $ 8.8 million , respectively . management fee ( net of waivers ) increased to $ 8.8 million for the year ended december 31 , 2018 from $ 2.9 million for the year ended december 31 , 2017. management fees increased to $ 17.5 million for 109 the year ended december 31 , 2018 from $ 5.9 million for the year ended december 31 , 2017 , primarily due to an increase in assets to $ 1.8 billion as of december 31 , 2018 from $ 1.0 billion as of december 31 , 2017. management fees waived for the years ended december 31 , 2018 and 2017 , were $ 8.8 million and $ 2.9 million , respectively . incentive fees incentive

115 for the years ended december 31 , 2019 , 2018 and 2017 , the components of interest expense related to the bcsf revolving credit facility were as follows ( dollars in thousands ) : replace_table_token_31_th 2018-1 notes on september 28 , 2018 , ( the `` 2018-1 closing date '' ) , we , through bcc middle market clo 2018-1 llc ( the `` 2018-1 issuer '' ) , a delaware limited liability company and a wholly owned and consolidated subsidiary of us , completed its $ 451.2 million term debt securitization ( the `` clo transaction '' ) . the notes issued in connection with the clo transaction ( the `` 2018-1 notes '' ) are secured by a diversified portfolio of the 2018-1 issuer consisting primarily of middle market loans and participation interests in middle market loans , the majority of which are senior secured loans ( the `` 2018-1 portfolio '' ) . at the 2018-1 closing date , the 2018-1 portfolio was comprised of assets transferred from the company and its consolidated subsidiaries . all transfers were eliminated in consolidation and there were no realized gains or losses recognized in the clo transaction . the clo transaction was executed through a private placement of the following 2018-1 notes ( dollars in thousands ) : replace_table_token_32_th the class a-1 a , a-1 b , a-2 , b and c 2018-1 notes were issued at par and are scheduled to mature on october 20 , 2030. the company received 100 % of the membership interests ( the `` membership interests '' ) in the 2018-1 issuer in exchange for its sale to the 2018-1 issuer of the initial closing date loan portfolio . the membership interests do not bear interest . the class a-1 a , a-1 b , a-2 , b and c 2018-1 notes are included in the consolidated financial statements . the membership interests are eliminated in consolidation . the company serves as portfolio manager of the 2018-1 issuer pursuant to a portfolio management agreement between the company and the 2018-1 issuer . for so long as the company serves < p align= '' center ''

our board of directors has determined that this oversight responsibility can be most efficiently performed by our audit committee as part of its overall responsibility for providing independent , objective oversight with respect to our accounting and financial reporting functions , internal and external audit functions and systems of internal controls over financial reporting and legal , ethical and regulatory compliance . our audit committee will regularly report to our board of directors with respect to its oversight of these areas . limitations of liability and indemnification of directors and officers we are incorporated under the laws of the state of delaware . section 145 of the delaware general corporation law ( “dgcl” ) provides that a delaware corporation may indemnify any persons who are , or are threatened to be made , parties to any threatened , pending or completed action , suit or proceeding , whether civil , criminal , administrative or investigative ( other than an action by or in the right of such corporation ) , by reason of the fact that such person was an officer , director , employee or agent of such corporation , or is or was serving at the request of such person as an officer , director , employee or agent of another corporation or enterprise . the indemnity may include expenses ( including attorneys ' fees ) , judgments , fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action , suit or proceeding , provided that such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the corporation 's best interests and , with respect to any criminal action or proceeding , had no reasonable cause to believe that his or her conduct was illegal . a delaware corporation may indemnify any persons who are , or are threatened to be made , a party to any threatened , pending or completed action or suit by or in the right of the corporation by reason of the fact that such person was a director , officer , employee or agent of such corporation , or is or was serving at the request of such corporation as a director , officer , employee or agent of another corporation or enterprise . the indemnity may include expenses ( including attorneys ' fees ) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit provided such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the corporation 's best interests except that no indemnification is permitted without judicial approval if the officer or director is adjudged to be liable to the corporation . where an officer or director is successful on the merits or otherwise in the defense of any action referred to above , the corporation must indemnify him or her against the expenses that such officer or director has actually and reasonably incurred . our certificate of incorporation and our bylaws provide for the indemnification of our directors and officers to the fullest extent permitted under the dgcl . section 102 ( b ) ( 7 ) of the dgcl permits a corporation to provide in its certificate of incorporation that a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duties as a director , except for liability for any : n transaction from which the director derives an improper personal benefit ; 57 n act or omission not in good faith or that involves intentional misconduct or a knowing violation of law ; n unlawful payment of dividends or redemption of shares ; or n breach of a director 's duty of loyalty to the corporation or its stockholders . our certificate of incorporation and bylaws include such a provision . expenses incurred by any officer or director in defending any such action , suit or proceeding in advance of its final disposition shall be paid by us upon delivery to us of an undertaking , by or on behalf of such director or officer , to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified by us . section 174 of the dgcl provides , among other things , that a director who willfully or negligently approves of an unlawful payment of dividends or an unlawful stock purchase or redemption may be held liable for such actions . a director who was either absent when the unlawful actions were approved , or dissented at the time , may avoid liability by causing his or her dissent to such actions to be entered in the books containing minutes of the meetings of the board of directors at the time such action occurred or immediately after such absent director receives notice of the unlawful acts . indemnification agreements we have entered into indemnification agreements with each of our current directors and executive officers . these agreements require us to indemnify these individuals to the fullest extent permitted under delaware law against liabilities that may arise by reason of their service to us , and to advance expenses incurred as a result of any proceeding against them as to which they could be indemnified . we also intend to enter into indemnification agreements with our future directors and executive officers . section 16 ( a ) beneficial ownership reporting compliance compliance with section 16 ( a ) of the securities exchange act of 1934 , as amended , requires the company 's executive officers and directors and persons who own more than 10 % of a registered class of its equity securities to file reports of ownership and changes in ownership with the sec . story_separator_special_tag we used the net proceeds with additional company funds to repay $ 79.4 million of indebtedness under our old credit facility . credit facilities on november 30 , 2012 , we entered into our $ 25.0 million new revolving credit facility with wells fargo bank , national association . on the same date , we borrowed $ 5.0 million under our new revolving credit facility to repay the approximately $ 5.0 million of debt outstanding under our old credit facility and to pay fees and expenses associated with our new revolving credit facility . in connection with the repayment of the approximately $ 5.0 million of debt outstanding under our old credit facility , we terminated our old credit facility . as of december 30 , 2012 we had $ 5.0 million of outstanding indebtedness under our new revolving credit facility . our new revolving credit facility will mature on november 30 , 2017. under our new revolving credit facility , we may request to increase the size of our new revolving credit facility by up to $ 25.0 million , in minimum principal amounts of $ 5.0 million or the remaining amount of the $ 25.0 million if less than $ 5.0 million ( the “incremental revolving loan” ) , which incremental revolving loan will be effective after 10 days written notice to the agent . in the event that any of the lenders fund the incremental revolving loan , the terms and provisions of the incremental revolving loan will be the same as under our new revolving credit facility . borrowings under the new revolving credit facility generally bear interest at a variable rate based upon our election , of ( i ) the base rate ( which is the highest of the prime rate , federal funds rate plus 0.50 % or one month libor ) plus 1 % , or ( ii ) libor , plus , in either case , an applicable margin based on our consolidated total lease adjusted leverage ratio ( as defined in the new revolving credit facility agreement ) . our new revolving credit facility also requires payment for commitment fees that accrue on the daily unused commitment of the lender at the applicable margin , which varies based on our consolidated total lease adjusted leverage ratio . as of december 30 , 2012 our interest rate was 2.1 % . the new revolving line of credit also requires compliance with a fixed charge coverage ratio , a lease adjusted leverage ratio and certain non-financial covenants . as of december 30 , 2012 we were in compliance with all covenants under our new revolving credit facility . based on our capital expenditure plans , contractual commitments and cash flow from operations , we expect to be able to comply with these covenants for the duration of the loan . on may 24 , 2011 , we entered into our old credit facility , a $ 67.5 million senior credit facility with gci capital markets llc , general electric capital corporation , as syndication agent , and a syndicate of financial institutions and other entities . the old credit facility provided for ( a ) a revolving credit facility , ( b ) a term a loan , ( c ) a delayed draw term b loan , and ( d ) an incremental term loan . except for the incremental term loan , all borrowings under our old credit facility bore interest at a variable rate based on the prime , federal funds or libor rate plus an applicable margin based on our total leverage ratio as defined the old credit facility agreement . on march 21 , 2012 , we entered into a credit facility amendment to increase the available amount under our old credit facility from $ 67.5 million to $ 92.5 million . in connection with the completion of our ipo , we repaid $ 79.4 million of indebtedness related to the amended old credit facility . 44 off-balance sheet arrangements as part of our on-going business , we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships , such as entities referred to as structured finance or variable interest entities , which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes . as of december 30 , 2012 , we are not involved in any variable interest entities transactions and do not otherwise have any off-balance sheet arrangements . contractual obligations and commitments the following table summarizes contractual obligations at december 30 , 2012 on an actual basis . replace_table_token_6_th ( 1 ) reflects principal and interest payments on revolver balances and fees on unused revolver commitments under our new revolving credit facility . on november 30 , 2012 , we entered into our $ 25,000,000 new revolving credit facility . as of december 30 , 2012 , $ 5,000,000 was outstanding . all amounts under our new revolving credit facility are due november 30 , 2017 . ( 2 ) reflects the aggregate minimum lease payments for our restaurant operations and corporate office . operating lease obligations excludes contingent rent payments that may be due under certain of our leases based on a percentage of sales . ( 3 ) includes contractual purchase commitments for the purchase of goods related to system restaurant operations and commitments for construction of new restaurants . critical accounting policies our consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the united states of america . preparing consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue and expenses . these estimates and assumptions are affected by the application of our accounting policies . our significant accounting policies are described in note 1 to our consolidated financial statements . critical accounting estimates are those that require application of

cost of sales increased $ 10.5 million , or 41.0 % , to $ 36.1 million in fiscal 2011 , from $ 25.6 million in fiscal 2010. as a percentage of revenue , cost of sales increased to 27.7 % in 2011 compared to 27.0 % in 2010. the increase in cost of sales as a percentage of revenue primarily resulted from our increase in food costs during 2011 as a result of significant price increases in certain of our key products such as produce , dairy and cheese . labor costs . labor costs increased $ 11.1 million , or 36.5 % , to $ 41.5 million in 2011 , from $ 30.4 million in 2010. this increase was a result of an additional $ 11.4 million of labor costs incurred with respect to eight new restaurants opened during 2011 and the full year of operations of the six restaurants opened in 2010 , as well as increases in support staff at our existing restaurants . as a percentage of revenue , labor costs decreased to 31.8 % in 2011 from 32.0 % in 2010 , primarily as a result of improved labor efficiency in our established restaurants , partially offset by increased training and staffing levels at our new restaurants . operating costs . operating costs increased $ 5.0 million , or 35.0 % , to $ 19.3 million in 2011 , from $ 14.3 million in 2010. this increase was primarily due to increases in costs with respect to eight new restaurants opened during 2011 and the full year of operations of the six restaurants opened in 2010. as a percentage of revenue , operating costs decreased to 14.8 % in 2011 compared to 15.1 % in 2010 as a result of operating leverage . occupancy costs . occupancy costs increased $ 1.9 million , or 33.3 % , to $ 7.6 million in 2011 , from $ 5.7 million in 2010. this increase resulted from eight new restaurants opened in 2011 and the full year of operations of the six new restaurants opened in 2010. as a percentage of revenue , occupancy costs decreased to 5.8 % in 2011 as compared to 6.0 % in 2010 as a result of operating leverage . general and administrative expenses . general and administrative expenses increased $ 2.2 million , or 41.5 % , to $ 7.5 million in 2011 from $ 5.3 million for 2010. this increase was driven primarily by a one-time cash bonus totaling $ 1.0 million paid to members of management in may 2011 in conjunction with entering into our old credit facility and costs associated with additional employees as we continue to strengthen our infrastructure for future growth . as a

the future annual minimum lease commitments at december 31 , 2015 are approximately $ 373,000 for 2016 and $ 75,000 for 2017. in 2012 , we entered into an arrangement with the global cardiovascular innovation center ( “gcic” ) , and the cleveland clinic foundation in which we were entitled to proceeds of up to $ 500,000 in the form of a forgivable loan to fund certain preclinical work . interest on the loan accrued at a fixed rate of 4.25 % per annum and was added to the outstanding principal , and the loan carried an expiration date of march 31 , 2016. in february 2016 , the loan was forgiven according to its terms based on the achievement of certain milestones . as of december 31 , 2015 , the loan of $ 166,000 ( $ 190,000 including accrued interest ) was recorded as a current liability , and the income from forgiveness will be recognized in february 2016. the fair value of our note payable at december 31 , 2015 is not determinable due to lack of marketability of the note payable . we paid no interest during the three years ended december 31 , 2015. e. collaborations and revenue recognition chugai in october 2015 , we and chugai pharmaceutical co. ltd. ( “chugai” ) agreed to terminate the license agreement ( the “agreement” ) , dated february 28 , 2015 , between the parties , as a result of an inability to reach an agreement on the modification of the financial terms of the agreement and on the development strategy , as proposed by chugai , of our multistem ® cell therapy for the treatment of ischemic stroke in japan . pursuant to the terms of the agreement , upon termination , we regained all rights for developing our stem cell technologies and products for ischemic stroke in japan , and chugai no longer has any license rights or options with respect to our technologies and products . neither we nor chugai have any further obligations to each other . under the agreement , we received a non-refundable , up-front cash payment of $ 10 million from chugai , of which approximately $ 2.0 million was temporarily withheld by japan taxing authorities and was refunded in september 2015. the $ 10 million upfront payment from chugai was recorded as deferred revenue since we had concluded that the license grant did not have standalone value ( as defined in asc 605-25 ) at the inception of the arrangement . in connection with the termination and the parties having no further obligations under the agreement , we recognized the $ 10 million upfront payment from chugai as revenue in october 2015 . 62 pfizer in 2009 , we entered into a collaboration with pfizer inc. ( “pfizer” ) to develop and commercialize our multistem product candidate to treat inflammatory bowel disease for the worldwide market on an exclusive basis . in addition , pfizer conducted a phase 2 clinical study exploring the potential of multistem cell therapy to treat advanced and severe ulcerative colitis , and would be responsible for any subsequent development . overall , the study results were disappointing , even though a single administration of the cell therapy may have had some short-term beneficial effects . taking these results into account , following an internal portfolio review , pfizer determined that it would not invest further in this program , as would be required by the collaboration , and notified us of this decision to terminate the license agreement effective in the third quarter of 2015. in connection with the termination , all rights that pfizer had to the program reverted to us , and intellectual property generated through the collaboration is owned by us . rti surgical , inc. in 2010 , we entered into an agreement with rti surgical , inc. ( “rti” ) to develop and commercialize biologic implants using our technology for certain orthopedic applications in the bone graft substitutes market on an exclusive basis . under the terms of the agreement , we received a non-refundable license fee in installments and performed certain services that were concluded in 2012 , and we are eligible to receive cash payments upon the successful achievement of certain commercial milestones . we evaluated the nature of the events triggering these contingent payments and concluded that these events are substantive and that revenue will be recognized in the period in which each underlying triggering event occurs . no milestone revenue has been recognized to date . in addition , we began receiving in 2014 tiered royalties on worldwide commercial sales of implants using our technologies based on a royalty rate starting in the mid-single digits and increasing into the mid-teens . any royalties may be subject to a reduction if third-party payments for intellectual property rights are necessary or commercially desirable to permit the manufacture or sale of the product . grant award in 2015 , we and cell therapy catapult , a not-for-profit center focused on the development of the united kingdom regenerative medicine industry , were each awarded a grant from innovate uk in support of a phase 2a clinical study evaluating the administration of multistem cell therapy to acute respiratory distress syndrome patients . the aggregate grant funding is expected to provide up to £2.0 million ( $ 2.9 million based on the december 31 , 2015 exchange rate ) in support over the course of the study . of the £2.0 million total award , our grant of £750,000 ( $ 1.1 million based on the december 31 , 2015 exchange rate ) will be used primarily to fund the clinical product and related costs . cell therapy catapult will use their grant proceeds of £1.25 million primarily to fund the clinical site costs and their service costs as study coordinators . we recognized approximately $ 130,000 of grant revenue in 2015 in connection with this grant . story_separator_special_tag depreciation expense increased to $ 0.4 million in 2014 from $ 0.3 million in 2013 due to depreciation on new capital purchases . 41 income ( expense ) from change in fair value of warrants . income of $ 6.6 million and expense of $ 6.3 million was recognized during the years ended december 31 , 2014 and 2013 , respectively , for the market value change in our warrant liabilities . the fluctuation is related to the impact of new warrant issuances and changes in warrant value , primarily affected by our stock price and the remaining lives of the issued warrants . other ( expense ) income , net . other ( expense ) income , net , for the years ended december 31 , 2014 and 2013 remained relatively consistent and was comprised of interest income and expense , and foreign currency gains and losses . income tax benefit . the income tax benefit in 2014 represents refundable foreign tax credits . story_separator_special_tag itions . under the terms of our rti agreement , we are eligible to receive cash payments aggregating up to $ 35.5 million upon the successful achievement of certain commercial milestones , though there can be no assurance that such milestones will be achieved , and no milestone payments have been received as of december 31 , 2015. in addition , we are entitled to receive tiered royalties on worldwide commercial sales of implants using our technologies based on a royalty rate starting in the mid-single digits and increasing into the mid-teens , and we began receiving royalty payments in 2014. we remain entitled to receive license fees for targets that were delivered to bristol-myers squibb under our completed 2001 collaboration , as well as milestone payments and royalties on compounds developed by bristol-myers squibb using our technology , though there can be no assurance that we will achieve any such milestones or royalties . while bristol-myers squibb still has a few active programs using our cell lines , we expect this collaboration and the associated revenues to phase out over time . we are obligated to pay the university of minnesota a sublicense fee or a royalty based on worldwide commercial sales of licensed products if covered by a valid licensed patent . the low single-digit royalty rate may be reduced if third-party payments for intellectual property rights are necessary or commercially desirable to permit the manufacture or sale of the product . as of december 31 , 2015 , we have paid no royalties to the university of minnesota and have paid sublicense fees from time-to-time in connection with our collaborations . in 2012 , we entered into an arrangement with the global cardiovascular innovation center and the cleveland clinic foundation in which we were entitled to proceeds of up to $ 500,000 in the form of a forgivable loan to fund certain preclinical work . interest on the loan accrued at a fixed rate of 4.25 % per annum and was added to the outstanding principal , and the loan carried an expiration date of march 31 , 2016. in february 2016 , the loan and accrued interest , which amounted to approximately $ 190,000 at december 31 , 2015 , was forgiven according to its terms based on the achievement of certain milestones . 43 in 2015 , we were awarded a grant from innovate uk in support of a phase 2a clinical study evaluating the administration of multistem cell therapy to ards patients . the grant is expected to provide up to approximately £2.0 million ( approximately $ 2.8 million based on the current exchange rate ) in support over the course of the study , which will be conducted at leading clinical sites in the uk in conjunction with catapult , a not-for-profit center focused on the development of the uk cell therapy industry . we will require substantial additional funding in order to continue our research and product development programs , including preclinical evaluation and clinical trials of our product candidates and manufacturing process development . at december 31 , 2015 , we had available cash and cash equivalents of $ 23.0 million , and we intend to meet our short-term liquidity needs with available cash . over the longer term , we will make use of available cash , but will have to continue to generate additional funding to meet our needs , through business development , achievement of milestones under our collaborations , and grant-funding opportunities . additionally , we may raise capital from time to time through our equity purchase agreement with aspire capital , subject to its volume and price limitations . we also manage our cash by deferring certain discretionary costs and staging certain development costs to extend our operational runway , as needed . over time , we may consider the sale of additional equity securities , or possibly borrowing from financing institutions . our capital requirements over time depend on a number of factors , including progress in our clinical development programs , our clinical and preclinical pipeline of additional opportunities and their stage of development , additional external costs such as payments to contract research organizations and contract manufacturing organizations , additional personnel costs and the costs in filing and prosecuting patent applications and enforcing patent claims . the availability of funds impacts our ability to advance multiple clinical programs concurrently , and any shortfall in funding could result in our having to delay or curtail research and development efforts . further , these requirements may change at any time due to technological advances , business development activity or competition from other companies . we can not assure you that adequate funding will be available to us or , if available , that it will be available on acceptable terms . we expect to continue to incur substantial losses through at least the next several years and may incur losses in subsequent periods . the amount and timing of

during the years ended december 31 , 2015 and 2014 , we sold 4,023,719 and 250,000 shares , respectively , to aspire capital at average prices of $ 2.58 and $ 3.78 per share , respectively . in december 2015 , we entered into a new 2015 equity purchase agreement with aspire capital to purchase up to an aggregate of $ 30.0 million of shares of our common stock over a new three-year period . the terms of the 2015 equity facility are similar to the previous arrangements , and we issued 250,000 shares of our common stock to aspire capital as a commitment fee in december 2015 and filed a registration statement for the resale of 16,600,000 shares of common stock in connection with the new equity facility . as of december 31 , 2015 , we received proceeds of approximately $ 24.8 million in aggregate under the aspire equity purchase agreements since its inception in 2011 . 42 investors in certain of our equity offerings have received warrants to purchase shares of our common stock , of which warrants to purchase an aggregate of 4.9 million shares remain outstanding at december 31 , 2015 with a weighted average exercise price of $ 2.77 per share . the exercise of warrants could provide us with cash proceeds . during the year ended december 31 , 2015 , we received proceeds of approximately $ 1.0 million from the exercise of warrants , resulting in the issuance of 966,184 shares of common stock in the aggregate . during the year ended december 31 , 2014 , we received proceeds of approximately $ 938,000 from the exercise of warrants , resulting in the issuance of 928,924 shares of common stock in the aggregate . during the year ended december 31 , 2013 , we received proceeds of approximately $ 402,000 from the exercise of warrants , resulting in the issuance of 397,826 shares of common stock in the aggregate . in connection with our january 2016 license agreement with healios , we received an up-front cash payment of $ 15 million from healios , and the collaboration can be expanded at healios ' election . if healios expands the collaboration , we will be entitled to receive an additional cash

3. recently issued and proposed accounting pronouncements changes to u.s. gaap are typically established by the financial accounting standards board ( `` fasb `` ) in the form of accounting standards updates ( `` asus `` ) to the fasb 's accounting standards codification ( `` asc `` ) . the company considers the applicability and impact of all asus . the company , based on its assessment , determined that any recently issued or proposed asus not listed below are either not applicable to the company or have minimal impact on our consolidated financial statements . recently issued accounting pronouncements in december 2011 , the fasb issued asu no . 2011-11 , balance sheet ( topic 210 ) : disclosures about offsetting assets and liabilities . the update requires entities to disclose information about offsetting and related arrangements of financial instruments and derivative instruments . asu 2011-11 is effective for annual reporting periods beginning on or after january 1 , 2013 , and interim periods within those annual periods . the company currently believes there will be no significant impact of adopting this standard on its consolidated financial statements . in september 2011 , the fasb issued asu no . 2011-09 , compensation-retirement benefits-multiemployer plans ( subtopic 715-80 ) : disclosures about an employer 's participation in a multiemployer plan . this update requires enhanced disclosures in the annual financial statements of employers that participate in multiemployer plans . under the new guidance , employers are required to explain the general nature of multiemployer pension plans and their participation in the plans , including how the plans are different from single-employer plans . in addition , certain disclosures are required in tabular format for each multiemployer plan that is individually significant to an employer 's financial statements . the guidance also requires a description of the nature and effect of any significant changes affecting comparability of the employer 's total contributions from period to period . the asu was adopted by the company in december 2011 and retrospectively applied . there was no impact to the company 's 63 myr group inc. notes to consolidated financial statements ( continued ) 3. recently issued and proposed accounting pronouncements ( continued ) financial position , results of operations or cash flows as the changes related only to additional disclosures . in september 2011 , the fasb issued asu no . 2011-08 , intangibles-goodwill and other ( topic 350 ) : testing goodwill for impairment . this update was intended to simplify how entities test goodwill for impairment . asu 2011-08 permits an entity to first assess qualitative factors to determine whether it is `` more-likely-than-not `` that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in asc 350. the `` more-likely-than-not `` threshold is defined as having a likelihood of more than 50 % . asu 2011-08 was effective for annual and interim goodwill impairment tests performed for reporting periods beginning after december 15 , 2011. the company does not expect the adoption of the provisions of asu 2011-08 in 2012 to have an effect on the company 's financial position , results of operations or cash flows . in january 2010 , the fasb issued asu no . 2010-06 to asc 820 which required new disclosures and clarified existing disclosures about fair value measurement . specifically , this update amends asc 820 to now require : ( a ) a reporting entity to disclose separately the amounts of significant transfers in and out of level 1 and level 2 fair value measurements and to describe the reasons for the transfers ; and ( b ) in the reconciliation for fair value measurements using significant unobservable inputs , a reporting entity should present separately information about purchases , sales , issuances , and settlements . in addition , this update clarifies the requirements of the following existing disclosures : ( a ) for purposes of reporting fair value measurement for each class of assets and liabilities , a reporting entity needs to use judgment in determining the appropriate classes of assets and liabilities ; and ( b ) a reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements . this update became effective for interim and annual reporting periods beginning after december 15 , 2009 , except for the disclosures about purchases , sales , issuances , and settlements in the roll forward of activity in level 3 fair value measurements , which became effective for interim and reporting periods beginning after december 15 , 2010. the adoption of this standard modification did not have an impact on the company 's consolidated financial condition , results of operations or cash flows , and there were no material impacts to the company 's financial statement disclosures . proposed accounting pronouncements in june 2010 , the fasb issued an exposure draft , revenue from contracts with customers , which would supersede most of the existing guidance on revenue recognition in accounting standards codification ( `` asc `` ) topic 605 , revenue recognition . in november 2011 , the fasb re-exposed this draft . as the standard-setting process is still ongoing , the company is unable to determine the impact this proposed change in accounting will have to our consolidated financial statements at this time . in august 2010 , the fasb issued an exposure draft , leases , which would result in significant changes to the accounting requirements for both lessees and lessors in asc topic 840 , leases . story_separator_special_tag million reduction in salary expense due to the one-time elimination of a severance liability as a result of amending the employment agreements of our six executive officers . as a percentage of revenues , selling , general and administrative expenses decreased to 7.3 % for the year ended december 31 , 2011 from 7.5 % for the year ended december 31 , 2010 . 38 gain on sale of property and equipment . gains from the sale of property and equipment increased $ 0.5 million to $ 1.2 million for the year ended december 31 , 2011 from $ 0.7 million for the year ended december 31 , 2010. gains from the sale of property and equipment are the result of routine sales of property and equipment that are no longer useful or valuable to our ongoing operations . interest income . interest income remained consistent with the prior year . interest expense . interest expense decreased to $ 0.5 million for the year ended december 31 , 2011 from $ 1.1 million for the year ended december 31 , 2010 due mainly to the reduction in our average outstanding debt and also due to a decrease in amounts payable to the irs for interest computed under the irs 's look-back method for completed long-term contracts . provision for income taxes . the provision for income taxes was $ 10.8 million for the year ended december 31 , 2011 , with an effective tax rate of 37.0 % , compared to a provision of $ 9.2 million for the year ended december 31 , 2010 , with an effective tax rate of 36.4 % . the increase in our overall effective tax rate for the year ended december 31 , 2011 , was mainly due to the differences in discrete tax adjustment items between the periods . in 2011 there was a reduction of $ 0.1 million from amending prior year returns to include the research and development tax credit . during 2010 there was the recognition of approximately $ 0.3 million in increased state tax benefits and certain federal tax credits upon the completion of our 2009 income tax returns . net income . net income in 2011 increased to $ 18.3 million for the year ended december 31 , 2011 from $ 16.1 million for the year ended december 31 , 2010 for the reasons stated above . segment results the following table sets forth , for the periods indicated , statements of operations data by segment , segment net sales as a percentage of total net sales and segment operating income as a percentage of segment net sales . replace_table_token_10_th transmission & distribution revenues for our t & d segment for the year ended december 31 , 2011 were $ 622.0 million compared to $ 447.5 million for the year ended december 31 , 2010 , an increase of $ 174.5 million or 39.0 % . the increase in revenues was primarily the result of an increase in revenues from several large transmission projects , coupled with an increase in revenues from small transmission projects and an 39 increase in overall distribution revenues . storm work in the distribution market contributed approximately $ 31.1 million to revenues in 2011 , compared to $ 14.4 million in 2010. revenues from transmission projects represented 74.3 % and 67.3 % of t & d segment revenue for the years ended december 31 , 2011 and 2010 , respectively . additionally , for the year ended december 31 , 2011 , measured by revenue in our t & d segment , we provided 49.1 % of our t & d services under fixed-price contracts , as compared to 29.5 % for the year ended december 31 , 2010. operating income for our t & d segment for the year ended december 31 , 2011 was $ 52.1 million compared to $ 36.6 million for the year ended december 31 , 2010 , an increase of approximately $ 15.5 million , or 42.2 % . the increase in operating income in the t & d segment was mainly attributable to an overall increase in revenues . as a percentage of revenues , operating income for our t & d segment increased to 8.4 % for the year ended december 31 , 2011 from 8.2 % for the year ended december 31 , 2010. the increase in operating income , as a percentage of revenues , was mainly due to efficiencies gained in selling , general and administrative functions as our volume increased . these improvements were largely offset by lower margins on a few large t & d contracts caused by increased estimated costs to complete compared to prior estimates and an increase in insurance expense . commercial & industrial revenues for our c & i segment for the year ended december 31 , 2011 were $ 158.4 million compared to $ 149.6 million for the year ended december 31 , 2010 , an increase of $ 8.8 million or 5.8 % . the increase in revenues was due mainly to an increase in revenues derived from several medium-sized projects , partially offset by an overall decrease in revenues from a few large projects . for the year ended december 31 , 2011 , measured by revenue in our c & i segment , we provided 55.2 % of our services under fixed-price contracts , as compared to 32.6 % for the year ended december 31 , 2010. operating income for our c & i segment for the year ended december 31 , 2011 was $ 5.8 million compared to $ 7.1 million for the year ended december 31 , 2010 , a decrease of $ 1.3 million , or 17.7 % . as a percentage of revenues , operating income for our c & i segment decreased to 3.7 % for the year ended december 31 , 2011 from 4.7 % for the year ended december 31 , 2010. the decrease

revolving loans under the credit agreement bear interest , at our option , at either ( 1 ) abr , which is the greatest of the prime rate , the federal funds effective rate plus 0.50 % or the adjusted libo rate plus 1.00 % , plus in each case an applicable margin ranging from 0.00 % to 1.00 % ; or ( 2 ) the adjusted libo rate plus an applicable margin ranging from 1.00 % to 2.00 % . the applicable margin is determined based on our leverage ratio . letters of credit issued under the credit agreement are subject to a letter of credit fee of 1.00 % to 2.00 % , based on our leverage ratio and a fronting fee of 0.125 % . swingline loans will bear interest at the abr rate . we are currently required to pay a 0.2 % commitment fee on the unused portion of the credit facility . subject to certain exceptions , the credit agreement is secured by substantially all of our assets and the assets of all of our subsidiaries and by a pledge of all of the capital stock of our subsidiaries . our subsidiaries also guarantee the repayment of all amounts due under the credit agreement . the credit agreement provides for customary events of default . if an event of default occurs and is continuing , on the terms and subject to the conditions set forth in the credit agreement , amounts outstanding under the credit agreement may be accelerated and may become or be declared immediately due and payable . under the credit agreement , we are subject to certain financial covenants , a leveraged debt ratio and a minimum interest coverage ratio and we were in compliance at december 31 , 2011. the credit agreement also contains a number of covenants including limitations on asset sales , investments , indebtedness and liens . as of december 31 , 2011 , we had $ 10.0 million in revolving loans outstanding under the credit agreement at an interest rate of 1.31 % , and approximately $ 17.2 million in letters of credit outstanding under the facility at an interest rate of 1.13 % . as of december 31 , 2011 , we had $ 147.8 million available for borrowing under the credit agreement . as of december 31 , 2010 , the company had $ 30.0 million outstanding under the 2007 credit agreement at an interest rate of 1.31 % , and a $ 15.0 million letter of credit outstanding under the revolving portion of that facility at an interest rate of 1.13 % . subsequent to december 31 , 2011 , we paid our outstanding revolving debt of $ 10.0 million . off-balance sheet arrangements

fasb guidance allows for qualitative assessments of whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount for purposes of a goodwill impairment analysis and whether it is more likely than not that an indefinite-lived intangible asset is impaired for purposes of an indefinite-lived intangible asset impairment analysis . quantitative analysis must be performed if qualitative analyses are not conclusive . entities also have the option to bypass the assessment of qualitative factors and proceed directly to performing quantitative analyses . we begin our annual tests with quantitative analyses . our impairment tests require us to make assumptions and judgments regarding the estimated fair value of our reporting units , including goodwill and other intangible assets with indefinite lives . estimated fair values developed based on our assumptions and judgments might be significantly different if other reasonable assumptions and estimates were to be used . fair value for purposes of the goodwill impairment test is calculated using a blend of a projected income and market valuation approach . the projected income approach is developed using assumptions about future revenue , expenses and net income derived from our internal planning process . our assumed discount rate is based on our industry 's weighted-average cost of capital and reflects volatility associated with the cost of equity capital . market valuations include market comparisons to publicly traded companies in our industry and are based on observed multiples of certain measures including revenue , ebitda ( earnings before interest , taxes , depreciation and amortization ) and book value of invested capital . a goodwill impairment loss is recognized to the extent that the carrying amount exceeds the asset 's fair value . this determination is made at the reporting unit level and consists of two steps . first , the fair value of a reporting unit is determined and compared to its carrying amount . second , if the carrying amount of a reporting unit exceeds its fair value , an impairment loss is recognized for any excess of the carrying amount of the reporting unit 's goodwill over the implied fair value of that goodwill . the implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation on a business acquisition , at the impairment test date . the fair value of indefinite-lived intangible assets is estimated and compared to the carrying value . we estimate the fair value of indefinite-lived intangible assets using a projected income approach . we recognize an impairment loss when the estimated fair value of indefinite-lived intangible assets is less than the carrying value . if significant impairment indicators are noted relative to other intangible assets subject to amortization , we may be required to record impairment losses against future income . derivative financial instruments : we primarily invest in the following types of derivative financial instruments : interest rate swaps , forward contracts , put and call options , credit default swaps , embedded derivatives , warrants and swaptions . derivatives embedded within non-derivative instruments , such as options embedded in convertible fixed maturity securities , are bifurcated from the host instrument when the embedded derivative is not clearly and closely related to the host instrument . our use of derivatives is limited by statutes and regulations promulgated by the various regulatory bodies to which we are subject , and by our own derivative policy . our derivative use is generally limited to hedging purposes , on an economic basis , and we generally do not use derivative instruments for speculative purposes . we have exposure to economic losses due to interest rate risk arising from changes in the level or volatility of interest rates . we attempt to mitigate our exposure to interest rate risk through active portfolio management , including rebalancing our existing portfolios of assets and liabilities , as well as changing the characteristics of investments to be purchased or sold in the future . in addition , derivative financial instruments are used to modify the interest rate exposure of certain liabilities or forecasted transactions . these strategies include the use of interest rate swaps and forward contracts , which are used to lock-in interest rates or to hedge , on an economic basis , interest rate risks associated with variable rate debt . we have used these types of instruments as designated hedges against specific liabilities . all investments in derivatives are recorded as assets or liabilities at fair value . if certain correlation , hedge effectiveness and risk reduction criteria are met , a derivative may be specifically designated as a hedge of exposure to changes in fair value or cash flow . the accounting for changes in the fair value of a derivative depends on the intended use of the derivative and - 90 - anthem , inc. notes to consolidated financial statements ( continued ) the nature of any hedge designation thereon . amounts excluded from the assessment of hedge effectiveness , if any , as well as the ineffective portion of the gain or loss , are reported in results of operations immediately . if the derivative is not designated as a hedge , the gain or loss resulting from the change in the fair value of the derivative is recognized in results of operations in the period of change . cash flows associated with the settlement of non-designated derivatives are shown on a net basis in investing activity in our consolidated statements of cash flow . from time to time , we may also purchase derivatives to hedge , on an economic basis , our exposure to foreign currency exchange fluctuations associated with the operations of certain of our subsidiaries . we generally use futures or forward contracts for these transactions . story_separator_special_tag however , these membership trends could be negatively impacted by various factors that could have a material adverse effect on our future results of operations such as general economic downturns that result in business failures , failure to obtain new customers or retain existing customers , premium increases , benefit changes or our exit from a specific market . further , our mix of membership may include more individuals with a higher acuity level obtaining coverage through our products available on the public exchanges , which may not be appropriately adjusted for in our premium rates . - 49 - in february 2015 , we reported that we were the target of a sophisticated external cyber attack . the attackers gained unauthorized access to certain of our information technology systems and obtained personal information related to many individuals and employees . we have continued to implement security enhancements since this incident . for additional information about the cyber attack , see note 13 , “ commitments and contingencies - cyber attack incident , ” to our audited consolidated financial statements included in part ii , item 8 of this annual report on form 10-k. also see part i , item 1a “ risk factors ” in this annual report on form 10-k , for a discussion of the factors identified above and other risk factors that could cause actual results to differ materially from those contained in forward-looking statements made in this annual report on form 10-k and presented elsewhere by management from time to time . executive summary we are one of the largest health benefits companies in the united states in terms of medical membership , serving 39.9 medical members through our affiliated health plans as of december 31 , 2016 . we are an independent licensee of the blue cross and blue shield association , or bcbsa , an association of independent health benefit plans . we serve our members as the blue cross licensee for california and as the blue cross and blue shield , or bcbs , licensee for colorado , connecticut , georgia , indiana , kentucky , maine , missouri ( excluding 30 counties in the kansas city area ) , nevada , new hampshire , new york ( as bcbs in 10 new york city metropolitan and surrounding counties , and as blue cross or bcbs in selected upstate counties ) , ohio , virginia ( excluding the northern virginia suburbs of washington , d.c. ) and wisconsin . in a majority of these service areas we do business as anthem blue cross , anthem blue cross and blue shield , blue cross and blue shield of georgia , and empire blue cross blue shield or empire blue cross ( in our new york service areas ) . we also conduct business through arrangements with other bcbs licensees in south carolina and western new york . through our amerigroup corporation , or amerigroup , subsidiary , we conduct business in florida , georgia , iowa , kansas , louisiana , maryland , nevada , new jersey , new mexico , new york , tennessee , texas , and washington . in addition , we conduct business through our simply healthcare holdings , inc. , or simply healthcare , subsidiary in florida . we also serve customers throughout the country as healthlink , unicare ( including a non-risk arrangement with massachusetts ) , and in certain arizona , california , nevada and virginia markets through our caremore health group , inc. , or caremore , subsidiary . we are licensed to conduct insurance operations in all 50 states through our subsidiaries . on january 31 , 2014 , we sold our 1-800 contacts , inc. business and our glasses.com related assets , or collectively , 1-800 contacts . the operating results for 1-800 contacts for the one month ended january 31 , 2014 are reported as discontinued operations within the consolidated statements of income included in part ii , item 8 of this annual report on form 10-k. these results were previously reported in the commercial and specialty business segment . unless otherwise specified , all financial information disclosed in this md & a is from continuing operations , other than net income , diluted earnings per share and cash flows . in accordance with fasb guidance , we have elected to not separately disclose net cash provided by or used in operating , investing , and financing activities and the net effect of those cash flows on cash and cash equivalents for discontinued operations during the periods presented . for additional information regarding these transactions , see note 3 , “ business acquisitions and divestiture - divestiture of 1-800 contacts , `` to our audited consolidated financial statements included in part ii , item 8 of this annual report on form 10-k. operating revenue for the year ended december 31 , 2016 was $ 84,194.0 , an increase of $ 5,789.2 , or 7.4 % , from the year ended december 31 , 2015 . the increase in operating revenue was primarily a result of higher premium revenue in both our government business and commercial and specialty business segments , and , to a lesser extent , increased administrative fees in our commercial and specialty business segment . these increases were partially offset by lower administrative fees in our government business segment . net income for the year ended december 31 , 2016 was $ 2,469.8 , a decrease of $ 90.2 , or 3.5 % , from the year ended december 31 , 2015 . the decrease in net income was primarily due to lower operating results in our government business segment , an increase in transaction costs associated with our pending acquisition of cigna , a decrease in net earnings from investment activities and an increase in interest expense . our diluted earnings per share , or eps , for the year ended december 31 , 2016 was $ 9.21

for additional information related to our borrowing activities , see note 12 , “ debt ” to our audited consolidated financial statements included in part ii , item 8 of this annual report on form 10-k. we calculate our consolidated debt-to-capital ratio , a non-gaap measure , from the amounts presented on our audited consolidated balance sheets included in part ii , item 8 of this annual report on form 10-k. our debt-to-capital ratio is calculated as the sum of short-term borrowings , plus current portion of long-term debt , plus long-term debt , less current - 73 - portion , divided by the sum of short-term borrowings , plus current portion of long-term debt , plus long-term debt , less current portion , plus total shareholders ' equity . we believe our debt-to-capital ratio assists investors and rating agencies in measuring our overall leverage and additional borrowing capacity . in addition , our bank covenants include a maximum debt-to-capital ratio that we can not and did not exceed . our debt-to-capital ratio may not be comparable to similarly titled measures reported by other companies . our consolidated debt-to-capital ratio was 38.5 % and 40.8 % as of december 31 , 2016 and 2015 , respectively . we expect that our pro forma debt-to-capital ratio will approximate 49 % following the closing of the acquisition of cigna , and we are committed to deleveraging to the low 40 % range approximately twenty-four months following the closing . our senior debt is rated “ a ” by standard & poor 's , “ bbb ” by fitch , inc. , “ baa2 ” by moody 's investor service , inc. and “ bbb+ ” by am best company , inc. following the announcement of the merger agreement , each of these rating agencies placed certain of our debt , financial strength and other credit ratings under review for a possible downgrade , however , we intend to maintain our senior debt investment grade ratings . if our credit ratings are downgraded , our business , financial condition and results of operations could be adversely impacted by limitations on future borrowings and a potential increase in our borrowing costs . future sources and uses of liquidity < div

equipment and furniture are depreciated using the straight-line method over their estimated useful lives ( generally three to seven years ) and leasehold improvements are amortized using the straight-line method over the estimated useful life of the asset or the lease term , whichever is shorter . equipment acquired under capital leases is amortized over the estimated useful life of the assets or term of the lease , whichever is shorter and included in depreciation expense . betterments , renewals and extraordinary repairs that extend the lives of the assets are capitalized ; other repairs and maintenance charges are expensed as incurred . the cost and related accumulated depreciation and amortization applicable to assets retired are removed from the accounts , and the gain or loss on disposition is recognized in current operations . intangible assets intangible assets are comprised of patents and trademarks and software development costs . the company capitalizes costs of obtaining patents and trademarks which are amortized , using the straight-line method over their estimated useful life of five years . the company capitalizes certain costs related to software developed for internal use . software development costs incurred during the preliminary or maintenance project stages are expensed as incurred , while costs incurred during the application development stage are capitalized and amortized using the straight-line method over the estimated useful life of the software , which is five years . capitalized costs include purchased materials and costs of services including the valuation of warrants issued to consultants . long-lived assets if indicators of impairment exist , we assess the recoverability of the affected long-lived assets by determining whether the carrying value of such assets can be recovered through undiscounted future operating f-11 cash flows . if impairment is indicated , we measure the amount of such impairment by comparing the fair value to the carrying value . we believe the future cash flows to be received from the long-lived assets will exceed the assets ' carrying value , and accordingly , we have not recognized any impairment losses through march 31 , 2012. deferred financing costs deferred financing costs represent costs incurred in connection with the issuance of the convertible notes payable and private equity financing . deferred financing costs related to the issuance of debt are being amortized over the term of the financing instrument using the effective interest method while deferred financing costs from equity financings are netted against the gross proceeds received from the equity financings . during the year ended march 31 , 2012 , the company incurred $ 572,255 of offering costs in connection with the private placement that closed in february and march 2012 , which were charged to additional paid-in capital and netted against the proceeds received in the private placements . as of march 31 , 2012 , offering costs of $ 78,480 related to the private placement were included in accounts payable and accrued expenses in the accompanying consolidated balance sheet . during the year ended march 31 , 2011 , the company incurred $ 465,023 of offering costs in connection with the private placement that closed in august and october 2010 and $ 1,311,582 of offering costs from the private placement that closed in february 2011 ; both of which were charged to additional paid-in capital and netted against the proceeds received in the private placements . during the year ended march 31 , 2012 , the company made payments of $ 158,270 for offering costs and financing fees related to the february 2011 private placement of which $ 121,727 is included in accounts payable and accrued expenses as of march 31 , 2011 in the accompanying consolidated balance sheet . convertible debentures if a conversion feature of conventional convertible debt is not accounted for as a derivative instrument and provides for a rate of conversion that is below market value , this feature is characterized as a beneficial conversion feature ( “bcf” ) . a bcf is recorded by the company as a debt discount . the convertible debt is recorded net of the discount related to the bcf . the company amortizes the discount to interest expense over the life of the debt using the effective interest rate method . derivative liabilities certain of the company 's issued and outstanding common stock purchase warrants which have exercise price reset features are treated as derivatives for accounting purposes . the common stock purchase warrants were not issued with the intent of effectively hedging any future cash flow , fair value of any asset , liability or any net investment in a foreign operation . the warrants do not qualify for hedge accounting , and as such , all future changes in the fair value of these warrants are recognized currently in earnings until such time as the warrants are exercised , expire or the related rights have been waived . these common stock purchase warrants do not trade in an active securities market , and as such , the company estimates the fair value of these warrants using the black-scholes option pricing model ( “black-scholes” ) ( see note 9 ) . commitments and contingencies the company is subject to routine claims and litigation incidental to our business . in the opinion of management , the resolution of such claims is not expected to have a material adverse effect on our operating results or financial position . income taxes the company accounts for income taxes under the provision of the financial accounting standards board ( “fasb” ) accounting standards codification ( “asc” ) 740 , income taxes , or asc 740. the company is a f-12 subchapter “c” corporation and files a federal income tax return . the company files state income tax returns in california . story_separator_special_tag at the culmination of the customer 's shipping cycle , the container is returned to the company . as a result of our current business plan , during fiscal year 2010 , the company reclassified the containers from inventory to fixed assets upon commencement of the loaned-container program . the company 's current inventory consists of accessories that are sold and shipped to customers along with loaned containers and not returned to the company with the containers at the culmination of the customer 's shipping cycle . property and equipment property and equipment are stated at cost , net of accumulated depreciation and amortization . depreciation and amortization of fixed assets are provided using the straight-line method over the following useful lives : cryogenic shippers 3 years furniture and fixtures 7 years machinery and equipment 5-7 years leasehold improvements lesser of lease term or estimated useful life betterments , renewals and extraordinary repairs that extend the lives of the assets are capitalized ; other repairs and maintenance charges are expensed as incurred . the cost and related accumulated depreciation and amortization applicable to assets retired are removed from the accounts , and the gain or loss on disposition is recognized in current operations . intangible assets intangible assets comprise patents and trademarks and software development costs . the company capitalizes costs of obtaining patents and trademarks which are amortized , using the straight-line method over their estimated useful life of five years . the company capitalizes certain costs related to software developed for internal use . software development costs incurred during the preliminary or maintenance project stages are expensed as incurred , while costs incurred during the application development stage are capitalized and amortized using the straight-line method over the estimated useful life of the software , which is five years . capitalized costs include purchased materials and costs of services including the valuation of warrants issued to consultants . long-lived assets the company assesses the recoverability of its long-lived assets by determining whether the depreciation and amortization of long-lived assets over their remaining lives can be recovered through projected undiscounted cash flows . the amount of long-lived asset impairment is measured based on fair value and is charged to operations in the period in which long-lived asset impairment is determined by management . manufacturing fixed assets are subject to obsolescence potential as result of changes in customer demands , manufacturing process changes and changes in materials used . the company is not currently aware of any such changes that would cause impairment to the value of its manufacturing fixed assets . 28 stock-based compensation we recognize compensation costs for all stock-based awards made to employees and directors . the fair value of stock-based awards is estimated at grant date using an option pricing model and the portion that is ultimately expected to vest is recognized as compensation cost over the requisite service period . we use the black-scholes option-pricing model to estimate the fair value of stock-based awards . the determination of fair value using the black-scholes option-pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables , including expected stock price volatility , risk-free interest rate , expected dividends and projected employee stock option exercise behaviors . we estimate the expected term based on the contractual term of the awards and employees ' exercise and expected post-vesting termination behavior . at march 31 , 2012 , there was $ 306,600 of total unrecognized compensation cost related to non-vested stock options , which is expected to be recognized over a remaining weighted average vesting period of 2.35 years . derivative liabilities our issued and outstanding common stock purchase warrants and embedded conversion features previously treated as equity pursuant to the derivative treatment exemption were no longer afforded equity treatment , and the fair value of these common stock purchase warrants and embedded conversion features , some of which have exercise price reset features and some that were issued with convertible debt , from equity to liability status as if these warrants were treated as a derivative liability since their date of issue . the common stock purchase warrants were not issued with the intent of effectively hedging any future cash flow , fair value of any asset , liability or any net investment in a foreign operation . the warrants do not qualify for hedge accounting , and as such , all future changes in the fair value of these warrants will be recognized currently in earnings until such time as the warrants are exercised or expire . these common stock purchase warrants do not trade in an active securities market , and as such , we estimate the fair value of these warrants using the black-scholes option pricing model . convertible debentures if a conversion feature of conventional convertible debt is not accounted for as a derivative instrument and provides for a rate of conversion that is below market value , this feature is characterized as a beneficial conversion feature ( “bcf” ) . a bcf is recorded by the company as a debt discount . in those circumstances , the convertible debt will be recorded net of the discount related to the bcf . the company amortizes the discount to interest expense over the life of the debt using the effective interest method . deferred financing costs deferred financing costs represent costs incurred in connection with the issuance of the convertible notes payable and private equity financing . deferred financing costs are being amortized over the term of the financing instrument on a straight-line basis , which approximates the effective interest method or netted against the gross proceeds received from equity financing . income taxes we account for income taxes under the provision of the financial accounting standards board ( “fasb” ) accounting standards codification ( “asc” ) 740 , income taxes , or asc 740. as of march 31 , 2012 and 2011 , there were

contractual obligations the following table summarizes our contractual obligations as of march 31 , 2012 , and the effects such obligations are expected to have on liquidity and cash flow in future periods ( in thousands ) : replace_table_token_6_th impact of inflation . from time to time , cryoport experiences price increases from third party manufacturers and these increases can not always be passed on to cryoport 's customers . while these price increases have not had a material impact on cryoport 's historical operations or profitability in the past , they could affect revenues in the future . critical accounting policies and estimates management 's discussion and analysis of financial condition and results of operations , as well as disclosures included elsewhere in this annual report , are based upon our consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles . our significant accounting policies are described in the notes to the audited consolidated financial statements contained elsewhere in this annual report . included within these policies are our “critical accounting policies.” critical accounting policies are those policies that are most important to the preparation of our consolidated financial statements and require management 's most subjective and complex judgment due to the need to make estimates about matters that are inherently uncertain . although we believe that our estimates and assumptions are reasonable , actual results may differ significantly from these estimates . changes in estimates and assumptions based upon actual results may have a material impact on our results of operations and or financial condition . we believe that the critical accounting policies that most impact the consolidated financial statements are as described below . revenue recognition per use revenues we recognize revenues from product sales when there is persuasive evidence that an arrangement exists , when title has passed , the price is fixed or determinable , and we are reasonably assured of collecting the resulting receivable . the company records a provision for claims based upon historical experience . actual claims in any future period may differ from the company 's estimates . during its early years , the company 's limited revenue was derived from the sale of our reusable product line . the company 's current business plan focuses on per-use leasing of the shipping container and value-added services that will be used by us to provide an end-to-end and cost-optimized shipping solution . 27 the company provides shipping containers to their customers and charges a fee in exchange for the use of the container . the company ' arrangements are similar to the accounting standard for leases since they convey the right to use the containers over a

therefore , asu 2016-13 will be effective for the company 's fiscal year beginning on october 1 , 2020 , using a modified retrospective approach . the company is currently assessing the impact this asu will have on the company 's financial statements . asu 2016-09 — in march 2016 , the fasb issued asu 2016-09 , improvements to employee share-based payment accounting . the guidance in asu 2016-09 simplifies several aspects of the accounting for share-based payment transactions , including : ( 1 ) all excess tax benefits and tax deficiencies should be recognized as income tax expense or benefit in the income statement ; ( 2 ) tax effects of exercised or vested awards should be treated as discrete items in the period in which they occur ; ( 3 ) excess tax benefits should be recognized regardless of whether the benefit reduces taxes payable in the current period ; ( 4 ) excess tax benefits should be classified along with other income tax cash flows as an operating activity ; ( 5 ) an entity can make an accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur ; ( 6 ) the threshold to qualify for equity classification will permit withholding up to the maximum statutory rates in the applicable jurisdictions ; and ( 7 ) cash paid by an employer when directly withholding shares for tax withholding purposes should be classified as a financing activity in the statement of cash flows . the transition requirements are dependent upon each amendment within this update and will be applied either prospectively , retrospectively or using a modified retrospective transition method . asu 2016-09 is effective for annual periods beginning after december 15 , 2016 and interim periods within those annual periods , with early adoption permitted . therefore , asu 2016-09 will be effective for the company 's fiscal year beginning october 1 , 2017. the impact of asu 2016-09 could be material to the company 's results of operations in future periods depending upon , among other things , the level of earnings and market price of the company 's common stock . asu 2016-02 — in february 2016 , the fasb issued asu 2016-02 , leases . this asu will supersede the guidance in accounting standards codification ( `` asc `` ) topic 840 , leases . under asu 2016-02 , for lease arrangements exceeding a 12-month term , a lessee will be required to recognize in the statement of financial position a liability to make lease payments ( the lease liability ) and a right-of-use asset representing its right to use the underlying asset for the lease term . asu 2016-02 will retain a distinction between finance and operating leases ; however , the principal difference from the previous guidance is that lease assets and liabilities arising from operating leases will be recognized in the statement of financial position . the recognition , measurement and presentation of expenses and cash flows arising from a lease by a lessee will not significantly change from current gaap . the accounting applied by a lessor will be largely unchanged from that applied under current gaap . asu 2016-02 is effective for fiscal years beginning after december 15 , 2018 , including interim periods within those fiscal years , and will require an entity to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach . therefore , asu 2016-02 will be effective for the company 's fiscal year beginning october 1 , 2019. early adoption is permitted . the company is currently assessing the impact this asu will have on the company 's financial statements . asu 2014-09 — in may 2014 , the fasb issued asu 2014-09 , revenue from contracts with customers , to clarify the principles of recognizing revenue from contracts with customers and to improve financial reporting by creating common revenue recognition guidance for u.s. gaap and international financial reporting standards . this asu will supersede the revenue recognition requirements in asc topic 605 , revenue recognition , and most industry-specific guidance . entities are required to apply the following steps when recognizing revenue under asu 2014-09 : ( 1 ) identify the contract ( s ) 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 ) the entity satisfies a performance obligation . this asu also requires additional disclosures related to the nature , amount , timing and uncertainty of revenue and cash flows arising from customer contracts . an entity may apply the amendments by using one of the following two methods : ( 1 ) retrospective application to each prior reporting period presented or ( 2 ) a modified retrospective approach , requiring the standard be applied only to the most current period presented , with the cumulative effect of initially applying the standard recognized at the date of initial application . asu 2014-09 is effective for annual reporting periods beginning after december 15 , 2017 , including interim periods within that reporting period . therefore , asu 2014-09 will be effective for the company 's fiscal year beginning october 1 , 2018. early adoption is permitted for annual reporting periods beginning after december 15 , 2016 . 60 td ameritrade holding corporation notes to consolidated financial statements — ( continued ) subsequent to issuing asu 2014-09 , the fasb issued the following standards for the purpose of clarifying certain aspects of asu 2014-09 : asu 2016-08 , principal versus agent considerations ( reporting revenue gross versus net ) ; asu 2016-10 , identifying performance obligations and licensing ; and asu 2016-12 , narrow-scope improvements and practical expedients . story_separator_special_tag significant judgment is required in making these estimates , and the actual cost of resolving a matter may ultimately differ materially from the amount accrued . 32 valuation of guarantees we enter into guarantees in the ordinary course of business , primarily to meet the needs of our clients and to manage our asset-based revenues . we record a liability for the estimated fair value of the guarantee at its inception . if actual results differ significantly from these estimates , our results of operations could be materially affected . for further details regarding our guarantees , see the following sections under item 8 , financial statements and supplementary data — notes to consolidated financial statements : `` guarantees `` under note 13 — commitments and contingencies and `` insured deposit account agreement `` under note 19 — related party transactions . results of operations conditions in the u.s. equity markets significantly impact the volume of our clients ' trading activity . there is a strong relationship between the volume of our clients ' trading activity and our results of operations . we can not predict future trading volumes in the u.s. equity markets . if client trading activity increases , we generally expect that it would have a positive impact on our results of operations . if client trading activity declines , we expect that it would have a negative impact on our results of operations . changes in average balances , especially client insured deposit account , margin , credit and mutual fund balances , may significantly impact our results of operations . changes in interest rates also significantly impact our results of operations . we seek to mitigate interest rate risk by aligning the average duration of our interest-earning assets with that of our interest-bearing liabilities . we can not predict the direction of interest rates or the levels of client balances . if interest rates rise , we generally expect to earn a larger net interest spread . conversely , a falling interest rate environment generally would result in our earning a smaller net interest spread . financial performance metrics net income , diluted earnings per share and ebitda are key metrics we use in evaluating our financial performance . net income and diluted earnings per share are gaap financial measures and ebitda is a non-gaap financial measure . we consider ebitda to be an important measure of our financial performance and of our ability to generate cash flows to service debt , fund capital expenditures and fund other corporate investing and financing activities . ebitda is used as the denominator in the consolidated leverage ratio calculation for covenant purposes under our senior revolving credit facility . ebitda eliminates the non-cash effect of tangible asset depreciation and amortization and intangible asset amortization . ebitda should be considered in addition to , rather than as a substitute for , pre-tax income , net income and cash flows from operating activities . the following table sets forth net income in dollars and as a percentage of net revenues for the periods indicated , and provides reconciliations to ebitda ( dollars in millions ) : replace_table_token_7_th fiscal year ended september 30 , 2016 compared to fiscal year ended september 30 , 2015 our net income increased 4 % for fiscal 2016 compared to fiscal 2015 , primarily due to an increase in net revenues and a lower effective tax rate , partially offset by an increase in operating expenses and interest on borrowings 33 during fiscal 2016 and a $ 7 million gain on sale of investments during the prior year . detailed analysis of net revenues and expenses is presented later in this discussion . our ebitda decreased 1 % for fiscal 2016 compared to fiscal 2015 , primarily due to an increase in operating expenses excluding depreciation and amortization during fiscal 2016 and a $ 7 million gain on sale of investments during the prior year , partially offset by an increase in net revenues . our diluted earnings per share increased 6 % to $ 1.58 for fiscal 2016 compared to $ 1.49 for fiscal 2015 , primarily due to higher net income and a 2 % decrease in average diluted shares outstanding as a result of our stock repurchase programs . based on our expectations for net revenues and expenses , we expect diluted earnings per share to range from $ 1.50 to $ 1.80 for fiscal year 2017 , depending largely on the level of client trading activity , client asset growth and the level of interest rates . details regarding our fiscal year 2017 expectations for net revenues and expenses are presented later in this discussion . fiscal year ended september 30 , 2015 compared to fiscal year ended september 30 , 2014 our net income increased 3 % for fiscal 2015 compared to fiscal 2014 , primarily due to an increase in net revenues and a lower effective tax rate , partially offset by an increase in operating expenses and interest on borrowings . our ebitda increased 2 % for fiscal 2015 compared to fiscal 2014 , primarily due to an increase in net revenues , partially offset by an increase in operating expenses excluding depreciation and amortization . our diluted earnings per share increased 5 % to $ 1.49 for fiscal 2015 compared to $ 1.42 for fiscal 2014 , primarily due to higher net income and a 1 % decrease in average diluted shares outstanding as a result of our stock repurchase programs . operating metrics our largest sources of revenues are asset-based revenues and transaction-based revenues . for fiscal 2016 , asset-based revenues and transaction-based revenues accounted for 57 % and 41 % of our net revenues , respectively . asset-based revenues consist of ( 1 ) insured deposit account fees , ( 2 ) net interest revenue and ( 3 ) investment product fees . the primary factors driving our asset-based revenues are average balances and average rates

td ameritrade futures & forex llc ( `` tdaff '' ) , our fcm and fdm subsidiary , must provide notice to the cftc if its adjusted net capital amounts to less than ( a ) 110 % of its risk-based capital requirement under cftc regulation 1.17 , ( b ) 150 % of its $ 1.0 million minimum dollar requirement , or ( c ) 110 % of $ 20.0 million plus 5 % of all liabilities owed to forex clients in excess of $ 10.0 million . these broker-dealer , fcm and fdm net capital thresholds , which are specified in rule 17a-11 under the exchange act and cftc regulations 1.12 and 5.6 , are typically referred to as `` early warning '' net capital thresholds . the following tables summarize our broker-dealer and fcm/fdm subsidiaries net capital and adjusted net capital , respectively , as of september 30 , 2016 ( dollars in millions ) : net capital early warning threshold net capital in excess of early warning threshold td ameritrade clearing , inc. $ 1,719 $ 720 $ 999 td ameritrade , inc. $ 139 $ 0.3 $ 138 adjusted net capital early warning threshold adjusted net capital in excess of early warning threshold td ameritrade futures & forex llc $ 117 $ 24 $ < td

( 25 ) 21.1 * subsidiaries of ares commercial real estate corporation 23.1 * consent of ernst & young llp 31.1 * certification of chief executive officer pursuant to rule 13a-14 ( a ) and rule 15d-14 ( a ) , as adopted pursuant to section 302 of the sarbanes-oxley act of 2002 92 exhibit number exhibit description 31.2 * certification of chief financial officer pursuant to rule 13a-14 ( a ) and rule 15d-14 ( a ) , as adopted pursuant to section 302 of the sarbanes-oxley act of 2002 32.1 * certification of chief executive officers and chief financial officer pursuant to 18 u.s.c . section 1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 101.ins * xbrl instance document 101.sch * xbrl taxonomy extension schema document 101.cal * xbrl taxonomy extension calculation linkbase document 101.lab * xbrl taxonomy extension label linkbase document 101.pre * xbrl taxonomy extension presentation linkbase document 101.def * xbrl taxonomy extension definition linkbase document * filed herewith ( 1 ) incorporated by reference to exhibits 3.1 , 3.2 and 10.1 , as applicable , to the company 's form s-8 ( file no . 333-181077 ) , filed on may 1 , 2012 . ( 2 ) incorporated by reference to exhibit 4.1 to the company 's form 8-k ( file no . 001-35517 ) , filed on december 19 , 2012 . ( 3 ) incorporated by reference to exhibits 10.1 , 10.3 , 10.4 and 10.5 , as applicable , to the company 's form 8-k ( file no . 001-35517 ) , filed on may 4 , 2012 . ( 4 ) incorporated by reference to exhibit 10.4 to the company 's registration statement on amendment no . 3 to form s-11/a ( file no . 333-176841 ) , filed on april 12 , 2012 . ( 5 ) incorporated by reference to exhibits 10.1 and 10.2 , as applicable to the company 's form 8-k ( file no . 001-35517 ) , filed on may 24 , 2012 . ( 6 ) incorporated by reference to exhibit 10.1 to the company 's form 10-q for the period ending september 30 , 2012 ( file no . 001-35517 ) , filed on november 7 , 2012 . ( 7 ) incorporated by reference to exhibit 2.1 to the company 's form 8-k ( file no . 001-35517 ) , filed on may 15 , 2013 . ( 8 ) incorporated by reference to exhibit 10.1 to the company 's form 8-k ( file no . 001-35517 ) , filed on july 30 , 2013 . ( 9 ) incorporated by reference to exhibits 10.1 and 10.2 , as applicable , to the company 's form 8-k ( file no . 001-35517 ) , filed on august 30 , 2013 . ( 10 ) incorporated by reference to exhibit 10.7 to the company 's form 10-q ( file no . 001-35517 ) , filed on november 13 , 2013 . ( 11 ) incorporated by reference to exhibits 10.6 and 10.7 to the company 's form 8-k ( file no . 001-35517 ) , filed on september 6 , 2013 . ( 12 ) incorporated by reference to exhibits 10.1 and 10.2 , as applicable , to the company 's form 8-k ( file no . 001-35517 ) , filed on november 25 , 2013 . ( 13 ) incorporated by reference to exhibit 10.10 , 10.11 , 10.12 , 10.13 , 10.14 , 10.15 , 10.17 and 10.18 to the company 's form 10-k ( file no . 001-35517 ) , filed on march 17 , 2014 . 93 ( 14 ) incorporated by reference to exhibit 10.1 to the company 's form 8-k ( file no . 001-35517 ) , filed on january 31 , 2014 . ( 15 ) incorporated by reference to exhibits 10.1 , 10.2 , 10.3 and 10.4 , as applicable , to the company 's form 8-k ( file no . 001-35517 ) , filed on march 14 , 2014 . ( 16 ) incorporated by reference to exhibit 10.1 to the company 's form 8-k ( file no . 001-35517 ) , filed on april 2 , 2014 . ( 17 ) incorporated by reference to exhibits 10.1 and 10.2 , as applicable , to the company 's form 8-k ( file no . 001-35517 ) , filed on april 15 , 2014 . ( 18 ) incorporated by reference to exhibit 10.1 to the company 's form 8-k ( file no . 001-35517 ) , filed on may 6 , 2014 . ( 19 ) incorporated by reference to exhibits 10.1 and 10.2 , as applicable , to the company 's form 8-k ( file no . 001-35517 ) , filed on june 3 , 2014 . ( 20 ) incorporated by reference to exhibits 10.1 , 10.2 , 10.3 , 10.4 and 10.6 , as applicable , to the company 's form 8-k ( file no . 001-35517 ) , filed on july 31 , 2014 . ( 21 ) incorporated by reference to exhibits 10.1 and 10.2 , as applicable , to the company 's form 8-k ( file no . 001-35517 ) , filed on august 18 , 2014 . ( 22 ) incorporated by reference to exhibits 10.1 and 10.2 , as applicable , to the company 's form 8-k ( file no . 001-35517 ) , filed on august 19 , 2014 . ( 23 ) incorporated by reference to exhibit 10.1 to the company 's form 8-k ( file no . 001-35517 ) , filed on december 1 , 2014 . ( 24 ) incorporated by reference to exhibits 10.1 and 10.2 , as applicable , to the company 's form 8-k ( file no . 001-35517 ) , filed on december 12 , 2014 . story_separator_special_tag the loan has an interest rate of libor + 5.0 % ( plus origination and exit fees ) subject to a 0.25 % libor floor and a term of two years . effective january 1 , 2015 , our manager transferred primary servicing of our investments to acre capital . our manager will specially service , as needed , certain of our investments . on january 20 , 2015 , and january 28 , 2015 , we transferred $ 3.9 million and $ 1.8 million , respectively , of the $ 170.0 million preferred equity investment to third party institutional investors . as of march 5 , 2015 , our controlling financial interest in acrc ka is 51.0 % and the third party institutional investors own the remaining 49.0 % . on february 27 , 2015 , the agreement governing the baml line of credit was amended to , among other things , increase the aggregate commitment to $ 135.0 million and extend the maturity date to june 30 , 2016. as of march 2 , 2015 , we expect to have approximately $ 64 million in capital , either in cash or in approved but undrawn capacity under our financing facilities . after holding in reserve $ 10 million in liquidity requirements , we expect to have approximately $ 54 million in capital available to fund additional loans , outstanding commitments on our existing loans and for other working capital purposes . assuming that we use such amount as capital to make new investments and leverage such amount under our facilities at a debt-to-equity ratio in the range of 2:1 to 3:1 , we have the capacity to fund $ 160 million to $ 215 million of additional senior loan investments . as of march 2 , 2015 , the total unfunded commitments for our existing loans held for investment were approximately $ 150 million . in addition , borrowings under our financing facilities were approximately $ 515 million ( excluding warehouse lines of credit in connection with our mortgage banking segment ) , debt issued in the form of commercial mortgage-backed securities was approximately $ 182 million , debt issued in the form of clos was approximately $ 257 million and debt issued in the form of convertible senior notes was approximately $ 69 million . on march 5 , 2015 , we declared a cash dividend of $ 0.25 per common share for the first quarter of 2015. the first quarter 2015 dividend is payable on april 15 , 2015 to common stockholders of record as of march 31 , 2015 . 73 results of operations the following table sets forth consolidated results of operations for the years ended december 31 , 2014 , 2013 and 2012 ( $ in thousands ) : replace_table_token_6_th 74 2014 to 2013 net interest margin for the years ended december 31 , 2014 and 2013 , we earned approximately $ 36.9 million and $ 22.6 million in net interest margin , respectively . for the years ended december 31 , 2014 and 2013 , interest income from loans held for investment of $ 70.5 million and $ 37.6 million , respectively , was generated by weighted average earning assets of $ 1.2 billion and $ 555.0 million , respectively , offset by $ 33.6 million and $ 15.0 million , respectively , of interest expense , unused fees and amortization of deferred loan costs . the weighted average borrowings under our secured funding agreements , securitization debt and convertible notes were $ 888.3 million and $ 315.0 million for the years ended december 31 , 2014 and 2013 , respectively . the increase in net interest margin for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 primarily relates to the increase in the number of loans held for investment from 33 loans to 46 loans as of december 31 , 2014. mortgage banking revenue for the years ended december 31 , 2014 and 2013 , we earned approximately $ 16.4 million and $ 5.8 million in net servicing fees . servicing fees include fees earned for all activities related to servicing acre capital 's loans , the net fees earned on borrower prepayment penalties and interest earned on borrowers ' escrow payments and interim cash balances , along with other ancillary fees and reduced by write-offs of msrs for loans that are prepaid , changes in the fair value of the servicing fee payable and interest expense related to escrow accounts . for the years ended december 31 , 2014 and 2013 , we earned approximately $ 17.5 million and $ 5.0 million in net gains from mortgage banking activities , respectively . gains from mortgage banking activities includes the initial fair value of msrs , loan origination fees , gain on the sale of loans , interest income on loans held for sale , changes to the fair value of derivative financial instruments , including loan commitments and forward sale commitments and reduced by the expense related to the initial fair value of the servicing fee payable and interest expense related to our warehouse lines of credit . the increase in mortgage banking revenue for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 primarily relates to only four months of operations for acre capital being included in the consolidated statements of operations for the year ended december 31 , 2013 compared to one year of operations for the year ended december 31 , 2014. in addition , acre capital rate-locked 36 loans totaling $ 496.6 million in commitments for the year ended december 31 , 2014 compared to 20 loans totaling $ 131.3 million in commitments for the year ended december 31 , 2013 , which resulted in increased mortgage banking revenue for the year ended december 31 , 2014. operating expenses for the years ended december 31 , 2014 and 2013 , we

for the year ended december 31 , 2013 , adjustments to net income related to operating activities primarily included originations of mortgage loans held for sale of $ 84.2 million , sale of mortgage loans held for sale to third parties of $ 102.4 million , gain on acquisition of $ 4.4 million , changes in the fair value of msrs of $ 2.7 million , and change in other assets of $ 4.4 million . for the year ended december 31 , 2012 , adjustments to net income related to operating activities primarily included stock-based compensation of $ 338 thousand , accretion of deferred loan origination fees and costs of $ 400 thousand , amortization of deferred financing costs of $ 698 thousand and $ 97 thousand of change in fair value of derivatives . net cash used in investing activities for the years ended december 31 , 2013 and 2012 totaled $ 745.7 million and $ 348.2 million , respectively . this change related primarily to the origination of new loans held for investment , origination of a loan held for sale , and cash used to acquire acre capital . net cash provided by financing activities for year ended december 31 , 2013 totaled $ 717.0 million and related primarily to proceeds from our secured funding agreements of $ 703.2 million , proceeds 79 from issuance of debt of consolidated vies of $ 395.0 million , and proceeds from the sale of common stock of $ 250.7 million , partially offset by repayments of our secured funding agreements of $ 583.0 million and repayments of our warehouse lines of credit of $ 112.1 million . net cash provided by financing activities for the year ended december 31 , 2012 totaled $ 368.4 million and related primarily to proceeds from our ipo , proceeds from the offering of the 2015 convertible notes , and proceeds from our secured funding agreements . summary of financing facilities the sources of financing under our financing facilities that are used to fund our target investments are described in the following table : replace_table_token_9_th ( 1 ) these facilities are subject to two 12-month extensions at our option , provided that certain conditions are met and applicable extension fees are paid . the wells fargo facility was subject to three 12-month extensions as of december 31 , 2013 . ( 2 ) the maturity date of each individual loan is the same as the maturity date of the underlying loan that secures such individual loan . ( 3 ) the december 2014 citibank facility is subject to three 12-month extensions at our option , provided that certain conditions are met and applicable extension fees are paid . ( 4 ) the cnb facilities are subject to one 12-month extension at our option , provided that certain

in determining whether to report the results of operations , impairment and or gain on sale of operating properties as discontinued operations , we evaluate whether we have any significant continuing involvement in the operations , leasing or management of the property after disposition . if we determine that we have significant continuing involvement after disposition , we report the revenue , expenses , impairment and or gain on sale as part of continuing operations . held for sale assets we classify properties as held for sale when certain criteria set forth in the long-lived assets classified as held for sale subsections of asc topic 360 : property , plant , and equipment , are met . at that time , the assets and liabilities of the property held for sale are presented separately in the consolidated and combined balance sheets and we cease recording depreciation and amortization expense at the time a property is classified as held for sale . properties held for sale are reported at the lower of their carrying value or their estimated fair value , less estimated costs to sell . f-8 investment in real estate acquisitions when we acquire operating properties , with the intention to hold the investment for the long-term , we allocate the purchase price to the various components of the acquisition based upon the fair value of each component . the components typically include land , building and improvements , intangible assets related to above and below market leases , intangible assets related to in-place leases , debt and other assum ed assets and liabilities . the initial allocation of the purchase price is based on management 's preliminary assessment , which may differ when final information becomes available . subsequent adjustments made to the initial purchase price allocation are made within the allocation period , which typically does not exceed one year . we allocate the purchase price to the fair value of the tangible assets by valuing the property as if it were vacant . we consider level 3 inputs such as the replacement cost of such assets , appraisals , property condition reports , comparable market rental data and other related information . in determining the fair value of intangible lease assets or liabilities , we consider level 3 inputs including the value associated with leasing commissions , legal and other costs , as well as the estimated period necessary to lease such property and lease commencement . acquired above and below market leases are valued based on the present value of the difference between prevailing market rates and th e in-place rates measured over a period equal to the remaining term of the lease for above market leases and the initial term plus the term of any below market fixed rate renewal options for below market leases , if applicable . the estimated fair value of acquired in-place at-market tenant leases are the costs that would have been incurred to lease the property to the occupancy level of the property at the date of acquisition . such estimates include the fair value of leasing commissions and legal costs that would be incurred to lease the property to this occupancy level . the difference between the fair value and the face value of debt assumed in connection with an acquisition is recorded as a premium or discount and amortized to “ interest expense ” over the life of the debt assumed . the valuation of assumed liabilities is based on our estimate of the current market rates for similar liabilities in effect at the acquisition date . for acquisitions that do not meet the accounting criteria to be accounted for as a business combination , we record to land and building the purchase price paid and capitalize the associated acquisition costs . during the period from july 24 , 2013 through december 31 , 2013 , we capitalized $ 154,000 in acquisition costs , related to our a cquisition of 2900 n. madera road . capitalization of costs we capitalize costs incurred in developing , renovating , rehabilitating , and improving real estate assets as part of the investment basis . costs incurred in making repairs and maintaining real estate assets are expensed as incurred . during the land development and construction periods , we capitalize insurance , real estate taxes and certain general and administrative costs of the personnel performing development , renovations , and rehabilitation if such costs are incremental and identifiable to a specific activity to get the asset ready for its intended use . capitalized costs are included in the investment basis of real estate assets . our estimate of the useful life of our assets is evaluated upon acquisition and when circumstances indicate a change in the useful life , which requires significant judgment regarding the economic obsolescence of tangible and intangible assets . depreciation and amortization real estate , including land , building and land improvements , tenant improvements , and furniture , fixtures and equipment , leasing costs and intangible lease assets and liabilities are stated at historical cost less accumulated depreciation and amortization , unless circumstances indicate that the cost can not be recovered , in which case , the carrying value of the property is reduced to estimated fair value as discussed below in our policy with regards to impairment of long-lived assets . we estimate the depreci able portion of our real estate assets and related useful lives in order to record depreciation expense . our ability to estimate the depreciable portions of our real estate assets and useful lives is critical to the determination of the appropriate amount of depreciation and amortization expense recorded and the carrying value of the underlying assets . any change to the assets to be depreciated and the estimated depreciable lives of these assets would have an impact on the depreciation expense recognized . story_separator_special_tag tenant reimbursements our same properties portfolio and total portfolio tenant reimbursements revenue increased $ 0.4 million , or 15.2 % , and $ 1.4 million or 48.1 % , respectively , for the year ended december 31 , 2013 compared to the year ended december 31 , 2012. the increase in our same properties portfolio is primarily due to the increase in our average occupancy for comparable periods . the total portfolio tenant reimbursement revenue was also positively impacted by reimbursement revenues from the 15 properties we acquired during 2012 and 2013 and the consolidation of our la jolla sorrento property that was acquired as part our formation transaction . management , leasing and development services total portfolio management , leasing , and development services revenue increased $ 0.5 million or 88.8 % for the year ended december 31 , 2013 compared to the year ended december 31 , 2012 , due to additional management fee revenues from the properties that our jv acquired in june 2012. there are no management , leasing and development fees allocable to the same properties portfolio . other operating income our same properties portfolio and total portfolio other operating income increased $ 0.2 million for the year ended december 31 , 2013 compared to the year ended december 31 , 2012 , primarily due to receipt of construction easement income at one of our properties . property expenses same properties portfolio and total portfolio property expenses as a percentage of total rental revenues decreased to 23.6 % and 23.7 % respectively , for the year ended december 31 , 2013 from 25.4 % and 25.3 % , respectively , during the year ended december 31 , 2012 , due to operational efficiencies resulting in a decrease to our fixed costs , primarily real estate taxes and property insurance , as a percentage of rental revenues . total portfolio property expenses increased by $ 2.3 million as a result of incremental expenses from the 15 properties we acquired during 2012 and 2013 and the consolidation of our la jolla sorrento property that was acquired as part our formation transactions . general and administrative total portfolio general and admin istrative expenses increased $ 4.6 million , or 89.4 % , for the year ended december 31 , 2013 compared to the year ended december 31 , 2012. this is primarily due to a $ 1.2 million cumulative year-to-date non-cash equity compensation charge for rexford industrial realty , inc. predecessor and rexford industrial realty , inc. , in the amount of $ 0.9 million and $ 0.3 million , respectively , $ 0.5 million additional fees for tax services , $ 0.5 million additional bonus accrual , $ 0.4 million non-recurring legal fees and combined with higher corporate public company expenses and additional head count . depreciation and amortization same properties portfolio depreciation and amortization expenses decreased $ 0.8 million , or 6.7 % , due to acquired lease related intangible and tangible assets for several of our properties being fully depreciated during 2012 , while total portfolio depreciation and amortization expenses increased $ 3.8 million , or 31.8 % , due to incremental expenses from the 15 properties we acquired during 2012 and 2013 , the properties contributed by rif v reit and their consolidated subsidiaries as part of the formation transactions , and the consolidation of our la jolla sorrento property that was acquired as part our formation transactions . other property expenses same properties portfolio and total portfolio other property expenses increased $ 0.3 million , or 25.7 % , and $ 0.8 million , or 57.8 % , respectively , for the year ended december 31 , 2013 compared to the year ended december 31 , 2012 , mainly due to an increase in property overhead . 55 acquisition expenses total portfolio acquisition expenses increased $ 0.7 million , or 111.0 % , for the year ended december 31 , compared to the year ended december 31 , 2012 due to higher expenses incurred for transactions consummated in 2013. interest expense same properties portfolio and total portfolio interest expense decreased $ 8.3 million , or 47.7 % , and $ 5.7 million , or 33.9 % respectively , for the year ended december 31 , 2013 compared to the year ended december 31 , 2012 , due to the pay down of mortgage debt at the consummation of the ipo combined with the expiration of our interest rate swaps during 2012 and 2013. gain on mark-to-market interest rate swaps total portfolio gain on mark-to-market interest r ate swaps decreased $ 2.3 million , or 97.9 % , for the year ended december 31 , 2013 compared to the year ended december 31 , 2012 due to the expiration of our interest rate swaps during 2012 and 2013. equity in loss of unconsolidated real estate entities the equity in loss of unconsolidated real estate entities includes our equity interests in the operating results of two properties , la jolla sorrento and mission oaks . the mission oaks properties were acquired on june 28 , 2012 , and the la jolla sorrento property was acquired as part of our formation transactions on july 24 , 2013 , and as a result , do not have comparable operating results for the periods presented . our share of the loss from la jolla sorrento and mission oaks totaled $ 0.8 million for the year ended december 31 , 2013 , compared to $ 0.1 million income for the year ended december 31 , 2012. the difference is primarily attributable to a $ 0.8 million impairment charge associated with our interest in la jolla sorrento during year ended december 31 , 2013. gain from early repayment of note receivable the gain from early repayment of a note receivable for the year ended december 31 , 2013 represents the gain related to the collection of a note receivable held by us and secured by the foothill property located at

other operating income same properties portfolio other operating income decreased $ 81 ,000 , or 58.7 % , while total portfolio other operating income decreased $ 42,000 , or 28.6 % , for the year ended december 31 , 2012 compared to the year ended december 31 , 2011 , mainly due to lower non-recurring legal fee reimbursements from tenants and lower settlements received from former tenants . the decrease in other income for same properties portfolio was partially offset by income from newly acquired assets . property expenses same properties portfolio property expenses as a percentage of total rental revenues and total portfolio property expenses as a percentage of total rental revenues decreased to 25.1 % and 25.3 % , respectively , in 2012 from 26.0 % and 25.4 % , respectively , in 2011 due to operational efficiencies . total portfolio property expenses increased $ 1.3 million , or 19.7 % , during 2012 as compared to 2011. our total portfolio property expenses increased as a result of additional acquisitions during 2012 and 2011 , and were partially offset by decreases resulting from dispositions . general and administrative total portfolio general and administrative expenses increased $ 1.4 million , or 38.0 % , for the year ended december 31 , 2012 compared to the year ended december 31 , 2011 , due to additional acquisitions combined with higher corporate expenses resulting from additional head count . depreciation and amortization same properties portfolio depreciation and amortization expenses decreased $ 0.2 million , or 2 .5 % , due to expiring lives of assets at various properties , while total portfolio depreciation and amortization expenses increased $ 2.3 million , or 23.3 % , for the year ended december 31 , 2012 compared to the year ended december 31 , 2011 due to additional acquisitions . other property expenses same properties portfolio other property expenses increased $ 0.2 million , or 30.7 % , while total portfolio other property expenses increased $ 0.3 million , or 28.1 % , for the year ended december 31 , 2012 compared to the year ended december 31 , 2011 , mainly due to higher corporate overhead allocations for salaries and bonuses . acquisition expenses during 2012 , same properties portfolio acquisition expenses decreased $ 12,000 , or 100 % , due to direct property acquisition costs , and total portfolio acquisition expenses decreased $ 0.4 million , or 41.4 % , due to higher acquisition activity in 2011 . 58 interest expense same properties portfolio interest expense decreased $ 1.5 million , or 8.4 % , while total portfolio interest expense decreased $ 0.6 million , or 3.4 % , for the year ended december 31 , 2012 compared to the year ended december 31 , 2011 , mainly due to lower swap interest . gain on mark-to-market interest rate swaps total portfolio gain on mark-to-market interest rate swaps decreased $ 1.8 million ,

the term more likely than not means a likelihood of more than 50 percent ; the terms examined and upon examination also include resolution of the related appeals or litigation processes , if any . a tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information . the determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts , circumstances , and information available at the reporting date and is subject to the management 's judgment . deferred tax assets are reduced by a valuation allowance if , based on the weight of evidence available , it is more likely than not that some portion or all of a deferred tax asset will not be realized . the company recognizes interest and penalties on income taxes as a component of income tax expense . the company files consolidated income tax returns with its subsidiary . incentive plan . the company accounts for its management and recognition plan ( mrp ) and equity incentive plan ( eip ) in accordance with asc 718 , “ share-based payment . ” compensation expense is based on the market price of the company 's stock on the date the shares are granted and is recorded over the vesting period . the difference between the grant-date fair value and the fair value on the date the shares are considered earned represents a tax benefit to the company that is recorded as an adjustment to income tax expense . outside directors ' retirement . the bank adopted a directors ' retirement plan in april 1994 for outside directors . the directors ' retirement plan provides that each non-employee director ( participant ) shall receive , upon termination of service on the board on or after age 60 , other than termination for cause , a benefit in equal annual installments over a five year period . the benefit will be based upon the product of the participant 's vesting percentage and the total board fees paid to the participant during the calendar year preceding termination of service on the board . the vesting percentage shall be determined based upon the participant 's years of service on the board , whether before or after the reorganization date . in the event that the participant dies before collecting any or all of the benefits , the bank shall pay the participant 's beneficiary . no benefits shall be payable to anyone other than the beneficiary , and shall terminate on the death of the beneficiary . stock options . c ompensation cost is measured based on the grant-date fair value of the equity instruments issued , and recognized over the vesting period during which an employee provides service in exchange for the award . earnings per share . basic earnings per share available to common stockholders is computed using the weighted-average number of common shares outstanding . diluted earnings per share available to common stockholders includes the effect of all weighted-average dilutive potential common shares ( stock options ) outstanding during each year . 78 comprehensive income . comprehensive income consists of net income and other comprehensive income , net of applicable income taxes . other comprehensive income includes unrealized appreciation ( depreciation ) on available-for-sale securities , unrealized appreciation ( depreciation ) on available-for-sale securities for which a portion of an other-than-temporary impairment has been recognized in income , and changes in the funded status of defined benefit pension plans . transfers between fair value hierarchy levels . transfers in and out of level 1 ( quoted market prices ) , level 2 ( other significant observable inputs ) and level 3 ( significant unobservable inputs ) are recognized on the period ending date . the following paragraphs summarize the impact of new accounting pronouncements : in august 2018 , the fasb issued asu 2018-13 , fair value measurement ( topic 820 ) - disclosure framework-changes to the disclosure requirements for fair value measurement . asu 2018-13 modifies the disclosure requirements on fair value measurements in topic 820. the amendments in this update remove disclosures that no longer are considered cost beneficial , modify/clarify the specific requirements of certain disclosures , and add disclosure requirements identified as relevant . asu 2018-13 is effective for fiscal years beginning after december 15 , 2019 , with early adoption permitted for certain removed and modified disclosures , and is not expected to have a significant impact on our financial statements . in may 2017 , the fasb issued asu 2017-09 , compensation-stock compensation ( subtopic 718 ) : scope of modification accounting . the amendments in asu 2017-09 provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in topic 718. under the new guidance , an entity should account for the effects of a modification unless all of the following are the same immediately before and after the change : ( 1 ) the fair value of the modified award , ( 2 ) the vesting conditions of the modified award , and ( 3 ) the classification of the modified award as either an equity or liability instrument . asu 2017-09 was effective for the fiscal years , and interim periods within those fiscal years , beginning after december 15 , 2017 , and should be applied prospectively to awards modified on or after the adoption date . the adoption of this guidance in the first quarter of fiscal 2019 did not have a material impact on the company 's consolidated financial statements . in august 2016 , the fasb issued asu 2016-15 , statement of cash flows ( topic 230 ) , classification of certain cash receipts and cash payments . story_separator_special_tag the increase was due to an increase of $ 285.8 million , or 20.9 % , in the average balance of interest-earning assets , combined with a 17 basis point increase in the average yield earned on interest-earning assets , from 4.50 % in fiscal 2017 , to 4.67 % in fiscal 2018. interest income on loans receivable for fiscal 2018 was $ 73.1 million , an increase of $ 15.1 million , or 26.1 % , when compared to the prior fiscal year . the increase was due to a $ 268.1 million increase in the average balance of loans receivable , combined with a 16 basis point increase in the average yield earned on loans receivable . the increase in the average yield was attributed primarily to origination and repricing of loans and borrower refinancing as market interest rates have increased over the last two years , as well as an increase in the accretion of fair value discount on loans attributable to the peoples , capaha , and smb-marshfield acquisitions , which increased to $ 2.2 million in fiscal 2018 , as compared to $ 1.3 million in fiscal 2017 . 60 interest income on the investment portfolio and other interest-earning assets was $ 4.1 million for fiscal 2018 , an increase of $ 552,000 , or 15.8 % , when compared to the prior fiscal year . the increase was due to a seven basis point increase in the average yield earned on these assets , combined with a $ 17.7 million increase in the average balance of these assets . interest expense . interest expense was $ 14.8 million for fiscal 2018 , an increase of $ 4.4 million , or 42.7 % , when compared to the prior fiscal year . the increase was due to the $ 202.6 million increase in the average balance of interest-bearing liabilities , combined with a 19 basis point increase in the average rate paid on interest-bearing liabilities , from 0.86 % in fiscal 2017 to 1.05 % in fiscal 2018. interest expense on deposits was $ 12.8 million for fiscal 2018 , an increase of $ 4.4 million , or 51.4 % , when compared to the prior fiscal year . the increase was due primarily to the $ 256.2 million increase in the average balance of interest-bearing deposits , combined with a 17 basis point increase in the average rate paid on those deposits . interest expense on fhlb advances was $ 1.0 million for fiscal 2017 , a decrease of $ 97,000 , or 8.5 % , when compared to the prior fiscal year . the decrease was due to a $ 39.5 million decrease in the average balance of fhlb advances , partially offset by a 66 basis point increase in the average rate paid on those advances . the increase in the average rate paid was attributable primarily to the continuing increases in the overnight borrowing rate . provision for loan losses . a provision for loan losses is charged to earnings to bring the total allowance for loan losses to a level considered adequate by management to provide for probable loan losses based on prior loss experience , type and amount of loans in the portfolio , adverse situations that may affect the borrower 's ability to repay , the estimated value of any underlying collateral , and current economic conditions . management also considers other factors relating to the collectability of the loan portfolio . the provision for loan losses was $ 3.0 million for fiscal 2018 , an increase of $ 707,000 , or 30.2 % , as compared to the prior fiscal year . the increase in provision was attributed primarily to stronger organic loan growth . the provision also increased , in part , due to an increase in nonperforming loans . in fiscal 2018 , net charge offs were $ 371,000 , as compared to $ 593,000 for the prior fiscal year . at june 30 , 2018 , classified loans totaled $ 14.2 million , or 0.90 % of gross loans , as compared to $ 13.3 million , or 0.94 % of gross loans , at june 30 , 2017. classified loans were comprised primarily of commercial real estate , residential real estate , and commercial operating loans . all loans so designated were classified due to concerns as to the borrowers ' ability to continue to generate sufficient cash flows to service the debt . the above provision was made based on management 's analysis of the various factors which affect the loan portfolio and management 's desire to maintain the allowance at a level considered adequate . management performed a detailed analysis of the loan portfolio , including types of loans , the charge-off history , and an analysis of the allowance for loan losses . management also considered the continued origination of loans secured by commercial and agricultural real estate , and commercial and agricultural operating loans , which bear an inherently higher level of credit risk . while management believes the allowance for loan losses at june 30 , 2018 , is adequate to cover all losses inherent in the portfolio , there can be no assurance that , in the future , increases in the allowance will not be necessary , or that actual losses will not exceed the allowance . noninterest income . noninterest income was $ 13.9 million for fiscal 2018 , an increase of $ 2.8 million , or 25.1 % , when compared to the prior fiscal year . the increase was attributable in part to the late-fiscal 2017 capaha acquisition and the mid-2018 smb-marshfield acquisition , and consisted of higher bank card interchange income , deposit account service charges , loan servicing fees , gains on the sale of available-for-sale securities , and loan origination and other loan fees , partially offset by reduced earnings on bank-owned life insurance ( boli ) . noninterest expense

interest income for fiscal 2019 was $ 97.5 million , an increase of $ 20.3 million , or 26.3 % , when compared to the prior fiscal year . the increase was due to an increase of $ 274.7 million , or 16.6 % , in the average balance of interest-earning assets , combined with a 39 basis point increase in the average yield earned on interest-earning assets , from 4.67 % in fiscal 2018 , to 5.06 % in fiscal 2019. interest income on loans receivable for fiscal 2018 was $ 92.3 million , an increase of $ 19.2 million , or 26.3 % , when compared to the prior fiscal year . the increase was due to a $ 251.4 million increase in the average balance of loans receivable , combined with a 39 basis point increase in the average yield earned on loans receivable . the increase in the average yield was attributed primarily to origination and repricing of loans and borrower refinancing as market interest rates increased during the largest part of fiscal 2019 as compared to recent fiscal years , as well as an increase in the accretion of fair value discount on loans attributable to the peoples , capaha , smb-marshfield , and gideon acquisitions , which increased to $ 3.0 million in fiscal 2019 , as compared to $ 2.2 million in fiscal 2018. interest income on the investment portfolio and other interest-earning assets was $ 5.2 million for fiscal 2019 , an increase of $ 1.1 million , or 27.2 % , when compared to the prior fiscal year . the increase was due to a $ 23.2 million increase in the average balance of these assets , combined with a 28 basis point increase in the average yield earned on these assets . interest expense . interest expense was $ 24.7 million for fiscal 2019 , an increase of $ 9.9 million , or 67.0 % , when compared to the prior fiscal year . the increase was due to a 45 basis point increase in the average rate paid on interest-bearing liabilities , from 1.05 % in fiscal 2018 to 1.50 % in fiscal 2019 , combined with the $ 238.2 million increase in the average balance

financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement . investments in and advances to unconsolidated affiliates we have investments in unconsolidated affiliates accounted for under the equity method . under the equity method , carrying value is adjusted for our share of the investees ' income and losses , amortization of certain basis differences as well as capital contributions to and distributions from these companies . distributions in excess of equity method income are recognized as a return of investment and recorded as investing cash inflows in the accompanying consolidated statements of cash flows . we classify income and losses as well as gains and impairments related to our investments in unconsolidated affiliates as a component of other income ( expense ) in the accompanying consolidated statements of comprehensive income . we evaluate our investments in unconsolidated affiliates for impairment whenever events or changes in circumstances indicate that the carrying value of the investment may have experienced an `` other-than-temporary `` decline in value . if such conditions exist , we compare the estimated fair value of the investment to its carrying value to determine if an impairment is indicated and determine whether the impairment is `` other-than-temporary `` based on an assessment of all relevant factors , including consideration of our intent and ability to retain our investment until the recovery of the unrealized loss . we estimate fair value using a discounted cash flow analysis based on estimated future results of the investee . debt issuance costs and loan origination fees debt issuance costs and loan origination fees associated with our term debt , revolver , and notes payable are amortized as interest expense over the term of each respective financial instrument . debt issuance costs and loan origination fees associated with our term debt and notes payable are presented as a direct deduction from the carrying amount of the related liability . debt issuance costs and loan origination fees associated with our revolver are presented as an asset . casino and pari-mutuel taxes we recognize casino and pari-mutuel tax expense based on the statutory requirements of the federal , state , and local jurisdictions in which we conduct business . all of our casino taxes and the majority of our pari-mutuel taxes are gross receipts taxes levied on the gaming entity . we recognize these taxes as racing , online wagering , casino , and other investments operating expenses in our consolidated statements of comprehensive income . in certain jurisdictions governing our pari-mutuel contracts with customers , 66 churchill downs incorporated notes to consolidated financial statements there are specific pari-mutuel taxes that are assessed on winning wagers from our customers , which we collect and remit to the government . these taxes are presented on a net basis . purse expense we recognize purse expense based on the statutorily or contractually determined amount of revenue that is required to be paid out in the form of purses to the qualifying finishers of horseraces run at our racetracks in the period in which wagering occurs . we incur a liability for all unpaid purses that will be paid out on a future live race event . self-insurance accruals we are self-insured up to certain limits for costs associated with general liability , workers ' compensation and employee health coverage , and we purchase insurance for claims that exceed our self-insurance retention or deductible levels . we record self-insurance reserves that include accruals of estimated settlements for known claims ( `` case reserves `` ) , as well as accruals of third-party actuarial estimates for claims incurred but not yet reported ( `` ibnr `` ) . case reserves represent estimated liabilities for unpaid losses , based on a claims administrator 's estimates of future payments on individual reported claims , including allocated loss adjustment expense , which generally include claims settlement costs such as legal fees . ibnr includes the provision for unreported claims , changes in case reserves and future payments on reopened claims . key variables and assumptions include , but are not limited to , loss development factors and trend factors such as changes in workers ' compensation laws , medical care costs and wages . these loss development factors and trend factors are developed using our actual historical losses . it is possible that reasonable alternative selections would produce different reserve estimates . advertising and marketing we expense the costs of general advertising , marketing and associated promotional expenditures at the time the costs are incurred . we incurred advertising and marketing expense of approximately $ 28.7 million in 2018 , $ 24.8 million in 2017 , and $ 23.1 million in 2016 in our accompanying consolidated statements of comprehensive income . stock-based compensation all stock-based payments to employees and directors , including grants of employee stock options and restricted stock , are recognized as compensation expense over the service period based on the fair value on the date of grant . for awards that have a graded vesting schedule , we recognize expense on a straight-line basis for each separately vesting portion of the award . we recognize forfeitures of awards as incurred . computation of net income per common share net income per common share is presented for both basic earnings per common share ( `` basic eps `` ) and diluted earnings per common share ( `` diluted eps `` ) . basic eps is based upon the weighted average number of common shares outstanding , excluding unvested stock awards , during the period plus vested common stock equivalents that have not yet been converted to common shares . diluted eps is based upon the weighted average number of shares used to calculate basic eps and potentially dilutive common shares outstanding during the period . potentially dilutive common shares result from applying the treasury stock method to outstanding stock options as well as unvested stock awards . story_separator_special_tag 43 additional statistical data by segment the following tables provide additional statistical data for our segments : racing and online wagering ( 1 ) replace_table_token_6_th ( 1 ) total handle and net pari-mutuel revenue generated by velocity are not included in total handle and net pari-mutuel revenue from online wagering . ( 2 ) eliminations include the elimination of intersegment transactions . 44 casino activity certain key operating statistics specific to the gaming industry are included in our statistical data for our casino segment . our slot facilities report slot handle as a volume measurement , defined as the gross amount wagered for the period cited . net gaming revenue includes slot , vlt , table games , and sports wagering revenue , and is net of customer freeplay ; however , it excludes other ancillary property revenue such as food and beverage , atm , hotel and other miscellaneous revenue . replace_table_token_7_th ( 1 ) fair grounds slots and vsi does not include video poker in reported slot handle and net slot revenue . net gaming revenue does include video poker . ( 2 ) on august 31 , 2018 , we completed the ocean downs/saratoga transaction . the activity for ocean downs casino represents the results from the date of consolidation through december 31 , 2018. ocean downs slot handle and net slot revenue includes vlt . 45 consolidated operating expense the following table is a summary of our consolidated operating expense : replace_table_token_8_th year ended december 31 , 2018 , compared to the year ended december 31 , 2017 significant items affecting comparability of consolidated operating expense include : taxes and purses increased $ 29.6 million due to a $ 20.5 million increase generated by our casino segment associated with an increase in slot handle and the consolidation of ocean downs as a result of the ocean downs/saratoga transaction effective august 31 , 2018 , and a $ 9.1 million increase in purses and taxes primarily related to our new derby city gaming facility which opened in september 2018. content expense increased $ 24.3 million driven by the increase in our online wagering handle , the adoption of asc 606 which resulted in modifications between the classification of net revenue and content expense , and an increase in host fees for certain jurisdictions . salaries and benefits expense increased $ 10.7 million driven by a $ 3.5 million increase related to the consolidation of ocean downs as a result of the ocean downs/saratoga transaction effective august 31 , 2018 , a $ 2.8 million increase associated with the opening of derby city gaming in september 2018 , and $ 4.4 million primarily driven by additional personnel cost and related benefits primarily at our churchill downs and oxford properties . selling , general and administrative expense increased $ 7.4 million driven primarily by a $ 4.6 million increase associated with the opening of derby city gaming in september 2018 , a $ 1.6 million increase related to the consolidation of ocean downs as a result of the ocean downs/saratoga transaction effective august 31 , 2018 , and a $ 1.5 million increase in stock-based compensation expense . partially offsetting these increases was a decrease of $ 0.3 million from other sources . depreciation and amortization expense increased $ 7.6 million driven by additional capital expenditures placed in service for churchill downs , the consolidation of ocean downs as a result of the ocean downs/saratoga transaction effective august 31 , 2018 , and the opening of the derby city gaming facility and related capital assets being placed into service during the year . marketing and advertising expense increased $ 4.0 million primarily from a $ 1.9 million increase at churchill downs associated with the kentucky derby and oaks week , a $ 1.6 million increase associated with the opening of derby city gaming in september 2018 , and a $ 0.7 million increase related to the consolidation of ocean downs as a result of the ocean downs/saratoga transaction effective august 31 , 2018. marketing and advertising expense was also impacted by the adoption of asc 606 , which resulted in modifications between the classification of net revenue and marketing expense and accounted for a $ 2.1 million decrease for our online wagering segment , partially offset by a $ 1.9 million increase at our louisiana properties . transaction expense , net increased $ 8.0 million primarily due to the payment of the termination fee of $ 5.0 million pursuant to the termination agreement in connection with the lady luck nemacolin transaction and other transaction expenses . 46 impairment of tangible and intangible assets decreased $ 21.7 million due to a $ 13.7 million non-cash impairment charge related to certain igaming assets , a $ 4.7 million non-cash impairment charge related to our bluff trademark , and a $ 3.3 million non-cash impairment charge related to our illinois horseracing equity trust , all of which occurred in 2017 , and did not recur in 2018. other operating expense includes maintenance , utilities , food and beverage costs , property taxes and insurance and other operating expenses . other operating expense increased $ 13.4 million driven by a $ 4.1 million increase in maintenance and other expenses primarily at churchill downs , a $ 3.2 million increase from the derby city gaming opening in september 2018 , a $ 2.1 million increase in the online wagering segment driven by the increase in net revenue , a $ 2.2 million increase from the consolidation of ocean downs as a result of the ocean downs/saratoga transaction effective august 31 , 2018 , and a $ 1.8 million increase from other sources . year ended december 31 , 2017 , compared to the year ended december 31 , 2016 significant items affecting comparability of consolidated operating expense include : taxes and purses increased $ 10.4 million driven by a $ 5.2 million increase in taxes for our casino segment associated with an increase in

the company is required to pay a commitment fee on the unused portion of the revolver determined by a pricing grid based on the consolidated total net leverage ratio of the company . for the period ended december 31 , 2018 , the company 's commitment fee rate was 0.20 % . as a result of the company 's 2017 credit agreement , the company capitalized $ 1.6 million of debt issuance costs associated with the revolver which will be amortized as interest expense over 5 years . the company also capitalized $ 5.1 million of deferred financing costs associated with the term loan b which will be amortized as interest expense over 7 years . 2014 credit agreement the company used the proceeds from the 2017 credit agreement to repay in full and terminate the 2014 credit agreement . the 2014 credit agreement provided for a maximum aggregate commitment of $ 500.0 million , consisting of a senior secured credit facility and term loan a. in conjunction with the repayment of all outstanding borrowings under the 2014 credit agreement , the company expensed approximately $ 0.4 million of debt issuance costs relating to the term loan a in the fourth quarter of 2017 , which is included in loss on extinguishment of debt in the accompanying consolidated statements of comprehensive income . 2028 senior notes on december 27 , 2017 , we completed an offering of $ 500.0 million in aggregate principal amount of 4.75 % senior unsecured notes that mature on january 15 , 2028 ( the `` 2028 senior notes '' ) in a private offering to qualified institutional buyers pursuant to rule 144a that is exempt from registration under the securities act of 1933 , as amended ( the `` securities act '' ) , and to certain non-u.s. persons in accordance with regulation s under the securities act . the 2028 senior notes were issued at par , with interest payable on january 15 th and july 15 th of each year , commencing on july 15 , 2018. the company used the net proceeds from the 2028 senior notes and the 2017 credit agreement to repay the remaining outstanding amount of our 2021 senior notes ( as defined below ) . in connection with the offering , we capitalized $ 7.7 million of debt issuance costs which are being amortized as interest expense over the term of the 2028 senior

a-3 consolidated statements of cash flows replace_table_token_15_th see accompanying notes to consolidated financial statements . a-4 notes to consolidated financial statements all amounts are in thousands of dollars except share and per share data and elsewhere as noted . 1. summary of significant accounting policies nature of operations wolverine world wide , inc. is a leading designer , manufacturer and marketer of a broad range of quality casual footwear and apparel ; performance outdoor footwear and apparel ; industrial work shoes , boots and apparel ; and uniform shoes and boots . the company 's portfolio of owned and licensed brands includes : bates ® , cat ® footwear , chaco ® , cushe ® , harley-davidson ® footwear , hush puppies ® , hytest ® , merrell ® , patagonia ® footwear , sebago ® , soft style ® and wolverine ® . licensing and distribution arrangements with third parties extend the global reach of the company 's brand portfolio . the company also operates a consumer-direct division to market both its own brands and branded footwear and apparel from other manufacturers and a leathers division that markets wolverine performance leathers ™ . principles of consolidation the consolidated financial statements include the accounts of wolverine world wide , inc. and its wholly-owned subsidiaries ( collectively , the “company” ) . all intercompany accounts and transactions have been eliminated in consolidation . fiscal year the company 's fiscal year is the 52- or 53-week period that ends on the saturday nearest to december 31. fiscal years presented in this report include the 52-week period ended december 31 , 2011 , the 52-week period ended january 1 , 2011 and the 52-week period ended january 2 , 2010. use of estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes . actual results could differ from those estimates . revenue recognition revenue is recognized on the sale of products manufactured or sourced by the company when the related goods have been shipped , legal title has passed to the customer and collectability is reasonably assured . revenue generated through licensees and distributors involving products bearing the company 's trademarks is recognized as earned according to stated contractual terms upon either the purchase or shipment of branded products by licensees and distributors . the company records provisions for estimated sales returns and allowances at the time of sale based on historical rates of returns and allowances and specific identification of outstanding returns not yet received from customers . however , estimates of actual returns and allowances in any future period are inherently uncertain and actual returns and allowances may differ from these estimates . if actual or expected future returns and allowances were significantly greater or lower than established reserves , a reduction or increase to net revenues would be recorded in the period this determination was made . cost of goods sold cost of goods sold includes the actual product costs , including inbound freight charges , purchasing , sourcing , inspection and receiving costs . warehousing costs are included in selling , general and administrative expenses . shipping and handling costs shipping and handling costs that are charged to and reimbursed by the customer are recognized as revenue , while the related expenses incurred by the company are recorded as cost of goods sold . a-5 cash equivalents cash equivalents include highly liquid investments with an original maturity of three months or less . cash equivalents are stated at cost , which approximates market . allowance for uncollectible accounts the company maintains an allowance for uncollectible accounts receivable for estimated losses resulting from its customers ' inability to make required payments . company management evaluates the allowance for uncollectible accounts receivable based on a review of current customer status and historical collection experience . adjustments to these estimates may be required if the financial condition of the company 's customers were to change . inventories the company values its inventory at the lower of cost or market . cost is determined by the last-in , first-out ( “lifo” ) method for all domestic raw materials and work-in-process inventories and certain domestic finished goods inventories . cost is determined using the first-in , first-out ( “fifo” ) method for all raw materials , work-in-process and finished goods inventories in foreign countries ; certain domestic finished goods inventories ; and for all finished goods inventories of the company 's consumer-direct business , due to the unique nature of those operations . the company has applied these inventory cost valuation methods consistently from year to year . property , plant and equipment property , plant and equipment are stated on the basis of cost and include expenditures for computer hardware and software , store furniture and fixtures , office furniture and machinery and equipment . normal repairs and maintenance are expensed as incurred . depreciation of property , plant and equipment is computed using the straight-line method . the depreciable lives range from fourteen to twenty years for buildings and improvements and from three to ten years for machinery , equipment and software . leasehold improvements are depreciated at the lesser of the estimated useful life or lease term , including reasonably-assured lease renewals as determined at lease inception . goodwill and other intangibles goodwill represents the excess of the purchase price over the fair value of net tangible and identifiable intangible assets of acquired businesses . other intangibles consist primarily of trademarks and patents . goodwill and intangible assets deemed to have indefinite lives are not amortized , but are subject to impairment tests at least annually . story_separator_special_tag the fifo method is also used for all finished goods inventories of the company 's retail business , due to the unique nature of those operations , and for certain other domestic finished goods inventories . the company has applied these inventory cost valuation methods consistently from year to year . the company reduces the carrying value of its inventories to the lower of cost or market for excess or obsolete inventories based upon assumptions about future demand and market conditions . if the company were to determine that the estimated market value of its inventory is less than the carrying value of such inventory , the company would provide a reserve for such difference as a charge to cost of sales . if actual market conditions are 33 different from those projected , adjustments to those inventory reserves may be required . the adjustments would increase or decrease the company 's cost of sales and net income in the period in which they were realized or recorded . inventory quantities are verified at various times throughout the year by performing physical inventory observations and perpetual inventory cycle count procedures . if the company determines that adjustments to the inventory quantities are appropriate , an increase or decrease to the company 's cost of sales and inventory is recorded in the period in which such determination was made . at december 31 , 2011 and january 1 , 2011 , management believed that it had provided sufficient reserves for excess or obsolete inventories . goodwill and other non-amortizable intangibles goodwill and intangible assets deemed to have indefinite lives are not amortized , but are subject to impairment tests at least annually . the company has early-adopted the provisions of asu 2011-08 , which permits the company to qualitatively assess indicators of the company 's reporting unit 's fair value when it is unlikely that a reporting unit is impaired . after completing the qualitative assessment , the company may also use assumptions about expected future operating performance and utilize a discounted cash flow analysis to estimate fair value . if the recorded values of these assets are not recoverable , based on either the assessment screen or discounted cash flow analysis , management performs the next step , which compares the fair value of the reporting unit to the fair value of the tangible and intangible assets of the reporting units . goodwill is considered impaired if the fair value of the tangible and intangible assets exceeds the fair value of the reporting unit . the company tests indefinite-lived intangibles by comparison of the individual carrying values to the fair value . future cash flows of the individual indefinite-lived intangible assets are used to measure their fair value after consideration by management of certain assumptions , such as forecasted growth rates and cost of capital , which are derived from internal projections and operating plans . the company did not recognize any impairment charges for goodwill or indefinite-lived intangible assets during the fiscal years ended december 31 , 2011 or january 1 , 2011 as the annual impairment testing indicated that all reporting unit goodwill and indefinite-lived intangible asset fair values exceed their respective recorded values . income taxes the company maintains certain strategic management and operational activities in overseas subsidiaries , and its foreign earnings are taxed at rates that are generally lower than the u.s. federal statutory income tax rate . a significant amount of the company 's earnings are generated by its canadian , european and asia pacific subsidiaries and , to a lesser extent , in jurisdictions that are not subject to income tax and free trade zones where the company owns manufacturing operations . the company has not provided for u.s. taxes for earnings generated in foreign jurisdictions because it plans to reinvest these earnings indefinitely outside the u.s. however , if certain foreign earnings previously treated as permanently reinvested are repatriated , the additional u.s. tax liability could have a material adverse effect on the company 's after-tax results of operations and financial position . income tax audits associated with the allocation of this income and other complex issues may require an extended period of time to resolve and may result in income tax adjustments if changes to the income allocation are required between jurisdictions with different income tax rates . because income tax adjustments in certain jurisdictions can be significant , the company records accruals representing management 's best estimate of the resolution of these matters . to the extent additional information becomes available , such accruals are adjusted to reflect the revised estimated outcome . the company believes its tax accruals are adequate to cover exposures related to changes in income allocation between tax jurisdictions . the carrying value of the company 's deferred tax assets assumes that the company will be able to generate sufficient taxable income in future years to utilize these deferred tax assets . if these assumptions change , the company may be required to record valuation allowances against its gross deferred tax assets in future years , which would cause the company to record additional income tax expense in its consolidated statements of operations . management evaluates the potential the company will be able to realize its gross deferred tax assets and assesses the need for valuation allowances on a quarterly basis . on a periodic basis , the company estimates what the effective tax rate will be for the full fiscal year and records a quarterly income tax provision in accordance with the projected full year rate . as the fiscal year progresses , 34 that estimate is refined based upon actual events and the distribution of earnings in each tax jurisdiction during the year . this continual estimation process periodically results in a change to the expected effective tax rate for the fiscal year . when this occurs , the company adjusts the income tax provision during the quarter in which the change in estimate

the company repurchased 142,198 shares at an average price of $ 35.57 in the first quarter of 2011 , 478,747 shares at an average price of $ 37.74 in the second quarter of 2011 , 948,256 shares at an average price of $ 34.45 in the third quarter of 2011 and 270,882 shares at an average price of $ 35.08 in the fourth quarter of 2011 under the february 2010 program . the company repurchased 683,808 shares at an average price of $ 28.18 in the first quarter of 2010 , 752,643 shares at an average price of $ 29.99 per share during the second quarter of 2010 , 158,700 shares at an average price of $ 25.51 per share during the third quarter and repurchased no shares during the fourth quarter of 2010 under the february 2010 program . the primary purpose of the stock repurchase programs is to increase stockholder value . the company intends to continue to repurchase shares of its common stock under the february 2010 program from time to time in open market or privately negotiated transactions , depending upon market conditions and other factors . 31 replace_table_token_11_th in addition to the repurchases noted above under the company 's common stock repurchase programs , the company acquired 55,810 shares at an average price of $ 36.48 per share during fiscal year 2011 and 37,046 shares at an average price of $ 25.43 per share during fiscal year 2010 related to employee transactions to offset statutory minimum tax withholding that occurs upon vesting of restricted shares . the company declared total dividends of $ 0.48 per share for fiscal year 2011 and $ 0.44 for fiscal year 2010. on february 9 , 2012 , the company declared a quarterly cash dividend of $ 0.12 per share of common stock , to be paid on may 1 , 2012 to stockholders of record on april 2 , 2012. new accounting standards in september 2011 , the financial accounting standards board ( fasb ) issued accounting standards update ( asu ) no . 2011-08 , testing goodwill for impairment ( asu no . 2011-08 ) . asu no . 2011-08 amended the provisions of fasb asc 350-20-35 by allowing an entity the option to make a qualitative evaluation about the likelihood of goodwill impairment to determine whether it should calculate the fair value of a reporting unit . the amendments are effective for annual and interim goodwill

additionally , the corporation primarily uses regression analysis at the inception of a hedge and for each reporting period thereafter to assess whether the derivative used in an accounting hedge transaction is expected to be and has been highly effective in offsetting changes in the fair value or cash flows of a hedged item or forecasted transaction . the corporation discontinues hedge accounting when it is determined that a derivative is not expected to be or has ceased to be highly effective as a hedge , and then reflects changes in fair value of the derivative in earnings after termination of the hedge relationship . bank of america 2017 106 fair value hedges are used to protect against changes in the fair value of the corporation 's assets and liabilities that are attributable to interest rate or foreign exchange volatility . changes in the fair value of derivatives designated as fair value hedges are recorded in earnings , together and in the same income statement line item with changes in the fair value of the related hedged item . if a derivative instrument in a fair value hedge is terminated or the hedge designation removed , the previous adjustments to the carrying value of the hedged asset or liability are subsequently accounted for in the same manner as other components of the carrying value of that asset or liability . for interest-earning assets and interest-bearing liabilities , such adjustments are amortized to earnings over the remaining life of the respective asset or liability . cash flow hedges are used primarily to minimize the variability in cash flows of assets and liabilities , or forecasted transactions caused by interest rate or foreign exchange rate fluctuations . changes in the fair value of derivatives used in cash flow hedges are recorded in accumulated oci and are reclassified into the line item in the income statement in which the hedged item is recorded in the same period the hedged item affects earnings . hedge ineffectiveness and gains and losses on the component of a derivative excluded in assessing hedge effectiveness are recorded in the same income statement line item . net investment hedges are used to manage the foreign exchange rate sensitivity arising from a net investment in a foreign operation . changes in the fair value of derivatives designated as net investment hedges of foreign operations , to the extent effective , are recorded as a component of accumulated oci . securities debt securities are reported on the consolidated balance sheet at their trade date . their classification is dependent on the purpose for which the assets were acquired . debt securities purchased for use in the corporation 's trading activities are reported in trading account assets at fair value with unrealized gains and losses included in trading account profits . substantially all other debt securities purchased are used in the corporation 's asset and liability management ( alm ) activities and are reported on the consolidated balance sheet as either debt securities carried at fair value or as debt securities held-to-maturity ( htm ) . debt securities carried at fair value are either available-for-sale ( afs ) securities with unrealized gains and losses net-of-tax included in accumulated oci or carried at fair value with unrealized gains and losses reported in other income . debt securities htm , which are certain debt securities that management has the intent and ability to hold to maturity , are reported at amortized cost . the corporation regularly evaluates each afs and htm debt security where the value has declined below amortized cost to assess whether the decline in fair value is other than temporary . in determining whether an impairment is other than temporary , the corporation considers the severity and duration of the decline in fair value , the length of time expected for recovery , the financial condition of the issuer , and other qualitative factors , as well as whether the corporation either plans to sell the security or it is more-likely-than-not that it will be required to sell the security before recovery of the amortized cost . for afs debt securities the corporation intends to hold , an analysis is performed to determine how much of the decline in fair value is related to the issuer 's credit and how much is related to market factors ( e.g . , interest rates ) . if any of the decline in fair value is due to credit , an other-than-temporary impairment ( otti ) loss is recognized in the consolidated statement of income for that amount . if any of the decline in fair value is related to market factors , that amount is recognized in accumulated oci . in certain instances , the credit loss may exceed the total decline in fair value , in which case , the difference is due to market factors and is recognized as an unrealized gain in accumulated oci . if the corporation intends to sell or believes it is more-likely-than-not that it will be required to sell the debt security , it is written down to fair value as an otti loss . interest on debt securities , including amortization of premiums and accretion of discounts , is included in interest income . premiums and discounts are amortized or accreted to interest income at a constant effective yield over the contractual lives of the securities . realized gains and losses from the sales of debt securities are determined using the specific identification method . marketable equity securities are classified based on management 's intention on the date of purchase and recorded on the consolidated balance sheet as of the trade date . marketable equity securities that are bought and held principally for the purpose of resale in the near term are classified as trading and are carried at fair value with unrealized gains and losses included in trading account profits . story_separator_special_tag we believe that presentation of these items on an fte basis allows for comparison of amounts from both taxable and tax-exempt sources and is consistent with industry practices . we may present certain key performance indicators and ratios excluding certain items ( e.g . , debit valuation adjustment ( dva ) ) which result in non-gaap financial measures . we believe that the presentation of measures that exclude these items are useful because they provide additional information to assess the underlying operational performance and trends of our businesses and to allow better comparison of period-to-period operating performance . we also evaluate our business based on certain ratios that utilize tangible equity , a non-gaap financial measure . tangible equity represents an adjusted shareholders ' equity or common shareholders ' equity amount which has been reduced by goodwill and certain acquired intangible assets ( excluding msrs ) , net of related deferred tax liabilities . these measures are used to evaluate our use of equity . in addition , profitability , relationship and investment models use both return on average tangible common shareholders ' equity and return on average tangible shareholders ' equity as key measures to support our overall growth goals . these ratios are as follows : ● return on average tangible common shareholders ' equity measures our earnings contribution as a percentage of adjusted common shareholders ' equity . the tangible common equity ratio represents adjusted ending common shareholders ' equity divided by total assets less goodwill and certain acquired intangible assets ( excluding msrs ) , net of related deferred tax liabilities . ● return on average tangible shareholders ' equity measures our earnings contribution as a percentage of adjusted average total shareholders ' equity . the tangible equity ratio represents adjusted ending shareholders ' equity divided by total assets less goodwill and certain acquired intangible assets ( excluding msrs ) , net of related deferred tax liabilities . ● tangible book value per common share represents adjusted ending common shareholders ' equity divided by ending common shares outstanding . we believe that the use of ratios that utilize tangible equity provides additional useful information because they present measures of those assets that can generate income . tangible book value per share provides additional useful information about the level of tangible assets in relation to outstanding shares of common stock . the aforementioned supplemental data and performance measures are presented in tables 7 and 8 . for more information on the reconciliation of these non-gaap financial measures to gaap financial measures , see non-gaap reconciliations on page 88 . 27 bank of america 2017 replace_table_token_12_th ( 1 ) nonperforming loans are included in the respective average loan balances . income on these nonperforming loans is generally recognized on a cost recovery basis . pci loans are recorded at fair value upon acquisition and accrete interest income over the estimated life of the loan . ( 2 ) includes assets of the corporation 's non-u.s. consumer credit card business , which was sold during the second quarter of 2017 . ( 3 ) includes non-u.s. consumer loans of $ 2.9 billion , $ 3.4 billion and $ 4.0 billion in 2017 , 2016 and 2015 , respectively . ( 4 ) includes consumer finance loans of $ 321 million , $ 514 million and $ 619 million ; consumer leases of $ 2.1 billion , $ 1.6 billion and $ 1.2 billion , and consumer overdrafts of $ 179 million , $ 173 million and $ 156 million in 2017 , 2016 and 2015 , respectively . ( 5 ) includes u.s. commercial real estate loans of $ 55.0 billion , $ 54.2 billion and $ 49.0 billion , and non-u.s. commercial real estate loans of $ 3.5 billion , $ 3.4 billion and $ 3.1 billion in 2017 , 2016 and 2015 , respectively . ( 6 ) interest income includes the impact of interest rate risk management contracts , which decreased interest income on the underlying assets by $ 44 million , $ 176 million and $ 59 million in 2017 , 2016 and 2015 , respectively . interest expense includes the impact of interest rate risk management contracts , which decreased interest expense on the underlying liabilities by $ 1.4 billion , $ 2.1 billion and $ 2.4 billion in 2017 , 2016 and 2015 , respectively . for more information , see interest rate risk management for the banking book on page 81 . bank of america 2017 28 table 10 analysis of changes in net interest income - fte basis due to change in ( 1 ) net change due to change in ( 1 ) net change volume rate volume rate ( dollars in millions ) from 2016 to 2017 from 2015 to 2016 increase ( decrease ) in interest income interest-bearing deposits with the federal reserve , non-u.s. central banks and other banks $ ( 32 ) $ 549 $ 517 $ ( 9 ) $ 245 $ 236 time deposits placed and other short-term investments 48 53 101 ( 8 ) 2 ( 6 ) federal funds sold and securities borrowed or purchased under agreements to resell 41 1,231 1,272 28 102 130 trading account assets ( 22 ) 77 55 ( 265 ) 281 16 debt securities 438 925 1,363 722 ( 692 ) 30 loans and leases : residential mortgage 335 8 343 ( 454 ) ( 25 ) ( 479 ) home equity ( 360 ) 255 ( 105 ) ( 343 ) 72 ( 271 ) u.s. credit card 290 331 621 ( 33 ) 118 85 non-u.s. credit card ( 544 ) ( 24 ) ( 568 ) ( 60 ) ( 65 ) ( 125 ) direct/indirect consumer 38 288 326 174 82 256 other consumer 11 26 37 10 9 19 total consumer 654 ( 515 ) u.s. commercial 468 1,196 1,664 787 431 1,218 commercial real estate 29 314 343 159 93

for additional exclusions from nonperforming loans , leases and foreclosed properties , see consumer portfolio credit risk management – nonperforming consumer loans , leases and foreclosed properties activity on page 62 and corresponding table 31 , and commercial portfolio credit risk management – nonperforming commercial loans , leases and foreclosed properties activity on page 67 and corresponding table 38 . ( 7 ) asset quality metrics for the first quarter of 2017 and the fourth quarter of 2016 include $ 242 million and $ 243 million of non-u.s. credit card allowance for loan and lease losses and $ 9.5 billion and $ 9.2 billion of non-u.s. credit card loans , which were included in assets of business held for sale on the consolidated balance sheet at march 31 , 2017 and december 31 , 2016. in 2017 , the corporation sold its non-u.s. consumer credit card business . ( 8 ) net charge-offs exclude $ 46 million , $ 73 million , $ 55 million and $ 33 million of write-offs in the pci loan portfolio in the fourth , third , second and first quarters of 2017 , respectively , and $ 70 million , $ 83 million , $ 82 million and $ 105 million in the fourth , third , second and first quarters of 2016 , respectively . for more information on pci write-offs , see consumer portfolio credit risk management – purchased credit-impaired loan portfolio on page 60 . ( 9 ) includes net charge-offs of $ 31 million , $ 44 million and $ 41 million on non-u.s. credit card loans in the second and first quarters of 2017 , and in the fourth quarter of 2016 , which were included in assets of business held for sale on the consolidated balance sheet at march 31 , 2017 and december 31 , 2016 . ( 10 ) risk-based capital ratios are reported under basel 3 advanced - transition . for more information , see capital management on page 45 . < td

we do not expect to record any further collaboration cost-sharing expense or collaboration reimbursement revenues under our current collaborations . see note 2 for further information on our 2008 cancer collaboration with bristol-myers squibb . net income ( loss ) per share basic net income ( loss ) per share is computed by dividing the net income ( loss ) attributable to exelixis , inc. for the period by the weighted average number of shares of common stock outstanding during the period . diluted net income ( loss ) per share gives effect to potential incremental common shares issuable upon the exercise of stock options and warrants , and shares issuable pursuant to restricted stock units ( “rsus” ) ( calculated based on the treasury stock method ) , and upon conversion of our convertible debt ( calculated using an as-if-converted method ) . 78 the following table sets forth a reconciliation of basic and diluted net income ( loss ) per share ( in thousands , except per share amounts ) : replace_table_token_27_th the following table sets forth potential shares of common stock that are not included in the computation of diluted net loss per share because to do so would be antidilutive for the years ended december 31 2011 , 2010 and 2009 : replace_table_token_28_th ( 1 ) the treasury stock method was used to calculate the dilutive and excluded antidilutive share totals for the year ended december 31 , 2011. foreign currency translation and remeasurement assets and liabilities denominated in currencies other than the functional currency are remeasured using exchange rates in effect at the end of the period and related gains or losses are recorded in interest income and other , net . gains and losses on the remeasurement of foreign currency assets and liabilities were not material for the periods presented . stock-based compensation stock-based compensation expense for all stock-based compensation awards is based on the grant date fair value estimated using the black-scholes option pricing model . we have limited historical information available to support the underlying estimates of certain assumptions required to value stock options . because there is a market for options on our common stock , we have considered implied volatilities as well as our historical realized volatilities when developing an estimate of expected volatility . we estimate the term using historical data and peer data . we recognize compensation expense on a straight-line basis over the requisite service period . we have elected to use the simplified method to calculate the beginning pool of excess tax benefits . we have employee and director stock option plans that are more fully described in note 9 . 79 need to raise additional capital we have incurred net losses since inception . however , for the year ended december 31 , 2011 , we were in a net income position of $ 75.7 million , primarily as a result of the acceleration of deferred revenue under our 2008 collaboration agreement with bristol-myers squibb that terminated in october 2011 and under our 2009 discovery collaboration agreement with sanofi that terminated in december 2011. notwithstanding our net income position for the year ended december 31 , 2011 , we anticipate further net losses and negative operating cash flow for the foreseeable future . our ultimate success depends on the outcome of our research and development activities . in february 2012 , we raised approximately $ 65 million in net proceeds from a public offering of our common stock . we may seek to raise funds through additional sales of equity or debt securities or through external borrowings . in addition , we may enter into additional strategic partnerships or collaborative arrangements for the development and commercialization of our compounds . if adequate funds are not available , we will be required to delay , reduce the scope of , or eliminate one or more of our development programs . recent accounting pronouncements in october 2009 , the fasb issued asu no . 2009-13 , revenue recognition – multiple deliverable revenue arrangements ( “asu 2009-13” ) . asu 2009-13 provides application guidance on whether multiple deliverables exist , how the deliverables should be separated and how the consideration should be allocated to one or more units of accounting . this update establishes a selling price hierarchy for determining the selling price of a deliverable . the selling price used for each deliverable will be based on vendor-specific objective evidence , if available , third-party evidence if vendor-specific objective evidence is not available , or estimated selling price if neither vendor-specific or third-party evidence is available . under asu 2009-13 , we may be required to exercise considerable judgment in determining the estimated selling price of delivered items under new agreements and our revenue under new agreements may be more accelerated as compared to the prior accounting standard . we adopted this guidance beginning january 1 , 2011. while it has not had a material impact on our financial statements in 2011 , we expect that this adoption could have a material impact on our financial statements going forward . in june 2011 , accounting standards codification topic 220 , comprehensive income was amended to increase the prominence of items reported in other comprehensive income . accordingly , a company can present all non-owner changes in stockholders ' equity either in a single continuous statement of comprehensive income or in two separate but consecutive statements . we adopted this guidance in 2011 on a retrospective basis and have determined that it did not have a material effect on our consolidated financial statements . story_separator_special_tag during the fourth quarter of 2010 , this estimate was extended to april 2014 as a result of the decision with bristol-myers squibb to complete additional phase 1 trial programs for xl281 . on july 8 , 2011 , we received written notification from bristol-myers squibb of its decision to terminate the 2008 agreement in its entirety . as a result of the termination of the 2008 agreement , the estimated research term was revised to end on october 8 , 2011. accordingly , we accelerated the remaining deferred revenue balance through the revised end of the research term and recognized $ 109.9 million in revenue during the third quarter ended september 30 , 2011 and the remaining $ 10.4 million in revenue during the fourth quarter ended december 31 , 2011. license fees are classified as license revenues in our consolidated statement of operations . although milestone payments are generally non-refundable once the milestone is achieved , we recognize milestone revenues on a straight-line basis over the expected research term of the arrangement . this typically results in a portion of a milestone being recognized on the date the milestone is achieved , with the balance being recognized over the remaining research term of the agreement . in certain situations , we may receive milestone payments after the end of our period of continued involvement . in such circumstances , we would recognize 100 % of the milestone revenues when the milestone is achieved . milestones are classified as contract revenues in our consolidated statement of operations . collaborative agreement reimbursement revenues consist of research and development support received from collaborators and are recorded as earned based on the performance requirements by both parties under the respective contracts . under the 2008 agreement with bristol-myers squibb and prior to its termination by bristol-myers squibb as to cabozantinib , both parties were actively involved with compound development and certain research and development expenses were partially reimbursable to us . on an annual basis , amounts owed by bristol-myers squibb to us , net of amounts reimbursable to bristol-myers squibb by us for the development of cabozantinib and xl281 , were recorded as collaboration reimbursement revenues . conversely , research and development expenses would include the net settlement of amounts we owed bristol-myers squibb for research and development expenses that bristol-myers squibb incurred in connection with the development of cabozantinib , less amounts reimbursable to us by bristol-myers squibb for the development of both cabozantinib and xl281 . in annual periods when net research and development funding payments were payable to bristol-myers squibb , these payments were presented as collaboration cost-sharing expenses . reimbursements under co-development agreements were classified as collaboration reimbursement revenues , while reimbursements under other arrangements were classified as contract revenues in our consolidated statement of operations . as a result of the termination of the 2008 agreement with bristol-myers squibb , which became effective on october 8 , 2011 , reimbursement payments were presented as collaboration reimbursement revenues for the period ended december 31,2011. we do not expect to record any further collaboration cost-sharing expense or collaboration reimbursement revenues under our current collaborations . see note 2 of the notes to the consolidated financial statements for further information on our 2008 agreement with bristol-myers squibb . some of our research and licensing arrangements have multiple deliverables in order to meet our customer 's needs . for example , the arrangements may include a combination of intellectual property rights and research and development services . multiple element revenue agreements are evaluated to determine whether the delivered item has value to the customer on a stand-alone basis and whether objective and reliable evidence of the fair value of the undelivered item exists . deliverables in an arrangement that do not meet the separation criteria are treated as one unit of accounting for purposes of revenue recognition . generally , the revenue recognition guidance applicable to the final deliverable is followed for the combined unit of accounting . for certain arrangements , the period of time over which certain deliverables will be provided is not contractually defined . accordingly , management is required to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes . for example , in 2011 , under our 2009 collaboration agreement with sanofi for the discovery of inhibitors of phosphoinositide-3 kinase , or the 2009 agreement , we accelerated $ 53.1 million in previously deferred revenue as a result of the termination of this agreement on december 22 , 2011 instead of the previously estimated research term end date of july 2013 . 48 clinical trial accruals all of our clinical trials have been performed by third-party contract research organizations , or cros , and other vendors . we accrue costs for clinical trial activities performed by cros based upon the estimated amount of work completed on each trial . for clinical trial expenses , the significant factors used in estimating accruals include the number of patients enrolled , the number of active clinical sites , and the duration for which the patients will be enrolled in the trial . we monitor patient enrollment levels and related activities to the extent possible through internal reviews , correspondence with cros and review of contractual terms . we base our estimates on the best information available at the time . however , additional information may become available to us which will allow us to make a more accurate estimate in future periods . in this event , we may be required to record adjustments to research and development expenses in future periods when the actual level of activity becomes more certain . such increases or decreases in cost are generally considered to be changes in estimates and will be reflected in research and development expenses in the period first known . for example , during the years ended december 31 , 2011 and 2010 , we recorded a reduction related to

these uses of cash were primarily offset by a net increase in deferred revenue of $ 85.8 million , primarily driven by receipt of an upfront cash payment of $ 140.0 million related to the global license agreement and collaboration with sanofi , partially offset by a decrease in deferred revenue from the ratable recognition of deferred revenues over the period of continuing involvement from our various collaborations . in addition , cash uses were offset by non-cash charges totaling $ 45.3 million relating to stock-based compensation , depreciation and amortization , and a $ 9.8 million loss that we recorded upon deconsolidation of sei . prior to 2011 , we have been in a net loss position and our cash used in operating activities has been primarily driven by our consolidated net loss . operating cash flows can differ from our consolidated net loss as a result of differences in the timing of cash receipts and earnings recognition and non-cash charges . going forward for at least the next several years , we expect to continue to use cash for operating activities as we incur net losses associated with our research and development activities , primarily with respect to manufacturing and development expenses for cabozantinib . investing activities our investing activities used cash of $ 51.5 million for the year ended december 31 , 2011 , compared to cash used of $ 19.6 million for the year ended december 31 , 2010 , and cash provided of $ 112.3 million for 2009. cash used by investing activities for 2011 was primarily driven by the purchase of $ 237.2 million in marketable securities partially offset by proceeds received from the maturity of marketable securities of $ 124.8 million , proceeds from the sale of marketable securities before maturity of $ 55.2 million and a proceeds of $ 3.0 million from the sale of our 19.9 % equity ownership in artemis . cash used by investing activities for 2010 was primarily driven by the purchase of $ 167.3 million of marketable securities and certificates of deposit . these uses of cash were partially offset by proceeds from the maturity of marketable securities of $ 127.6 million in addition to the sale of investments prior to maturity of $ 12.8 million and proceeds of $ 9.0 million associated with our 2007 transaction with agrigenetics and the sale of our cell factory business in 2010. the proceeds provided by the sale and maturity of

company during 2014 is bank of the west , the company 's primary bank . pledged cash collateral was not required under the interest rate swap contract . there were no derivative financial instruments at december 31 , 2015. goodwill and other intangible assets —the primary identifiable intangible assets of the company relate to assets associated with its product acquisitions . the company adopted the provisions of fasb asc 350 , under which identifiable intangibles with finite lives are amortized and those with indefinite lives are not amortized . the estimated useful life of an identifiable intangible asset to the company is based upon a number of factors including the effects of demand , competition , and expected changes in the marketability of the company 's products . the company re-evaluates whether these intangible assets are impaired on a quarterly and an annual basis and anytime when there is a specific indicator for impairment , relying on a number of factors including operating results , business plans and future cash flows . identifiable intangible assets that are subject to amortization are evaluated for impairment using a process similar to that used to evaluate long-lived assets . the impairment test for identifiable intangible assets not subject to amortization consists of either a qualitative assessment or a 44 comparison of the fair value of the intangible asset with its carrying amount . an impairment loss , if any , is recognized for the amount by which the carrying value exceeds the fair value of the asset . fair value is typically estimated using a discounted cash flow analysis . when determining future cash flow estimates , the company considers historical results adjusted to reflect current and anticipated operating conditions . estimating future cash flows requires significant judgment by the company , in such areas as : future economic conditions , industry-specific conditions , product pricing and necessary capital expenditures . the use of different assumptions or estimates for future cash flows could produce different impairment amounts ( or none at all ) for long-lived assets , goodwill and identifiable intangible assets . the company has performed an impairment review for the years ended december 31 , 2015 and 2014 and recorded immaterial impairment losses . fair value of equity investment —the company utilizes the equity method of accounting with respect to its investment in tyratech inc. ( “tyratech” ) , a delaware corporation that specializes in developing , marketing and selling pesticide products containing essential oils and other natural ingredients . in february 2014 , tyratech issued 37,391,763 shares , raising approximately £1.87 ( $ 3.1 ) million . in july 2014 , tyratech issued a further 50,000,000 shares and raised approximately £3.5 ( $ 5.9 ) million . due to the share issuance in both periods , the company recognized a total gain of $ 954 from the dilution of the company 's ownership position pursuant to asc 323. in october 2014 , the company exercised warrants in the amount of $ 500 and purchased 6,155,000 shares in tyratech . in november 2015 , tyratech issued a further 105,333,333 shares and raised approximately £3.2 ( $ 4.8 ) million . due to the share issuance , the company recognized a loss of $ 7 ( for 2015 ) from the dilution of the company 's ownership position pursuant to asc 323. as of december 31 , 2015 , the company 's ownership position in tyratech was approximately 15.11 % . as a result of the reduced equity share , the company re-assessed its choice of equity method accounting for the investment and determined that it retains significant influence by retaining one out of the five board seats and accordingly , this method of accounting continues to be appropriate . at december 31 , 2015 , the carrying value of the company 's investment in tyratech was $ 2,536 and the quoted market value based on tyratech 's share price ( level 1 input ) was $ 1,850 . at december 31 , 2015 , the company performed an impairment review of its investment in tyratech and concluded that the current condition was temporary and consequently determined that no impairment change was appropriate . tyratech 's shares trade on the aim market of the london stock exchange under the trading symbol ‘tyr ' . the company 's equity investment is included in other assets on the consolidated balance sheet . fair value of financial instruments —the carrying values of cash , receivables and accounts payable approximate their fair values because of the short maturity of these instruments . the fair value of the company 's long-term debt and note payable to our lender group is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the company for debt of the same remaining maturities . such fair value approximates the respective carrying values of the company 's long-term debt and note payable to bank . the company measures fair value based on the prices that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date . fair value measurements are based on a three-tier hierarchy that prioritizes the inputs used to measure fair value . these tiers include the following : level 1 : quoted prices ( unadjusted ) in active markets for identical assets or liabilities that are accessible at the measurement date . the fair value hierarchy gives the highest priority to level 1 inputs . level 2 : observable prices that are based on inputs not quoted on active markets , but corroborated by market data . these inputs include quoted prices for similar assets or liabilities ; quoted market prices in markets that are not active ; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities . story_separator_special_tag our majority-owned subsidiary , envance , as compared to $ 517 in 2013. in 2012 , the adjustment to our net income attributable to american vanguard for such losses was $ 41. net income attributable to american vanguard ended at $ 4,841 or $ 0.17 per diluted share in 2014 as compared to $ 34,449 or $ 1.19 per diluted share in 2013. recently issued accounting guidance in february 2016 , the financial accounting standards board ( “fasb” ) issued accounting standards update ( “asu” ) 2015-17 , leases . the new standard establishes a right-of-use ( rou ) model that requires a lessee to record a rou asset and a lease liability on the balance sheet for all leases with terms longer than 12 months . leases will be classified as either finance or operating , with classification affecting the pattern of expense recognition in the income statement . the new standard is effective for fiscal years beginning after december 15 , 2018 , including interim periods within those fiscal years . a modified retrospective transition approach is required for lessees for capital and operating leases existing at , or entered into after , the beginning of the earliest comparative period presented in the financial statements , with certain practical expedients available . the company is currently evaluating the impact of our pending adoption of the new standard on our consolidated financial statements . in november 2015 , fasb issued asu 2015-17 , income taxes ( topic 740 ) . current gaap requires an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position . to simplify the presentation of deferred income taxes , the amendments in this asu require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position . the amendments in this asu apply to all entities that present a classified statement of financial position . the new standard is effective for fiscal years beginning after december 15 , 2016 , including interim periods within those fiscal years with early adoption permitted . the company will follow the guidance for fiscal year 2016. in september 2015 , fasb issued asu 2015-16 , business combination ( topic 805 ) . under a business combination , gaap requires that during the measurement period , the acquirer retrospectively adjusts the provisional amounts recognized at the acquisition date with a corresponding adjustment to goodwill . those adjustments are required when new information is obtained about facts and circumstances that existed as of the acquisition date that , if known , would have affected the measurement of the amounts initially recognized or would have resulted in the recognition of additional assets or liabilities . the acquirer also must revise comparative information for prior periods presented in financial statements as needed , including revising depreciation , amortization , or other income effects as a result of changes made to provisional amounts . the amendments in this asu eliminate the requirement to retrospectively account for those adjustments . the new standard is effective for fiscal years beginning after december 15 , 2015 , including interim periods within those fiscal years . the company will follow the guidance in this asu when applying topic 805. in july 2015 , fasb issued asu 2015-11 , inventory ( topic 330 ) . topic 330 currently requires an entity to measure inventory at the lower of cost or market , where market could be replacement cost , net realizable value , or net realizable value less an approximately normal profit margin . this asu limits the scope to inventory that is measured using first-in , first-out ( fifo ) or average cost and requires inventory be measured at the lower of costs or net realizable value . the new standard is effective for fiscal years beginning after december 15 , 2016 , including interim periods within those fiscal years . the company will evaluate the impact of this adoption for fiscal year 2017. in april 2015 , fasb issued asu 2015-03 , interest – imputation of interest ( subtopic 835-30 ) : simplifying the presentation of debt issuance costs . this asu requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability , consistent with debt discounts . the recognition and measurement guidance for debt issuance costs are not affected by the amendments in this asu . asu 2015-03 is effective for financials statement issued for fiscal years beginning after december 15 , 2015 , with early adoption permitted . the company evaluated the impact and has elected an early adoption of this update in the quarter ended june 30 , 2015. this change was applied retrospectively to fiscal year 2014 and was immaterial to the consolidated financial statements . in conjunction with this adoption , the company has made an accounting policy election to present debt issuance costs related to revolving line of credit arrangements as a deduction from the related liability . in august 2014 , fasb issued asu 2014-15 , presentation of financial statements – going concern ( subtopic 205-40 ) : disclosure of uncertainties about an entity 's ability to continue as a going concern . this asu requires that management of an entity assesses whether there is substantial doubt about the ability of the entity to continue as a going concern and for making the appropriate disclosures . the assessment must be performed at each annual and interim reporting period , and there is substantial doubt about an entity 's ability to continue as a going concern if it is probable that the entity will be unable to meet its obligations as they become due within 12 months of the date of the financial statements are issued . in the assessment , management must consider the information available at the date of issuance of the

our financing activities used a net cash of $ 33,811 in 2015 , as compared to providing a net cash of $ 41,156 in 2014. the main driver for the change is the pay down on the company 's senior secured credit facility . the company further paid $ 1,141 in dividends , payment of other notes payable and of long-term liabilities primarily associated with liabilities under deferred purchase agreements on product acquisitions in the amount of $ 1,543. the company received $ 317 from the sales of common stock under its espp plan ( including associated tax benefits ) and the tax effect from the share-based compensation of $ 924 , as compared to receiving $ 1,666 from the sales of common stock under its espp plan and $ 300 from the tax effect from the share based compensation for 2014. the company 's net borrowings under its senior secured credit facility decreased by $ 30,400 to end at $ 69,000 as of december 31 , 2015 , as compared to $ 99,400 at the end of prior year . the company has various loans in place that together constitute the short-term and long-term loan balances shown in the consolidated balance sheets as at december 31 , 2015 and december 31 , 2014. these are summarized in the following table : replace_table_token_11_th on june 17 , 2013 , amvac , the company 's principal operating subsidiary , as borrower , and affiliates ( including the company ) , as guarantors and or borrowers , entered into a second amended and restated credit agreement ( the “new credit agreement” ) with a group of commercial lenders led by bank of the west ( amvac 's primary bank ) as agent , swing line lender and l/c issuer . the new facility also includes both amvac c.v. and amvac netherlands bv ( both dutch subsidiaries ) as borrowers . the new credit agreement supersedes the amended and restated credit agreement ( “first amendment” ) dated as of january 10 , 2011. the new credit agreement is a senior secured lending facility with a five year term and consists of a revolving line of credit up to $ 200 million and an accordion feature for up to $ 100 million . in connection with amvac 's entering into the new credit agreement , all outstanding indebtedness under the first amendment was rolled over into the

the company remains focused on evaluating and searching for mining opportunities in north america ( including mexico ) with near term prospects of mining , and particularly for properties within reasonable haulage distances of our processing plants at the velardeña properties . the company is also focused on advancing our el quevar exploration property in argentina and on advancing selected properties in our portfolio of approximately 12 properties , located primarily in mexico . the company is also reviewing strategic opportunities , focusing primarily on development or operating properties in north america , including mexico . the company is considered an exploration stage company under the criteria set forth by the sec as the company has not yet demonstrated the existence of proven or probable mineral reserves , as defined by sec industry guide 7 , at the velardeña properties , or any of the company 's other properties . as a result , and in accordance with gaap for exploration stage companies , all expenditures for exploration and evaluation of the company 's properties are expensed as incurred . as such , the company 's financial statements may not be comparable to the financial statements of mining companies that do have proven and probable mineral reserves . such companies would typically capitalize certain development costs including infrastructure development and mining activities to access the ore. the capitalized costs would be amortized on a units-of-production basis as reserves are mined . the amortized costs are typically allocated to inventory and eventually to cost of sales as the inventories are sold . as the company does not have proven and probable reserves , substantially all expenditures at the company 's velardeña properties for mine construction activity , as well as costs associated with the mill facilities , and for items that do not have a readily identifiable market value apart from the mineralized material , have f-8 golden minerals company notes to the consolidated financial statements - ( continued ) ( expressed in united states dollars ) been expensed as incurred . such costs are charged to cost of metals sold or project expense during the period depending on the nature of the costs . certain of the costs may be reflected in inventories prior to the sale of the product . the term “ mineralized material ” as used herein , although permissible under sec industry guide 7 , does not indicate “ reserves ” by sec standards . the company can not be certain that any deposits at the velardeña properties or any other exploration property will ever be confirmed or converted into sec industry guide 7 compliant “ reserves ” . 2. liquidity at december 31 , 2018 , the company 's aggregate cash and cash equivalents totaled $ 3.3 million , equal to the $ 3.3 million in similar assets held at december 31 , 2017. the december 31 , 2018 balance is due in part from the following expenditures and cash inflows for the year ended december 31 , 2018. expenditures totaled $ 10.8 million from the following : · $ 3.9 million in exploration expenditures , including work at the santa maria and other properties ; · $ 1.9 million in care and maintenance costs at the velardeña properties ; · $ 1.3 million in evaluation activities , care and maintenance and property holding costs at the el quevar project ; · $ 3.4 million in general and administrative expenses ; and · $ 0.3 million related to an increase in working capital primarily related to the reduction of $ 0.3 million in deferred income related to the oxide plant lease . the foregoing expenditures were offset by cash inflows of $ 10.8 million from the following : · $ 4.9 million of net operating margin received pursuant to the oxide plant lease ( defined as oxide plant lease revenue less oxide plant lease costs ) ; · $ 0.8 million , net of commitment fees and other offering related costs , from the lpc program ; · $ 4.0 million from the sale of our interests in the celaya property to electrum ; · $ 0.7 million from the farm out of certain nonstrategic mineral claims to santacruz ; and · $ 0.4 million from the sale of two inactive subsidiaries in mexico . in addition to the $ 3.3 million cash balance at december 31 , 2018 , the company expects to receive approximately $ 4.6 million in net operating margin from the lease of the oxide plant during the next twelve-month period ending december 31 , 2019. in addition , subsequent to december 31 , 2018 the company received approximately $ 0.2 million f-9 golden minerals company notes to the consolidated financial statements - ( continued ) ( expressed in united states dollars ) from the sale of our common stock under the lpc program . the company 's currently budgeted expenditures during the twelve months ending december 31 , 2019 are as follows : · approximately $ 2.0 million on exploration activities and property holding costs related to our portfolio of exploration properties located primarily in mexico , including project assessment and evaluation costs relating to yoquivo and other properties ; · approximately $ 1.5 million at the velardeña properties for care and maintenance ; · approximately $ 1.2 million at the el quevar project to fund ongoing exploration and evaluation activities , care and maintenance and property holding costs ; and · approximately $ 3.1 million on general and administrative costs . if the company spends the amounts described above , it would end 2019 with a cash balance of approximately zero . however , the company does not intend to allow its cash balance to drop below acceptable levels . story_separator_special_tag exploration expenses were higher in the year ended december 31 , 2018 compared to the prior period due to increased exploration activities at our santa maria and other mexico properties . velardeña shutdown and care and maintenance costs . we recorded $ 1.9 million and $ 1.6 million for the years ended december 31 , 2018 and 2017 , respectively , for expenses related to shut down and care and maintenance at our velardeña properties as the result of the suspension of mining and processing activities in november 2015. the higher care and maintenance costs in 2018 are related to increased maintenance . el quevar project expense . during the year ended december 31 , 2018 we incurred $ 1.3 million primarily related to holding and evaluation costs for the yaxtché deposit at our el quevar project in argentina . during the year ended december 31 , 2017 we recorded an expense of approximately $ 0.8 million primarily related to holding costs for the yaxtché deposit at our el quevar project in argentina . the additional spending in 2018 was primarily related to the costs of preparing the technical reports and preparing for exploration drilling . for both years , additional nominal costs incurred in argentina and not related to the el quevar project are included in “ exploration expense ” , discussed above . administrative expense . administrative expenses totaled $ 3.4 million for the year ended december 31 , 2018 compared to $ 3.5 million for the year ended december 31 , 2017. administrative expenses , including costs associated with being a public company , are incurred primarily by our corporate activities in support of the velardeña properties , el quevar project and our exploration portfolio . the $ 3.4 million of administrative expenses we incurred during 2018 is comprised of $ 1.6 million of employee compensation and directors ' fees , $ 0.9 million of professional fees and $ 0.9 million of insurance , travel expenses , rents , utilities and other office costs . the $ 3.5 million of administrative expenses we incurred during 2017 is comprised of $ 1.6 million of employee compensation and directors ' fees , $ 0.8 million of professional fees and $ 1.1 million of insurance , rents , travel expenses , utilities and other office costs . stock based compensation . during the year ended december 31 , 2018 we incurred expense related to stock-based compensation in the amount of $ 0.2 million compared to $ 0.3 million for the year ended december 31 , 2017. stock based compensation varies from period to period depending on the number and timing of shares granted , the type of grant , the market value of the shares on the date of grant and other variables . the 2018 and 2017 stock-based compensation amounts include a $ 0.1 million reduction of expense and $ 0.1 million of expense , respectively , related to keltip grants made to two officers and the related fair value adjustments to the keltip liability ( see note 15 to the consolidated financial statements filed as part of this form 10-k for a discussion of keltip grants ) . reclamation and accretion expense . during each of the years ended december 31 , 2018 and 2017 we incurred $ 0.2 million of reclamation expense related to the accretion of an asset retirement obligation at the velardeña properties . other operating income , net . we recorded $ 5.1 million of other operating income for the year ended december 31 , 2018 , consisting of $ 4.0 million related to an option payment and the ultimate sale of our celaya property , $ 0.7 million from payments received on our zacatecas properties and $ 0.4 million related to the sale of two non-strategic mexican subsidiaries . we recorded other operating income of $ 2.1 million for the year ended december 31 , 2017 , including $ 1.0 million of net gains recorded on the sales of certain fixed assets and non-strategic exploration properties in mexico and a $ 1.1 million vat tax refund in argentina . depreciation , depletion and amortization . during the year ended december 31 , 2018 we incurred depreciation , depletion and amortization expense of $ 1.2 million compared to $ 1.0 million for the year ended december 31 , 2017. the increase in depreciation , depletion and amortization expense during the 2018 period is primarily the result of increased depreciation at our velardeña properties . 49 interest and other income , net . during the year ended december 31 , 2018 we recorded approximately $ 0.1 million of interest and other income primarily related to mark-to-market gains on short-term investments . during the year ended december 31 , 2017 we recorded only a nominal amount of interest and other income . gain ( loss ) on foreign currency . we recorded a $ 0.1 million foreign currency loss in each of the years ended december 31 , 2018 and 2017. foreign currency gains and losses are primarily related to the effect of currency fluctuations on monetary assets net of liabilities held by our foreign subsidiaries that are denominated in currencies other than us dollars . income taxes . we recorded no tax expense or benefit for the year ended december 31 , 2018. we recorded $ 13,000 of income tax expense for the year ended december 31 , 2017 related to a mexican subsidiary . story_separator_special_tag style= `` margin:0pt ; text-indent:36pt ; text-align : justify ; text-justify : inter-ideograph ; font-family : times new roman , times , serif ; font-size : 10pt ; `` > long lived assets are recorded at cost and per the guidance of asc 360 the company assesses the recoverability of its long lived assets , including goodwill , whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable . if the sum of estimated future net cash flows on an undiscounted

the underlying value and recoverability of the amounts shown as property , plant and equipment in our consolidated financial statements are dependent on our ability to generate positive cash flows from operations and to continue to fund exploration and development activities that would lead to profitable mining activities or to generate proceeds from the disposition of property , plant and equipment . there can be no assurance that we will be successful in generating future profitable operations or securing additional funding in the future on terms acceptable to us or at all . we believe the continuing cash flow from the lease of the oxide plant , use of the atm program and lpc program , and the potential for additional asset dispositions make it probable that we will have sufficient cash to meet our financial obligations and continue our business strategy beyond one year from the filing of our consolidated financial statements for the period ended december 31 , 2018. critical accounting policies and estimates the selection and application of accounting policies is an important process that has developed as our business activities have evolved and as the accounting rules have changed . accounting rules generally do not involve a selection among alternatives , but involve an implementation and interpretation of existing rules , and the use of judgment , to the specific set of circumstances existing in our business . discussed below are the accounting policies that we believe are critical to our financial statements due to the degree of uncertainty regarding the estimates or assumptions involved and the magnitude of the asset , liability , revenue or expense being reported . 51 mineral reserves when and if we determine that a mineral property has proven and probable reserves , subsequent development costs are capitalized to mineral properties . when mineral properties are developed and operations commence , capitalized costs are charged to operations using the units-of-production method over proven and probable reserves . “ mineralized material ” as used in this annual report , although permissible under sec 's industry guide 7 , does not indicate “ reserves ” by sec standards , and therefore all development costs incurred by us are expensed when incurred . the company can not be certain that any

for arrangements with multiple deliverables , the company allocates the agreement consideration at the inception of the agreement to the deliverables based upon their relative selling prices . to date , selling prices have been established by reference to vendor specific objective evidence based on stand-alone sales transactions for each deliverable . vendor specific objective evidence is considered to have been established when a substantial majority of individual sales transactions within the previous 12 month period fall within a reasonably narrow range , which the company has defined to be plus or minus 15 % of the median sales price of actual stand-alone sales transactions . the company uses its best estimate of selling price for individual deliverables when vendor specific objective evidence or third-party evidence is unavailable . allocated revenue is only recognized for each deliverable when the revenue recognition criteria have been met . -88- the company enters into collaborative agreements that may generate upfront fees with subsequent milestone payments that may be earned upon completion of development-related milestones . the company is able to estimate the total cost of services under the arrangements and recognizes collaboration revenue using a proportional performance model . costs incurred to date compared to total expected costs are used to determine proportional performance , as this is considered to be representative of the delivery of outputs under the arrangements . revenue recognized at any point in time is limited to cash received and amounts contractually due . changes in estimates of total expected costs are accounted for prospectively as a change in estimate . from period to period , collaboration revenue can fluctuate substantially based on the achievement of development-related milestones . cost of revenue cost of revenue consists primarily of costs incurred in the production process , including costs of purchasing instruments from third-party contract manufacturers , consumable component materials and assembly labor and overhead , installation , warranty , service and packaging and delivery costs . in addition , cost of revenue includes royalty costs for licensed technologies included in the company 's products , provisions for slow-moving and obsolete inventory and stock-based compensation expense . cost of revenue for instruments and consumables is recognized in the period the related revenue is recognized . shipping and handling costs incurred for product shipments are included in cost of revenue in the consolidated statements of operations . reserve for product warranties the company generally provides a one-year warranty on its ncounter analysis systems and establishes a reserve for future warranty costs based on historical product failure rates and actual warranty costs incurred . warranty expense is recorded as a component of cost of revenue in the consolidated statements of operations . research and development research and development expenses , consisting primarily of salaries and benefits , occupancy costs , laboratory supplies , clinical study costs , contracted services , consulting fees and related costs , are expensed as incurred . selling , general and administrative selling expenses consist primarily of personnel related costs for sales and marketing , contracted services and service fees and are expensed as the related costs are incurred . advertising costs are charged to operations as incurred and are included in sales and marketing expenses . advertising costs totaled approximately $ 2.6 million , $ 5.1 million and $ 3.3 million during the years ended december 31 , 2015 , 2014 and 2013 , respectively . general and administrative expenses consist primarily of personnel related costs for the company 's finance , human resources , business development , legal and general management , as well as professional fees for services such as legal and accounting services . general and administrative expenses are expensed as they are incurred . -89- income taxes the company accounts for income taxes under the liability method . under the liability method , deferred tax assets and liabilities are determined based on the differences between the financial reporting and income tax bases of assets and liabilities and are measured using the tax rates that will be in effect when the differences are expected to reverse . a valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized . the company determines whether a tax position is more likely than not to be sustained upon examination based on the technical merits of the position . for tax positions meeting the more-likely-than-not threshold , the tax amount recognized in the financial statements is reduced by the largest benefit that has a greater than 50 % likelihood of being realized upon ultimate settlement with the relevant tax authority . stock-based compensation the company accounts for stock-based compensation under the fair value method . stock-based compensation costs are based on option awards granted and vested based on their grant-date fair value , estimated using the black-scholes option pricing model . the company uses the straight-line attribution method for recognizing compensation expense . the company recognizes compensation expense for only the portion of options expected to vest . therefore , management applied an estimated forfeiture rate that was derived from historical employee termination behavior . if the actual number of forfeitures differs from these estimates , adjustments to compensation expense may be required in future periods . guarantees and indemnifications in the normal course of business , the company guarantees and or indemnifies other parties , including vendors , lessors and parties to transactions with the company , with respect to certain matters . the company has agreed to hold the other parties harmless against losses arising from breach of representations or covenants , or out of intellectual property infringement or other claims made against certain parties . story_separator_special_tag additionally , we selectively provide proof-of-principle studies in connection with prospective sales to customers to demonstrate the performance of our ncounter analysis system . collaboration revenue is a relatively new source of revenue primarily from our diagnostic collaborations with celgene and merck , which is expected to increase over time if we are successful in entering into other similar collaborations . the following table reflects the breakdown of revenue in absolute dollars and as percentage of total revenue . replace_table_token_6_th -62- diagnostic product development during 2013 , we commercially launched the ncounter dx analysis system and prosigna . over time , we intend to build a menu of additional diagnostic tests that can be run on our ncounter analysis system . as researchers discover how genomic information can be used to improve clinical decision-making , these discoveries can be translated and validated as diagnostic tests based on our ncounter elements reagents or , in certain situations , developed as in vitro diagnostic assays . our first example of this is prosigna , for which we in-licensed the rights to intellectual property from bioclassifier , llc , a company founded by several of our research customers . more recently , we in-licensed the rights to the gene signature being developed as an in vitro diagnostic assay to subtype dlbcl patients that is the subject of our collaboration with celgene . we intend to enter into similar arrangements with our research customers and other researchers for future diagnostic gene signatures , which may be developed independently as an in vitro diagnostic , or become the subject of future companion diagnostic collaborations . we believe that there is significant potential to enter into more companion diagnostic collaborations of a similar nature to our collaboration with celgene and merck . such collaborations are attractive in that they can provide upfront technology access fees , near-term funding of development costs , potential milestone revenues and potential additions to the menu of tests that we can market and sell for use on the ncounter dx analysis system . we believe we are well positioned as a desirable development partner to drug developers due to a number of factors , including unique technological capabilities in multiplexed gene expression analysis ; prior fda clearance of our instrument system for use with prosigna ; an expanding installed base of systems in clinical laboratories ; and established clinical and regulatory capabilities . results of operations comparison of years ended december 31 , 2015 and 2014 revenue replace_table_token_7_th instruments , consumables and service revenue increased significantly for the year ended december 31 , 2015 due to the increased volume of instruments sold . the total growth in the installed base of our instruments in 2015 was 34 % . the increase in consumables revenue was primarily driven by growth in our installed base of instrument systems as the average amount of consumable revenue sold was over $ 100,000 per installed system in 2015 and 2014. in vitro diagnostic kit revenue represents sales of prosigna assays , which increased as more providers came online , and testing volumes increased . the increase in service revenue was primarily related to an increase in the number of instruments covered by service contracts . collaboration revenue increased largely due to the collaboration with merck , which was initiated in may 2015 . -63- cost of product and service revenue ; gross profit ; and gross margin replace_table_token_8_th the increase in cost of product and service revenue for 2015 was related to the increased volume of instruments , consumables , in vitro diagnostic kits and services sold . the increase in gross margin on product and service revenues is primarily due to a product mix shift towards consumables and other factors , including improved margins on consumable revenues and service revenue as a result of increasing scale . research and development expense year ended december 31 , change 2015 2014 dollars percentage ( dollars in thousands ) research and development expense $ 24,597 $ 21,404 $ 3,193 15 % the increases in research and development expense in 2015 reflected a $ 3.6 million increase in personnel-related expenses and a $ 0.9 million increase in supply costs to support primarily the advancement of our diagnostic and product development activities , including activities to support our collaboration agreements . in addition , facility costs increased $ 0.9 million due to expansion of our leased space for research and development activities . these increases were partially offset by decreases of $ 2.1 million in engineering and consulting costs primarily for the development of our ncounter technologies in 2015. selling , general and administrative expense year ended december 31 , change 2015 2014 dollars percentage ( dollars in thousands ) selling , general and administrative expense $ 53,186 $ 51,063 $ 2,123 4 % the increases in selling , general and administration expense in 2015 were primarily attributable to a $ 3.7 million increase in staffing and personnel-related costs to support sales and marketing and administration ; and increased facilities costs of $ 1.3 million as a result of our expanded leased space for operational and administrative activities . partially offsetting the increase was a reduction of $ 2.8 million in marketing program costs in 2015. other income ( expense ) replace_table_token_9_th the $ 0.1 million decrease in interest expense in 2015 was related to the costs incurred to pay off our former credit facility in april 2014 , offset by an overall increase in borrowing in 2015. in 2014 , we incurred and recorded $ 1.4 million of interest expense related to the repayment of our former credit facility , including a loss on extinguishment of debt of $ 0.6 million . the impact of these expenses not recurring in 2015 was partially offset by a $ 1.3 million increase in interest expense attributable to our increase in borrowings outstanding for the respective periods . long-term debt and lease financing obligations outstanding increased to $ 41.2 million as of

upon initial closing , we borrowed $ 20.0 million , the proceeds of which were primarily used to repay the outstanding balance under our former credit facility plus a related $ 1.0 million end of term payment , a $ 0.3 million make-whole premium , and deferred interest . we incurred and recorded a total charge to interest expense of $ 1.4 million related to the repayment of our former credit facility , including a loss on extinguishment of debt of $ 0.6 million . in october 2014 , we borrowed an additional $ 10.0 million under the term loan agreement . in october 2015 , we amended our term loan agreement to , among other provisions , increase the maximum borrowing capacity to $ 60 million ( excluding accrued interest ) , reduce the applicable interest rate from 12.5 % to 12.0 % , extend the interest-only period through march 2021 , and extend the final maturity to march 2022. under the amended agreement , borrowings accrue interest at 12.0 % annually , payable quarterly , of which 3.0 % can be deferred during the first six years of the term at our option and paid together with the principal at maturity . we have elected to exercise the option to defer a portion of the interest and we have recorded $ 1.5 million of deferred interest through december 31 , 2015. in december 2015 , we borrowed an additional $ 10 million under the terms of the amended agreement and we are required to borrow an additional $ 5 million no later than june 30 , 2016. at our option , we may borrow up to an additional $ 15 million through december 31 , 2016. total borrowings under the amended term loan agreement were $ 41.5 million as of december 31 , 2015. under the amended term loan agreement , we may pay interest-only for the first seven years of the term and principal payments are due in four equal installments during the eighth year of the term . we have the option to -67- prepay the term loan , in whole or part , at any time subject to payment of a redemption fee of up to 4 % , which declines 1 % annually thereafter , with no redemption fee payable if prepayment occurs after the fourth year

these costs are depreciated and charged to expense based upon their property classification when placed in service . property and equipment is recorded at cost . application development stage costs for significant internally developed software projects are capitalized and amortized . repairs and maintenance activities are expensed as incurred . depreciation and amortization is provided using the straight-line method over the following estimated useful lives : buildings and improvements 5 to 30 years equipment 3 to 7 years computer hardware and software 3 to 7 years assets subject to capital lease shorter of useful life or lease term leasehold improvements , including new buildings constructed on leased land , are depreciated over the shorter of their estimated useful lives or the underlying lease term . in circumstances where an economic penalty would be presumed by the non-exercise of one or more renewal options under the lease , the company includes those renewal option periods when determining the lease term . for significant leasehold improvements made during the latter part of the lease term , the company amortizes those improvements over the shorter of their useful life or an extended lease term . the extended lease term would consider the exercise of renewal options if the value of the improvements would imply that an economic penalty would be incurred without the renewal of the option . building costs incurred for new restaurants on leased land are depreciated over the lease term , which is generally a twenty -year period . goodwill . goodwill represents the excess purchase price and related costs over the value assigned to the net tangible and identifiable intangible assets acquired by carrols restaurant group , inc. ( `` carrols `` ) , fiesta 's former parent company , from the f-6 fiesta restaurant group , inc. notes to consolidated financial statements— ( continued ) years ended december 31 , 2017 , january 1 , 2017 and january 3 , 2016 ( in thousands of dollars , except per share amounts ) acquisition of pollo tropical in 1998 and taco cabana in 2000. goodwill is not amortized but is tested for impairment at least annually as of the last day of the fiscal year or more frequently if impairment indicators exist . long-lived assets . the company assesses the recoverability of property and equipment and definite-lived intangible assets by determining whether the carrying value of these assets can be recovered over their respective remaining lives through undiscounted future operating cash flows . impairment is reviewed whenever events or changes in circumstances indicate that the carrying amounts of these assets may not be fully recoverable . see note 5 for results of the company 's impairment review . deferred financing costs . financing costs incurred in obtaining revolving credit facilities are capitalized and amortized over the life of the related obligation as interest expense on a straight-line basis . leases . all leases are reviewed for capital or operating classification at their inception . the majority of the company 's leases are operating leases . many of the lease agreements contain rent holidays , rent escalation clauses and or contingent rent provisions . rent expense for leases that contain scheduled rent increases or rent holidays is recognized on a straight-line basis over the lease term , including any option periods included in the determination of the lease term . contingent rentals are generally based upon a percentage of sales or a percentage of sales in excess of stipulated amounts and are not considered minimum rent payments but are recognized as rent expense when incurred . revenue recognition . revenues from the company 's owned and operated restaurants are recognized when payment is tendered at the time of sale . franchise royalty revenues are based on a percent of gross sales and are recorded as income when earned . franchise fees , which are associated with opening new franchised restaurants , are recognized as income when all required activities have been performed by the company . area development fees , which are associated with opening new franchised restaurants in a given market , are recognized as income over the term of the related agreement . income taxes . deferred income tax assets and liabilities are based on the difference between the financial statement and tax bases of assets and liabilities as measured by the tax rates that are anticipated to be in effect when those differences reverse . the deferred tax provision generally represents the net change in deferred tax assets and liabilities during the period . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date . a valuation allowance is established when it is necessary to reduce deferred tax assets to amounts for which realization is more likely than not . the company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities , based on the technical merits of the position . advertising costs . all advertising costs are expensed as incurred . cost of sales . the company includes the cost of food , beverage and paper , net of any discounts , in cost of sales . pre-opening costs . the company 's pre-opening costs are generally incurred beginning four to six months prior to a restaurant opening and generally include restaurant employee wages and related expenses , travel expenditures , recruiting , training , promotional costs associated with the restaurant opening and rent , including any non-cash rent expense recognized during the construction period . insurance . the company is insured for workers ' compensation , general liability and medical insurance claims under policies where it pays all claims , subject to stop-loss limitations both for individual claims and for general liability and certain workers ' compensation claims in the aggregate . story_separator_special_tag adjusted ebitda for our taco cabana restaurants decreased to $ 38.3 million in 2016 from $ 39.8 million in 2015 due primarily to the net impact of the decrease in revenues partially offset by a decrease in cost of sales as a percentage of sales . restaurant-level adjusted ebitda . we also use restaurant-level adjusted ebitda , a non-gaap financial measure , as a supplemental measure to evaluate the performance and profitability of our restaurants in the aggregate , which is defined as adjusted ebitda excluding franchise royalty revenues and fees , pre-opening costs and general and administrative expenses ( including corporate-level general and administrative expenses ) . restaurant-level adjusted ebitda for pollo tropical was $ 78.4 million , $ 90.3 million and $ 90.4 million in 2017 , 2016 and 2015 , respectively . restaurant-level adjusted ebitda for taco cabana was $ 39.1 million , $ 58.1 million and $ 60.8 million in 41 2017 , 2016 and 2015 , respectively . the decreases in restaurant-level adjusted ebitda were primarily due to the foregoing . for a reconciliation from adjusted ebitda to restaurant-level adjusted ebitda , see the heading entitled `` management 's use of non-gaap financial measures `` . depreciation and amortization . depreciation and amortization expense decreased to $ 35.0 million in 2017 from $ 36.8 million in 2016 primarily as a result of impairing closed restaurant assets , partially offset by increased depreciation related to new restaurant openings . depreciation and amortization expense increased to $ 36.8 million in 2016 from $ 30.6 million in 2015 due primarily to increased depreciation relating to new restaurant openings . impairment and other lease charges . impairment and other lease charges increased to $ 61.8 million in 2017 from $ 25.6 million in 2016 . impairment and other lease charges in 2017 consisted of impairment charges for pollo tropical and taco cabana restaurants and an office location of $ 52.1 million , $ 1.9 million and $ 0.2 million , respectively and lease and other charges for pollo tropical and taco cabana restaurants and an office location of $ 5.4 million , $ 1.6 million and $ 0.5 million , respectively , net of recoveries . impairment charges in 2017 were related primarily to 40 pollo tropical restaurants that were closed in 2017 , seven of which were initially impaired in 2016 , six taco cabana restaurants that were closed in 2017 , four of which were initially impaired in 2016 , and two pollo tropical restaurants and five taco cabana restaurants which we continue to operate . impairment charges in 2017 also included charges with respect to an office location that was closed in december 2017. other lease charges , net of recoveries , in 2017 were related primarily to restaurants and an office location that were closed in 2017 as well as previously closed restaurants . there is uncertainty in the estimates of future lease costs and sublease recoveries . actual costs and sublease recoveries could vary significantly from the estimated amounts and result in additional lease charges or recoveries , and such amounts could be material . impairment and other lease charges increased to $ 25.6 million in 2016 from $ 2.4 million in 2015. impairment and other lease charges in 2016 consisted of impairment charges for pollo tropical and taco cabana restaurants of $ 21.6 million and $ 1.1 million , respectively , and lease and other charges for pollo tropical and taco cabana restaurants of $ 2.8 million and $ 0.2 million , respectively , net of recoveries . impairment charges in 2016 were related primarily to 17 pollo tropical restaurants that were closed in 2016 and 2017 , and seven taco cabana restaurants , four of which were subsequently closed in 2017 and three of which we continue to operate . other lease charges , net of recoveries , in 2016 were related to restaurants closed in 2016 as well as previously closed restaurants . impairment and other lease charges in 2015 consisted primarily of impairment charges totaling $ 1.7 million and a $ 0.2 million lease charge related to the closure of a taco cabana restaurant at the end of 2015 , a $ 0.3 million lease charge related to the closure of a pollo tropical restaurant that was relocated prior to the end of its lease term to a superior site in the same trade area , and lease charges , net of recoveries , totaling $ 0.2 million related to previously closed pollo tropical restaurants . each quarter we assess the potential impairment of any long-lived assets that have experienced a triggering event , including restaurants for which the related trailing twelve-month cash flows are below a certain threshold . we determine if there is impairment at the restaurant level by comparing undiscounted future cash flows from the related long-lived assets to their respective carrying values . in determining future cash flows , significant estimates are made by us with respect to future operating results of each restaurant over its remaining lease term , including sales trends , labor rates , commodity costs and other operating cost assumptions . if assets are determined to be impaired , the impairment charge is measured by calculating the amount by which the asset carrying amount exceeds its fair value . this process of assessing fair values requires the use of estimates and assumptions , including our ability to sell or reuse the related assets and market conditions , which are subject to a high degree of judgment . if these assumptions change in the future , we may be required to record impairment charges for these assets and these charges could be material . for five operating pollo tropical restaurants including one in atlanta , georgia and four in central and southwest florida and three taco cabana restaurants with combined carrying values of $ 5.0 million and $ 1.4 million , respectively , projected cash flows are not substantially in excess of their

44 borrowings under the new senior credit facility bear interest at a per annum rate , at our option , equal to either ( all terms as defined in the new senior credit facility ) : 1 ) the alternate base rate plus the applicable margin of 0.75 % to 1.50 % based on our adjusted leverage ratio ( with a margin of 1.25 % as of december 31 , 2017 ) , or 2 ) the libor rate plus the applicable margin of 1.75 % to 2.50 % based on our adjusted leverage ratio ( with a margin of 2.25 % at december 31 , 2017 ) in addition , the new senior credit facility requires us to pay ( i ) a commitment fee based on the applicable commitment fee rate of 0.25 % to 0.35 % , based on our adjusted leverage ratio , ( with a rate of 0.30 % at december 31 , 2017 ) and the unused portion of the facility and ( ii ) a letter of credit participation fee based on the applicable libor margin and the dollar amount of outstanding letters of credit . all obligations under the new senior credit facility are guaranteed by all of our material domestic subsidiaries . in general , our obligations under our new senior credit facility and our subsidiaries ' obligations under the guarantees are secured by a first priority lien and security interest on substantially all of our assets and the assets of our material subsidiaries ( including a pledge of all of the capital stock and equity interests of our material subsidiaries ) , other than certain specified assets , including real property owned by us or our subsidiaries . the outstanding borrowings under the new senior credit facility are prepayable subject to breakage costs as defined in the new senior credit facility . the new senior credit facility requires us to comply with customary affirmative , negative and financial covenants , including , without limitation , those limiting our and our subsidiaries ' ability to ( i ) incur indebtedness , ( ii ) incur liens , ( iii ) loan , advance , or make acquisitions and other investments or other commitments to construct , acquire or develop new restaurants ( subject to certain exceptions ) , ( iv ) pay dividends , ( v ) redeem and repurchase equity interests , ( vi ) conduct asset and restaurant sales and other dispositions ( subject to certain exceptions ) , ( vii ) conduct transactions with affiliates and ( viii ) change our business . in addition , the new senior credit facility will require us to maintain certain financial ratios , including minimum fixed charge coverage and maximum adjusted leverage ratios ( all as defined under the new senior credit facility ) . our new senior credit facility contains customary default provisions , including without limitation , a cross default provision pursuant to which it is an event of default under this facility if there is a default under any of our indebtedness having an outstanding principal amount of $ 5.0 million or more which results

* 10.14a letter agreement dated november 9 , 2010 between argo group international holdings , ltd. and jay s. bullock ( incorporated by reference to exhibit 10.2 to argo group 's current report on form 8-k filed with the securities and exchange commission on november 12 , 2010 ) . * 10.14b letter agreement , dated august 4 , 2011 , from argo group international holdings , ltd. to jay s. bullock ( incorporated by reference to exhibit 10.1 to argo group 's quarterly report on form 10-q for the quarter ended june 30 , 2011 ) . * 10.15 employment contract dated june 1 , 2009 , between argo international ( formerly known as heritage group services limited ) and julian enoizi ( incorporated by reference to exhibit 10.18 to argo group 's annual report on form 10-k filed with the securities and exchange commission on march 1 , 2010 ) . * 10.15a compromise agreement , dated january 13 , 2011 , between argo group services limited and julian enoizi ( incorporated by reference to exhibit 10.3 to argo group 's quarterly report on form 10-q for the quarter ended march 31 , 2011 ) . 10.16 employment agreement , effective as of june 21 , 2007 , between argo re , ltd. ( formerly known as peleus reinsurance ltd ) and andrew j. carrier ( incorporated by reference to exhibit 10.2 to argo group 's quarterly report on form 10-q for the quarter ended march 31 , 2011 ) . * 10.17 compensation clawback policy ( incorporated by reference to exhibit 10.1 to argo group 's quarterly report on form 10-q for the quarter ended june 30 , 2012 ) . 12 statements of computation of ratios of earnings to fixed charges and earnings to combined fixed charges and preferred share dividends . 21 subsidiaries of registrant , as amended . 23 consent of independent registered public accounting firm . 31.1 rule 13a - 14 ( a ) /15d – 14 ( a ) certification of chief executive officer . 85 31.2 rule 13a - 14 ( a ) /15d – 14 ( a ) certification of chief financial officer . 32.1 certification of chief executive officer pursuant to 18 u.s.c . section 1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 . 32.2 certification of chief financial officer pursuant to 18 u.s.c . section 1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 . 101.ins xbrl instance document 101.sch xbrl taxonomy extension schema document 101 cal xbrl taxonomy extension calculation linkbase document 101 def xbrl taxonomy extension definition linkbase document 101 lab xbrl taxonomy extension label linkbase document 101 pre xbrl taxonomy extension presentation linkbase document * a management contract or compensatory plan required to be filed herewith . 86 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 . argo group international holdings , ltd. by mark e. watson iii mark e. watson iii president and chief executive officer date : february 28 , 2013 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 . signature title date mark e. watson iii mark e. watson iii president , chief executive officer and director ( principal executive officer ) february 28 , 2013 jay s. bullock jay s. bullock executive vice president and chief financial officer ( principal financial and accounting officer ) february 28 , 2013 gary v. woods gary v. woods director february 28 , 2013 f. sedgwick browne f. sedgwick browne director february 28 , 2013 h. berry cash h. berry cash director february 28 , 2013 hector deleon hector deleon director february 28 , 2013 nabil n. el-hage nabil n. el-hage director february 28 , 2013 mural r. josephson mural r. josephson director february 28 , 2013 kathleen a. nealon kathleen a. nealon director february 28 , 2013 john r. power , jr. john r. power , jr. director february 28 , 2013 john h. tonelli john h. tonelli director february 28 , 2013 87 index to consolidated financial statements report of independent registered public accounting firm f-2 consolidated financial statements : consolidated balance sheets f-3 consolidated statements of income ( loss ) f-4 consolidated statements of comprehensive income ( loss ) f-5 consolidated statements of shareholders ' equity f-6 consolidated statements of cash flows f-7 notes to consolidated financial statements f-8 supplementary financial statement schedules : schedule ii—condensed financial information of registrant f-56 schedule iii—supplementary insurance information f-58 schedule v—valuation and qualifying accounts f-59 schedule vi—supplementary information for property-casualty insurance companies f-60 f-1 report of independent registered public accounting firm the board of directors and shareholders of argo group international holdings , ltd. : we have audited the accompanying consolidated balance sheets of argo group international holdings , ltd. ( the company ) as of december 31 , 2012 and 2011 , and the related consolidated statements of income ( loss ) , comprehensive income ( loss ) , shareholders ' equity , and cash flows for each of the three years in the period ended december 31 , 2012. our audits also included the financial statement schedules listed in the at item 15. these consolidated financial statements and schedules are the responsibility of the company 's management . our responsibility is to express an opinion on these financial statements and schedules based on our audits . we conducted our audits in accordance with the standards of the public company accounting oversight board ( united states ) . story_separator_special_tag the increase in the expense ratio for the years ended december 31 , 2012 and 2011 as compared to the same period in 2010 was primarily attributable to the reductions in earned premiums outpacing the reductions in total underwriting expenses . the increase in fee income , net of expenses , for the year ended december 31 , 2012 as compared to 2011 and 2010 was primarily attributable to a reduction in the expenses related to the generation of the fee income . international specialty the following table summarizes the results of operations for the international specialty segment : replace_table_token_13_th gross written and earned premiums increased for the year ended december 31 , 2012 in comparison to the same periods in 2011 and 2010 primarily as a result of the new business unit in brazil and the addition of new offices for our excess casualty and professional lines units . earned premiums for the property catastrophe reinsurance unit were $ 81.8 million for the year ended december 31 , 2012 and $ 84.7 million for the same period in 2011. the excess casualty and professional lines unit contributed earned premiums of $ 17.9 million for the year ended december 31 , 2012 compared with $ 16.4 million for the same period in 2011. earned premiums for brazil were $ 28.5 million for the year ended december 31 , 2012 compared with $ 0 million in 2011. earned premiums for the year ended december 31 , 2011 increased in comparison to 2010 as a result of continued growth in the excess casualty and professional lines unit and an increase in property catastrophe reinstatement premium . losses and loss adjustment expenses for the year ended december 31 , 2012 included $ 24.7 million in catastrophe losses from storm activity in the united states , including $ 23.6 million from hurricane sandy . in addition , international specialty experienced $ 6.0 million in losses related to crop exposures . partially offsetting these current accident year losses was $ 7.2 million of net favorable loss reserve development on prior accident years primarily attributable to $ 7.4 million of favorable 53 development in short-tail non-catastrophe losses , $ 0.3 million of favorable development in long-tail professional liability and $ 0.3 million of favorable development related to short-tail catastrophe losses due to the 2008 hurricanes , partially offset by $ 0.8 million of unfavorable development related to short-tail catastrophe losses due to the 2010 and 2011 catastrophe events . losses and loss adjustment expenses for the year ended december 31 , 2011 included $ 118.1 million in catastrophe losses including $ 75.3 million resulting from the japan and new zealand earthquakes , $ 24.9 million from the thailand and australia floods and the danish cloudburst and $ 17.9 million from storms in the united states including the alabama and joplin , missouri tornados and hurricane irene and aggregate reinsurance covers losses of $ 9.3 million . partially offsetting these 2011 accident year losses was $ 4.6 million of net favorable reserve development on prior accident year 's loss reserves . favorable development consisted of $ 7.0 million attributable to short-tail non-catastrophe losses and $ 1.0 million related to 2005 hurricanes ike and gustav . partially offsetting this favorable development was $ 1.4 million of unfavorable development attributable to the 2010 new zealand earthquake and $ 2.5 million of unfavorable development in long-tail lines primarily due to the 2010 deepwater horizon incident . losses and loss adjustment expenses for the year ended december 31 , 2010 reflect $ 32.2 million in catastrophe losses resulting primarily from earthquake activity and the deepwater horizon incident . included in losses and loss adjustment expenses for the year ended december 31 , 2010 was $ 16.8 million of favorable prior year loss reserve development . the prior year development was primarily the result of $ 14.5 million of favorable loss reserve development in non-catastrophe property due to favorable reported loss activity and $ 1.1 million of favorable loss reserve development on 2008 hurricane reserves . the increase in the expense ratio for 2012 and 2011 as compared to 2010 was primarily attributable to the inclusion of $ 19.0 million and $ 5.9 million , respectively , in expense for our new business units , for which minimal earned premiums were recognized . expenses associated with these start up operations will be disproportionately higher than the rate at which premiums are earned . syndicate 1200 the following table summarizes the results of operations for the syndicate 1200 segment : replace_table_token_14_th in 2012 , we increased our direct participation in syndicate 1200 to 79 % from 69 % and 61 % for 2011 and 2010 , respectively . for the year ended december 31 , 2012 , the property division wrote $ 253.6 million in gross written premiums , compared to $ 250.0 million and $ 257.7 million for the same periods in 2011 and 2010. premiums written for the property division reflect the planned reduction of exposure to international treaty and direct and facultative business , as we chose to reduce our exposure in the caribbean and international property treaty . these reductions were offset by increased writings in the real estate owned and personal accident classes . the casualty division wrote $ 172.5 million , $ 124.0 million and $ 127.8 million of gross written 54 premiums for the years ended december 31 , 2012 , 2011 and 2010 , respectively . the increase in written premiums in 2012 was primarily attributable to increased exposure in the general liability and professional indemnity lines , coupled with entering the international casualty treaty line in 2012. the specialty division wrote $ 83.6 million and $ 54.1 million for the years ended december 31 , 2012 and 2011 , respectively . the aerospace division wrote $ 23.3 million and $ 9.7 million in premiums for the years ended december 31 , 2012 and 2011 , respectively . the increases in the specialty and aerospace

during 2011 , our use of cash was primarily attributed to the repurchase of approximately 1.6 million shares of our common stock for a total cost of $ 49.5 million , and the payment of dividends to our shareholders totaling $ 13.1 million . during 2010 , our use of cash was primarily attributed to the repurchase of approximately 3.2 million shares of our common stock for a total cost of $ 105.2 million and the payment of dividends to our shareholders totaling $ 14.2 million . argo group and its other holding company subsidiaries are largely dependent on dividends and other permitted payments from their insurance and reinsurance subsidiaries to pay cash dividends to their shareholders , for debt service and for their operating expenses . the ability of our insurance and reinsurance subsidiaries to pay dividends to us is subject to certain restrictions imposed by the jurisdictions of domicile that regulate our immediate insurance and reinsurance subsidiaries and each jurisdiction has calculations for the amount of dividends that an insurance and reinsurance company can pay without the approval of the insurance regulator . in addition , our ability to receive dividends from our downstream subsidiaries is subject to the ability of each parent corporation within the corporate ownership structure to receive dividends from its respective subsidiary ( ies ) , based upon the subsidiary 's domiciliary regulations . argo re is the primary direct subsidiary of argo group and is subject to bermuda insurance laws . argo ireland is indirectly owned by argo re and is a mid-level holding company subject to irish laws , and its primary subsidiary is argo group us . argo group us is a mid-level holding company subject to delaware laws . argo group us is the parent of all of our u.s. insurance subsidiaries . in september 2012 , argo group us received an ordinary dividend in the amount of $ 10.0 million in cash from rockwood casualty insurance company and an ordinary dividend of $ 59.0 million , in the form of securities , from colony insurance company . the payment of dividends by argo re is limited under bermuda insurance laws , which require argo re to maintain certain measures of solvency and liquidity . as of december 31 , 2012 , argo re 's solvency and liquidity margins and statutory capital 59 and surplus were in excess of the minimum levels required by the insurance act . as of december 31 , 2012 , the unaudited statutory capital and surplus of argo re was estimated to be

the new disclosures are required for investments and derivative financial instruments subject to master netting agreements or similar agreements and require an entity to disclose both gross and net information about such investments and transactions eligible for offset in the statement of assets and liabilities . in addition , the standard requires disclosure of collateral received and posted in connection with master netting agreements or similar agreements . the guidance is effective for financial statements for fiscal years beginning after january 1 , 2013 , and interim periods within those fiscal years . management is evaluating the impact of this guidance on the trust 's financial statements and disclosures . 3 - offering of the shares shares are issued and redeemed continuously in one or more blocks of 50,000 shares in exchange for a combination of cerfs and cash ( or , in the discretion of the sponsor , short-term securities in lieu of cash ) . the baskets of cerfs and cash ( or , in the discretion of the sponsor , short-term securities in lieu of cash ) are transferred to or from the investing pool in exchange for limited liability company interests in the investing pool . in addition , the investing pool is required to deposit cash margin with its futures commission f-8 ishares ® s & p gsci™ commodity-indexed trust notes to financial statements ( continued ) december 31 , 2012 merchant with a value equal to 100 % of the value of each cerf position at the time it is established . individual investors can not purchase or redeem shares in direct transactions with the trust . the trust transacts only with registered broker-dealers that have entered into a contractual arrangement with the trust and the sponsor governing , among other matters , the creation and redemption of shares ( such authorized broker-dealers are the “authorized participants” ) . authorized participants may redeem their shares ( as well as shares on behalf of other investors ) at any time on any business day in one or more blocks of 50,000 shares . redemptions of shares in exchange for baskets of cerfs and cash ( or , in the discretion of the sponsor , short-term securities in lieu of cash ) are treated as sales for financial statement purposes . on april 27 , 2010 , the trust resumed accepting creation orders . creation of new shares of the trust had been suspended since august 24 , 2009. on december 31 , 2012 , the trust had 35,550,000 shares outstanding . 4 - trust expenses the trust is not expected to directly bear any ordinary recurring expenses . the sponsor has agreed to pay the following administrative , operational and marketing expenses : ( 1 ) the fees of the trustee , delaware trustee , trust administrator and processing agent , ( 2 ) nyse arca listing fees , ( 3 ) printing and mailing costs , ( 4 ) audit fees , ( 5 ) tax reporting costs , ( 6 ) license fees , and ( 7 ) up to $ 100,000 per annum in legal fees . the sponsor has also paid the costs of the trust 's organization and the initial sales of the shares , including applicable sec registration fees . 5 - related parties the sponsor , the manager and the trustee are considered to be related parties to the trust . the trustee 's fee is paid by the sponsor and is not a separate expense of the trust . the manager is paid by the investing pool and that fee is an indirect expense of the trust . 6 - indemnification the sponsor and its shareholders , directors , officers , employees , affiliates ( as such term is defined under the united states securities act of 1933 , as amended ) and subsidiaries are entitled to be indemnified by the trust and held harmless against any loss , liability or expense arising out of or in connection with the performance of their obligations under the trust agreement or any actions taken in accordance with the provisions of the trust agreement and incurred without their ( 1 ) negligence , bad faith , willful misconduct or willful malfeasance or ( 2 ) reckless disregard of their obligations and duties under the trust agreement . 7 - commitments and contingent liabilities in the normal course of business , the trust may enter into contracts with service providers that contain general indemnification clauses . the trust 's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the trust that have not yet occurred . 8 - net asset value and financial highlights the trust is presenting the following net asset values and financial highlights related to investment performance and operations for a share outstanding for the years ended december 31 , 2012 , 2011 and 2010. the net investment income ( loss ) and total expense ratios are calculated using average net assets . the net asset value presentation is calculated using daily shares outstanding . the net f-9 ishares ® s & p gsci™ commodity-indexed trust notes to financial statements ( continued ) december 31 , 2012 investment loss and total expense ratios have been annualized and include the allocation of net investment loss and expenses from the investing pool . the total return is based on the change in net asset value of a share during the period . an investor 's return and ratios may vary based on the timing of capital transactions . replace_table_token_14_th ( a ) the ratio of expenses to average net assets includes brokerage commissions and fees in connection with the roll of cerfs which expired in march 2011. excluding such brokerage commissions and fees , the ratio of expenses to average net assets for the year ended december 31 , 2011 would have been 0.75 % . story_separator_special_tag f-10 report of independent registered public accounting firm to the manager and members of ishares ® s & p gsci™ commodity-indexed investing pool llc : in our opinion , the financial statements listed in the accompanying index present fairly , in all material respects , the financial position of ishares ® s & p gsci™ commodity-indexed investing pool llc ( the “investing pool” ) at december 31 , 2012 and 2011 , and the results of its operations and its cash flows for each of the three years in the period ended december 31 , 2012 in conformity with accounting principles generally accepted in the united states of america . also in our opinion , the investing pool maintained , in all material respects , effective internal control over financial reporting as of december 31 , 2012 , based on criteria established in internal control - integrated framework issued by the committee of sponsoring organizations of the treadway commission ( coso ) . the sponsor 's management is responsible for these financial statements , for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting , included in management 's report on internal control over financial reporting appearing under item 9a . our responsibility is to express an opinion on these financial statements and on the investing pool 's internal control over financial reporting based on our integrated audits . we conducted our audits in accordance with the standards of the public company accounting oversight board ( united states ) . those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects . our audits of the financial statements included examining , on a test basis , evidence supporting the amounts and disclosures in the financial statements , assessing the accounting principles used and significant estimates made by management , and evaluating the overall financial statement presentation . our audit of internal control over financial reporting included obtaining an understanding story_separator_special_tag this information should be read in conjunction with the financial statements and notes to financial statements included with this report . the discussion and analysis that follows may contain statements that relate to future events or future performance . in some cases , such forward-looking statements can be identified by terminology such as “may , ” “should , ” “expect , ” “plan , ” “anticipate , ” “believe , ” “estimate , ” “predict , ” “potential” or the negative of these terms or other comparable terminology . none of the sponsor , the manager , the trustee or the delaware trustee assumes responsibility for the accuracy or completeness of any forward-looking statements . none of the sponsor , the manager , the trustee or the delaware trustee is under a duty to update any of the forward-looking statements to conform such statements to actual results or to a change in expectations or predictions . introduction as described in part i above , it is the objective of the trust that the performance of the shares correspond generally to the performance of the s & p gsci™ total return index , or the index , before payment of the trust 's and the investing pool 's expenses and liabilities . the index is intended to reflect the performance of a diversified group of commodities . during the period beginning july 10 , 2006 ( commencement of operations ) and ending on december 31 , 2012 ( the trust 's most recent fiscal year-end ) , the trust 's investment in the investing pool grew from $ 7,358,911 at july 10 , 2006 to $ 1,167,588,732 at december 31 , 2012. outstanding shares in the trust grew from 150,000 shares at july 10 , 2006 to 35,550,000 shares at december 31 , 2012. the following chart shows the daily valuation of cerfs for the period from june 30 , 2006 to december 31 , 2012 : 39 results of operations the year ended december 31 , 2012 the trust 's net asset value decreased from $ 1,313,291,939 at december 31 , 2011 to $ 1,167,588,732 at december 31 , 2012. the decrease in the trust 's net asset value was primarily due to a decrease in outstanding shares , which fell from 39,750,000 at december 31 , 2011 to 35,550,000 at december 31 , 2012 due to 1,750,000 shares ( 35 baskets ) being created and 5,950,000 shares ( 119 baskets ) being redeemed during the year . the decrease in the trust 's net asset value was slightly offset by an increase in the price of the march 2014 cerfs from $ 474.80 at december 31 , 2011 to $ 475.30 at december 31 , 2012 , a 0.11 % increase . net loss for the year was $ 13,741,405 , resulting from a net investment loss of $ 8,786,838 and net realized and unrealized losses of $ 4,972,567 allocated from the investing pool . for the year ended december 31 , 2012 , the trust had a net realized loss of $ 1,661 on short-term investments and net realized and unrealized losses of $ 4,970,906 on futures contracts allocated from the investing pool . other than the management fee of $ 9,733,509 and brokerage commissions and fees of $ 4,950 allocated from the investing pool , the trust had no expenses during the year . the year ended december 31 , 2011 the trust 's net asset value decreased from $ 1,799,879,995 at december 31 , 2010 to $ 1,313,291,939 at december 31 , 2011. the decrease in the trust 's net asset value was primarily due to a decrease in outstanding shares , which fell from 52,700,000 at december 31 , 2010 to 39,750,000 at december 31 , 2011 due to 2,600,000 shares ( 52 baskets ) being created

credit risk when the investing pool purchases or holds cerfs , it is exposed to the credit risk of a default by the cme clearing house , which serves as the counterparty to each cerf position , and of a default by the clearing fcm . in the case of such a default , the investing pool could be unable to recover amounts due to it on its cerf positions and assets posted as margin . the investing pool is also exposed to the credit risk of the obligors of any short-term securities posted as margin . see also “risk factors—risk factors related to cerfs and the s & p gsci-er—the investing pool 's clearing fcm or the cme clearing house could fail , which could expose the investing pool greater risk.” off-balance sheet arrangements and contractual obligations the trust and the investing pool have not used , nor do they expect to use , special purpose entities to facilitate off-balance sheet financing arrangements . the trust and the investing pool have no loan guarantee arrangements or other off-balance sheet arrangements of any kind other than agreements entered into in the normal course of business , which may include indemnification provisions related to certain risks service providers undertake in performing services for the benefit , or on behalf , of the trust and the investing pool . while the trust 's and the investing pool 's exposure under such indemnification provisions can not be estimated , these general business indemnifications are not expected to have a material impact on either the trust 's or the investing pool 's financial position . critical accounting policies the financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements relies on estimates and assumptions that impact the trust 's and the investing pool 's financial position and results of operations . these estimates and assumptions affect the trust 's and the 41 investing pool 's application of accounting policies . in addition , please refer to note 2 to the financial statements of the trust and the investing pool for further discussion of the trust 's and the investing pool 's accounting

60 goodwill and other intangible assets goodwill and indefinite-lived intangibles are not amortized , but are evaluated annually for impairment as part of the company 's annual business planning cycle in the fourth fiscal quarter , or when indicators of a potential impairment are present . the estimated fair value of each reporting unit ( wet shave , sun care , skin care , feminine care , infant care and all other ) is estimated using valuation models that incorporate assumptions and projections of expected future cash flows and operating plans . in determining the estimated fair value of the reporting units when performing a quantitative analysis , both the market approach and the income approach are considered , and the weighting of each approach is based on circumstances specific to each reporting unit . determining the fair value of a reporting unit requires the use of significant judgments , estimates and assumptions . while the company believes that the estimates and assumptions underlying the valuation methodology are reasonable , these estimates and assumptions could have a significant impact on whether an impairment charge is recognized , and also on the magnitude of any such charge . the results of an impairment analysis are as of a point in time . there is no assurance that actual future earnings or cash flows of the reporting units will not decline significantly from these projections . the company will monitor any changes to these assumptions and will evaluate goodwill as deemed warranted during future periods . the key assumptions for the market and income approaches used to determine fair value of the reporting units are updated at least annually . those assumptions and estimates include market data and market multiples , discount rates and terminal growth rates , as well as future levels of revenue growth , operating margins , depreciation , amortization and working capital requirements , which are based upon the company 's strategic plan . the results of current year testing do not indicate that impairment exists , as of the testing date . the fair values of the company 's skin care , feminine care and infant care reporting units are between 110 % and 120 % of the respective carrying values . the carrying value of goodwill associated with the company 's skin care , feminine care and infant care reporting units is $ 54.6 , $ 207.4 and $ 63.8 , respectively . intangible assets with finite lives , and a remaining weighted-average life of approximately 13 years , are amortized on a straight-line basis over expected lives of five to 20 years . such intangibles are also evaluated for impairment including ongoing monitoring of potential impairment indicators . during the fourth quarter of fiscal 2015 , the company completed impairment testing on indefinite-lived intangible assets other than goodwill , which consist of trademarks and brand names used across the company 's segments and determined that the carrying values of its playtex , wet ones and skintimate brand names were above the fair values , resulting in a non-cash asset impairment charge of $ 318.2 . during the fourth quarter of fiscal 2016 , the company completed its annual impairment testing and found the carrying value of its skintimate brand name to be above the fair value , resulting in an additional non-cash asset impairment charge of $ 6.5 . see note 8 of notes to consolidated financial statements for further information on these impairments . impairment of long-lived assets the company reviews long-lived assets , other than goodwill and other intangible assets for impairment , when events or changes in business circumstances indicate that the remaining useful life may warrant revision or that the carrying amount of the long-lived asset may not be fully recoverable . the company performs undiscounted cash flow analysis to determine if impairment exists . if impairment is determined to exist , any related impairment loss is calculated based on estimated fair value . impairment losses on assets to be disposed of , if any , are based on the estimated proceeds to be received , less cost of disposal . in may 2015 , the company 's board of directors ( the `` board `` ) authorized the strategic decision to exit the company 's industrial business due to a shift of management focus to other products . the company sold the business to a third-party in september 2015. impacted by this decision were operations in verona , virginia ; obregon , mexico ; and the united kingdom ( the `` u.k. `` ) . during fiscal 2015 , the company incurred $ 21.9 of non-cash asset impairment charges , in addition to a $ 10.8 loss on the sale of the business , which was recorded as a separate line item . for further information on the sale , refer to note 3 of notes to the consolidated financial statements . revenue recognition the company 's revenue is from the sale of its products . revenue is recognized when title , ownership and risk of loss pass to the customer . discounts are offered to customers for early payment and an estimate of the discounts is recorded as a reduction of net sales in the same period as the sale . the company 's standard sales terms are final and returns or exchanges are not permitted unless a special exception is made . reserves are established and recorded in cases where the right of return does exist for a particular sale . 61 under certain circumstances , the company allows customers to return sun care products that have not been sold by the end of the sun care season , which is normal practice in the sun care industry . the company records sales at the time the title , ownership and risk of loss pass to the customer . story_separator_special_tag our effective tax rate is highly sensitive to the mix of countries from which earnings or losses are derived . declines in earnings in lower tax rate countries , earnings increases in higher tax rate countries , repatriation of foreign earnings or operating losses in the future could increase future tax rates . additionally , adjustments to prior year tax provision estimates could increase or decrease future tax provisions . segment results segment performance is evaluated based on segment profit , exclusive of general corporate expenses , share-based compensation costs , costs associated with restructuring initiatives , the venezuela deconsolidation charge , industrial sale charges , cost of early debt retirements , acquisition or integration , and the amortization and impairment of intangible assets . financial items , such as interest income and expense , are managed on a global basis at the corporate level . the exclusion of such charges from segment results reflects management 's view on how it evaluates segment performance . our operating model includes some shared business functions across the segments , including product warehousing and distribution , transaction processing functions , and in most cases a combined sales force and management teams . we apply a fully allocated cost basis , in which shared business functions are allocated between the segments on a percentage of net sales basis . such allocations are estimates , and do not represent the costs of such services if performed on a stand-alone basis . 34 the following tables present changes in segment net sales and segment profit for fiscal 2016 and 2015 , as compared to the corresponding prior year periods , and also provide a reconciliation of organic segment net sales and organic segment profit to reported amounts . for a reconciliation of segment profit to earnings ( loss ) from continuing operations before income taxes , see note 17 of notes to consolidated financial statements . wet shave replace_table_token_8_th wet shave net sales for fiscal 2016 decreased 1.1 % , inclusive of a 1.2 % decline due to currency movements and a 1.7 % decline due to the impact of venezuela . excluding the impact of currency movements and venezuela , organic net sales increased $ 25.5 , or 1.8 % , including an estimated $ 29.0 negative impact from international go-to-market changes . excluding the impact of international go-to-market changes , underlying net sales grew by 3.7 % . the improvement in organic net sales was primarily driven by favorable price mix due to lower coupons and promotional activity , international price increases and hydro volume increases due to a new product launch . wet shave net sales for fiscal 2015 decreased 9.1 % , inclusive of a 7.3 % decline due to currency movements and a 0.3 % decline due to the impact of venezuela . excluding the impact of currency movements and venezuela , organic net sales declined $ 24.6 , or 1.5 % , due to increased trade spending levels , lower sales of legacy branded men 's and women 's systems and shave preparations , partly due to go-to-market changes and transitional impacts in international markets . these declines were offset in part by continued volume growth and higher pricing on hydro men 's systems , volume growth on the new hydro silk trimstyle razor for women and growth on xtreme3 and quattro disposable razors , as well as growth across non-branded products . replace_table_token_9_th wet shave segment profit for fiscal 2016 was $ 290.2 , down $ 18.5 or 6.0 % , inclusive of the impact of currency movements and venezuela . excluding the impact of currency movements and venezuela , organic segment profit decreased $ 7.9 , or 2.6 % , primarily due to lower volumes and increased sg & a , partially offset by favorable price mix and decreased a & p spend . wet shave segment profit for fiscal 2015 was $ 308.7 , down $ 79.5 or 20.5 % , inclusive of the impact of currency movements and venezuela . excluding the impact of currency movements and venezuela , organic segment profit decreased $ 35.7 , or 9.2 % , due primarily to lower net sales and increased a & p , partly offset by favorable product costs . 35 sun and skin care replace_table_token_10_th sun and skin care net sales for fiscal 2016 increased 2.8 % , inclusive of a 1.8 % decline due to currency movements . excluding the impact of currency movements , organic segment net sales increased $ 18.6 , or 4.6 % , including an estimated $ 3.0 negative impact from international go-to-market changes . the increase in organic net sales was primarily driven by higher north america volumes on favorable category growth due to weather trends . sales growth of sun care products were partially offset by declines in skin care due to lower sales of gloves and wet ones . sun and skin care net sales for fiscal 2015 decreased 4.9 % , inclusive of a 3.3 % decline due to currency movements . excluding the currency movements , organic segment sales decreased $ 6.7 , or 1.6 % , primarily due to lower sun and skin care sales in north america due to increased sales promotions and in latin america due in part to go-to-market and transition impacts , partially offset by increased sun care sales in asia and europe . replace_table_token_11_th sun and skin care segment profit for fiscal 2016 was $ 89.5 , an increase of $ 18.0 or 25.2 % , inclusive of the impact of currency movements . excluding the impact of currency movements , organic segment profit increased $ 20.9 , or 29.2 % , driven by the increase in organic segment net sales and decreased investment in a & p . sun and skin care segment profit for fiscal 2015 was $ 71.5 , a decrease of $ 2.4 , or 3.2 % , inclusive of the impact of currency movements .

we evaluated the discretionary funding of certain international defined benefit plans and contributed approximately $ 100.5 to one of our plans during the second quarter of fiscal 2016. the minimum required contribution to our pension plans in fiscal 2017 is $ 7.3 ; however , discretionary contributions may be made . amendment to credit agreement on april 26 , 2016 , we , along with our wholly-owned subsidiary , edgewell personal care brands , llc , ( `` brands '' ) , and certain other of our subsidiaries entered into amendment no . 2 to the credit agreement ( the `` amendment '' ) , amending the credit agreement dated june 1 , 2015 , as amended ( the `` credit agreement '' ) , by and among us , brands , jpmorgan chase bank , n.a. , as administrative agent , and the various lenders who are a party thereto . the amendment provides for an increase of $ 50.0 ( from $ 600.0 to $ 650.0 ) in the revolving loans available to us and brands under the revolving facility , pursuant to the credit agreement , and the availability of a $ 185.0 term loan to brands pursuant to the credit agreement . on april 26 , 2016 , brands borrowed $ 185.0 in a term loan under the credit agreement . the term loan matures on the third anniversary of the date of the amendment , and bears interest at an annual rate equal to libor plus the applicable margin of 1.075 % - 1.575 % based on total leverage , or the alternate base rate plus the applicable margin , which will be 1.0 % lower than for libor loans ( as such terms are defined in the credit agreement ) . the proceeds of the term loan borrowing were used to pay down existing indebtedness . debt

we identified the evaluation of the discount rates used to initially measure the operating lease liabilities related to leases of land upon adoption of asc 842 as a critical audit matter . the partnership determined that the rates implicit in the lease contracts were not readily determinable and therefore developed discount rates using partnership and market-based interest rates that correspond with the remaining term of the respective leases . the partnership made adjustments to those market-based interest rates to reflect the partnership 's credit spread and collateralized payment terms present in the respective leases . evaluating the information used to develop the discount rates and the adjustments made to the market-based interest rates required auditor judgment and the use of valuation professionals with specialized skills and knowledge . the primary procedures we performed to address this critical audit matter included the following . we tested certain internal controls over the partnership 's process for developing the discount rates . we involved valuation professionals with specialized skills and knowledge , who assisted in evaluating the partnership 's discount rates . the valuation professionals independently developed a range of reasonable discount rates using market-based interest rates for the partnership and other similar companies , and then made adjustments to those market-based interest rates to reflect the maturities of the respective leases , level of collateral , and the partnership 's credit spread . we evaluated the discount rates used by the partnership by comparing those rates to the ranges of discount rates independently developed by the valuation professionals . kpmg llp we have served as the partnership 's auditor since 1998. jacksonville , florida february 14 , 2020 63 report of independent registered public accounting firm the board of directors and partners , regency centers corporation , and regency centers , l.p. : opinion on internal control over financial reporting we have audited regency centers , l.p. 's ( the partnership ) internal control over financial reporting as of december 31 , 2019 , based on criteria established in internal control – integrated framework ( 2013 ) issued by the committee of sponsoring organizations of the treadway commission . in our opinion , the partnership maintained , in all material respects , effective internal control over financial reporting as of december 31 , 2019 , based on criteria established in internal control – integrated framework ( 2013 ) issued by the committee of sponsoring organizations of the treadway commission . we also have audited , in accordance with the standards of the public company accounting oversight board ( united states ) ( pcaob ) , the consolidated balance sheets of the partnership as of december 31 , 2019 and 2018 , the related consolidated statements of operations , comprehensive income , capital , and cash flows for each of the years in the three-year period ended december 31 , 2019 , and the related notes and financial statement schedule iii – consolidated real estate and accumulated depreciation ( collectively , the consolidated financial statements ) , and our report dated february 14 , 2020 expressed an unqualified opinion on those consolidated financial statements . basis for opinion the partnership 's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting , included in the accompanying management 's report on internal control over financial reporting . our responsibility is to express an opinion on the partnership 's internal control over financial reporting based on our audit . we are a public accounting firm registered with the pcaob and are required to be independent with respect to the partnership in accordance with the u.s. federal securities laws and the applicable rules and regulations of the securities and exchange commission and the pcaob . we conducted our audit in accordance with the standards of the pcaob . those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects . our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting , assessing the risk that a material weakness exists , and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk . our audit also included performing such other procedures as we considered necessary in the circumstances . we believe that our audit provides a reasonable basis for our opinion . definition and limitations of internal control over financial reporting a company 's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles . a company 's internal control over financial reporting includes those policies and procedures that ( 1 ) pertain to the maintenance of records that , in reasonable detail , accurately and fairly reflect the transactions and dispositions of the assets of the company ; ( 2 ) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles , and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company ; and ( 3 ) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition , use , or disposition of the company 's assets that could have a material effect on the financial statements . because of its inherent limitations , internal control over financial reporting may not prevent or detect misstatements . also , projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions , or that the degree of compliance with the policies or procedures may deteriorate . story_separator_special_tag summary of cash flow activity the following table summarizes net cash flows related to operating , investing , and financing activities of the company : replace_table_token_32_th net cash provided by operating activities : net cash provided by operating activities increased by $ 10.9 million due to : $ 2.0 million increase in operating cash flow distributions from our unconsolidated real estate partnerships ; and , $ 17.1 million net increase in cash due to timing of cash receipts and payments related to operating activities ; offset by $ 1.3 million decrease in cash from operating income ; and , $ 6.9 million decrease from cash paid to settle treasury rate locks in 2019 to hedge changes in interest rates on our 30 year fixed rate debt offering completed during 2019 and to settle an interest rate swap on the repayment of our $ 300 million term loan during 2019 . 48 net cash used in investing activities : net cash used in investing activities changed by $ 176.7 million as follows : replace_table_token_33_th significant investing and divesting activities included : we acquired four operating properties for $ 222.4 million during 2019 and three operating properties for $ 85.3 million during 2018. we invested $ 26.2 million less in 2019 than 2018 on real estate development , redevelopment , and capital improvements , as further detailed in a table below . we received proceeds of $ 137.6 million from the sale of seven shopping centers and six land parcels in 2019 , compared to $ 250.4 million for ten shopping centers and nine land parcels in 2018. we received property insurance claim proceeds of $ 9.4 million during 2019 attributable to a single property that was severely damaged by a tornado in the current year . we received $ 15.6 million upon the collection of two notes in 2018. we invested $ 66.9 million in our real estate partnerships during 2019 , including : o $ 44.3 million to fund our share of development and redevelopment activities , o $ 9.7 million to fund our share of acquiring an additional equity interest in one partnership , o $ 8.2 million to fund our share of acquiring land under one shopping center that was previously under a ground lease , and o $ 4.7 million to fund our share of repayments for maturing debt . during the same period in 2018 , we invested $ 74.2 million in our real estate partnerships , including : o $ 48.8 million to fund our share of acquiring four operating properties , o $ 21.9 million to fund our share of development and redevelopment activities , o $ 1.3 million to acquire an interest in one land parcel for development , and o $ 2.2 million to fund our share of maturing debt . distributions from our unconsolidated real estate partnerships include return of capital from sales or financing proceeds . the $ 63.7 million received in 2019 is driven by the sale of three operating properties , the sale of our ownership interest in a single operating property partnership , and our share of proceeds from debt financing activities . during the same period in 2018 , we received $ 14.6 million from the sale of one land parcel and one operating property plus our share of proceeds from debt financing activities . dividends on securities , acquisition of securities , and proceeds from sale of securities pertain to investment activities held in our captive insurance company and our deferred compensation plan . 49 we plan to continue developing and redeveloping shopping centers for long-term investment purposes . during 2019 , we deployed capital of $ 200.0 million for the development , redevelopment , and improvement of our real estate properties as comprised of the following : replace_table_token_34_th during 2019 , we acquired two land parcels for new development and redevelopment projects as compared to three land parcels during 2018. building and tenant improvements decreased $ 6.5 million during the year ended december 31 , 2019 , primarily related to the timing of capital projects . redevelopment expenditures were higher during 2019 due to the timing , magnitude , and number of projects in process . we intend to continuously improve our portfolio of shopping centers through redevelopment which can include adjacent land acquisition , existing building expansion , façade renovations , new out-parcel building construction , and redevelopment related tenant improvement costs . the size and magnitude of each redevelopment project varies with each redevelopment plan . the timing and duration of these projects , which generally includes tenant vacancies before and during the redevelopment , could also result in volatility in noi . see the tables below for more details about our redevelopment projects . development expenditures were lower in 2019 based on the progress towards completion of our development projects in process . at december 31 , 2019 and 2018 , we had three and six consolidated development projects , respectively , that were either under construction or in lease up . see the tables below for more details about our development projects . interest is capitalized on our development and redevelopment projects and is based on cumulative actual costs expended . we cease interest capitalization when the property is no longer being developed or is available for occupancy upon substantial completion of tenant improvements , but in no event would we capitalize interest on the project beyond 12 months after the anchor opens for business . we have a staff of employees who directly support our development program , which includes redevelopment of our existing properties . we currently expect that our development and redevelopment activities will approximate our recent historical averages , although the amount of activity by type will vary . internal compensation costs directly attributable to these activities are capitalized as part of each project . changes in the level of future development activity could adversely impact results of operations by reducing the amount of internal costs

contractual obligations we have debt obligations related to our mortgage loans , unsecured notes , unsecured credit facilities , interest rate swap obligations , and lease agreements as described further below and in note 7 , note 9 , and note 10 to the consolidated financial statements . we have shopping centers that are subject to non-cancelable long-term ground leases where a third party owns and has leased the underlying land to us to construct and or operate a shopping center . we also have non-cancelable operating leases pertaining to office space from which we conduct our business . in addition , at december 31 , 2019 , we had a contractual commitment to purchase an additional 16.62 % ownership interest in our town and country shopping center , bringing our ownership interest to 35 % . we closed on the purchase in january 2020 for $ 18.1 million . the following table of contractual obligations summarizes our debt maturities , including our pro-rata share of obligations within co-investment partnerships as of december 31 , 2019 , and excludes the following : recorded debt premiums or discounts and issuance costs that are not obligations ; obligations related to construction or development contracts , since payments are only due upon satisfactory performance under the contracts ; letters of credit of $ 12.5 million issued to cover our captive insurance program and performance obligations on certain development projects , which the latter will be satisfied upon completion of the development projects ; and obligations for retirement savings plans due to uncertainty around timing of participant withdrawals , which are solely within the control of the participant , and are further discussed in note 14 to the consolidated financial statements . replace_table_token_38_th ( 1 ) includes interest payments . ( 2 ) we are obligated to contribute our pro-rata share to fund maturities if they are not

as of december 31 , 2015 and december 31 , 2014 , one client accounted for 12 % of accounts receivable . no client accounted for more than 10 % of total revenues in the years ended december 31 , 2015 , 2014 and 2013 . bad debt expense , net of recoveries was $ 2.0 million , $ 1.4 million and $ 0.6 million for the years ended december 31 , 2015 , 2014 and 2013 , respectively . recent accounting pronouncements in february 2016 , the financial accounting standards board , or ( fasb ) , issued accounting standards update ( asu ) 2016-02— leases . the amendment requires that lease arrangements longer than 12 months result in an entity recognizing an asset and liability . the amendment is effective for annual reporting periods , and interim periods within those years beginning after december 15 , 2018. early adoption is permitted . the company is currently in the process of evaluating the impact of the adoption of this standard on its consolidated financial statements . in january 2016 , the fasb issued asu 2016-01— recognition and measurement of financial assets and financial liabilities . the amendment addresses various aspects of the recognition , measurement , presentation , and disclosure for financial instruments . the amendment is effective for annual reporting periods , and interim periods within those years beginning after december 15 , 2017. early adoption by public entities is permitted only for certain provisions . the company is currently in the process of evaluating the impact of the adoption of this standard on its consolidated financial statements . in november 2015 , the fasb issued asu 2015-17— balance sheet classification of deferred taxes , as part of its initiative to reduce complexity in accounting standards ( the simplification initiative ) . the amendment requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position . the amendment is effective for 68 fiscal years , and interim periods within those fiscal years , beginning after december 15 , 2016. early adoption is permitted . the company adopted this guidance in 2015 with retrospective application . see note 11 for further details . in april 2015 , the fasb issued asu 2015-05— intangibles—goodwill and other—internal-use software , as part of the simplification initiative . the amendment provides guidance to clarify the customer 's accounting for fees paid in a cloud computing arrangement . the amendment is effective for fiscal years , and interim periods within those fiscal years , beginning after december 15 , 2015. early adoption is permitted . the company expects to adopt this guidance in 2016. the company does not expect this guidance to have a material effect on its consolidated financial statements . in april 2015 , the fasb issued asu 2015-03— interest—imputation of interest , as part of its simplification initiative . the amendment requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability , consistent with debt discounts . the amendment is effective for fiscal years , and interim periods within those fiscal years , beginning after december 15 , 2015. early adoption is permitted for financial statements that have not been previously issued . the company expects to adopt this guidance in 2016. the company does not expect this guidance to have a material effect on its consolidated financial statements . in august 2014 , the fasb issued asu 2014-15— presentation of financial statements—going concern ( subtopic 205-40 ) , which addresses management 's responsibility to evaluate whether there is substantial doubt about an entity 's ability to continue as a going concern and to provide related footnote disclosures . management 's evaluation should be based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued . the standard will be effective for the first interim period within annual reporting periods beginning after december 15 , 2016. early adoption is permitted . the company does not expect to adopt this guidance early and does not believe that the adoption of this guidance will have a material effect on its consolidated financial statements . in june 2014 , the fasb issued asu 2014-12— compensation — stock compensation , which requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition . asu 2014-12 is effective for annual reporting periods , and interim periods within those years , beginning after december 15 , 2015. early adoption is permitted . the amendments may be applied prospectively to all awards granted or modified after the effective date or retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented . the company does not expect this guidance to have a material effect on its consolidated financial statements . the company expects to adopt this guidance in 2016. in may 2014 , the fasb issued asu 2014-09— revenue from contracts with customers , which will replace most existing revenue recognition guidance under gaap . the core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services . the standard provides a five-step analysis of transactions to determine when and how revenue is recognized . in july 2015 , the fasb deferred the effective date to annual reporting periods , and interim periods within those years , beginning after december 15 , 2017. early adoption at the original effective date of december 15 , 2016 is permitted . the amendments may be applied retrospectively or as a cumulative-effect adjustment as of the date of adoption . story_separator_special_tag also for the reasons set forth above with respect to total revenues , our net insurance service revenues for 2014 increased by $ 19.8 million , or 14 % , as compared to 2013 , and our net service revenues for 2014 increased by $ 89.5 million , or 21 % , as compared to 2013 . 42 other operating expenses replace_table_token_19_th cost of providing services replace_table_token_20_th cost of providing services for 2015 increased by $ 16.4 million , or 12 % , compared to 2014 . the increase was primarily attributable to a $ 13.2 million increase in compensation-related costs due to increased headcount to support our growth , which includes a $ 1.6 million increase in stock-based compensation expense . other expenses increased $ 2.0 million , or 10 % , mainly in consulting costs incurred to enhance our product offering . cost of providing services represented 6 % of total revenues in each of the years ended december 31 , 2015 and 2014 . cost of providing services increased to 28 % of net service revenues in 2015 from 26 % in 2014 . cost of providing services for 2014 increased by $ 27.6 million , or 26 % , compared to 2013 , primarily due to an increase in compensation-related costs . compensation-related costs increased by $ 21.5 million , or 28 % , due to increased headcount , including $ 4.0 million from our acquisition of ambrose and a $ 1.5 million increase in stock-based compensation not related to ambrose . facilities-related costs increased by $ 1.5 million , or 27 % , due to the growth of our business . other expenses increased $ 4.1 million , or 25 % , mainly due to increased consulting costs incurred to enhance our product offering . cost of providing services as a percentage of total revenues and net service revenues remained unchanged at 6 % of total revenues and 26 % of net service revenues for the years ended december 31 , 2014 and 2013 . 43 sales and marketing replace_table_token_21_th sales and marketing expenses for 2015 increased by $ 26.8 million , or 19 % , compared to 2014 . of this increase , $ 16.8 million was due to compensation-related costs from our growth in direct sales channels , primarily the addition of new sales representatives , which includes a $ 1.7 million increase in stock-based compensation expense . marketing and advertising expenses increased $ 2.4 million , or 12 % , primarily as a result of our effort to focus on market verticals and penetration . in order to support the growth in sales force , other expenses including travel expenses , meetings , recruiting , training and consulting increased $ 6.8 million for 2015 , or 35 % compared to 2014 . sales and marketing represented 6 % of total revenues in each of the years ended december 31 , 2015 and 2014 . as a percentage of net service revenues , sales and marketing expenses increased to 30 % in 2015 from 28 % in 2014 as a result of lower net service revenues . sales and marketing expenses for 2014 increased by $ 30.8 million , or 28 % , compared to 2013 . of this increase , $ 23.0 million was due to compensation-related costs , including $ 2.9 million from our acquisition of ambrose and $ 18.3 million from our growth in direct sales channels , primarily the addition of new sales representatives , as well as a $ 1.5 million increase in stock based compensation . marketing and advertising expenses increased $ 3.8 million , or 24 % , primarily due to our acquisition of ambrose and as a result of our effort to focus on market verticals and penetration . other expenses increased $ 3.3 million , or 20 % , primarily due to increased sales travel , meeting and conference activities , as well as other expenses associated with recruiting efforts and information technology . sales and marketing expenses as a percentage of total revenues decreased to 6 % for the year ended december 31 , 2014 compared to 7 % for the year ended december 31 , 2013 . as a percentage of net service revenues , sales and marketing expenses increased to 28 % for the year ended december 31 , 2014 compared to 26 % for the year ended december 31 , 2013 . general and administrative replace_table_token_22_th general and administrative expenses for 2015 increased by $ 15.7 million , or 29 % , compared to 2014 . compensation-related costs increased $ 4.0 million compared to 2014 primarily due to a $ 3.0 million increase in stock-based compensation expenses . legal , accounting and other professional fees increased $ 9.8 million primarily due to costs associated with the implementation of section 404 of the sarbanes-oxley act , which amounted to $ 5.7 million for 2015 . general and administrative expenses increased to 3 % as a percentage of total revenues in 2015 from 2 % in 2014 . as a percentage of net service revenues , general and administrative expenses increased to 13 % for 2015 from 11 % in 2014 as a result of lower net service revenues . 44 general and administrative expenses for 2014 , increased by $ 1.5 million , or 3 % , compared to 2013 . of these expenses , compensation-related costs increased $ 0.8 million compared to 2013 . general and administrative expenses decreased to 2 % of total revenues , or 11 % of net service revenues , for the year ended december 31 , 2014 , from 3 % of total revenues , or 13 % of net service revenues , in the same period of the prior year as a result of efficiencies realized subsequent to our acquisitions . systems development and programming replace_table_token_23_th our systems development and programming costs for 2015 increased by $ 1.5 million , or 6 % ,

in july 2014 , we amended and restated our first lien credit facility pursuant to an amended and restated first lien credit agreement , or the amended and restated credit agreement . the amended and restated credit agreement provides for : ( i ) $ 375 million principal amount of “ tranche a term loans , ” ( ii ) $ 200 million principal amount of “ tranche b term loans , ” and ( iii ) a revolving credit facility of $ 75 million , which we refer to as the revolving credit facility . the proceeds of the tranche a term loans were used to refinance in part the tranche b-2 term loans outstanding under the original first lien credit facility . the proceeds of the tranche b term loans were used to ( i ) refinance the remaining tranche b-2 term loans outstanding under the original first lien credit facility , ( ii ) refinance other amounts outstanding under the original first lien credit facility and ( iii ) pay fees and expenses related thereto . the revolving credit facility replaced the revolving credit facility under the original first lien credit facility . the $ 75.0 million revolving credit facility includes capacity for a $ 40.0 million letter of credit facility and a $ 10.0 million swingline facility . the total unused portion of the revolving credit facility was $ 59.5 million as of december 31 , 2015 . as of december 31 , 2015 , we had $ 499.6 million in outstanding indebtedness under the amended and restated credit agreement , all of which was secured indebtedness of our subsidiary , trinet hr corporation , guaranteed on a senior secured basis by us and certain of our subsidiaries . in connection with the amended and restated credit agreement , we incurred $ 11.1 million of debt issuance costs . we deferred $ 8.0 million of the costs , which are being amortized over the term of the credit facility . the remaining $ 3.1 million of costs were recorded to interest expense and bank fees . additionally , we recorded a $ 9.0 million loss on extinguishment of debt to write-off deferred issuance costs associated with the original first lien credit facility , which was also recorded to interest expense and bank fees . the remaining $ 6.1 million of loan fees associated with the previous facility were deemed to be modified and continue to be amortized over the revised

these assets have been evaluated to ensure that the capitalized costs do not exceed the estimated net realizable value of the related products . as part of the impairment analysis , we use an undiscounted cash flow model based on estimated net sales and gross profit to be derived in the future from the specific product and other estimated costs directly related to the product . amortization was started in fiscal year 2012 with introduction of the first products at the end of april 2012. no amortization was recorded prior to the introduction of the new products . inherent in the operating results forecasts are certain assumptions regarding revenue growth rates , projected future costs , costs to complete and projected long-term growth rates . the company performed impairment testing as of june 30 , 2012 and 2011 and no impairment was identified . product warranty obligations products , with the exception of striva , are generally covered by a lifetime warranty . the striva products carry a 90 day warranty . we record accruals for potential warranty claims based on prior product returns experience . warranty costs are accrued at the time revenue is recognized . these warranty costs are based upon management 's assessment of past claims and current experience . however , actual claims could be higher or lower than amounts estimated , as the amount and value of warranty claims are subject to variation as a result of many factors that can not be predicted with certainty . income taxes we estimate a provision for income taxes based on the effective tax rate expected to be applicable for the full fiscal year . if the actual results are different from these estimates , adjustments to the effective tax rate may be required in the period such determination is made . additionally , discrete items are treated separately from the effective rate analysis and are recorded separately as an income tax provision or benefit at the time they are recognized . deferred income taxes are accounted for under the asset and liability method whereby deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of 14 existing assets and liabilities and their respective tax bases . deferred income tax assets and liabilities are measured using statutory tax rates . deferred income tax provisions are based on changes in the deferred tax assets and liabilities from period to period . additionally , we analyze our ability to recognize the net deferred income tax assets created in each jurisdiction in which we operate to determine if valuation allowances are necessary based on the “ more likely than not ” criteria . new accounting pronouncements applicable new accounting pronouncements are set forth under item 15 of this annual report and are incorporated herein by reference . item 8. financial statements and supplementary data . see the consolidated financial statements attached hereto . item 9. changes and disagreements with accountants on accounting and financial disclosure none . item 9a . controls and procedures . disclosure controls and procedures . disclosure controls and procedures ( as defined in rules 13a-15 ( e ) and 15d-15 ( e ) ) of the securities exchange act of 1934 , as amended ( the “ exchange act ” ) are designed to ensure that ( 1 ) information required to be disclosed in reports filed or submitted under the exchange act is recorded , processed , summarized and reported within the time periods specified in sec rules and forms ; and ( 2 ) that such information is accumulated and communicated to management , including the principal executive officer and principal financial officer , to allow timely decisions regarding required disclosures . there are inherent limitations to the effectiveness of any system of disclosure controls and procedures , including the possibility of human error and the circumvention or overriding of controls and procedures . accordingly , even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives . the company 's management , including the company 's chief executive officer and chief financial officer , evaluated the effectiveness of the design and operation of the company 's disclosure controls and procedures as of june 30 , 2012 . the recent enhancements to the company 's controls and procedures , including the computer system installed during the quarter ended september 30 , 2011 , have been fully implemented and tested . the company 's management has concluded that the company 's disclosure controls and procedures as of june 30 , 2012 were effective . management 's annual report on internal controls over financial reporting . the company 's management , including its chief executive officer and chief financial officer , is responsible for establishing and maintaining adequate internal control over financial reporting ( as defined in exchange act rules 13a-15 ( f ) and 15d-15 ( f ) ) and designing such internal controls to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the united states of america . there are inherent limitations to the effectiveness of any system of internal control over financial reporting , including the possibility of human error or the circumvention or overriding of controls and procedures . accordingly , even effective internal control over financial reporting can only provide reasonable assurance of achieving its control objectives . management conducted its evaluation of the effectiveness of its internal control over financial reporting based on the framework in “ internal control-integrated framework ” issued by the committee of sponsoring organizations of the treadway commission ( “ coso ” ) . the recent enhancements to the company 's controls and procedures , including the computer system installed during the quarter ended september 30 , 2011 , have been fully implemented and tested . the company 's management believes that story_separator_special_tag these assets have been evaluated to ensure that the capitalized costs do not exceed the estimated net realizable value of the related products . as part of the impairment analysis , we use an undiscounted cash flow model based on estimated net sales and gross profit to be derived in the future from the specific product and other estimated costs directly related to the product . amortization was started in fiscal year 2012 with introduction of the first products at the end of april 2012. no amortization was recorded prior to the introduction of the new products . inherent in the operating results forecasts are certain assumptions regarding revenue growth rates , projected future costs , costs to complete and projected long-term growth rates . the company performed impairment testing as of june 30 , 2012 and 2011 and no impairment was identified . product warranty obligations products , with the exception of striva , are generally covered by a lifetime warranty . the striva products carry a 90 day warranty . we record accruals for potential warranty claims based on prior product returns experience . warranty costs are accrued at the time revenue is recognized . these warranty costs are based upon management 's assessment of past claims and current experience . however , actual claims could be higher or lower than amounts estimated , as the amount and value of warranty claims are subject to variation as a result of many factors that can not be predicted with certainty . income taxes we estimate a provision for income taxes based on the effective tax rate expected to be applicable for the full fiscal year . if the actual results are different from these estimates , adjustments to the effective tax rate may be required in the period such determination is made . additionally , discrete items are treated separately from the effective rate analysis and are recorded separately as an income tax provision or benefit at the time they are recognized . deferred income taxes are accounted for under the asset and liability method whereby deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of 14 existing assets and liabilities and their respective tax bases . deferred income tax assets and liabilities are measured using statutory tax rates . deferred income tax provisions are based on changes in the deferred tax assets and liabilities from period to period . additionally , we analyze our ability to recognize the net deferred income tax assets created in each jurisdiction in which we operate to determine if valuation allowances are necessary based on the “ more likely than not ” criteria . new accounting pronouncements applicable new accounting pronouncements are set forth under item 15 of this annual report and are incorporated herein by reference . item 8. financial statements and supplementary data . see the consolidated financial statements attached hereto . item 9. changes and disagreements with accountants on accounting and financial disclosure none . item 9a . controls and procedures . disclosure controls and procedures . disclosure controls and procedures ( as defined in rules 13a-15 ( e ) and 15d-15 ( e ) ) of the securities exchange act of 1934 , as amended ( the “ exchange act ” ) are designed to ensure that ( 1 ) information required to be disclosed in reports filed or submitted under the exchange act is recorded , processed , summarized and reported within the time periods specified in sec rules and forms ; and ( 2 ) that such information is accumulated and communicated to management , including the principal executive officer and principal financial officer , to allow timely decisions regarding required disclosures . there are inherent limitations to the effectiveness of any system of disclosure controls and procedures , including the possibility of human error and the circumvention or overriding of controls and procedures . accordingly , even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives . the company 's management , including the company 's chief executive officer and chief financial officer , evaluated the effectiveness of the design and operation of the company 's disclosure controls and procedures as of june 30 , 2012 . the recent enhancements to the company 's controls and procedures , including the computer system installed during the quarter ended september 30 , 2011 , have been fully implemented and tested . the company 's management has concluded that the company 's disclosure controls and procedures as of june 30 , 2012 were effective . management 's annual report on internal controls over financial reporting . the company 's management , including its chief executive officer and chief financial officer , is responsible for establishing and maintaining adequate internal control over financial reporting ( as defined in exchange act rules 13a-15 ( f ) and 15d-15 ( f ) ) and designing such internal controls to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the united states of america . there are inherent limitations to the effectiveness of any system of internal control over financial reporting , including the possibility of human error or the circumvention or overriding of controls and procedures . accordingly , even effective internal control over financial reporting can only provide reasonable assurance of achieving its control objectives . management conducted its evaluation of the effectiveness of its internal control over financial reporting based on the framework in “ internal control-integrated framework ” issued by the committee of sponsoring organizations of the treadway commission ( “ coso ” ) . the recent enhancements to the company 's controls and procedures , including the computer system installed during the quarter ended september 30 , 2011 , have been fully implemented and tested . the company 's management believes that

the company intends to effect all stock purchases either on the open market or through privately negotiated transactions and intends to finance all stock purchases through its own cash flow or by borrowing for such purchases . there were no stock repurchases under the program in fiscal 2012 and 2011 . as of june 30 , 2012 , the board of directors has authorized the repurchase by the company of up to $ 2,139,753 in company common stock at the discretion of the chief executive officer of the company . future stock purchases under this program are dependent on management 's assessment of value versus market price . off-balance sheet arrangements the company has no off-balance sheet arrangements other than the lease for the facility in milwaukee , wisconsin , which it leases from its chairman . on may 15 , 2012 , the lease was renewed for a period of five years , ending june 30 , 2018 , and is being accounted for as an operating lease . the lease extension maintained the rent at a fixed rate of $ 380,000 per year . the company is responsible for all property maintenance , insurance , taxes and other normal expenses related to ownership . the facility is in good repair and , in the opinion of management , is suitable and adequate for the company 's business purposes . critical accounting policies our discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . we continually evaluate our estimates and judgments , including those related to doubtful accounts , product returns , excess inventories , warranties , impairment of long-lived assets , deferred compensation , income taxes and other contingencies . we base our estimates on historical experience and assumptions that we believe to be reasonable under the circumstances . actual results may differ from these estimates . revenue recognition the company recognizes revenue when all of the following criteria are met : persuasive evidence of an arrangement

( 3 ) non-current deferred rent was classified within other non-current liabilities as of december 31 , 2018. the adjustments due to the adoption of topic 842 related to the recognition of operating lease right-of-use assets and lease liabilities for the existing operating leases . a cumulative-effect adjustment to the beginning accumulated deficit balance was not required . in june 2016 , the fasb issued asu no . 2016-13 , financial instruments-credit losses ( topic 326 ) : measurement of credit losses on financial instruments , which changes the impairment model for most financial assets and certain other instruments . for available-for-sale debt securities with unrealized credit losses , the credit losses will be recognized as allowances rather than as reductions in the amortized cost of the securities . the guidance is effective for interim and annual periods beginning after december 15 , 2019. the guidance and its amendments will be applied using a modified retrospective approach with the cumulative effect recognized as an adjustment to retained earnings . the company does not expect the adoption of asu 2016-13 to have a material impact on its consolidated financial statements . in august 2018 , the fasb issued asu no . 2018-15 , intangibles – goodwill and other – internal use software ( subtopic 350-40 ) , to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software ( and hosting arrangements that include an internal-use software license ) . the amendments in the update require an entity in a hosting arrangement that is a service contract to follow the guidance in subtopic 350-40 to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense . the new standard is effective for fiscal years and interim periods beginning after december 15 , 2019 and can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption . early adoption is permitted . the company does not expect the adoption of asu 2018-15 to have a material impact on its consolidated financial statements . 87 3. fair value measurements the company measures and reports certain financial instruments as assets and liabilities at fair value on a recurring basis . the following tables sets forth the fair value of the company 's financial assets and liabilities at fair value on a recurring basis based on the three-tier fair value hierarchy ( in thousands ) : replace_table_token_13_th replace_table_token_14_th the company measures the fair value of money market funds and u.s. treasury securities on quoted prices in active markets for identical asset or liabilities . the level 2 assets include reverse repurchase agreements , u.s. government securities , commercial paper , and corporate bonds and are valued based on quoted prices for similar assets in active markets and inputs other than quoted prices that are derived from observable market data . the company evaluates transfers between levels at the end of each reporting period . there were no transfers between level 1 and level 2 during the periods presented . 4. cash equivalents and marketable securities the following tables summarize the estimated fair value of the company 's cash equivalents and marketable securities and the gross unrealized gains and losses ( in thousands ) : replace_table_token_15_th 88 replace_table_token_16_th the reverse repurchase agreements are settled in cash nightly , and as such are classified as cash equivalents . as of december 31 , 2019 and 2018 , all debt securities with an unrealized loss position have been in a loss position for less than one year . the aggregate fair value of debt securities in an unrealized loss position as of december 31 , 2019 and 2018 were $ 13.0 million and $ 45.6 million , respectively , with no individual securities in a significant unrealized loss position . the company evaluated its securities for other-than-temporary impairment and considered the decline in market value for the securities to be primarily attributable to current economic and market conditions and would not be required to sell the securities before recovery of the amortized cost basis . based on this analysis , these marketable securities were not considered to be other-than-temporarily impaired as of december 31 , 2019 and 2018. the following table summarizes the contractual maturities of the company 's marketable securities at estimated fair value ( in thousands ) : replace_table_token_17_th the company may sell investments at any time for use in current operations even if they have not yet reached maturity . as a result , the company classifies marketable securities , including securities with maturities beyond twelve months as current assets . 5. property and equipment , net property and equipment , net consist of the following ( in thousands ) : replace_table_token_18_th depreciation and amortization expense for the years ended december 31 , 2019 , 2018 , and 2017 was $ 0.4 million , $ 0.3 million , and $ 0.2 million , respectively . all of the company 's long-lived assets are located in the united states . 89 6. accrued and other current liabilities accrued and other current liabilities consist of the following ( in thousands ) : replace_table_token_19_th 7. leases the company leases certain office space , laboratory facilities , and equipment . these leases require monthly lease payments that may be subject to annual increases throughout the lease term . certain of these leases also include renewal options at the election of the company to renew or extend the lease for an additional three to five years . story_separator_special_tag we have an accumulated deficit of $ 195.1 million as of december 31 , 2019. we anticipate that we will continue to generate as we develop our product candidates , seek regulatory approval of those candidates and begin to commercialize any approved products . until such time as we can generate substantial product revenue , we expect to finance our cash needs through a combination of equity or debt financings , research grants , collaborations , or other sources . we currently have no debt , credit facility or additional committed capital . to the extent that we raise additional equity , the ownership interest of our stockholders will be diluted . based on our available cash , cash equivalents , marketable securities , and restricted cash of $ 73.4 million as of december 31 , 2019 , we believe that we have sufficient resources to fund our operations through the first quarter of 2021. we have based this estimate on assumptions that may prove to be incorrect , however , and we could deplete our capital resources sooner than we expect . story_separator_special_tag university granted to aecase a license under a patent application relating to the right to use technology related to our aeb3103 product candidate . the university granted to aemase a license under a patent relating to the right to use technology related to our aeb2109 product candidate . on january 31 , 2017 , we entered into an amended and restated patent license agreement , or the restated license , with the university which consolidated the two license agreements dated december 24 , 2013 , revised certain obligations , and licensed additional patent applications and invention disclosures to aeglea . in december 2017 , the restated license was further amended to revise certain diligence milestones . with respect to each product candidate covered by the restated license , we could be required to pay the university up to $ 6.4 million in milestone payments based on the achievement of certain development milestones , including clinical trials and regulatory approvals , the majority of which are due upon the achievement of later development milestones , including a $ 5.0 million payment due on regulatory approval of a product and a $ 0.5 million payment payable on final regulatory approval of a product for a second indication . in addition , we are required to pay the university a low single digit royalty on worldwide-net sales of products covered under the restated license , together with a revenue share on non-royalty consideration received from sublicensees . the rate of the revenue share ranges from 6.5 % to 25 % depending on the date the sublicense agreement is signed . the university may terminate the agreement under certain circumstances , including for a breach by us that is not cured within 30 or 60 days of notice ( depending on the type of breach ) , or if we or any of our affiliates or sublicensees participate in any proceeding to challenge the licensed patent rights ( unless , with respect to sublicensees , we terminate the applicable sublicense ) . off balance sheet arrangements through december 31 , 2019 , we do not have any off-balance sheet arrangements , as defined by applicable sec regulations . jobs act accounting election we are an “ emerging growth company , ” as defined in the jobs act . under the jobs act , emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the jobs act until such time as those standards apply to private companies . we have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards , and , therefore , are subject to the same new or revised accounting standards as other public companies that are not emerging growth companies . recent accounting pronouncements in february 2016 , the fasb issued asu no . 2016-02 , leases ( topic 842 ) , which establishes a comprehensive new lease accounting model . the new standard : ( a ) clarifies the definition of a lease ; ( b ) requires a dual approach to lease classification similar to current lease classifications ; and ( c ) causes lessees to recognize leases on the balance sheet as a lease liability with a corresponding right-of-use ( rou ) asset . on january 1 , 2019 , we adopted topic 842 using the modified retrospective approach as of the adoption date in accordance with asu no . 2018-11 , leases ( topic 842 ) : targeted improvements . results for the year ended december 31 , 2019 are presented under topic 842. no prior period amounts were adjusted and continue to be reported in accordance with previous lease guidance , asc topic 840 , leases . we elected all of the available practical expedients permitted under the transition guidance within the new standard , which among other things , allowed us to carry forward the historical lease classification of those leases in place as of january 1 , 2019 . 74 the following tabl e summarizes the impact of the adoption of topic 842 on the accompanying balance sheet as of january 1 , 2019 ( in thousands ) : replace_table_token_6_th ( 1 ) operating lease right-of-use assets are classified within other non-current assets . ( 2 ) current deferred rent was classified within accrued and other current liabilities as of december 31 , 2018 . ( 3 ) non-current deferred rent was classified within other non-current liabilities as of december 31 , 2018. the adjustments due to the adoption of topic 842 related to the recognition of operating lease right-of-use assets and lease liabilities for the existing operating leases . a cumulative-effect adjustment to the beginning accumulated deficit balance was not required . in june 2016 , the fasb issued asu no . 2016-13 , financial instruments-credit losses ( topic 326 ) : measurement of credit losses

cash provided by financing activities for the year ended december 31 , 2018 was $ 57.1 million , which consisted of $ 57.4 million from the public offerings of our common stock , offset by $ 2.9 million in underwriting discounts and commissions and $ 0.4 million in offering costs , and $ 3.0 million in proceeds received from stock option exercises and sale of common stock under our 2016 employee stock purchase plan . contractual obligations the following table summarizes our contractual obligations as of december 31 , 2019 ( in thousands ) : replace_table_token_5_th we have entered into agreements in the normal course of business with contract research organizations for clinical trials and contract manufacturing organizations , and with vendors for preclinical research studies and other services and products for operating purposes . these contractual obligations are cancelable at any time by us , generally upon 30 to 60 days ' prior written notice to the vendor . 73 contingent contractual obligations the terms of the grant contract require that we pay cprit tiered royalties in the low- to mid-single digit percentages on revenues from sales and license of products or services that are based upon , utilize , are developed from or materially incorporate the intellectual property resulting from the grant-funded activities for pegzilarginase . such royalties reduce to less than one percent after a mid-single digit multiple of the grant funds have been repaid to cprit in royalties . such royalties are payable for so long as we have marketing exclusivity or patents covering the applicable product or service ( or twelve years from commercial sale of product or service in certain countries if there is no such exclusivity or patent protection ) . on december 24 , 2013 , two of our wholly owned subsidiaries , aecase , inc. , or aecase , and aemase , inc. , or aemase , entered into license agreements with the university under which the university granted to aecase and aemase exclusive , worldwide , sublicenseable licenses . the

on february 16 , 2018 , we purchased and acquired all rights to avadel pharmaceuticals plc 's ( “ advadel 's ) ” ) marketed pediatric products ( the “ acquired products ” ) for the assumption of certain of avadel 's financial obligations to deerfield csf , llc , which includes a $ 15 million loan due in january 2021 and its related interest payments as well as a 15 % annual royalty on net sales of the acquired products through february 2026. liquidity for the year ended december 31 , 2017 , the company generated net income of $ 11.9 million and positive cash flows from operations of $ 12.5 million . prior to the year ended december 31 , 2017 , the company had incurred recurring operating losses since inception . as a result of the trx and avadel acquisitions , our commercial operations are expected to generate positive cash flows from product sales . as of december 31 , 2017 , the company had an accumulated deficit of $ 58.2 million and a balance of $ 2.5 million in cash and cash equivalents . the company anticipates generating positive cash flows from our commercial operations to offset costs related to its preclinical programs , additional clinical development of its product candidates , business development and costs associated with its organizational infrastructure . we apply a disciplined decision making methodology as we evaluate the optimal allocation of our resources between investing in our current commercial product line , our development portfolio and acquisitions or in-licensing of new assets.the company , however , may require additional financing to continue to execute its clinical development strategy . the company plans to meet its capital requirements primarily through a combination of equity or debt financings , collaborations , or out-licensing arrangements , strategic alliances , federal and private grants , marketing , distribution or licensing arrangements and in the longer term , revenue from product sales to the extent its product candidates receive marketing approval and are commercialized . the company expects its cash on hand at december 31 , 2017 and its cash flows from operations to fund future expenses through at least april 2 , 2019 . 2. significant accounting policies basis of presentation the accompanying consolidated financial statements have been prepared in conformity with u.s. generally accepted accounting principles ( “ gaap ” ) . any reference in these notes to applicable guidance is meant to refer to the authoritative gaap as found in the accounting standards codification ( “ asc ” ) and accounting standards updates ( “ asu ” ) of the financial accounting standards board ( “ fasb ” ) . principles of consolidation f-14 the consolidated financial statements include the accounts of cerecor inc. and its wholly-owned subsidiaries after elimination of all intercompany balances and transactions . variable interest entities the primary beneficiary of a variable interest entity ( vie ) must consolidate the related assets and liabilities . certain disclosures are required by sponsors , significant interest holders in vie 's and potential vie 's . the company regularly assesses its relationships with contractual third party and other entities for potential vie 's . in making this assessment , the company considers the potential that its contracts or other arrangements provide subordinated financial support , absorb losses or rights to residual returns of the entity and the ability to directly or indirectly make decisions about the entities ' activities . based on the company 's assessments performed , management concluded that there were no relationships that constitute a vie for which the company was determined to be the primary beneficiary at december 31 , 2017. if the company 's management makes the determination that it is the primary beneficiary of a vie , the company will consolidate the statements of operations and financial condition of the vie into its consolidated financial statements . fair value measurements fair value is a market-based measurement , not an entity-specific measurement . the objective of a fair value measurement is to estimate the price to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions . such transactions to sell an asset or transfer a liability are assumed to occur in the principal market for that asset or liability , or in the absence of the principal market , the most advantageous market for the asset or liability . assets and liabilities subject to fair value measurement disclosures are required to be classified according to a three-level fair value hierarchy with respect to the inputs ( or assumptions ) used to determine fair value . the level in which an asset or liability is disclosed within the fair value hierarchy is based on the lowest level input that is significant to the related fair value measurement in its entirety . the guidance under the fair value measurement framework applies to other existing accounting guidance in the financial accounting standards board ( fasb ) codification that requires or permits fair value measurements . refer to related disclosures in note 5-fair value measurements . use of estimates the preparation of consolidated financial statements in conformity with gaap requires management to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues , expenses , and related disclosures . on an ongoing basis , management evaluates its estimates , including estimates related to but not limited to , revenue recognition , share-based compensation , fair value measurements ( including those relating to contingent consideration ) , income taxes , goodwill and other intangible assets , and clinical trial accruals . the company bases its estimates on historical experience and other market‑specific or other relevant assumptions that it believes to be reasonable under the circumstances . actual results may differ from those estimates or assumptions . story_separator_special_tag when we are aware of an increase in the level of inventory of our products in the distribution channel , we consider the reasons for the increase to determine whether we believe the increase is temporary or other-than-temporary . increases in inventory levels assessed as temporary will not result in an adjustment to our provision for returns and allowances . conversely , other-than-temporary increases in inventory levels may be an indication that future product returns could be higher than originally anticipated and , accordingly , we may need to adjust our provision for returns and allowances . some of the factors that may be an indication that an increase in inventory levels will be other-than-temporary include : declining sales trends based on prescription demand ; 69 regulatory approvals that could shorten the shelf life of our products , which could result in a period of higher returns related to older product still in the distribution channel ; introduction of new product or generic competition ; increasing price competition from generic competitors distribution fees and rebates consistent with pharmaceutical industry practices , we establish contracts with wholesalers that provide for fees under our wholesaler dsas ( “ dsa fees ” ) . settlement of dsa fees may generally occur on a monthly or quarterly basis based on net sales for the period . dsa fee accruals are based on contractual fees to be paid to the wholesale distributor for services provided . assumptions used to establish the provision include level of wholesaler inventories , contract sales volumes and average contract pricing . we regularly review the information related to these estimates and adjust the provision accordingly . we are also subject to rebates on sales made under governmental pricing programs for example , medicaid rebates are amounts owed based upon contractual agreements or legal requirements with public sector ( medicaid ) benefit providers after the final dispensing of the product by a pharmacy to a benefit plan participant . medicaid reserves are based on expected payments , which are driven by patient us age , contract performance and field inventory that will be subject to a medicaid rebate . medicaid rebates are typically billed up to 180 days after the product is shipped , but can be as much as 270 days after the quarter in which the product is dispensed to the medicaid participant . in addition to the estimates mentioned above , our calculation also requires other estimates , such as estimates of sales mix , to determine which s ales are subject to rebates and the amount of such rebates . periodically , we adjust the medicaid rebate provision based on actual claims paid . due to the delay in billing , adjustments to actual claims paid may incorporate revisions of this provision for several periods . because medicaid pricing programs involve particularly difficult interpretations of complex statutes and regulatory guidance , our estimates could differ from actual experience . in determining our estimates for rebates , we consider the terms of our contracts , relevant statutes , historical relationships of rebates to revenues , past payment experience , estimated inventory levels of our customers and estimated future trends . chargebacks and sales discounts chargeback accruals are based on the differentials between product acquisition prices paid by wholesalers and lower government contract pricing paid by eligible customers covered under federally qualified programs . sales discounts accruals are based on payment terms extended to customers . sales force revenue pursuant to our marketing agreement with pharmaceutical associates , inc. ( “ pai ” ) we receive a monthly marketing fee to promote , market and sell certain products on behalf of pai . the company also receives a matching fee payment for each month of the term of the marketing agreement if certain provisions calculated in accordance with the terms and inputs set forth in the marketing agreement are met . marketing fees and any matching payments are recognized as sale force revenue when all performance obligations have been satisfied and earned . we and pai also share the net revenues from sales of certain products , after reimbursing certain expenditures , in a manner designed to achieve a 50/50 split of net revenues above a “ break even ” point , calculated in accordance with the terms and inputs set forth in the agreement . we recognize these revenue sharing payments as earned under the terms of the agreement when collectability is reasonably assured . grant revenue we recognize grant revenue when there is ( i ) reasonable assurance of compliance with the conditions of the grant and ( ii ) reasonable assurance that the grant will be received . we recognize revenue under grants in earnings on a systemic basis in the period the related expenditures for which the grants are intended to compensate are incurred . cost of product sales 70 cost of product sales is comprised of ( i ) costs to acquire products sold to customers ; ( ii ) royalty , license payments and other agreements granting the company rights to sell related products ; ( iii ) distribution costs incurred in the sale of products ; ( iv ) the value of any write-offs of obsolete or damaged inventory that can not be sold . inventory valuation inventories are recorded at the lower of cost or net realizable value , with cost determined on a first-in , firstout basis . cost is determined based on actual cost . an allowance is established when management determines that certain inventories may not be saleable . if inventory costs exceed expected market value due to obsolescence or quantities in excess of expected demand , we record reserves for the difference between the cost and the market value . these reserves are recorded based upon various factors for our products , including the level of product manufactured by the company , the level of product in the distribution channel , current and projected product demand ,

net cash used in financing activities was $ 1.4 million for the year ended december 31 , 2016 , which consisted of principal payments on our term loan of $ 3.3 million offset by net proceeds from the sale of common stock to aspire capital under the purchase agreement of $ 1.9 million . 79 net cash provided by financing activities was $ 19.6 million for the year ended december 31 , 2015 and consisted primarily of proceeds from our initial public offering including the over-allotment option , net of underwriting discounts , commissions and expenses of $ 23.7 million , offset by the payment of offering costs related to the initial public offering of $ 2.3 million and principal payments on our term loan of $ 1.8 million . operating and capital expenditure requirements prior to the year ended december 31 , 2017 , the company had incurred recurring operating losses since inception . for the year ended december 31 , 2017 , the company generated net income of $ 11.9 million and positive cash flows from operations of $ 12.5 million . as a result of the zylera and avadel acquisitions , our commercial operations are expected to generate positive cash flows from sales of our marketed products . < div

the effect on deferred income tax assets and liabilities of a change in tax rates is recognized within income tax expense in the period in which the new rate is enacted . based upon historical and estimated levels of future taxable income and analysis of other key factors , the company may increase or decrease a valuation allowance against its deferred tax assets , as deemed necessary , to adjust such assets to their estimated net realizable value . the company establishes contingent liabilities for potentially unfavorable outcomes of positions taken on certain tax matters . these liabilities are based on management 's assessment of whether a tax benefit is more likely than not to be sustained upon examination by the relevant tax authorities . there may be differences between the estimated and actual outcomes of these matters that may result in future changes in estimates to such unrecognized tax benefits . to the extent such changes in estimates are required , the company 's effective tax rate may potentially fluctuate as a result . in 46 avnet , inc. and subsidiaries notes to consolidated financial statements — ( continued ) ​ accordance with the company 's accounting policies , accrued interest and penalties related to unrecognized tax benefits are recorded as a component of income tax expense . revenue recognition — revenue is recognized at the point at which control of the underlying products are transferred to the customer , which includes determining whether products are distinct and separate performance obligations . for electronic component and related product sales , this generally occurs upon shipment of the products , however , this may occur at a later date depending on the agreed upon sales terms , such as delivery at the customer 's designated location , or when products that are consigned at customer locations are consumed . in limited instances , where products are not in stock and delivery times are critical , product is purchased from the supplier and drop-shipped to the customer . the company typically takes control of the products when shipped by the manufacturer and then recognizes revenue when control of the product transfers to the customer . the company does not have material product warranty obligations as the assurance type product warranties provided by the component manufacturers are passed through to the company 's customers . for contracts related to the specialized manufacture of products for customers with no alternative use and for which the company has an enforceable right to payment , including a reasonable profit margin , the company recognizes revenue over time as control of the products transfer through the manufacturing process . the contract assets associated with such specialized manufacturing products are not material as these contracts represent less than 2 % of the company 's total sales . revenue is measured as the amount of consideration the company expects to receive in exchange for transferring products . the company estimates different forms of variable consideration at the time of sale based on historical experience , current conditions and contractual obligations . revenue is recorded net of customer discounts and rebates . when the company offers the right or has a history of accepting returns of product , historical experience is utilized to establish a liability for the estimate of expected returns and an asset for the right to recover the product expected to be returned . these adjustments are made in the same period as the underlying sales transactions . the company considers the following indicators amongst others when determining whether it is acting as a principal in the contract where revenue would be recorded on a gross basis : ( i ) the company is primarily responsible for fulfilling the promise to provide the specified products or services ; ( ii ) the company has inventory risk before the specified products have been transferred to a customer or after transfer of control to the customer ; and ( iii ) the company has discretion in establishing the price for the specified products or services . if a transaction does not meet the company 's indicators of being a principal in the transaction , then the company is acting as an agent in the transaction and the associated revenues are recognized on a net basis . sales and other tax amounts collected from customers for remittance to governmental authorities are excluded from revenue . the company has elected to treat shipping and handling of product as a fulfillment activity . the practical expedient not to disclose information about remaining performance obligations has also been elected as these contracts have an original duration of one year or less . the company does not have any payment terms that exceed one year from the point it has satisfied the related performance obligations . vendor allowances and consideration — consideration received from suppliers for price protection , product rebates , marketing/promotional activities , or any other programs are recorded when earned under the terms and conditions of such supplier programs as adjustments to product costs or selling , general and administrative expenses 47 avnet , inc. and subsidiaries notes to consolidated financial statements — ( continued ) ​ depending upon the nature and contractual requirements related to the consideration received . some of these supplier programs require management to make estimates and may extend over one or more reporting periods . comprehensive income ( loss ) — comprehensive income ( loss ) represents net income for the year adjusted for certain changes in shareholders ' equity . accumulated comprehensive income ( loss ) items impacting comprehensive income ( loss ) includes foreign currency translation and the impact of the company 's pension liability adjustments , net of tax . story_separator_special_tag write-downs are recorded so that inventories reflect the approximate net realizable value and take into account the company 's contractual provisions with its suppliers , which may provide certain protections to the company for product obsolescence and price erosion in the form of rights of return , stock rotation rights , obsolescence allowances and price protections . because of the large number of products and suppliers and the complexity of managing the process around price protections and stock rotations , estimates are made regarding the net realizable value of inventories . additionally , assumptions about future demand , market conditions and decisions to discontinue certain product lines impact the evaluation of whether to write-down inventories . if assumptions about future demand change or actual market conditions are less favorable than those assumed by management , management would evaluate whether additional write-downs of inventories are required . in any case , actual net realizable values could be different from those currently estimated . accounting for income taxes management 's judgment is required in determining income tax expense , unrecognized tax benefits and in measuring deferred tax assets and liabilities and the valuation allowances recorded against net deferred tax assets . the recoverability of the company 's net deferred tax assets is dependent upon its ability to generate sufficient future taxable income in certain jurisdictions . in addition , the company considers historic levels and types of income , expectations and risk associated with estimates of future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for valuation allowances . should the company determine that it is not able to realize all or part of its deferred tax assets in the future , additional valuation allowances may be recorded against the deferred tax assets with a corresponding increase to income tax expense in the period such determination is made . similarly , should the company determine that it is able to realize all or part of its deferred tax assets that have an associated valuation allowance established , the company may release a valuation allowance with a corresponding benefit to income tax expense in the period such determination is made . the company establishes contingent liabilities for potentially unfavorable outcomes of positions taken on certain tax matters . these liabilities are based on management 's assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities . there may be differences between the anticipated and actual outcomes of these matters that may result in changes in estimates to such liabilities . to the extent such changes in estimates are necessary , the company 's effective tax rate may potentially fluctuate . in accordance with the company 's accounting policy , accrued interest and penalties related to unrecognized tax benefits are recorded as a component of income tax expense . in determining the company 's income tax expense , management considers current tax regulations in the numerous jurisdictions in which it operates including the impact of recent tax law and regulation changes in the united states . the company exercises judgment for interpretation and application of such current tax regulations . changes to such tax regulations or disagreements with the company 's interpretation or application by tax authorities in any of the company 's major jurisdictions may have a significant impact on the company 's income tax expense . see note 9 to the company 's consolidated financial statements included in item 8 of this annual report on form 10-k for further discussion on income tax expense , valuation allowances and unrecognized tax benefits . ​ recently issued accounting pronouncements in march 2020 , the fasb issued asu no . 2020-04 , reference rate reform ( topic 848 ) : facilitation of the effects of reference rate reform on financial reporting ( “ asu no . 2020-04 ” ) , which provides optional guidance to ease the 32 potential burden in accounting for reference rate reform on financial reporting . the new guidance provides optional expedients and exceptions for applying generally accepted accounting principles to transactions affected by reference rate reform if certain criteria are met . the company is currently evaluating the potential effects of adopting the provisions of asu no . 2020-04. in january 2020 , the fasb issued asu no . 2020-01 - investments-equity securities ( topic 321 ) , investments-equity method and joint ventures ( topic 323 ) , and derivatives and hedging ( topic 815 ) -clarifying the interactions between topic 321 , topic 323 , and topic 815 ( “ asu no . 2020-01 ” ) , which clarifies the interaction of the accounting for certain equity securities , equity method investments , and certain derivatives . asu no . 2020-01 will be effective for the company in the first quarter of fiscal 2022 , and early adoption is permitted . the company is currently evaluating the potential effects of adopting the provisions of asu no . 2020-01. in december 2019 , the fasb issued asu no . 2019-12 , simplifying the accounting for income taxes ( topic 740 ) , ( “ asu no . 2019-12 ” ) which removes certain exceptions to the general principles in topic 740 and also clarifies and amends existing guidance to improve consistent application . asu no . 2019-12 will be effective for the company in the first quarter of fiscal 2022 , and early adoption is permitted . depending on the amendment , adoption may be applied on the retrospective , modified retrospective or prospective basis . the company is currently evaluating the potential effects of adopting the provisions of asu no . 2019-12. in august 2018 , the fasb issued asu no . 2018-15 , intangibles—goodwill and other— internal-use software ( subtopic 350-40 ) : customer 's accounting for implementation costs incurred in a cloud computing arrangement that is a service contract ( a consensus of the fasb emerging issues task force ) ( ``

and various foreign locations to fund the short-term working capital , foreign exchange , overdraft and letter of credit needs of its wholly owned subsidiaries . avnet generally guarantees its subsidiaries ' obligations under such debt facilities . outstanding borrowings under such forms of debt at the end of fiscal 2020 was $ 1.5 million . 28 as an alternative form of financing outside of the united states , the company sells certain of its trade accounts receivable on a non-recourse basis to third-party financial institutions pursuant to factoring agreements . the company accounts for these transactions as sales of receivables and presents cash proceeds as cash provided by operating activities in the consolidated statements of cash flows . factoring fees for the sales of trade accounts receivables are recorded within “ interest and other financing expenses , net ” and were not material . see note 7 , “ debt ” to the company 's consolidated financial statements included in item 8 of this annual report on form 10-k for additional information on financing transactions including the credit facility , the securitization program and the outstanding notes as of june 27 , 2020. covenants and conditions the company 's securitization program requires the company to maintain certain minimum interest coverage and leverage ratios in order to continue utilizing the securitization program . the securitization program also contains certain covenants relating to the quality of the receivables sold . if these conditions are not met , the company may not be able to borrow any additional funds and the financial institutions may consider this an amortization event , as defined in the securitization program agreements , which would permit the financial institutions to liquidate the accounts receivables sold to cover any outstanding borrowings . circumstances that could affect the company 's ability to meet the required covenants and conditions of the securitization program include the company 's ongoing profitability and various other economic , market and industry factors . the company was in compliance with all covenants of the securitization program as of june 27 , 2020 . < p style= '' font-family : 'times new

board leadership structure and role in risk oversight our board evaluates its leadership structure and role in risk oversight on an ongoing basis . currently , matthew flemming serves as chairman of the board , president and chief executive officer . our board determines what leadership structure it deems appropriate based on factors such as the experience of the applicable individuals , the current business environment of the company and other relevant factors . after considering these factors , our board has determined that the role of chairman of the board , chief executive officer and president , is an appropriate board leadership structure for our company at this time . the board is also responsible for oversight of our risk management practices , while management is responsible for the day-to-day risk management processes . this division of responsibilities is the most effective approach for addressing the risks facing the company , and the company 's board leadership structure supports this approach . through our president , and other members of management , the board receives periodic reports regarding the risks facing the company . in addition , the audit committee assists the board in its oversight role by receiving periodic reports regarding our risk and control environment . corporate code of conduct and ethics we have adopted a corporate code of conduct and ethics which is reviewed annually . the text of our code of conduct and ethics , which applies to our officers and each member of our board , is posted in the “ corporate governance ” section of our website , www.smg-indium.com . we intend to satisfy the disclosure requirement under item 10 of form 8-k regarding any amendments to , or waiver from , a provision of our code of conduct and ethics by posting such information on our website , www.smg-indium.com . a copy of our code of conduct and ethics is also available in print ; free of charge , upon written request to 710 n. post oak road , suite 400 , houston , texas 77024 , attn : matthew flemming . executive compensation on october 1 , 2017 , we entered into an employment agreement with mr. flemming , our chief executive officer and interim chief financial officer . pursuant to the terms of the agreement , mr. flemming is paid an annual salary of $ 180,000 and receives health care insurance and other customary benefits . the initial term of the agreement is for a period of three years . in addition to mr. flemming 's base salary , mr. flemming is entitled to bonuses at the discretion of the compensation committee of the board of directors . on september 19 , 2017 , we entered into a consulting agreement with ms. rhodes to act as our chief financial officer , which she subsequently resigned from effective march 19 , 2018. pursuant to the terms of the agreement , ms. rhodes was paid a monthly consulting fee of $ 4,500 . on january 15 , 2018 , we terminated the previous agreement and entered into a new consulting agreement . pursuant to the terms of the agreement , ms. rhodes is paid a monthly consulting fee of $ 11,700 . the initial term of the agreement was set to expire on march 31 , 2018. ms. rhodes resigned as chief financial officer on march 19 , 2018. certain relationships and related transactions and director independence the following is a description of the transactions we have engaged in since january 1 , 2017 , with our directors and officers and beneficial owners of more than five percent of our voting securities and their affiliates : in march 2015 , the company 's chief executive officer and chief operating officer resigned and ailon grushkin was named chief executive officer , and subsequently resigned from such position on september 19 , 2017. in march 2015 , we also entered into the consulting agreement with nano-cap advisors llc ( “ nano ” ) ( 2015 nano agreement ) . mr. grushkin is the only member of nano . pursuant to the terms of the 2015 nano agreement , nano provided us with services normally provided by a chief executive officer , as determined and directed by us , and provided us with office facilities . we agreed to pay nano $ 90,000 during the year ended december 31 , 2016 for such services . the term of the 2015 nano agreement continued until december 31 , 2015. in january 2016 , we entered into an agreement with nano ( the 2016 nano agreement ) , pursuant to which ailon grushkin , our sole officer at such time , would provide us with services normally provided by a chief executive officer , as determined and directed by us , and provide us with office facilities , for an annual fee of $ 70,000 . in march 2017 , we agreed to pay nano $ 35,000 under the terms of the 2016 nano agreement , as amended in march 2017 . 27 in january 2016 , we entered into a consulting agreement with brack advisors llc ( brack ) , a company owned by richard a biele , one of our former directors ( brack agreement ) that provided for the payment of $ 50,000 in 2016 to assist us in identifying , evaluating and negotiating strategic transactions including , but not limited to , the acquisition of a new line of business and or a reverse merger . story_separator_special_tag on december 18 , 2017 mg received $ 195,000 in return for an assignment and transfer to libertas funding llc of a specified percentage of the proceeds of each future sale made by mg , collectively “ future receipts ” until mg has received the purchased amount of $ 278,000. pursuant to the terms of the libertas agreement , mg can not sell any portion of its future sales that have previously been sold to libertas , however , it does not restrict the company 's ability to incur any additional debt , or sell its equity securities , in connection with financing its operations . the final payment to libertas will be made in october 2018 , at which point the libertas agreement shall terminate by its terms . from september 2017 through december 31 , 2017 , we sold an aggregate of 1,740,000 restricted common stock to accredited investors in a private placement for aggregate cash proceeds of $ 348,000. during the first quarter of 2018 , we sold an aggregate of 1,140,000 restricted common stock to accredited investors for aggregate cash proceeds of $ 228,000. critical accounting policies the acquisition of mg cleaners llc by smg industries inc. ( formerly smg indium resources ltd. ) on september 19 , 2017 , was accounted for as a reverse acquisition with mg cleaners as the acquirer of smg industries for accounting purposes . the financial statements presented in this annual report on form 10-k are presented as a continuation of the operations of mg cleaners llc with one adjustment to retroactively adjust the membership interests of mg cleaners llc to reflect the legal capital of smg industries prior to the september 19 , 2017 acquisition , and one adjustment to eliminate the accumulated deficit of smgi in accordance with the recapitalization of mg. the preparation for financial statements and related disclosures in conformity with united states generally accepted accounting principles ( u.s. gaap ) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes . for a description of our significant accounting policies , see notes to financial statements – note 2 summary of significant accounting policies . of these policies , the following are considered critical to an understanding of the company 's financial statements as they require the application of the most difficult , subjective and complex judgments : ( 1 ) use of estimates , ( 2 ) share-based payment arrangements and ( 3 ) income taxes . management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances . actual results could differ from these estimates under different assumptions or conditions . 19 revenue recognition the company records revenue when all four of the following criteria are met : ( i ) there is persuasive evidence that an arrangement exists ; ( ii ) delivery of the products and or services has occurred ; ( iii ) the selling price is fixed or determinable ; and ( iv ) collectability is reasonably assured . the company recognizes sales when products are delivered or services rendered to the customer . postage and handling charges billed to customers are also recognized as sales upon shipment of the related equipment . shipping terms are generally fob destination , and title passes to the customer at the time and place of delivery or purchase by customers at a retail location . the company does no consignment sales . the customer has no cancellation privileges after shipment or upon purchase at our locations , other than customary rights of return . the company excludes sales tax collected and remitted to various states from sales and cost of sales . sales from items sold through the company 's locations are recognized at the time of sale . revenue received from online sales are recognized when products are delivered to the customer . shipping and fulfillment costs freight costs incurred related to shipment of products or equipment from mg 's facilities to customers are recorded in cost of sales . concentrations the company sells direct to drilling rig operators , oilfield service companies , oil and gas operating companies , distributors and suppliers and performs ongoing credit evaluations of trade receivables due from customers . generally , the company does not require collateral for terms . an allowance for doubtful accounts is determined with respect to those amounts that the company has determined to be doubtful of collection using specific identification of doubtful accounts and an aging of receivables analysis based on invoice due dates . generally , trade receivables are past due after 45-60 days after an invoice date , unless special payment terms are provided . based on this analysis , the company recorded an allowance for doubtful accounts of $ 10,695 and $ 21,134 at december 31 , 2017 and 2016 , respectively . financial instruments that potentially subject the company to concentrations of credit risk consist principally of accounts receivable . during fiscal year 2017 , two of our customers accounted for approximately 52 % of our total gross revenues , with one customer accounting for 34 % and another accounting for 18 % . no other customers exceeded 10 % of revenues during 2017. during fiscal year 2016 , two of our customers accounted for approximately 35 % of our total gross revenues , with one customer accounting for 23 % and another accounting for 12 % . no other customers exceeded 10 % of revenues during 2016. two customers accounted for more than 64 % of accounts receivable at december 31 , 2017 , and three customers accounted for more than 62 % of accounts receivable at december 31 , 2016. no other customers exceeded 10 % of accounts receivable as of december 31 , 2017 and 2016. the company believes it will continue to reduce the customer concentration risks by engaging new customers and increasing activity

on may 31 , 2017 , mg entered into a $ 1 million revolving accounts receivable financing facility with crestmark bank . the financing facility provides for mg to have access to the lesser of ( i ) $ 1 million or ( ii ) 85 % of the net amount of eligible receivables ( as defined in the financing agreement ) . the financing facility is paid for by the assignment of mg 's accounts receivable to crestmark bank and is secured by mg 's assets . the financing facility has an interest rate of 7.25 % in excess of the prime rate reported by the wall street journal per annum , with a floor minimum rate of 11.5 % . interest and maintenance fees will be calculated on the higher of the average monthly loan balance from the prior month or a minimum average loan balance of $ 200,000. the financing facility is for an initial term of two-years and will renew on a year to year basis , unless terminated in accordance with the financing agreement . pursuant to the terms of the financing facility , crestmark has been granted a security interest in all of our assets and the assets of mg and we have agreed to guaranty all amounts due under the facility upon an event of default , however , the guaranty does not restrict the company 's ability to incur debt in connection with its operations . 18 pursuant to the terms of the financing facility , mg is not allowed to incur additional indebtedness , to create liens or other encumbrances , or to sell or otherwise dispose of mg 's assets , without the prior written consent of crestmark . the crestmark facility does not restrict the company 's ability to finance its operations through the sale of its equity securities . on october 15 , 2010 , the former managing member of mg cleaners , stephen christian , purchased mg cleaners from the previous membership interest owners ( “ original mg sellers ” ) . in connection with that transaction , a $ 450,000 seller note was issued to the sellers . the note bears an interest rate of 8 % and

the amortization of mortgage servicing rights is netted against loan servicing fee income . net servicing fees totaled $ 148,000 , $ 340,000 , and $ 102,000 for the years ended december 31 , 2020 , 2019 , and 2018 respectively . impairment charges associated with these servicing rights amounted to $ 238,000 and $ 211,000 for the years ended december 31 , 2020 and 2019 , respectively . there were no impairment charges for the year ended december 31 , 2018. late fees and ancillary fees related to loan servicing are not material . premises and equipment premises and equipment are stated at cost less accumulated depreciation and amortization . depreciation is computed principally by the straight-line method over the estimated useful lives of the assets . leasehold improvements are amortized by the straight-line method based on the shorter of the asset lives or the expected lease terms . useful lives for premises and equipment range from one to thirty-nine years . these assets are reviewed for impairment when events indicate their carrying amount may not be recoverable from future undiscounted cash flows . if impaired , the assets are recorded at fair value . leases in february 2016 , the fasb issued a new accounting standard update ( asu 2016-02 , leases ( topic 842 ) ) , which requires for all operating leases the recognition of a right-of-use ( `` rou `` ) asset and a corresponding lease liability , in the consolidated balance sheet . for short term leases ( term of 12 months or less ) , a lessee is permitted to make an accounting election not to recognize lease assets and lease liabilities . the lease cost will be allocated over the lease term on a straight-line basis . there were further amendments , including practical expedients , with the issuance of asu 2018-01 , “ leases ( topic 842 ) : land easement practical expedient for transition to topic 842 ” in january 2018. in july 2018 , the fasb issued asu no . 2018-11 , `` leases ( topic 842 ) : targeted improvements `` , which provides for the option to apply the new leasing standard to all open leases as of the adoption date , on a prospective basis . 73 capstar financial holdings inc. & subsidiary notes to consolidated financial statements on january 1 , 2019 , the company adopted the new accounting standard asu 2016-02 , leases ( topic 842 ) and all the related amendments ( `` new lease standard `` , `` asc 842 `` or `` asu 2016-02 `` ) utilizing the practical expedient to apply the new lease standard as of january 1 , 2019 on a prospective basis . the company also elected the `` package of expedients `` and elected as an accounting policy to exclude recording rou assets and lease liabilities for leases that meet the definition of short-term leases . in addition to excluding short-term leases , the company has implemented an accounting policy in which non-lease components are not separated from lease components in the measurement of rou assets and lease liabilities for all lease contracts . the company recognized $ 12.8 million in rou assets and $ 13.4 million in lease liabilities as a result of applying the new lease standard as an adjustment to the opening consolidated balance sheet on january 1 , 2019. the rou assets and lease liabilities are included in other assets and other liabilities , respectively on the consolidated balance sheet . see note 7—leases for additional disclosures related to leases . bank owned life insurance the bank has purchased life insurance policies on certain key executives . bank owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date , which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement . bank owned life insurance is included in other assets on the consolidated balance sheet . securities sold under agreements to repurchase the bank enters into sales of securities under agreements to repurchase at a specified future date . such repurchase agreements are considered financing arrangements and , accordingly , the obligation to repurchase assets sold is reflected as a liability in the balance sheets of the bank . repurchase agreements are collateralized by debt securities which are owned and under the control of the bank and are included in other liabilities on the consolidated balance sheet . goodwill and other intangible assets goodwill resulting from business combinations is generally determined as the excess of the fair value of the consideration transferred , plus the fair value of any noncontrolling interests in the acquiree , over the fair value of the net assets acquired and liabilities assumed as of the acquisition date . goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized , but tested for impairment at least annually or more frequently if events and circumstances exists that indicate that a goodwill impairment test should be performed . qualitative factors are assessed to first determine if it is more likely than not ( more than 50 % ) that the carrying value of goodwill is less than fair value . at october 31 , 2020 , as a result of market volatility caused by the covid-19 pandemic , the company determined it did not satisfy the more likely than not qualitative assessment that the fair value of the reporting unit exceeded its carrying value , including goodwill . as a result , the company elected to perform a quantitative assessment , which included a combination of quoted market prices of the company 's stock , prices of comparable businesses , discounted cash flows and other techniques . story_separator_special_tag 2020 compared to 2019 the provision for loan losses amounted to $ 11.5 million and $ 0.8 million for 2020 and 2019 , respectively . provision expense is impacted by macroeconomic factors , the absolute level of loans , loan growth , the credit quality of the loan portfolio and the amount of net charge-offs . provision expense increased for 2020 compared to 2019 due to significantly increased qualitative factors in our allowance for loan losses methodology in anticipation of credit deterioration associated with the covid-19 pandemic . although losses have not yet materialized as a direct result of the covid-19 pandemic , our overall reserves are deemed to be adequate in light of the economic uncertainty of the pandemic . charge-offs for 2020 were $ 1.2 million compared to $ 0.8 million for 2019. our allowance for loan losses as a percentage of total loans increased from 0.89 % at december 31 , 2019 to 1.23 % at december 31 , 2020. this increase was largely due to our assessment of risk generally related to macro-economic , geo-political conditions associated with the covid-19 pandemic and the related impact on asset quality . based upon our evaluation of the loan portfolio , we believe the allowance for loan losses to be adequate to absorb our estimate of probable losses existing in the loan portfolio at december 31 , 2020. while our policies and procedures used to estimate the allowance for loan losses , as well as the resultant provision for loan losses charged to operations , 46 are considered adequate by management , they are necessarily approximate and imprecise . there are factors beyond our control , such as conditions in the local and national economy , local real estate markets , or particular industry or borrower-specific conditions , which may materially and negatively impact our asset quality and the adequacy of our allowance for loan losses and , thus , the resulting provision for loan losses . 2019 compared to 2018 the provision for loan losses amounted to $ 0.8 million and $ 2.8 million for 2019 and 2018 , respectively . provision expense is impacted by the absolute level of loans , loan growth , the credit quality of the loan portfolio and the amount of net charge-offs . provision expense decreased for 2019 compared to 2018 due to decreased charge-offs . charge-offs for 2019 were $ 0.8 million compared to $ 5.0 million for 2018. of the $ 5.0 million in charge offs during 2018 , $ 4.6 million was attributable to a single borrower . our allowance for loan losses as a percentage of total loans increased from 0.85 % at december 31 , 2018 to 0.89 % at december 31 , 2019. this increase was largely due to our assessment of risk generally related to macro-economic , geo-political conditions and asset quality . in addition , during 2019 , we increased the look-back period , from which we calculate peer bank historical loss experience , from 37 to 41 quarters . our look-back period is utilized to calculate peer historical loss experience , adjusted for current factors , to comprise the general component of the allowance for loan losses . in the current economic environment , management believes the extension of the look-back period is necessary in order to capture sufficient loss observations to develop a reliable loss estimate of credit losses . the extension of the historical look-back period to capture the historical loss experience of peer banks was applied to all classes and segments of our loan portfolio . based upon our evaluation of the loan portfolio , we believe the allowance for loan losses to be adequate to absorb our estimate of probable losses existing in the loan portfolio at december 31 , 2019. while our policies and procedures used to estimate the allowance for loan losses , as well as the resultant provision for loan losses charged to operations , are considered adequate by management , they are necessarily approximate and imprecise . there are factors beyond our control , such as conditions in the local and national economy , local real estate markets , or particular industry or borrower-specific conditions , which may materially and negatively impact our asset quality and the adequacy of our allowance for loan losses and , thus , the resulting provision for loan losses . noninterest income in addition to net interest income , we generate recurring noninterest income . our banking operations generate revenue from service charges and fees on deposit accounts . we have mortgage banking activities that generate revenue from originating and selling mortgages , the origination and sale of commercial real estate loans , and wealth management fees . in addition to these types of recurring noninterest income , we own insurance on several key employees and record income on the increase in the cash surrender value of these policies . the following table sets forth the principal components of noninterest income for the periods indicated . replace_table_token_7_th 47 2 020 compared to 201 9 the increase in treasury management and other deposit service charges for 2020 was driven primarily by the incremental increase in transaction volume related to our acquisition of fcb and bow , as well as growth in the volume of our commercial and consumer deposit accounts . mortgage banking income consists of mortgage fee income from the origination and sale of mortgage loans . these mortgage fees are for loans originated in our markets that are subsequently sold to third-party investors . mortgage origination fees will fluctuate from quarter to quarter as the rate environment changes . mortgage banking income increased 164.4 % from 2019 to 2020 primarily due to a significantly higher volume of originations from home buyers capitalizing on lower interest rates . tri-net fees , implemented in the fourth quarter of 2016 , is derived from the origination and sale of commercial real estate loans to third-party investors . all of these loan sales

at december 31 , 2020 , the bank was able to pay up to $ 49.6 million in dividends to capstar financial without regulatory approval subject to the ongoing capital requirements of the bank . accordingly , management believes that our funding sources are at sufficient levels to satisfy our short-term and long-term liquidity needs . 57 contractual obligations the following table presents additional information about contractual obligations as of december 31 , 2020 , which by their terms have contractual maturity and termination dates subsequent to december 31 , 2020. replace_table_token_18_th borrowings the following table outlines our sources of short-term and long-term borrowed funds during the year ended december 31 , 2020 , and the amount outstanding at the end of each period , the maximum amount , average amount and average interest rate that we paid for each borrowing source during the period . the maximum month end balance represents the high indebtedness of borrowed funds at any time during each of the periods shown . stated period end rates are contractual rates . replace_table_token_19_th off-balance sheet arrangements in the normal course of business , we enter into various transactions that , in accordance with gaap , are not included in our consolidated balance sheets . we enter into these transactions to meet the financing needs of our clients . these transactions include commitments to extend credit and standby letters of credit , which involve , to varying degrees , elements of credit risk and interest rate risk in excess of the amounts recognized in our consolidated balance sheets . most of these commitments mature within two years and are expected to expire without being drawn upon . standby letters of credit are included in the determination of the amount of risk-based capital that the company and the bank are required to hold . we enter into contractual loan commitments to extend credit , normally with fixed expiration dates or termination clauses , at specified rates and for specific purposes . substantially all of our commitments to extend credit are contingent upon clients maintaining specific credit standards until the time of loan funding . standby letters of credit are written conditional commitments issued by us to guarantee the performance of a client to a third party . in

if the company determines a loss is probable and estimable , the company records a contingent loss . in determining the amount of a contingent loss , the company takes into account advice received from experts for each specific matter regarding the status of legal proceedings , settlement negotiations , prior case history and other factors . should the judgments and estimates made by management need to be adjusted as additional information becomes available , the company may need to record additional contingent losses . alternatively , if the judgments and estimates made by management are adjusted , for example , if a particular contingent loss does not occur , the contingent loss recorded would be reversed . litigation expense ( benefit ) the company records litigation costs in the period in which they are incurred . due to the uncertainties inherent in litigation proceedings , the company generally recognizes the proceeds resulting from settlement of litigation or favorable judgments when the cash is received and there is no further contingency related to the litigation . the proceeds are recorded as a reduction against litigation expense to the extent that litigation costs were previously incurred in the related case . proceeds in excess of cumulative costs incurred for the case is recorded in interest and other income , net , in the consolidated statements of operations . litigation expense ( benefit ) , net , includes primarily patent litigation and other contract-related matters . comprehensive income comprehensive income represents the change in the company 's net assets during the period from non-owner sources . accumulated other comprehensive income presented in the consolidated balance sheets primarily consists of unrealized gains and losses related to available-for-sale investments and foreign currency translation adjustments . recent accounting pronouncements in july 2013 , the financial accounting standards board ( “ fasb ” ) issued accounting standards update ( “ asu ” ) no . 2013-11 , presentation of an unrecognized tax benefit when a net operating loss carryforward , a similar tax loss , or a tax credit carryforward exists . the standard gives guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward , a similar tax loss , or a tax credit carryforward exists , with the purpose of reducing diversity in practice . this new standard requires the netting of unrecognized tax benefits against a deferred tax asset for a loss or other carryforward that would apply in settlement of the uncertain tax positions . the company adopted this standard in the first quarter of 2014 prospectively and the adoption did not have an impact on its consolidated financial position , results of operations or cash flows . 49 in may 2014 , the fasb issued asu no . 2014-09 , revenue from contracts with customers , which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers . the standard 's core principle is that an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services . under the new standard , entities will apply the following five-step model when evaluating revenue contracts with customers : ( 1 ) identify the contract 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 . ( 5 ) recognize revenue when the entity satisfies a performance obligation . the new standard is effective for annual and interim reporting periods beginning after december 15 , 2016. entities have the option of using either a full retrospective or a modified retrospective application in the adoption of this standard . the company will adopt the standard in the first quarter of 2017 and is evaluating the transition method and the impact of the adoption on its consolidated financial position , results of operations and cash flows . 2. acquisition on july 22 , 2014 ( the “ acquisition date ” ) , the company acquired 100 % of the outstanding capital stock of sensima technology sa ( “ sensima ” ) , a company based in switzerland that develops magnetic sensor technologies for angle measurements as well as three-dimensional magnetic field sensing . the acquisition is expected to create new opportunities with customers by offering enhanced solutions in power management for key industries such as automotive , industrial and cloud computing . subsequent to the acquisition date , sensima became a subsidiary of the company and its results of operations have been included in the company 's consolidated financial statements . purchase consideration the fair value of the purchase consideration consists of the following ( in thousands ) : cash paid at the acquisition date $ 11,735 contingent consideration 2,507 total $ 14,242 cash paid at the acquisition date included $ 1.2 million that is being held in an escrow account for a one-year period , which is subject to sensima 's satisfaction of certain representations and warranties . the contingent consideration arrangement requires the company to pay up to an additional $ 8.9 million to former sensima shareholders if sensima achieves a new product introduction as well as certain product revenue and direct margin targets in 2016. the fair value of the contingent consideration at the acquisition date was $ 2.5 million , which was estimated based on a probability-weighted analysis of possible future cash flow outcomes . the fair value of the contingent consideration is recorded in other long-term liabilities in the consolidated balance sheets and is remeasured at the end of each reporting period , with any changes in fair value recorded in operating expense in the consolidated statements of operations . actual amounts that will ultimately be paid may differ from the obligations recorded . story_separator_special_tag replace_table_token_8_th r & d expenses were $ 58.6 million , or 20.7 % of revenue , for the year ended december 31 , 2014 and $ 49.7 million , or 20.9 % of revenue , for the year ended december 31 , 2013. the $ 8.9 million increase in r & d expenses was primarily due to an increase of $ 2.8 million in stock-based compensation expenses primarily associated with the performance-based and market-based equity awards , an increase of $ 2.4 million in new product development expenses , an increase of $ 2.0 million in cash compensation expenses , which include salary , benefits and bonuses , and an increase of $ 0.6 million in manufacturing and laboratory supplies . our r & d headcount was 476 employees as of december 31 , 2014 , compared with 449 employees as of december 31 , 2013. r & d expenses were $ 49.7 million , or 20.9 % of revenue , for the year ended december 31 , 2013 and $ 48.8 million , or 22.8 % of revenue , for the year ended december 31 , 2012. the $ 0.9 million increase in r & d expenses was primarily due to an increase of $ 1.6 million in depreciation expense , and an increase of $ 0.7 million in cash compensation expenses , which include salary , benefits and bonuses . these increases were partially offset by a decrease of $ 0.7 million in stock-based compensation expenses primarily due to the cancellation of certain performance-based equity awards . our r & d headcount was 449 employees as of december 31 , 2013 , compared with 388 employees as of december 31 , 2012 . 33 selling , general and administrative selling , general and administrative expenses primarily include salary and benefit expenses , bonuses and stock-based compensation expenses for sales , marketing and administrative personnel , sales commissions , travel expenses , facilities costs , and professional service fees . replace_table_token_9_th sg & a expenses were $ 66.8 million , or 23.6 % of revenue , for the year ended december 31 , 2014 and $ 54.6 million , or 22.9 % of revenue , for the year ended december 31 , 2013. the $ 12.2 million increase in sg & a expenses was primarily due to an increase of $ 9.7 million in stock-based compensation expenses primarily associated with the performance-based and market-based equity awards , an increase of $ 0.9 million in professional service fees primarily due to the acquisition of sensima , an increase of $ 0.5 million in cash compensation expenses , which include salary , benefits and bonuses , and an increase of $ 0.3 million in commission expenses due to higher revenue . our sg & a headcount was 274 employees as of december 31 , 2014 , compared to 249 employees as of december 31 , 2013. sg & a expenses were $ 54.6 million , or 22.9 % of revenue , for the year ended december 31 , 2013 and $ 50.0 million , or 23.4 % of revenue , for the year ended december 31 , 2012. the $ 4.6 million increase in sg & a expenses was primarily due to an increase of $ 2.6 million in stock-based compensation expenses primarily associated with the performance-based awards , an increase of $ 1.8 million in cash compensation expenses , which include salary , benefits and bonuses , and an increase of $ 1.0 million in commission expenses due to higher revenue . these increases were partially offset by a decrease of $ 1.1 million in professional service fees . our sg & a headcount was 249 employees as of december 31 , 2013 , compared to 250 employees as of december 31 , 2012. litigation benefit , net litigation benefit , net , was $ ( 8.0 ) million for the year ended december 31 , 2014 , compared to litigation benefit , net , of $ ( 0.4 ) million for the year ended december 31 , 2013. net litigation benefit for the year ended december 31 , 2014 included the recognition of a $ 9.5 million award from the o2 micro litigation , partially offset by $ 0.5 million of additional legal fees incurred in connection with the final resolution of the litigation . net litigation benefit for the year ended december 31 , 2013 included $ 0.8 million of proceeds received in connection with the legal settlement with silergy corporation . the increase in net litigation benefit for the year ended december 31 , 2014 was partially offset by higher expenses we incurred in other litigation matters , compared to the same period in 2013. litigation benefit , net , was $ ( 0.4 ) million for the year ended december 31 , 2013 , compared to litigation benefit , net , of $ ( 2.9 ) million for the year ended december 31 , 2012. the year-over-year decrease in litigation benefit was primarily due to $ 0.8 million received in 2013 in connection with the settlement from silergy , compared with $ 3.7 million received in 2012 in connection with settlements from linear and silergy . no further amount was due to us from these two lawsuits as of december 31 , 2013. for a complete description of our material litigation matters , see note 13 “ litigation ” of notes to consolidated financial statements . interest and other income , net for the years ended december 31 , 2014 , 2013 and 2012 , interest and other income , net , was $ 1.1 million , $ 0.1 million and $ 0.6 million , respectively . interest and other income , net increased from 2013 to 2014 primarily due to lower foreign currency exchange losses and higher interest income in 2014 compared to 2013. interest and other income , net , decreased from 2012 to 2013 primarily due to higher foreign currency exchange losses and

for the year ended december 31 , 2014 , net cash used in investing activities was $ 9.4 million , primarily due to net cash of $ 11.6 million paid to acquire sensima , purchases of property and equipment of $ 9.5 million , and net purchases of investments of $ 7.1 million , partially offset by proceeds of $ 4.7 million from the redemption of auction-rate securities . for the year ended december 31 , 2013 , net cash used in investing activities was $ 54.3 million , primarily reflecting net purchases of short-term investments and purchases of property and equipment , partially offset by proceeds from the redemption of auction-rate securities . for the year ended december 31 , 2012 , net cash used in investing activities was $ 26.8 million related to our investment in equipment , building improvements at our new headquarters located in san jose , california and net purchases of short-term investments , partially offset by proceeds from the redemption of auction-rate securities . for the year ended december 31 , 2014 , net cash used in financing activities was $ 39.2 million , primarily reflecting $ 41.2 million used in repurchases of our common stock pursuant to our stock repurchase program and $ 11.7 million used to pay dividends to our stockholders and dividend equivalents to our employees who hold restricted stock units ( “ rsus ” ) , partially offset by $ 14.0 million of cash proceeds from stock option exercises and issuance of shares through our employee stock purchase plan . for the year ended december 31 , 2013 , net cash provided by financing activities was $ 18.9 million , primarily reflecting $ 40.0 million of cash proceeds from stock option exercises and issuance of shares through our employee stock purchase plan , partially offset by $ 20.6 million used in repurchases of our common stock pursuant to our stock repurchase program . for the year ended december 31 , 2012 , net cash used in financing activities was $ 19.6 million , primarily reflecting the $ 35.7 million cash dividends paid to stockholders on december 28 , 2012 , partially offset by $ 15.2 million of cash proceeds from stock option exercises and issuance of shares through our employee stock purchase plan . in july 2013 , our board of directors approved a stock repurchase program that authorizes us to repurchase up to $ 100 million in the aggregate of our common stock through june 30 , 2015. all shares are retired upon repurchase . for the year ended december 31 , 2014 , we repurchased a total of 1.1 million shares for $ 41.2 million ,

in addition , we are entitled to the cash flows from the trusts that represent collections on the contracts in excess of the amounts required to pay principal and interest on the notes , the base servicing fees , and certain other fees ( such as trustee and custodial fees ) . required principal payments on the notes are generally defined as the payments sufficient to keep the principal balance of the notes equal to the aggregate principal balance of the related contracts ( excluding those contracts that have been charged off ) , or a pre-determined percentage of such balance . where that percentage is less than 100 % , the related securitization agreements require accelerated payment of principal until the principal balance of the notes is reduced to the specified percentage . such accelerated principal payment is said to create `` overcollateralization `` of the notes . if the amount of cash required for payment of fees , interest and principal on the senior notes exceeds the amount collected during the collection period , the shortfall is generally withdrawn from the spread account , if any . if the cash collected during the period exceeds the amount necessary for the above allocations plus required principal payments on the subordinated notes , if any , and there is no shortfall in the related spread account or other form of credit enhancement , the excess is released to us . if the total credit enhancement amount is not at the required level , then the excess cash collected is retained in the trust until the specified level is achieved . cash in the spread accounts is restricted from our use . cash held in the various spread accounts is invested in high quality , liquid investment securities , as specified in the securitization agreements . in all of our term securitizations we have transferred the receivables ( through a subsidiary ) to the securitization trust . we report the assets and liabilities of the securitization trust on our consolidated balance sheet . the noteholders ' and the related securitization trusts ' recourse against us for failure of the contract obligors to make payments on a timely basis is limited , in general , to our finance receivables , and spread accounts . servicing we consider the contractual servicing fee received on our managed portfolio held by non-consolidated subsidiaries to be equal to adequate compensation . additionally , we consider that these fees would fairly compensate a substitute servicer , should one be required . as a result , no servicing asset or liability has been recognized . servicing fees received on the managed portfolio held by non-consolidated subsidiaries are reported as income when earned . servicing fees received on the managed portfolio held by consolidated subsidiaries are included in interest income when earned . servicing costs are charged to expense as incurred . servicing fees receivable , which are included in other assets in the accompanying consolidated balance sheets , represent fees earned but not yet remitted to us by the trustee . furniture and equipment furniture and equipment are stated at cost net of accumulated depreciation . we calculate depreciation using the straight-line method over the estimated useful lives of the assets , which range from three to five years . assets held under capital leases and leasehold improvements are amortized over the lesser of the estimated useful lives of the assets or the related lease terms . amortization expense on assets acquired under capital lease is included with depreciation expense on owned assets . impairment of long-lived assets and long-lived assets to be disposed of long-lived assets and certain identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset . if such assets are considered to be impaired , the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets . assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell . other income the following table presents the primary components of other income : replace_table_token_36_th f- 10 consumer portfolio services , inc. and subsidiaries notes to consolidated financial statements earnings per share the following table illustrates the computation of basic and diluted earnings per share : replace_table_token_37_th incremental shares of 7.5 million , 7.9 million and 6.8 million related to stock options and warrants have been excluded from the diluted earnings per share calculation for the years ended december 31 , 2017 , 2016 and 2015 , respectively , because the effect is anti-dilutive . deferral and amortization of debt issuance costs costs related to the issuance of debt are deferred and amortized using the interest method over the contractual or expected term of the related debt . unamortized debt issuance costs are presented as a direct deduction to the carrying amount of the related debt on our consolidated balance sheets . income taxes the company and its subsidiaries file a consolidated federal income tax return and combined or stand-alone state franchise tax returns for certain states . we utilize the asset and liability method of accounting for income taxes , under which deferred income taxes are recognized for the future tax consequences attributable to the differences between the financial statement values 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 . story_separator_special_tag employee costs include base salaries , commissions and bonuses paid to employees , and certain expenses related to the accounting treatment of outstanding stock options , and are one of our most significant operating expenses . these costs ( other than those relating to stock options ) generally fluctuate with the level of applications and automobile contracts processed and serviced . other operating expenses consist largely of facilities expenses , telephone and other communication services , credit services , computer services , marketing and advertising expenses , and depreciation and amortization . total operating expenses were $ 402.3 million for the year ended december 31 , 2017 , compared to $ 372.6 million for the prior year , an increase of $ 29.7 million , or 8.0 % . the increase is primarily due to the increase in interest expense , provision for credit losses and servicing costs . employee costs increased by $ 7.4 million or 11.3 % , to $ 73.0 million during the year ended december 31 , 2017 , representing 18.1 % of total operating expenses , from $ 65.5 million for the prior year , or 17.6 % of total operating expenses . during the year ended december 31 , 2017 , we added servicing staff to accommodate the increase in the number of accounts in our managed portfolio . the table below summarizes our employees by category as well as contract purchases and units in our managed portfolio as of , and for the years ended , december 31 , 2017 and 2016 : replace_table_token_20_th 31 general and administrative expenses include costs associated with purchasing and servicing our portfolio of finance receivables , including expenses for facilities , credit services , and telecommunications . general and administrative expenses were $ 26.6 million , an increase of $ 1.8 million , or 7.0 % , compared to the previous year and represented 6.6 % of total operating expenses . interest expense for the year ended december 31 , 2017 increased by $ 12.4 million to $ 92.3 million , or 15.5 % , compared to $ 79.9 million in the previous year . interest on securitization trust debt increased by $ 13.9 million , or 20.1 % , for the year ended december 31 , 2017 compared to the prior year . the average balance of securitization trust debt increased 4.7 % to $ 2,172.1 million at december 31 , 2017 compared to $ 2,075.1 million at december 31 , 2016. in addition , the blended interest rates on our term securitizations have generally increased since june 2014. as a result , the cost of securitization debt during the year ended december 31 , 2017 was 3.8 % , compared to 3.3 % in the prior year period . for any particular quarterly securitization transaction , the blended cost of funds is ultimately the result of many factors including the market interest rates for benchmark swaps of various maturities against which our bonds are priced and the margin over those benchmarks that investors are willing accept , which in turn , is influenced by investor demand for our bonds at the time of the securitization . these and other factors have resulted in a general trend toward higher securitization trust debt interest costs since june 2014 , although that trend has reversed somewhat since july 2016. the blended interest rates of our recent securitizations are summarized in the table below : blended cost of funds on recent asset-backed term securitizations replace_table_token_21_th the annualized average rate on our securitization trust debt was 3.8 % for the year ended december 31 , 2017 compared to 3.3 % in the prior year . the annualized average rate is influenced by the manner in which the underlying securitization trust bonds are repaid . the rate tends to increase over time on any particular securitization since the structures of our securitization trusts generally provide for sequential repayment of the shorter term , lower interest rate bonds before the longer term , higher interest rate bonds . interest expense on our subordinated debt decreased by $ 20,000 , or 1.5 % , for the year ended december 31 , 2017 compared to the prior year . the reduction was the result of a decrease in the average interest rate on our subordinated renewable notes from 8.3 % for the year ended december 31 , 2017 to 8.9 % for the year ended december 31 , 2016. this decrease was mostly offset by an increase in the average balance of the notes from $ 15.1 million in the prior year to $ 16.0 million for the year ended december 31 , 2017. interest expense on residual interest financing was $ 6.4 million in the year ended december 31 , 2016. this debt was repaid in full in november 2016. interest expense on warehouse lines of credit decreased by $ 636,000 , or 7.4 % for the year ended december 31 , 2017 compared to the prior year . the decrease is due primarily to lower utilization of our warehouse lines in 2017 compared to 2016 . 32 the following table presents the components of interest income and interest expense and a net interest yield analysis for the years ended december 31 , 2017 and 2016 : replace_table_token_22_th ( 1 ) average balances are based on month end balances except for warehouse lines of credit , which are based on daily balances . ( 2 ) net of deferred fees and direct costs . ( 3 ) net interest income divided by average interest earning assets . replace_table_token_23_th provision for credit losses was $ 186.7 million for the year ended december 31 , 2017 , an increase of $ 8.2 million , or 4.6 % compared to the prior year and represented 46.4 % of total operating expenses . the provision for credit losses maintains the allowance for finance credit losses at levels that we feel are adequate for probable incurred credit losses

in addition , from time to time , we have relied on the availability of cash from outside sources in order to finance our continuing operations , as well as to fund the portion of automobile contract purchase prices not financed under revolving warehouse credit facilities . the acquisition of automobile contracts for subsequent financing in securitization transactions , and the need to fund spread accounts and initial overcollateralization , if any , and increase credit enhancement levels when those transactions take place , results in a continuing need for capital . the amount of capital required is most heavily dependent on the rate of our automobile contract purchases , the required level of initial credit enhancement in securitizations , and the extent to which the previously established trusts and their related spread accounts either release cash to us or capture cash from collections on securitized automobile contracts . of those , the factor most subject to our control is the rate at which we acquire automobile contracts . 37 we are and may in the future be limited in our ability to purchase automobile contracts due to limits on our capital . as of december 31 , 2017 , we had unrestricted cash of $ 12.7 million . we had an aggregate of $ 187.6 million available under our three $ 100 million warehouse credit facilities ( subject to available eligible collateral and our own capital ) . during 2017 we completed four securitizations aggregating $ 870.0 million of receivables , and we intend to continue completing securitizations regularly during 2018 , although there can be no assurance that we will be able to do so . our plans to manage our liquidity include maintaining our rate of automobile contract purchases at a level that matches our available capital , and , as appropriate , minimizing our operating costs . if we are unable to complete such securitizations , we may be unable to increase our rate of automobile contract purchases , in which case our interest income and other portfolio related income could decrease . our liquidity will also be affected by releases of cash from the trusts established with our securitizations . while the specific terms and mechanics of each spread account vary among transactions , our securitization agreements generally provide that we

third party clinical trial expenses include investigator fees , site costs , clinical research organization costs , and costs for central laboratory testing and data management . r & d activities are expensed as incurred . in-licensing fees , milestones , maintenance fees and other costs to acquire technologies that are utilized in r & d for product candidates that have not yet received regulatory approval , and that are not expected to have alternative future use are expensed when incurred . costs associated with activities performed under co-development collaborations are reflected in r & d expense . non-refundable advance payments for goods or services that will 110 seattle genetics , inc. notes to consolidated financial statements ( continued ) be used or rendered for future r & d activities are capitalized and recognized as expense as the related goods are delivered or the related services are performed . this results in the temporary deferral of recording expense for amounts incurred for research and development activities from the time payments are made until the time goods or services are provided . advertising advertising costs are expensed as incurred . the company incurred $ 12.9 million , $ 16.4 million , and $ 10.1 million in advertising expense during 2016 , 2015 , and 2014 , respectively . concentration of credit risk cash , cash equivalents and investments are invested in accordance with the company 's investment policy . the policy includes guidelines for the investment of cash reserves and is reviewed periodically to minimize credit risk . most of the company 's investments are not federally insured . the company has accounts receivable from the sale of adcetris from a small number of distributors . the company does not require collateral on amounts due from its distributors or its collaborators and is therefore subject to credit risk . the company has not experienced any significant credit losses to date as a result of credit risk concentration and does not consider an allowance for doubtful accounts to be necessary . major customers the company sells adcetris through a limited number of distributors . certain of these distributors , together with entities under their common control , each individually accounted for greater than 10 % of total revenues and greater than 10 % of accounts receivable as noted below . in addition , one of the company 's collaborators accounted for greater than 10 % of total revenues as noted below . revenues generated outside the united states , as determined by customer location , were less than 10 % of total revenues for all years presented . the following table presents each major distributor or collaborator that comprised more than 10 % of total revenue in the periods presented : replace_table_token_22_th the following table presents each major distributor that accounted for more than 10 % of accounts receivable as of the dates presented : replace_table_token_23_th 111 seattle genetics , inc. notes to consolidated financial statements ( continued ) major suppliers the use of a relatively small number of contract manufacturers to supply drug product necessary for the company 's commercial operations and clinical trials creates a concentration of risk for the company . while primarily one source of supply is utilized for certain components of adcetris and each of the company 's product candidates , other sources are available should the company need to change suppliers . the company also endeavors to maintain reasonable levels of drug supply for its use . a change in suppliers , however , could cause a delay in delivery of drug product which could result in the interruption of commercial operations or clinical trials . such an event would adversely affect the company 's business . income taxes the company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns . deferred tax assets and liabilities are determined based on the differences between the financial statement and tax bases of assets and liabilities using tax rates in effect for the year in which the differences are expected to reverse . the company has provided a full valuation allowance against its deferred tax assets for all periods presented . a valuation allowance is recorded when it is more likely than not that the net deferred tax asset will not be realized . the company follows the guidance related to accounting for uncertainty in income taxes , which requires the recognition of an uncertain tax position when it is more likely than not to be sustainable upon audit by the applicable taxing authority . share-based compensation the company uses the graded-vesting attribution method for recognizing compensation expense for its stock options and the straight-line method for recognizing compensation expense for its restricted stock units ( “rsus” ) . compensation expense is recognized on awards ultimately expected to vest and reduced for forfeitures that are estimated at the time of grant and revised , if necessary , in subsequent periods if actual forfeitures differ from those estimates . for performance-based stock options , the company will record compensation expense over the estimated service period once the achievement of the performance-based milestone is considered probable . at each reporting date , the company assesses whether achievement of a milestone is considered probable , and if so , records compensation expense based on the portion of the service period elapsed to date with respect to that milestone , with a cumulative catch-up , net of estimated forfeitures . the company will recognize remaining compensation expense with respect to a milestone , if any , over the remaining estimated service period . long-term incentive plans in may and july of 2016 , the company established two long-term incentive plans , or the first ltip and the second ltip , respectively . the first ltip provides eligible employees with the opportunity to receive a performance-based incentive comprised of a cash payment and a stock option . story_separator_special_tag our collaborators must undertake significant pre-clinical research and studies to make a determination of the suitability of a product candidate and the time from those studies or designation to initiation of a clinical trial may take several years . initiation of a phase 1 clinical trial . generally , phase 1 clinical trials may take one to two years to complete . initiation of a phase 2 clinical trial . generally , phase 2 clinical trials may take one to three years to complete . initiation of a phase 3 clinical trial . generally , phase 3 clinical trials may take two to six years to complete . 81 regulatory milestones in our collaborations may include the following types of events : filing of regulatory applications for marketing approval such as a bla in the united states or a marketing authorization application in europe . generally , it may take up to twelve months to prepare and submit regulatory filings . receiving marketing approval in a major market , such as in the united states , europe , japan or other significant countries . generally it may take up to three years after a marketing application is submitted to obtain approval for marketing and pricing from the applicable regulatory agency . commercialization milestones in our collaborations may include the following types of events : first commercial sale in a particular market , such as in the united states , europe , japan or other significant countries . product sales in excess of a pre-specified threshold . the amount of time to achieve this type of milestone depends on several factors , including , but not limited to , the dollar amount of the threshold , the pricing of the product , market penetration of the product and the rate at which customers begin using the product . our adc collaborators are solely responsible for the development of their product candidates and the achievement of milestones in any of the categories identified above is based solely on the collaborators ' efforts . in the case of our adcetris collaboration with takeda , we may be involved in certain development activities ; however , the achievement of development , regulatory and commercial milestone events under the agreement is primarily based on activities undertaken by takeda . the process of successfully developing a product candidate , obtaining regulatory approval and ultimately commercializing a product candidate is highly uncertain and the attainment of any milestones is therefore uncertain and difficult to predict . in addition , since we do not take a substantive role or control the research , development or commercialization of any products generated by our adc collaborators , we are not able to reasonably estimate when , if at all , any milestone payments or royalties may be payable to us by our adc collaborators . as such , the milestone payments associated with our adc collaborations involve a substantial degree of uncertainty and risk that they may never be received . similarly , even in those collaborations where we may have an active role in the development of the product candidate , such as our adcetris collaboration with takeda , the attainment of a milestone is based on the collaborator 's activities and is generally outside our direction and control . we generally invoice our collaborators and licensees on a monthly or quarterly basis , or upon the completion of the effort or achievement of a milestone , based on the terms of each agreement . any deferred revenue arising from amounts received in advance of the culmination of the earnings process is recognized as revenue in future periods when the applicable revenue recognition criteria have been met . deferred revenue expected to be recognized within the next twelve months is classified as a current liability . royalty revenues and cost of royalty revenues royalty revenues primarily reflect royalties paid to us by takeda under the adcetris collaboration . these royalties include commercial sales-based milestones and sales royalties . the royalty rate paid by takeda is calculated as a percentage of takeda 's net sales of adcetris , ranges from the mid-teens to the mid-twenties depending on sales volumes , and resets annually . takeda bears a portion of third-party royalty costs owed on sales of adcetris in its territory . this amount is also included in our royalty revenues . cost of royalty revenues reflect amounts owed to our third-party licensors related to the sale of adcetris in takeda 's territory . these amounts are recognized in the quarter in which takeda reports its sales activity to us , which is the quarter following the related sales . royalty revenues also include certain amounts earned in connection with our adc collaborations . 82 investments . we have investments in debt securities in accordance with our investment policy . we classify our investments as available-for-sale , which are reported at estimated fair value with the related unrealized gains and losses included in accumulated other comprehensive loss in stockholders ' equity . realized gains and losses and declines in value of investments judged to be other-than-temporary are included in investment and other income , net . the fair value of our investments is subject to volatility . declines in the fair value of our investments judged to be other-than-temporary could adversely affect our future operating results . we estimate fair values in accordance with a hierarchy prescribed by gaap . this hierarchy prioritizes the inputs and assumptions used , and the valuation techniques used to measure fair value . accrued liabilities . as part of the process of preparing financial statements , we are required to estimate accrued liabilities . this process involves identifying services that have been performed on our behalf and estimating the level of services performed and the associated costs incurred for such services where we have not yet been invoiced or otherwise notified of actual cost . we record these estimates in our consolidated financial statements as

in addition , we anticipate committing substantial capital resources to the transactions contemplated by the immunomedics license and the anticipated transfer , integration and development activities related to immu-132 , including with respect to our potential upfront and milestone payment obligations to immunomedics . our commitment of resources to the continuing development , regulatory and commercialization activities for adcetris , the transactions contemplated by the immunomedics license and the anticipated transfer , integration and development activities related to immu-132 , and the research , continued development and manufacturing of our product candidates will likely require us to raise substantial amounts of additional capital . in addition , we actively evaluate various strategic transactions on an ongoing basis , including licensing or otherwise acquiring complementary products , technologies or businesses , such as our anticipated in-licensing of immu-132 , and we may require significant additional capital in order to complete or otherwise provide funding for any additional acquisitions . we may seek 95 additional funding through some or all of the following methods : corporate collaborations , licensing arrangements and public or private debt or equity financings . we do not know whether additional capital will be available when needed , or that , if available , we will obtain financing on terms favorable to us or our stockholders . if we are unable to raise additional funds when we need them , we may be required to delay , reduce the scope of , or eliminate one or more of our development programs , which may adversely affect our business and operations . commitments the following table reflects our future minimum contractual commitments as of december 31 , 2016 ( in thousands ) : replace_table_token_15_th we have entered into leases for our office and laboratory facilities expiring in 2018 through 2024 that contain rate escalations and options for us to extend the leases . operating lease obligations in the table above do not assume the exercise by us of any extension options . manufacturing , license and collaboration agreement commitments include non-cancellable obligations under our manufacturing , license and collaboration agreements . a substantial portion of the minimum payments under manufacturing , license and collaboration agreements represents contractual obligations related to manufacturing our product candidates for use in our clinical trials and for commercial operations in the case of adcetris . < p style= '' margin-top:0px ; margin-bottom:0px ;

360 , property , plant , and equipment ( “ asc 360 ” ) , which requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . recoverability is measured by comparing the carrying amount of an asset to the expected future net cash flows generated by the asset . if it is determined that the asset may not be recoverable , and if the carrying amount of an asset exceeds its estimated fair value , an impairment charge is recognized to the extent of the difference . j2 global assessed whether events or changes in circumstances have occurred that potentially indicate the carrying amount of long-lived assets may not be recoverable . no impairment was recorded in fiscal year 2013 , 2012 and 2011 . - 54 - ( m ) goodwill and intangible assets goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination . intangible assets resulting from the acquisitions of entities accounted for using the purchase method of accounting are recorded at the estimated fair value of the assets acquired . identifiable intangible assets are comprised of purchased customer relationships , trademarks and trade names , developed technologies and other intangible assets . intangible assets subject to amortization are amortized over the period of estimated economic benefit ranging from 1 to 20 years . in accordance with fasb asc topic no . 350 , intangibles - goodwill and other ( “ asc 350 ” ) , goodwill and other intangible assets with indefinite lives are not amortized but tested annually for impairment or more frequently if j2 global believes indicators of impairment exist . in connection with the annual impairment test for goodwill , the company has the option to perform a qualitative assessment in determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount . if the company determines that it was more likely than not that the fair value of the reporting unit is less than its carrying amount , then it performs the impairment test upon goodwill . in connection with the annual impairment test for intangible assets , we have the option to perform a qualitative assessment in determining whether it is more likely than not that the fair value is less than its carrying amount , then we perform the impairment test upon intangible assets . the impairment test involves a two-step process . the first step involves comparing the fair values of the applicable reporting units with their aggregate carrying values , including goodwill . the company generally determines the fair value of its reporting units using the income approach methodology of valuation . if the carrying value of a reporting unit exceeds the reporting unit 's fair value , j2 global performs the second step of the test to determine the amount of impairment loss . the second step involves measuring the impairment by comparing the implied fair values of the affected reporting unit 's goodwill and intangible assets with the respective carrying values . j2 global completed the required impairment review at the end of 2013 , 2012 and 2011 and concluded that there were no impairments . consequently , no impairment charges were recorded . ( n ) income taxes j2 global 's income is subject to taxation in both the u.s. and numerous foreign jurisdictions . significant judgment is required in evaluating the company 's tax positions and determining its provision for income taxes . during the ordinary course of business , there are many transactions and calculations for which the ultimate tax determination is uncertain . j2 global establishes reserves for tax-related uncertainties based on estimates of whether , and the extent to which , additional taxes will be due . these reserves for tax contingencies are established when the company believes that certain positions might be challenged despite the company 's belief that its tax return positions are fully supportable . j2 global adjusts these reserves in light of changing facts and circumstances , such as the outcome of a tax audit or lapse of a statute of limitations . the provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate . j2 global accounts for income taxes in accordance with fasb asc topic no . 740 , income taxes ( “ asc 740 ” ) , which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax basis of recorded assets and liabilities . asc 740 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some or all of the net deferred tax assets will not be realized . the valuation allowance is reviewed quarterly based upon the facts and circumstances known at the time . in assessing this valuation allowance , j2 global reviews historical and future expected operating results and other factors , including its recent cumulative earnings experience , expectations of future taxable income by taxing jurisdiction and the carryforward periods available for tax reporting purposes , to determine whether it is more likely than not that deferred tax assets are realizable . asc 740 provides guidance on the minimum threshold that an uncertain income tax benefit is required to meet before it can be recognized in the financial statements and applies to all income tax positions taken by a company . asc 740 contains a two-step approach to recognizing and measuring uncertain income tax positions . story_separator_special_tag our revenues have increased over the past three years primarily due to the following factors : our acquisitions in the digital media segment ; - 36 - as it relates to fiscal year 2012 , increase in our business cloud services ip licensing revenues as a result of the $ 27 million patent license agreement secured with open text during fiscal year 2013 , resulting in approximately $ 12.6 million of revenues during that year as associated with past damages ; and growth in our business cloud services subscriber base due to business acquisitions and new customer signups , net of cancellations . cost of revenues replace_table_token_11_th cost of revenues is primarily comprised of costs associated with data and voice transmission , dids , network operations , customer service , editorial and production costs , online processing fees and equipment depreciation . the increase in cost of revenues for the year ended december 31 , 2013 was primarily due to an increase in costs associated with businesses acquired in and subsequent to fiscal 2012 that resulted in additional editorial and production costs , network operations , customer service and processing fees . the increase in cost of revenues from 2011 to 2012 was primarily due to an increase in costs associated with businesses acquired in and subsequent to 2011 that resulted in additional network operations , customer service and editorial and production costs , partially offset by reduced processing fees . operating expenses sales and marketing . replace_table_token_12_th our sales and marketing costs consist primarily of internet-based advertising , sales and marketing , personnel costs and other business development-related expenses . our internet-based advertising relationships consist primarily of fixed cost and performance-based ( cost-per-impression , cost-per-click and cost-per-acquisition ) advertising relationships with an array of online service providers . advertising cost for the year ended december 31 , 2013 , 2012 and 2011 was $ 55.4 million , $ 48.1 million and $ 45.4 million , respectively . the increase in sales and marketing expenses from 2012 to 2013 was primarily due to additional advertising and personnel costs associated with businesses acquired in and subsequent to 2012 as acquisitions within the digital media division tend to have lower operating profit margins than acquisitions within the business cloud services division , primarily due to the additional sales and marketing expense required to operate in that industry . the increase in sales and marketing expenses from 2011 to 2012 was primarily due to additional advertising and personnel costs associated with businesses acquired in and subsequent to 2011. research , development and engineering . replace_table_token_13_th our research , development and engineering costs consist primarily of personnel-related expenses . the increase in research , development and engineering costs from 2012 to 2013 was primarily due to an increase in personnel costs associated with businesses acquired in and subsequent to 2012. the increase in research , development and engineering costs from 2011 to 2012 was primarily - 37 - due to an increase in personnel costs associated with businesses acquired in and subsequent to 2011 and additional expenses for professional services . general and administrative . replace_table_token_14_th our general and administrative costs consist primarily of personnel-related expenses , depreciation and amortization , share-based compensation expense , bad debt expense , professional fees , severance and insurance costs . the increase in general and administrative expense from 2012 to 2013 was primarily due to personnel costs relating to acquisitions closed during 2012 and 2013 and an increase in amortization of intangible assets . the increase in general and administrative expense from 2011 to 2012 was primarily due to an increase in amortization of intangible assets and personnel costs relating to acquisitions closed during 2011 and 2012 and an increase in professional fees , partially offset by a decrease in bad debt expense . share-based compensation the following table represents share-based compensation expense included in cost of revenues and operating expenses in the accompanying condensed consolidated statements of income for the year ended december 31 , 2013 , 2012 and 2011 ( in thousands ) : replace_table_token_15_th non-operating income and expenses interest expense ( income ) , net . our interest expense ( income ) , net is generated primarily from interest expense due to outstanding debt and the recognition of the interest portion of a loss on extinguishment of debt of $ 1.6 million in connection with the december 31 , 2013 reorganization of ziff davis , inc. into ziff davis , llc and the company 's acquisition of all of the minority holders ' equity interests in ziff davis , inc. , and interest earned on cash , cash equivalents and short-term and long-term investments . interest expense ( income ) , net was $ 21.3 million , $ 7.7 million , and $ ( 0.6 ) million for the years ended december 31 , 2013 , 2012 and 2011 , respectively . the increase from 2012 to 2013 was primarily due to interest expense following the july 2012 issuance of the senior notes . the increase from 2011 to 2012 was primarily due to additional interest expense following the july 2012 issuance of the senior notes partially offset by interest income from higher cash and investment balances . other expense ( income ) , net . our other expense ( income ) , net is generated primarily from miscellaneous items , gain or losses on currency exchange and the sale of investments . other expense ( income ) , net was $ 11.5 million , $ ( 0.4 ) million , and $ ( 0.5 ) million for the years ended december 31 , 2013 , 2012 and 2011 , respectively . the increase from 2012 to 2013 was primarily due to the recognition of the other expense portion of a loss on extinguishment of debt of $ 12.9 million in connection with the december 31 , 2013 reorganization of ziff davis , inc. into ziff davis , llc and the company 's acquisition

the company is using the net proceeds from the offering for general corporate purposes , including acquisitions . we currently anticipate that our existing cash and cash equivalents and short-term investment balances and cash generated from operations will be sufficient to meet our anticipated needs for working capital , capital expenditure , investment requirements , stock repurchases and cash dividends for at least the next 12 months . cash flows our primary sources of liquidity are cash flows generated from operations , together with cash and cash equivalents and short-term investments . net cash provided by operating activities was $ 193.3 million , $ 169.9 million , and $ 150.7 million for the years ended december 31 , 2013 , 2012 and 2011 , respectively . our operating cash flows resulted primarily from cash received from our subscribers offset by cash payments we made to third parties for their services , employee compensation and tax payments . the increase in our net cash provided by operating activities in 2013 compared to 2012 was primarily attributable to cash received from our customers , the impact of a 2012 non-cash change in estimate relating to deferred revenue and higher year-end accounts payable and accrued expense balances . the increase in our net cash provided by operating activities in 2012 compared to 2011 was primarily attributable to cash received from our subscribers , a tax benefit from the exercise of stock options and a change in the liability for uncertain tax positions during the year . certain tax payments are prepaid during the year and included within prepaid expenses and other current assets on the consolidated balance sheet . our prepaid tax payments were $ 11.3 million and $ 9.0 million at < font

depreciation depreciation is recorded using the straight-line method , which deducts equal amounts of the cost of each asset from earnings every year over its expected economic useful life . the principal lives for major classes of plant and equipment are summarized in note 9 , plant and equipment , net . selling and administrative the principal components of selling and administrative expenses are compensation , advertising , and promotional costs . postemployment benefits we provide termination benefits to employees as part of ongoing benefit arrangements and record a liability for termination benefits when probable and estimable . these criteria are met when management , with the appropriate level of authority , approves and commits to its plan of action for termination ; the plan identifies the employees to be terminated and their related benefits ; and the plan is to be completed within one year . we do not provide material one-time benefit arrangements . fair value measurements we are required to measure certain assets and liabilities at fair value , either upon initial measurement or for subsequent accounting or reporting . for example , fair value is used in the initial measurement of assets and liabilities acquired in a business combination ; on a recurring basis in the measurement of derivative financial instruments ; and on a nonrecurring basis when long-lived assets are written down to fair value when held for sale or determined to be impaired . refer to note 14 , fair value measurements , and note 16 , retirement benefits , for information on the methods and assumptions used in our fair value measurements . 63 table of contents financial instruments we address certain financial exposures through a controlled program of risk management that includes the use of derivative financial instruments . the types of derivative financial instruments permitted for such risk management programs are specified in policies set by management . refer to note 13 , financial instruments , for further detail on the types and use of derivative instruments into which we enter . major financial institutions are counterparties to all of these derivative contracts . we have established counterparty credit guidelines and generally enter into transactions with financial institutions of investment grade or better . management believes the risk of incurring losses related to credit risk is remote , and any losses would be immaterial to the consolidated financial results , financial condition , or liquidity . we recognize derivatives on the balance sheet at fair value . on the date the derivative instrument is entered into , we generally designate the derivative as either ( 1 ) a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability ( cash flow hedge ) , ( 2 ) a hedge of a net investment in a foreign operation ( net investment hedge ) , or ( 3 ) a hedge of the fair value of a recognized asset or liability ( fair value hedge ) . the following details the accounting treatment of our cash flow , fair value , net investment , and non-designated hedges : changes in the fair value of a derivative that is designated as and meets the cash flow hedge criteria are recorded in accumulated other comprehensive loss ( `` aocl `` ) to the extent effective and then recognized in earnings when the hedged items affect earnings . changes in the fair value of a derivative that is designated as and meets all the required criteria for a fair value hedge , along with the gain or loss on the hedged asset or liability that is attributable to the hedged risk , are recorded in current period earnings . changes in the fair value of a derivative and foreign currency debt that are designated as and meet all the required criteria for a hedge of a net investment are recorded as translation adjustments in aocl . changes in the fair value of a derivative that is not designated as a hedge are recorded immediately in earnings . we formally document the relationships between hedging instruments and hedged items , as well as our risk management objective and strategy for undertaking various hedge transactions . this process includes relating derivatives that are designated as fair value or cash flow hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions . we also formally assess , at the inception of the hedge and on an ongoing basis , whether derivatives are highly effective in offsetting changes in fair values or cash flows of the hedged item . if it is determined that a derivative is not highly effective as a hedge , or if a derivative ceases to be a highly effective hedge , we will discontinue hedge accounting with respect to that derivative prospectively . foreign currency since we do business in many foreign countries , fluctuations in currency exchange rates affect our financial position and results of operations . in most of our foreign operations , the local currency is considered the functional currency . foreign subsidiaries translate their assets and liabilities into u.s. dollars at current exchange rates in effect as of the balance sheet date . the gains or losses that result from this process are shown as translation adjustments in aocl in the equity section of the balance sheet . the revenue and expense accounts of foreign subsidiaries are translated into u.s. dollars at the average exchange rates that prevail during the period . therefore , the u.s. dollar value of these items on the consolidated income statements fluctuates from period to period , depending on the value of the u.s. dollar against foreign currencies . some transactions are made in currencies different from an entity 's functional currency . story_separator_special_tag equity affiliates ' income of $ 74.8 increased 8 % , or $ 5.8 , primarily due to jazan gas projects company , which began to contribute in the second half of fiscal year 2019 , and higher income from an affiliate in italy . 29 table of contents industrial gases – asia replace_table_token_8_th sales % change from prior year volume 1 % price 2 % energy and natural gas cost pass-through — % currency ( 1 ) % total industrial gases – asia sales change 2 % sales of $ 2,716.5 increased 2 % , or $ 52.9 , as positive pricing of 2 % and higher volumes of 1 % were partially offset by unfavorable currency impacts of 1 % . volume improvements from new plants were partially offset by negative impacts from planned maintenance outages , completion of a short-term supply contract , and covid-19 , which began impacting this segment in the second quarter and continued through the end of the fiscal year . the negative impact from covid-19 was primarily on our merchant volumes . pricing improved across asia , driven by our merchant business . the unfavorable currency impact was primarily attributable to the chinese renminbi and the south korean won . energy and natural gas cost pass-through to customers was flat versus the prior year . operating income of $ 870.3 increased 1 % , or $ 6.1 , due to positive pricing , net of power and fuel costs , of $ 46 and favorable net operating costs of $ 4 , partially offset by unfavorable volume mix of $ 33 and currency impacts of $ 11. operating margin of 32.0 % decreased 40 bp , as unfavorable volume mix more than offset positive pricing . equity affiliates ' income of $ 61.0 increased 4 % , or $ 2.6. industrial gases – global the industrial gases – global segment includes sales of cryogenic and gas processing equipment for air separation and centralized global costs associated with management of all the industrial gases segments . replace_table_token_9_th * not meaningful sales of $ 364.9 increased 40 % , or $ 103.9 , primarily due to higher sale of equipment activity . operating loss of $ 40.0 increased 242 % , or $ 28.3 , as higher project and product development costs were only partially offset by higher sale of equipment and other project activity . 30 table of contents corporate and other the corporate and other segment includes our lng , turbo machinery equipment and services , and distribution sale of equipment businesses as well as our corporate support functions that benefit all segments . the results of the corporate and other segment also include income and expense that is not directly associated with the other segments , such as foreign exchange gains and losses . replace_table_token_10_th sales of $ 217.9 increased 84 % , or $ 99.6 , primarily due to higher lng sale of equipment activity . operating loss of $ 112.2 decreased 27 % , or $ 40.6 , primarily due to the higher lng sale of equipment activity , partially offset by higher business development costs to support our growth strategy . reconciliations of non-gaap financial measures ( millions of dollars unless otherwise indicated , except for per share data ) we present certain financial measures , other than in accordance with u.s. generally accepted accounting principles ( `` gaap `` ) , on an `` adjusted `` or `` non-gaap `` basis . on a consolidated basis , these measures include adjusted diluted earnings per share ( `` eps `` ) , adjusted ebitda , adjusted ebitda margin , and adjusted effective tax rate . on a segment basis , these measures include adjusted ebitda and adjusted ebitda margin . in addition to these measures , we also include certain supplemental non-gaap financial measures that are presented below to help the reader understand the impact that our non-gaap adjustments have on the calculation of our adjusted diluted eps . for each non-gaap financial measure , we present below a reconciliation to the most directly comparable financial measure calculated in accordance with gaap . our non-gaap financial measures are not meant to be considered in isolation or as a substitute for the most directly comparable measure calculated in accordance with gaap . we believe these non-gaap financial measures provide investors , potential investors , securities analysts , and others with useful information to evaluate the performance of our business because such measures , when viewed together with financial results computed in accordance with gaap , provide a more complete understanding of the factors and trends affecting our historical financial performance and projected future results . in many cases , non-gaap financial measures are determined by adjusting the most directly comparable gaap measure to exclude certain disclosed items , or “ non-gaap adjustments , ” that we believe are not representative of underlying business performance . for example , we previously excluded certain expenses associated with cost reduction actions , impairment charges , and gains on disclosed transactions . the reader should be aware that we may recognize similar losses or gains in the future . readers should also consider the limitations associated with these non-gaap financial measures , including the potential lack of comparability of these measures from one company to another . the tax impact on our pre-tax non-gaap adjustments reflects the expected current and deferred income tax impact of our non-gaap adjustments . these tax impacts are primarily driven by the statutory tax rate of the various relevant jurisdictions and the taxability of the adjustments in those jurisdictions . 31 table of contents adjusted diluted eps the table below provides a reconciliation to the most directly comparable gaap measure for each of the major components used to calculate adjusted diluted eps from continuing operations , which we view as a key performance metric . we believe it is important for the reader to understand the per share

for the fiscal year ended 30 september 2019 , cash provided by operating activities was $ 2,969.9 , including income from continuing operations of $ 1,760.0. the gain on sale of assets and investments included a gain of $ 14.1 recognized on the disposition of our interest in high-tech gases ( beijing ) co. , ltd. , a previously held equity investment in our industrial gases - asia segment . refer to note 3 , acquisitions , to the consolidated financial statements for additional information . the working capital accounts were a use of cash of $ 25.3 , primarily driven by $ 69.0 from trade receivables and $ 41.8 from payables and accrued liabilities , partially offset by $ 79.8 from other receivables . the use of cash within `` payables and accrued liabilities '' was primarily driven by a $ 48.9 decrease in accrued utilities and a $ 30.3 decrease in accrued interest , partially offset by a $ 51.6 increase in customer advances primarily related to sale of equipment activity . the decrease in accrued utilities was primarily driven by a contract modification to a tolling arrangement in india and lower utility costs in the industrial gases – americas segment . the source of cash from other receivables of $ 79.8 was primarily due to the maturities of forward exchange contracts that hedged foreign currency exposures and the collection of value added taxes . investing activities for the fiscal year ended 30 september 2020 , cash used for investing activities was $ 3,560.0. payments for additions to plant and equipment , including long-term deposits , were $ 2,509.0. this includes the acquisition of five operating hydrogen production plants from pbf energy inc. in delaware and california for approximately $ 580 during the third quarter . additionally , acquisitions , less cash acquired , includes $ 183.3 for three businesses we acquired on 1 july 2020 , the largest of which was a business in israel that primarily offers merchant gas products . refer to note 3 , acquisitions , to the consolidated financial statements for additional information . purchases of investments of $ 2,865.5 relate to time deposits and treasury securities with terms greater than three months and less than one year and exceeded proceeds from investments of $ 1,938.0. proceeds from sale of assets and investments of $ 80.3 includes net proceeds of $ 44.1 related to the sale of property at our current corporate headquarters in the second quarter . for the fiscal year ended 30 september 2019 , cash used for investing activities was $ 2,113.4. payments for additions to plant and equipment totaled $ 1,989.7. cash paid for acquisitions , net of cash acquired , was $ 123.2. refer to note 3 , acquisitions ,

in response to the impact of covid-19 on air travel , we extended the expiration dates for travel credits issued from february 27 , 2020 through june 30 , 2020 to a 24-month period . the air traffic liability classified as non-current as of december 31 , 2020 represents our current estimate of tickets and credits to be used or refunded beyond one year , while the balance classified as current represents our current estimate of tickets and credits to be used or refunded within one year . we will continue to monitor our customers ' travel behavior and may adjust our estimates in the future . loyalty program customers may earn points under our customer loyalty program , trueblue ® , based on the fare paid and fare product purchased for a flight . customers can also earn points through business partners such as credit card companies , hotels , car rental companies , and our participating airline partners . points earned from a ticket purchase . when a trueblue ® member travels , we recognize a portion of the fare as revenue and defer in air traffic liabilities the portion that represents the value of the points net of spoilage , or breakage . we allocate the transaction price to each performance obligation on a relative standalone basis . we determine the standalone selling price of trueblue ® points issued using the redemption value approach . to maximize the use of observable inputs , we utilize the actual ticket value of the tickets purchased with trueblue ® points . the liability is relieved and passenger revenue is recognized when the points are redeemed and the free travel is provided . points sold to trueblue ® partners . our most significant contract to sell trueblue ® points is with our co-branded credit card partner . co-branded credit card partnerships have the following identified performance obligations : air transportation ; use of the jetblue brand name and access to our frequent flyer customer lists ; advertising ; and other airline benefits . in determining the estimated selling price , jetblue considered multiple inputs , methods and assumptions , including : discounted cash flows ; estimated redemption value , net of fulfillment discount ; points expected to be awarded and redeemed ; estimated annual spending by cardholders ; estimated annual royalty for use of jetblue 's frequent flyer customer lists ; and estimated utilization of other airline benefits . payments are typically due monthly based on the volume of points sold during the period , and the terms of our contracts are generally from one to seven years . the overall consideration received is allocated to each performance obligation based on their standalone relative selling prices . the air transportation element is deferred and recognized as passenger revenue when the points are utilized . the other elements are recognized as other revenue when the performance obligation related to those services are satisfied , which is generally the same period as when consideration is received from the participating company . amounts allocated to the air transportation element which are initially deferred include a portion that are expected to be redeemed during the following twelve months ( classified as a component of air traffic liability ) , and a portion that are not expected to be redeemed during the following twelve months ( classified as air traffic liability - non-current ) . we periodically update this analysis and adjust the split between current and non-current liabilities as appropriate . points earned by trueblue ® members never expire . trueblue ® members can pool points between small groups of people , branded as points pooling . breakage is estimated using historical redemption patterns to determine a breakage rate . breakage rates used to estimate breakage revenue are evaluated annually . changes to breakage estimates impact revenue recognition prospectively . airframe and engine maintenance and repair regular airframe maintenance for owned and leased flight equipment is charged to expense as incurred unless covered by a third-party long-term flight hour service agreement . we have separate service agreements in place covering scheduled and unscheduled repairs of certain airframe line replacement unit components as well as the engines in our fleet . certain of these agreements require monthly payments at rates based either on the number of cycles each aircraft was operated during each month or the number of flight hours each engine was operated during each month , subject to annual escalations . these power by the hour agreements transfer certain risks , including cost risks , to the third-party service providers . they generally fix the amount we pay per flight hour or number of cycles in exchange for maintenance and repairs under a predefined maintenance 73 jetblue airways corporation notes to consolidated financial statements program , which are representative of the time and materials that would be consumed . these costs are expensed as the related flight hours or cycles are incurred . advertising costs advertising costs , which are included in sales and marketing , are expensed as incurred . advertising expense was $ 45 million i n 2020 , $ 66 million in 2019 and $ 72 million in 2018. share-based compensation we record compensation expense for share-based awards based on the grant date fair value of those awards . share-based compensation expense includes an estimate for pre-vesting forfeitures and is recognized over the requisite service periods of the awards on a straight-line basis . income taxes we account for income taxes utilizing the liability method . deferred income taxes are recognized for the tax consequences of temporary differences between the tax and financial statement reporting bases of assets and liabilities . a valuation allowance for deferred tax assets is provided unless realization of the asset is judged by us to be more likely than not . our policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense . story_separator_special_tag passenger revenue from unused tickets and passenger credits are recognized in proportion to flown revenue based on estimates of expected expiration or when the likelihood of the customer exercising his or her remaining rights becomes remote . we measure capacity in terms of available seat miles , which represents the number of seats available for passengers multiplied by the number of miles the seats are flown . yield , or the average amount one passenger pays to fly one mile , is calculated by dividing passenger revenue by revenue passenger miles . we attempt to increase passenger revenue primarily by increasing our yield per flight which produces higher revenue per available seat mile . our objective is to optimize our fare mix to increase our overall average fare while continuing to provide our customers with competitive fares . in 2019 , the increase in passenger revenue was mainly attributable to a 1.4 % increase in revenue passengers and a 4.1 % increase in average fare . fee revenue increased by $ 76 million as a result of changes in our baggage and change fee policies . our largest ancillary product was even more ® space , generating approximately $ 301 million in revenue , an increase of over 10 % compared to 2018. other revenue is primarily comprised of the marketing component of the sales of our trueblue ® points . it also includes revenue from the sale of vacation packages , ground handling fees received from other airlines , and rental income . ( 1 ) refer to our `` regulation g reconciliation of non-gaap financial measures `` at the end of this section for more information on this non-gaap measure . 43 operating expenses replace_table_token_12_th aircraft fuel and related taxes aircraft fuel and related taxes represented 25 % of our total operating expenses in 2019 compared to 26 % in 2018. the average fuel price decreased 6.7 % in 2019 to $ 2.09 per gallon . this was partially offset by a 4.3 % increase in our fuel consumption of approximately 36 million gallons . additional fuel consumption was mainly due to our increase in the average number of operating aircraft . we recognized fuel hedge losses of $ 5 million and $ 2 million , in 2019 and 2018 , respectively . these losses were recorded in aircraft fuel and related taxes . salaries , wages and benefits salaries , wages and benefits represented approximately 32 % of our total operating expenses in 2019 compared to 28 % in 2018. the increase in salaries , wages and benefits was primarily driven by the incremental costs of the new pilots ' collective bargaining agreement which became effective on august 1 , 2018. our crewmember headcount also increased year-over-year . during 2019 , the average number of full-time equivalent crewmembers increased by 4 % and the average tenure of our crewmembers was 7 years . landing fees and other rents landing fees and other rents include landing fees , which are at premium rates in the heavily trafficked northeast corridor of the u.s. where approximately 76 % of our operations resided in 2019. other rents primarily consisted of rent for airports in our bluecities . landing fees and other rents increased $ 12 million , or 2.6 % , in 2019 primarily due to our increased number of departures . depreciation and amortization depreciation and amortization primarily include depreciation for our owned and finance leased aircraft , engines , and inflight entertainment systems . depreciation and amortization increased $ 56 million , or 12.1 % , primarily driven by a 2.8 % increase in the average number of aircraft operating in 2019 compared to the same period in 2018. we placed five airbus a321 aircraft into service and bought out the lease of one airbus a320 aircraft in 2019. in addition , we also completed the cabin restyle on 42 airbus a320 aircraft . maintenance , materials and repairs maintenance , materials and repairs are generally expensed when incurred unless covered by a long-term flight hour services contract . the average age of our aircraft in 2019 was 10.6 years which was relatively young compared to our competitors . however , as our fleet ages our maintenance costs will increase significantly , both on an absolute basis and as a percentage of our unit costs , as older aircraft require additional , more expensive repairs over time . we had an average of 6.8 additional total operating aircraft in 2019 compared to 2018. in 2019 , maintenance , materials and repairs decreased by $ 6 million , or 1.0 % compared to 2018. the decrease is attributable to lower cost structures achieved through the structural cost program and timing of heavy maintenance visits . ( 1 ) refer to our `` regulation g reconciliation of non-gaap financial measures `` at the end of this section for more information on this non-gaap measure . 44 other operating expenses other operating expenses consist of the following categories : outside services ( including expenses related to fueling , ground handling , skycap , security , and janitorial services ) , insurance , personnel expenses , professional fees , onboard supplies , shop and office supplies , bad debts , communication costs , and taxes other than payroll and fuel taxes . in 2019 , other operating expenses increased by $ 46 million , or 4.2 % , compared to 2018 , primarily due to an increase in airport services and passenger onboard supplies resulting from an increased number of departures and customers flown . special items special items in 2019 consisted of $ 6 million of one-time costs related to the embraer e190 fleet transition and $ 8 million of one-time costs related to the implementation of our pilots ' collective bargaining agreement . special items in 2018 consisted of $ 362 million of impairment and one-time costs related to the embraer e190 fleet transition , and $ 73 million of one-time

other property and equipment capital expenditures included ground equipment purchases and facilities improvements for $ 123 million . investing activities also included the net purchase of $ 767 million in investment securities . we executed $ 563 million of sale-leaseback transactions in 2020. of these transactions , $ 209 million qualified as sales for accounting purposes and the related proceeds are classified within investing activities . during 2019 , capital expenditures related to our purchase of flight equipment included $ 478 million for the purchase of six new airbus a321neo aircraft and the buyout of one airbus a320 aircraft lease , $ 224 million for flight equipment deposits , $ 249 million for flight equipment work-in-progress , and $ 48 million for spare part purchases . other property and equipment ( 1 ) refer to our `` regulation g reconciliation of non-gaap financial measures '' at the end of this section for more information on this non-gaap measure . 45 capital expenditures included ground equipment purchases and facilities improvements for $ 158 million . investing activities also included the net purchase of $ 40 million in investment securities . during 2018 , capital expenditures related to our purchase of flight e quipment included $ 519 million for the purchase of 10 new airbus a321 aircraft and the buyout of two aircraft leases , $ 206 million for flight equipment deposits , $ 163 million for flight equipment work-in-progress , and $ 130 million for spare part purchases . other property and equipment capital expenditures included ground equipment purchases and facilities improvements for $ 97 million . investing activities also included the net purchase of $ 28 million in investment securities . we currently anticipate 2021 capital expenditures to be approximately $ 1.0 billion . we plan to restrict non-aircraft capital expenditures to those with the highest returns . < span

milestones that are not considered substantive are accounted for as license payments and recognized on a straight-line basis over the remaining period of performance . revenues from commercial milestone payments are accounted for as royalties and are recorded as revenue upon achievement of the milestone , assuming all other revenue recognition criteria are met . research and development expenses research and development expenses are charged to expense as incurred . research and development expenses consist of costs incurred in performing research and development activities , including internal costs for salaries , bonuses , benefits , stock-based compensation , facilities , and research-related overhead , and external costs for clinical trials , drug manufacturing and distribution , license fees , consultants and other contracted services . warrants issued in connection with private placement in may 2016 , the company issued pipe warrants to purchase an aggregate of 17,642,482 shares of common stock in connection with a private placement financing and recorded the warrants as a liability ( the “ pipe warrants ” ) . the company accounts for warrant instruments that either conditionally or unconditionally obligate the issuer to transfer assets as liabilities regardless of the timing of the redemption feature or price , even though the underlying shares may be classified as permanent or temporary equity . as of december 31 , 2017 , pipe warrants exercisable for 259,067 shares of common stock had been exercised and pipe warrants exercisable for 17,383,415 shares of common stock were outstanding . in january 2018 , pipe warrants with respect to 518,134 shares of common stock underlying such pipe warrants were exercised , and the company issued 518,134 shares of its common stock and received approximately $ 0.5 million in cash proceeds . refer to note 7 , “ common stock—private placement / pipe warrants ” for further discussion of the private placement financing . 107 the pipe warrants contain a provision giving the warrant holder the option to receive cash , equal to the fair value of the remaining unexercised portion of the warrant , as cash settlement in the event that there is a fundamental transaction ( contractually defined to include various merger , acquisition or stock transfer activities ) . due to this provision , asc 480 , distinguishing liabilities from equity requires that these warrants be classified as a liability and not as equity . accordingly , the company recorded a warrant liability in the amount of approximately $ 9.3 million upon issuance of the pipe warrants . the fair value of these warrants has been determined using the black-scholes pricing model . these warrants are subject to revaluation at each balance sheet date and any changes in fair value are recorded as a non-cash gain or ( loss ) in the statement of operations as a component of other income ( expense ) , net until the earlier of their exercise or expiration or upon the completion of a liquidation event . upon exercise , the pipe warrants are subject to revaluation just prior to the date of the warrant exercise and any changes in fair value are recorded as a non-cash gain or ( loss ) in the statement of operations as a component of other income ( expense ) , net and the corresponding reduction in the warrant liability is recorded as additional paid-in capital in the balance sheet as a component of stockholder 's equity . the company recorded a non-cash loss of approximately $ 33.7 million in the year ended december 31 , 2017 and a non-cash gain of approximately $ 4.8 million in the year ended december 31 , 2016 in its statement of operations attributable to the increases and decreases in the fair value of the warrant liability that resulted from higher stock prices as of december 31 , 2017 and lower stock prices as of december 31 , 2016 relative to prior periods . in the year ended december 31 , 2017 , the company recorded a reduction in the warrant liability , with a corresponding increase to additional paid-in capital , of approximately $ 0.6 million attributable to warrant exercises in the third quarter of 2017. the following table rolls forward the fair value of the company 's pipe warrant liability , the fair value of which is determined by level 3 inputs for the year ended december 31 , 2017 ( in thousands ) : replace_table_token_22_th the key assumptions used to value the pipe warrants were as follows : replace_table_token_23_th potential class action settlement in december 2017 , the company entered into a binding memorandum of understanding ( the “ mou ” ) with class representatives bob levine and william windham ( the “ plaintiffs ” ) , regarding the settlement of a securities class action lawsuit ( the “ class action ” ) filed in 2013 and pending in the united states district court for the district of massachusetts ( the “ district court ” ) against us and certain of our former officers ( tuan ha-ngoc , david johnston , and william slichenmyer , together , the “ individual defendants ” ) , in re aveo pharmaceuticals , inc. securities litigation et al . , no . 1:13-cv-11157-djc . as previously disclosed , the class action was purportedly brought on behalf of stockholders who purchased our common stock between may 16 , 2012 and may 1 , 2013 ( the “ class ” ) . in december 2017 , upon entering into the mou , this settlement became estimable and probable . story_separator_special_tag we are required to make milestone payments , up to an aggregate total of $ 16.7 million , upon the earlier of achievement of specified development and regulatory milestones or a specified date for the first indication , and upon the achievement of specified development and regulatory milestones for the second and third indications , for licensed therapeutic products , some of which payments may be increased by a mid to high double-digit percentage rate for milestones payments made after we grant any sublicense under the license agreement , depending on the sublicensed territory . in february 2017 , novartis paid $ 1.8 million out of its future payment obligations to us under the license agreement . the funds were used to satisfy a $ 1.8 million time-based milestone obligation that we owed to st. vincent 's on march 2 , 2017. in addition , we will be required to pay tiered royalty payments equal to a low-single-digit percentage of any net sales we or our sublicensees make from licensed therapeutic products , an obligation we share with novartis equally . the royalty rate escalates within the low-single-digit range during each calendar year based on increasing licensed therapeutic product sales during such calendar year . our royalty payment obligations for a licensed therapeutic product in a particular country end on the later of 10 years after the date of first commercial sale of such licensed therapeutic product in such country or expiration of the last-to-expire valid claim of the licensed patents covering such licensed therapeutic product in such country , and are subject to offsets under certain circumstances . the license agreement remains in effect until the later of 10 years after the date of first commercial sale of licensed therapeutic products in the last country in which a commercial sale is made , or expiration of the last-to-expire valid claim of the licensed patents , unless we elect , or st. vincent 's elects , to terminate the license agreement earlier . we have the right to terminate the agreement on six months ' notice if we terminate our gdf15 research and development programs as a result of the failure of a licensed therapeutic product in preclinical or clinical development , or if we form the reasonable view that further gdf15 research and development is not commercially viable , and we are not then in breach of any of our obligations under the agreement . if we form the reasonable view that further gdf15 research and development is not commercially viable and terminate the agreement before we start a phase 1 clinical trial on a licensed therapeutic product , we will be required to pay st. vincent 's a low-to-mid six-figure termination payment . astellas pharma in february 2011 , we and our wholly-owned subsidiary aveo pharma limited entered into a collaboration and license agreement with astellas pharma inc. and certain of its subsidiaries pursuant to which we and astellas intended to develop and commercialize tivozanib for the treatment of a broad range of cancers . astellas elected to terminate the agreement effective august 2014 , at which time the tivozanib rights were returned to us . in accordance with the astellas agreement , committed development costs , including the costs of completing certain tivozanib clinical development activities , continue to be shared equally . biogen idec in march 2009 , we entered into an exclusive option and license agreement with biogen idec regarding the development and commercialization of our discovery-stage erbb3-targeted antibodies for the potential treatment and diagnosis of cancer and other diseases in humans outside of north america . in march 2014 , we amended our agreement with biogen idec , and regained worldwide rights to av-203 . pursuant to the amendment , we were obligated to in good faith use reasonable efforts to seek a collaboration partner to fund further development and commercialization of erbb3-targeted antibodies . we satisfied this obligation in march 2016 upon entering into our license agreement with canbridge . we are obligated to pay biogen idec a percentage of milestone payments we receive under the canbridge agreement and single-digit royalty payments on net sales related to the sale of av-203 , up to cumulative maximum amount of $ 50.0 million . 77 kyowa hakko kirin in december 2006 , we entered into a license agreement with khk under which we obtained an exclusive license , with the right to grant sublicenses subject to certain restrictions , to research , develop , manufacture and commercialize tivozanib , pharmaceutical compositions thereof and associated biomarkers in all potential indications . our exclusive license covers all territories in the world except for asia and the middle east , where khk has retained the rights to tivozanib . under the license agreement , we obtained exclusive rights in our territory under certain khk patents , patent applications and know-how related to tivozanib , to research , develop , make , have made , use , import , offer for sale , and sell tivozanib for the diagnosis , prevention and treatment of any and all human diseases and conditions . we and khk each have access to and can benefit from the other party 's clinical data and regulatory filings with respect to tivozanib and biomarkers identified in the conduct of activities under the license agreement . under the license agreement , we are obligated to use commercially reasonable efforts to develop and commercialize tivozanib in our territory . prior to the first anniversary of the first post-marketing approval sale of tivozanib in our territory , neither we nor any of our subsidiaries has the right to conduct certain clinical trials of , seek marketing approval for or commercialize any other cancer product that also works by inhibiting the activity of a vegf receptor . we have upfront , milestone and royalty payment obligations to khk under our license agreement . upon entering into the license agreement with khk , we made an upfront payment in the

the 2017 shelf was filed to replace our then existing 2015 shelf , which was terminated upon the 2017 shelf being declared effective by the sec on december 15 , 2017. in february 2018 , we entered into an at-the-market issuance sales agreement , which we refer to as the leerink sales agreement , with leerink partners llc , or leerink , pursuant to which we may issue and sell shares of our common stock from time to time up to 91 an aggregate amount of $ 50 million , at our option , through leerink as our sales agent , with any sales of common stock through leerink being made by any method that is deemed an “ at-the-market ” offering as defined in rule 415 promulgated under the se curities act . any such shares of common stock will be sold pursuant to a prospectus supplement filed under the 2017 shelf . we agreed to pay leerink a commission of up to 3 % of the gross proceeds of any sales of common stock pursuant to the leerink sales agreement . at the time of filing this annual report on form 10-k , no shares of our common stock have been sold under the leerink sales agreement . public offering on march 31 , 2017 , we closed an underwritten public offering of 34.5 million shares of our common stock , including the exercise in full by the underwriter of its option to purchase 4.5 million shares , at the public offering price of $ 0.50 per share for gross proceeds of approximately $ 17.3 million . certain of our executive officers and a director purchased an aggregate of 420,000 shares and an entity affiliated with new enterprise associates , a greater than 5 % stockholder , purchased 6.0 million shares in this offering at the same public offering price per share as the other investors . the net offering proceeds to us were approximately $ 15.4 million after deducting underwriting discounts and estimated offering expenses payable by us . we sold these shares pursuant to the 2015 shelf ( as defined below ) . private placement / pipe warrants < p

concentrations of customer risk —one of the company 's customers comprised 25 % of the company 's consolidated revenues and 29 % of the company 's consolidated accounts receivable for the year ended december 31 , 2011. two of the company 's customers comprised 16 % and 12 % , respectively , of total consolidated revenues for the year ended december 31 , 2010. three of the company 's customers comprised 17 % , 16 % , and 12 % , respectively , of the company 's consolidated accounts receivable for the year ended december 31 , 2010. three of the company 's customers comprised 20 % , 13 % and 10 % , respectively , of the company 's consolidated revenues for the year ended december 31 , 2009. none of the company 's customers comprised more than 10 % of the company 's consolidated accounts receivable for the year ended december 31 , 2009. cash and cash equivalents —the company considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents . the company maintains bank accounts in the united states . the company has not experienced any historical losses in such accounts and believes that the risk of any loss is minimal . a majority of the funds held in the united states are invested in institutional money market funds . marketable securities —all of the company 's investments in marketable securities are classified as available-for-sale . these marketable securities are stated at fair value with any unrealized gains or losses recorded in accumulated other comprehensive income ( loss ) , a component of equity , until realized . other-than-temporary declines in market value from original cost are included in the current year 's operations . in determining whether an other-than-temporary decline in the market value has occurred , the company considers the duration that , and extent to which , fair value of the investment is below its cost . realized gains and losses are calculated based on specific identification to the individual securities involved with the resulting gains and losses included in non-operating income and expense on the consolidated statements of operations . f-13 accounts receivable , net —accounts receivable are recognized and carried at the original invoice amount less an allowance for any uncollectible amounts . the company provides an allowance for doubtful accounts to reflect the expected uncollectibility of trade receivables . inherent in the assessment of the allowance for doubtful accounts are certain judgments and estimates including , among others , the customer 's willingness or ability to pay , the effect of general economic conditions and the ongoing relationship with the customer . accounts with outstanding balances longer than the payment terms are considered past due . the company writes off trade receivables when it determines that they have become uncollectible . the table below sets forth the company 's allowance for doubtful accounts for the years ended december 31 , 2011 , 2010 and 2009 : replace_table_token_17_th property , plant and equipment , net —property , plant and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets . additions and major replacements or betterments are added to the assets at cost . maintenance and repair costs and minor replacements are charged to expense when incurred . when assets are replaced or otherwise disposed , the cost and accumulated depreciation are removed from the accounts and the gains or losses , if any , are reflected in the consolidated statement of operations . subsequent to the completion of the original 50-mile pvc pipeline in february 2010 , hwr incurred significant costs for pipeline start up , commissioning , integrity testing and remediation . as a result , during the year ended december 31 , 2011 and 2010 , the company recorded start up and commissioning expenses of approximately $ 2.1 million and $ 11.8 million , respectively , within operations . depreciation is computed using the following estimated useful lives : buildings 20-25 years motor vehicles 5-10 years disposal wells 10 years pipelines 30 years office equipment 5-10 years machinery and equipment 3-15 years goodwill and intangibles —goodwill represents the excess of the purchase price over the fair value of the net assets of the businesses acquired . authoritative guidance requires that goodwill be tested for impairment at the reporting unit level ( operating segment or one level below an operating segment ) on an annual basis and between annual tests when circumstances indicate that the recoverability of the carrying amount of goodwill may be in doubt . application of the goodwill impairment test requires judgment , including the identification of reporting units , assigning assets and liabilities to reporting units , assigning goodwill to reporting units , and determining the fair value . significant judgments are required to estimate the fair value of a reporting unit including estimating future cash flows , determining appropriate discount rates and other assumptions . the company performs this impairment analysis annually during the third quarter of each fiscal year . the company adopted accounting standards update ( “asu” ) no . 2011- 08 , intangibles-goodwill and other ( topic 350 ) during the third quarter of 2011. the updated standard permits an entity to make a qualitative assessment of whether it is more likely than not that a reporting unit 's fair value is less than its carrying value before applying f-14 the more quantitative two-step impairment test . on september 30 , 2011 the company disposed of its bottled water segment and as such now operates as one reportable segment . the disposition and subsequent abandonment of the bottled water segment resulted in goodwill impairment of $ 6 million . story_separator_special_tag 37 goodwill we test goodwill for impairment on an annual basis , regardless of whether adverse events or changes in circumstances have occurred . we perform a qualitative assessment to determine whether it is “more likely than not” that the fair value of the reporting unit is less than its carrying amount . if it is concluded that it is “more likely than not” that the fair value of a reporting unit is less than its carrying amount , it is necessary to perform the two-step goodwill impairment test . otherwise the two-step goodwill impairment test is not required . we determine our reporting units at the individual operating segment level , or one level below , when there is discrete financial information available that is regularly reviewed by segment management for evaluating operating results . we estimate the fair value of the reporting unit utilizing a combination of three valuation techniques : discounted cash flow ( income approach ) , market comparable method ( market approach ) and market capitalization ( direct market data method ) . the income approach is based on management 's operating budget and internal five-year forecast . this approach utilizes forward-looking assumptions and projections , and considers factors impacting long-range plans that may not be comparable to other companies and that are not yet publicly available . the market approach considers potentially comparable companies and transactions within the industries where our reporting units participate , and applies their trading multiples to ours . this approach utilizes data from actual marketplace transactions , but reliance on its results is limited by difficulty in identifying companies that are specifically comparable to us , considering the diversity of the our businesses , their relative sizes and levels of complexity . we also use the direct market data method by comparing its book value and the estimates of fair value of our reporting unit to our market capitalization as of and at dates near the testing date . management uses this comparison as additional evidence of the fair value of the company , as its market capitalization may be suppressed by other factors such as the control premium associated with a controlling shareholder . management evaluates and weights the results based on a combination of the income and market approaches , and , in situations where the income approach results differ significantly from the market and direct market data approaches , management re-evaluates and adjusts , if necessary , its assumptions . future declines in sales and or operating profit , declines in the company 's stock price , or other changes in our business or the markets for its products could result in impairments of goodwill and other intangible assets . accounting for the impairment of long-lived assets other than goodwill we review the carrying values of property and equipment , intangible assets and other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable . our determination that an adverse event or change in circumstance has occurred that indicates that the carrying amounts may not be recoverable will generally involve ( 1 ) a deterioration in an asset 's financial performance compared to historical results , ( 2 ) a shortfall in an asset 's financial performance compared to forecasted results , or ( 3 ) changes affecting the utility and estimated future demands for the asset . during 2011 , there were no events or circumstances that caused us to review the carrying value of our intangible assets and property and equipment . if the sum of the estimated future cash flows ( undiscounted ) from an asset is less than its carrying amount , an impairment loss may be recognized . if the carrying value were to exceed the undiscounted cash flows , the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair market value . we could record impairments in the future if changes in long-term market conditions , expected future operating results or the utility of the assets results in changes for our impairment test calculations which negatively impact the fair value of our property and equipment and intangible assets . 38 accounting for business combinations we allocate the purchase price of acquisitions to the assets acquired and liabilities assumed based on their estimated fair value at the date of acquisition . any purchase price in excess of the net fair value of the assets acquired and liabilities assumed is allocated to goodwill . the fair value of certain of our assets and liabilities is determined by ( 1 ) using estimates of replacement costs for tangible fixed assets and ( 2 ) using discounted cash flow valuation methods for estimating identifiable intangibles such as customer contracts and customer relationship intangibles ( income approach ) . the purchase price allocation requires subjective estimates that , if incorrectly estimated , could be material to our consolidated financial statements including the amount of depreciation and amortization expense . the determination of the final purchase price allocation could extend over several quarters resulting in the use of preliminary estimates that are subject to adjustment until finalized . this income approach used to value identifiable intangible assets utilizes forward-looking assumptions and projections , but considers factors unique to each of our businesses and related long-range plans that may not be comparable to other companies and that are not yet publicly available . the income approach requires us to calculate the present value of estimated future cash flows . in making this calculation , management makes estimates regarding future revenues and expenses , projected capital expenditures , changes in working capital and the appropriate discount rate , however actual results could differ significantly from these estimates . the projections also include assumptions related to including current and estimated economic trends and outlook , operating costs , and other factors which are beyond management 's control . valuation

cash flows for year ended december 31 , 2011 compared to the year ended december 31 , 2010 net cash used in operating activities from continuing operations was $ 9.3 million for the year ended december 31 , 2011 compared to $ 3.4 million for the year ended december 31 , 2010. the increase in cash used was primarily attributable to a significant increase in accounts receivable during 2011 stemming largely from revenue growth during the period , and was exacerbated by slower customer payments during the fourth quarter of 2011. net cash used in operating activities from discontinued operations was $ 4.7 million compared to net cash used in operations from discontinued operations of $ 0.7 million in the year ago period . net cash used in investing activities from continuing operations was $ 142.3 million for the year ended december 31 , 2011 compared to $ 37.7 million for the year ended december 31 , 2010. the increase was primarily attributable to $ 59.7 million of additional cash paid for acquisitions in 2011 as compared to the year ago period , and an additional $ 133.5 million of capital expenditures to support business growth compared to 2010. these higher cash requirements for investments were partially offset by approximately $ 87.4 million of additional net cash proceeds realized from the liquidation of available–for–sale securities and redemption of certificates of deposit . net cash used in investing activities by discontinued operations was $ 5.8 million for the year ended december 31 , 2011 compared to $ 0.5 million in the year ago period . net cash provided by financing activities from continuing operations was $ 151.0 million for the year ended december 31 , 2011 compared to $ 1.6 million of cash used in financing activities from continuing operations for the year ended december 31 , 2010. the increase was primarily attributable to $ 47.9 million of cash proceeds received in the fourth quarter of 2011 from the exercise of previously issued warrants for approximately 35 7.9 million shares of our common stock at an exercise price of $ 6.00 per warrant and net borrowings under our new credit facility totalling $ 108.8 million . financing activities from discontinued operations was not significant during 2011 and 2010. cash flows for year ended december 31 , 2010 compared to the year ended december 31 , 2009 net cash used in operating activities from continuing operations was $ 3.4 million for the year ended december 31 , 2010 compared to $ 3.6 million for the year ended december 31 , 2009. net cash used in operations from discontinued operations was $ 0.7 million compared to net cash used in operations from discontinued operations of $ 2.4 million in the year ago period . the improvement was attributable to lower working capital requirements for the discontinued

compensation committee our compensation committee consists of goh yong siang , ong tiong sin , and domenic j. dell'osso , jr. , with mr. goh serving as chair of the committee . our board of directors has determined that each of messrs. goh , ong , and dell'osso are independent under the nyse listing standards and rule 10c-1 of the exchange act and that each of messrs. goh and ong qualifies as a “non-employee director” within the meaning of rule 16b-3 ( d ) ( 3 ) under the exchange act and as “outside directors” within the meaning of section 162 ( m ) of the internal revenue code of 1986 , as amended ( the “code” ) . our compensation committee is responsible for developing and maintaining our compensation strategies and policies . our compensation committee is responsible for , among other things : · reviewing and approving our overall executive and director compensation philosophy to support our overall business strategy and objectives ; · reviewing and approving , or as appropriate , recommending to our board of directors for approval , base salary , cash incentive compensation , equity compensation , and severance rights for our executive officers , including our ceo ; · administering our broad-based equity incentive plans , including the granting of stock awards ; · preparing any report on executive compensation required by the applicable rules and regulations of the sec and other regulatory bodies ; · managing such other matters that are specifically delegated to our compensation committee by applicable law or by the board of directors from time to time ; and · retaining and terminating compensation consultants to assist in the evaluation of our compensation and approving the fees and other retention terms of such compensation consultants . the compensation committee also has the power to investigate any matter brought to its attention within the scope of its duties and authority to retain counsel and advisors at our expense to fulfill its responsibilities and duties . nominating and corporate governance committee our nominating and corporate governance committee consists of domenic j. dell'osso , jr. , ong tiong sin , and boon sim , with mr. dell'osso serving as chair of the committee . our board of directors has determined that each of messrs. dell'osso , ong , and sim is independent as defined by nyse rules . our nominating and corporate governance committee oversees and assists our board of directors in reviewing and recommending corporate governance policies and nominees for election to our board of directors and its committees . the nominating and corporate governance committee will be responsible for , among other things : 48 · assessing , developing , and communicating with our board of directors concerning the appropriate criteria for nominating and appointing directors , including the size and composition of the board of directors , corporate governance policies , applicable listing standards , laws , rules and regulations , and other factors considered appropriate by our board of directors ; · identifying and recommending to our board of directors the director nominees for meetings of our stockholders , or to fill a vacancy on the board of directors , except as set forth in the investors ' rights agreements ; · having sole authority to retain any search firm used to identify director candidates and approve the search firm 's fees and other retention terms ; · assessing and recommending to the board of directors the composition of each of its committees ; · reviewing , as necessary , any executive officer 's request to accept a directorship position with another company ; · developing , assessing and making recommendations to our board of directors concerning corporate governance matters , including appropriate revisions to our amended and restated certificate of incorporation , amended and restated bylaws , corporate governance guidelines and committee charters ; · overseeing the management continuity and succession planning process with respect to our officers ; · overseeing an annual evaluation of our board of directors , its committees , and each director ; · developing with management and monitoring the process of orienting new directors and continuing education for all directors ; and · regularly reporting its activities and any recommendations to our board of directors . the nominating and corporate governance committee also has the power to investigate any matter brought to its attention within the scope of its duties . it also has the authority to retain counsel and advisors at our expense for any matters related to the fulfillment of its responsibilities and duties . section 16 ( a ) beneficial ownership reporting compliance section 16 ( a ) of the exchange act requires our directors and executive officers , and persons who own more than ten percent of a registered class of our equity securities , to file with the sec initial reports of ownership and reports of changes in ownership of common stock and other equity securities of our company . executive officers , directors and greater than ten percent stockholders are required by sec regulation to furnish us with copies of all section 16 ( a ) forms they file . our executive officers , directors and ten percent stockholders did not become subject to the reporting requirements of section 16 ( a ) until february 2 , 2018 and , therefore , there were no reports required during the fiscal year ended december 31 , 2017. code of business conduct and ethics the board of directors has adopted an amended and restated code of business conduct and ethics that is applicable to all of our employees , officers , and directors , including our principal executive officer , principal financial officer , principal accounting officer , or persons performing similar functions . the code of business conduct and ethics is available on our website at www.ftsi.com . story_separator_special_tag we expect our capital expenditures related to these two additional fleets to be approximately $ 50 million , of which approximately $ 10 million was spent in 2017 and the remainder will be spent in 2018. our remaining estimate for capital expenditures will be used to support our current operations and fleet reactivations in 2018. our cash and any cash provided by operations will be used to fund our capital expenditure needs , which we believe will be sufficient to support our operations in 2018. we continuously evaluate our capital expenditures and the amount we ultimately spend will primarily depend on industry conditions . off-balance sheet arrangements except for our normal operating leases , we do not have any off-balance sheet financing arrangements , transactions , or special purpose entities . critical accounting estimates the preparation of our consolidated financial statements and related notes requires us to make estimates that affect the reported amounts of assets , liabilities , revenue and expenses , and related disclosures of contingent assets and liabilities . we base these estimates on historical results and various other assumptions believed to be reasonable , all of which form the basis for making estimates concerning the carrying values of assets and liabilities that are not readily available from other sources . actual results may differ from these estimates . in the notes accompanying the consolidated financial statements included elsewhere in this annual report on form 10-k , we describe the significant accounting policies used in the preparation of our consolidated financial statements . we believe that the following represent the most significant estimates and management judgments used in preparing the consolidated financial statements . 40 property , plant , and equipment we calculate depreciation based on the estimated useful lives of our assets . when assets are placed into service , we make estimates with respect to their useful lives that we believe are reasonable . however , the cyclical nature of our business , which results in fluctuations in the use of our equipment and the environments in which we operate , could cause us to change our estimates , thus affecting the future calculation of depreciation . we continuously perform repair and maintenance expenditures on our service equipment . expenditures for renewals and betterments that extend the lives of our service equipment , which may include the replacement of significant components of service equipment , are capitalized and depreciated . other repairs and maintenance costs are expensed as incurred . the determination of whether an expenditure should be capitalized or expensed requires management judgment with regard to the effect of the expenditure on the useful life of the equipment . we separately identify and account for certain significant components of our hydraulic fracturing units including the engine , transmission , and pump , which requires us to separately estimate the useful lives of these components . definite-lived intangible assets the amortization of our definite-lived intangible assets reflected in our consolidated statements of operations was $ 102.5 million for the year ended december 31 , 2015. these intangible assets were primarily related to customer relationships and proprietary chemical blends acquired in business acquisitions . we calculated amortization for these assets based on their estimated useful lives . when these assets were recorded , we made estimates with respect to their useful lives that we believed were reasonable . however , these estimates contained judgments regarding the future utility of these assets and a change in our assessment of the useful lives of these assets could have materially changed the future calculation of amortization . at december 31 , 2015 , we impaired all of our definite-lived intangible assets . impairment of long-lived assets , goodwill and other intangible assets long-lived assets , such as property , plant , equipment and definite-lived intangible assets , are reviewed for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable , such as insufficient cash flows or plans to dispose of or sell long-lived assets before the end of their previously estimated useful lives . if the carrying amount is not recoverable , we recognize an impairment loss equal to the amount by which the carrying amount exceeds fair value . we estimate fair value based on the income , market or cost valuation techniques . our fair value calculations for long-lived assets and intangible assets contain uncertainties because they require us to apply judgment and estimates concerning future cash flows , strategic plans , useful lives and assumptions about market performance . we also apply judgment in the selection of a discount rate that reflects the risk inherent in our current business model . we have historically acquired goodwill and indefinite-lived intangible assets related to business acquisitions . goodwill represents the excess of the purchase price over the fair value of net assets acquired . we review our goodwill and indefinite-lived intangible assets on an annual basis , at the beginning of the fourth quarter , and whenever events or changes in circumstances indicate the carrying value of goodwill or an intangible asset may exceed its fair value . if the carrying value of goodwill or an intangible asset exceeds its fair value , we recognize an impairment loss for this difference . our impairment loss calculations for goodwill and indefinite-lived intangible assets contain uncertainties because they require us to estimate fair values of our reporting units and intangible assets , respectively . we estimate fair values based on various valuation techniques such as discounted cash flows and comparable market analyses . these types of analyses contain uncertainties because they require us to make judgments and assumptions regarding future profitability , industry factors , planned strategic initiatives , discount rates and other factors . unconditional purchase obligations we have historically entered into supply arrangements , primarily for sand , with our vendors that contain unconditional purchase obligations . these represent obligations to transfer funds in the future for fixed or minimum quantities

the net change in operating assets and liabilities in 2016 was primarily due to decreased accounts receivable and inventories , partially offset by decreased accrued expenses , which were all due to our lower activity levels in 2016. cash flows from investing activities : net cash used in investing activities was $ 54.6 million in 2017 compared to cash provided by investing activities of $ 43.1 million in 2016. this change was primarily due to increased capital expenditures in 2017 , decreased asset disposal proceeds in 2017 and decreased insurance recovery proceeds received in 2017. the increase in capital expenditures in 2017 was due to our increased operations and fleet reactivations in 2017 as well as an approximate $ 10 million purchase of certain asset components that we plan to use to build two additional fleets in 2018. net cash provided by investing activities in 2016 was $ 43.1 million compared to net cash used in investing activities of $ 97.9 million in 2015. this change was primarily due to reduced capital expenditures in 2016 , increased asset disposal proceeds in 2016 , and insurance recovery proceeds received in 2016. cash flows from financing activities : net cash used in financing activities was $ 77.6 million and $ 37.6 million in 2017 and 2016 , respectively , which was comprised of debt repayments . net cash provided by financing activities was $ 301.4 million in 2015. this net cash flow was due to the issuance of $ 350 million aggregate principal amount of our senior floating rate notes due june 2020 , which was partially offset by a repayment of borrowings under our previously existing revolving credit facility . cash requirements contractual commitments and obligations the following table summarizes our contractual commitments and obligations at december 31 , 2017 : replace_table_token_10_th 39 < ! --

payments made to third parties subsequent to commercialization are capitalized and amortized over the remaining useful life of the related asset , and are classified as intangible assets . goodwill and other intangible assets the company tests for goodwill impairment using a fair-value approach at the reporting unit level annually , or earlier , 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 . additionally , the company performs an annual goodwill impairment assessment for its reporting units as of january 1 each year . the goodwill and other intangible assets accounting standards define a reporting unit as an operating segment , or one level below an operating segment , if discrete financial information is prepared and reviewed by management . for goodwill impairment review purposes , the 60 notes to consolidated financial statements — ( continued ) company has two reporting units : waters ™ and ta ™ . goodwill is allocated to the reporting units at the time of acquisition . under the impairment test , if a reporting unit 's carrying amount exceeds its estimated fair value , goodwill impairment is recognized to the extent that the carrying amount of goodwill exceeds the implied fair value of the goodwill . the fair value of reporting units was estimated using a discounted cash flows technique , which includes certain management assumptions , such as estimated future cash flows , estimated growth rates and discount rates . the company 's intangible assets include purchased technology ; capitalized software development costs ; costs associated with acquiring company patents , trademarks and intellectual properties , such as licenses ; debt issuance costs and acquired ipr & d . purchased intangibles are recorded at their fair market values as of the acquisition date and amortized over their estimated useful lives , ranging from one to fifteen years . other intangibles are amortized over a period ranging from one to ten years . debt issuance costs are amortized over the life of the related debt . acquired ipr & d is amortized from the date of completion of the acquired program over its estimated useful life . ipr & d and indefinite-lived intangibles are tested annually for impairment . software development costs the company capitalizes internal and external software development costs for products offered for sale in accordance with the accounting standards for the costs of software to be sold , leased , or otherwise marketed . capitalized costs are amortized to cost of sales over the period of economic benefit , which approximates a straight-line basis over the estimated useful lives of the related software products , generally three to ten years . the company capitalized $ 34 million and $ 35 million of direct expenses that were related to the development of software in 2018 and 2017 , respectively . net capitalized software included in intangible assets totaled $ 147 million and $ 153 million at december 31 , 2018 and 2017 , respectively . see note 8 , “goodwill and other intangibles” . the company capitalizes internal software development costs for internal use . capitalized internal software development costs are amortized over the period of economic benefit , which approximates a straight-line basis over ten years . net capitalized internal software included in property , plant and equipment totaled $ 2 million and $ 3 million at december 31 , 2018 and 2017 , respectively . other investments the company accounts for its investments that represent less than twenty percent ownership , and for which the company does not have the ability to exercise significant influence , using the accounting standards for investments in equity securities . investments for which the company does not have the ability to exercise significant influence , and for which there is not a readily determinable market value , are accounted for under the cost method of accounting . the company periodically evaluates the carrying value of its investments accounted for under the cost method of accounting and carries them at the lower of cost or estimated net realizable value . for investments in which the company owns or controls between twenty and forty-nine percent of the voting shares , or over which it has the ability to exercise significant influence over operating and financial policies , the equity method of accounting is used . the company 's share of net income or losses of equity investments is included in the consolidated statements of operations and was not material in any period presented . during the year ended december 31 , 2018 , the company made $ 8 million of investments in unaffiliated companies . during the year ended december 31 , 2017 , the company made a $ 7 million investment in a developer of analytical system solutions used to make measurements , predict stability and accelerate product discovery in the routine analytic , process monitoring and quality control release processes for life science and biopharmaceutical markets . during the year ended december 31 , 2016 , the company sold an equity investment that was accounted for using the equity method of accounting and was included in other assets in the consolidated balance sheet for $ 4 million in cash . 61 notes to consolidated financial statements — ( continued ) fair value measurements in accordance with the accounting standards for fair value measurements and disclosures , certain of the company 's assets and liabilities are measured at fair value on a recurring basis as of december 31 , 2018 and 2017. fair values determined by level 1 inputs utilize observable data , such as quoted prices in active markets . fair values determined by level 2 inputs utilize data points other than quoted prices in active markets that are observable either directly or indirectly . story_separator_special_tag the 2018 effective income tax rate of 13.0 % was impacted by the reduction in the u.s. federal income tax rate from 35 % to 21 % as a result of the 2017 tax act , which decreased the company 's effective tax rate by 2.0 percentage points as compared to 2017. the 2017 tax act also added a new global intangible low-taxed income ( gilti ) tax , which increased the company 's 2018 effective tax rate by approximately 2.0 percentage points . after the completion of the company 's review of its capital allocation strategy in the fourth quarter of 2018 , the company determined that it will provide income taxes on all future foreign earnings from 2018 forward . as a result , this change added 0.6 percentage points to the 2018 effective tax rate as compared to 2017. in addition , the reduction in the u.s. federal income tax rate from 35 % to 21 % as a result of the 2017 tax act also reduced the 2018 tax benefit on stock compensation . the company recorded a tax benefit on stock-based compensation in 2018 and 2017 that decreased income tax expense by $ 9 million and $ 20 million , respectively , and added $ 0.11 and $ 0.24 to net income per diluted share , respectively . the difference between the 2017 and 2016 effective tax rates can be attributed primarily to the 2016 provision for income taxes including a $ 3 million tax benefit ( 0.7 percentage points ) related to the release of a valuation allowance on certain net operating loss carryforwards . 34 the remaining differences between effective tax rates can primarily be attributed to differences in the proportionate amounts of pre-tax income recognized in jurisdictions with different effective tax rates . the company 's effective tax rate is influenced by many significant factors , including , but not limited to , the wide range of income tax rates in jurisdictions in which the company operates ; sales volumes and profit levels in each tax jurisdiction ; changes in tax laws , tax rates and policies ; the outcome of various ongoing tax audit examinations ; and the impact of foreign currency transactions and translation . in addition , upon completion of the company 's review of its capital allocation strategy in the fourth quarter of 2018 , the company has determined that it will provide income taxes on all future foreign earnings . the company estimates that this will increase the company 's effective income tax rate by approximately one percentage point in the future . however , the company will continue to be permanently reinvested in relation to the cumulative historical outside basis difference that is not related to earnings . as a result of variability in these factors , the company 's effective tax rates in the future may not be similar to the effective tax rates for the current or prior years , or for previously forecasted periods . liquidity and capital resources condensed consolidated statements of cash flows ( in thousands ) : replace_table_token_9_th cash flow from operating activities net cash provided by operating activities was $ 604 million , $ 698 million and $ 643 million in 2018 , 2017 and 2016 , respectively . the changes within net cash provided by operating activities include the following significant changes in the sources and uses of net cash provided by operating activities , aside from the changes in net income : the changes in accounts receivable were primarily attributable to timing of payments made by customers and timing of sales . days sales outstanding was 74 days at december 31 , 2018 and 71 days at both december 31 , 2017 and 2016 . 35 the changes in inventory were primarily attributable to anticipated annual increases in sales volumes , as well as new product launches . the changes in accounts payable and other current liabilities were the result of timing of payments to vendors . in addition , the change in 2018 included $ 103 million of income tax payments made in the u.s. relating to the company 's estimated 2017 tax reform liability and 2018 estimated income tax payments and a $ 15 million litigation settlement payment . net cash provided from deferred revenue and customer advances results from annual increases in new service contracts as a higher installed base of customers renew annual service contracts . other changes were attributable to variation in the timing of various provisions , expenditures , prepaid income taxes and accruals in other current assets , other assets , other liabilities , and income tax expenses related to the 2017 tax act . in addition , the company made $ 11 million of contributions to certain defined benefit pension plans . in addition , as a result of the adoption of a new accounting standard related to stock-based compensation , the company reclassified $ 14 million of excess tax benefits related to stock-based compensation in 2016 from cash flows from financing activities to cash flows from operating activities . cash provided by ( used in ) investing activities net cash provided by investing activities totaled $ 1,683 million in 2018 , while net cash used in investing activities totaled $ 536 million and $ 488 million in 2017 and 2016 , respectively . additions to fixed assets and capitalized software were $ 96 million , $ 85 million and $ 95 million in 2018 , 2017 and 2016 , respectively . in february 2018 , the company 's board of directors approved expanding its chemistry synthesis operations in the u.s. the company anticipates spending an estimated $ 215 million to build and equip this new state-of-the-art manufacturing facility , which will be paid for with existing cash , investments and debt capacity . during 2018 , 2017 and 2016 , the company purchased $ 1.0 billion , $ 3.0 billion and $ 2.4 billion of investments , respectively

during 2018 , the company entered into $ 300 million of u.s.-to-euro interest rate cross-currency swap agreements that hedge the company 's net investment in its euro denominated net assets . as a result of entering into these agreements , the company anticipates lowering net interest expense by approximately $ 9 million annually over the three-year term of the agreements . in january 2019 , the company 's board of directors authorized the company to repurchase up to $ 4 billion of its outstanding common stock over a two-year period . this new program replaced the remaining amounts available under the april 2018 authorization of $ 3 billion . during 2018 , 2017 and 2016 , the company repurchased 6.8 million , 1.8 million and 2.3 million shares of the company 's outstanding common stock at a cost of $ 1,306 million , $ 323 million and $ 318 million , respectively , under the april 2018 authorization and other previously announced programs . in addition , the company repurchased $ 10 million , $ 10 million and $ 8 million of common stock related to the vesting of restricted stock units during the years ended december 31 , 2018 , 2017 and 2016 , respectively . the company received $ 52 million , $ 98 million and $ 62 million of proceeds from the exercise of stock options and the purchase of shares pursuant to the company 's employee stock purchase plan in 2018 , 2017 and 2016 , respectively . the company had cash , cash equivalents and investments of $ 1,735 million as of december 31 , 2018. the majority of the company 's cash , cash equivalents and investments are generated from foreign operations , with 37 $ 471 million held by foreign subsidiaries at december 31 , 2018 , of which $ 251 million was held in currencies other than u.s. dollars . the company believes it has sufficient levels of cash flow and access to its existing cash , cash equivalents and investments to fund operations and capital expenditures , service debt interest , finance potential acquisitions and continue the authorized stock repurchase program in the u.s. these cash requirements are managed by the company 's cash flow from operations , its existing cash , cash equivalents and investments , and the use of the company 's revolving credit facility .

prior to adoption of asu 2016-09 , this amount would have been recorded as an increase of additional paid-in capital . the tax benefit for the year ended december 31 , 2015 would have been $ 0.8 million . the company accounts for forfeitures as they occur . under asu 2016-09 , excess tax benefits related to employee share-based payments are not reclassified from operating activities to financing activities in the statement of cash flows . the company applied the effect of asu 2016-09 to the presentation of excess tax benefits in the statement of cash flows , prospectively . under asu 2016-09 , cash paid when withholding shares for tax withholding purposes are classified as a financing activity in the statement of cash flows . the company has applied the effect of this change on 54 prior period statements of cash flows retrospectively . the company excluded the excess tax benefits from the assumed proceeds available to repurchase shares in the computation of our diluted earnings per share for the year ended december 31 , 2016. this increased the diluted weighted average common shares outstanding by 141,364 shares . in may 2014 , fasb issued asu no . 2014-09 , “ revenue from contracts with customers ( topic 606 ) ” ( “ asu 2014-09 ” ) . in april 2016 , the fasb issued asu no . 2016-10 , `` revenue from contracts with customers , identifying performance obligations and licensing `` clarify the accounting under asu 2014-09 for licenses of intellectual property and for identifying distinct performance obligations in a contract . asu 2014-09 is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services . asu 2014-09 also requires additional disclosure about the nature , amount , timing and uncertainty of revenue and cash flows arising from customer contracts , including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract . asu 2014-09 is effective for annual reporting periods beginning after december 15 , 2017 with earlier adoption permitted for reporting periods beginning after december 15 , 2016. asu 2014-09 may be applied using either a full retrospective approach , under which all years included in the financial statements will be presented under the revised guidance , or a modified retrospective approach , under which financial statements will be prepared under the revised guidance for the year of adoption , but not for prior years . under the latter method , entities would recognize a cumulative catch-up adjustment to the opening balance of retained earnings at the effective date for contracts that still require performance by the entity , and disclose all line items in the year of adoption as if they were prepared under the old revenue guidance . the company is currently evaluating the methods of adoption allowed by the new standard and the effect the standard is expected to have on the company 's consolidated financial position , results of operations or cash flows and related disclosures . the evaluation includes each of the five steps identified in the asu 2014-09 revenue recognition model , which are as follows : 1 ) identify the contract with the customer ; 2 ) identify the performance obligations in the contract ; 3 ) determine the transaction price ; 4 ) allocate the transaction price to the performance obligations ; and 5 ) recognize revenue when ( or as ) performance obligations are satisfied . the company 's lease contracts within the scope of asc 840 , leases , are specifically excluded from asu 2014-09. as the company completes its evaluation of this new standard , new information may arise that could change the company 's current understanding of the impact to revenue and expense recognized . additionally , industry activities and other guidance provided by regulators , standards setters , and the accounting profession may affect the company 's assessment and implementation plans . in april 2015 , the fasb issued asu , `` interest - imputation of interest ( subtopic 835-30 ) : simplifying the presentation of debt issuance costs `` ( `` asu 2015-03 `` ) . asu 2015-03 requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying value of that debt liability , consistent with debt discounts . the recognition and measurement guidance for debt issuance costs are not affected by asu 2015-03. the amendments in asu 2015-03 are effective retrospectively for fiscal years , and interim periods within those years , beginning after december 15 , 2015. as a result of the adoption of asu 2015-03 , the amounts of debt issuance costs were reclassified on the company 's balance sheets from other assets to long term debt and were not significant . in july 2015 , fasb issued asu `` inventory ( topic 330 ) : simplifying the measurement of inventory `` ( `` asu 2015-11 `` ) . asu 2015-11 more closely aligns the measurement of inventory in gaap with the measurement of inventory in international financial reporting standards ( `` ifrs `` ) . the amendment in asu 2015-11 is for fiscal years beginning after december 15 , 2016 , and interim periods within fiscal years beginning after december 15 , 2017. the amendment should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period . the company does not expect the impact of adopting asu 2015-11 to be material to the company 's financial statements and related disclosures . story_separator_special_tag aircraft maintenance expenses can vary among periods due to the number of scheduled airframe maintenance checks and the scope of the checks that are performed . fuel expense increased by $ 34.5 million during 2016 compared to 2015. fuel expense includes the cost of fuel to operate u.s. military charters , reimbursable fuel billed to dhl , afs and other acmi customers , as well as fuel used to position aircraft for service and for maintenance purposes . the average price per gallon of aviation fuel decreased about 24 % for 2016 compared to 2015. the decrease in the average price per gallon of fuel was offset by a higher level of customer-reimbursed fuel which increased $ 45.1 million for 2016 compared to 2015. travel expense increased by $ 2.0 million during 2016 compared to 2015. the increase reflects the higher level of employee headcount in airline operations during 2016 compared to 2015. contracted ground and aviation services expense includes navigational services , aircraft and cargo handling services and other airport services . contracted ground and aviation services increased $ 38.5 million due to additional volumes of mail and parcels processed for the usps and afs . rent expense was flat in 2016 compared to 2015. rent expense decreased during the first half of 2016 primarily due to the purchase of one boeing 767-300 aircraft and the return of two boeing 767-200 aircraft which were previously leased from external providers during the first quarter of 2015. this was offset by increased rent in the second half of 2016 associated with an aircraft simulator rented to train new flight crews . landing and ramp expense , which includes the cost of deicing chemicals , increased by $ 3.7 million during 2016 compared to 2015 , driven by additional flight operations . landing and ramp fees can vary based on the flight schedules and the airports that are used in a period . insurance expense increased by $ 0.8 million during 2016 compared to 2015. aircraft fleet insurance has increased due to additional aircraft operations during 2016 compared to 2015. other operating expenses increased by $ 9.5 million during 2016 compared to 2015. other operating expenses include professional fees , employee training , utilities , the cost of parts sold to customers and gains on the disposition of equipment . other operating expenses during the first quarter of 2016 included a $ 1.2 million charge for the company 's share of capitalized debt issuance costs that were written off when west atlantic ab , a non-consolidated affiliate , restructured its debt . other operating expenses also increased due to additional sales of aircraft parts during 2016 compared to 2015. interest expense increased by $ 0.1 million during 2016 compared to 2015. interest expense increased due to a higher average debt level and interest rates on the company 's outstanding loans , offset by more capitalized interest related to our fleet expansion during 2016. capitalized interest increased $ 1.1 million during 2016 to $ 1.3 million . the company recorded pre-tax net losses on financial instruments of $ 18.1 million during the year ended december 31 , 2016 , compared to gains of $ 0.9 million during 2015. the 2016 losses are primarily a result of remeasuring , as of december 31 , 2016 , the fair value of the stock warrants granted to amazon in march of 2016. an increase in the fair value of the warrant obligation since the initial measurement on may 12 , 2016 , corresponded to an increase in the traded price of the company 's shares and resulted in the non-cash , pre-tax loss of $ 19.1 million for 2016. the non-cash gains and losses resulting from quarterly re-measurements of the warrants may vary widely among quarters . income tax expense for earnings from continuing operations decreased $ 10.0 million for 2016 compared to 2015 and includes a deferred income tax deduction for the warrant loss and the amortization of the customer lease incentive . the income tax deductibility of the warrant loss and the amortization of the customer lease incentive is less than the gaap expenses for these items because for tax purposes , the warrants are valued at a different time and under a different valuation method than required by gaap . the effective tax rate , before including the warrant loss and incentive amortization was 35.3 % for 2016 compared to 37.4 % for the year ended december 31 , 2015. the lower effective tax rate for 2016 compared to 2015 reflects the recognition of a discrete tax benefit related to the conversion of employee stock awards during the first and fourth quarters of 2016 . 31 the company 's effective tax rate for 2017 will be impacted by a number of factors , including the re-measurement of the stock warrants at the end of each reporting period . as a result of the warrant re-measurements and related income tax treatment , the overall effective tax can vary significantly from period to period . we estimate that the company 's effective tax rate for 2017 , before applying the deductibility of the stock warrant re-measurement and related incentive amortization and the benefit of the stock compensation , will be approximately 38.5 % . we project this increase in the effective tax rate due to the apportionment of more pre-tax earnings during 2017 to states with higher income tax rates and a lower tax benefit related to the conversion of employee stock awards . as of december 31 , 2016 , the company had operating loss carryforwards for u.s. federal income tax purposes of approximately $ 40.2 million , which will begin to expire in 2031 if not utilized before then . we expect to utilize the loss carryforwards to offset federal income tax liabilities in the future . as a result , we do not expect to pay federal income taxes until 2019 or later . the company may , however , be required

in conjunction with the execution of the atsa , the company and amazon entered into an investment agreement and a stockholders agreement on march 8 , 2016. the investment agreement calls for the company to issue warrants in three tranches . as of december 31 , 2016 , 3.8 million more warrants are expected to vest as afs leases additional aircraft . for additional information about the company 's warrant obligations , see note b of the accompanying financial statements . we estimate that capital expenditures for 2017 will total $ 355 million of which $ 285 million will be related to aircraft purchases and freighter modifications . actual capital spending for any future period will be impacted by aircraft acquisitions , maintenance and modification processes . we expect to finance the capital expenditures from current cash balances , future operating cash flow and the senior credit agreement , the latter of which we anticipate amending for the purpose of obtaining additional borrowing . the company outsources a significant portion of the aircraft freighter 36 modification process to a non-affiliated third party . the modification primarily consists of the installation of a standard cargo door and loading system . for additional information about the company 's aircraft modification obligations , see note g of the accompanying financial statements . in september 2015 , we entered into a joint venture agreement to establish an express cargo airline serving multiple destinations within the peoples republic of china ( including hong kong , macau and taiwan ) and surrounding countries . the airline will be based in mainland china with registered capital of 400 million rmb ( us $ 63 million ) . it will be established pending the receipt of required governmental approvals and plans to commence flight operations in 2017. we expect to contribute $ 15 million to the joint venture during the next twelve months . we plan to offer the new airline aircraft leases to build its fleet . liquidity the company has a senior credit agreement with a consortium of banks that includes an unsubordinated term loan of $ 85.6 million < font

mr. mcnabb is vice chairman of investment banking at duff & phelps lp , a global independent provider of financial advisory and investment banking services , a position he assumed on june 30 , 2011. prior to joining duff & phelps , he was founder and chairman of the board of directors of growth capital partners , l.p. , an investment and merchant banking firm that provided financial advisory services to middle market companies throughout the united states , for 19 years . previously , he was a managing director of bankers trust new york corporation and a board member of bt southwest , inc. , the southwest u.s. merchant banking affiliate of bankers trust , from 1989 to 1992. mr. mcnabb started his career , after serving in the u.s. air force during the vietnam conflict , with mobil oil in its exploration and production division . he has served on the boards of eight public companies , including hiland partners , lp , warrior energy services corporation , hugoton energy corporation and vintage petroleum , inc. and currently serves as non-executive chairman of willbros group and serves on the board and was formerly lead director of continental resources , inc. mr. mcnabb earned both his undergraduate and mba degrees from duke university . mr. mcnabb 's service as a partner in two independent exploration and production companies , and his extensive experience leading management teams and serving as a financial advisor to energy industry companies enables him to chair our conflicts committee with respect to industry matters . we believe mr. mcnabb 's significant prior and current service on the boards of numerous public and private companies , including his prior service in chairing the audit committees of three public companies qualifies him as one of our audit committee financial experts , and his extensive knowledge of the petroleum industry , finance , corporate governance and oversight matters will qualify him to serve as a director . charles c. stephenson , jr. has served as a director on the board of cypress energy partners gp , llc since january 14 , 2014. since 2006 , mr. stephenson has served as chairman of the board of premier natural resources , an independent oil and gas company of which he is also a co-founder . mr. stephenson is an owner of regent private capital ii llc and was a co-founder and director of growth capital partners , an investment and merchant banking firm . from 1983 to 2006 , mr. stephenson worked for vintage petroleum , inc. , which he founded and for which he served as chairman of the board , president and chief executive officer at the time of its sale to occidental petroleum in 2006. mr. stephenson received a b.s . in petroleum engineering from the university of oklahoma . mr. stephenson is a member of the society of petroleum engineers and has served on the board of the national petroleum council . mr. stephenson 's experience founding two successful energy companies , and his decades of experience leading management teams and serving as chief executive officer , enables him to serve on our board of directors . we believe mr. stephenson 's significant prior and current experience as a senior executive in the energy industry will suit him to serve as director . board leadership structure the chief executive officer of our general partner currently serves as the chairman of the board . the board of directors of our general partner has no policy with respect to the separation of the offices of chairman of the board of directors and chief executive officer . instead , that relationship is defined and governed by the amended and restated limited liability company agreement of our general partner , which permits the same person to hold both offices . directors of the board of directors of our general partner are designated or elected by a wholly owned subsidiary of cypress holdings . accordingly , unlike holders of common stock in a corporation , our unitholders will have only limited voting rights on matters affecting our business or governance , subject in all cases to any specific unitholder rights contained in our partnership agreement . 78 board role in risk oversight our corporate governance guidelines will provide that the board of directors of our general partner is responsible for reviewing the process for assessing the major risks facing us and the options for their mitigation . this responsibility will be largely satisfied by our audit committee , which is responsible for reviewing and discussing with management and our registered public accounting firm our major risk exposures and the policies management has implemented to monitor such exposures , including our financial risk exposures and risk management policies section 16 ( a ) beneficial ownership reporting compliance section 16 ( a ) of the exchange act requires our general partner 's board of directors and officers , and persons who beneficially own more than 10 % of a class of our equity securities registered pursuant to section 12 of the exchange act to file certain reports with the sec and nyse concerning beneficial ownership of such securities . however , since we did not complete our ipo until january 21 , 2014 , section 16 ( a ) of the exchange act did not apply during the year ended december 31 , 2013 to our directors , officers and beneficial owners of 10 percent or more of our common units . corporate governance the board of directors of our general partner has adopted corporate governance guidelines that outline important policies and practices regarding our governance and a code of business conduct and ethics that applies to the directors , officers and employees of our general partner and its affiliates and us . story_separator_special_tag operationally , this increase in net income was primarily the result of higher segment gross margin from the increased number of well sites of $ 6.2 million offset by higher operating expenses , primarily depreciation and amortization ( $ 2.7 million increase ) and general and administrative expenses ( $ 2.8 million increase ) associated with the expanded operations . additionally , net income was impacted by the $ 11.3 million gain recorded for the reversal of contingent consideration from the acquisition of the cypress llc predecessor on december 31 , 2012 offset by $ 7.8 million in impairments recorded on two of its swd facilities . 62 predecessor year ended december 31 , 2012 compared to the predecessor period from june 1 , 2011 ( inception ) to december 31 , 2011 total revenues revenues were $ 12.2 million for the year ended december 31 , 2012 , compared to $ 2.9 million for the period from june 1 , 2011 to december 31 , 2011 , an increase of 321 % . the overall increase in saltwater disposal revenues was primarily driven by a 444 % increase in saltwater disposal volumes from 1.6 million barrels for the year ended december 31 , 2011 to 8.7 million barrels for the year ended december 31 , 2012. this increase in saltwater disposal volumes was associated with the addition of four wells between the comparable periods , which was offset somewhat by a 21 % decline in average pricing across the wells from $ 1.79 per barrel of disposed saltwater for the period from june 1 , 2011 to december 31 , 2011 to $ 1.41 for the year ended december 31 , 2012. the decline in revenue per barrel was primarily attributable to the decision to reduce pricing in the bakken shale region due to competitive pressures and an increase in the mix of produced water volumes . costs of sales costs of sales were $ 3.7 million for the year ended december 31 , 2012 , compared to $ 0.5 million for the period from june 1 , 2011 to december 31 , 2011 , an increase of 640 % . the increase is primarily attributable to higher employment costs , repairs and maintenance and utility costs associated with operating the four additional swd facilities . gross margin gross margin was $ 8.5 million for the year ended december 31 , 2012 , compared to $ 2.4 million for the period from june 1 , 2011 to december 31 , 2011 , an increase of $ 6.1 million or 254 % . the increase in gross margin was primarily driven by the increase in revenue for the same period . depreciation expense the depreciation expense was $ 1.4 million for the year ended december 31 , 2012 , compared to $ 0.1 million for the period from june 1 , 2011 to december 31 , 2011 , an increase of 1,300 % . the increase was primarily due to having a full year of depreciation on wells placed in service in 2011 and the addition of four new wells in 2012. general and administrative expenses general and administrative expenses were $ 0.5 million for the year ended december 31 , 2012 , compared to $ 0.1 million for the period from june 1 , 2011 to december 31 , 2011 , an increase of 400 % . the increase was primarily attributable to the operation of four additional swd facilities . net income net income was $ 6.6 million for the year ended december 31 , 2012 , compared to $ 2.2 million for the period from june 1 , 2011 to december 31 , 2011 , an increase of 200 % . this increase in net income was primarily driven by an increase in revenue associated with the opening of four additional swd facilities and having a full year of operations for the two swd facilities in operation at december 31 , 2011 , offset by their corresponding costs of sales , depreciation expense and general and administrative and other expenses . 63 combined results of operations – tulsa inspection resources entities the following table summarizes historical combined financial statements information of the tir entities for the period from june 27 , 2013 through december 31 , 2013 which represents the operation of the tir entities from the point in which cypress holdings obtained control . this information should be read in conjunction with the audited combined financial statements of the tulsa inspection resources entities as of and for the year ended december 31 , 2013 and the audited consolidated financial statements of tulsa inspection resources , inc. as of and for the years ended december 31 , 2012 and 2011 included in “ item 8 – financial statements and supplementary data . ” tulsa inspection resources entities period from june 27 , 2013 through december 31 , 2013 income statement data revenues $ 227,046 costs of services 206,344 gross margin $ 20,702 operational data average number of inspectors ( per week ) 1,706 average revenue per inspector ( per week ) $ 4,952 combined results of operations for the tulsa inspection resources entities for the period from june 27 , 2013 through december 31 , 2013. total revenues revenues were $ 226.9 million for the period . the average weekly inspector headcount for the period was 1,706 resulting in average revenue per inspector of $ 5,030. costs of services costs of services were $ 206.2 million for the year ended december 31 , 2013. costs of services are primarily driven by the payroll costs associated with the average inspector headcount during the period and to a lesser extent reimbursable expenses associated with the inspectors including per diem , mileage , etc . gross margin gross margin was $ 20.7 million or 9 % of total revenues for the period . depreciation and amortization expense depreciation expense was $ 1.3 million for the period . net property and

net cash provided by financing activities was $ 8.4 million for the year ended december 31 , 2012 , compared to $ 9.9 million for the year ended december 31 , 2011. this decrease in cash provided by financing activities was primarily a result of having more cash flow from operating activities in 2012 to fund investing activities compared to 2011 . 66 working capital our working capital was $ 6.6 million at december 31 , 2013 , compared to $ 1.9 million at december 31 , 2012 and a deficit of $ 1.0 million at december 31 , 2011. the $ 4.7 million increase in working capital of our water and environmental services segment from december 31 , 2012 to december 31 , 2013 was primarily a result of the following factors : · our operations at december 31 , 2013 were more extensive than at december 31 , 2012 ; · accounts receivable at december 31 , 2013 were $ 3.5 million , or $ 0.5 million more than the $ 3.0 million accounts receivable balance at december 31 , 2012 based upon increased revenues ; and · cash at december 31 , 2013 was $ 4.3 million , or $ 3.7 million more than

the assets and liabilities under capital lease are recorded at the lesser of the present value of aggregate future minimum lease payments , including estimated bargain purchase options , or the fair value of the asset under lease . assets under capital lease are depreciated using the straight-line method over the estimated useful lives of the assets or the term of the lease agreements . software development costs we capitalize costs associated with software developed or obtained for internal use when the preliminary project stage is completed and it is determined that the software will provide significantly enhanced capabilities and modifications . these capitalized costs are included in property and equipment and include external direct cost of services procured in developing or obtaining internal-use software and personnel and related expenses for employees who are directly associated with , and who devote time to internal-use software projects . capitalization of these costs ceases once the project is substantially complete and the software is ready for its intended use . once the software is ready for its intended use , the costs are amortized over the useful life of the software . post-configuration training and maintenance costs are expensed as incurred . long-lived assets intangible assets consist of acquired venue contracts , technology , advertiser relationships , non-compete agreements and patents and trademarks . we record intangible assets at fair value as of the date of acquisition and amortize these finite-lived assets over the shorter of the contractual life or the estimated useful life on a straight-line basis . we estimate the useful lives of acquired intangible assets based on factors that include the planned use of each acquired intangible asset , the expected pattern of future cash flows to be derived from each acquired intangible asset and contractual periods specified in the related agreements . as such , we account for each of the venue contracts individually . f-11 boingo wireless , inc. notes to the consolidated financial statements ( continued ) ( in thousands , except shares and per share amounts ) 2. summary of significant accounting policies ( continued ) we include amortization of acquired intangibles in amortization of intangible assets in the accompanying consolidated statements of operations . we perform an impairment review of long-lived assets held and used whenever events or changes in circumstances indicate that the carrying value may not be recoverable . factors we consider important that could trigger an impairment review include , but are not limited to : significant under-performance relative to projected future operating results , significant changes in the manner of our use of the acquired assets or our overall business and product strategies and significant industry or economic trends . when we determine that the carrying value of a long-lived asset may not be recoverable based upon the existence of one or more of these indicators , we determine the recoverability by comparing the carrying amount of the asset to net future undiscounted cash flows that the asset is expected to generate or other indices of fair value . we would then recognize an impairment charge equal to the amount by which the carrying amount exceeds the fair market value of the asset . goodwill goodwill represents the excess of the purchase price over the fair value of net assets acquired in connection with the acquisition of concourse communication group , llc in june 2006 , cloud 9 wireless , inc. in august 2012 , endeka group , inc. in february 2013 , and electronic media systems , inc. and advanced wireless group , llc in october 2013. we test goodwill for impairment in accordance with guidance provided by fasb asc 350 , intangibles—goodwill and other ( `` asc 350 `` ) . goodwill is tested for impairment at least annually at the reporting unit level or whenever events or changes in circumstances indicate that goodwill might be impaired . events or changes in circumstances which could trigger an impairment review include a significant adverse change in legal factors or in the business climate , an adverse action or assessment by a regulator , unanticipated competition , a loss of key personnel , significant changes in the manner of our use of the acquired assets or the strategy for our overall business , significant negative industry or economic trends , or significant underperformance relative to expected historical or projected future results of operations . we perform our impairment test annually as of december 31st . entities have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in fasb asc 350. if , after assessing qualitative factors , an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount , then performing the two-step impairment test is unnecessary . if deemed necessary , a two-step test is used to identify the potential impairment and to measure the amount of goodwill impairment , if any . the first step is to compare the fair value of the reporting unit with its carrying amount , including goodwill . if the fair value of the reporting unit exceeds its carrying amount , goodwill is considered not impaired ; otherwise , there is an indication that goodwill may be impaired and the amount of the loss , if any , is measured by performing step two . under step two , the impairment loss , if any , is measured by comparing the implied fair value of the reporting unit goodwill with the carrying amount of goodwill . currently , we have one reporting unit , one operating segment and one reportable segment . at december 31 , 2016 and 2015 , all of the goodwill was attributed to our reporting unit . story_separator_special_tag at december 31 , 2016 , the total remaining stock-based compensation expense for unvested stock option awards is approximately $ 323,000 , which is expected to be recognized over a weighted average period of 0.8 years . at december 31 , 2016 , the total remaining stock-based compensation expense for unvested rsu awards is approximately $ 17,831,000 which is expected to be recognized over a weighted average period of 2.0 years . 41 the following table sets forth our results of operations for the specified periods as a percentage of our revenue for those periods . replace_table_token_11_th years ended december 31 , 2016 and 2015 revenue replace_table_token_12_th das . das revenue increased $ 11.7 million , or 25.2 % , in 2016 , as compared to 2015 , due to an $ 8.9 million increase from new build-out projects in our managed and operated locations and a $ 2.8 million increase in access fees from our telecom operators . das build-out revenues in 2016 and 2015 include $ 0.5 million and $ 1.0 million , respectively , of short-term build projects that include sales 42 of equipment that were completed during those periods . das access fees for 2015 include $ 0.4 million of one-time fees that were paid for early termination rights . military . military revenue increased $ 20.1 million , or 100.9 % , in 2016 , as compared to 2015 due to a $ 16.9 million increase in military subscriber revenue , which was driven primarily by the increase in military subscribers and a 5.5 % increase in the average monthly revenue per military subscriber in 2016 compared to 2015 , and a $ 3.2 million increase in military single-use revenue . retail . retail revenue decreased $ 5.1 million , or 16.1 % , in 2016 , as compared to 2015 , due to a $ 4.0 million decrease in retail subscriber revenue , which was driven primarily by the decrease in retail subscribers and a 1.5 % decrease in the average monthly revenue per retail subscriber , and a $ 1.1 million decrease in retail single-use revenue . wholesale—wi-fi . wholesale wi-fi revenue increased $ 0.3 million , or 1.4 % , in 2016 , as compared to 2015 , primarily due to a $ 0.7 million increase in partner usage based fees , which was partially offset by a $ 0.5 million decrease in wholesale service provider revenue . advertising and other . advertising and other revenue decreased $ 7.3 million , or 37.1 % , in 2016 , as compared to 2015 , primarily due to a $ 7.9 million decrease in advertising sales at our managed and operated locations resulting from a decline in the number of premium ad units sold . costs and operating expenses replace_table_token_13_th network access . network access costs increased $ 6.1 million , or 9.7 % , in 2016 , as compared to 2015. the increase is primarily due to a $ 4.3 million increase in depreciation expense related to our increased fixed assets from our das build-out projects , a $ 2.3 million increase in revenue share paid to venues in our managed and operated locations and a $ 0.9 million increase in bandwidth and other direct costs . the increases were partially offset by a $ 0.7 million decrease from customer usage at partner venues and a $ 0.7 million decrease in other cost of revenue . other costs of revenue in 2016 and 2015 included $ 0.3 million and $ 1.0 million , respectively , of costs directly related to our short-term das projects that were completed during those periods . network operations . network operations expenses increased $ 8.8 million , or 26.2 % , in 2016 , as compared to 2015 , primarily due to a $ 4.9 million increase in depreciation expense related to our increased fixed assets , a $ 2.3 million increase in personnel related expenses resulting primarily from increased headcount , a $ 1.0 million increase in consulting expenses , and a $ 0.3 million increase in hardware and software maintenance expenses . development and technology . development and technology expenses increased $ 3.0 million , or 15.6 % , in 2016 , as compared to 2015 , primarily due to a $ 1.8 million increase in depreciation expense 43 related to our increased fixed assets , a $ 0.7 million increase in cloud computing , hardware and software maintenance expenses , and a $ 0.4 million increase in consulting expenses . selling and marketing . selling and marketing expenses decreased $ 0.9 million , or 4.7 % , in 2016 , as compared to 2015 , due to a $ 1.4 million decrease in personnel related expenses which was primarily due to a management reorganization that included the elimination of the position of president in january 2016. the decrease was partially offset by a $ 0.3 million increase in consulting expenses and a $ 0.2 million increase in marketing and advertising expenses . general and administrative . general and administrative expenses increased $ 7.4 million , or 32.9 % , in 2016 , as compared to 2015 , primarily due to a $ 5.4 million increase in personnel related expenses , which is inclusive of a $ 4.0 million increase in stock-based compensation , resulting from increased headcount and the change in the structure and grant cycle of the rsus granted to our chief executive officer and chief financial officer in 2016 , $ 1.4 million expended on our contested proxy election for the 2016 annual meeting of stockholders , and a $ 0.6 million increase in professional fees . amortization of intangible assets . amortization of intangible assets expense remained relatively consistent in 2016 , as compared to 2015. interest and other expense , net interest and other expense , net , increased $ 0.4 million in 2016 , as compared to 2015 , primarily due to increased interest expense incurred . in 2016 and

in 2014 , we used $ 39.2 million in investing activities , a decrease of $ 1.2 million from 2013. the decrease was primarily due to a $ 22.8 million increase in cash received from net sales of marketable securities in 2014 compared to 2013 , a $ 19.3 million decrease in cash used in acquisitions in 2014 compared to 2013 , and a $ 0.5 million decrease in restricted cash . the decreases were partially offset by a $ 41.4 million increase in purchases of property and equipment in 2014 compared to 2013. net cash ( used in ) provided by financing activities in 2016 , we used $ 3.1 million of cash for financing activities compared to $ 8.8 million in cash provided by financing activities in 2015. this change is primarily due to a $ 14.8 million decrease in net proceeds from our credit facility , a $ 1.4 million increase in cash paid for capital leases and notes payable , and a $ 0.3 million decrease in cash used to pay federal , state , and local employment payroll taxes related to our rsus that vested during the period . these changes were partially offset by a $ 1.6 million increase in proceeds from exercise of stock options , $ 2.8 million of non-recurring payments made in 2015 related to business combinations , and a $ 0.2 million decrease in payments to our non-controlling interests . in 2015 , we received $ 8.8 million of cash provided by financing activities compared to $ 0.5 million in cash used in financing activities in 2014. this change is primarily due to the $ 11.5 million increase in net proceeds from our credit facility , a $ 1.2 million decrease in acquisition related payments , a $ 0.6 million decrease in deferred financing costs , and a $ 0.2 million increase in proceeds from exercise of stock options . these changes were partially offset by $ 1.6 million of holdback consideration payments made to the previous awg shareholders , $ 1.2 million in payments to acquire the remaining non-controlling interests in concourse communications detroit , llc from the non-controlling interest owners , a $ 0.6 million increase in cash used to pay federal , state , and local employment payroll taxes related to our rsus that vested during the period , and $ 0.9 million in repayments made on our term loan during 2015. in 2014 , we used $ 0.5 million in financing activities , a decrease of $ 10.6 million from 2013. the decrease was primarily due to $ 10.9 million of cash used to repay notes payable and other financed liabilities that were assumed in our acquisition of endeka and cash used to repurchase shares of our common stock in the open market in 2013 that did not recur in 2014 , $ 2.8 million of proceeds received from our credit facility , net of deferred financing costs that were paid , and a $ 0.5 million increase in proceeds from the exercise of stock options in 2014 compared to 2013. the decreases were partially offset by a $ 1.9 million increase in cash used to pay

the risk-free rate is based upon the applicable u.s. treasury note rate . expected volatility is estimated based on the historical volatility of the companies ' stock prices . the dividend yield is based on the company 's historical data . pension and other post-employment benefits the company sponsors two defined benefit pension plans and two other post-employment benefit plans ( `` opeb `` ) . several statistical and other factors , which attempt to anticipate future events , are used in calculating the expense and liability related to the plans . key factors include assumptions about the expected rates of return on plan assets , discount rates , and health care cost trend rates . the company considers market and regulatory conditions , including changes in investment returns and interest rates , in making these assumptions . the company determines the expected long-term rate of return on plan assets based on aggregating the expected rates of return for each component of the plan 's asset mix . the company uses historic plan asset returns combined with current market conditions to estimate the rate of return . the expected rate of return on plan assets is a long-term assumption and generally does not change annually . the discount rate reflects the market rate for high-quality fixed income debt instruments as of the company 's annual measurement date and is subject to change each year . unrecognized actuarial gains and losses are recognized over the expected remaining lifetime of the plan participants . unrecognized actuarial gains and losses arise from several factors , including experience and assumption changes with respect to the obligations of the pension and opeb plans , and from the difference between expected returns and actual returns on plan assets . these unrecognized gains and losses are systematically recognized as a change in future net periodic pension expense in accordance with the appropriate accounting guidance relating to defined benefit pension and opeb plans . key assumptions used in determining the amount of the obligation and expense recorded for the opeb plans include the assumed discount rate and the assumed rate of increases in future health care costs . in estimating the health care cost trend rate , the company considers actual health care cost experience , future benefit structures , industry trends and advice from its actuaries . the company assumes that the relative increase in health care costs will generally trend downward over the next several years , reflecting assumed increases in efficiency and cost-containment initiatives in the health care system . 51 knoll , inc. notes to the consolidated financial statements december 31 , 2016 in accordance with the appropriate accounting guidance , the company has recognized the funded status ( i.e . , the difference between the fair value of plan assets and the projected benefit obligation ) of the defined benefit pension and opeb plans in the consolidated balance sheets . to record the unfunded status of the plans , the company recorded an additional liability and an adjustment to accumulated other comprehensive loss , net of tax . other changes in the benefit obligation including net actuarial loss ( gain ) , prior service cost ( credit ) or curtailment ( gain ) loss are recognized in other comprehensive income . the actuarial assumptions the company used in determining the pension and opeb retirement benefits may differ materially from actual results due to changing market and economic conditions , higher or lower withdrawal rates , or longer or shorter life spans of participants . while the company believes that the assumptions used are appropriate , differences in actual experience or changes in assumptions may materially affect the financial position or results of operations . as of december 31 , 2015 , the company changed the method it uses to estimate the interest cost component of net periodic benefit cost for pension and other post-employment benefits . this change resulted in a decrease in the interest cost component for 2016 , compared to the previous method . historically , the company estimated the interest cost component utilizing a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period . the company has elected to utilize a full yield curve approach in the estimation of this component by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows . the company has made this change to provide a more precise measurement of interest cost by improving the correlation between projected benefit cash flows to the corresponding spot yield curve rates . this change did not affect the measurement of the total benefit obligation at the annual measurement date , as the change in interest cost is completely offset by deferred actuarial ( gains ) /losses that will arise at the next annual measurement date . as this change is treated as a change in estimate inseparable from a change in accounting principle , historical measurements of interest cost are not affected . this change in estimate reduced the company 's annual net periodic benefit expense in 2016 by approximately $ 2.7 million . segment information accounting standards codification 280 , segment reporting , defines that a segment for reporting purposes is based on the financial performance measures that are regularly reviewed by the “ chief operating decision maker ” to assess segment performance and to make decisions about a public entity 's allocation of resources . based on this guidance , the company reports its segment results based on its reporting segments : office , studio , and coverings . all unallocated expenses are included within corporate . the office segment includes a complete range of workplace products that address diverse workplace planning paradigms . story_separator_special_tag we have been identified as a potentially responsible party pursuant to the comprehensive environmental response , compensation and liability act of 1980 ( “ cercla ” ) for remediation costs associated with waste disposal sites that we previously used . the remediation costs and our allocated share at some of these cercla sites are unknown . we may also be subject to claims for personal injury or contribution relating to cercla sites . we reserve amounts for such matters when expenditures are probable and reasonably estimable . off-balance sheet arrangements we do not currently have any relationships with unconsolidated entities or financial partnerships , such as entities often referred to as structured finance or special-purpose entities , which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes . in addition , we do not engage in trading activities involving non-exchange-traded contracts . as a result , we are not materially exposed to any financing , liquidity , market or credit risk that could arise if we had engaged in these relationships . critical accounting policies the preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the u.s. ( “ gaap ” ) requires us to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes . actual results may differ from such estimates . we believe that the critical accounting policies that follow are those policies that require the most judgment , estimation and assumption in preparing our consolidated financial statements . allowance for doubtful accounts we maintain allowances for doubtful accounts for estimated losses resulting from the inability of our clients and dealers to make required payments . the allowance is determined through an analysis of the aging of accounts receivable and assessments of risk that are based on historical trends . we evaluate the past-due status of our trade receivables based on contractual terms of sale . if the financial condition of our customers were to deteriorate , additional allowances may be required . accounts receivable are charged against the allowance for doubtful accounts when we determine that the likelihood of recovery is remote , and we no longer intend to expend resources to attempt collection . inventory inventories are valued at the lower of cost or market . cost is determined using the first-in , first-out method . we reserve inventory that , in our judgment , is impaired or obsolete . obsolescence may be caused by the discontinuance of a product line , changes in product material specifications , replacement products in the marketplace and other competitive influences . goodwill and intangible assets we record the excess of purchase price over the fair value of the tangible and identifiable intangible assets acquired as goodwill . goodwill and intangible assets with indefinite lives are tested for impairment at least annually , as of october 1 , and whenever events or circumstances occur indicating that a possible impairment may have been incurred . intangible assets with finite lives are amortized over their useful lives . we assess whether goodwill impairment exists using both the qualitative and quantitative assessments . the qualitative assessment involves determining whether events or circumstances exist that indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount , including goodwill . if based on this qualitative assessment we determine it is not more likely than not that the fair value of a reporting unit is less than its carrying amount or if we elect not to perform a qualitative assessment , a quantitative assessment is performed using a two-step approach to determine whether a goodwill impairment exists at the reporting unit . 36 in the first step , we compare the fair value of each reporting unit to its carrying value . if the fair value of the reporting unit exceeds its carrying value , goodwill is not impaired and no further testing is required . if the fair value of the reporting unit is less than the carrying value , we must perform the second step of the impairment test to measure the amount of impairment loss , if any . in the second step , the reporting unit 's fair value is allocated to all of the assets and liabilities of the reporting unit , including any unrecognized intangible assets , in a hypothetical analysis that calculates the implied fair value of goodwill in the same manner as if the reporting unit was being acquired in a business combination . if the implied fair value of the reporting unit 's goodwill is less than the carrying value , the difference is recorded as an impairment loss . we estimate the fair value of its reporting units using a combination of the fair values derived from both the income approach and the market approach . under the income approach , we calculate the fair value of a reporting unit based on the present value of estimated future cash flows . cash flow projections are based on our estimates of revenue growth rates and operating margins , taking into consideration industry and market conditions . the discount rate used is based on the weighted-average cost of capital adjusted for the relevant risk associated with business-specific characteristics and the uncertainty related to the business 's ability to execute on the projected cash flows . the market approach estimates fair value based on market multiples of revenue and earnings derived from comparable publicly-traded companies with similar operating and investment characteristics as the reporting unit . we assess whether indefinite-lived intangible assets impairment exists using both the qualitative and quantitative assessments . the qualitative assessment involves determining whether events or circumstances exist that indicate it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount . if based on this qualitative assessment , we determine

million in 2015 to $ 218.4 million in 2016. the combination of lowered debt levels and increased ebitda drove leverage from 1.67 to 1.37. the calculation of our leverage ratio under our credit facility includes the use of adjusted ebitda , a non-gaap financial measure . for details on the leverage ratio calculations , see “ reconciliation of non-gaap financial measures ” above . our credit facility requires that we comply with two financial covenants , consolidated leverage ratio , defined as the ratio of total indebtedness to consolidated ebitda ( as defined in our credit agreement ) and consolidated interest coverage ratio , defined as the ratio of our consolidated ebitda ( as defined in our credit agreement ) to our consolidated interest expense . our consolidated leverage ratio can not exceed 4.0 to 1 , and our consolidated interest coverage ratio must be a minimum of 3.0 to 1. we are also required to comply with various other affirmative and negative covenants including , without limitation , covenants that prevent or restrict our ability to pay dividends , engage in certain mergers or acquisitions , make certain investments or loans , incur future indebtedness , engage in sale-leaseback transactions , alter our capital structure or line of business , prepay subordinated indebtedness , engage in certain transactions with affiliates and sell stock or assets . we are currently in compliance with all of the covenants and conditions under our credit facility . we believe that existing cash balances and internally generated cash flows , together with borrowings available under our credit facility , will be sufficient to fund working capital needs , capital spending requirements , debt service requirements and dividend payments for at least the next twelve months . however , because of the financial covenants mentioned above , our capacity under our credit facility could be reduced if our trailing consolidated ebitda ( as defined by our credit agreement ) declines due to deteriorating market conditions or poor performance . future debt payments may be paid out of cash flows from operations , from future refinancing of our debt or from equity issuances . our ability to make scheduled payments of principal , pay interest

the following table sets forth the beneficial ownership of our common stock as of march 26 , 2010 for each person or group that holds more than 5.0 % of our common stock , for each director and executive officer and for our directors and executive officers as a group . to our knowledge , each person that beneficially owns our shares has sole voting and disposition power with regard to such shares . unless otherwise indicated below , each person or entity has an address in care of our principal executive offices at 1900 main street , suite 700 , irvine , california 92614. replace_table_token_7_th ( 1 ) under sec rules , a person is deemed to be a “beneficial owner” of a security if that person has or shares “voting power , ” which includes the power to dispose of or to direct the disposition of such security . a person also is deemed to be a beneficial owner of any securities which that person has a right to acquire within 60 days . under these rules , more than one person may be deemed to be a beneficial owner of the same securities and a person may be deemed to be a beneficial owner of securities as to which he or she has no economic or pecuniary interest . 52 replace_table_token_8_th item 13. certain relationships and related transactions and director independence the following describes all transactions and currently proposed transactions between us and any related person since january 1 , 2009 in which more than $ 120,000 was or will be involved and such related person had or will have a direct or indirect material interest . our independent directors are specifically charged with and have examined the fairness of such transactions to our stockholders , and have determined that all such transactions are fair and reasonable to us and on terms and conditions not less favorable to us than those available from unaffiliated third parties . ownership interests on october 16 , 2008 , our sponsor , thompson national properties , llc , purchased 22,222 shares of our common stock for an aggregate purchase price of $ 200,000 and was admitted as our initial stockholder . in september 2008 , we formed our operating partnership . on december 31 , 2008 , tnp strategic retail op holdings , llc , or tnp op holdings , and our advisor each made initial capital contributions to our operating partnership of $ 1,000 each . as of december 31 , 2009 , our advisor owned 100 % of the outstanding limited partnership interest in our operating partnership and tnp op holdings owned 100 % of the special units issued by our operating partnership . we are the sole general partner of the operating partnership . tnp op holdings ' ownership interest of the special units entitles it to a subordinated participation and it will be entitled to receive ( 1 ) 15 % of specified distributions made upon the disposition of our operating partnership 's assets , and ( 2 ) a one time payment , in the form of shares of our common stock or a promissory note , in conjunction with the redemption of the special units upon the occurrence of certain liquidity events or upon the occurrence of certain events that result in a termination or non-renewal of our advisory agreement , but in each case only after the other holders of our operating partnership 's units , including us , have received ( or have been deemed to have received ) , in the aggregate , cumulative distributions equal to their capital contributions plus a 10.0 % cumulative non-compounded annual pre-tax return on their net contributions . as the holder of special units , tnp op holdings will not be entitled to receive any other distributions . we have not paid any distributions to tnp op holdings pursuant to its subordinated participation interest . our relationships with our advisor and our sponsor tnp strategic retail advisor , llc is our advisor and , as such , supervises and manages our day-to-day operations and selects our real property investments and real estate-related investments , subject to the oversight by our board of directors . our advisor also provides marketing , sales and client services on our behalf . our advisor was formed in september 2008 and is indirectly owned by our sponsor . mr. thompson , our chairman of the board and chief executive officer also serves as the chief executive officer of our sponsor and our advisor . all of our other officers and directors , other than our independent directors , are officers of our advisor and officers , limited partners and or members of our sponsor and other affiliates of our advisor . fees and expense reimbursements paid to our advisor pursuant to the terms of our advisory agreement , we pay our advisor the fees described below . we pay our advisor an acquisition fee of 2.5 % of ( 1 ) the cost of an investment acquired directly or ( 2 ) our allocable cost of real property acquired in a joint venture , in each case including purchase price , acquisition expenses and any debt attributable to such investments . with respect to investments in and origination of real estate-related loans , we will pay an origination fee to our advisor in lieu of an 53 acquisition fee . for the year ended december 31 , 2009 , we paid our advisor $ 202,000 in acquisition fees related to our investments . we pay our advisor an origination fee of 2.5 % of the amount funded by us to acquire or originate real estate-related loans , including third party expenses related to such investments and any debt we use to fund the acquisition or origination of the real estate-related loans . we will not pay an acquisition fee with respect to such real estate-related loans . story_separator_special_tag this potential acquisition is subject to substantial conditions to closing including : ( 1 ) the sale of a sufficient number of shares of common stock in our public offering to fund a portion of the purchase price for the waianae property ; ( 2 ) the approval of the loan servicer for the existing indebtedness on the waianae property to be assumed by us and the receipt of other applicable third-party consents ; and ( 3 ) the absence of a material adverse change to the waianae property prior to the date of the acquisition . 42 inflation the majority of our leases at the moreno property contain inflation protection provisions applicable to reimbursement billings for common area maintenance charges , real estate tax and insurance reimbursements on a per square foot basis , or in some cases , annual reimbursement of operating expenses above a certain per square foot allowance . we expect to include similar provisions in our future tenant leases designed to protect us from the impact of inflation . due to the generally long-term nature of these leases , annual rent increases , as well as rents received from acquired leases , may not be sufficient to cover inflation and rent may be below market . reit compliance to qualify as a reit for tax purposes , we are required to distribute at least 90 % of our reit taxable income to our stockholders . we must also meet certain asset and income tests , as well as other requirements . we will monitor the business and transactions that may potentially impact our reit status . if we fail to qualify as a reit in any taxable year , we will be subject to federal income tax ( including any applicable alternative minimum tax ) on our taxable income at regular corporate rates and generally will not be permitted to qualify for treatment as a reit for federal income tax purposes for the four taxable years following the year during which our reit qualification is lost unless the internal revenue service grants us relief under certain statutory provisions . such an event could materially adversely affect our net income and net cash available for distribution to our stockholders . distributions we intend to make regular cash distributions to our stockholders , typically on a monthly basis . the actual amount and timing of distributions will be determined by our board of directors in its discretion and typically will depend on the amount of funds available for distribution , which is impacted by current and projected cash requirements , tax considerations and other factors . as a result , our distribution rate and payment frequency may vary from time to time . however , to qualify as a reit for tax purposes , we must make distributions equal to at least 90 % of our “reit taxable income” each year . on august 13 , 2009 , our board of directors approved a monthly cash distribution of $ 0.05625 per common share , which represents an annualized distribution of $ 0.675 per share . the commencement of the distribution , which was expected to take place in the calendar month following the closing of our first asset acquisition , was subject to our having achieved minimum offering proceeds of $ 2,000,000 , the sale of a sufficient number of shares in our public offering to finance an asset acquisition and our identification and completion of an asset acquisition . on november 12 , 2009 , we achieved the minimum offering amount $ 2,000,000 , and on november 19 , 2009 we completed our first asset acquisition . on november 30 , 2009 , we declared a monthly distribution in the aggregate amount of $ 7,000 , of which $ 6,000 was paid in cash on december 15 , 2009 and $ 1,000 was paid through our distribution reinvestment plan in the form of additional shares issued on november 30 , 2009. on december 31 , 2009 , we declared a monthly distribution on the aggregate of $ 24,000 , of which $ 18,000 was paid in cash on january 15 , 2010 and $ 6,000 was paid through our distribution reinvestment plan in the form of additional shares issued on december 31 , 2009. we did not have any funds from operation , or ffo , for the year ended december 31 , 2009 , and the cash amounts distributed to stockholders in december 2009 were funded from proceeds from our offering . ffo is a non-gaap financial measure that is widely recognized as a measure of reit operating performance . see the “funds from operations and adjusted funds from operations” section below for a reconciliation of ffo and adjusted ffo to our net income . on january 31 , 2010 , we declared a monthly distribution in the aggregate of $ 32,000 , of which $ 25,000 was paid in cash on february 12 , 2010 and $ 7,000 was paid through our distribution reinvestment plan in the form of additional shares issued on january 31 , 2010. on february 28 , 2010 , we declared a monthly distribution in the aggregate of $ 40,000 , of which $ 29,000 was paid in cash on march 15 , 2010 and $ 11,000 was paid through our distribution reinvestment plan in the form of additional shares issued on february 28 , 2010 . 43 funds from operations and adjusted funds from operations one of our objectives is to provide cash distributions to our stockholders from cash generated by our operations . cash generated from operations is not equivalent to net operating income as determined under gaap . due to certain unique operating characteristics of real estate companies , the national association of real estate investment trusts , an industry trade group , or nareit , has promulgated a standard known as funds from operations , or ffo for short , which it believes more accurately reflects

we received a waiver from keybank relating to the covenant in our credit agreement requiring us to raise at least $ 2,000,000 in shares of our common stock in our public offering during each of january , february and 40 march 2010. in addition , our operating partnership received a waiver relating to the covenant requiring us to maintain a 1.3 to 1 debt service coverage ratio for the quarter ended march 31 , 2010. the credit agreement is guaranteed by our sponsor and an affiliate of our sponsor . as part of that guarantee agreement , our sponsor and its affiliate must maintain minimum net worth and liquidity requirements on a combined or individual basis . the operating partnership may , upon prior written notice to keybank , prepay the principal of the borrowings then outstanding under the revolving credit facility , in whole or in part , without premium or penalty . the entire unpaid principal balance of all borrowings under the revolving credit facility and all accrued and unpaid interest thereon will be due and payable in full on november 12 , 2010. borrowings under the revolving credit facility will bear interest at a variable per annum rate equal to the sum of ( a ) 425 basis points plus ( b ) the greater of ( 1 ) 300 basis points or ( 2 ) 30-day libor as reported by reuters on the day that is two business days prior to the date of such determination , and accrued and unpaid interest on any past due amounts will bear interest at a variable libor-based rate that in no event shall exceed the highest interest rate permitted by applicable law . the operating partnership paid keybank a one time $ 150,000 commitment fee in connection with entering into the credit agreement and will pay keybank an unused commitment fee of 0.50 % per annum . as of december 31 , 2009 , $ 15,000,000 was available under the keybank credit facility , subject to keybank 's review and approval described above , and there were no borrowings outstanding . moreno property loan in connection with the acquisition of the moreno property , on november 19 , 2009 , which we refer to herein as the “closing date” ,

asps can be affected by several factors such as : · a change in customer mix · a change in negotiated terms with customers · a change in the volume of off-contract purchases · changes in wac as necessary , we adjust asps based on anticipated changes in the factors above . the difference between asp and wac is recorded as a reduction in both gross revenues in the consolidated statements of operations and accounts receivable in the consolidated balance sheets , at the time we recognize revenue from the product sale . to evaluate the adequacy of our chargeback accruals , we obtain on-hand inventory counts from the wholesalers . this inventory is multiplied by the chargeback amount , the difference between asp and wac , to arrive at total expected future chargebacks , which is then compared to the chargeback accruals . we continually monitor chargeback activity and adjust asps when we believe that actual selling prices will differ from current asps . 78 ani pharmaceuticals , inc. and subsidiaries notes to the consolidated financial statements for the years ended december 31 , 2018 , 2017 , and 2016 1. description of business and summary of significant accounting policies ( continued ) government rebates our government rebates reserve consists of estimated payments due to governmental agencies for purchases made by third parties under various governmental programs . the two largest government programs that impact our net revenue and our government rebates reserve are federal and state medicaid rebate programs and medicare . we participate in certain qualifying federal and state medicaid rebate programs whereby discounts and rebates are provided to participating programs after the final dispensing of the product by a pharmacy to a medicaid plan participant . medicaid rebates are typically billed up to 120 days after the product is shipped . medicaid rebate amounts per product unit are established by law , based on the average manufacturer price ( “ amp ” ) , which is reported on a monthly and quarterly basis , and , in the case of branded products , best price , which is reported on a quarterly basis . our medicaid reserves are based on expected claims from state medicaid programs . estimates for expected claims are driven by patient usage , sales mix , calculated amp or best price , as well as inventory in the distribution channel that will be subject to a medicaid rebate . as a result of the delay between selling the products and rebate billing , our medicaid rebate reserve includes both an estimate of outstanding claims for end-customer sales that have occurred but for which the related claim has not been billed , as well as an estimate for future claims that will be made when inventory in the distribution channel is sold through to plan participants . many of our products are also covered under medicare . we , like all pharmaceutical companies , must provide a discount for any products sold under ndas to medicare part d participants . this applies to all products sold under ndas , regardless of whether the products are marketed as branded or generic . our estimates for these discounts are based on historical experience with medicare rebates for our products . while such experience has allowed for reasonable estimations in the past , history may not always be an accurate indicator of future rebates . medicare rebates are typically billed up to 120 days after the product is shipped . as a result of the delay between selling the products and rebate billing , our medicare rebate reserve includes both an estimate of outstanding claims for end-customer sales that have occurred but for which the related claim has not been billed , as well as an estimate for future claims that will be made when inventory in the distribution channel is sold through to medicare part d participants . to evaluate the adequacy of our government rebate reserves , we review the reserves on a quarterly basis against actual claims data to ensure the liability is fairly stated . we continually monitor our government rebate reserve and adjust our estimates if we believe that actual government rebates may differ from our established accruals . accruals for government rebates are recorded as a reduction to gross revenues in the consolidated statements of operations and as an increase to accrued government rebates in the consolidated balance sheets . returns we maintain a return policy that allows customers to return product within a specified period prior to and subsequent to the expiration date . generally , product may be returned for a period beginning six months prior to its expiration date to up to one year after its expiration date . our product returns are settled through the issuance of a credit to the customer . our estimate for returns is based upon historical experience with actual returns . while such experience has allowed for reasonable estimation in the past , history may not always be an accurate indicator of future returns . we continually monitor our estimates for returns and make adjustments when we believe that actual product returns may differ from the established accruals . accruals for returns are recorded as a reduction to gross revenues in the consolidated statements of operations and as an increase to the return goods reserve in the consolidated balance sheets . administrative fees and other rebates administrative fees or rebates are offered to wholesalers , group purchasing organizations , and indirect customers . we accrue for fees and rebates , by product by wholesaler , at the time of sale based on contracted rates and asps . to evaluate the adequacy of our administrative fee accruals , we obtain on-hand inventory counts from the wholesalers . this inventory is multiplied by the asps to arrive at total expected future sales , which is then multiplied by contracted rates . the result is then compared to the administrative fee accruals . story_separator_special_tag provision for income taxes years ended december 31 , ( in thousands ) 2018 2017 change % change provision for income taxes $ ( 4,557 ) $ ( 17,425 ) $ 12,868 ( 73.8 ) % our provision for income taxes consists of current and deferred components , which include changes in our deferred tax assets , our deferred tax liabilities , and our valuation allowance . the tax cuts and jobs act , which was enacted on december 22 , 2017 , included a number of changes to existing u.s. tax laws , most notably the reduction of the u.s. corporate income tax rate from 35 % to 21 % , which began in 2018. we measure our deferred tax assets and liabilities using the tax rates that we believe will apply in the years in which the temporary differences are expected to be recovered or paid . see note 11. income taxes , in the notes to the consolidated financial statements in part ii . item 8. of this annual report on form 10-k for further information . for the year ended december 31 , 2018 , we recognized income tax expense of $ 4.6 million , versus $ 17.4 million in the prior year period , a provision decrease of $ 12.9 million . the effective tax rate for the year ended december 31 , 2018 was 22.7 % of pre-tax income reported in the period . our effective tax rate for the year ended december 31 , 2018 was impacted primarily by the tax cuts and jobs act of 2017 , which was enacted on december 22 , 2017 and lowered the u.s. corporate tax rate from 35 % to 21 % , which began in 2018. our effective tax rate was also impacted by the discrete impact of current period awards of stock-based compensation , stock option exercises , and disqualifying dispositions of incentive stock options , all of which impact the consolidated effective rate in the period in which they occur . the effective tax rate for the year ended december 31 , 2017 was 106.6 % of pre-tax income reported in the period . our effective tax rate for the year ended december 31 , 2017 was primarily impacted by the $ 13.4 million revaluation of our deferred tax assets and liabilities at the lower 21 % u.s. corporate income tax rate . our effective tax rate was also impacted by the domestic production activities deduction , as well as the impact of current period awards of stock-based compensation , stock option exercises , and disqualifying dispositions of incentive stock options , all of which impact the consolidated effective rate in the period in which they occur . 49 results of operations for the years ended december 31 , 2017 and 2016 net revenues replace_table_token_7_th net revenues for the year ended december 31 , 2017 were $ 176.8 million compared to $ 128.6 million for the same period in 2016 , an increase of $ 48.2 million , or 37.5 % , primarily as a result of the following factors : · net revenues for generic pharmaceutical products were $ 118.4 million during the year ended december 31 , 2017 , an increase of 24.4 % compared to $ 95.2 million for the same period in 2016. the primary reason for the increase was the annualization of 2016 launches , notably nilutamide , erythromycin ethylsuccinate , and fenofibrate , the impact of the third quarter 2017 launch of diphenoxylate hydrochloride and atropine sulfate , and increased unit sales of methazolamide and flecainide . these increases were tempered by volume decreases in eemt sales , driven by market contraction , and sales decreases for propranolol er driven by price . as described in item 1. business – government regulations – unapproved products , we market eemt and opium tincture without fda approved ndas . while we believe that , so long as we comply with applicable manufacturing standards , the fda will not take action against us under the current enforcement policy , we can offer no assurances that the fda will continue this policy or not take a contrary position with any individual product or group of products . our combined net revenues for these products for the years ended december 31 , 2017 and 2016 were $ 27.6 million and $ 34.3 million , respectively . · net revenues for branded pharmaceutical products were $ 50.9 million during the year ended december 31 , 2017 an increase of 92.6 % compared to the $ 26.4 million for the same period in 2016. the primary reason for the increase was sales of inderal xl and innopran xl , both of which were launched in first quarter of 2017 , as well as sales of inderal la , which was launched in the second quarter of 2016. these increases were partially offset by decreased unit sales for vancocin . we experience periodic larger orders for our vancocin product that relate to clinical trials . such orders constituted $ 2.4 million of our branded pharmaceutical product revenue for the year ended december 31 , 2016. we had no such orders in the year ended december 31 , 2017 . · contract manufacturing revenues were $ 7.0 million during the year ended december 31 , 2017 , an increase of 27.3 % compared to $ 5.5 million for the same period in 2016 , due to the timing and volume of orders from contract manufacturing customers in the period . as described in item 1. business – government regulations – unapproved products , we contract manufacture a group of products on behalf of a customer that are marketed by that customer without an fda-approved nda . if the fda took enforcement action against such customer , the customer may be required to seek fda approval for the group of products or withdraw them from the market . our contract manufacturing revenues for the group of unapproved

57 contractual obligations the following table summarizes our long-term contractual obligations and commitments as of december 31 , 2018. replace_table_token_12_th ( 1 ) represents our $ 72.2 million term loan due december 27 , 2023 and our $ 118.8 million remaining convertible senior notes due december 2019 . ( note 3 , indebtedness , in the notes to the consolidated financial statements in part ii . item 8. of this annual report on form 10-k. ) ( 2 ) represents interest due on our term loan and our convertible senior notes . interest for the term loan is calculated based on our payment schedule as proscribed in the credit facility and using an estimated interest rate of 4.10 % , which is the estimated interest rate on the term loan as fixed by our interest rate swap . interest for our convertible senior notes is calculated based on 3.0 % interest due semi-annually and assumes all interest is paid and the remaining notes are not converted prior to the december 1 , 2019 due date . this amount could change if any noteholders convert their notes prior to the due date . ( 3 ) purchase obligations primarily includes contractual obligations for inventory purchase minimums and service agreements . critical accounting estimates this management 's discussion and analysis of 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 of america ( “ u.s . gaap ” ) . the preparation of financial statements in conformity with u.s. gaap requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period . in our consolidated financial statements , estimates are used for , but not limited to , stock-based compensation , allowance for doubtful accounts , accruals for chargebacks , government rebates , returns , and other allowances , allowance for inventory obsolescence , valuation of financial instruments and intangible assets , accruals for contingent liabilities , fair value of long-lived assets , deferred taxes and valuation allowance , and the depreciable lives of long-lived assets . our significant accounting policies are discussed in note 1. description of business and summary of significant accounting policies , in the notes to the consolidated financial statements in part ii . item 8. of this annual report on form 10-k. on an ongoing basis , we evaluate these estimates and assumptions , including

periods october 21 , 2016 through december 31 , 2016 ( successor period ) and january 1 , 2016 through october 20 , 2016 ( predecessor period ) f-5 consolidated statements of cash flows for the year ended december 31 , 2018 ( successor period ) , december 31 , 2017 ( successor period ) , periods october 21 , 2016 through december 31 , 2016 ( successor period ) and january 1 , 2016 through october 20 , 2016 ( predecessor period ) f-6 notes to consolidated financial statements f-7 supplemental oil and gas information ( unaudited ) f-42 selected quarterly financial data ( unaudited ) f-46 f- 1 report of independent registered public accounting firm board of directors and stockholders midstates petroleum company , inc. opinion on the financial statements we have audited the accompanying consolidated balance sheets of midstates petroleum company , inc. ( a delaware corporation ) and subsidiary ( the “company” ) as of december 31 , 2018 and 2017 , the related consolidated statements of operations , changes in stockholders ' equity , and cash flows for each of the two years in the period ended december 31 , 2018 , the period from october 21 , 2016 through december 31 , 2016 ( successor ) and the period from january 1 , 2016 through october 20 , 2016 ( predecessor ) , and the related notes ( collectively referred to as the “financial statements” ) . in our opinion , the financial statements present fairly , in all material respects , the financial position of the company as of december 31 , 2018 and 2017 , and the results of its operations and its cash flows for each of the two years in the period ended december 31 , 2018 , the period from october 21 , 2016 through december 31 , 2016 ( successor ) and the period from january 1 , 2016 through october 20 , 2016 ( predecessor ) , in conformity with accounting principles generally accepted in the united states of america . we also have audited , in accordance with the standards of the public company accounting oversight board ( united states ) ( “pcaob” ) , the company 's internal control over financial reporting as of december 31 , 2018 , based on criteria established in the 2013 internal control—integrated framework issued by the committee of sponsoring organizations of the treadway commission ( “coso” ) , and our report dated march 14 , 2019 expressed an unqualified opinion . change in accounting principle as discussed in note 5 to the financial statements , the company has changed its method of accounting for revenue in the year ended december 31 , 2018 due to the adoption of financial accounting standards board accounting standards codification topic 606 , revenue from contracts with customers . basis for opinion these financial statements are the responsibility of the company 's management . our responsibility is to express an opinion on the company 's financial statements based on our audits . we are a public accounting firm registered with the pcaob and are required to be independent with respect to the company in accordance with the u.s. federal securities laws and the applicable rules and regulations of the securities and exchange commission and the pcaob . we conducted our audits in accordance with the standards of the pcaob . those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement , whether due to error or fraud . our audits included performing procedures to assess the risks of material misstatement of the financial statements , whether due to error or fraud , and performing procedures that respond to those risks . such procedures included examining , on a test basis , evidence supporting the amounts and disclosures in the financial statements . our audits also included evaluating the accounting principles used and significant estimates made by management , as well as evaluating the overall presentation of the financial statements . we believe that our audits provide a reasonable basis for our opinion . grant thornton llp we have served as the company 's auditor since 2016. kansas city , missouri march 14 , 2019 f- 2 midstates petroleum company , inc. consolidated balance sheets ( in thousands , except share amounts ) replace_table_token_25_th the accompanying notes are an integral part of these consolidated financial statements . f- 3 midstates petroleum company , inc. consolidated statements of operations ( in thousands , except per share amounts ) replace_table_token_26_th the accompanying notes are an integral part of these consolidated financial statements . f- 4 midstates petroleum company , inc. consolidated statement of changes in stockholders ' equity ( deficit ) ( see notes 12 and 13 for share history ) ( in thousands ) replace_table_token_27_th the accompanying notes are an integral part of these consolidated financial statements . f- 5 midstates petroleum company , inc. consolidated statements of cash flows ( in thousands ) replace_table_token_28_th the accompanying notes are an integral part of these consolidated financial statements . f- 6 midstates petroleum company , inc. notes to consolidated financial statements 1. organization and business midstates petroleum company , inc. engages in the business of drilling for , and the production of , oil , natural gas liquids ( “ngls” ) and natural gas in oklahoma . midstates petroleum company , inc. was incorporated pursuant to the laws of the state of delaware on october 25 , 2011 to become a holding company for midstates petroleum company llc ( “midstates sub” ) , which was previously a wholly-owned subsidiary of midstates petroleum holdings llc ( “holdings llc” ) . story_separator_special_tag depreciation , depletion and amortization ( “dd & a” ) under the full cost accounting method , we capitalize costs within a cost center and systematically expense those costs on a unit of production basis based on proved oil and natural gas reserve quantities . we calculate depletion on the following types of costs : ( i ) all capitalized costs , other than the cost of investments in unproved properties which remain to be evaluated , less accumulated amortization ; ( ii ) estimated future expenditures to be incurred in developing proved reserves ; and ( iii ) estimated dismantlement and abandonment costs , net of any associated salvage value . year ended december 31 , 2018 as compared to the year ended december 31 , 2017 dd & a expenses decreased $ 3.8 million , or 5.8 % , to $ 62.0 million , or $ 9.31 per boe , during the year ended december 31 , 2018 as compared to $ 65.8 million , or $ 8.14 per boe , for the year ended december 31 , 2017. during 2018 , we prioritized development of two-mile laterals along with certain one-mile laterals with higher working interests , resulting in a decrease in our overall proved reserves volumes . to accomplish our current development schedule , we anticipate drilling to occur no later than 2020 and to continue for approximately three years after that date . depreciation , depletion and amortization per boe increased for the year ended december 31 , 2018 primarily due to this decrease in our proved reserves volumes . successor period for the successor period , our dd & a expenses were $ 13.0 million at a cost of $ 7.22 per boe . predecessor period for the predecessor period , our dd & a expenses were $ 62.3 million at a cost of $ 7.11 per boe . impairment of oil and gas properties under the full cost method of accounting , we are required to perform a full-cost ceiling test on a quarterly basis . the test establishes a limit ( ceiling ) on the book value of oil and gas properties . the capitalized costs of proved oil and gas properties , net of accumulated dd & a and the related deferred income taxes , may not exceed this “ceiling.” the ceiling limitation is equal to the sum of : ( i ) the present value of estimated future net revenues from the projected production of proved oil and gas reserves , excluding future cash outflows associated with settling asset retirement obligations accrued on the balance sheet , calculated using the average oil and natural gas sales price we received as of the first trading day of each month over the preceding twelve months ( such average price is held constant throughout the life of the properties ) and a discount factor of 10 % ; ( ii ) the cost of unproved and unevaluated properties excluded from the costs being amortized ; ( iii ) the lower of cost or estimated fair value of unproved properties included in the costs being amortized ; and ( iv ) related income tax effects . if capitalized costs exceed this ceiling , the excess is charged to impairment expense in the accompanying consolidated statements of operations . year ended december 31 , 2018 as compared to the year ended december 31 , 2017 on november 1 , 2017 , david sambrooks was appointed president and chief executive officer of the company . upon david 's appointment , we began a strategic review of all areas of operations . this review was completed during the fourth quarter of 2017 and our strategy was refined to add further focus to optimizing free cash flows and keeping leverage to a minimum . as a result , in december of 2017 we decreased our current drilling activity from two drilling rigs to one drilling rig . further , the five-year development plan was revised from a two-rig program to a one rig program . this change in strategy ( reduced 5-year drilling activity ) led to a reduction in our undeveloped proved inventory under sec guidelines from 274 locations at year end 2016 to 139 locations at year end 2017. all undeveloped locations not able to be drilled utilizing our anticipated five-year development schedule were excluded from the december 31 , 2017 , reserve report . we recorded an impairment of oil and gas properties of $ 125.3 million primarily as a result of the exclusion of proved undeveloped reserves not associated with infill drilling in the carmen and dacoma areas from our december 31 , 2017 , reserve report . we did not record an impairment of oil and gas properties during the year ended december 31 , 2018. successor period for the successor period , we did not incur any impairments of oil and gas properties . 50 predecessor period for the predecessor period , our impairment of oil and gas properties was $ 232.1 million . the impairment expense recognized in the predecessor period was primarily due to a decrease in the pv-10 value of our proven oil and natural gas reserves as a result of low commodity prices , which are a significant input into the calculation of the discounted future cash flows associated with our proved oil and gas reserves . general and administrative ( “g & a” ) g & a expense consists of , among other items , overhead , including payroll and benefits for our corporate staff , non-cash charges for share-based compensation , costs of maintaining our headquarters , franchise taxes , audit and other professional fees , legal compliance , reporting expenses , investor relations , director and officer liability insurance costs , and director compensation . year ended december 31 , 2018 as compared to the year ended december 31 , 2017 g & a expenses decreased $ 4.9 million , or 16.7 % , to

other items obligations and commitments we have the following contractual obligations and commitments as of december 31 , 2018 ( in thousands ) : replace_table_token_24_th ( 1 ) amount excludes interest on our reserves based revolving credit facility as both the amount borrowed and applicable interest rate is variable . as of december 31 , 2018 , we had drawn down $ 23.1 million on our exit facility and had $ 1.9 million of outstanding letters of credit . see “—note 11. debt” in the notes to the consolidated financial statements set forth in part iv , item 15 of this annual report on form 10-k for further information . ( 2 ) see “—note 17. commitments and contingencies” in the notes to the consolidated financial statements set forth in part iv , item 15 of this annual report on form 10-k , for a description of operating lease and other obligations . ( 3 ) amounts represent our estimate of future asset retirement obligations on a discounted basis . because these costs typically extend many years into the future , estimating these future costs requires management to make estimates and judgments that are subject to future revisions based upon numerous factors , including the rate of inflation , changing technology and the political and regulatory environment . see “—note 10. asset retirement obligations” in the notes to the consolidated financial statements set forth in part iv , item 15 of this annual report on form 10-k. ( 4 ) excluded from these amounts are any payments that may become necessary under our minimum volume requirements in our gas purchase , gathering and processing contract in the mississippian lime region as further discussed in “business—marketing and major purchasers” . critical accounting policies and estimates we prepare our financial statements and the accompanying notes in conformity with us gaap , which requires our management to make estimates and assumptions about future events that affect the reported amounts